item 14 exhibits financial statement schedules reports form 8k 21 sale agreement dated december 20 2001 inverness medical innovations inc “company” unilever uk holdings limited incorporated reference exhibit 21 company’s current report form 8k dated december 20 2001 22 amended restated agreement plan merger made entered december 21 2001 amended restated january 22 2002 among company nutritionals acquisition corporation ivc industries inc “ivc” incorporated reference exhibit 21 company’s current report form 8k dated march 29 2002 23 restructuring agreement dated november 21 2001 among inverness medical technology inc “imt” company certain subsidiaries imt 31 amended restated certificate incorporation company 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 company’s current report form 8k dated december 20 2001 33 amended restated bylaws company 41 specimen certificate shares common stock company incorporated reference exhibit 41 company’s registration statement form s4 amended file 33367392 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company 102 tax allocation agreement dated november 21 2001 among johnson imt company 103 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited 104 trademark license agreement dated february 19 1997 among american cyanamid company selfcare acquisition corporation incorporated reference exhibit 105 company’s registration statement form s4 amended file 33367392 105 lease dated march 19 1992 among cambridge diagnostics ireland limited george conroy brendan conroy patrick conroy incorporated reference exhibit 103 company’s registration statement form s4 amended file 33367392 106 lease dated january 12 1999 among cambridge diagnostics ireland limited industrial development agency ireland incorporated reference exhibit 104 company’s registration statement form s4 amended file 33367392 107 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 company’s registration statement form s4 amended file 33367392 108 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 company’s registration statement form s4 amended file 33367392 109 inverness medical innovations inc 2001 employee stock purchase plan first amendment 1010 lease agreement dated july 28 1998 569 halls mill road llc ivc 1011 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger 1012 promissory note dated august 16 2001 ron zwanziger company 1013 pledge agreement dated august 16 2001 ron zwanziger company 1014 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer 1015 promissory note dated december 4 2001 jerry mcaleer company 1016 pledge agreement dated december 4 2001 jerry mcaleer company 1017 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott 1018 promissory note dated december 4 2001 david scott company 1019 pledge agreement dated december 4 2001 david scott company 1020 stock purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 992 company’s current report form 8k dated march 14 2002 1021 note warrant purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 993 company’s current report form 8k dated december 20 2001 1022 form subordinated promissory note issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 994 company’s current report form 8k dated december 20 2001 1023 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 company’s current report form 8k dated december 20 2001 1024 credit agreement dated december 20 2001 company inverness medical switzerland gmbh banks listed schedule 1 thereto royal bank scotland plc facility agent royal bank scotland plc issuing bank royal bank scotland plc overdraft bank royal bank scotland plc lead arranger incorporated reference exhibit 996 company’s current report form 8k dated december 20 2001 1025 mezzanine loan agreement dated december 20 2001 company inverness medical switzerland gmbh lenders listed schedule 1 thereto rbs mezzanine limited facility agent rbs mezzanine limited lead arranger incorporated reference exhibit 997 company’s current report form 8k dated december 20 2001 1026 warrant agreement dated december 20 2001 company rbs mezzanine limited 1027 warrant purchase common stock company dated december 20 2001 issued rbs mezzanine limited connection mezzanine loan agreement 1028 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc 1029 loan security agreement dated october 16 2000 ivc congress financial corporation 1030 amendment 1 loan security agreement dated june 13 2001 congress financial corporation ivc 1031 amendment 2 loan security agreement dated june 14 2001 congress financial corporation ivc 1032 amendment 3 loan security agreement dated march 19 2002 congress financial corporation ivc 1033 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp 1034 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation 1035 inverness medical innovations inc executive bonus plan incorporated reference exhibit 106 company’s registration statement form s4 amended file 33367392 1036 amendment mezzanine loan agreement dated march 28 2002 rbs mezzanine limited behalf finance parties company behalf inverness medical switzerland gmbh 1037 licensing agreement dated march 14 1988 unilever plc behringwerke ag 1038 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag 1039 amendment credit agreement dated march 28 2002 royal bank scotland plc behalf finance parties company behalf inverness medical switzerland gmbh 211 list subsidiaries company april 1 2002 231 consent arthur andersen llp 991 letter company securities exchange commission regarding arthur andersen llp representations filed herewith company agrees furnish supplementally securities exchange commission “commission” copy omitted schedule exhibit agreement upon request commission b reports form 8k december 31 2001 filed current report form 8k dated december 21 2001 item 5 connection entry definitive agreement acquire ivc industries inc signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date ron zwanziger ron zwanziger president chief executive officer director principal executive officer april 1 2002 duane l james duane l james vice president finance treasurer principal financial officer principal accounting officer april 1 2002 ernest carabillo jr ernest carabillo jr director april 1 2002 carol r goldberg carol r goldberg director robert p khederian robert p khederian director april 1 2002 john f levy john f levy director april 1 2002 david scott david scott director april 1 2002 peter townsend peter townsend director april 1 2002 inverness medical innovations inc subsidiaries consolidated financial statements report independent public accountants consolidated statements operations years ended december 31 2001 2000 1999 consolidated balance sheets december 31 2001 2000 consolidated statements stockholders’ equity years ended december 31 2001 2000 1999 consolidated statements cash flows years ended december 31 2001 2000 1999 notes consolidated financial statements report independent public accountants inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc delaware corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2001 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states arthur andersen llp boston massachusetts march 28 2002 inverness medical innovations inc subsidiaries consolidated statements operations 1 stockbased compensation expense statements operations classifications follows accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements december 31 2001 1 description business basis presentation inverness medical innovations inc subsidiaries “innovations” “company” develop manufacture market consumer healthcare products including selftest diagnostic products women’s health market vitamins nutritional supplements lesser extent company develops manufactures markets clinical diagnostic products use medical professionals november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 “merger agreement” johnson acquired inverness medical technology inc “imt” merger transaction simultaneously innovations subsidiary imt splitoff imt separate publicly traded company pursuant terms merger agreement related agreements immediately prior consummation transaction imt restructured operations imt’s nondiabetes businesses women’s health nutritional supplements clinical diagnostics held innovations’ subsidiaries closing transaction shares innovations common stock held imt splitoff imt pro rata distribution imt stockholders imt consisted primarily diabetes care business merged became whollyowned subsidiary johnson innovations incorporated may 11 2001 purpose receiving imt’s contribution women’s health nutritional supplements clinical diagnostics businesses connection transactions described merger agreement related agreements innovations’ consolidated financial statements include imt subsidiaries businesses contributed innovations periods presented subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements primary subsidiaries businesses contributed innovations imt follows • inverness medical inc “imi” us corporation whollyowned subsidiary canam care corporation “canam” us corporation • cambridge diagnostics ireland ltd “cdil” irish corporation • orgenics ltd “orgenics” israeli corporation • women’s health business inverness medical europe gmbh “ime” german corporation • inverness medical benelux bvba “imb” belgian corporation • women’s health assets held imt plus allocations innovations imt common expenditures innovations consolidated financial statements individual legal entities newly acquired entities businesses discussed along assets liabilities revenues expenses businesses periods prior splitoff merger financial statements combined manner consistent consolidated financial statements material intercompany transactions balances eliminated amounts due imt affiliates part innovations reflected amounts due inverness medical technology inc affiliates accompanying consolidated balance sheets see note 5 innovations’ equity accounts periods presented reflect par value innovations’ stock date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split note 2k historical equity accounts legal entities comprise innovations consolidated subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements pursuant merger agreement related agreements november 21 2001 immediately prior splitoff merger innovations transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes businesses cdil imb result innovations presented historical diabetes operations subsidiaries discontinued operations accompanying consolidated financial statements accounting principles board “apb” opinion 30 reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions discontinuation diabetes businesses one number transactions occurred upon closing transactions set forth merger agreement related agreements significant impact innovations’ financial statements prior splitoff merger imt capitalized innovations approximately 414 million cash connection restructuring businesses described herein imt also assumed discharged innovations’ thirdparty relatedparty debt except thirdparty debt maintained cdil orgenics notes 5a 6e closing transactions set forth merger agreement related agreements imt distributed stockholders one innovations share every five imt shares held order imt innovations declared stock split effected dividend accordingly earnings per share information periods presented represents actual number shares innovations common stock outstanding date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 2k 9 innovations’ consolidated financial statements periods prior splitoff merger also reflect allocation imt’s common expenditures allocations made accordance staff accounting bulletin “sab” 55 allocation expenses related disclosure financial statements subsidiaries divisions lesser business components another entity accompanying consolidated financial statements reflect substantially costs business including incurred imt innovations’ behalf costs clearly identifiable applicable innovations subsidiary business allocated innovations significant costs included category include salary benefits certain employees legal professional fees costs centralized departments corporate operations serve operations allocated allocations would material using relevant allocation measures estimated percentage time worked salary benefits certain executives employees square feet occupied occupancy costs shared facilities corporate costs clearly relate businesses subsidiaries retained imt provide significant direct indirect benefit innovations allocated innovations periods prior splitoff merger innovations accounted income taxes using separate return method pursuant statement financial accounting standard “sfas” 109 accounting income taxes imt historically charged interest loans made subsidiaries accordingly innovations’ consolidated statements operations reflect interest expense amounts due entities included innovations’ consolidated financial statements primarily imt note 5a interest expense also reflects amounts recorded thirdparty notes payable notes relate specifically innovations’ operations interest expense include amounts recorded general corporate borrowings imt innovations believes allocation methods described herein reasonable fairly reflect financial position results operations immediately prior splitoff merger imt option warrant split new imt option warrant innovations option warrant new imt options warrants subsequently converted johnson options warrants merger option warrant split accomplished manner aggregate intrinsic value two options warrants equals intrinsic value imt option warrant split option warrant split also required ratio intrinsic value market value option warrant concurrent option split 1 vesting innovations options accelerated 2 period exercisability imt employees become innovations employees extended actions deemed award modifications pursuant financial accounting standards board “fasb” interpretation “fin” 44 accounting certain transactions involving stock compensation fin 44 innovations measured compensation date award modifications based intrinsic value option recognized recognize future compensation absent modifications award would forfeited pursuant award’s original terms imt employees become employees innovations recognition charge approximately 645000 immediate recorded compensation expense accompanying consolidated statements operations 2001 imt employees became innovations employees company measured potential charge approximately 1173000 date modification record related compensation charge unless time innovations employees terminate employment company time portion award absent modification would forfeited award’s original terms would recognized compensation expense company recognize compensation expense related innovations employees 2001 total number shares common stock underlying stock options warrants innovations issued splitoff 929456 117950 respectively addition businesses contributed imt described december 20 2001 innovations acquired certain entities businesses “unipath businesses” unilever plc “unilever” business manufacturing distributing women’s health clinical diagnostics products note 4 acquired unipath businesses included consolidated financial statements innovations since december 20 2001 follows • unipath ltd “unipath uk” british corporation whollyowned subsidiary unipath management ltd “uml” also british corporation • women’s health business unipath conducted united states “unipath us” • unipath diagnostics gmbh “unipath germany” german corporation • unipath scandinavia ab “unipath scandinavia” swedish corporation • unipath bv “unipath netherlands” dutch corporation • unipath assets primarily intellectual property held unilever along related license revenue 2 summary significant accounting policies use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates company considers following critical accounting policies revenue recognition b use estimates sales returns allowances allowance doubtful accounts c valuation goodwill longlived intangible assets accounting income taxes e legal contingencies b foreign currencies company follows provisions sfas 52 foreign currency translation assets liabilities company’s foreign subsidiaries translated us dollars using exchange rate balance sheet date income expense accounts translated using average rates exchange reporting period foreign currency exchange transaction losses approximately 727000 389000 531000 2001 2000 1999 respectively included component expense net accompanying consolidated statements operations c cash equivalents company considers highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2001 2000 inventories stated lower cost firstin firstout market e depreciation amortization company records property plant equipment historical cost depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 316 years buildings 20 years leasehold improvements lesser term lease useful life asset furniture fixtures 310 years computer equipment 16 years f goodwill trademarks intangible assets company amortizes goodwill trademarks related acquisition certain nutritional supplement lines using straightline method estimated useful lives 25 years intangible asset pertaining company’s acquired core immunoassay technology used women’s health business amortized 15 years acquired intangible assets finite lives core technology patents license agreements related purchase unipath businesses amortized 7 13 years effective january 1 2002 sfas 142 goodwill intangible assets existing acquired goodwill intangible assets indefinite lives longer amortized expense early adoption required goodwill intangible assets indefinite lives acquired subsequent june 30 2001 note 2o company recorded amortization expense approximately 1981000 1882000 2018000 2001 2000 1999 respectively related goodwill intangible assets amortization expense allocated cost sales research development general administrative expenses accompanying consolidated statements operations g impairment longlived intangible assets company periodically examines carrying value longlived intangible assets determine whether impairment losses indicators impairment present longlived intangible assets used operations discounted future cash flows expected sufficient recover assets’ carrying amount impairment loss would charged expense period impairment identified based fair value asset company believes remaining carrying value assets realizable december 31 2001 2000 h income taxes company provides income taxes accordance provisions sfas 109 company’s income tax provisions mainly represent recorded us subsidiary imi company’s foreign subsidiaries net loss positions accordingly paid virtually income taxes jurisdictions federal state income tax filing purposes results imi’s operations consolidated imt prior splitoff merger periods prior splitoff merger imi standalone tax filing responsibilities states tax accounts company computed using separate return method accordingly deferred tax asset liability determined based difference financial reporting tax bases assets liabilities measured enacted tax rates expected effect differences reverse company’s subsidiaries filed separate tax return company’s primary temporary differences give rise deferred tax asset liability nondeductible reserves accruals different lives assigned longlived intangible assets note 11 revenue recognition company’s revenues derived product sales company follows sab 101 revenue recognition sets forth provisions revenue recognition multipleelement arrangements acceptance delivery criteria among items recognizes revenue upon product shipment customers time title transferred less reserve estimated product returns allowances adoption sab 101 material impact company’s consolidated financial statements j employee stockbased compensation arrangements company adopted employee stock option plan 2001 note 10c company accounts employee stockbased compensation arrangements provisions apb opinion 25 accounting stock issued employees fin 44 company elected use disclosureonly provisions sfas 123 accounting stockbased compensation accordance fin 44 included disclosures imt options held individuals became innovations’ employees splitoff merger retroactively converted innovations’ options historically granted innovations note 10c k net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon actual number common shares issued outstanding upon incorporation innovations periods presented effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 1 9 following table reconciles number imt weighted average common shares outstanding giving effect exchange ratio innovations weighted average common shares used computation net loss income per common share note 9 imt weighted average shares date splitoff merger l pension postretirement benefits part acquisition unipath businesses notes 1 4 innovations assumed responsibility pension obligations united kingdombased unipath employees accounted projected benefit obligation excess plan assets transferred unilever date acquisition part purchase price unipath businesses sfas 141 business combinations sfas 87 employer’s accounting pensions note 7a addition orgenics provides certain severance benefits note 7b concentration credit risk financial instruments potentially subject innovations concentration credit risk primarily consist cash equivalents accounts receivable innovations invests excess cash primarily high quality securities limits amount credit exposure one financial institution innovations require collateral securities support customer receivables however performs ongoing credit evaluations customers maintains allowances potential credit losses accounts receivable balances outstanding december 31 2001 2000 excess 10 total gross accounts receivable balances dates innovations one significant customer representing 14 12 net revenues 2001 2000 1999 respectively innovations significant offbalancesheet concentration credit risks foreign exchange contracts option contracts foreign hedging arrangements december 31 2001 2000 see note 12 financial information geographic area business segment n financial instruments fair value financial instruments innovations’ financial instruments december 31 2001 2000 consist cash equivalents accounts receivable debt estimated fair value financial instruments approximates carrying value dates estimated fair values determined information obtained market sources innovations material derivative financial instruments outstanding december 31 2001 2000 february 2002 company entered interest rate swap agreement protects bank interest rate fluctuations related portion longterm debt bank note 6a company also uses foreign exchange forward contracts starting 2002 company account derivatives accordance sfas 133 accounting derivative instruments hedging activities recent accounting pronouncements june 2001 fasb issued sfas 141 addresses changes financial accounting reporting business combinations supersedes apb opinion 16 business combinations sfas 38 accounting preacquisition contingencies purchased enterprises effective july 1 2001 business combinations accounted using purchase method accounting adoption statement material effect company’s financial position results operations cash flows june 2001 fasb issued sfas 142 addresses changes financial accounting reporting acquired goodwill intangible assets indefinite lives effective january 1 2002 existing acquired goodwill intangible assets indefinite lives longer amortized expense early adoption required goodwill intangible assets indefinite lives acquired subsequent june 30 2001 statement also provides specific guidance determining measuring impairment goodwill intangible assets company recorded goodwill amortization approximately 603000 762000 2001 2000 1999 company estimated impact amortizing goodwill consolidated financial statements total amount goodwill intangible assets net accumulated amortization expected affected statement approximately 85375000 december 31 2001 approximately 73227000 acquired june 30 2001 december 31 2001 company currently assessing whether existing goodwill impaired accordance sfas 142 august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets statement requires longlived asset abandoned exchanged similar productive asset distributed owners spinoff considered held used disposed changes statement require one accounting model used longlived assets disposed sale whether previously held used newly acquired broaden presentation discontinued operations include disposal transactions provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years early application encouraged provisions statement generally applied prospectively company adopted sfas 144 2002 yet determined impact statement financial position results operations cash flows p reclassifications certain prioryear account balances reclassified consistent current year’s presentation 3 balance sheet information components selected captions consolidated balance sheets consist 4 acquisition unipath businesses december 20 2001 company acquired unipath entities businesses unilever note 1 aggregate purchase price approximately 158135000 consisted 149807000 cash 4974000 costs exit certain activities acquired businesses primarily severance costs accordance emerging issues task force eitf issue 953 recognition liabilities connection purchase business combination assumption portion unilever’s unfunded pension liability benefit unipath uk employees 3354000 direct acquisition costs acquisition funded issuance 1995000 shares series convertible redeemable preferred stock “series preferred stock” aggregate proceeds 59850000 note 10b 62500000 loans series credit agreements bank entities related bank note 6a issuance subordinated promissory notes warrants aggregate proceeds 20000000 note 6b company’s existing cash aggregate purchase price unipath entities businesses allocated acquired assets assumed liabilities follows acquisition unipath businesses accounted purchase sfas 141 accordingly results unipath businesses included accompanying consolidated financial statements since date acquisition company amortizing portion purchase price allocated intangible assets finite lives approximately 28975000 comprised core technology patents license agreements straightline basis lives ranging 7 13 years weighted average amortization period assets 112 years allocation purchase price assets acquired based upon results independent appraisal fair value assets company yet assigned amount allocated goodwill specific reporting units december 31 2001 company intends complete analysis 2002 time acquisition research development staff unipath businesses seeking develop new technology however technology sought specific inprocess research development project “iprd project” yet reached technological feasibility alternative future use date acquisition therefore portion purchase price allocated iprd project charged expense upon acquisition management believes many complex technical issues resolved however technology food drug administration approval therefore risk achieving commercialization one development also regulatory challenge work full project includes demonstrating feasibility defining project design development verification clinical testing regulatory submission approval need completed prior launch hurdles crossed new complexities likely arise company anticipates iprd project take one half years complete company estimates cost approximately 27 million additional research development costs complete iprd project based upon time costs incurred iprd project estimated approximately 92 complete amount purchase price allocated iprd project represents estimated fair value determined using income approach whereby projected future cash flows discounted value technology estimated royalty rate 4 applied projected revenues calculate pretax royalty savings attributed completed technology 30 tax rate used riskadjusted discount rate 24 applied following table presents selected unaudited financial information company unipath businesses acquisition occurred january 1 2001 2000 respectively unaudited pro forma results necessarily indicative results would occurred acquisition consummated january 1 2001 2000 respectively future results 5 related party transactions due inverness medical technology inc affiliates due inverness medical technology inc affiliates december 31 2000 consisted following discussed note 1 upon splitoff merger imt affiliates forgave outstanding balances due innovations forgiveness indebtedness approximately 10369000 recorded component capital contribution imt amount “payable imt affiliates” mostly represent funding net repayments imt affiliates innovations’ subsidiaries prior splitoff merger also included “payable imt affiliates” operating expenses allocated imi imt allocations include among things support services financial computer legal sales marketing customer support accounting well rent administrative costs note 1 imi recorded expenses approximately 3033000 2733000 3257000 relating allocations 2001 2000 1999 respectively believes approximates arm’slength costs expenses allocated imt imi included respective captions accompanying consolidated statements operations made following date splitoff merger february 1997 connection imi’s purchase nutritional supplement product line american home products known armke imi borrowed 2000000 imt interest accruing annual rate 65 interest expense note approximately 115000 130000 2001 2000 1999 respectively december 31 2000 cdil note payable balance plus accrued interest totaling approximately 2208000 due imt loan agreement originally dated july 1 1997 amended interest accruing annual rate 9 interest expense note approximately 183000 165000 119000 2001 2000 1999 respectively b transition services agreement imt prior splitoff merger innovations entered transition services agreement whereby innovations would provide certain transition services imt affiliates agreedupon period time service fee transition services include limited operational services provided imi cdil related certain diabetes products since splitoff merger december 31 2001 company charged approximately 181000 transition service fees imt believes approximate arm’slength costs 6 longterm debt company following longterm debt balances outstanding following describes listed debt instruments term loans revolving line credit december 20 2001 whollyowned subsidiary innovations entered series credit agreements “credit agreements” bank entities related bank credit facilities aggregate amount 70000000 amended first quarter 2002 credit agreements consist term loans aggregating 62500000 10000000 denominated japanese yen “jpy” 7500000 multicurrency revolving line credit proceeds term loans used finance portion cash used acquire unipath businesses note 4 revolving line credit designated use company cover certain liabilities future foreign exchange contracts innovations parent company certain subsidiaries guarantors obligations due credit agreements borrowings credit agreements secured stock company’s european subsidiaries company’s intellectual property rights assets company’s us businesses terms facility aggregating 70000000 credit agreements summarized follows december 31 2001 outstanding borrowings revolving line credit ii company must make mandatory prepayments loans credit agreements meets certain cash flow thresholds collects insurance proceeds excess certain thresholds receives payments sells assets ordinary course business upon sale change control company iii commencement quarter beginning january 1 2003 per annum interest rate term a1 term a2 revolving line credit london interbank offered rate “libor” plus spread 150 200 additional 200 case default spread depends ratio total debt company earnings interest expense taxes depreciation amortization “ebitda” february 2002 company entered interest rate swap agreement bank applies twothirds combined senior junior loans denominated us dollars protects company bank fluctuation libor rate interest rate swap agreement libor rate set minimum 336 maximum 500 iv capitalized interest may paid upon agreement lender senior debt amount capitalized interest 2001 approximately 9000 credit agreements amended require compliance various financial nonfinancial covenants company starting second quarter 2002 primary financial covenants pertain among things interest coverage cash flow coverage leverage ebitda part credit agreements company issued bank warrant acquire 65000 shares company’s common stock nominal cost company allocated 1105000 loan proceeds warrant original issuance discount represented fair value warrant date issuance amortizing discount life credit agreements total amount amortized interest expense 2001 approximately 4000 b subordinated promissory notes company entered note warrant purchase agreement pursuant december 20 2001 issued subordinated promissory notes “subordinated notes” aggregate principal amount 20000000 purpose funding acquisition unipath businesses note 4 interest accrued 12 per annum outstanding principal amount payable first day calendar quarter starting april 1 2002 maturity date extended described herein company option make interest payments form cash common stock value 95 tenday average closing price common stock prior interest payment due date subordinated notes set mature april 1 2002 however company option extend maturity date prior original maturity date term loans credit agreements described note 6a subsequent interest would accrue 18 per annum accordance sfas 133 related amendments extension option represents premium paid company date issuance subordinated notes form additional interest bifurcated subordinated notes recognized interest expense initial term notes value derivative asset material company’s consolidated financial statements company exercise option extend maturity subordinated notes raised additional funding issuance series preferred stock march 2002 note 10b part note warrant purchase agreement addition subordinated notes company also issued 10year warrants purchase total 55189 shares company’s common stock exercise price 1812 per share company allocated 672000 aggregate proceeds subordinated notes warrants original issuance discount represented relative fair value warrants date issuance amortizing discount interest expense life subordinated notes total amount amortized interest expense 2001 approximately 73000 holders subordinated notes option convert part notes shares company’s series preferred stock april 1 2002 company’s aggregate proceeds issuance series preferred stock march 15 2002 less 80000000 due convertible nature subordinated notes company recorded charge due beneficial conversion feature 3243000 accordance eitf issue 985 accounting convertible securities beneficial conversion features contingently adjustable conversion ratios eitf issue 0027 application eitf issue 985 certain convertible instruments value beneficial conversion feature measured using intrinsic value amortized interest expense life subordinated notes amount amortized interest expense 2001 approximately 353000 march 6 2002 company prepaid subordinated notes plus accrued interest full using proceeds issuance series preferred stock date note 10b consequently date remaining amounts unamortized original issue discount beneficial conversion feature totaling approximately 969000 charged extraordinary item due early extinguishment debt warrants issued connection subordinated notes remain outstanding entity controlled company’s chief executive officer “ceo” holder 10000000 subordinated note paid full march 2002 holds warrant purchase 27594 shares company’s common stock 1812 per share c bank debt orgenics approximately 230000 notes payable certain financial institutions outstanding december 31 2001 outstanding balance collateralized certain orgenics’ assets notes bear interest rates ranging 343 425 payable various dates 2003 mortgage loan cdil 1999 cdil financed purchase one manufacturing buildings mortgage loan “mortgage” seller outstanding balance mortgage collateralized building mortgage bears interest 6 payable semiannually 2003 e imi bank loan 1998 imi entered credit agreement bank purposes financing acquisition canam refinancing existing bank debt resulted earlier acquisition certain nutritional supplement lines part merger agreement related agreements november 2001 outstanding balance credit agreement discharged discussed note 1 company recorded remaining amount unamortized deferred financing costs related loan extraordinary loss early extinguishment debt 2001 f maturities longterm debt following summary maturities longterm debt outstanding december 31 2001 7 pension postretirement benefit plans multiemployer defined benefit pension plan unilever offers noncontributory defined benefit pension plan united kingdombased employees including unipath uk part acquisition unipath businesses accordance sfas 87 sfas 88 employer’s accounting settlements curtailments defined benefit pension plans termination benefits company assumed liability pension benefits related employees unipath uk accordingly company recorded unfunded pension liability approximately 3685000 purchase accounting represents excess projected benefit obligation approximately 20485000 fair value plan assets approximately 16800000 allocated unilever pension benefits employees unipath uk date acquisition also pursuant purchase sale agreement company unilever company agreed maintain benefit period three years agreement provides employees unipath uk remain unilever plan one year date acquisition time company must establish plan company’s assumption pension benefits december 20 2001 acquisition date unipath businesses company recorded virtually pension costs 2001 assets pension plan consist investments fixedincome equity securities company made contributions pension plan 2001 b orgenics severance obligations israeli law provides employers certain severance obligations employees israel orgenics’ liability severance pay pursuant law provided insurance policies severance pay funds severance expenses approximately 12000 68000 156000 2001 2000 1999 respectively balance unfunded severance liability approximately 141000 170000 december 31 2001 2000 respectively company accrued dates france governmentrun mandatory pension plan contributions made monthly employee employer based employee’s gross monthly salary orgenics’ liability employees france fully covered contributions addition pursuant industry employment agreements lumpsum severance payable upon retirement employees still service orgenics’ french subsidiary date retirement obligations outstanding december 31 2001 2000 8 commitments contingencies operating leases company operating lease commitments certain facilities equipment expire 2021 except noted following schedule outlines future minimum annual rental payments leases december 31 2001 rent expense relating operating leases approximately 1029000 486000 569000 2001 2000 1999 respectively unipath uk businesses currently occupying 150000 square foot manufacturing research development office facility bedford united kingdom lease facility unilever third party landlord unipath uk using facility pursuant agreement unilever connection acquisition future minimum annual rent payments facility lease range 1300000 british pounds sterling 1750000 british pounds sterling approximately 1850000 2500000 upward adjustments every 5 years lease expires december 2021 unilever agreed use best efforts obtain landlord’s consent required lease agreement may assign lease company remaining term unilever unable successfully assign lease company may forced renegotiate lease facility substantially less favorable terms seek alternative costly means producing products suffer adverse effects business company required pay amounts owed lease agreed upon acquisition included table future minimum lease payments facility lease b capital expenditure commitments december 31 2001 unipath uk total outstanding noncancelable equipment purchase commitments approximately 570000 british pounds sterling approximately 830000 c legal proceedings nature business company may time subject consumer product claims various lawsuits arising ordinary course business expects continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial claims addition company aggressively defends patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims company part merger agreement related agreements imt retained liability arising litigation pertaining diabetesrelated matters innovations assumed liabilities relating women’s health clinical diagnosticsrelated matters following legal proceedings company currently able estimate range potential losses due early stages complexity proceedings april 2001 69 consumers brought action london claiming defects unipath’s persona contraceptive device negligence breach contract allegedly leading unwanted pregnancies claimants prior 1998 case expected ready trial judge latter half 2003 company believes substantial defenses claims intends vigorously defend litigation formal documentary discovery permitted law united kingdom yet commenced anticipated conducted second half 2002 2003 case insured unilever’s product liability insurance 50 million british pounds sterling approximately 72700000 depending events giving rise consumers’ suit occurred result company believe adverse ruling would material adverse impact sales operations financial performance january 3 2000 becton dickinson company becton dickinson note 8e filed suit imt alleging certain pregnancy ovulation test kits sold imt infringe two us patents becton dickinson since lost rights one two us patents longer asserting claims infringement patent pretrial conference scheduled june 18 2002 trial date established final ruling innovations successor imt could material adverse impact sales operations financial performance company believes strong defenses intends defend litigation vigorously may 1999 intervention inc california corporation filed separate suits imt unipath us certain competitors alleging defendants’ labeling home pregnancy tests misleading level accuracy certain conditions plaintiff seeks restitution profits behalf general public injunctive relief attorneys’ fees innovations successor imt defending private label customers agreements customers trial matter innovations parent company private label customers scheduled april 2002 trial unipath us yet scheduled company believes actions without merit intends continue vigorous defense company believe adverse ruling would material adverse impact sales operations financial performance january 22 1999 connection cdil’s sale infectious disease business cambridge biotech corporation “cbc” cambridge affiliate corporation “cac” filed suit imt’s ceo cdil trinity pasteur sanofi diagnostic “pasteur” alleging among things sale business properly authorized result cbc may lose benefit certain patent licenses pasteur cbc requested sale agreement declared null void license pasteur cbc declared full force awarded damages caused actions imt ceo pasteur innovations successor imt agreed assume liabilities litigation splitoff merger november 2001 parties litigation agreed settle claims brought cbc cac including releases plaintiffs defendants terms settlement innovations cdil paid total 2000000 cbc trinity 2000000 company charged approximately 1700000 expenses accompanying consolidated statements operations 2001 company accrued remaining 300000 prior years settlement also includes agreement innovations cdil partially indemnify cbc maximum 1125000 cbc agreed partially indemnify innovations ceo formerly also imt’s ceo cdil trinity subsidiary transfer certain technology cdil agreed produce certain antigens cdil april 1998 abbott laboratories abbott commenced patent infringement lawsuit imt princeton biomeditech corporation “pbm” note 8d abbott claims certain imt’s pregnancy detection ovulation prediction products infringe patents abbott claims rights united states abbott seeking order finding imt pbm infringe patents enjoining infringement reimbursement certain damages recall imt’s existing products found infringe patents imt pbm moved summary judgment defense abbott patents invalid court granted partial summary judgment holding certain key claims abbott’s patents invalid matter law court refused grant summary judgment abbott’s claims infringement imt’s remaining claims invalidity trial date set time successor imt innovations believes abbott’s claims proven without merit continue defend case vigorously however final ruling suit company could material adverse impact sales operations financial performance agreement pbm august 6 1997 imt pbm along whollyowned subsidiaries formed limited liability company pbmselfcare llc “llc” party owns 50 interest entered joint venture series related technology transfer licensing agreements develop comprehensive strategy commercially exploit products related intellectual property area pregnancy detection ovulation prediction collectively joint venture agreement joint venture agreement pbm contributed intellectual property innovations successor imt agreed fund 2000000 approximately 539000 remaining outstanding december 31 2001 asneeded basis cover expenses incurred llc enforcing rights llc intellectual property e license agreements becton dickinson imt entered two women’s healthrelated patent license agreements becton dickinson effective april 1 1998 date last patents expire agreements grant innovations successor imt right manufacture sell products using certain patented technology set forth agreement innovations pay royalties net sales products using licensed technology rate 6 december 31 1998 625 first 108000000 net sales beginning january 1 1999 525 thereafter extending expiration patents 2000 1999 innovations paid royalties approximately 576000 1001000 respectively agreement approximately 544000 416000 accrued december 31 2001 2000 respectively innovations make royalty payments 2001 december 1999 imt gave becton dickinson written notice terminate license agreements effective january 1 2000 prior expiration patents result early termination becton dickinson filed suit imt note 8c innovations successor imt agreed assume liabilities litigation f orgenics royalty commitment orgenics received participation payments programs sponsored chief scientist ministry industry commerce israel chief scientist support research development projects event development products chief scientist participates successful orgenics obligated pay royalties rate 20 35 sales products developed funds provided chief scientist amount equal 100 chief scientist’s participation payments projects balance maximum contingent royalty december 31 2001 2000 approximately 2200000 orgenics liability state israel amounts received support unsuccessful programs unsaleable products 2001 2000 1999 orgenics paid approximately 169000 206000 196000 respectively royalties chief scientist 9 earnings per share following table sets forth computation basic diluted loss income per share company options warrants series preferred stock outstanding december 31 2001 exercisable convertible approximately 1955000 621000 3990000 shares common stock respectively weighted average common stock equivalents securities included computation diluted net loss per share 2001 inclusion potential common stock would antidilutive effect net loss per share dilutive securities outstanding 2000 1999 10 stockholders’ equity note amounts pertaining shares share prices securities restated assuming stock split described note 1 splitoff merger occurred dates securities issued common stock december 31 2001 company 50000000 shares common stock 0001 par value authorized 8681744 shares issued outstanding 3990000 shares reserved issuance upon conversion outstanding series preferred stock 2658866 shares reserved issuance upon grant exercise stock options current stock option plans 620880 shares reserved issuance upon exercise outstanding warrants b preferred stock december 31 2001 company 5000000 shares preferred stock 0001 par value authorized 2666667 shares designated series preferred stock 0001 par value december 31 2001 1995000 shares series preferred stock issued outstanding december 2001 company sold private investors 1995000 shares series preferred stock 30 per share gross proceeds 59850000 purposes funding part acquisition unipath businesses note 4 private investors include certain directors company entities persons affiliated directors ceo aggregate purchased 626666 shares series preferred stock share series preferred stock accrues dividends quarterly basis 210 per annum days closing price company’s common stock less 15 company’s stock price close 15 following issuance series preferred stock dividends recorded 2001 dividends accrued payable declared board directors december 31 2003 accrued dividends must paid company’s common stock using conversion ratio described connection voluntary conversion series preferred stock thereafter company option pay dividends cash common stock number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 30 conversion price effect time conversion price initially 15 subject adjustment conversion price series preferred stock represents 2 118 discount fair value common stock issuance date accordance eitf issue 985 eitf issue 0027 company recorded beneficial conversion feature form discount series preferred stock approximately 7980000 amortized accumulated deficit redemption period discussed amortization discount reduces earnings available common stockholders computation earnings per share total amount discount amortized 2001 approximately 24000 starting december 20 2003 company may convert series preferred stock common stock event average closing price common stock exceeds 20 consecutive 30 trading day period series preferred stock may redeemed upon vote holders least 6623 outstanding shares june 30 2011 company classified outstanding series preferred stock outside stockholders’ equity accompanying consolidated balance sheet december 31 2001 redemption price per share series preferred stock equal 30 plus accrued interest calculated 5 per annum date issuance march 2002 company sold private investors additional 531915 shares series preferred stock 3901 per share gross proceeds 20750000 purposes repaying subordinated notes note 6b terms new series preferred stock issued december 2001 share currently convertible two shares company’s common stock c stock options awards 2001 innovations adopted 2001 stock option incentive plan 2001 plan allows issuance 3824081 shares common stock awards 2001 plan administered compensation committee order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan august 15 2001 innovations sold ceo 1168191 shares restricted common stock price 913 per share twothirds restricted stock 778794 shares vest ratably 36 months remaining onethird 389397 shares vests ratably 48 months except par value common stock paid cash ceo purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note balance promissory note recorded note receivable classified stockholders’ equity accompanying consolidated balance sheet december 31 2001 note bears interest annual rate 499 terms original restricted stock agreement innovations could repurchase unvested shares cost certain circumstances innovations accounted arrangement fin 44 eitf issue 9516 accounting stock compensation arrangements employer loan features apb opinion 25 eitf issue 0023 issues related accounting stock compensation apb opinion 25 fasb interpretation 44 accordingly november 20 2001 date arrangement approved stockholders company measured total compensation expense approximately 10595000 based intrinsic value stock date amount compensation expense deferred amortized ratably vesting periods restricted stock amortization deferred compensation related restricted stock arrangement approximately 451000 2001 recorded stockbased compensation accompanying consolidated statements operations february 2002 terms restricted stock agreement amended pursuant company may repurchase unvested shares fair value certain circumstances also connection amendment ceo surrended 50000 shares nonqualified stock options company repurchase rights unvested shares fair value company fully amortize remaining portion deferred compensation expense associated restricted stock first quarter 2002 august 2001 innovations granted two nonqualified stock options purchase aggregate 778794 shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes balance promissory notes recorded note receivable classified stockholders’ equity accompanying consolidated balance sheet december 31 2001 notes bear interest annual rate 397 applicable federal rate fiveyear note effect month exercise shares issued upon exercise vest ratably 36 months certain circumstances innovations may repurchase unvested shares fair value one executive officers exercised part option portion underlying shares result accordance terms original option agreement innovations granted replacement option executive officer remaining unexercised shares exercise price equal fair value common stock date grant innovations accounted arrangements fin 44 eitf issue nos 9516 0023 accordingly november 20 2001 date arrangements approved stockholders company measured total compensation expense approximately 9345000 based intrinsic value stock date repurchase rights unvested shares fair value company recorded full intrinsic value stockbased compensation accompanying consolidated statements operations 2001 innovations also granted immediately effective date splitoff merger options purchase additional 389397 shares common stock two key executive officers options become exercisable ratably four years expire 10 years date grant exercise price per share equal fair value company’s common stock date grant options permit exercise cash innovations’ shares paid least 6 months prior exercise date proceeds promissory note contain terms substantially described connection credit agreements note 6a company’s ceo required enter lock agreement bank pursuant restricted trading company’s securities various specified periods amounts consideration entry lock agreement company granted option acquire 115000 shares company’s common stock 1715 per share fair value company’s common stock date grant simultaneously entity controlled company’s ceo also received warrant purchase 385000 shares company’s common stock note 10d upon splitoff merger outstanding imt stock option “imt option” exchanged option purchase innovations common stock “innovations option” exchange ratio 020 option purchase johnson common stock exchange ratio 05395 new exercise prices innovations options johnson options determined based relative fair values johnson common stock innovations common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices stock options granted prior splitoff merger date following tables restated reflect exchange imt options innovations options exchange occurred date grants following summarizes stock option activity years ended december 31 following represents additional information related stock options outstanding exercisable december 31 2001 weighted average fair value blackscholes option pricing model options granted employees remained innovations’ employees splitoff merger 2001 2000 1999 1035 839 216 respectively company computed pro forma disclosures required sfas 123 stock options granted january 1 1995 employees remained innovations’ employees splitoff merger using blackscholes option pricing model prescribed sfas 123 assumptions used three years ended december 31 2001 follows compensation expense stock options granted employees remained innovations’ employees splitoff merger determined based fair values grant dates awards stock option plans consistent method accounting prescribed sfas 123 company’s net loss income would increased decreased pro forma amounts indicated follows warrants upon splitoff merger outstanding imt warrant “imt warrant” exchanged warrant purchase innovations common stock “innovations warrant” exchange ratio 020 warrant purchase johnson common stock exchange ratio 05935 new exercise prices innovations warrants johnson warrants determined based relative fair values johnson common stock innovations common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices warrants issued prior splitoff merger date following tables restated reflect exchange imt warrants innovations warrants exchange occurred date issuance following summary warrant activity three years ended december 31 2001 following represents additional information related warrants outstanding exercisable december 31 2001 connection credit agreements note 6a entity controlled company’s ceo required enter lock agreement bank pursuant restricted trading company’s securities various specified periods amounts consideration entry lock agreement company issued entity warrant acquire 385000 shares company’s common stock 1715 per share fair value company’s common stock date issuance company’s ceo also received option purchase 115000 shares company’s common stock note 10c majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 441291 shares company’s common stock issued officers directors company entities controlled officers directors outstanding december 31 2001 value warrants issued connection debt financings yielded original issue discounts additional interest expense 77000 period splitoff merger date december 31 2001 company believes equity classification appropriate outstanding warrants pursuant provisions eitf issue 0019 determination whether share settlement within control issuer purposes applying eitf issue 9613 accounting derivative financial instruments indexed potentially settled company’s stock e employee stock purchase plan 2001 innovations adopted 2001 employee stock purchase plan eligible employees allowed purchase shares innovations common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value innovations common stock either beginning end offering period whichever lower innovations may issue 500000 shares common stock plan december 31 2001 shares issued plan f executive bonus plan 2001 innovations adopted stockholder approved executive bonus plan “executive bonus plan” pursuant certain key executives innovations would entitled receive annual cash bonuses shares innovations common stock attain certain targeted prices per share performance determinations made end calendar year starting december 31 2002 ending december 31 2005 payments executive bonus plan paid cash january following year maximum amount could earned executive bonus plan 21650000 february 2002 executive bonus plan amended pursuant cash bonuses replaced option grants awarded fair value date performance targets achieved maximum number shares options may granted executive bonus plan amended 712600 11 income taxes innovations’ income tax provisions mainly represent recorded us subsidiary imi federal state income tax filing purposes results imi’s operations consolidated imt’s date splitoff merger november 21 2001 imi standalone tax filing responsibilities states prior splitoff merger tax accounts maintained imi innovations subsidiaries computed using separate return method imt net loss position accordingly paid virtually income taxes jurisdiction imi tax sharing agreement imt agreed pay imi’s tax liabilities offset liabilities via imt’s net operating loss carryforwards imi’s cumulative taxable income beginning january 1 1998 exceeded 15500000 imi’s cumulative taxable income passed threshold imi required pay dividend imt equal 40 amount exceeds threshold 2000 imi surpassed threshold imi accrued dividend imt approximately 1187000 december 31 2000 pursuant agreement imi recorded capital contribution imt taxes paid imt offset via imt’s net operating loss carryforward upon splitoff merger agreement cancelled company provides income taxes accordance provisions sfas 109 accordingly deferred tax asset liability determined based difference financial statement tax bases assets liabilities measured enacted tax rates expected effect differences reverse company’s primary temporary differences give rise deferred tax asset liability nondeductible reserves accruals different lives assigned tangible assets income tax effect temporary differences follows december 31 2001 innovations available foreign net operating loss carryforwards approximately 24760000 reduce future foreign taxable income carryforwards subject review possible adjustment appropriate taxing authorities valuation allowance related innovations’ net operating losses foreign deferred tax assets due uncertainty surrounding realizability assets realized via profitable foreign operations following table presents components innovations’ provision income taxes following table presents reconciliation statutory tax rate innovations’ effective tax rate continuing operations 12 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance innovations’ chief operating decision making group composed ceo members senior management innovations’ reportable operating segments consumer products comprised consumer diagnostic products vitamins nutritional supplements clinical diagnostics products corporate accounting policies segments described summary significant accounting policies innovations evaluates performance based ebitda revenues attributed geographic areas based customer located segment information 2001 2000 1999 follows 13 discontinued operations pursuant merger agreement related agreements innovations transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes business imb discussed note 1 accompanying consolidated financial statements reflect transfer diabetes businesses innovations discontinued operations net assets discontinued operations accompanying balance sheet december 31 2000 composed following accompanying consolidated statements operations include income losses discontinued operations follows date splitoff merger 14 valuation qualifying accounts innovations established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities innovations’ accounts receivable reserve accounts 15 acquisition ivc industries inc march 19 2002 company acquired ivc industries inc “ivc” manufacturer distributor vitamins nutritional supplements purchase price ivc consisted 250 cash outstanding share ivc’s common stock aggregate cost approximately 5619000 assumed stock options fair value approximately 540000 certain employee costs benefits related restructuring activities upon acquisition direct acquisition costs assumed liabilities acquisition date ivc outstanding debt approximately 18700000 company accounting acquisition purchase accordance sfas 141 process determining purchase price allocation exhibit index 21 sale agreement dated december 20 2001 inverness medical innovations inc “company” unilever uk holdings limited incorporated reference exhibit 21 company’s current report form 8k dated december 20 2001 22 amended restated agreement plan merger made entered december 21 2001 amended restated january 22 2002 among company nutritionals acquisition corporation ivc industries inc “ivc” incorporated reference exhibit 21 company’s current report form 8k dated march 29 2002 23 restructuring agreement dated november 21 2001 among inverness medical technology inc “imt” company certain subsidiaries imt 31 amended restated certificate incorporation company 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 company’s current report form 8k dated december 20 2001 33 amended restated bylaws company 41 specimen certificate shares common stock company incorporated reference exhibit 41 company’s registration statement form s4 amended file 33367392 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company 102 tax allocation agreement dated november 21 2001 among johnson imt company 103 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited 104 trademark license agreement dated february 19 1997 among american cyanamid company selfcare acquisition corporation incorporated reference exhibit 105 company’s registration statement form s4 amended file 33367392 105 lease dated march 19 1992 among cambridge diagnostics ireland limited george conroy brendan conroy patrick conroy incorporated reference exhibit 103 company’s registration statement form s4 amended file 33367392 106 lease dated january 12 1999 among cambridge diagnostics ireland limited industrial development agency ireland incorporated reference exhibit 104 company’s registration statement form s4 amended file 33367392 107 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 company’s registration statement form s4 amended file 33367392 108 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 company’s registration statement form s4 amended file 33367392 109 inverness medical innovations inc 2001 employee stock purchase plan first amendment 1010 lease agreement dated july 28 1998 569 halls mill road llc ivc 1011 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger 1012 promissory note dated august 16 2001 ron zwanziger company 1013 pledge agreement dated august 16 2001 ron zwanziger company 1014 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer 1015 promissory note dated december 4 2001 jerry mcaleer company 1016 pledge agreement dated december 4 2001 jerry mcaleer company 1017 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott 1018 promissory note dated december 4 2001 david scott company 1019 pledge agreement dated december 4 2001 david scott company 1020 stock purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 992 company’s current report form 8k dated march 14 2002 1021 note warrant purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 993 company’s current report form 8k dated december 20 2001 1022 form subordinated promissory note issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 994 company’s current report form 8k dated december 20 2001 1023 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 company’s current report form 8k dated december 20 2001 1024 credit agreement dated december 20 2001 company inverness medical switzerland gmbh banks listed schedule 1 thereto royal bank scotland plc facility agent royal bank scotland plc issuing bank royal bank scotland plc overdraft bank royal bank scotland plc lead arranger incorporated reference exhibit 996 company’s current report form 8k dated december 20 2001 1025 mezzanine loan agreement dated december 20 2001 company inverness medical switzerland gmbh lenders listed schedule 1 thereto rbs mezzanine limited facility agent rbs mezzanine limited lead arranger incorporated reference exhibit 997 company’s current report form 8k dated december 20 2001 1026 warrant agreement dated december 20 2001 company rbs mezzanine limited 1027 warrant purchase common stock company dated december 20 2001 issued rbs mezzanine limited connection mezzanine loan agreement 1028 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc 1029 loan security agreement dated october 16 2000 ivc congress financial corporation 1030 amendment 1 loan security agreement dated june 13 2001 congress financial corporation ivc 1031 amendment 2 loan security agreement dated june 14 2001 congress financial corporation ivc 1032 amendment 3 loan security agreement dated march 19 2002 congress financial corporation ivc 1033 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp 1034 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation 1035 inverness medical innovations inc executive bonus plan incorporated reference exhibit 106 company’s registration statement form s4 amended file 33367392 1036 amendment mezzanine loan agreement dated march 28 2002 rbs mezzanine limited behalf finance parties company behalf inverness medical switzerland gmbh 1037 licensing agreement dated march 14 1988 unilever plc behringwerke ag 1038 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag 1039 agreement dated december 19 1994 afc worldwide unipath limited 1040 amendment credit agreement dated march 28 2002 royal bank scotland plc behalf finance parties company behalf inverness medical switzerland gmbh 211 list subsidiaries company april 1 2002 231 consent arthur andersen llp 991 letter company securities exchange commission regarding arthur andersen llp representations filed herewith company agrees furnish supplementally securities exchange commission “commission” copy omitted schedule exhibit agreement upon request commissionitem 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services audit committee engaged pricewaterhousecoopers llp pwc serve independent registered public accounting firm fiscal year ending december 31 2015 selection pwc approved stockholders 2015 annual meeting stockholders audit committee also engaged pwc serve independent registered public accounting firm fiscal year ending december 31 2016 audit fees aggregate audit fees billed pwc 2015 14811710 audit fees include fees billed professional services rendered connection pwc’s integrated audit consolidated annual financial statements internal control financial reporting review quarterly financial statements audit services normally provided principal independent registered public accounting firm connection statutory regulatory filings aggregate audit fees billed pwc 2014 8058522 auditrelated fees aggregate auditrelated fees billed 2015 2014 pwc 659923 3836372 respectively auditrelated fees 2015 2014 consist fees billed professional services rendered firm accounting consultations services related potential divestiture transactions financings tax fees aggregate tax fees billed 2015 2014 taxrelated services performed pwc 1393112 112092 respectively tax fees include fees billed professional services rendered pwc tax compliance tax advice tax planning fees billed pwc 2015 2014 preapproval policies procedures audit committee preapproves audit nonaudit services provided independent registered public accounting firm permitted nonaudit services estimated good faith independent registered public accounting firm management entail fees payable 25000 less projectbyproject basis would also qualify exemption preapproval requirements securities exchange act 1934 amended services provided 2015 2014 reliance exemption authority preapprove nonaudit services may delegated one members audit committee shall present services preapproved full audit committee next meeting part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services audit committee engaged pricewaterhousecoopers llp pwc serve independent registered public accounting firm fiscal year ended december 31 2016 selection pwc approved stockholders 2016 annual meeting stockholders audit fees aggregate audit fees billed pwc 2016 18362533 audit fees include fees billed professional services rendered connection pwc’s integrated audit consolidated annual financial statements internal control financial reporting review quarterly financial statements audit services normally provided principal independent registered public accounting firm connection statutory regulatory filings aggregate audit fees billed pwc 2015 14811710 auditrelated fees aggregate auditrelated fees billed 2016 2015 pwc 617741 659923 respectively auditrelated fees 2016 2015 consist fees billed professional services rendered firm accounting consultations services related potential divestiture transactions financings tax fees aggregate tax fees billed 2016 2015 taxrelated services performed pwc 2217956 1393112 respectively tax fees include fees billed professional services rendered pwc tax compliance tax advice tax planning fees billed pwc 2016 2015 preapproval policies procedures audit committee preapproves audit nonaudit services provided independent registered public accounting firm permitted nonaudit services estimated good faith independent registered public accounting firm management entail fees payable 25000 less projectbyproject basis would also qualify exemption preapproval requirements securities exchange act 1934 amended authority preapprove nonaudit services may delegated one members audit committee shall present services preapproved full audit committee next meeting part iv item 15item 14 controls procedures aevaluation disclosure controls procedures required new rule 13a15 securities exchange act 1934 within 90 days prior date report carried evaluation supervision participation management including chief executive officer vice president finance principal financial officer effectiveness design operation companys disclosure controls procedures designing evaluating disclosure controls procedures management recognize controls procedures matter well designed operated provide reasonable assurance achieving desired control objectives management necessarily required apply judgment evaluating implementing possible controls procedures based upon required evaluation chief executive officer vice president finance believe date completion evaluation companys disclosure controls procedures effective ensure information required disclose reports file submit exchange act recorded processed summarized reported within time periods specified securities exchange commissions rules forms connection adoption implementation rules described time thereafter conducted continue conduct reviews time put place additional documentation disclosure controls procedures including internal controls procedures financial reporting may time make changes aimed enhancing effectiveness well changes aimed ensuring systems evolve meet needs business changes may include changes necessary desirable address recommendations management andor independent auditors including recommendations independent auditors arising recently completed audit future audits financial statements changes may include changes systems well systems businesses acquired may acquire future made intended enhance effectiveness controls procedures bchanges internal controls none part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accounting fees services included proxy statement incorporated herein reference part iv item 15 item 7 management’s discussion analysis financial condition results operations overview november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 johnson acquired inverness medical technology inc imt former parent merger transaction simultaneously company inverness medical innovations inc split imt separate publicly traded company immediately prior consummation transactions imt restructured operations subsidiaries would hold imt’s nondiabetes businesses women health nutritional supplements clinical diagnostics closing transaction shares common stock held imt splitoff imt pro rata distribution imt’s stockholders imt consisted primarily diabetes business merged became whollyowned subsidiary johnson develop manufacture market consumer healthcare products including selftest diagnostic products women’s health market vitamins nutritional supplements lesser extent develop manufacture market clinical diagnostic products use medical professionals consumer selftest diagnostic products allow individuals obtain accurate information regarding various medical conditions confidential nonprescription basis without expense inconvenience delay associated physician visits laboratory testing information gives individuals greater control health lives allowing make informed decisions take action protect health alone consultation healthcare professionals existing selftest products targeted women’s health market one largest existing markets selfcare diagnostics include home pregnancy detection tests ovulation prediction tests also sell wide variety vitamins nutritional supplements clinical diagnostic products include test kits used smaller laboratories physicians’ offices pointofcare sites detection pregnancy wide variety infectious diseases recent developments acquisition unipath december 20 2001 acquired unipath limited global leader home pregnancy ovulation testing natural family planning associated companies assets unipath business unilever plc unilever certain affiliated entities unilever group unipath acquisition provides us leading brand name consumer diagnostic products compliment existing value branded private label home pregnancy detection ovulation prediction products unipath business comprised primarily five former subsidiaries unilever group specifically unipath limited unipath management ltd unipath diagnostics gmbh unipath scandinavia ab unipath bv certain assets included acquired assets facilities bedford england united states marketing sales operations princeton new jersey rights certain antibody clones intellectual property rights consideration paid unilever unipath business 103 million pounds sterling approximately 150 million united states dollars 166 million euros cash subject certain adjustments provided sale agreement financed acquisition combination cash hand proceeds three separate financing transactions consisting private sale 1995000 shares series convertible preferred stock aggregate purchase price 5985 million private sale approximately 200 million subordinated promissory notes warrants establishment senior mezzanine credit facilities royal bank scotland plc related entities aggregate principal amount 625 million terms financing transactions described detail “management’s discussion analysis financial condition results operations liquidity capital resources” notes 4 6 “notes consolidated financial statements” included elsewhere report prior acquisition unilever group used assets unipath business research development manufacturing distribution home pregnancy ovulation testing products natural family planning products intend continue use assets purpose addition intend use acquired assets together existing assets research develop commercialize new products advanced medical device technologies consumer diagnostics markets well supplement existing product distribution network acquisition ivc industries inc march 19 2002 acquired ivc industries inc ivc manufacturer distributor vitamins nutritional supplements merger transaction terms merger agreement stockholder ivc received 250 cash share ivc common stock accordingly aggregate cash payment ivcs stockholders approximately 56 million based upon ivc’s approximately 225 million shares outstanding addition ivc outstanding debt capital lease obligations closing approximately 187 million ivc manufactures sells hundreds different vitamin nutritional supplement products brand names private label arrangements retailers intend continue ivc’s present operations process consolidating vitamin nutritional supplement manufacturing ivc discontinuing outsourced manufacturing arrangements results operations year ended december 31 2001 compared year ended december 31 2000 net product sales net product sales 2001 decreased 17 million 3 494 million 511 million 2000 product sales decline predominantly due decreases product sales certain nutritional supplement product lines included consumer products business segment net sales nutritional supplements decreased 58 million 31 131 million 2001 compared 189 million 2000 marketing efforts past limited due size resources company added effect competitive nature business caused nutritional supplements sales decline partially offsetting decrease product sales nutritional supplements increase consumer diagnostic products pregnancy ovulation tests also included consumer products business segment net product sales consumer diagnostic products 257 million 2001 increase 42 million 15 215 million 2000 approximately 19 million consumer diagnostic product sales increase contributed unipath business acquired december 20 2001 net sales clinical diagnostics products 2001 decreased 90000 1 106 million 107 million 2000 gross profit total gross profit 2001 decreased 24 million 9 236 million 260 million 2000 gross margin net product sales 48 2001 compared 51 2000 decrease gross profit margin primarily resulted net decline sales consumer products primarily nutritional supplements gross profit nutritional supplements product sales 63 million 2001 decrease 39 million 39 102 million 2000 decreased nutritional supplements gross profit partially offset increase consumer diagnostics gross profit gross profit consumer diagnostic product sales 113 million 2001 increase 18 million 19 95 million 2000 gross profit clinical diagnostics product sales 60 million 2001 decrease 281000 4 63 million 2000 purchased inprocess research development fourth quarter 2001 recorded 70 million noncash charge inprocess research development project acquired part unipath business charge represented portion purchase price paid unipath business allocated inprocess research development project achieved technological feasibility future alternative uses see note 4 “notes consolidated financial statements” record charges 2000 research development expense research development expense 2001 increased 450000 33 18 million 14 million 2000 date research development expense related clinical diagnostic products anticipate increase research development activities expenses future result acquired unipath business sales marketing expense sales marketing expenses 2001 increased 391000 4 110 million 106 million 2000 increase resulted primarily addition unipath business since acquisition date sales marketing expense percentage net product sales increased 22 2001 21 2000 general administrative expense general administrative expense 2001 increased 46 million 65 118 million 72 million 2000 general administrative expense percentage net product sales increased 24 2001 14 2000 approximately 25 million increase caused legal fees incurred active defenses certain litigation matters 2001 increases general administrative expenses relate professional fees facilities costs due relocation united states office 2001 salaries insurance addition unipath business stockbased compensation 2001 recorded noncash compensation expenses connection sale restricted stock chief executive officer stock option grants certain key executives securities sold granted market value stock measurement date see note 10c “notes consolidated financial statements” result february 2002 amendment terms chief executive officer’s restricted stock award fully amortize remaining portion deferred compensation expense associated restricted stock approximately 101 million first quarter 2002 interest expense interest expense 2001 remained consistent 49000 3 decrease 19 million compared 2000 expect incur increased interest expense future result new debt issued connection acquisition unipath business expense net expense net includes interest income expenses interest income 2001 increased 358000 385000 27000 2000 increase interest income resulted higher average cash balances contributions imt 2001 significant portion income expense generally represents foreign currency exchange gains losses 2001 recognized 727000 realized unrealized foreign exchange transaction losses compared losses 389000 2000 2001 also settled lawsuit recorded loss 17 million expense see “item 3 legal proceedings” income taxes 2001 recorded provisions 21 million income taxes compared 18 million 2000 increase primarily due writeoff certain deferred tax assets believe provide us future tax benefits result splitoff merger imt johnson november 2001 see note 11 “notes consolidated financial statements” loss income continuing operations loss continuing operations 245 million 384 per basic diluted common share 2001 compared income continuing operations 28 million 059 per basic diluted common share 2000 significant loss 2001 resulted various factors described income loss discontinued operations 2001 income discontinued operations 58000 compared loss discontinued operations 598000 2000 discontinued operations represent diabetes related segments acquired johnson november 21 2001 see notes 1 13 “notes consolidated financial statements” extraordinary loss early extinguishment debt amount charged extraordinary loss 2001 represents writeoff remaining unamortized financing costs related thirdparty debt imt assumed paidoff splitoff merger see note 6e “notes consolidated financial statements” net income net loss 2001 247 million compared net income 22 million 2000 basic diluted loss per common share 2001 388 compared basic diluted income per common share 046 2000 see notes 1 2k 9 “notes consolidated financial statements” significant loss 2001 resulted various factors described year ended december 31 2000 compared year ended december 31 1999 net product sales net product sales 2000 increased 467000 1 511 million 506 million 1999 primary reason increase product sales increased sales consumer diagnostic products included consumer products business segment net sales consumer diagnostic products 215 million 2000 increase 30 million 16 185 million 1999 aforementioned increase partially offset decreases sales nutritional supplements also included consumer products business segment clinical diagnostic products net sales nutritional supplements decreased 22 million 10 189 million 2000 compared 210 million 1999 net sales clinical diagnostics products 2000 decreased 383000 4 107 million 111 million 1999 gross profit total gross profit 2000 increased 23 million 10 260 million 237 million 1999 gross margin net product sales 51 2000 compared 47 1999 gross profit increased primarily result increased sales pregnancy tests combined reduced costs manufacture tests increase partially offset lower gross profit sales nutritional supplements research development expense research development expense remained consistent decrease 36000 1999 2000 14 million years research development expense related clinical diagnostic products sales marketing expense sales marketing expenses 2000 decreased 426000 4 106 million 110 million 1999 decrease resulted primarily lower selling marketing expenditures related nutritional supplements sales marketing expense percentage net product sales decreased 21 2000 22 1999 general administrative expense general administrative expense 2000 decreased 161000 2 72 million 73 million 1999 general administrative expense percentage net product sales decreased 14 2000 15 1999 interest expense interest expense 2000 decreased 118000 6 19 million 20 million 1999 decrease interest expense primarily resulted lower total average outstanding debt balance 2000 compared 1999 expense net expense net includes interest income expenses interest income 2000 decreased 3000 27000 30000 1999 significant portion income expense generally represents foreign currency exchange gains losses 2000 recognized 389000 realized unrealized foreign exchange transaction losses compared losses 531000 1999 income taxes 2000 recorded provisions 18 million income taxes compared 10 million 1999 effective tax rate substantially higher combined federal statutory rate due foreign divisional losses recorded tax benefit see note 11 “notes consolidated financial statements” income continuing operations income continuing operations 28 million 059 per basic diluted common share 2000 compared income continuing operations 357000 011 per basic diluted common share 1999 increase income due greater profits sales pregnancy ovulation tests partially offset decrease income nutritional supplements reduced sales marketing expenditures loss income discontinued operations 2000 loss discontinued operations 598000 compared income discontinued operations 183000 1999 discontinued operations represent diabetes related segments acquired johnson november 21 2001 see notes 1 13 “notes consolidated financial statements” net income net income 2000 22 million compared net income 540000 1999 basic diluted earnings per common share 2000 046 compared basic diluted earnings per common share 016 1999 see notes 1 2k 9 “notes consolidated financial statements” supplementary quarterly financial information 1 basic diluted earnings loss per share computed described notes 1 2k 9 “notes consolidated financial statements” liquidity capital resources december 31 2001 cash equivalents 520 million 490 million increase december 31 2000 historically funded business operating cash flows proceeds borrowings issuance common preferred stock well contributions imt affiliated companies positive cash flow 154 million operating activities year ended december 31 2001 due largely increase accrued expenses liabilities 151 million loss 23 million adjusted noncash expenses net income discontinued operations 2001 cash used discontinued operations 12 million december 2001 used cash 1462 million purchase unipath business unilever see note 4 accompanying “notes consolidated financial statements” approximately 33 million relating unipath acquisition paid 2002 also year ended december 31 2001 used 35 million capital expenditures decrease noncurrent assets 129000 year ended december 31 2001 raised cash 1841 million financing activities 2001 received proceeds 5985 million issuance preferred stock see note 10b accompanying “notes consolidated financial statements” 06 million issuance common stock upon exercise options warrants also received 625 million borrowings pursuant credit agreements royal bank scotland plc affiliated entities see note 6a accompanying “notes consolidated financial statements” 20 million proceeds issuance subordinated promissory notes warrants see note 6b accompanying “notes consolidated financial statements” additionally 2001 received cash contributions 477 million imt including 414 million time splitoff imt 2001 used 43 million principal repayments loans chase manhattan bank chase various debt 22 million deferred financing costs working capital 210 million december 31 2001 compared deficit 65 million december 31 2000 december 20 2001 one whollyowned subsidiaries entered series credit agreements credit agreements royal bank scotland plc related entities credit facilities aggregate amount 70000000 amended first quarter 2002 credit agreements consist term loans aggregating 62500000 10000000 denominated japanese yen 7500000 multicurrency revolving line credit proceeds term loans used finance portion cash used acquire unipath business revolving line credit designated use company cover certain liabilities future foreign exchange contracts december 31 2001 outstanding borrowings revolving line credit certain subsidiaries guarantors obligations due credit agreements borrowings credit agreements secured stock european subsidiaries intellectual property rights assets united states businesses must make mandatory prepayments loans credit agreements meet certain cash flow thresholds collect insurance proceeds excess certain thresholds receive payments sell assets ordinary course business upon sale change control company per annum interest rate loans london interbank offered rate libor plus spread 15 35 additional 20 case default depending type loan senior junior interest period loans spread may vary spread depends ratio total debt earnings interest expense taxes depreciation amortization ebitda february 2002 entered interest rate swap agreement bank applies 417 million term loans denominated united states dollars protects parties fluctuations libor rate interest rate swap agreement libor rate set minimum 336 maximum 5 interest 40 per annum capitalized junior loan capitalized interest may paid upon agreement lender senior debt amount capitalized interest 2001 approximately 9000 credit agreements amended must comply various financial nonfinancial covenants starting second quarter 2002 primary financial covenants pertain among things interest coverage cash flow coverage leverage ebitda failure comply covenants may material adverse affect us connection credit agreements chief executive officer entity controlled chief executive officer required enter lock agreement bank pursuant restricted trading securities various specified periods amounts consideration entry lock agreement issued chief executive officer option purchase 115000 shares common stock entity warrant acquire 385000 shares common stock case 1715 per share fair value common stock date issuance december 20 2001 sold private investors 1995000 shares series preferred stock 30 per share gross proceeds 59850000 purposes funding part acquisition unipath business private investors include certain directors entities affiliated directors chief executive officer aggregate purchased 626666 shares share series preferred stock accrues dividends quarterly basis 210 per annum days closing price common stock less 15 stock price 15 following issuance series preferred stock dividends recorded 2001 accrued dividends payable declared board directors december 31 2003 accrued dividends must paid shares common stock using conversion ratio described connection voluntary conversion shares series preferred stock thereafter option pay dividends cash common stock dividends declared board directors number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 30 conversion price effect time conversion price initially 15 subject adjustment conversion price series preferred stock represents 2 118 discount fair value common stock issuance date starting december 20 2003 may convert series preferred stock common stock event average closing price common stock exceeds 20 consecutive 30 trading day period series preferred stock may redeemed upon vote holders least 66 outstanding shares june 30 2011 redemption price per share series preferred stock equal 30 plus accrued interest calculated 5 per annum date issuance march 2002 sold private investors additional 531915 shares series preferred stock 3901 per share gross proceeds 20750000 purposes repaying subordinated promissory notes issued december 20 2001 terms new shares series preferred stock substantially terms shares issued december 2001 share currently convertible two shares common stock entered note warrant purchase agreement pursuant december 20 2001 issued subordinated promissory notes subordinated notes aggregate principal amount 200 million purpose funding acquisition unipath business interest accrued 12 per annum outstanding principal amount payable first day calendar quarter starting april 1 2002 maturity date extended described herein option make interest payments form cash common stock value 95 tenday average closing price common stock prior interest payment due date subordinated notes set mature april 1 2002 however option extend maturity date prior original maturity date term loans credit agreements subsequent interest would accrue 18 per annum part note warrant purchase agreement addition subordinated notes also issued 10year warrants purchase total 55189 shares common stock exercise price 1812 per share march 6 2002 prepaid subordinated notes plus accrued interest full using proceeds issuance series preferred stock date warrants issued connection subordinated notes remain outstanding february 1998 subsidiary inverness medical inc imi acquired canam leading supplier diabetes care products combination cash notes shares imt common stock time imi entered 42 million credit agreement chase imt guarantor fund cash portion purchase price repay outstanding indebtedness prior credit facility chase credit agreement consisted 37 million term loan 5 million revolving line credit borrowings chase credit agreement secured capital stock subsidiary imt assets subsidiaries imi required make quarterly principal payments term portion loan ranging 14 million 17 million december 31 2003 imi also required make mandatory prepayments term loan met certain cash flow thresholds sold assets outside ordinary course business issued sold indebtedness issued stock year ended december 31 2001 imi made quarterly principal payments mandatory prepayment totaling 35 million immediately prior consummation splitoff merger balance debt discharged 1999 subsidiary ireland cambridge diagnostics ireland ltd cdil financed purchase one manufacturing buildings mortgage loan cdil mortgage seller outstanding balance cdil mortgage 237000 december 31 2001 cdil mortgage bears interest 6 payable semiannually 2003 subsidiary israel orgenics ltd orgenics bank debt balances totaling 230000 december 31 2001 orgenics’ bank debt collaterized certain orgenics’ assets notes bear interest rates ranging 343 425 payable various dates 2003 march 19 2002 acquired ivc manufacturer distributor vitamins nutritional supplements purchase price ivc consisted 250 cash outstanding share ivc’s common stock aggregate cost approximately 56 million assumed stock options fair value approximately 540000 certain employee costs benefits related restructuring activities upon acquisition direct acquisition costs addition ivc outstanding debt capital lease obligations closing approximately 187 million accounting acquisition purchase accordance statement financial accounting standards 141 process determining purchase price allocation december 31 2001 approximately 248 million foreign net operating loss carryforwards losses available reduce foreign taxable income future years recorded valuation allowance portion deferred tax assets related foreign net operating losses foreign deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable foreign operations based outstanding debt commitments december 31 2001 required use approximately 287 million cash 2002 meet debt maturities approximately 243 million minimum lease payments approximately 35 million capital expenditure commitments approximately 08 million based upon current operating plans business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments least next 12 months cannot certain however underlying assumed levels revenue expenses realized addition may expand research development may pursue acquisition new products technologies whether licensing arrangements business acquisitions otherwise decide pursue activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed available may available acceptable terms could negative effect business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states accounting policies discussed considered management critical understanding financial statements application depends management’s judgment financial reporting results relying estimations assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment note 2 “notes consolidated financial statements” includes comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition recognize revenue accordance securities exchange commission staff accounting bulletin 101 related amendments collectively sab 101 sab 101 requires four basic criteria met revenue recognized 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured 2001 revenues derived solely product sales recognize revenue upon product shipment thirdparty customers time title transferred less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions discussed critical accounting policy “use estimates sales returns allowances allowance doubtful accounts” future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected use estimates sales returns allowances allowance doubtful accounts sales arrangements customers products generally require us accept product returns time also enter sales incentive arrangements customers generally reduce sale prices products product revenue recognized reporting period must establish allowances potential future product returns claims resulting sales incentive arrangements calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer demand acceptance products material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates provision sales returns allowances amounted approximately 27 million 2001 similarly management must make estimates uncollectibility accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms accounts receivable balance 217 million net allowance doubtful accounts 08 million december 31 2001 valuation goodwill longlived intangible assets longlived assets include property plant equipment goodwill intangible assets december 31 2001 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 205 million 1608 million respectively purposes determining whether impairment losses management examines carrying value identifiable longlived intangible assets indicators impairment present impairment loss identified based fair value asset loss would charged expense period identify impairment factors generally consider important could trigger impairment review include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 market capitalization relative net book value determine carrying value longlived tangible intangible assets may recoverable based upon existence one indicators impairment measure impairment based projected discounted cash flow method using discount rate determined management commensurate risk inherent current business model although believe carrying value longlived tangible intangible assets realizable december 31 2001 future events could cause us conclude otherwise 2002 statement financial accounting standards sfas 142 goodwill intangible assets became effective result cease amortize approximately 121 million goodwill annual amortization goodwill balance approximately 603000 fourth quarter 2001 recorded 732 million goodwill intangible assets indefinite lives relating recorded record amortization accordance sfas 142 lieu amortization required obtain independent initial impairment review goodwill 2002 annual impairment reviews thereafter expect independent initial review completed early part 2002 depending findings initial review may required record material impairment charge accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 123 million december 31 2001 due uncertainties related future benefits deferred tax assets primarily consisting certain foreign net operating losses tax credits losses credits expire valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance could materially impact tax provision legal contingencies nature business may time subject consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us currently involved certain legal proceedings discussed “item 3 legal proceedings” annual report form 10k december 31 2001 accrued potential losses legal proceedings company defendant currently able quantify potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become quantifiable case progresses require us begin accruing expected loss addition item 3 report reported certain legal proceedings believe final ruling us could material adverse impact financial position operations extent unanticipated facts circumstances arise cause us change assessment respect matter future results operations financial position could materially affected certain factors affecting future results various risks including described may materially impact investment company may future cases already materially affect us business financial condition results operations consider carefully factors respect investment securities section includes refers certain forwardlooking statements read explanation qualifications limitations forwardlooking statements page 39 report risks related splitoff november 21 2001 splitoff imt became independent publicly owned company part transaction imt acquired johnson prior time majority owned subsidiary imt businesses acquired connection restructuring preceded splitoff represented approximately 20 imt’s net product sales calendar quarter concluded immediately prior splitoff continue face unique set challenges risks arising splitoff businesses face challenges part standalone company experience part imt independent publicly owned company face new issues challenges experience part imt examples potential issues include • inability rely longterm financial strength imt • inability rely earnings cash flow assets goodwill imt’s diabetes business • inability rely experience business relationships personnel remained imt • greater difficulty obtaining financing terms satisfactory us needed • greater difficulty obtaining maintaining insurance terms acceptable us • increased costs hiring retaining employees departments previously shared businesses imt including legal risk management tax treasury human resources public relations departments • generally increased overhead administrative costs result establishing standalone company may resolve issues overcome challenges result may succeed generating expanding customer relationships containing costs expenses enhancing business addition competitive market factors specific consumer diagnostics vitamins nutritional supplements clinical diagnostics industries significantly impact smaller less diversified company businesses traditionally relied imt financial assistance may difficulty liquidity capital requirements without assistance prior splitoff businesses relied earnings assets cash flow imt liquidity capital requirements administrative services past liquidity needs businesses exceeded cash flow imt provided necessary funds result splitoff longer rely imt financial assistance accordingly unable generate sufficient cash flow borrow sufficient amounts credit facilities fund working capital needs pay debts need obtain additional financing know obtain additional financing terms required financing acceptable us unable fund working capital needs additional growth existing credit facilities cash flow additional financing additional financing available acceptable terms us business prospects results operations cash flow future growth negatively affected historical financial information may representative results separate company historical financial information included annual report form 10k reports time periods prior splitoff reflect operating history businesses part imt result financial information may reflect results operations financial position cash flows would separate standalone company periods presented financial information also may reflect results operations financial position cash flows future related various risks associated fact standalone company also • various adjustments allocations made financial statements annual report form 10k imt account us single standalone business period presented • information reflect many significant changes occurred financial condition capital structure operations result separation imt adjustments allocations made preparing financial information may appropriately reflect operations periods presented operated standalone company change personnel company conjunction splitoff may impact business imt’s personnel became initial employees others particular certain significant employees imt engaged primarily diabetes care products business remained business addition members imt’s management worked substantially imt’s diabetes care products business became employees finally imt personnel provided services beneficial businesses work imt’s accounting sales marketing operations quality assurance regulatory compliance areas become part company splitoff certain cases services may available us transitional basis short period time loss certain significant employees transition personnel imt’s diabetes business company loss imt personnel become employees may impact disrupt sales marketing activities research development efforts administrative functions stock price may fluctuate significantly stockholders buy sell common stock may lose part value investment depending price common stock time common stock recently became listed american stock exchange active trading market common stock however may develop sustained future common stock may experience volatility trading values become established result could difficult make purchases sales common stock market particular time imt stockholders immediately prior splitoff became stockholders company immediately splitoff stockholders received common stock splitoff may decide want maintain investment company involved primarily consumer clinical diagnostic products vitamins nutritional supplements public company proven track record standalone company stockholders decide sell shares market perceives sales could occur trading value shares may decline addition smaller less diversified company imt market analysts investment community may follow common stock closely followed imt common stock past limited following market analysts investment community amount market activity common stock may reduced making difficult sell shares addition share price may volatile due operating results well factors beyond control possible future periods results operations expectations public market event market price common stock could decline furthermore stock market may experience significant price volume fluctuations may affect market price common stock reasons unrelated operating performance market price common stock may highly volatile may affected factors • quarterly annual operating results including failure meet performance estimates securities analysts • changes financial estimates revenues operating results buysell recommendations securities analysts • timing announcements us competitors significant products contracts acquisitions publicity regarding actual potential results performance thereof • changes general conditions economy financial markets health care industry • government regulation health care industry • changes areas tax laws • sales substantial amounts common stock perception sales could occur • changes investor perception industry businesses prospects • developments affecting us competitors obligated indemnify imt others liabilities could require us pay imt amounts may restructuring agreement postclosing covenants agreement related agreements entered connection splitoff merger transaction johnson provide indemnify imt related persons specified liabilities related businesses statements proxy statementprospectus issued connection splitoff merger businesses breaches obligations restructuring agreement postclosing covenants agreement related agreements also required indemnify imt losses arising failure amend outstanding warrants purchase imt common stock addition tax allocation agreement imt johnson indemnify johnson imt unpaid tax liabilities attributable presplitoff operation consumer diagnostics vitamins nutritional supplements clinical diagnostics businesses claims indemnification yet made may never made unable predict amount may required us satisfy indemnification obligations agreements however claims made indemnification liable claims amount could substantial event may sufficient funds available satisfy potential indemnification obligations addition may unable obtain funds terms satisfactory us unable obtain necessary funds need consider alternatives including sales assets raise necessary funds risks related business substantial indebtedness could result adverse consequences us december 31 2001 approximately 827 million outstanding indebtedness credit facilities subordinated promissory notes debtrelated instruments acquisition ivc march 19 2002 assumed additional debt capital lease obligations totaling approximately 187 million substantial level debt affects future operations several important ways including following • ability obtain additional financing may impaired • flexibility adjust market conditions limited leaving us vulnerable downturn general economic conditions business less able plan react changes business industries operate • may need use large portion cash flow operations pay principal interest indebtedness would reduce amount cash available finance operations business activities may require us order meet debt service obligations delay reduce capital expenditures introduction new products andor forego business opportunities including acquisitions research development projects product design enhancements • may competitive disadvantage compared competitors less debt furthermore assurance cash flow operations capital resources sufficient pay indebtedness cash flow capital resources prove inadequate could face substantial liquidity problems might required dispose material assets operations restructure refinance debt seek additional equity capital additionally agreements governing indebtedness subject us various restrictions ability engage certain activities including among things ability • incur additional indebtedness • acquire businesses • make capital finance lease expenditures • dispose assets restrictions may limit ability pursue business opportunities strategies would otherwise consider best interests stockholders credit facilities contain certain financial covenants conditions may satisfy satisfied could result acceleration amounts due credit facilities limitation ability borrow additional funds future december 31 2001 approximately 624 million outstanding indebtedness various credit facilities substantially owed royal bank scotland plc related entities ivc acquired march 19 2002 additional credit facilities approximately 159 million owed closing acquisition agreements governing various credit facilities subject us various financial covenants must comply ongoing periodic basis include covenants pertaining interest coverage cash flow coverage leverage ebitda violate covenants may material adverse effect us notably outstanding debt one credit facilities could become immediately due ability borrow additional funds future may limited additionally terms credit facilities royal bank scotland plc related entities either ron zwanziger david scott ceases member board directors full amount indebtedness credit facilities accelerate mr zwanziger dr scott executive officers company currently serving board directors however assurance continue rising interest rates would increase interest costs reduce earnings currently may incur indebtedness bears interest variable rates accordingly interest rates increase interest costs would adversely affect earnings cash flow ability service debt noncompetition obligations restrictions limit ability take full advantage management team technology license research development capabilities members management team significant experience diabetes field technology license may potential applications field research development capabilities could applied field conjunction splitoff merger however agreed postclosing covenants agreement compete imt johnson field diabetes addition ron zwanziger chairman president chief executive officer two senior scientists dr david scott dr jerry mcaleer entered consulting agreements imt impose similar obligations license agreement prevents us using licensed technology field diabetes result restrictions cannot pursue opportunities field diabetes acquisitions unipath business ivc may profitable successfully integrated result significant charges earnings december 20 2001 acquired unipath business march 19 2002 acquired ivc value unipath business ivc us may greater equal purchase prices cannot guarantee realize benefits strategic objectives seeking obtain acquiring unipath business ivc connection accounting acquisition unipath business recorded significant amount intangible assets statement financial accounting standards sfas 142 goodwill intangible assets sfas 144 accounting impairment disposal longlived assets must assess least annually potentially frequently whether value goodwill intangible assets impaired reduction impairment value goodwill intangible assets result charge earnings could materially adversely affect results operations future periods addition connection acquisition unipath business portion purchase price allocated inprocess research development projects reached technological feasibility charged expense fourth quarter 2001 bring projects technological feasibility highrisk development testing issues need resolved require substantial additional effort expense could experience significant manufacturing delays disruptions ongoing research development increased production costs unilever unable successfully assign lease primary operating facility unipath business located bedford england us primary operating facility unipath business acquired unilever located bedford england bedford facility multipurpose facility registered fda contains stateoftheart research laboratories equipped specialized manufacturing equipment facility currently provides manufacturing unipath business recently acquired serves research development center serves administrative center european operations currently using bedford facility pursuant agreement unilever entered connection acquisition unipath business unilever currently leases facility third party landlord pursuant terms unilever’s lease however unilever permitted assign lease sublet bedford facility without obtaining prior written consent landlord consent may unreasonably withheld unilever yet obtained landlord’s consent assign lease us sublet property us although unilever obligated use best efforts obtain landlord’s consent assignment pursue assignment necessary sublease courts assurances unilever successful unilever unable successfully assign lease us otherwise enable us realize benefit lease bedford facility may forced renegotiate lease bedford facility substantially less favorable terms seek alternative means producing products conducting research housing european administrative staff either case may experience manufacturing delays disruptions ongoing research development resolving issues increased production costs future additionally assurances able renegotiate lease bedford facility terms acceptable us find acceptable replacement facility one events may material adverse effect us choose acquire invest new complementary businesses products technologies instead developing acquisitions investments could disrupt business depending finance acquisitions investments could result significant dilution existing stockholders success depends part ability continually enhance broaden product offerings response changing technologies customer demands competitive pressures accordingly time may seek acquire invest complementary businesses products technologies instead developing acquisitions investments involve numerous risks including • inability complete acquisition investment • disruption ongoing businesses diversion management attention • difficulties integrating acquired entities products technologies • difficulties operating acquired business profitably • inability achieve anticipated cost savings • potential loss key employees particularly acquired business • difficulties transitioning key customer distributor supplier relationships • risks associated entering markets limited prior experience • unanticipated costs addition future acquisitions investments may result • dilutive issuances equity securities may sold discount market price • use significant amounts cash • incurrence debt • assumption liabilities • unfavorable financing terms • large onetime expenses • creation certain intangible assets including goodwill writedown may result significant charges earnings factors could materially harm business operating results manufacturing problems delays could severely affect business produce consumer products manufacturing facilities located new jersey bedford england galway ireland clinical diagnostic tests manufacturing facilities located bedford yavne israel production processes complex require specialized expensive equipment rely third parties supply production materials cases may alternative sources immediately available addition able consolidate manufacturing vitamins nutritional supplements new jersey manufacturing facilities continue rely part upon third parties manufacture products event impacting facilities contract manufacturers suppliers could delay suspend shipments products could result delivery inferior products revenues affected products would decline time able put place alternative contract manufacturers suppliers even though carry business interruption insurance policies may suffer losses result business interruptions exceed coverage available insurance policies fail meet strict regulatory requirements could required pay fines even close facilities manufacturing techniques generally must conform standards established government agencies including european governments well united states fda regulatory agencies may conduct periodic inspections facilities monitor compliance applicable regulatory standards regulatory agency finds fail comply appropriate regulatory standards may impose fines us regulatory agency determines noncompliance severe may close facilities adverse action applicable regulatory agency could impair ability produce products costeffective timely manner order meet customers’ demands deliver products defects credibility may harmed market acceptance products may decrease may exposed liability excess product liability insurance coverage manufacturing marketing consumer clinical diagnostic products involve inherent risk product liability claims addition product development production extremely complex could expose products defects could harm credibility decrease market acceptance products addition marketing vitamins nutritional supplements may cause us subjected various product liability claims including among others claims vitamins nutritional supplements inadequate warnings concerning side effects interactions substances potential product liability claims may exceed amount insurance coverage may excluded coverage terms policy event held liable claim indemnified damages exceeding limits insurance coverage claim could materially damage business financial condition sales nutritional supplements sold prior acquiring ivc declined year since 1998 due maturity market segments serve age product line may experience declines sales products sales nutritional products sold prior acquiring ivc declined year since 1998 budgeted future sale declines products believe products underperformed part aging brands limited brand retention face increasing private label competition age product line means subject future distribution loss underperforming brands opportunities new distribution existing product lines limited vitamin nutritional supplements market subject significant fluctuations based upon media attention new developments growth vitamin nutritional supplement industry attributed new products generate attention marketplace positive media attention resulting new scientific studies announcements spur rapid growth individual segments market also impact individual brands conversely news challenges individual segments products negative impact industry overall well sales challenged segments products vitamin nutritional supplements products including vitamins nutritional products acquired ivc serve wellestablished market segments absent unforeseen new developments trends expected benefit rapid growth vitamin nutritional products acquired ivc newer products likely subject new scientific studies announcements could either positive negative news developments challenges safety effectiveness product could negatively impact profitability vitamin nutritional supplements business sales clinical diagnostics products could suffer economic trends health care industry harm niche market small medium sized laboratories clearview clinical diagnostic products low cost alternatives expensive time consuming centralized testing marketed pointofcare professionals orgenics sells clinical diagnostics products targeted niche market small medium sized decentralized laboratories developing nations extent trends changes health care industry favor economies scale centralized automated laboratory testing sales clinical diagnostics products could suffer revenue clinical diagnostics business may decline future trends overall market favor direct disease detection immune response testing new technologies made possible directly identify presence disease rather detecting presence antibodies produced immune response trend overall market currently favors direct detection antibody detection virus detection nucleic acid testing nat already mandatory hepatitis c virus markers france australia certain developed nations believe threat direct detection technology core market small medium sized decentralized laboratories small blood banks physicians point care facilities particularly developed nations several years away however trend poses risk core clinical diagnostics business long term market orgenics clinical diagnostics products small medium sized customers 92 countries considerable cost reduces operating margins orgenics clinical diagnostics business small medium sized laboratories principal customers orgenics clinical diagnostic products sell products worldwide order maintain sufficient sales volume orgenics clinical diagnostics products marketed 92 countries including many third world developing nations smaller laboratories norm expensive technologies affordable infectious diseases often prevalent worldwide sales strategy expensive results lower margins would possible could generate sufficient sales volume operating fewer markets could suffer monetary damages incur substantial costs prevented using technologies important products result number pending legal proceedings involved various legal proceedings arising consumer diagnostics nutritional supplements clinical diagnostics business current material legal proceedings • lawsuit abbott laboratories us princeton biomeditech corporation manufactured products consumer diagnostics business part imt claiming among things products relating pregnancy detection ovulation prediction infringe patents abbott asserts exclusive licensee • lawsuit becton dickinson company alleging pregnancy ovulation test kits sell continue sell consumer diagnostics business infringe us patent 4703017 • complaints intervention inc us four private label customers defending agreement certain parties alleging section 17200 california business professions code defendants’ labeling home pregnancy tests misleading level accuracy certain conditions • action brought 69 consumers london alleging defects persona contraceptive device leading unwanted pregnancies claims seek damages reimbursement costs expenses without specific amounts unable assess probable outcome potential liability arising lawsuits connection splitoff imt agreed assume extent permitted law indemnify imt liabilities lawsuits together liabilities arising women’s health nutritional supplements clinical diagnostics businesses splitoff extent liabilities otherwise retained imt acquisitions unipath business ivc also assumed acquired substantially liabilities businesses unable assess materiality costs associated lawsuits time cannot assure lawsuits future lawsuits relating businesses material adverse effect us profitability consumer products businesses may suffer unable establish maintain close working relationships customers consumer products businesses rely great extent close working relationships customers rather longterm exclusive contractual arrangements exception certain customers ivc customers branded private label consumer products businesses purchase products purchase orders obligated make future purchases calendar year 2001 purchase orders walgreen co cvs rite aid accounted approximately 29 net sales consumer products businesses excluding unipath businesses ivc loss major customer walgreen cvc rite aid failure generate new accounts could dramatically reduce revenues prevent us achieving projected growth retailer consolidation poses threat existing retailer relationships result lost revenue recent years witnessed rapid consolidation within mass retail industry drug store chains grocery stores mass merchandisers primary purchasers consumer diagnostic products vitamins nutritional supplements subject trend customers purchase orders consolidation interfere existing retailer relationships especially private label relationships result loss major customers significant revenue streams financial condition results operations may adversely affected international business risks significant number employees including sales support research development personnel located outside united states conducting business outside united states subject numerous risks including • decreased liquidity resulting longer accounts receivable collection cycles typical foreign countries • lower productivity resulting difficulties managing sales support research development operations across many countries • lost revenues resulting difficulties associated enforcing agreements collecting receivables foreign legal systems • lost revenues resulting imposition foreign governments trade protection measures • higher cost sales resulting import export licensing requirements business relies heavily foreign operations lesser extent foreign sales changes foreign currency exchange rates ability convert currencies may negatively affect financial condition results operations business relies heavily foreign operations three manufacturing facilities outside united states bedford england galway ireland yavne israel orgenics always made substantially sales outside united states recent acquisitions unipath business ivc expect foreign sales grow significantly unipath business generated approximately 70 net product sales outside united states 2001 ivc generated almost 14 net product sales outside united states fiscal year ending july 31 2001 foreign operations foreign sales face exposure movements foreign currency exchange rates primary exposures related operations european south american subsidiaries exposures may change time business practices evolve could result increased costs reduced revenue could impact actual cash flow orgenics subsidiary located israel operations could negatively affected due military political tensions middle east whollyowned subsidiary orgenics ltd develops manufactures sells certain clinical diagnostic products incorporated laws state israel administrative offices development manufacturing operations orgenics business located yavne israel although orgenics’ sales currently customers outside israel political economic military conditions israel could nevertheless directly affect operations since establishment state israel 1948 number armed conflicts taken place israel arab neighbors state hostility varying degree intensity led security economic problems israel despite history avoiding adverse effects orgenics business could adversely affected major hostilities involving israel including current armed conflict palestinian authority intense competition could reduce market share limit ability increase market share could impair sales products harm financial performance medical products industry rapidly evolving developments expected continue rapid pace competition industry includes consumer diagnostics clinical diagnostics businesses intense expected increase new products technologies become available new competitors enter market competitors united states abroad numerous include among others diagnostic testing medical products companies universities research institutions future success depends upon maintaining competitive position development products technologies areas focus competitors may successful • developing technologies products effective products render technologies products obsolete noncompetitive • obtaining patent protection intellectual property rights would prevent us developing potential products • obtaining regulatory approval commercialization products rapidly effectively also possibility patent disputes competitors holding foreign patent rights may limit delay expansion possibilities consumer diagnostics business certain foreign jurisdictions addition many existing potential competitors may substantially greater research development capabilities clinical manufacturing regulatory marketing experience financial managerial resources market sale vitamins nutritional supplements also highly competitive competition based principally upon price quality products customer service marketing support numerous companies vitamins nutritional supplements industry selling products retailers mass merchandisers drug store chains independent drug stores supermarkets health food stores companies privately held unable obtain information necessary assess precisely size success competitors however believe number competitors particularly manufacturers nationally advertised brand name products substantially larger greater financial resources rights rely upon protect intellectual property underlying products may adequate could enable third parties use technology would reduce ability compete market success depend part ability develop acquire commercially valuable patent rights protect intellectual property patent position generally uncertain involves complex legal factual questions degree future protection proprietary rights uncertain risks uncertainties face respect patents proprietary rights include following • pending patent applications filed exclusive rights may result issued patents may take longer expect result issued patents • claims patents issued may provide meaningful protection • may able develop additional proprietary technologies patentable • patents licensed issued us customers may provide competitive advantage • companies may challenge patents licensed issued us customers • patents issued companies may harm ability business • companies may design around technologies licensed developed addition patents rely combination trade secrets nondisclosure agreements contractual provisions technical measures protect intellectual property rights nevertheless measures may adequate safeguard technology underlying products protect rights third parties could use technology ability compete market would reduced addition employees consultants others participate development products may breach agreements us regarding intellectual property may adequate remedies breach also may able effectively protect intellectual property rights foreign countries variety reasons may decide file patent copyright trademark protection prosecute potential infringements patents also realize trade secrets may become known means currently foreseen us despite efforts protect intellectual property competitors customers may independently develop similar alternative technologies products equal superior technology products without infringing intellectual property rights design around proprietary technologies claims companies products infringe proprietary rights could adversely affect ability sell products increase costs substantial litigation intellectual property rights exists consumer clinical diagnostic industries expect products industries may increasingly subject third party infringement claims number competitors grows functionality products technology different industry segments overlaps third parties may currently may eventually issued patents products technology may infringe third parties might make claim infringement us litigation could result expenditure significant financial resources diversion management’s time resources addition litigation accused infringement may cause negative publicity impact prospective customers cause product shipment delays require us develop noninfringing technology enter royalty license agreements may available acceptable terms successful claim infringement made us could develop noninfringing technology license infringed similar technology timely costeffective basis revenue may decrease could exposed legal actions customers initiated may need initiate lawsuits protect enforce patents intellectual property rights could expensive lose could cause us lose intellectual property rights would reduce ability compete market rely patents protect portion intellectual property competitive position order protect enforce patent rights may initiate patent litigation third parties infringement suits interference proceedings litigation may necessary • assert claims infringement • enforce patents • protect trade secrets knowhow • determine enforceability scope validity proprietary rights others currently initiated number lawsuits competitors believe selling products infringe proprietary rights current lawsuits initiate could expensive take significant time divert management’s attention business concerns litigation also puts patents risk invalidated interpreted narrowly patent applications risk issuing additionally may provoke third parties assert claims us patent law relating scope claims technology fields operate still evolving consequently patent positions industry generally uncertain may prevail suits damages remedies awarded may commercially valuable course suits may public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative stock price could decline may unable hire retain motivate key personnel upon success business depend highly dependent upon certain members management scientific staff particularly ron zwanziger david scott jerry mcaleer believe future success depend large part upon ability attract retain highly skilled scientific managerial marketing personnel face significant competition personnel companies research academic institutions government entities organizations may fail retain key employees may fail attract assimilate retain train needed qualified employees future employment agreements key employees loss key employees including scientists may impact disrupt sales marketing activities research development efforts capitalraising efforts administrative functions may liable contamination harm caused hazardous materials use research development processes involve use hazardous materials subject federal state local regulation governing use manufacture handling storage disposal hazardous materials cannot completely eliminate risk contamination injury resulting hazardous materials may incur liability result contamination injury may also incur expenses relating compliance environmental laws expenses liability could significant negative impact financial condition operating results may fluctuate due various factors result periodtoperiod comparisons results operations necessarily meaningful factors relating business make future operating results uncertain may cause fluctuate period factors include • timing new product announcements introductions us competitors • market acceptance new enhanced versions products • changes manufacturing costs expenses • competitive pricing pressures • gain loss significant distribution outlets customers • availability extent reimbursement products • increased research development expenses • timing future acquisitions • general economic conditions • general stock market conditions economic external factors holders series preferred stock entitled receive liquidation payments preference holders common stock march 25 2002 2360248 shares series preferred stock outstanding pursuant terms certificate designation creating series preferred stock upon liquidation deemed liquidation company holders shares series preferred stock entitled receive liquidation payment prior payment amount respect shares common stock amount preferential liquidation payment 30 per share series preferred stock 4050 per share certain circumstances plus amount dividends accrued shares subject adjustment event stock dividend stock split combination similar recapitalization affecting series preferred stock dividends accrue shares series preferred stock rate 210 per share per annum based percentage trading days closing market price common stock less 1500 result terms holders common stock may disproportionately affected reduction value assets fluctuations market price common stock ability stockholders control policies effect change control company limited may best interests provisions certificate incorporation bylaws may discourage third party making proposal acquire us even stockholders might consider proposal best interests provisions include following • certificate incorporation provides three classes directors term office one class expiring year commonly referred staggered board preventing stockholders voting election one class directors annual meeting stockholders provision may effect keeping current members board directors control longer period time stockholders may desire • certificate incorporation authorizes board directors issue shares preferred stock without stockholder approval establish preferences rights preferred stock issued would allow board issue one classes series preferred stock could discourage delay tender offer change control additionally subject section 203 delaware general corporation law general imposes restrictions upon acquirors 15 stock finally board directors may future adopt shareholder rights plan could delay deter prevent change control intend pay dividends benefit investment common stock appreciates value currently intend retain future earnings finance expansion business expect pay cash dividends foreseeable future result success investment common stock depend entirely upon future appreciation guarantee common stock appreciate value offering even maintain price purchased shares recently issued accounting standards june 2001 fasb issued sfas 141 business combinations sfas 141 addresses changes financial accounting reporting business combinations supersedes accounting principles board apb opinion 16 business combinations sfas 38 accounting preacquisition contingencies purchased enterprises effective july 1 2001 business combinations accounted using purchase method accounting believe adoption statement material effect financial position results operations cash flows june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 addresses changes financial accounting reporting acquired goodwill intangible assets indefinite lives effective january 1 2002 existing acquired goodwill intangible assets indefinite lives longer amortized expense early adoption required goodwill intangible assets indefinite lives acquired subsequent june 30 2001 statement also provides specific guidance determining measuring impairment goodwill intangible assets recorded goodwill amortization approximately 603000 762000 2001 2000 1999 respectively although yet determined full impact amortizing goodwill consolidated financial statements total amount goodwill intangible assets net accumulated amortization expected effected statement approximately 85375000 december 31 2001 approximately 73227000 acquired june 30 2001 december 31 2001 currently accessing whether existing goodwill impaired accordance sfas 142 august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets statement requires longlived asset abandoned exchanged similar productive asset distributed owners spinoff considered held used disposed changes statement require one accounting model used longlived assets disposed sale whether previously held used newly acquired broadening presentation discontinued operations include disposal transactions provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years early application encouraged provisions statement generally applied prospectively adopted sfas 144 2002 yet determined impact statement financial position results operations cash flows special statement regarding forwardlooking statements annual report form 10k contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information may events future able predict accurately control may cause actual results differ materially expectations describe forwardlooking statements caution investors forwardlooking statements involve risks uncertainties actual results may differ materially discuss annual report form 10k differences may result various factors including factors described “certain factors affecting future results” section annual report important additional factors could cause actual results differ materially projected forwardlooking statements follows • economic factors including inflation fluctuations interest rates foreign currency exchange rates potential effect fluctuations revenues expenses resulting margins • competitive factors including technological advances achieved patents attained competitors generic competition • domestic foreign healthcare changes resulting pricing pressures including continued consolidation among healthcare providers trends toward managed care healthcare cost containment government laws regulations relating sales promotion reimbursement pricing generally • government laws regulations affecting domestic foreign operations including relating trade monetary fiscal policies taxes price controls regulatory approval new products licensing • manufacturing interruptions delays capacity constraints lack availability alternative sources components products • difficulties inherent product development including potential inability successfully continue technological innovation complete clinical trials obtain regulatory approvals united states abroad gain maintain market approval products possibility encountering infringement claims competitors respect patent intellectual property rights preclude delay commercialization product • significant litigation adverse us including product liability claims patent infringement claims antitrust claims • product efficacy safety concerns resulting product recalls declining sales • impact business combinations including acquisitions divestitures organizational restructuring consistent evolving business strategies • ability satisfy financial covenants conditions contained credit facilities • ability obtain required financing terms acceptable us • issuance new revised accounting standards american institute certified public accountants financial accounting standards board securities exchange commission foregoing list sets forth many factors could impact upon ability achieve results described forwardlooking statements readers place undue reliance forwardlooking statements invest common stock aware occurrence events described “certain factors affecting future results” section elsewhere annual report could harm business prospects operating results financial condition undertake obligation update forwardlooking statements result future events developments item 7aitem 7 managements discussion analysis financial condition results operations forwardlooking statements noted annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements item 7 include without limitation statements regarding expectations respect new product launches research development expenditures legal expenditures benefits realized result synergies relating acquisitions net product sales gross profits various business segments license revenue funding plans future working capital needs commitments impact acquisitions actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth certain factors affecting future results special statement regarding forwardlooking statements following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto financial overview overall 2004 challenging year us continued sequential revenue growthrevenues grown 473 million 3769 million three years since splitoff independent companywe incurred net loss 142 million 2004 compared net income 96 million 2003 reduction approximately 175 basis points overall gross margin due fluctuations foreign currencies unfavorable core pregnancy product margins contributed loss 2004 continue subject vagaries foreign currency translation due extent reliance foreign operations overall gross margin reduced approximately 187 basis points due continued margin erosion nutritional supplements business due primarily aggressive price competition industry increased levels research development spending primarily area cardiology higher interest expense resulting primarily decision refinance debt february 2004 also contributed loss continued revenue growth resulted acquisitions primarily professional diagnostics business organic growth acquisitions since second half 2003 including acquisitions rapid diagnostics business abbott laboratories september applied biotech inc abi august contributed approximately 60 currency adjusted revenue growth 2004 revenues also benefited organic growth contributed launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 growth sales rapid diagnostic tests point care market leading global developer advanced diagnostic devices continually exploring opportunities variety professional diagnostic consumeroriented applications including immunodiagnostics focus womens health cardiology infectious disease 2004 executed several new pointofcare national distribution agreements launched new clinical laboratories improvement act 1988 clia waived strep throat test tests ddimer fecal occult blood hand emphasis new product development requires substantial investment involves significant inherent risk intend continue devote substantial resources research development activities recently announced codevelopment agreement iti scotland ltd provide us 57 million three years fund certain new existing cardiovascularrelated research development initiatives well development new cardiac center stirling scotland evidence commitment addition continue aggressively defend substantial intellectual property portfolio underlies emphasis new product development potential infringers acquisition rapid diagnostics business abbott laboratories september 30 2003 acquired rapid diagnostics business abbott laboratories consisting abbotts lines consumer diagnostic pregnancy tests sold brand name fact plus professional rapid diagnostics products various testing needs including strep throat pregnancy drugs abuse sold brand names signify testpack acquisition resulted significant amount goodwill represents premium paid excess identifiable assets business acquired goodwill arise result acquired going concern value employees synergies unique way acquisition structured access factors required maintaining continuity business achieved contractual arrangements terms two years facilitate rapid integration abbott business infrastructure minimal restructuring exit costs required reason vast majority purchase price allocated goodwill attributable synergies arising application existing infrastructure operations brands acquired business acquisition also attractive similarity mode operation acquired products existing products ultimately agreeing pay purchase price investment rationale focused specifically significant operating marketing synergies believed would result cost savings therefore increased profits combined basis ii strategic revenue market growth objectives expected operating synergies would achieved adding fact plus volumes currently manufactured us taking third party manufacturers abbott manufacturing signify testpack products believed benefits would arise efficiencies related increased volume also part redesign products expected marketing synergies would arise leveraged existing sales staff adding fact plus existing consumer diagnostics distribution capability respect marketing synergies enjoyed savings anticipated time acquisition respect addition fact plus product line existing consumer diagnostics business sold distributed fact plus nominal increases consumer sales marketing infrastructure marketing synergies accounted 34 basis points reductions sales marketing expense percentage sales 2004 reported section entitled results operationssales marketing expense respect manufacturing synergies second half 2004 transitioned manufacturing portion signify products third party manufacturer manufacturing facilities transition part original plan date acquisition resulted increased gross profit approximately 08 million signify product sales second half 2004 compared first half 2004 manufacturing synergies anticipated time acquisition include transition testpack products product design manufacturing capacity product transition currently anticipated late first quarter 2005 countries except japan transition occur fourth quarter 2005 currently anticipate achieving synergies line expectations date acquisition additional manufacturing synergies anticipated transition production fact plus international market manufacturing operations began transition taking production fact plus made sale one small target market second quarter 2004 transitioned vast majority production pregnancy tests acquired abbott international markets fourth quarter 2004 along improved pricing due distribution changes resulted 12 increase gross profit earned fact plus international pregnancy sales fourth quarter 2004 compared third quarter 2004 benefits may arise synergies combined businesses including benefits arising synergies relating acquisition rapid diagnostics business abbott subject risks relating acquisitions well numerous risks business faces set forth sections report entitled certain factors affecting future results special statement regarding forwardlooking statements results operations year ended december 31 2004 compared year ended december 31 2003 net product sales net product sales increased 814 million 28 3684 million 2004 2870 million 2003 excluding favorable impact currency translation net product sales 2004 grew approximately 710 million 25 2003 significant portion revenue increase resulted acquisitions 2003 2004 abi contributed 140 million increase ii rapid diagnostics business abbott contributed 281 million iii various less significant acquisitions contributed aggregate 56 million increase remaining currency adjusted net product sales increase 233 million resulted organic growth primarily due launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 growth sales rapid diagnostic tests pointofcare market net product sales business segment net product sales business segment 2004 2003 follows currency adjusted increase net product sales consumer diagnostic products 236 million 19 comparing 2004 2003 currency adjusted increase 12 million 76 million resulted acquisition abi abbotts fact plus line consumer diagnostic pregnancy tests respectively remaining currency adjusted increase 148 million resulted organic growth primarily due launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 net product sales vitamins nutritional supplements increased 63 million 9 comparing 2004 2003 increase primarily private label nutritional supplements sales currency adjusted increase net product sales professional diagnostic products 410 million 46 comparing 2004 2003 currency adjusted increase 128 million resulted acquisition abi 205 million resulted acquisition abbott testpack signify product lines aggregate 56 million resulted various less significant acquisitions remaining currency adjusted increase 21 million resulted organic growth primarily due increased sales rapid diagnostic tests point care market expect professional diagnostics business continue grow signed several new pointofcare national distribution agreements second half 2004 recently introduced new products clia waived strep throat test tests ddimer fecal occult blood net product sales geographic location net product sales geographic location 2004 2003 follows growth us business resulted primarily full year effect 2003 acquisitions abi portion abbott rapid diagnostic business distributed us well launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 growth europe rest world primarily attributable portion abbott rapid diagnostic business distributed geography well respect europe sales contributions various less significant acquisitions license revenue license revenue represents license royalty fees intellectual property license agreements thirdparties license revenue decreased 11 million 11 86 million 2004 97 million 2003 decrease function net results royalties collected new licenses decrease royalties expired licenses expect license revenue continue decrease 2005 ceased collection royalty fees pfizer fourth quarter 2004 collecting since june 2003 part settlement infringement actions gross profit margin gross profit increased 209 million 16 1494 million 2004 1285 million 2003 included cost sales 2004 17 million restructuring charge covering costs severance early retirement outplacement services arising completed plan termination manufacturing facility bedford england total number involuntarily terminated employees 18 terminated december 31 2004 december 31 2004 substantially restructuring costs paid excluding charge gross profit increased 226 million 18 comparing 2004 2003 gross profit increase 226 million comparing 2004 2003 adjusted restructuring charge discussed primarily resulted businesses acquired second half 2003 acquisition abi contributed 43 million gross profit increase rapid diagnostics business acquired abbott contributed 156 million gross profit increase gross margin increased 51 2004 39 2003 result transitioning manufacturing portion signify fact plus products thirdparty manufacturer manufacturing facility increased profitability arising transition production signify manufacturing attributable synergies expected benefit acquired abbott rapid diagnostics business expect recognize additional benefits continue transition production testpack facilities remaining increase 27 million gross profit adjusted restructuring charge discussed primarily result launch clearblue easy digital pregnancy ovulation tests commencement supply pfizer ept products growth professional diagnostics base business offset declining profits nutritional supplements business gross profit nutritional supplements business principally private label products declined 58 million comparing 2004 2003 sales increased 63 million private label nutritional supplements business suffered excess capacity industry led increased price competition overall gross margin 40 2004 compared 43 2003 restructuring charge discussed effect reducing gross margin 46 basis points 2004 gross margin also adversely impacted 2004 continuing weak us dollar euro british pounds sterling movements foreign exchange currencies negatively impacted gross margin percentage products manufactured european subsidiaries sold us dollars currency impact effect reducing gross margins 175 basis points comparing 2004 2003 discussed due competitive pricing nutritional supplements business gross margin nutritional supplements sales principally private label products declined significantly comparing 2004 2003 margin erosion nutritional supplements business affected overall gross margin 187 basis points somewhat offsetting negative impact gross margin improved gross margin rapid diagnostic products abbott discussed gross profit net product sales business segment gross profit net product sales represents total gross profits less gross profit associated license revenue gross profit total net product sales increased 220 million 18 1441 million 2004 1221 million 2003 gross profit net product sales business segment 2004 2003 follows gross profit consumer diagnostic product sales increased 120 million 17 comparing 2004 2003 increase gross profit consumer diagnostic product sales 40 million resulted acquisition fact plus line consumer diagnostic pregnancy tests abbott september 2003 organic growth primarily result launch clearblue easy digital pregnancy ovulation tests commencement supply ept pregnancy tests pfizer contributed remaining increase gross profit consumer diagnostic product sales gross margin consumer diagnostic product sales 52 2004 compared 56 2003 restructuring charge discussed effect reducing gross margin consumer diagnostic product sales 109 basis points comparing 2004 2003 movements foreign currencies comparing 2004 2003 negatively impacted gross margin 416 basis points consumer diagnostic products manufactured european subsidiaries sold us dollars negative margin impact restructuring charge foreign currency movements offset part sales digital pregnancy tests stateoftheart firsttomarket products able generate higher gross profit per unit sold traditional pregnancy tests despite sales increase discussed gross profit nutritional supplements business principally private label products declined 58 million 40 comparing 2004 2003 result margin erosion due pricing competition evident gross margin 11 2004 compared 20 2003 increase gross profit professional diagnostic product sales 159 million comparing 2004 2003 primarily resulted acquisitions abbott testpack signify product lines abi abbott professional diagnostic products contributed 117 million increase gross profit comparing 2004 2003 acquisition abi contributed 43 million increase gross profit professional diagnostic product sales gross margin professional diagnostic product sales 40 2004 compared 41 2003 decline gross margin professional diagnostic products primarily resulted abi products average generating lower margins professional diagnostic products research development expense research development expense increased 77 million 32 320 million 2004 243 million 2003 significant portion research development spending occurs facilities united kingdom result weak us dollar british pounds sterling causes increase dollar value research development expense translation adjusted unfavorable impact currency translation research development expense increased 52 million 21 comparing 2004 2003 acquisition abi primarily field professional diagnostic testing contributed 16 million currency adjusted increase research development expense remaining increase research development expense comparing 2004 2003 resulted increase cardiology research development expenditures 113 million 2003 179 million 2004 increase 47 million currency adjusted basis recently executed codevelopment agreement iti scotland limited provide us 570 million three years fund certain new existing cardiovascularrelated research development initiatives well development new cardiac center stirling scotland expect expand research development efforts also expect research development spending decrease 2005 due codevelopment funding arrangement scotland sales marketing expense sales marketing expense increased 55 million 10 580 million 2004 525 million 2003 significant portion sales marketing spending takes place european subsidiaries accordingly result continued weak us dollar currency adjusted increase sales marketing expense comparing 2004 2003 31 million 6 currency adjusted increase sales marketing expense 24 million resulted amortization customer related intangible assets acquired part acquisition rapid diagnostics business abbott remaining currency adjusted increase sales marketing expense 07 million resulted acquisition abi sales marketing expense percentage net product sales decreased 16 2004 18 2003 percentage decrease primarily resulted shift professional diagnostics business generally incurs lower sales marketing expense percentage sales vitamins nutritional supplements business addition marketing synergies realized due integration fact plus product line acquired abbott nominal increases consumer sales marketing infrastructure accounted approximately 34 basis points reduction sales marketing expense percentage sales 2003 2004 general administrative expense general administrative expense increased 172 million 48 527 million 2004 355 million 2003 excluding impact foreign currency translation general administrative expense increased 156 million 44 comparing 2004 2003 included general administrative expense 2004 establishment specific reserve doubtful accounts receivable balance 14 million legal expenses 2004 increased 40 million compared 2003 due active pursuits defenses litigations primarily related intellectual property infringements acquisitions since june 2003 contributed additional 66 million general administrative expenses 2004 compared 2003 2004 also spent additional 17 million audit consulting costs associated preparation compliance sarbanesoxley rule 404 regarding internal control financial reporting remaining currency adjusted increase 19 million general administrative expense 2003 2004 resulted investments infrastructure support growth business factors discussed herein general administrative expense percentage net revenue increased 14 2004 12 2003 interest expense interest expense includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances change market value interest rate swap agreement qualify hedge accounting purposes interest expense increased 124 million 128 221 million 2004 97 million 2003 2004 recorded charge 38 million representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 excluding charge interest expense increased 86 million comparing 2004 2003 increase primarily due higher average outstanding debt balance 1837 million 2004 compared 1404 million 2003 primarily result borrowings finance acquisitions abi rapid diagnostics business abbott second half 2003 additionally 875 interest rate 1500 million bonds increased average cash interest rate 87 december 31 2004 compared 61 december 31 2003 bonds due 2012 provide us longterm fixed rate significant portion indebtedness compared variable rates senior credit facilities income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows foreign exchange loss 07 million 2004 primarily resulted continuing weakening us dollar british pounds sterling euro certain receivables irish uk subsidiaries denominated us dollar functional currency respective local currency included income 2004 following items 05 million royalties received attributable periods prior 2004 associated license arrangement historically underpaid ii 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement iii 05 million litigation settlement gain included income 2003 12 million past royalties received part patent infringement settlement onetime gain 38 million recorded connection agreement unilever plc seller unipath business resolved certain issues arose acquisition unipath business provision income taxes provision income taxes decreased 07 million 23 million 2004 30 million 2003 effective tax rate 2004 19 compared 24 2003 decrease provision income taxes 2003 2004 related recognition benefit certain current year losses certain deferred tax assets 2004 recognized 08 million benefit reduction valuation allowance related net operating loss nol carryforward two foreign subsidiaries due assessment would likely realize benefit nols primary component 2004 provision income taxes related recognition us deferred tax liability temporary differences book tax bases goodwill certain intangible assets indefinite lives net loss income incurred net loss 142 million 2004 generated net income 96 million 2003 taking account charges redemption interest amortization beneficial conversion feature related series redeemable convertible preferred stock net loss available common stockholders 150 million 075 per basic diluted common share 2004 compared net income available common stockholders 86 million 055 049 per basic diluted common share respectively 2003 net loss 2004 net income 2003 primarily resulted various factors discussed see note 11 consolidated financial statements included elsewhere annual report form 10k calculation net loss income per share year ended december 31 2003 compared year ended december 31 2002 net product sales net product sales increased 866 million 43 2870 million 2003 2004 million 2002 excluding favorable impact currency translation net product sales 2003 grew approximately 781 million 39 2002 majority revenue increase resulted acquired businesses imn acquired march 2002 contributed 126 million increase ii wampole acquired september 2002 contributed 333 million increase including revenue certain osteoporosis products acquired part acquisition ostex june 2003 iii abi acquired august 2003 contributed 93 million increase iv rapid diagnostic business abbott acquired september 2003 contributed 112 million increase remaining increase net product sales 2002 2003 117 million primarily represents organic growth including launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 net product sales business segment net product sales business segment 2003 2002 follows increase 176 million 16 net product sales consumer diagnostic products 2002 2003 primarily resulted organic growth including launch clearblue easy digital pregnancy test june 2003 acquisition abbotts fact plus line consumer diagnostic pregnancy tests contributed 23 million increase net product sales consumer diagnostic products net product sales vitamins nutritional supplements increased 137 million 24 2002 2003 primarily resulted acquisition imn business increase 553 million net product sales professional diagnostic products 2002 2003 primarily resulted acquisitions ostex wampole abi abbott testpack abbott testpack signify product lines abbott addition wampole business september 2002 ostex business june 2003 abi business august 2003 contributed 20 million 333 million 74 million respectively increase net product sales professional diagnostic products abbott business contributed 89 million increase remaining increase net product sales professional diagnostic products resulted organic growth net product sales geographic location net product sales geographic location 2003 2002 follows increase 758 million net product sales united states 2002 2003 primarily resulted acquisitions imn wampole businesses products primarily sold united states discussed comparison net product sales business segments acquisition signify product line abbott primarily sold united states contributed 47 million increase net product sales united states remaining increase net product sales united states resulted organic growth business including launch clearblue easy digital pregnancy test increase net product sales regions united states europe 2002 2003 resulted partially acquisitions abbott testpack fact plus product lines ostex abi aggregate contributed 46 million 91 million increase addition imn wampole recorded higher sales canada 16 million due businesses included results full year 2003 versus partial year 2002 since respective acquisition dates remaining increase regions united states europe resulted organic growth business license revenue license revenue represents license royalty fees intellectual property license agreements thirdparties license revenue increased 33 million 52 97 million 2003 64 million 2002 increase largely resulted royalty fees pfizer beginning third quarter 2003 continuing june 2004 began record collect royalty fees pfizer part settlement infringement litigation 2003 recorded 17 million royalties pfizer acquisition wampole also provided us additional license agreements generated 06 million license revenue 2003 compared 02 million 2002 remainder increase license revenue resulted increased sales minimum royalty payments certain licensees gross profit margin gross profit increased 363 million 39 1285 million 2003 922 million 2002 increase gross profit primarily resulted acquisitions wampole contributed 119 million increase ii abi contributed 24 million increase iii rapid diagnostic business abbott contributed 43 million increase 33 million license revenue 2002 2003 discussed also contributed increase gross profit remaining increase gross profit 2002 2003 144 million primarily resulted organic growth including launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 overall gross margin 43 2003 compared 45 2002 gross margin adversely impacted 2003 continued weakening us dollar euro british pound sterling movements foreign exchange currencies negatively impacted gross margin percentage products manufactured european subsidiaries sold us dollars currency impact effect reducing gross margins 170 basis points 2002 2003 addition decline overall gross margin 2002 2003 resulted wampole business included 2003 results full year compared three months 2002 results addition acquired abbott products average contributed lower gross margins products impact including wampole business full year abbott business 2003 results 110 basis points reduction overall gross margin partially offsetting negative impact gross margin due foreign currency movements wampole abbott products increased license revenue sales clearblue easy digital pregnancy test 2003 latter stateoftheart firsttomarket product generates higher gross profit per unit sold consumer diagnostic products gross profit net product sales business segment gross profit net product sales represents total gross profits less gross profit associated license revenue gross profit total net product sales increased 335 million 38 1221 million 2003 886 million 2002 gross profit net product sales business segment 2003 2002 follows increase gross profit consumer diagnostic product sales 2002 2003 primarily resulted organic growth womens health care business including launch clearblue easy digital pregnancy test june 2003 acquisition abbotts fact plus line consumer diagnostic pregnancy tests gross margin consumer diagnostic product sales 56 55 2003 2002 respectively movements foreign currencies negatively impacted gross margin consumer diagnostic product sales 373 basis points products manufactured european subsidiaries sold us dollars negative impact foreign currency movements gross margin consumer diagnostic products offset organic growth womens health care sales including sales clearblue easy digital pregnancy test stateoftheart firsttomarket product generates higher gross profit per unit sold consumer diagnostic products approximately 06 million increase gross profit vitamins nutritional supplements product sales 2002 2003 resulted acquisition imn remaining increase 17 million primarily resulted transition manufacturing branded products third party suppliers facility imn gross margin vitamins nutritional supplement product sales 20 2003 compared 21 2002 increase gross profit professional diagnostic product sales 2002 2003 primarily resulted acquisitions wampole abi abbott testpack abbott testpack plus signify product lines abbott gross margin professional diagnostic products 41 2003 compared 47 2002 decline gross margin professional diagnostic products primarily resulted inclusion wampoles business full year 2003 compared three months 2002 average wampole products generate lower gross margin products professional diagnostic products acquired abbott manufactured sold abbott transition agreements also generated lower margins products effect gross margin percentage professional diagnostic products result incremental wampole business due included 2003 results full year compared three month results included 2002 abbott product lines 5 point reduction research development expense research development expense increased 98 million 68 243 million 2003 145 million 2002 primary reason increase research development expense heavy investment development new products particularly field cardiology infectious diseases lesser extent acquisitions ostex abi contributed increase research development expense 2002 2003 sales marketing expense sales marketing expense increased 130 million 33 525 million 2003 395 million 2002 increase sales marketing expense 2002 2003 49 million resulted wampoles results included full year 2003 compared three months 2002 similarly acquisitions ostex abi abbott business contributed 17 million increase sales marketing expense 08 million represented amortization customer related intangible assets acquired part abbott business addition sales marketing expense increased due organic growth primarily launch clearblue easy digital pregnancy test sales marketing expense percentage net product sales decreased 18 2003 20 2002 primarily resulted wampole business incur lower sales marketing expense percentage sales compared businesses general administrative expense general administrative expense increased 74 million 26 355 million 2003 281 million 2002 increase general administrative expense 2002 2003 19 million resulted wampoles results included full year 2003 compared three months 2002 similarly acquisitions ostex abi contributed 18 million increase general administrative expense addition portion increase general administrative expense resulted investment increased management infrastructure higher insurance premiums continued significant investment pursue legal remedies potential infringers intellectual property partially offsetting increase general administrative expense 2002 2003 recognition 06 million representing reimbursement insurance legal costs previously incurred connection lawsuit assumed defense acquired unipath business december 2001 addition another 02 million recovery legal costs included income expense net portion represented recovery legal costs incurred prior acquisition unipath business general administrative expense percentage net product sales decreased 12 2003 14 2002 improvement general administrative expense percentage net product sales achieved sales increase mentioned legal cost recovery addition business acquired abbott incurred significant incremental general administrative costs 2003 charge related asset impairment first quarter 2002 recorded noncash impairment charge 127 million writeoff portion value assigned trademarks brand names related certain nutritional supplement lines acquired 1997 charge recorded connection results separate impairment review performed carrying value goodwill related nutritional supplement lines discussed caption cumulative effect change accounting principle see also note 5 consolidated financial statements included elsewhere annual report form 10k impairment charge recorded 2003 stockbased compensation expense stockbased compensation expense 04 million 2003 compared 106 million 2002 stockbased compensation expense 2003 primarily represented noncash compensation charge stock options granted lieu salary certain senior executives majority 2002 expense related sale companys restricted stock made chief executive officer 2001 time sale 2001 recorded noncash deferred compensation expense 106 million purchase price stock market value measurement date transaction deferred compensation expense originally set amortize vesting period restricted stock accordingly recorded compensation expense 05 million 2001 however due amendment terms restricted stock agreement february 2002 fully recognized remaining unamortized deferred compensation expense 101 million time see note 12c consolidated financial statements included elsewhere annual report form 10k additionally amendment resulted new measurement date security event employee ceases employment company prior full vesting security additional compensation expense recorded interest expense interest expense includes interest charges amortization deferred financing costs noncash discounts associated debt issuances change market value interest rate swap agreement qualify hedge accounting purposes interest expense decreased 54 million 36 97 million 2003 151 million 2002 recorded aggregate 45 million amortization deferred financing costs noncash original issue discounts form beneficial conversion feature related early extinguishment certain subordinated promissory notes bank debt also 2002 recorded noncash charge 12 million mark market interest rate swap agreement entered early 2002 2003 market value obligation swap agreement decreased 05 million recorded reduction interest expense excluding noncash charges related early extinguishment debt 2002 change market value interest rate swap agreement interest expense actually increased 08 million 2002 2003 increase resulted increased average debt balance result funding acquisitions abi rapid diagnostic business abbott partially offset lower average interest rates 2003 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows interest income decreased 04 million 27 10 million 2003 14 million 2002 decrease interest income resulted lower average cash balance 2003 used significant portion cash help finance acquisitions significant portion income expense net generally represents foreign currency exchange gains losses 2003 recognized foreign exchange gains 5000 compared losses 16 million 2002 significant foreign exchange loss 2002 resulted weakened us dollar japanese yen euro one bank loans prepaid november 2002 denominated japanese yen certain receivables irish subsidiary denominated us dollar functional currency euro respectively included income expense net 2003 aggregate 13 million past royalties awarded us part several patent infringement settlements onetime gain 38 million recorded connection agreement unilever resolved certain issues arose acquisition unipath business addition income expense net 2003 included gain recovery legal costs 02 million noted discussion general administrative expense included income expense net 2002 onetime noncash gain 96 million resulted repurchase beneficial conversion feature associated early extinguishment issue 200 million subordinated promissory notes march 2002 provision income tax provision income taxes decreased 04 million 10 30 million 2003 34 million 2002 effective tax rate 24 2003 compared 18 2002 increase effective tax rate 2002 2003 related recognition certain deferred tax liabilities deferred tax liabilities relate us goodwill indefinitelived intangible assets acquired purchases wampole rapid diagnostics business abbott 2003 provision income taxes 18 million related us goodwill indefinitelived intangible assets 09 million related unipath business remaining businesses recorded state local tax provisions totaling 03 million income loss cumulative effect change accounting principle generated income cumulative effect change accounting principle 2003 96 million 2002 incurred loss cumulative effect change accounting principle 226 million taking account charges dividends redemption premium amortization beneficial conversion feature related series redeemable convertible preferred stock income cumulative effect change accounting principle available common stockholders 86 million 055 049 per basic diluted common share respectively 2003 loss cumulative effect change accounting principle available common stockholders 346 million 348 per basic diluted common share 2002 addition wampole september 2002 rapid diagnostics business abbott september 2003 contributed incremental income 20 million 29 million respectively 2003 compared 2002 remaining income 2003 significant losses 2002 resulted predominantly various noncash nonrecurring andor infrequent gains charges recorded respective years described see note 11 consolidated financial statements included elsewhere annual report form 10k calculation income loss per share cumulative effect change accounting principle cumulative effect change accounting principle january 1 2002 adopted statement financial accounting standards sfas 142 goodwill intangible assets sfas 142 requires annual impairment tests performed reporting units defined statement carrying values goodwill based results valuation nutritional supplements business acquired 1997 recorded impairment charge 121 million writeoff carrying value goodwill related business january 1 2002 impairment charge recorded cumulative effect change accounting principle see note 5 consolidated financial statements included elsewhere annual report form 10k charges due change accounting principle 2003 net income loss generated net income 2003 96 million 2002 incurred net loss 348 million taking account charges dividends redemption premium amortization beneficial conversion feature related series redeemable convertible preferred stock net income available common stockholders 86 million 055 049 per basic diluted common share respectively 2003 net loss available common stockholders 467 million 470 per basic diluted common share 2002 addition wampole september 2002 rapid diagnostics business abbott september 2003 contributed incremental income 20 million 29 million respectively 2003 compared 2002 remaining income 2003 significant losses 2002 resulted predominantly various noncash nonrecurring andor infrequent gains charges described see note 11 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per share liquidity capital resources based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities expected funding resulting recently executed codevelopment funding agreement iti scotland limited adequate fund operations including outstanding debt commitments discussed next 12 months longrun expect fund working capital needs commitments primarily codevelopment funding program iti scotland limited operating cash flow since expect grow business new product introductions continuing leverage strong intellectual property position recent cost savings initiatives including move certain manufacturing china consolidation us packaging distribution facilities help fund working capital needs commitments well short longterm also expect rely credit facilities fund portion capital needs commitments additionally february 2 2005 imn subsidiary received 84 million representing pro rata share net funds dispersed connection settlement class action suits several raw material suppliers class action suits alleged certain defendants unlawfully agreed fix prices certain ingredients used produce vitamin nutritional supplement products sold united states imns recovery represented 73 approved purchases settling parties period price fixing alleged funding plans working capital needs commitments may adversely impacted unexpected costs associated prosecuting defending existing lawsuits andor unforeseen lawsuits us integrating rapid diagnostics business acquired abbott laboratories executing cost savings strategies also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result changes cash position december 31 2004 cash equivalents 168 million 79 million decrease 32 december 31 2003 since splitoff former parent company november 2001 funded business operating cash flows proceeds borrowings issuance equity securities 2004 generated cash 83 million operating activities resulted income adjusted noncash items 152 million offset net working capital increase excluding change cash balance 69 million increase working capital primarily resulted significant increase inventories increase accounts receivable balance inventory increased due transition manufacturing signify product line acquired abbott september 2003 third party manufacturer facilities buildup inventory professional diagnostics business support distribution agreements entered 2004 accounts receivable balance increased due increase sales nonequity financing activities primarily issuance 150 million bonds february 2004 net repayments borrowings primary senior credit facility certain subordinated notes bond origination costs provided us cash 152 million 2004 addition received 19 million proceeds exercises common stock options 2004 used cash 343 million investing activities consisted 124 million paid transaction costs associated previously acquired businesses acquisitions viva diagnostika viva advantage diagnostics corporation adc 2004 acquisition certain intellectual property 200 million capital expenditures net proceeds sales equipment increase noncurrent assets 19 million fluctuations foreign currencies positively impacted cash balance 10 million 2004 investing activities 2004 incurred 200 million capital expenditures net proceeds sales equipment incurred capital expenditures approximately 45 million connection cardiology products 21million machinery connection transition manufacturing abbott rapid diagnostic products abbott 12 million new tools capacity expansion related manufacture new format drugs abuse test plant capacity expansions abi subsidiary also continued make significant investment laboratory instrument systems placed customers connection roll certain professional diagnostic products amounted 18 million 2004 miscellaneous capital expenditures 2004 included approximately 09 million preparation facilities manufacture visual version pfizers ept pregnancy test began sell pfizer june 2004 ii 09 million computer software connection implementation sap system us facilities iii 18 million primarily leasehold improvements connection initiative consolidate us distribution facility iv 11 million connection initiative move certain manufacturing china remaining capital expenditures 2004 incurred purchase additional equipment support organic growth various research development activities june 16 2004 acquired adc closely held lateral flow diagnostic company specializes rapid test development component manufacturing purchase price adc consisted 24 million cash 02 million assumed debt terms merger agreement also provide 15 million contingent consideration payable adc shareholders upon successful completion new product development december 31 2005 believe acquisition adc addition adcs chief scientist existing staff deepen scientific research management expand intellectual property capabilities june 2 2004 acquired viva closely held distributor professional diagnostic products german marketplace purchase price viva consisted 26 million cash 155000 shares common stock aggregate fair value 30 million approximately 03 million assumed debt believe viva established german distribution network provide us expanded distribution channel professional diagnostic products well cardiac products development january 24 2005 completed acquisition consumer pregnancy test business advanced clinical systems pty ltd 46 million acquiring business obtained rights crystal clear brand crystal clear leading consumer pregnancy test australia leading position new zealand february 8 2005 entered definitive merger agreement binax inc binax whereby would acquire 100 binaxs outstanding common stock binax engaged primarily business developing manufacturing marketing selling rapid diagnostic tests detection infectious diseases tests enable pathogenspecific identification aid doctors treatment decisions pointofcare addition binax expected continuation strategic efforts focused expanding proprietary technology base product offerings expect benefit binaxs established reputation respiratory diagnostics potential new product development opportunities merger consideration consist 1433333 shares common stock ii 86 million cash less amount expenses incurred binax connection merger transaction exceed 02 million iii contingent cash consideration 110 million become payable upon commercialization five years following merger certain products expect fund cash portion merger consideration acquire binax using senior credit facility february 16 2005 entered definitive agreement acquire ischemia technologies inc ischemia approximately 224 million common stock subject adjustment certain allocated expenses liabilities plan finance payment approximately 35 million assumed acquisitionrelated liabilities using senior credit facility using patented intellectual property rights ischemia developed manufactures markets fdacleared vitro diagnostic test specifically targeted cardiac ischemia known ischemia modified albumin ima used conjunction established ecg troponin tests emergency physicians quickly rule three five times patients whose chest pain symptoms derive noncardiac conditions expect acquisition ischemia natural fit declared strategy bringing market unique cardiac markers delivery platforms capability substantially change diagnosis cardiovascular disease financing activities february 10 2004 completed sale 1500 million 875 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties discussed remaining 114 million proceeds used bond offering expenses general corporate purposes bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commencing august 15 2004 addition related registration rights agreement cause registration statement securities exchange commission sec respect registered exchange offer exchange notes underlying bonds new notes declared effective securities act 1933 amended within 240 days date bonds issuance consummate exchange offer within 270 days date bonds issuance unable register exchange offer within number days specified interest bonds increased 025 point per year first 90day period immediately following default additional 025 point per year respect subsequent 90day period maximum amount additional interest 1 point consequently december 31 2004 interest rate accrue interest bonds 9 period january 7 2005 date hereof accruing interest 95 february 14 2005 caused registration statement respect exchange offer declared effective expect consummate registered exchange offer mid march 2005 december 31 2004 total accrued interest related bonds amounted 50 million may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest experience change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest might able pay required price bonds presented us time change control primary senior credit facility indebtedness may prohibit payment might enough funds time bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings primary senior credit facility bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications primary senior credit facility group banks amended currently provides us revolving lines credit aggregate amount 500 million subject continuing covenant compliance prior repayment borrowings senior credit facility using proceeds bond offering february 2004 discussed obtained term loans aggregating 849 million drawn upon revolving lines credit aggregate amount 399 million since repayment borrowings senior credit facility february 2004 december 2004 drawn approximately 49 million net repayments revolving lines credit fund working capital requirements october 2004 borrowed additional 152 million senior credit facility refinance outstanding borrowings imns senior credit facility bonds payable consequently december 31 2004 201 million outstanding borrowings revolving lines credit january 2005 borrowed additional 110 million revolving lines credit primarily finance interest payment bonds due february 2005 acquisition consumer pregnancy test business advanced clinical systems pty ltd january 2005 may repay future borrowings revolving lines credit time event later march 31 2008 required make mandatory prepayments primary senior credit facility meet certain cash flow thresholds issue equity securities subordinated debt sell assets ordinary course business borrowings revolving lines credit bear interest either 1 london interbank offered rate libor defined credit agreement plus applicable margins option 2 floating index rate defined credit agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance december 31 2004 applicable interest rate revolving lines credit including applicable margin 615 borrowings primary senior credit facility secured stock us european subsidiaries substantially intellectual property rights assets businesses us europe excluding assets orgenics ltd israeli subsidiary inverness medical shanghai co ltd subsidiary china inverness medical australia pty ltd australian subsidiary unipath scandinavia ab swedish subsidiary stock orgenics certain smaller subsidiaries senior credit agreement amended must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditures various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends currently compliance covenants september 20 2002 sold units aggregate purchase price 200 million private investors help finance acquisition wampole unit issued 50000 consisted 1 10 subordinated promissory note principal amount 50000 2 warrant acquire 400 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 160000 shares common stock may exercised time prior september 20 2012 addition placement agent offering units received warrant purchase 37700 shares common stock terms identical warrants sold part units 10 subordinated notes accrue interest outstanding principal amount 10 per annum payable quarterly arrears first day calendar quarter starting october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties consent senior lenders prepayments made cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance refinance acquisition among purchasers units three directors officers entity controlled chief executive officer collectively purchased aggregate 37 units consisting 10 subordinated notes aggregate principal amount 185 million warrants purchase aggregate 14800 shares common stock september 20 2002 also connection financing wampole acquisition sold 9 subordinated promissory notes aggregate principal amount 90 million 3 subordinated convertible promissory notes aggregate principal amount 60 million private investors aggregate purchase price 150 million entity controlled chief executive officer purchased 3 convertible notes aggregate principal amount 30 million 9 subordinated notes 3 convertible notes accrued interest outstanding principal amount 9 3 per annum respectively payable quarterly arrears first day calendar quarter starting october 1 2002 february 2004 prepaid outstanding balance 9 subordinated notes 90 million consequential prepayment penalty 180000 proceeds bond issuance discussed 3 subordinated notes set mature september 20 2008 subject acceleration certain circumstances addition outstanding principal amount unpaid interest 3 convertible notes would automatically convert common stock conversion price equal 1745 time september 20 2004 average closing price common stock consecutive thirty day period greater 2267 event occurred december 8 2004 consequently december 8 2004 3 subordinated notes accrued unpaid interest converted 345784 shares common stock december 31 2004 aggregate 22 million outstanding capital lease obligations payable 2009 january 2004 outstanding series redeemable convertible preferred stock 208060 shares converted option 416120 shares common stock income taxes december 31 2004 approximately 1053 million 259 million domestic foreign net operating loss nol carryforwards respectively either expire various dates 2024 carried forward indefinitely losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic operating loss carryforward amount december 31 2004 included approximately 485 million preacquisition losses imn ostex adc future benefit losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense also included domestic nol carryforwards december 31 2004 approximately 18 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied long term tax exempt rate recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2004 contractual obligations following table summarizes principal contractual obligations december 31 2004 effects obligations expected liquidity cash flow future periods 1see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2see note 7 consolidated financial statements included elsewhere annual report form 10k 3see note 10a consolidated financial statements included elsewhere annual report form 10k 4included longterm liabilities primarily 15 million technology license payment obligations 30 million pension obligations 5other purchase obligations relate inventory purchases operating expense commitments 6see note 4a consolidated financial statements included elsewhere annual report form 10k payment amount contingent upon successful completion new product adc december 31 2005 critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends managements judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2004 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenues derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based managements analyses judgments regarding certain conditions discussed critical accounting policy use estimates sales returns allowances allowance doubtful accounts future changes conditions prove managements conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected connection acquisition rapid diagnostics business abbott laboratories september 2003 entered transition services agreement abbott whereby abbott would continue distribute acquired products sold testpack brand period 18 months transition period recognize revenue sales testpack products title transfers abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts sales arrangements customers consumer diagnostic products vitamins nutritional supplements generally require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 552 million 462 million 442 million 15 16 22 net product sales 2004 2003 2002 respectively recorded product sales derive net product sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 613 million 554 million net allowances doubtful accounts 24 million 08 million december 31 2004 2003 respectively significant increase allowance doubtful accounts 2004 primarily resulted establishment specific reserve doubtful accounts receivable balance 14 million associated private label customer failed perform terms agreement second quarter 2004 valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers demands requires management make assumptions estimates actual product sales may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 601 million 474 million net provision excess obsolete inventory 41 million 21 million december 31 2004 2003 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2004 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 668 million 2212 million 1185 million respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited future expected cash flows product sales customer contracts acquired developed technologies patents ii expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products iii acquired companies brand awareness market position iv assumptions period time continue use acquired brand v discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill balances related consumer diagnostics professional diagnostics reporting units amounted 861 million 1351 million respectively december 31 2004 september 30 2004 performed annual impairment review carrying values goodwill using discounted cash flows approach based upon review believe goodwill related consumer diagnostics professional diagnostics reporting units impaired future cash flows operating results used impairment review based managements projections assumptions future events cause projections differ used september 30 2004 could lead significant impairment charges goodwill future events circumstances occurred since review september 30 2004 would require us reassess whether carrying values goodwill impaired valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2004 future events could cause us conclude otherwise accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 802 million december 31 2004 due uncertainties related future benefits deferred tax assets related primarily us businesses certain foreign net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accordance sfas 109 accounting income taxes sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows october 2004 american jobs creation act 2004 ajca signed law ajca contains series provisions several pertinent company ajca creates temporary incentive us multinational corporations repatriate accumulated income abroad providing 85 dividends received deduction certain dividends controlled foreign corporations companys practice permanently reinvest foreign earnings foreign operations currently expect continue reinvest foreign earnings permanently foreign operations plan repatriate foreign earnings future required establish income tax expense related tax liability earnings legal contingencies section annual report form 10k titled item 3 legal proceedings reported certain material pending legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recently issued accounting standards november 2004 financial accounting standards board fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 clarifies abnormal amounts idle facility expense freight handling costs wasted materials recognized current period charges circumstances required adopt sfas 151 january 1 2006 expect adoption sfas 151 material impact financial position results operations cash flows december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r sfas 123r addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments eliminates ability account sharebased compensation transactions using accounting principles board apb opinion 25 accounting stock issued employees generally requires transactions accounted using fairvaluebased method permitted current sfas 123 accounting stockbased compensation accounting sharebased compensation employees using apb opinion 25s intrinsic value method generally recognize compensation cost employee stock options required adopt sfas 123r interim period beginning june 15 2005 expect requirement expense stock options equity interests granted pursuant equity incentive program significantly increase operating expenses result lower earnings per share based current outstanding unvested number stock options expect record noncash compensation charges approximately 27 million second half 2005 adoption statement impact cash flows december 2004 fasb issued fasb staff position fsp 1091 application fasb statement 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 states impact tax deduction qualified production activities provided ajca accounted special deduction rather rate reduction fsp 1091 effective immediately impact 2004 consolidated financial statements december 2004 fasb issued fsp 1092 accounting disclosure guidance foreign earnings repatriation provision within american jobs creation act 2004 fsp 1092 grants waiver sfas 109 requirement account impacts new legislation period enactment fsp 1092 effective immediately impact 2004 consolidated financial statements december 2004 fasb issued sfas 153 exchange nonmonetary assets amendment apb opinion 29 accounting nonmonetary transactions sfas 153 based principle exchange nonmonetary assets measured based fair market value assets exchanged sfas 153 eliminates exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance sfas 153 effective nonmonetary asset exchanges fiscal periods beginning june 15 2005 currently evaluating provisions sfas 153 believe adoption sfas 153 material impact financial condition results operations liquidity certain factors affecting future results risks described may materially impact investment company may future cases already materially affect us business financial condition results operations carefully consider factors respect investment securities section includes refers certain forwardlooking statements read explanation qualifications limitations forwardlooking statements beginning pages 2 56 report business substantial indebtedness could among things make difficult us satisfy debt obligations require us use large portion cash flow operations repay service debt otherwise create liquidity problems limit flexibility adjust market conditions place us competitive disadvantage expose us interest rate fluctuations currently likely continue substantial amount indebtedness december 31 2004 approximately 1923 million aggregate principal indebtedness outstanding 223 million secured indebtedness 299 million additional borrowing capacity revolving portions credit facilities addition subject restrictions credit facilities indenture governing 150 million outstanding 834 senior subordinated notes senior subordinated notes may incur additional indebtedness fiscal years ended december 31 2004 2003 recorded 221 million 97 million respectively interest expense related indebtedness included 42 million 10 million respectively noncash interest primarily related amortization debt origination costs substantial indebtedness could affect future operations important ways example could •make difficult satisfy obligations senior subordinated notes credit facilities debtrelated instruments •require us use large portion cash flow operations pay principal interest indebtedness would reduce amount cash available finance operations business activities may require us order meet debt service obligations delay reduce capital expenditures introduction new products andor forego business opportunities including acquisitions research development projects product design enhancements •limit flexibility adjust market conditions leaving us vulnerable downturn general economic conditions business less able plan react changes business industries operate •impair ability obtain additional financing •place us competitive disadvantage compared competitors less debt •expose us fluctuations interest rate environment respect indebtedness bears interest variable rates expect obtain money pay expenses pay principal interest senior subordinated notes senior credit facility debt cash flow operations additional loans senior credit facility subject continued covenant compliance ability meet expenses thus depends future performance affected financial business economic factors able control many factors economic conditions markets operate pressure competitors cannot certain cash flow sufficient allow us pay principal interest debt meet obligations cash flow capital resources prove inadequate could face substantial liquidity problems might required dispose material assets operations restructure refinance debt including notes seek additional equity capital borrow money cannot guarantee able terms acceptable us addition terms existing future debt agreements including credit agreement governing senior credit facility indenture governing senior subordinated notes may restrict us adopting alternatives entered agreements governing indebtedness subject us various restrictions may limit ability pursue business opportunities agreements governing indebtedness including credit agreement governing senior credit facility indenture governing senior subordinated notes subject us various restrictions ability engage certain activities including among things ability •incur additional indebtedness •pay dividends make distributions repurchase redeem stock •acquire businesses •make investments •make loans extend credit benefit third parties subsidiaries •enter transactions affiliates •raise additional capital •make capital finance lease expenditures •dispose encumber assets •consolidate merge sell substantially assets restrictions may limit ability pursue business opportunities strategies would otherwise consider best interests particular acquisitions businesses small acquisitions require us obtain lenders consent senior credit facility required obtain obtained lenders consent senior credit facility order complete acquisitions wampole division medpointe inc wampole ostex international inc ostex applied biotech inc abi rapid diagnostics business acquired abbott laboratories abbott rapid diagnostics business well pending acquisitions binax inc ischemia technologies inc senior credit facility contains certain financial covenants may satisfy satisfied could result acceleration amounts due thereunder limitation ability borrow additional funds future december 31 2004 approximately 201 million indebtedness outstanding senior credit facility approximately 299 million additional borrowing capacity thereunder agreements governing facility subject us various financial covenants must comply ongoing periodic basis include covenants pertaining fixed charge coverage capital expenditures various leverage ratios minimum ebitda minimum cash requirements violate covenants may material adverse effect us notably outstanding debt senior credit facility could become immediately due payable lenders could proceed collateral securing indebtedness ability borrow additional funds future may limited default agreements governing indebtedness could result default acceleration indebtedness agreements governing indebtedness including senior credit facility indenture governing senior subordinated notes contain crossdefault provisions whereby default one agreement could result default acceleration repayment obligations agreements crossdefault occur may able pay debts borrow sufficient funds refinance even new financing available may commercially reasonable terms acceptable us indebtedness default reason business financial condition results operations could materially adversely affected may able satisfy debt obligations upon change control could limit opportunity enter change control transaction upon occurrence change control defined indenture governing senior subordinated notes holder senior subordinated notes right require us purchase notes price equal 101 principal amount together accrued unpaid interest failure purchase give notice purchase senior subordinated notes would default indenture would turn default senior credit facility addition change control may constitute event default senior credit facility default senior credit facility would result event default 10 subordinated notes lenders accelerate debt senior credit facility indenture governing senior subordinated notes may result acceleration indebtedness outstanding time result enough cash repay indebtedness repurchase senior subordinated notes may limited change control transactions may pursue acquisitions may profitable integration businesses may costly difficult may cause disruption business since commencing activities november 2001 acquired attempted integrate operations unipath limited associated companies assets unipath business ivc industries inc business inverness medical nutritionals group imn wampole ostex abi abbott rapid diagnostics business intend consummate acquisition binax ischemia technologies march 2005 also made number smaller acquisitions ultimate success acquisitions depends part ability realize anticipated synergies cost savings growth opportunities integrating businesses assets existing businesses however successful integration independent businesses assets complex costly timeconsuming process difficulties integrating companies acquired assets include among others •consolidating manufacturing research development operations appropriate •integrating newly acquired businesses product lines uniform financial reporting system •coordinating sales distribution marketing functions •establishing expanding manufacturing sales distribution marketing functions order accommodate newly acquired businesses product lines •preserving important licensing research development manufacturing supply distribution marketing customer relationships •minimizing diversion managements attention ongoing business concerns •coordinating geographically separate organizations may accomplish integration acquisitions smoothly successfully diversion attention management current operations integration effort difficulties encountered combining operations could prevent us realizing full benefits anticipated result acquisitions adversely affect businesses additionally costs associated integration acquisitions including costs associated integration operations ostex abi abbott rapid diagnostics business substantial extent incur integration costs anticipated finance acquisitions unexpected costs could adversely impact liquidity force us borrow additional funds ultimately value business asset acquired may greater equal purchase price choose acquire invest new complementary businesses products technologies instead developing acquisitions investments could disrupt business depending finance acquisitions investments could result use significant amounts cash success depends part ability continually enhance broaden product offerings response changing technologies customer demands competitive pressures accordingly time may seek acquire invest businesses products technologies instead developing acquisitions investments involve numerous risks including •the inability complete acquisition investment •disruption ongoing businesses diversion management attention •difficulties integrating acquired entities products technologies •difficulties operating acquired business profitably •difficulties transitioning key customer distributor supplier relationships •risks associated entering markets limited prior experience •unanticipated costs addition future acquisitions investments may result •issuances dilutive equity securities may sold discount market price •use significant amounts cash •the incurrence debt •the assumption significant liabilities •unfavorable financing terms •large onetime expenses •the creation certain intangible assets including goodwill writedown may result significant charges earnings factors could materially harm business operating results goodwill andor intangible assets recorded connection acquisitions businesses become impaired could take significant charges earnings connection accounting acquisitions unipath business wampole ostex abi abbott rapid diagnostics business recorded significant amount goodwill intangible assets current accounting guidelines must assess least annually potentially frequently whether value goodwill intangible assets impaired reduction impairment value goodwill intangible assets result charge earnings could materially adversely affect reported results operations future periods could experience significant manufacturing delays disruptions ongoing research development increased production costs unilever unable successfully assign sublease us lease multipurpose facility currently use bedford england one primary operating facilities located bedford england bedford facility multipurpose facility registered fda contains stateoftheart research laboratories equipped specialized manufacturing equipment facility currently provides manufacturing clearblue products clearview products serves primary research development center serves administrative center european operations also use facility manufacture digital nondigital ept pregnancy tests pfizer connection supply arrangements pfizer products currently using bedford facility pursuant acquisition agreement unilever relating acquisition unipath business late 2001 unilever currently leases facility third party landlord pursuant terms unilevers lease unilever cannot assign lease sublet bedford facility us without first obtaining landlords consent landlord yet may future consent assignment lease sublease us terms acquisition agreement obligate unilever provide us benefit lease bedford facility unilever unable successfully acquire consent otherwise enable us realize benefit unilevers lease bedford facility lease terminated may forced renegotiate lease bedford facility substantially less favorable terms seek alternative means producing products conducting research housing european administrative staff either case may experience increased production costs manufacturing delays could prevent us meeting contractual supply obligations jeopardize important customer relationships may also suffer disruptions ongoing research development resolving issues cannot assure able renegotiate lease bedford facility terms acceptable us find acceptable replacement facility one events may material adverse effect us may experience manufacturing problems delays could result decreased revenues increased costs many manufacturing processes complex require specialized expensive equipment replacement parts specialized equipment expensive cases require lead times year acquire addition private label consumer diagnostic products business private label bulk nutritional supplements business particular rely operational efficiency mass produce products low margins per unit also rely numerous third parties supply production materials cases may alternative sources immediately available addition currently rely nine significant thirdparty manufacturers well numerous less significant manufacturers produce many professional diagnostic products certain components consumer diagnostic products including products development addition certain products acquired part abbott rapid diagnostics business currently manufactured us abbott laboratories chicago terms transitional arrangement event impacting manufacturing facilities manufacturing systems equipment contract manufacturers suppliers including without limitation wars terrorist activities natural disasters outbreaks infectious disease could delay suspend shipments products release new products could result delivery inferior products revenues affected products would decline could incur losses time able restore production processes put place alternative contract manufacturers suppliers even though carry business interruption insurance policies may suffer losses result business interruptions exceed coverage available insurance policies may experience difficulties may delay prevent development introduction marketing new enhanced products intend continue invest product technology development new enhanced products complex uncertain process may experience research development manufacturing marketing difficulties could delay prevent development introduction marketing new products enhancements cannot certain •any products development prove effective clinical trials •we able obtain timely manner regulatory approval market products development contemplated •any products manufactured acceptable cost appropriate quality •any products approved successfully marketed factors listed well manufacturing distribution problems factors beyond control could delay new product launches addition cannot assure market accept products accordingly assurance overall revenues increase new products launched may experience difficulties may delay prevent us completing plans centralize us consumer products packaging distribution facilities plans manufacture certain products china commenced operations centralized us packaging distribution facility serving consumer diagnostic vitamins nutritional supplements segments begun transition manufacture certain products china may complete plans respect operations time projected unable develop finalize necessary third party relationships acquire required facilities equipment materials obtain necessary consents approvals addition even succeed developing new operations schedule operational problems factors beyond control may prevent delay us recognizing cost savings margin improvements benefits may expect fail meet strict regulatory requirements could required pay fines even close facilities manufacturing techniques generally must conform standards established government agencies including european foreign governments well fda lesser extent us drug enforcement administration dea local health agencies regulatory agencies may conduct periodic audits facilities processes monitor compliance applicable regulatory standards regulatory agency finds fail comply appropriate regulatory standards may impose fines us delay withdraw premarket clearances regulatory approvals regulatory agency determines noncompliance severe may close facilities adverse action applicable regulatory agency could impair ability produce products costeffective timely manner order meet customers demands march 2005 abi subsidiary informed fda based inspectional findings included data integrity design control issues abi become subject fdas application integrity policy result fda defer review pending future applications made abi fda determines abi resolved issues abi currently applications pending time abi restricted regard introducing new tests outside united states selling products united states based existing 510ks understanding fda action applies abi otherwise restrict ability subsidiaries submit applications fda commercialize products however scope impact uncertain may negative effect future sales profits regulatory agencies may also impose new enhanced standards would increase costs well risks associated noncompliance example anticipate fda may soon finalize implement good manufacturing practice gmp regulations nutritional supplements gmp regulations would require supplements prepared packaged held compliance certain rules might require quality control provisions similar gmp regulations drugs manufacturing facilities nutritional supplements subjected passed third party inspections anticipated gmp standards ongoing compliance required event gmp regulations adopted would involve additional costs would present new risks associated failure comply regulations future deliver products defects credibility may harmed market acceptance products may decrease may exposed liability excess product liability insurance coverage manufacturing marketing consumer professional diagnostic products involve inherent risk product liability claims addition product development production extremely complex could expose products defects could harm credibility decrease market acceptance products addition marketing vitamins nutritional supplements may cause us subjected various product liability claims including among others claims vitamins nutritional supplements inadequate warnings concerning side effects interactions substances potential product liability claims may exceed amount insurance coverage may excluded coverage terms policy event held liable claim indemnified damages exceeding limits insurance coverage claim could materially damage business financial condition sales brand name nutritional supplements trending downward since 1998 due maturity market segments serve age product line may experience declines sales products aggregate sales brand name nutritional products including among others ferrosequels stresstabs protegra posture soycare allbee zbec declined year since 1998 year 2004except 2002 increased slightly compared 2001 believe products underperformed part aging brands limited brand recognition face increasing private label competition overall age product line means subject future distribution loss underperforming brands opportunities new distribution existing product lines limited result expect significant sales growth existing brand name nutritional products may experience declines overall sales brand name nutritional products future sales specific vitamins nutritional supplements could negatively impacted media attention news developments challenge safety effectiveness specific vitamins nutritional supplements growth vitamin nutritional supplement industry attributed new products tend generate greater attention marketplace older products positive media attention resulting new scientific studies announcements spur rapid growth individual segments market also impact individual brands conversely news challenges individual segments products negative impact industry overall well sales challenged segments products vitamin nutritional supplements products serve wellestablished market segments absent unforeseen new developments trends expected benefit rapid growth vitamin nutritional products newer products likely subject new scientific studies announcements could either positive negative news developments challenge safety effectiveness products could negatively impact profitability vitamin nutritional supplements business could suffer monetary damages incur substantial costs prevented using technologies important products result number pending legal proceedings involved various legal proceedings arising consumer diagnostics nutritional supplements professional diagnostics business material pending legal proceedings •a counterclaim princeton biomeditech corporation pbm us patent infringement suit maintained subsidiaries inverness medical switzerland gmbh unipath diagnostics inc pbm et al pbm alleges breached various obligations pbm arising joint venture us •a suit brought quidel corporation alleging infringing us patent 4943522 seeking declaratory finding quidel infringe certain patents certain patents owned codefendant armkel llc patents invalid andor unenforceable nature business may subject particular time commercial disputes consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages adverse ruling rulings one lawsuits could individually aggregate material adverse effect sales operations financial performance addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties litigation acon laboratories suits expensive result counterclaims challenging validity patents rights cannot assure lawsuits future lawsuits relating businesses material adverse effect us profitability consumer diagnostics vitamin nutritional supplements businesses may suffer unable establish maintain close working relationships customers years ended december 31 2004 2003 approximately twothirds net product sales respectively derived consumer products business consists consumer diagnostic products vitamin nutritional supplements segments businesses rely great extent close working relationships customers rather longterm exclusive contractual arrangements customer concentration businesses relatively high especially vitamin nutritional supplements segment two customers currently account almost 65 sales addition customers branded private label consumer products businesses purchase products purchase orders obligated make future purchases therefore rely ability deliver quality products time order retain generate customers fail meet customers needs expectations whether due manufacturing issues affect quality capacity issues result late shipments harm reputation customer relationships likely lose customers additionally unable maintain close working relationships customers sales products ability successfully launch new products could suffer loss major customer failure generate new accounts could significantly reduce revenues prevent us achieving projected growth profitability consumer diagnostic products segment may suffer pfizer inc unable successfully market sell ept pregnancy tests terms manufacturing packaging supply agreement entered pfizer inc one whollyowned subsidiaries pfizer purchases nondigital ept pregnancy tests us june 6 2009 additionally terms separate supply agreement december 2003 began supplying pfizer digital version ept pregnancy test nonexclusive basis amount revenues profits generate agreements depend volume orders receive pfizer result pfizer unable successfully market sell ept pregnancy tests events adversely affect volume pfizers sales ept pregnancy tests future revenues profit may adversely affected sales private label nutritional supplements generally made low margins profitability products may suffer significantly result relatively small increases raw material manufacturing costs sales private label nutritional supplements years ended december 31 2004 2003 provided approximately 17 20 respectively net product sales generate low profit margins rely ability efficiently mass produce nutritional supplements order make meaningful profits products changes raw material manufacturing costs drastically cut eliminate profits generated sale particular product part longterm supply contracts required raw materials result costs increase little notice private label nutritional supplements business also highly competitive ability raise prices result increased costs limited customers generally purchase private label products via purchase order longterm contracts often purchase products lowest bidder product basis internet enhanced price competition among private label manufacturers advent online auctions customers auction right manufacture particular product lowest bidder resulting margin erosion nutritionals business resulted reduction overall gross margin contributed losses 2004 compared income 2003 financial condition results operations may adversely affected international business risks approximately 40 36 net revenues generated outside united states year ended december 31 2004 2003 respectively significant number employees including manufacturing sales support research development personnel located foreign countries including england ireland israel conducting business outside united states subjects us numerous risks including •increased costs reduced revenue result movements foreign currency exchange rates •decreased liquidity resulting longer accounts receivable collection cycles typical foreign countries •lower productivity resulting difficulties managing sales support research development operations across many countries •lost revenues resulting difficulties associated enforcing agreements collecting receivables foreign legal systems •lost revenues resulting imposition foreign governments trade protection measures •higher cost sales resulting import export licensing requirements •lost revenues adverse affects result economic political instability affecting foreign countries sell products operate •adverse effects resulting changes foreign regulatory laws affecting sales products foreign operations business relies heavily foreign operations revenues changes foreign currency exchange rates ability convert currencies may negatively affect financial condition results operations business relies heavily foreign operations four manufacturing facilities outside united states bedford england galway ireland shanghai china yavne israel also announced plans consolidate much cardiovascular related research development scotland ultimately establish significant manufacturing operation approximately 40 36 net revenues generated outside united states year ended december 31 2004 2003 respectively clearblue pregnancy test product sales historically much stronger outside united states 74 net product sales products coming outside united states year ended december 31 2004 addition abbott rapid diagnostics business acquired september 30 2003 generates majority sales outside united states foreign operations foreign sales face exposure movements foreign currency exchange rates primary exposures related operations european subsidiaries exposures may change time business practices evolve could result increased costs reduced revenue could impact actual cash flow intense competition could reduce market share limit ability increase market share could impair sales products harm financial performance medical products industry rapidly evolving developments expected continue rapid pace competition industry includes consumer diagnostics professional diagnostics businesses intense expected increase new products technologies become available new competitors enter market competitors united states abroad numerous include among others diagnostic testing medical products companies universities research institutions future success depends upon maintaining competitive position development products technologies areas focus competitors may •develop technologies products effective products render technologies products obsolete noncompetitive •obtain patent protection intellectual property rights would prevent us developing potential products •obtain regulatory approval commercialization products rapidly effectively also possibility patent disputes competitors holding foreign patent rights may limit delay expansion possibilities diagnostics businesses certain foreign jurisdictions addition many existing potential competitors may substantially greater research development capabilities clinical manufacturing regulatory marketing experience financial managerial resources market sale vitamins nutritional supplements also highly competitive competition based principally upon price quality products customer service marketing support numerous companies vitamins nutritional supplements industry selling products retailers mass merchandisers drug store chains independent drug stores supermarkets groceries health food stores companies privately held unable obtain information necessary assess precisely size success competitors however believe number competitors particularly manufacturers nationally advertised brand name products substantially larger greater financial resources rights rely upon protect intellectual property underlying products may adequate could enable third parties use technology would reduce ability compete market success depend part ability develop acquire commercially valuable patent rights protect intellectual property patent position generally uncertain involves complex legal factual questions degree present future protection proprietary rights uncertain risks uncertainties face respect patents proprietary rights include following •the pending patent applications filed exclusive rights may result issued patents may take longer expect result issued patents •the claims patents issued may provide meaningful protection •we may able develop additional proprietary technologies patentable •the patents licensed issued us customers may provide competitive advantage •other parties may challenge patents patent applications licensed issued us customers •patents issued companies may harm ability business •other companies may design around technologies patented licensed developed addition patents rely combination trade secrets nondisclosure agreements contractual provisions technical measures protect intellectual property rights nevertheless measures may adequate safeguard technology underlying products protect rights third parties could use technology ability compete market would reduced addition employees consultants others participate development products may breach agreements us regarding intellectual property may adequate remedies breach also may able effectively protect intellectual property rights foreign countries variety reasons may decide file patent copyright trademark protection prosecute potential infringements patents also realize trade secrets may become known means currently foreseen us despite efforts protect intellectual property competitors customers may independently develop similar alternative technologies products equal superior technology products without infringing intellectual property rights design around proprietary technologies claims companies products infringe proprietary rights could adversely affect ability sell products increase costs substantial litigation intellectual property rights exists consumer professional diagnostic industries expect products industries could increasingly subject third party infringement claims number competitors grows functionality products technology different industry segments overlaps third parties may currently may eventually issued patents products technology may infringe third parties might make claim infringement us litigation could result expenditure significant financial resources diversion managements time resources addition litigation accused infringement may cause negative publicity impact prospective customers cause product shipment delays require us develop noninfringing technology make substantial payments third parties enter royalty license agreements may available acceptable terms successful claim infringement made us could develop noninfringing technology license infringed similar technology timely costeffective basis revenue may decrease could exposed legal actions customers initiated may need initiate lawsuits protect enforce patents intellectual property rights could expensive lose could cause us lose intellectual property rights would reduce ability compete market rely patents protect portion intellectual property competitive position order protect enforce patent rights may initiate patent litigation third parties infringement suits interference proceedings litigation may necessary •assert claims infringement •enforce patents •protect trade secrets knowhow •determine enforceability scope validity proprietary rights others currently initiated number lawsuits competitors believe selling products infringe proprietary rights current lawsuits initiate could expensive take significant time divert managements attention business concerns litigation also puts patents risk invalidated interpreted narrowly patent applications risk issuing additionally may provoke third parties assert claims us patent law relating scope claims technology fields operate still evolving consequently patent positions industry generally uncertain may prevail suits damages remedies awarded may commercially valuable course suits may public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative stock price could decline noncompetition obligations restrictions limit ability take full advantage management team technology license research development capabilities members management team significant experience diabetes field addition technology license may potential applications field research development capabilities could applied field however conjunction splitoff inverness medical technology inc imt agreed compete imt johnson field diabetes 2011 addition mr ron zwanziger chairman chief executive officer president two senior scientists dr david scott dr jerry mcaleer entered consulting agreements imt impose similar restrictions license agreement imt prevents us using licensed technology field diabetes result restrictions cannot pursue opportunities field diabetes unlikely able exercise effective remedies arthur andersen llp former independent public accountants although dismissed arthur andersen llp independent public accountants june 2002 engage bdo seidman llp independent registered public accounting firm consolidated financial statements december 31 2001 2000 extent included report previously filed reports registrations statements audited arthur andersen march 14 2002 arthur andersen indicted federal obstruction justice charges arising governments investigation enron corporation june 15 2002 jury houston texas found arthur andersen guilty federal obstruction justice charges light jury verdict underlying events arthur andersen subsequently substantially discontinued operations dismissed essentially entire workforce therefore unlikely able exercise effective remedies collect judgments arthur andersen untrue statement material fact contained financial statements audited arthur andersen omissions state material fact required stated financial statements operating results may fluctuate due various factors result periodtoperiod comparisons results operations necessarily meaningful factors relating business make future operating results uncertain may cause fluctuate period factors include •the timing new product announcements introductions us competitors •market acceptance new enhanced versions products •changes manufacturing costs expenses •competitive pricing pressures •the gain loss significant distribution outlets customers •increased research development expenses •the timing future acquisitions •general economic conditions •general stock market conditions economic external factors operating results may fluctuate quarter may difficult us investors predict future performance viewing historical operating results periodtoperiod comparisons operating results may meaningful due acquisitions engaged number significant acquisitions recent years make difficult analyze results compare period including acquisitions unipath business december 2001 ivc march 2002 wampole september 2002 abi august 2003 abbott rapid diagnostics business september 2003 periodtoperiod comparisons results operations may meaningful due acquisitions indications future performance future acquisitions also make results difficult compare period future stock price may fluctuate significantly stockholders buy sell common stock may lose part value investment depending price common stock time common stock listed american stock exchange since november 23 2001 limited market capitalization result currently followed market analysts portion investment community limited trading common stock may therefore make difficult sell shares addition share price may volatile due operating results well factors beyond control 2004 sales price common stock ranged 1475 2550 2003 sales price common stock ranged 1340 2750 possible future periods results operations expectations public market event market price common stock could decline furthermore stock market may experience significant price volume fluctuations may affect market price common stock reasons unrelated operating performance market price common stock may highly volatile may affected factors •our quarterly annual operating results including failure meet performance estimates securities analysts •changes financial estimates revenues operating results buysell recommendations securities analysts •the timing announcements us competitors significant products contracts acquisitions publicity regarding actual potential results performance thereof •changes general conditions economy financial markets health care industry •government regulation health care industry •changes areas tax laws •sales substantial amounts common stock perception sales could occur •changes investor perception industry businesses prospects •the loss key employees officers directors •other developments affecting us competitors antitakeover provisions organizational documents delaware law may limit ability stockholders control policies effect change control company prevent attempts stockholders replace remove current management may best interests provisions certificate incorporation bylaws may discourage third party making proposal acquire us even stockholders might consider proposal best interests prevent attempts stockholders replace remove current management provisions include following •our certificate incorporation provides three classes directors term office one class expiring year commonly referred staggered board preventing stockholders voting election one class directors annual meeting stockholders provision may effect keeping current members board directors control longer period time stockholders may desire •our certificate incorporation authorizes board directors issue shares preferred stock without stockholder approval establish preferences rights preferred stock issued would allow board issue one classes series preferred stock could discourage delay tender offer change control •our certificate incorporation prohibits stockholders filling board vacancies calling special stockholder meetings taking action written consent •our certificate incorporation provides removal director cause affirmative vote holders 75 shares entitled vote election directors •our bylaws require advance written notice stockholder proposals director nominations additionally subject section 203 delaware general corporation law general imposes restrictions upon acquirers 15 stock finally board directors may future adopt protective measures stockholder rights plan could delay deter prevent change control intend pay dividends common stock benefit investment common stock appreciates value currently intend retain future earnings finance expansion business expect pay cash dividends common stock foreseeable future addition senior credit facility currently prohibits payment dividends indenture governing terms senior subordinated notes restricts amount dividends may pay result success investment common stock depend entirely upon future appreciation guarantee common stock appreciate value even maintain price purchased shares special statement regarding forwardlooking statements report contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words may could would intend expect anticipate believe estimate continue similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state forwardlooking information may events future able predict accurately control may cause actual results differ materially expectations describe forwardlooking statements caution investors forwardlooking statements involve risks uncertainties actual results may differ materially discuss report differences may result various factors including factors described certain factors affecting future results section report risk factors identified time periodic filings sec important additional factors could cause actual results differ materially projected forwardlooking statements follows •economic factors including inflation fluctuations interest rates foreign currency exchange rates potential effect fluctuations revenues expenses resulting margins •competitive factors including technological advances achieved patents attained competitors generic competition •domestic foreign healthcare changes resulting pricing pressures including continued consolidation among healthcare providers trends toward managed care healthcare cost containment government laws regulations relating sales promotion reimbursement pricing generally •government laws regulations affecting domestic foreign operations including relating trade monetary fiscal policies taxes price controls regulatory approval new products licensing •manufacturing interruptions delays capacity constraints lack availability alternative sources components products including ability successfully maintain relationships suppliers put place alternative suppliers terms acceptable us •difficulties inherent product development arising abis subjection fdas application integrity policy including potential inability successfully continue technological innovation complete clinical trials obtain regulatory approvals united states abroad gain maintain market approval products possibility encountering infringement claims competitors respect patent intellectual property rights preclude delay commercialization product •significant litigation adverse us including product liability claims patent infringement claims antitrust claims •product efficacy safety concerns resulting product recalls declining sales •the impact business combinations including acquisitions divestitures recent acquisitions abi abbott rapid diagnostics business organizational restructurings consistent evolving business strategies •our ability satisfy financial covenants conditions contained agreements governing indebtedness •our ability obtain required financing terms acceptable us •the issuance new revised accounting standards american institute certified public accountants financial accounting standards board public company accounting oversight board sec foregoing list sets forth many factors could impact upon ability achieve results described forwardlooking statements readers place undue reliance forwardlooking statements invest common stock aware occurrence events described elsewhere report could harm business prospects operating results financial condition undertake obligation update forwardlooking statements result future events developments item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding expectations respect pending joint venture procter gamble company pg impact expanded distribution network impact consolidation manufacturing facilities margins impact improved margins operating cash flow new product introductions research development expenditures anticipated growth professional diagnostics business funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 11 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview leading global manufacturer supplier rapid diagnostic products consumer professional markets continually exploring new opportunities proprietary electrochemical technologies variety professional diagnostic consumeroriented applications including immunodiagnostics focus women’s health cardiology infectious disease part strategy focused opportunities including acquisitions strategic partnerships aimed expanding product offerings distribution capability rapid diagnostic marketplace 2006 acquisition assets acon laboratories’ business researching developing manufacturing marketing selling lateral flow immunoassay directlyrelated products united states canada australia japan western europe innovacon business expanded product offerings immediate positive impact operating results also continued expand worldwide distribution network supporting professional diagnostics segment ultimately enable us get future cardiology diagnostic products professional users critical market acceptance since beginning fourth quarter 2005 acquired distributors spain australia canada germany italy japan also focused improving margins consolidation certain manufacturing operations lower cost facilities acquisition innovacon business also represents key component strategy date benefited higher margins business enjoys margins result lower costs associated manufacturing new 300000 square foot manufacturing facility located hangzhou china abon facility acquired may 2006 part transaction acon laboratories 2007 expect begin see improved margins existing products move production certain products higher costs facilities abon facility agreement pg form 5050 joint venture development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside fields cardiology diabetes presents us exciting unique opportunity leveraging pg’s marketing distribution capabilities expect partnership simultaneously expand reach overthecounter diagnostic products enabling enhanced focus rapidly growing professional diagnostics segment particular cardiology development programs also continue emphasize new product development requires substantial investment involves significant inherent risk intend continue devote substantial resources research development activities also continue aggressively defend substantial intellectual property portfolio underlies emphasis new product development potential infringers financial highlights net revenue 2006 5695 million increased 1476 million 35 4219 million 2005 primarily result acquisition innovacon business businesses acquired 2005 notably binax determine business acquired abbott laboratories higher license royalty revenue lesser extent organic growth gross profit increased 769 million 50 2292 million 2006 1523 million 2005 principally result increased license royalty revenue gross profit earned incremental revenue acquired businesses primarily professional diagnostic business gross profit nutritional supplements business also increased 2006 principally result improved factory utilization result increasing revenue cost reduction initiatives private label manufacturing business offsetting increases variety charges totaling 98 million associated closures abi operation san diego california manufacturing facility galway ireland noncash stockbased compensation expense gross profit 2005 adversely impacted 81 million associated closing galway ireland manufacturing facility charges associated excess inventories product recall continue invest aggressively research development new products technologies evidenced increased research development expense 537 million 2006 310 million 2005 expenditures 2006 2005 reported net 166 million 172 million respectively arising codevelopment funding arrangement entered iti scotland february 2005 research development expense considering codevelopment funding 703 million 2006 482 million 2005 increase 221 million increase spending resulted part expenditures 89 million associated acquisitions clondiag innovacon business including 50 million charge related writeoff inprocess research development projects achieved technical feasibility date acquisition clondiag remaining research development spending primarily related continued significant investment development products field cardiology codevelopment funding arrangement iti scotland expires march 2008 expect receive approximately £10 million 196 million december 31 2006 aggregate additional funding end arrangement results operations year ended december 31 2006 compared year ended december 31 2005 net product sales net product sales increased 1457 million 36 5521 million 2006 4065 million 2005 excluding unfavorable impact currency translation net product sales 2006 grew approximately 1435 million 35 2005 currency adjusted increase revenue increased result acquisitions binax march 2005 contributed revenue 96 million ii determine business june 2005 contributed revenue 159 million iii biostar september 2005 contributed revenue 210 million iv idt september 2005 contributed 104 million v innovacon business march 2006 contributed 549 million vi various less significant acquisitions contributed aggregate 19 million increase net product sales business segment net product sales business segment 2006 2005 follows consumer diagnostic products currency adjusted increase net product sales consumer diagnostic products 83 million 51 comparing 2006 2005 currency adjusted increase 74 million resulted acquisition innovacon business march 2006 vitamins nutritional supplements vitamins nutritional supplements net product sales increased 66 million 9 comparing 2006 2005 increase driven primarily private label business professional diagnostic products currency adjusted increase net product sales professional diagnostic products 1286 million 759 comparing 2006 2005 currency adjusted increase revenue increased result acquisitions binax march 2005 contributed revenue 96 million ii determine business june 2005 contributed revenue 159 million iii biostar september 2005 contributed revenue 210 million iv idt september 2005 contributed revenue 104 million v innovacon business march 2006 contributed 475 million vi various less significant acquisitions contributed aggregate 19 million increase organic growth particularly highly differentiated respiratory products also contributed growth net product sales geographic location net product sales geographic location 2006 2005 follows net product sales 3230 million 2342 million generated united states approximately 59 58 total net product sales year ended december 31 2006 2005 respectively growth net product sales geographic regions resulted various acquisitions discussed organic growth license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 19 million 13 173 million 2006 154 million 2005 increase primarily relates royalty revenue received result settlement licensing arrangements entered quidel corporation april 2005 vedalab november 2006 gross profit margin gross profit increased 769 million 50 2292 million 2006 1523 million 2005 gross profit 2006 benefited higher average margins earned revenue recently acquired businesses favorable product mix included cost sales 2006 restructuring charge 95 million related closure abi operation san diego california along writeoff fixed assets facilities impacted 2006 restructuring plans closure cdil manufacturing facility galway ireland cost sales 2006 also included 04 million charge stockbased compensation related january 1 2006 adoption sfas 123r sharebased payment cost sales 2005 included inclusion cost sales 41 million charge principally associated decision close galway ireland manufacturing facility ii charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return iii 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 offset part gross profit earned increased professional diagnostics products revenue discussed cost sales included amortization expense 112 million 72 million 2006 2005 respectively overall gross margin 40 2006 compared 36 2005 overall gross margin 2006 adversely affected 95 million restructuring charge 04 million stockbased compensation charge discussed overall gross margin 2005 adversely affected 41 million charge associated cdil closing 24 million wampole inventory reserve 16 million returns inventory reserve associated drugs abuse product recalls discussed gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated license royalty revenue gross profit net product sales increased 758 million 2173 million 2006 1415 million 2005 gross profit net product sales business segment 2006 2005 follows consumer diagnostic products gross profit consumer diagnostic product sales increased 61 million 8 comparing 2006 2005 cost sales 2006 included restructuring charges totaling 22 million related closure cdil manufacturing facility 04 million charge stockbased compensation included cost sales 2005 adversely effecting gross profit 41 million charge principally associated decision close cdil manufacturing facility percentage consumer diagnostic net product sales gross profit 48 2006 compared 47 2005 increase gross profit consumer diagnostic product sales resulted change product mix vitamins nutritional supplements gross profit vitamins nutritional supplements business increased 23 million 84 comparing 2006 2005 increase primarily result improved factory utilization cost reduction initiatives private label manufacturing business percentage vitamin nutritional supplements net product sales gross profit vitamins nutritional supplements business 6 2006 compared 4 2005 professional diagnostic products gross profit professional diagnostic products increased 674 million 108 comparing 2006 2005 principally result gross profit earned revenue acquired businesses discussed offset 72 million restructuring charge cost sales associated management’s decision close abi operations san diego california reducing gross profit 2005 charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 percentage professional diagnostic net product sales gross profit professional diagnostic product sales 43 2006 compared 37 2005 research development expense research development expense increased 227 million 73 537 million 2006 310 million 2005 research development expense 2006 2005 reported net codevelopment funding 166 million 172 million respectively arising codevelopment funding arrangement entered iti february 2005 year increase research development expense primarily result increased spending related cardiology research programs 89 million spending related 2006 acquisitions 29 million charge related writeoff fixed assets impacted restructuring plans 14 million charge stockbased compensation related january 1 2006 adoption sfas 123r included 89 million additional spending related recent acquisitions 50 million charge related writeoff inprocess research development projects achieved technical feasibility date acquisition clondiag amortization expense 33 million 23 million included research development expense 2006 2005 respectively research development expense percentage net product sales increased 10 2006 8 2005 sales marketing expense sales marketing expense increased 223 million 31 944 million 2006 721 million 2005 increase sales marketing expense primarily attributed expanded sales marketing infrastructure support growth professional diagnostics business additional expense approximately 160 million related acquisitions binax determine business biostar idt 2005 acquisitions clondiag innovacon business 2006 approximately 13 million increase sales marketing expense resulted increased advertising efforts promote premium consumer diagnostic products 2006 sales marketing 2006 also included charge 07 million stockbased compensation related january 1 2006 adoption sfas 123r amortization expense 68 million 29 million included sales marketing expense 2006 2005 respectively sales marketing expense percentage net product sales decreased 17 2006 18 2005 general administrative expense general administrative expense increased 113 million 19 712 million 2006 600 million 2005 increase general administrative expense approximately 122 million resulted additional spending related acquisitions binax determine business biostar idt completed 2005 2006 acquisitions clondiag innovacon business increase general administrative expense 2006 partially offset decrease legal expenses 47 million also included general administrative expense 30 million charge stockbased compensation related january 1 2006 adoption sfas 123r amortization expense included general administrative expense 04 million 2006 2005 general administrative expense percentage net revenue decreased 13 2006 14 2005 loss dispositions net 2006 recorded net loss dispositions 35 million included charge loss 49 million associated management’s decision dispose scandinavian micro biodevices aps smb research operation 49 million charge includes loss 20 million impaired assets represents goodwill associated smb 29 million loss sale smb finalized fourth quarter 2006 49 million loss offset 14 million gain sale idle manufacturing facility galway ireland result 2005 restructuring plan interest expense interest expense 2006 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 interest expense 2005 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 change market value interest rate swap agreement 07 million qualify hedge accounting purposes interest expense increased 48 million 22 266 million 2006 218 million 2005 2006 recorded charge 13 million related prepayment penalties writeoff debt origination costs resulting early repayment 200 million 10 subordinated promissory notes september 8 2006 addition 13 million charge higher applicable interest rates senior credit facility 2006 compared 2005 increase amortization deferred financing costs related debt refinancings occurred later 2005 first quarter 2006 also contributed increase interest expense 2006 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows income expense net 2006 includes foreign exchange gain 43 million associated closure galway ireland manufacturing operation 47 million income related portion settlement vedalab relating periods prior 2006 income expense net 2005 includes following items 150 million income portion settlement quidel relating periods prior 2005 ii 84 million gain legal settlement class action suit several raw material suppliers vitamins nutritional supplements business iii 26 million income related value option received licensing arrangement iv 27 million charge related legal settlement nutritional segment commercial dispute arising distribution arrangement entered september 1996 v 43 million charge related legal settlement princeton biomeditech corporation pbm provision income taxes provision income taxes decreased 11 million 16 57 million 2006 68 million 2005 effective tax rate 2006 52 compared 55 2005 decrease provision income taxes 2005 2006 primarily related taxes foreign income primary components 2006 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 34 million primary components 2005 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 29 million net loss income incurred net loss 168 million 2006 incurred net loss 192 million 2005 net loss per common share available common stockholders 049 per basic diluted common share 2006 compared net loss 079 per basic diluted common share 2005 net loss 2006 2005 resulted various factors discussed see note 13 consolidated financial statements included elsewhere annual report form 10k calculation net loss income per share year ended december 31 2005 compared year ended december 31 2004 net product sales net product sales increased 410 million 11 4065 million 2005 3654 million 2004 excluding unfavorable impact currency translation net product sales 2005 grew approximately 418 million 11 2004 revenue increased result acquisitions 2005 binax acquired march 2005 contributed 184 million increase ii determine rapid diagnostics business acquired june 2005 contributed revenues 172 million iii biostar acquired september 2005 contributed revenues 69 million iv various less significant acquisitions contributed aggregate 97 million increase net product sales business segment net product sales business segment 2005 2004 follows consumer diagnostic products currency adjusted increase net product sales consumer diagnostic products 35 million 2 comparing 2005 2004 currency adjusted increase 19 million resulted acquisition consumer pregnancy test business advanced clinical systems pty ltd acs january 2005 organic growth principally us accounted remaining growth vitamins nutritional supplements net product sales vitamins nutritional supplements decreased 25 million 3 comparing 2005 2004 decrease primarily due brand name nutritional business aggregate sales brand name nutritional products including among others ferrosequels stresstabs protegra posture soycare allbee zbec declined annual basis past several years believe products underperformed part aging brands limited brand recognition face increasing private label competition professional diagnostic products currency adjusted increase net product sales professional diagnostic products 408 million 31 comparing 2005 2004 currency adjusted increase revenue increased result acquisitions 2005 binax contributed 184 million increase ii determine rapid diagnostics business contributed revenues 172 million iii biostar contributed revenues 69 million iv various less significant acquisitions contributed aggregate 78 million increase net product sales geographic location net product sales geographic location 2005 2004 follows growth net product sales geographic regions resulted various acquisitions discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 68 million 80 154 million 2005 86 million 2004 increase primarily related royalty revenues received result settlement licensing arrangement entered quidel corporation april 2005 gross profit margin gross profit increased 53 million 4 1523 million 2005 1470 million 2004 increase gross profit attributable higher gross margins increased license royalty revenue discussed offsetting increase inclusion cost sales 41 million charge principally associated decision close cdil manufacturing facility ii charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return iii 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 offset part gross profit earned increased professional diagnostics products revenue discussed gross profit nutritional supplements business decreased 60 million 88 million 2004 27 million 2005 private label nutritional supplements business suffered excess capacity industry increasing price competition cost sales included amortization expense 72 million 55 million 2005 2004 respectively overall gross margin 36 2005 compared 39 2004 overall gross margin 2005 adversely affected 41 million charge associated cdil closing 24 million wampole inventory reserve 16 million returns inventory reserve associated drugs abuse product recalls discussed excluding charges gross margin 38 2005 gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated license royalty revenue gross profit total net product sales decreased 03 million 1415 million 2005 1418 million 2004 gross profit net product sales business segment 2005 2004 follows gross profit consumer diagnostic product sales decreased 64 million 8 comparing 2005 2004 included cost sales adversely effecting gross profit 41 million charge principally associated decision close cdil manufacturing facility consumer diagnostic products gross profit consumer diagnostic product sales 47 2005 compared 52 2004 excluding 41 million cdil closure charge discussed gross margin consumer diagnostic products segment 50 2005 remaining decrease gross margin consumer diagnostic product sales resulted change product mix vitamins nutritional supplements gross profit vitamins nutritional supplements business decreased 60 million 69 comparing 2005 2004 private label nutritional supplements business suffered excess capacity industry led increasing price competition generally decreasing margins revenue decreases brand named nutritional products also contributed lower gross profit 2005 2004 professional diagnostic products gross profit professional diagnostic products increased 122 million 24 comparing 2005 2004 principally result gross profit earned revenues acquired businesses discussed reducing gross margin 2005 charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 excluding charges gross profit professional diagnostic products segment increased 162 million comparing 2005 2004 gross margin professional diagnostic product sales 37 2005 compared 39 2004 excluding 24 million wampole inventory reserve 16 million drugs abuse charge discussed gross margin professional diagnostic product sales 39 2005 research development expense research development expense decreased 10 million 3 310 million 2005 320 million 2004 research development expense 2005 reported net codevelopment funding 172 million arising codevelopment funding arrangement entered iti scotland february 2005 research development expense considering codevelopment funding 482 million 2005 increase 162 million 2004 increase spending resulted part expenditures 50 million professional diagnostics business associated acquisitions binax biostar ischemia remaining research development spending primarily related continued significant investment development products field cardiology amortization expense 23 million 08 million included research development expense 2005 2004 respectively research development expense percentage net product sales 8 9 2005 2004 respectively sales marketing expense sales marketing expense increased 141 million 24 721 million 2005 580 million 2004 acquisitions completed 2005 accounted 83 million increase approximately 18 million increase sales marketing expense resulted increased advertising efforts promote premium consumer diagnostic products 2005 remaining increase sales marketing expense resulted expanded sales marketing infrastructure support anticipated growth professional diagnostics business amortization expense 29 million 39 million included sales marketing expense 2005 2004 respectively sales marketing expense percentage net product sales increased 18 2005 16 2004 increase sales marketing expense percentage net product sales primarily resulted investment advertising efforts premium consumer diagnostic products sales marketing infrastructure support anticipated growth professional diagnostics business general administrative expense general administrative expense increased 73 million 14 600 million 2005 527 million 2004 acquisitions completed 2005 accounted 42 million increase remaining increase general administrative expense resulted increase consulting legal spending due formal order investigation connection previously disclosed revenue recognition matter wampole active pursuits defenses litigations including lawsuits settlements quidel pbm amortization expense 04 million 02 million included general administrative expense 2005 2004 respectively general administrative expense percentage net revenue consistent 2005 2004 14 interest expense interest expense includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 change market value interest rate swap agreement 07 million qualify hedge accounting purposes interest expense decreased 03 million 1 218 million 2005 221 million 2004 recorded charge 38 million representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 excluding charge interest expense increased 35 million 2005 increase primarily due higher average outstanding debt balance 2153 million 2005 compared 1944 million 2004 primarily result borrowings finance various acquisitions operations offset part funds raised sale common stock august 2005 additionally 875 interest rate 1500 million bonds together 50 basis points interest penalty portion first quarter 2005 due late registration related exchange offer coupled impact increase shortterm interest rates effected borrowings senior credit facility increased average cash interest rate 90 2005 88 2004 bonds due 2012 provide us longterm fixed rate significant portion indebtedness compared variable rates senior credit facility income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows included income expense net 2005 following items 150 million income portion settlement quidel relating periods prior 2005 ii 84 million gain legal settlement class action suit several raw material suppliers vitamins nutritional supplements business iii 26 million income related value option received licensing arrangement iv 27 million charge related legal settlement nutritional segment commercial dispute arising distribution arrangement entered september 1996 v 43 million charge related legal settlement pbm included income expense net 2004 following items 05 million income royalties received attributable periods prior 2004 associated license arrangement historically underpaid ii 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement iii 05 million litigation settlement gain provision income taxes provision income taxes increased 45 million 200 68 million 2005 23 million 2004 effective tax rate 2005 55 compared 16 2004 increase provision income taxes 2004 2005 primarily related taxes foreign income primary components 2005 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 29 million 2004 recognized 08 million benefit reduction valuation allowance related net operating loss nol carryforward two foreign subsidiaries due assessment would likely realize benefit nols net loss income incurred net loss 192 million 2005 incurred net loss 166 million 2004 taking account charges redemption interest amortization beneficial conversion feature related series redeemable convertible preferred stock net loss available common stockholders 173 million 2004 net loss per common share available common stockholders 079 per basic diluted common share 2005 compared net loss 087 per basic diluted common share 2004 net loss 2005 2004 resulted various factors discussed see note 13 consolidated financial statements included elsewhere annual report form 10k calculation net loss income per share liquidity capital resources based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities expected funding resulting codevelopment funding agreement iti adequate fund operations including outstanding debt commitments discussed next 12 months long run expect fund working capital needs commitments primarily operating cash flow expect improve operating margins grow business new product introductions continuing leverage strong intellectual property position also expect rely credit facilities capital markets fund portion capital needs commitments raise additional funds issuing equity convertible securities dilution existing stockholders may result summary changes cash position december 31 2006 cash equivalents 711 million 368 million increase december 31 2005 primary sources cash 2006 included 2350 million proceeds issuance common stock including common stock issues employee stock option stock purchase plans 147 million proceeds repayment notes receivable 343 million operating activities 2006 investing activities 2006 used 1788 million cash consisted primarily 1315 million cash used acquisitions 126 million used purchase availableforsale securities 132 million used minority interest investments 197 million used capital equipment purchases offset 22 million net proceeds sale galway ireland facility sales capital equipment 41 million decrease assets nonequity financing activities primarily related senior credit facility 10 subordinated promissory notes used cash 706 million 2006 fluctuations foreign currencies favorably impacted cash balance 24 million 2006 cash flows operating activities net cash provided operating activities 2006 343 million increase 77 million prior year net loss 2006 168 million funded net cash operating activities along 103 million increase working capital offset 394 million depreciation amortization 220 million noncash items 103 million increase working capital primarily driven increase accounts receivable prior year cash flows investing activities 2006 paid 1315 million cash acquisitions transactionrelated costs net cash acquired primarily respect acquisitions clondiag innovacon business february 28 2006 acquired 6745 ownership clondiag privatelyheld company located jena germany developed multiplexing technology nucleic acid immunoassaybased diagnostics august 31 2006 acquired remaining 3255 aggregate purchase price clondiag 244 million consisting 177 million cash 243398 shares common stock valued 65 million 01 million direct acquisition costs 01 million remaining obligation terms clondiag acquisition also provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date march 31 2006 acquired innovacon business although acquisition involved several stages payments 2006 aggregate purchase price acquisition innovacon business including acquisition abon facility may 2006 1841 million consisting cash payments totaling 1120 million 1871250 shares common stock valued 530 million 91 million estimated direct acquisition costs additional liability 100 million payable sellers deferred payment date connection acquisition also entered agreement purchase acon laboratories’ lateral flow immunoassay sales distribution business territories included part innovacon business acquired 2006 terms agreement event business achieves specified level profitability acquire business 2009 formulaic price based revenues earnings business alternatively may elect complete acquisition business exchange payment equal 15 purchase price would due elected complete acquisition addition february 5 2007 acquired substantially assets first check diagnostics llc first check privatelyheld diagnostics company approximately 245 million cash addition obligated pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods 2006 purchased 126 million worth marketable equity securities intend hold indefinitely therefore carry consolidated balance sheet availableforsale securities recorded fair market value december 31 2006 cash investments made 2006 include 40 investment vedalab french manufacturer supplier rapid diagnostic tests professional markets aggregate purchase price 97 million consisted 76 million cash 49787 shares common stock aggregate fair value 20 million 01 million estimated direct acquisition costs terms agreement also settled ongoing patent infringement claim vedalab resulting settlement payment us 51 million cash flows financing activities february 8 9 2006 sold aggregate 3400000 shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes august 23 2006 sold aggregate 5000000 shares common stock 3025 per share funds affiliated 17 accredited institutional investors private placement proceeds private placement approximately 1455 million net issuance costs 57 million amount used 413 million payments related abon acquisition 53 million purchase remaining 3255 clondiag repaid principal outstanding senior credit facility 540 million repaid principal interest outstanding along prepayment penalty 10 subordinated promissory notes 208 million remainder net proceeds retained general corporate purposes january 31 2007 sold aggregate 6000000 shares common stock 3965 per share underwritten public offering february 5 2007 underwriters exercised full option purchase additional 900000 shares cover overallotments proceeds offering approximately 2613 million net issuance costs 123 million include deductions underwriting discounts commissions take effect reimbursement underwriters portion offering expenses amount used 449 million repay principal accrued interest owing term loan senior credit facility remainder net proceeds retained working capital general corporate purposes december 2006 signed definitive agreement pg form 5050 joint venture development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside fields cardiology diabetes connection agreement contribute related consumer diagnostic monitoring assets manufacturing core intellectual property assets new joint venture entity pg acquire interest joint venture consideration cash payment 3250 million primary role collaboration develop manufacture consumer diagnostic products pg’s primary role market sell distribute existing tobedeveloped products retain rights respect development sale cardiology diagnostic products professional point care diagnostic businesses following completion transaction formation joint venture cease consolidate operating results formerly whollyowned consumer diagnostics business instead account 50 interest results joint venture equity method addition share control joint venture pg may access cash generated operations joint venture certain circumstances could required provide working capital joint venture terms agreement pg require us repurchase interest joint venture market value fourth anniversary closing primary senior credit facility group banks amended consists 450 million us term loan revolving lines credit aggregate amount 1100 million subject continuing covenant compliance aggregate indebtedness senior credit facility 448 million december 31 2006 outstanding us term loan february 1 2007 paid remaining principal accrued interest owing senior credit facility may repay future borrowings revolving lines credit time event later march 31 2008 required make mandatory prepayments primary senior credit facility meet certain cash flow thresholds issue equity securities subordinated debt sell assets ordinary course business certain thresholds borrowings revolving lines credit bear interest either 1 london interbank offered rate libor defined credit agreement plus applicable margins option 2 floating index rate defined credit agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance december 31 2006 applicable interest rate revolving lines credit including applicable margin ranged 685 935 borrowings primary senior credit facility secured stock us european subsidiaries substantially intellectual property rights assets businesses us europe excluding assets subsidiaries israel china japan australia sweden stock orgenics certain smaller subsidiaries senior credit agreement amended must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditures various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends currently compliance covenants amended february 2004 completed sale 1500 million 875 senior subordinated notes bonds due 2012 private placement qualified institutional buyers bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 december 31 2006 accrued interest related bonds amounted 49 million bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings primary senior credit facility bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries’ ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications december 31 2006 aggregate 10 million outstanding capital lease obligations payable 2009 income taxes december 31 2006 approximately 1882 million domestic net operating loss carryforwards 459 million foreign net operating loss nol carryforwards respectively either expire various dates 2026 carried forward indefinitely losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic operating loss carryforward amount december 31 2006 included approximately 705 million preacquisition losses imn ischemia ostex adc future benefit losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense also included domestic nol carryforwards december 31 2006 approximately 26 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied long term tax exempt rate recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2006 contractual obligations following table summarizes principal contractual obligations december 31 2006 effects obligations expected liquidity cash flow future periods 1 see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 7 consolidated financial statements included elsewhere annual report form 10k 3 see note 10a consolidated financial statements included elsewhere annual report form 10k 4 included longterm liabilities 10 million technology license payment obligations 54 million pension obligations 5 purchase obligations relate inventory purchases operating expense commitments 6 connection acquisition innovacon business obligated make 60 million payment remaining first territory business 11 million payment related one european customer continued take supply seller additionally required make 100 million payment payable sellers deferred payment date 7 amounts based 1500 million senior subordinated notes amounts exclude interest debt due variable interest rates see note 6 consolidated financial statements included elsewhere annual report form 10k december 31 2006 outstanding material contingent contractual obligations related acquisitions binax clondiag respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition respect acquisition clondiag terms acquisition agreement provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date contingent considerations accounted increases aggregate purchase prices contingencies occur critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2006 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions discussed critical accounting policy “use estimates sales returns allowances allowance doubtful accounts” future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected connection acquisition abbott rapid diagnostics business september 2003 determine business june 2005 abbott laboratories entered transition services agreement abbott whereby abbott would continue distribute certain acquired products period 18 months following acquisition subject certain extensions transition period recognized revenue sales products title transferred abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists company records revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 528 million 512 million 552 million 10 13 15 respectively net product sales 2006 2005 2004 respectively recorded product sales derive net product sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 1004 million 705 million net allowances doubtful accounts 84 million 97 million december 31 2006 december 31 2005 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product sales may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 783 million 712 million net provision excess obsolete inventory 82 million 77 million december 31 2006 2005 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2006 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 823 million 4394 million 2396 million respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited future expected cash flows product sales customer contracts acquired developed technologies patents ii expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products iii acquired companies’ brand awareness market position iv assumptions period time continue use acquired brand v discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill balances related consumer diagnostics professional diagnostics reporting units amounted 860 million 3534 million respectively december 31 2006 september 30 2006 performed annual impairment review carrying values goodwill using discounted cash flows approach based upon review believe goodwill related consumer diagnostics professional diagnostics reporting units impaired future cash flows operating results used impairment review based management’s projections assumptions future events cause projections differ used september 30 2006 could lead significant impairment charges goodwill future events circumstances occurred since review september 30 2006 would require us reassess whether carrying values goodwill impaired valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2006 future events could cause us conclude otherwise stockbased compensation january 1 2006 account stockbased compensation accordance sfas 123r sharebased payment fair value recognition provisions statement sharebased compensation cost measured grant date based value award recognized expense vesting period determining fair value sharebased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behavior actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock chosen utilize simplified method calculate expected life options averages award’s weighted average vesting period contractual term stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest amount expense reduced estimated forfeitures sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions application sfas 123r compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 1076 million december 31 2006 due uncertainties related future benefits deferred tax assets related primarily us businesses certain foreign net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accordance sfas 109 accounting income taxes sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “item 3 legal proceedings” reported material legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements recently issued standards february 2006 financial accounting standards board “fasb” issued sfas 155 accounting certain hybrid financial instruments amends sfas 133 accounting derivative instruments hedging activities sfas 140 accounting transfers servicing financial assets extinguishments liabilities sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 taxes collected customers remitted governmental authorities presented income statement scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus issue 0603 effective interim annual reporting periods beginning december 15 2006 currently evaluating impact eitf 0603 need change manner record gross receipts expected change would material impact total operating revenue expenses operating income net income would affected june 2006 fasb issued fasb interpretation “fin” 48 accounting uncertainty income taxesan interpretation fasb statement 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition fin 48 effective fiscal years beginning december 15 2006 adopting provisions fin 48 beginning first quarter 2007 continue evaluate impact adoption fin 48 consolidated financial statements september 2006 fasb issued sfas 157 fair value measurements sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged continue evaluate impact adoption sfas 157 consolidated financial statements december 2006 fasb issued fasb staff position “fsp” eitf 00192 accounting registration payment arrangements fsp specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 accounting contingencies guidance fsp amends fasb statement 133 accounting derivative financial instruments hedging activities 150 accounting certain financial instruments characteristics liabilities equity fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others include scope exceptions registration payment arrangements fsp effective immediately registration payment arrangements financial instruments subject arrangements entered modified subsequent date issuance fsp registration payment arrangements financial instruments subject arrangements entered prior issuance fsp guidance shall effective financial statements issued fiscal years beginning december 15 2006 interim periods within fiscal years believe adoption eitf 00192 material impact consolidated financial statements recently adopted standards november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted materials spoilage addition statement requires allocation fixed production overheads costs conversion based normal capacity production facilities required sfas 151 adopted new accounting standard january 1 2006 adoption sfas 151 material impact financial position results operations cash flows december 2004 fasb issued sfas 123r sharebased payment addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments required sfas 123r sec adopted sfas 123r january 1 2006 note 15 may 2005 fasb issued sfas 154 accounting changes error correctionsa replacement apb opinion 20 fasb statement 3 replaces apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements statement requires voluntary change accounting principle applied retrospectively prior period financial statements financial statements presented current accounting principle always applied apb opinion 20 previously required voluntary changes accounting principle recognized including net income period change cumulative effect changing new accounting principle addition sfas 154 carries forward without change guidance contained apb opinion 20 reporting correction error previously issued financial statements change accounting estimate sfas 154 effective accounting changes corrections errors made january 1 2006 adoption sfas 154 impact financial statements september 2006 sec issued sec staff accounting bulletin “sab” 108 considering effects prior year misstatements quantifying misstatements current year financial statements provide guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 companies evaluate misstatement based impact current year income statement well cumulative effect correcting misstatements existed prior years existing current year’s ending balance sheet sab 108 effective fiscal years ending november 15 2006 adoption sab 108 material impact financial position results operations cash flows effective december 31 2006 adopted recognition provisions sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r statement requires employers recognize balance sheets overfunded underfunded status defined benefit postretirement plans measured difference fair value plan assets benefit obligation projected benefit obligation pension plans accumulated postretirement benefit obligation postretirement plans employers must recognize change funded status plan year change occurs comprehensive income statement also requires plan assets obligations measured employer’s balance sheet date measurement provision statement effective years beginning december 15 2008 early application encouraged yet adopted measurement provisions statement process determining impact adoption consolidated financial statements prior adoption recognition provisions sfas 158 accounted defined benefit postretirement plans sfas 87 employers’ accounting pensions sfas 87 required liability minimum pension liability recorded accumulated benefit obligation liability exceeded fair value plan assets adjustment recorded noncash charge accumulated comprehensive income stockholders’ equity sfas 87 changes funded status immediately recognized rather deferred recognized ratably future periods upon adoption recognition provisions sfas 158 recognized amounts prior changes funded status postretirement benefit plans accumulated comprehensive income result recognized following adjustments individual line items consolidated balance sheet december 31 2006 adoption sfas 158 effect consolidated statement operations year ended december 31 2006 prior period presented december 31 2006 included accumulated comprehensive income unrecognized prior service costs 68 million unrecognized actuarial gain 23 million estimated prior service cost actuarial loss recognized net periodic postretirement benefit obligation expense 2007 0 million 01 million respectively item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding anticipated expansion certain product categories research development expenditures impact research development activities potential new product technology achievements impact worldwide distribution network ability improve margins consolidation certain higher cost manufacturing operations lower cost facilities ability achieve synergies within expected timelines expectations respect spd joint venture pg growth prospects health management market impact pending acquisition matria ability compete effectively health management market ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 12 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview leading global manufacturer supplier rapid diagnostics products services well new product development efforts focused areas infectious disease cardiology oncology drugs abuse women’s health 2007 acquisitions biosite cholestech hemosense established company leading supplier cardiology diagnostic products acquisitions biosite instant redwood year enhanced position drugs abuse testing additionally december 2007 acquisition matritech also established stronger presence oncology acquiring unique nmp22® elisa rapid pointofcare tests screening monitoring bladder cancer expect continue expand product categories focused research development projects development distribution capabilities 2007 also entered growing health management market confident ability offer nearpatient monitoring tools combined valueadded healthcare services improve care lower healthcare costs providers patients pending acquisition matria able compete effectively health management market matria’s services span full range disease conditions research development programs two general focuses developing new technology platforms facilitate primary objective enabling individuals take charge improving health quality life moving testing hospital central laboratory physician’s office ultimately home additionally strong pipeline novel proteins combinations proteins function disease biomarkers developing new tests targeted towards areas focus 2007 also advanced another stated goal establishing worldwide distribution network allow us bring current future diagnostic products global professional market primarily smaller acquisitions local distributors late 2005 though 2007 expanded direct sales capabilities germany spain italy england netherlands india canada australia columbia addition continue focus improving margins consolidation certain higher cost manufacturing operations lower cost facilities including 300000 square foot manufacturing facility located hangzhou china well jointlyowned facility shanghai already seeing improved margins existing products moved facilities addition business integration activities 2007 met exceeded expectations particular biosite reduced costs integrated sales force efforts improved manufacturing efficiencies 2008 continue aggressively integrate acquired operations order achieve synergies within expected timelines second half 2007 also began implementation plan consolidate sales processing certain backoffice services seven current us operations shared service center located orlando florida shared service center expected commence operations second quarter 2008 may 2007 also consummated 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside fields cardiology diabetes leveraging pg’s marketing distribution capabilities expect spd joint venture expand reach current future overthecounter diagnostic products allowing us focus rapidly growing professional diagnostic health management business units financial highlights net revenue 2007 8395 million increased 2700 million 47 5695 million 2006 primarily result acquisitions instant march 2007 contributed revenue 228 million ii biosite june 2007 contributed revenue 1717 million iii cholestech september 2007 contributed revenue 241 million iv various less significant acquisitions contributed aggregate 671 million increase partially offsetting increased revenue result acquisitions decrease revenue associated completion 5050 joint venture spd pg may 17 2007 transferred substantially assets consumer diagnostic business manufacturing core intellectual property assets upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting accordance accounting principles board “apb” opinion 18 equity method accounting investments common stock organic growth particularly professional infectious disease drugs abuse products also contributed revenue growth well higher license royalty revenue gross profit increased 1645 million 72 3937 million 2007 2292 million 2006 principally result gross profit earned incremental revenue acquired businesses primarily professional diagnostic business well increased license royalty revenue gross profit nutritional supplements business also increased 2007 principally result improved customer mix improved factory utilization cost reduction initiatives private label manufacturing business offsetting increases decrease consumer diagnostic business gross margin principally result formation 5050 joint venture pg may 2007 gross profit adversely impacted 20 million charge associated various restructuring plans charge 82 million associated writeup inventory acquired fair value connection three 2007 acquisitions gross profit 2006 adversely impacted 95 million charges associated closures abi operation san diego california manufacturing facility galway ireland continue invest aggressively research development new products technologies evidenced increased research development expense 695 million 2007 487 million 2006 expenditures 2007 2006 reported net 185 million 166 million respectively arising codevelopment funding arrangement entered iti february 2005 research development expense considering codevelopment funding 880 million 2007 653 million 2006 increase 227 million increase spending resulted principally expenditures 198 million associated acquisitions biosite cholestech offsetting increases favorable impact 5050 joint venture pg codevelopment funding arrangement iti expires march 2008 final payment agreement received fourth quarter 2007 results operations year ended december 31 2007 compared year ended december 31 2006 net product sales net product sales increased 2421 million 44 7942 million 2007 5521 million 2006 excluding favorable impact currency translation net product sales 2007 grew approximately 2311 million 42 2006 currency adjusted increase revenue increased primarily result acquisitions first check diagnostics llc first check january 2007 contributed revenue 129 million ii instant march 2007 contributed revenue 228 million iii biosite june 2007 contributed revenue 1678 million iv cholestech september 2007 contributed revenue 241 million v biostat healthcare group biostat october 2007 contributed revenue 81 million vi hemosense november 2007 contributed revenue 35 million vii various less significant acquisitions contributed aggregate 427 million increase partially offsetting increased revenue result acquisitions decrease revenue associated completion 5050 joint venture pg may 17 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion transaction form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting recorded 761 million net product sales 2007 date joint venture formed compared 1716 million net product sales 2006 2007 recorded 650 million manufacturing revenue associated manufacturing agreement joint venture whereby manufacture sell consumer diagnostic products joint venture organic growth particularly professional infectious disease drugs abuse products also contributed growth well higher license royalty revenue net product sales business segment net product sales business segment 2007 2006 follows thousands professional diagnostic products currency adjusted increase net product sales professional diagnostic products 2668 million 88 comparing 2007 2006 currency adjusted increase revenue increased primarily result acquisitions instant march 2007 contributed revenue 228 million ii biosite june 2007 contributed revenue 1678 million iii cholestech september 2007 contributed revenue 241 million iv biostat october 2007 contributed revenue 81 million v hemosense november 2007 contributed revenue 35 million vi various less significant acquisitions contributed aggregate 172 million increase organic growth particularly professional infectious disease drugs abuse products also contributed growth consumer diagnostic products currency adjusted decrease net product sales consumer diagnostic products 214 million 12 comparing 2007 2006 currency adjusted decrease primarily driven completion 5050 joint venture pg may 17 2007 transferred substantially assets consumer diagnostic business manufacturing core intellectual property assets upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting net product sales consumer diagnostic products 2007 included 650 million manufacturing revenue associated manufacturing agreement spd whereby manufacture sell consumer diagnostic products joint venture partially offsetting impact joint venture 129 million net product sales first check consumer drugs abuse product line acquired january 2007 vitamins nutritional supplements vitamins nutritional supplements net product sales decreased 92 million 11 comparing 2007 2006 decrease driven primarily private label business services revenue services revenue 234 million 2007 represents revenue related health management businesses alere paradigmhealth qas acquired 2007 health management businesses included professional diagnostic segment net product services revenue geographic location net product services revenue geographic location 2007 2006 follows thousands net product services revenue 5119 million 3230 million generated united states approximately 63 59 total net product services revenue year ended december 31 2007 2006 respectively growth net product services revenue geographic regions resulted various acquisitions discussed organic growth partially offset decrease revenue associated completion 5050 joint venture pg may 2007 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 47 million 27 220 million 2007 173 million 2006 increase primarily relates 39 million royalty revenue contributed biosite acquired june 2007 additionally incremental royalty revenue derived new royalty agreements entered 2007 along increases associated certain existing royalty agreements partially offset decreases royalty agreements gross profit margin gross profit increased 1645 million 72 3937 million 2007 2292 million 2006 gross profit 2007 benefited higher average margins earned revenue recently acquired businesses favorable impact low cost manufacturing facilities china included gross profit 2007 restructuring charges totaling 20 million associated 2006 2007 joint venture related restructuring plans charge 82 million associated writeup inventory acquired fair value connection acquisitions biosite cholestech hemosense 06 million stockbased compensation expense additionally gross profit 2007 unfavorably impacted formation 5050 joint venture pg included cost revenues 2006 restructuring charge 95 million related closure abi operation san diego california along writeoff fixed assets facilities impacted 2006 restructuring plans closure cdil manufacturing facility galway ireland cost revenues 2006 also included 04 million charge stockbased compensation expense cost revenues included amortization expense 240 million 112 million 2007 2006 respectively overall gross margin 47 2007 compared 40 2006 gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated services revenue license royalty revenue gross profit net product sales increased 1516 million 3689 million 2007 2173 million 2006 gross profit net product sales business segment 2007 2006 follows thousands professional diagnostic products gross profit professional diagnostic net product sales increased 1771 million 137 comparing 2007 2006 principally result gross profit earned revenue acquired businesses discussed contributed higher average gross profits higher average profits partially offset 82 million charge associated writeup inventory acquired fair value connection acquisitions biosite cholestech hemosense 05 million restructuring charges 03 million stockbased compensation expense reducing gross profit 2006 72 million restructuring charge associated management’s decision close abi operations san diego california percentage professional diagnostic net product sales gross profit professional diagnostic product business 54 2007 compared 43 2006 consumer diagnostic products gross profit consumer diagnostic net product sales decreased 274 million 33 comparing 2007 2006 decrease primarily result formation 5050 joint venture pg consumer diagnostic business may 17 2007 partially offset gross profit earned revenue acquired businesses primarily first check acquisition discussed 5 markup products sold manufacturing agreement spd restructuring charge 15 million associated decision close facilities formation joint venture pg 03 million stockbased compensation expense gross profit 2006 adversely impacted restructuring charges totaling 22 million related closure cdil manufacturing facility 04 million stockbased compensation expense percentage consumer diagnostic net product sales gross profit consumer diagnostic products business 35 2007 compared 48 2006 vitamins nutritional supplements gross profit vitamins nutritional supplements net product sales increased 19 million 38 comparing 2007 2006 increase primarily result improved customer mix improved factory utilization cost reduction initiatives private label manufacturing business percentage vitamin nutritional supplements net product sales gross profit vitamins nutritional supplements business 10 2007 compared 6 2006 gross profit services revenue gross profit services revenue 120 million 2007 represents gross profit related health management businesses alere paradigmhealth qas acquired 2007 research development expense research development expense increased 208 million 43 695 million 2007 487 million 2006 research development expense 2007 2006 reported net codevelopment funding 185 million 166 million respectively arising codevelopment funding arrangement entered iti february 2005 year increase research development expense primarily result increased spending related cardiology research programs 215 million spending related 2007 acquisitions partially offset transition consumerrelated research development efforts 5050 joint venture pg second quarter 2007 also included research development expense 22 million stockbased compensation expense representing increase approximately 08 million 2006 restructuring charges associated formation 5050 joint venture 2007 restructuring plan integrate newly acquired businesses totaling 25 million included research development expense 2007 amortization expense 29 million 33 million included research development expense 2007 2006 respectively research development expense percentage net product sales decreased 9 2007 10 2006 purchase inprocess research development “iprd” connection three acquisitions since 2006 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably addition cannot guarantee able develop commercialize products competitors develop commercialize products indications products based acquired iprd programs technology platforms become commercially viable results operations could materially adversely affected following table sets forth iprd projects companies certain assets acquired since 2006 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets sales marketing expense sales marketing expense increased 709 million 75 1653 million 2007 944 million 2006 increase sales marketing expense primarily result approximately 561 million additional spending related newly acquired businesses primarily biosite instant cholestech various less significant acquisitions also included sales marketing expense 17 million stockbased compensation expense representing increase approximately 10 million 2006 partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 345 million 68 million included sales marketing expense 2007 2006 respectively sales marketing expense percentage net product sales increased 21 2007 17 2006 general administrative expense general administrative expense increased 872 million 122 1584 million 2007 712 million 2006 increase general administrative expense primarily result approximately 269 million additional spending related newly acquired businesses primarily biosite instant cholestech various less significant acquisitions also included general administrative expense 530 million stockbased compensation expense representing increase approximately 500 million 2006 530 million stockbased compensation expense includes onetime charge 452 million associated stock option acceleration conversion connection acquisition biosite partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 03 million 04 million included general administrative expense 2007 2006 respectively general administrative expense percentage net revenue increased 20 2007 13 2006 interest expense interest expense 2007 includes interest charges writeoff amortization deferred financing costs prepayment premiums amortization noncash discounts associated debt issuances interest expense 2006 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 interest expense increased 564 million 212 830 million 2007 266 million 2006 interest expense increased 2007 result higher debt balances prior period additionally 2007 recorded writeoff 156 million deferred financing costs prepayment premium related repayment outstanding debt conjunction financing arrangements related biosite acquisition 2006 recorded charge 13 million related prepayment penalties writeoff debt origination costs resulting early repayment 200 million 10 subordinated promissory notes september 8 2006 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2007 includes foreign exchange gain 19 million realized settlement intercompany notes 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi income expense net 2006 includes foreign exchange gain 43 million associated closure galway ireland manufacturing operation 47 million income related portion settlement vedalab relating periods prior 2006 benefit provision income taxes benefit provision income taxes decreased 75 million 18 million benefit 2007 57 million provision 2006 effective tax rate 2007 1 compared 52 2006 decrease provision income taxes 2006 2007 primarily related recognition benefit current year losses us united kingdom primary components 2007 provision income taxes relates recognition benefit us uk losses state income taxes foreign income recognized benefit us net operating loss nol carryforwards us deferred tax assets due us noncurrent deferred tax liabilities recorded purchase accounting 2007 acquisitions released approximately 830 million valuation allowance us deferred tax assets released goodwill thereafter recognized benefit current year us losses primary components 2006 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income net loss incurred net loss 2415 million 2007 incurred net loss 168 million 2006 net loss per common share available common stockholders 469 per basic diluted common share 2007 compared net loss 049 per basic diluted common share 2006 net loss 2007 2006 resulted various factors discussed see note 14 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share year ended december 31 2006 compared year ended december 31 2005 net product sales net product sales increased 1457 million 36 5521 million 2006 4065 million 2005 excluding favorable impact currency translation net product sales 2006 grew approximately 1435 million 35 2005 currency adjusted increase revenue increased result acquisitions binax march 2005 contributed revenue 96 million ii determine business june 2005 contributed revenue 159 million iii biostar september 2005 contributed revenue 210 million iv idt september 2005 contributed 104 million v innovacon business march 2006 contributed 549 million vi various less significant acquisitions contributed aggregate 19 million increase net product sales business segment net product sales business segment 2006 2005 follows thousands professional diagnostic products currency adjusted increase net product sales professional diagnostic products 1286 million 759 comparing 2006 2005 currency adjusted increase revenue increased result acquisitions binax march 2005 contributed revenue 96 million ii determine business june 2005 contributed revenue 159 million iii biostar september 2005 contributed revenue 210 million iv idt september 2005 contributed revenue 104 million v innovacon business march 2006 contributed 475 million vi various less significant acquisitions contributed aggregate 19 million increase organic growth particularly highly differentiated respiratory products also contributed growth consumer diagnostic products currency adjusted increase net product sales consumer diagnostic products 83 million 51 comparing 2006 2005 currency adjusted increase 74 million resulted acquisition innovacon business march 2006 vitamins nutritional supplements vitamins nutritional supplements net product sales increased 66 million 9 comparing 2006 2005 increase driven primarily private label business net product sales geographic location net product sales geographic location 2006 2005 follows thousands net product sales 3230 million 2342 million generated united states approximately 59 58 total net product sales year ended december 31 2006 2005 respectively growth net product sales geographic regions resulted various acquisitions discussed organic growth license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 19 million 13 173 million 2006 154 million 2005 increase primarily relates royalty revenue received result settlement licensing arrangements entered quidel corporation april 2005 vedalab november 2006 gross profit margin gross profit increased 769 million 50 2292 million 2006 1523 million 2005 gross profit 2006 benefited higher average margins earned revenue recently acquired businesses favorable product mix included cost revenues 2006 restructuring charge 95 million related closure abi operation san diego california along writeoff fixed assets facilities impacted 2006 restructuring plans closure cdil manufacturing facility galway ireland cost sales 2006 also included 04 million charge stockbased compensation related january 1 2006 adoption statement financial accounting standards “sfas” 123r sharebased payment cost sales 2005 included inclusion cost sales 41 million charge principally associated decision close galway ireland manufacturing facility ii charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return iii 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 offset part gross profit earned increased professional diagnostics products revenue discussed cost revenues included amortization expense 112 million 72 million 2006 2005 respectively overall gross margin 40 2006 compared 36 2005 overall gross margin 2006 adversely affected 95 million restructuring charge 04 million stockbased compensation charge discussed overall gross margin 2005 adversely affected 41 million charge associated cdil closing 24 million wampole inventory reserve 16 million returns inventory reserve associated drugs abuse product recalls discussed gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated license royalty revenue gross profit net product sales increased 758 million 2173 million 2006 1415 million 2005 gross profit net product sales business segment 2006 2005 follows thousands professional diagnostic products gross profit professional diagnostic net product sales increased 674 million 108 comparing 2006 2005 principally result gross profit earned revenue acquired businesses discussed offset 72 million restructuring charge cost sales associated management’s decision close abi operations san diego california reducing gross profit 2005 charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 percentage professional diagnostic net product sales gross profit professional diagnostic product business 43 2006 compared 37 2005 consumer diagnostic products gross profit consumer diagnostic net product sales increased 61 million 8 comparing 2006 2005 cost sales 2006 included restructuring charges totaling 22 million related closure cdil manufacturing facility 04 million charge stockbased compensation included cost sales 2005 adversely effecting gross profit 41 million charge principally associated decision close cdil manufacturing facility percentage consumer diagnostic net product sales gross profit consumer diagnostic product business 48 2006 compared 47 2005 increase gross profit consumer diagnostic net product sales resulted change product mix vitamins nutritional supplements gross profit vitamins nutritional supplements net product sales increased 23 million 84 comparing 2006 2005 increase primarily result improved factory utilization cost reduction initiatives private label manufacturing business percentage vitamin nutritional supplements net product sales gross profit vitamins nutritional supplements business 6 2006 compared 4 2005 research development expense research development expense increased 227 million 73 537 million 2006 310 million 2005 research development expense 2006 2005 reported net codevelopment funding 166 million 172 million respectively arising codevelopment funding arrangement entered iti february 2005 year increase research development expense primarily result increased spending related cardiology research programs 89 million spending related 2006 acquisitions 29 million charge related writeoff fixed assets impacted restructuring plans 14 million charge stockbased compensation related january 1 2006 adoption sfas 123r included 89 million additional spending related recent acquisitions 50 million charge related writeoff inprocess research development projects achieved technical feasibility date acquisition clondiag chip technologies gmbh clondiag amortization expense 33 million 23 million included research development expense 2006 2005 respectively research development expense percentage net product sales increased 10 2006 8 2005 purchase inprocess research development “iprd” connection acquisition clondiag 2006 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably addition cannot guarantee able develop commercialize products competitors develop commercialize products indications products based acquired iprd programs technology platforms become commercially viable results operations could materially adversely affected following table sets forth iprd projects related 2006 clondiag acquisition thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets sales marketing expense sales marketing expense increased 223 million 31 944 million 2006 721 million 2005 increase sales marketing expense primarily attributed expanded sales marketing infrastructure support growth professional diagnostic business additional expense approximately 160 million related acquisitions binax determine business biostar idt 2005 acquisitions clondiag innovacon business 2006 approximately 13 million increase sales marketing expense resulted increased advertising efforts promote premium consumer diagnostic products 2006 sales marketing 2006 also included charge 07 million stockbased compensation related january 1 2006 adoption sfas 123r amortization expense 68 million 29 million included sales marketing expense 2006 2005 respectively sales marketing expense percentage net product sales decreased 17 2006 18 2005 general administrative expense general administrative expense increased 113 million 19 712 million 2006 600 million 2005 increase general administrative expense approximately 122 million resulted additional spending related acquisitions binax determine business biostar idt completed 2005 2006 acquisitions clondiag innovacon business increase general administrative expense 2006 partially offset decrease legal expenses 47 million also included general administrative expense 30 million charge stockbased compensation related january 1 2006 adoption sfas 123r amortization expense included general administrative expense 04 million 2006 2005 general administrative expense percentage net revenue decreased 13 2006 14 2005 loss dispositions net 2006 recorded net loss dispositions 35 million included charge loss 49 million associated management’s decision dispose scandinavian micro biodevices aps smb research operation 49 million charge includes loss 20 million impaired assets represents goodwill associated smb 29 million loss sale smb finalized fourth quarter 2006 49 million loss offset 14 million gain sale idle manufacturing facility galway ireland result 2005 restructuring plan interest expense interest expense 2006 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 interest expense 2005 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 change market value interest rate swap agreement 07 million qualify hedge accounting purposes interest expense increased 48 million 22 266 million 2006 218 million 2005 2006 recorded charge 13 million related prepayment penalties writeoff debt origination costs resulting early repayment 200 million 10 subordinated promissory notes september 8 2006 addition 13 million charge higher applicable interest rates senior credit facility 2006 compared 2005 increase amortization deferred financing costs related debt refinancings occurred later 2005 first quarter 2006 also contributed increase interest expense 2006 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2006 includes foreign exchange gain 43 million associated closure galway ireland manufacturing operation 47 million income related portion settlement vedalab relating periods prior 2006 income expense net 2005 includes following items 150 million income portion settlement quidel relating periods prior 2005 ii 84 million gain legal settlement class action suit several raw material suppliers vitamins nutritional supplements business iii 26 million income related value option received licensing arrangement iv 27 million charge related legal settlement nutritional segment commercial dispute arising distribution arrangement entered september 1996 v 43 million charge related legal settlement princeton biomeditech corporation pbm provision income taxes provision income taxes decreased 11 million 16 57 million 2006 68 million 2005 effective tax rate 2006 52 compared 55 2005 decrease provision income taxes 2005 2006 primarily related taxes foreign income primary components 2006 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 34 million primary components 2005 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 29 million net loss income incurred net loss 168 million 2006 incurred net loss 192 million 2005 net loss per common share available common stockholders 049 per basic diluted common share 2006 compared net loss 079 per basic diluted common share 2005 net loss 2006 2005 resulted various factors discussed see note 14 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments discussed next 12 months long run expect fund working capital needs commitments primarily operating cash flow expect improve operating margins execute restructuring plans grow business new product introductions business acquisitions continuing leverage strong intellectual property position also expect rely credit facilities fund portion capital needs commitments may also access public equity debt markets consistent strategic financial objectives funding plans working capital needs commitments may adversely impacted unexpected costs associated prosecuting defending existing lawsuits andor unforeseen lawsuits us integrating operations newly acquired companies executing cost savings strategies also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result summary changes cash position december 31 2007 cash equivalents 4147 million 3436 million increase december 31 2006 primary sources cash year ended december 31 2007 included 11 billion net proceeds issuance common stock connection january november 2007 equity offerings well common stock issues employee stock option stock purchase plans 3242 million net cash proceeds pg associated formation 5050 joint venture approximately 11 billion cash refinancing activities net repayments related previous credit facilities notes 888 million cash generated operating activities offset 1419 million restricted cash 1397 million escrowed connection acquisition bbi investing activities year ended december 31 2007 used total approximately 18 billion cash consisted primarily 20 billion used acquisitions 746 million used purchase capital equipment assets offset 3242 million net cash proceeds pg associated formation 5050 joint venture fluctuations foreign currencies favorably impacted cash balance 90 million year ended december 31 2007 operating cash flows net cash provided operating activities 2007 888 million increase 545 million prior year net cash provided operating activities resulted 3081 million noncash items 222 million cash provided decreases net working capital period offset loss 2415 million 3081 million noncash items included among various items 1738 million charge associated writeoff purchased iprd connection acquisitions biosite diamics inc diamics 987 million related depreciation amortization 522 million related noncash stockbased compensation expense investing cash flows 2007 paid 20 billion cash acquisitions transactionrelated costs net cash acquired primarily respect acquisitions instant biosite alere redwood paradigmhealth march 12 2007 acquired 75 issued outstanding capital stock instant privatelyowned distributor rapid drugs abuse diagnostic products used workplace criminal justice testing markets december 28 2007 acquired remaining 25 aggregate purchase price 608 million consisted 306 million cash common stock aggregate fair value 131 million 83 million cash payment common stock aggregate fair value 84 million acquire remaining 25 stock ownership 04 million direct acquisition costs june 29 2007 completed acquisition biosite publiclytraded global medical diagnostic company utilizing biotechnology approach create products diagnosis critical diseases conditions preliminary aggregate purchase price 18 billion consisted 16 billion cash 688 million estimated direct acquisition costs 774 million fair value associated outstanding fullyvested biosite employee stock options exchanged options acquire common stock part transaction november 16 2007 acquired alere privatelyheld leading provider care health management services preliminary aggregate purchase price 3095 million consisted 1274 million cash common stock aggregate fair value 1611 million 04 million direct acquisition costs 206 million fair value associated alere employee stock options exchanged options acquire common stock part transaction certain circumstances related price common stock may become obligated pay additional 93 million cash stock election six months closing acquisition based remaining outstanding shares february 29 2008 payment contingent consideration impact purchase price acquisition december 20 2007 acquired redwood privatelyowned drugs abuse diagnostics testing company preliminary aggregate purchase price 538 million consisted 533 million cash 05 million direct acquisition costs december 21 2007 acquired paradigmhealth privatelyowned leading provider precise medical management provide optimal health outcomes acutely ill clinically complex patients preliminary aggregate purchase price 2304 million consisted 2300 million cash 04 million direct acquisition costs addition acquisitions 2007 may 17 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields closing transferred related consumer diagnostic assets totaling 636 million manufacturing core intellectual property assets joint venture pg acquired interest joint venture cash payment approximately 3250 million financing cash flows january 31 2007 sold aggregate 6900000 shares common stock 3965 per share underwritten public offering inclusive 900000 shares associated exercise underwriters’ option purchase additional shares cover overallotments proceeds offering approximately 2613 million net issuance costs 123 million include deductions underwriting discounts commissions take effect reimbursement underwriters portion offering expenses amount used 449 million repay principal accrued interest owing term loan senior credit facility remainder net proceeds retained working capital general corporate purposes june 26 2007 connection acquisition biosite entered secured first lien credit agreement secured second lien credit agreement collectively “credit agreements” certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements november 15 2007 first lien credit agreement amended first lien credit agreement provides term loans aggregate amount 9750 million subject continued compliance first lien credit agreement 1500 million revolving line credit december 31 2007 term loans revolving line credit first lien credit agreement bore interest 688 85 respectively term loan second lien credit agreement bore interest 909 second lien credit agreement provides term loans aggregate amount 2500 million december 31 2007 aggregate borrowings amounted 12 billion term loans borrowings revolving line credit december 31 2007 interest expense related new credit facility included term loans revolving line credit year ended december 31 2007 including amortized deferred costs 543 million december 31 2007 compliance debt covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements simultaneously entry credit agreements terminated existing third amended restated credit agreement dated june 30 2005 “prior credit agreement” outstanding loans prior credit agreement time terminated june 26 2007 also fully repaid 875 senior subordinated notes due 2012 “notes” total amount repaid including principal 1500 million prepayment premium 93 million 1593 million accrued interest 48 million also paid part final settlement notes unamortized deferred financing costs 37 million written result repayment additionally received proceeds may 14 2007 sale 1500 million principal amount 3 senior subordinated convertible notes due 2016 “convertible notes” private placement qualified institutional buyers help finance biosite acquisition initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale 30 day volumeweighted average trading price common stock date lower 4023 subject floor 4023 time event stock splits stock dividends recapitalizations similar events conversion price also subject makewhole payment form adjustment conversion price event fundamental change defined indenture interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th start november 15 2007 interest expense year ended december 31 2007 including amortized deferred costs 31 million august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 changes fair value interest rate swaps recorded comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows december 31 2007 recorded 95 million comprehensive income accompanying balance sheet november 20 2007 sold aggregate 13634302 shares common stock 6149 per share underwritten public offering certain officers also sold total 165698 shares common stock offering proceeds us offering approximately 8069 million net issuance costs 314 million include deductions underwriting discounts commissions take effect reimbursement underwriters portion offering expenses december 31 2007 aggregate 11 million outstanding capital lease obligations payable 2012 income taxes december 31 2007 approximately 3351 million domestic nol carryforwards 312 million foreign nol carryforwards respectively either expire various dates 2027 carried forward indefinitely losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic nol carryforward amount december 31 2007 included approximately 2056 million preacquisition losses alere paradigmhealth biosite cholestech diamics hemosense imn ischemia ostex advantage diagnostics corporation adc prior adoption sfas 141r business combinations losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption sfas 141r business combinations reduction valuation allowance generally recorded reduce income tax expense also included domestic nol carryforwards december 31 2007 approximately 102 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied long term tax exempt rate recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2007 contractual obligations following table summarizes principal contractual obligations december 31 2007 effects obligations expected liquidity cash flow future periods thousands 1 see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 7 consolidated financial statements included elsewhere annual report form 10k 3 see note 10a consolidated financial statements included elsewhere annual report form 10k 4 included longterm liabilities 08 million technology license payment obligations 65 million pension obligations liability associated financial accounting standards board “fasb” interpretation 48 “fin 48” accounting uncertainty income taxes interpretation fasb statement 109 included table estimate payments annually 5 purchase obligations relate inventory purchases operating expense commitments 6 connection acquisition innovacon business obligated make 60 million payment remaining first territory business 7 amounts based senior credit facilities see note 6 consolidated financial statements included elsewhere annual report form 10k december 31 2007 contingent consideration obligations related acquisitions alere binax biostat clondiag diamics first check gabmed gmbh gabmed matritech promesan srl promesan spectral diagnostics private limited including affiliate source diagnostics india private limited spectralsource contingent considerations accounted increases aggregate purchase prices contingencies occur therefore excluded table respect alere terms acquisition provide contingent consideration payable alere stockholder still owns shares common stock retains option purchase shares common stock 6month anniversary closing acquisition contingent consideration equal number shares common stock options purchase common stock held 6month anniversary multiplied amount 5831 exceeds greater average price common stock 10 business days preceding 6month anniversary 75 5831 accordingly depending price common stock around 6month anniversary closing acquisition may become obligated pay additional 93 million cash stock election time based remaining outstanding shares february 29 2008 payment contingent consideration impact purchase price acquisition respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition successful development one qualifying products completed second quarter 2007 made payment amount 37 million third quarter respect biostat terms acquisition provide contingent cash consideration payable biostat shareholders certain ebitda earnings interest taxes depreciation amortization milestones met 2007 ebitda milestone earned 2007 contingent consideration 74 million accrued december 31 2007 respect clondiag terms acquisition agreement provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date successful completion first milestone occurred fourth quarter 2007 made payment 09 million issued 56079 shares common stock fourth quarter respect diamics terms acquisition provide contingent consideration payable upon successful completion certain milestones including development business plans marketable products december 31 2007 remaining contingent consideration earned approximately 23 million respect first check pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods december 31 2007 first period earnout requirements met resulting accrued contingent consideration totaling 22 million respect gabmed terms acquisition provide contingent consideration totaling 750000 euros payable five equal annual amounts 150000 euros beginning 2007 upon successfully meeting certain revenue ebit earnings interest taxes milestones respective periods december 31 2007 milestones met respect matritech pay earnout matritech upon successfully meeting certain revenue targets 2008 december 31 2007 milestones met respect promesan terms acquisition provide contingent consideration payable upon successfully meeting certain revenue targets total contingent consideration 06 million euros payable three equal annual amounts 02 million euros beginning 2007 ending 2009 2007 milestone met contingent consideration 03 million accrued december 31 2007 respect spectralsource pay earnout equal two times consolidated revenue spectralsource less 40 million consolidated profits tax spectralsource least 09 million one year anniversary following acquisition date consolidated profits tax spectralsource milestone period less 09 million amount payment equal seven times spectralsource’s consolidated profits tax less 40 million contingent consideration payable 60 cash 40 stock critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2007 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions discussed critical accounting policy “use estimates sales returns allowances allowance doubtful accounts” future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements provide compensation services provide based number days patient case open predetermined fee patient managed revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees connection acquisition determine business june 2005 abbott laboratories entered transition services agreement abbott whereby abbott would continue distribute acquired products period 30 months subject certain extensions transition period recognized revenue sales products title transferred abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists company records revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 489 million 528 million 512 million 6 10 13 respectively net product services revenue 2007 2006 2005 respectively recorded product services revenue derive net product services revenue similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 1634 million 1004 million net allowances doubtful accounts 122 million 84 million december 31 2007 december 31 2006 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 1482 million 783 million net provision excess obsolete inventory 81 million 82 million december 31 2007 2006 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2007 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 2679 million 21 billion 13 billion respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited future expected cash flows product services revenue customer contracts acquired developed technologies patents ii expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products iii acquired companies’ brand awareness market position iv assumptions period time continue use acquired brand v discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill balances related professional diagnostic consumer diagnostic reporting units amounted 21 billion 512 million respectively december 31 2007 september 30 2007 performed annual impairment review carrying values goodwill using discounted cash flows approach based upon review believe goodwill related professional diagnostic consumer diagnostic reporting units impaired future cash flows operating results used impairment review based management’s projections assumptions future events cause projections differ used september 30 2007 could lead significant impairment charges goodwill future events circumstances occurred since review september 30 2007 would require us reassess whether carrying values goodwill impaired valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2007 future events could cause us conclude otherwise stockbased compensation january 1 2006 account stockbased compensation accordance sfas 123r sharebased payment fair value recognition provisions statement sharebased compensation cost measured grant date based value award recognized expense vesting period determining fair value sharebased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behavior actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock chosen utilize simplified method calculate expected life options averages award’s weighted average vesting period contractual term stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest amount expense reduced estimated forfeitures sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions application sfas 123r compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 189 million december 31 2007 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits included valuation allowance 58 million deferred tax assets acquired companies future benefits applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption sfas 141r business combinations reduction valuation allowance pertains acquired companies generally recorded reduce income tax expense valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision reduction valuation allowance 1076 million december 31 2006 decrease primarily related approximately 3839 million us jurisdiction noncurrent deferred tax liabilities recorded purchase accounting related biosite alere hemosense paradigmhealth cholestech redwood instant qas acquisitions 2007 due purchase accounting determined approximately 830 million valuation allowance relating us nols us deferred tax assets released recorded reduction goodwill accompanying consolidated balance sheets january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 “fin 48” accounting uncertainty income taxesan interpretation fasb statement 109 accordance fin 48 established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “part item 3 legal proceedings” reported material legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements recently issued standards december 2007 meeting fasb ratified consensus reached emerging issue task force “eitf” eitf issue 0701 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment accounting research bulletin arb 51 statement amends arb 51 establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary clarifies noncontrolling interest subsidiary ownership interest consolidated entity therefore reported equity consolidated financial statements statement also establishes standards presentation disclosure noncontrolling results consolidated income statement sfas 160 effective fiscal years beginning december 15 2008 continue evaluate impact adoption sfas 160 consolidated financial statements december 2007 fasb issued sfas 141r business combinations statement replaces sfas 141 retains fundamental requirements sfas 141 acquisition method accounting used business combinations statement requires acquirer recognize measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date statement requires acquisition costs restructuring costs associated business combination recognized separately fair value business combination sfas 141r establishes requirements recognizing measuring goodwill acquired business combination gain bargain purchase well disclosure requirements designed enable users better interpret results business combination sfas 141r effective fiscal years beginning december 15 2008 given history acquisition activity anticipate adoption sfas 141r significant impact consolidated financial statements early adoption statement permitted june 2007 eitf reached consensus eitf issue 0703 accounting nonrefundable advance payments goods services used future research development activities eitf 0703 concludes nonrefundable advance payments future research development activities deferred capitalized goods delivered related services performed entity expect goods delivered services rendered capitalized advance payment charged expense consensus effective financial statements issued fiscal years beginning december 15 2007 interim periods within fiscal years earlier adoption permitted effect applying consensus prospective new contracts entered date believe adoption consensus first quarter 2008 material impact consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb 115 statement provides companies option measure specified election dates many financial instruments certain items fair value currently measured fair value standard also establishes presentation disclosure requirements designed facilitate comparison entities choose different measurement attributes similar types assets liabilities fair value option elected effect first remeasurement fair value reported cumulative effect adjustment opening balance retained earnings statement applied prospectively upon adoption sfas 159 effective fiscal years beginning november 15 2007 currently evaluating impact sfas 159 results operations financial position september 2006 fasb issued sfas 157 fair value measurements sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years financial assets liabilities well assets liabilities carried fair value recurring basis financial statements fasb provided one year deferral implementation nonfinancial assets liabilities earlier application encouraged continue evaluate impact adoption sfas 157 consolidated financial statements recently adopted standards adopted fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 january 1 2007 fin 48 clarifies accounting reporting uncertainties income tax law interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns see note 18 information pertaining effects adoption consolidated balance sheet december 2006 fasb issued fasb staff position “fsp” eitf 00192 accounting registration payment arrangements fsp specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 accounting contingencies guidance fsp amends fasb statement 133 150 accounting certain financial instruments characteristics liabilities equity fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others include scope exceptions registration payment arrangements fsp effective immediately registration payment arrangements financial instruments subject arrangements entered modified subsequent date issuance fsp registration payment arrangements financial instruments subject arrangements entered prior issuance fsp guidance effective financial statements issued fiscal years beginning december 15 2006 interim periods within fiscal years required eitf 00192 adopted new accounting standard january 1 2007 adoption eitf 00192 impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 taxes collected customers remitted governmental authorities presented income statement scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 required eitf issue 0603 adopted new accounting standard interim period beginning january 1 2007 adoption eitf issue 0603 impact financial position results operations cash flows february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amends sfas 133 accounting derivative instruments hedging activities sfas 140 accounting transfers servicing financial assets extinguishments liabilities sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 adoption sfas 155 impact financial position results operations cash flows item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding anticipated expansion certain product categories research development expenditures impact research development activities potential new product technology achievements impact worldwide distribution network ability improve margins consolidation certain higher cost manufacturing operations lower cost facilities ability achieve synergies within expected timelines expectations respect spd joint venture pg growth prospects health management market ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 13 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview enable individuals take charge improving health quality life home developing new capabilities near patient diagnosis monitoring health management global leading products services well new product development efforts focus cardiology women’s health infectious disease oncology drugs abuse 2007 acquisitions biosite cholestech hemosense established company leading supplier cardiology diagnostic products acquisitions biosite instant redwood 2007 ameditech inc ameditech 2008 enhanced position drugs abuse testing additionally december 2007 acquisition matritech inc matritech also established presence oncology acquiring unique nmp22 elisa rapid pointofcare tests screening monitoring bladder cancer conjunction standard diagnostic procedures expect continue expand product categories focused research development projects development distribution capabilities 2007 2008 entered growing health management market acquisitions alere medical paradigmhealth recently matria acquisition matria leader field offering broad range services aimed lowering costs health plans hospitals employers patients health management services focused areas women’s children’s health cardiology oncology confident ability offer near patient monitoring tools combined valueadded healthcare services improve care lower healthcare costs providers patients third quarter 2008 began efforts consolidate health management businesses single brand today matria paradigmhealth alere medical leader respective areas united one business name alere also third quarter 2008 acquired overseas health management business enabling us establish presence newlydeveloping international health management market research development programs two general focuses developing new technology platforms facilitate primary objective enabling individuals take charge improving health quality life moving testing hospital central laboratory physician’s office ultimately home additionally strong pipeline novel proteins combinations proteins function disease biomarkers developing new tests targeted towards areas focus continue advance toward goal establishing worldwide distribution network allow us bring current future diagnostic products global professional market addition continue focus improving margins consolidation certain higher cost manufacturing operations lower cost facilities including 300000 square foot manufacturing facility located hangzhou china well jointlyowned facility shanghai china already seeing improved margins existing products moved facilities business integration activities remain track seen positive results integrations completed date continue aggressively integrate acquired operations order achieve synergies within expected timelines second half 2007 began implementation plan consolidate sales processing certain backoffice services seven us operations shared services center located orlando florida shared services center commenced operations beginning second quarter 2008 financial highlights net revenue 2008 17 billion increased 8319 million 99 8395 million 2007 net revenue increased primarily result professional diagnosticsrelated acquisitions contributed 3978 million increase additionally net revenue increased result newlyformed health management segment provided 3576 million incremental revenue primarily included activities recent acquisitions qas alere medical paradigmhealth matria partially offsetting increased revenue result acquisitions decrease revenue associated completion 5050 joint venture spd pg may 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting accordance accounting principles board “apb” opinion 18 equity method accounting investments common stock organic growth particularly professional cardiology infectious disease drugs abuse products also contributed revenue growth well higher license royalty revenue gross profit increased 4668 million 119 8606 million 2008 3937 million 2007 principally result gross profit earned incremental revenue acquired businesses primarily professional diagnostics health management businesses well increased license royalty revenue offsetting increases decrease consumer diagnostics business gross margin principally result formation 5050 joint venture pg may 2007 2008 gross profit adversely impacted 179 million restructuring charge related closure various manufacturing operating facilities charge 20 million associated writeup inventory acquired fair value connection two 2008 acquisitions gross profit 2007 adversely impacted 20 million charge associated various restructuring plans charge 82 million associated writeup inventory acquired fair value connection three 2007 acquisitions continue invest aggressively research development new products technologies evidenced increased research development expense 1118 million 2008 695 million 2007 expenditures 2007 reported net 185 million arising codevelopment funding arrangement entered iti february 2005 research development expense considering codevelopment funding 880 million 2007 increase spending resulted principally expenditures related cardiology research programs offsetting increases favorable impact 5050 joint venture pg codevelopment funding arrangement iti expired first quarter 2008 final payment agreement received earned fourth quarter 2007 funding earned 2008 results operations year ended december 31 2008 compared year ended december 31 2007 net product sales net product sales increased 4392 million 55 12 billion 2008 8009 million 2007 excluding unfavorable impact currency translation net product sales 2008 grew approximately 4395 million 55 2007 currency adjusted increase revenue increased primarily result professional diagnosticrelated acquisitions contributed 3638 million increase organic growth particularly professional infectious disease drugs abuse products vitamin nutritional supplements also contributed growth net product sales business segment net product sales business segment 2008 2007 follows thousands professional diagnostics increase net product sales professional diagnostics business segment 4349 million 77 resulting 10 billion net product sales 2008 increase revenue increased primarily result acquisitions biosite june 2007 contributed additional product revenue 1617 million excess earned prior year’s comparative period ii cholestech september 2007 contributed additional product revenue 494 million excess earned prior year’s comparative period iii biostat healthcare group biostat october 2007 contributed additional product revenue 216 million excess earned prior year’s comparative period iv hemosense november 2007 contributed additional product revenue 272 million excess earned prior year’s comparative period v redwood december 2007 contributed additional product revenue 239 million excess earned prior year’s comparative period vi bbi february 2008 contributed product revenue 324 million vii various less significant acquisitions contributed aggregate 476 million increase organic growth particularly professional infectious disease products also contributed growth currency adjusted organic growth professional diagnostics net product sales excluding impact acquisitions 13 health management health management net product sales increased 94 million 102 186 million 2008 increase net product sales represents additional sales related acquisition qas june 2007 consumer diagnostics decrease net product sales consumer diagnostics business segment 212 million 14 resulting 1324 million net product sales 2008 decrease primarily driven completion 5050 joint venture pg may 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting net product sales consumer diagnostics business segment 2008 2007 included 1030 million 650 million respectively manufacturing revenue associated manufacturing agreement spd whereby manufacture sell consumer diagnostics joint venture partially offsetting impact joint venture increase 135 million net product sales attributed acquisitions first check diagnostics llc first check january 2007 contributed additional product revenue 11 million excess earned prior year’s comparative period ii biostat october 2007 contributed additional product revenue 46 million excess earned prior year’s comparative period iii bbi february 2008 contributed product revenue 78 million vitamins nutritional supplements vitamins nutritional supplements net product sales increased 160 million 22 889 million 2008 increase primarily result increased private label nutritional sales existing new customers services revenue services revenue 4055 million 2008 compared 166 million 2007 services revenue principally related newlyformed health management business segment primarily includes recent acquisitions qas alere medical paradigmhealth matria addition services revenue generated health management businesses services revenue also includes revenue generated professional drugs abuse testing screening business along revenue associated longterm services agreement related consumer diagnostics joint venture formed pg may 2007 pursuant provide certain operational support services joint venture services revenue business segment services revenue business segment 2008 2007 follows thousands professional diagnostics services revenue provided professional diagnostics business segment 293 million 2008 represents revenue related laboratorybased professional drugs abuse testing screening business redwood acquired december 2007 health management services revenue provided newlyformed health management business segment 3738 million 2008 matria contributing services revenue 1977 million alere medical contributing services revenue 912 million paradigmhealth contributing services revenue 713 million qas contributing services revenue 121 million consumer diagnostics services revenue provided consumer diagnostics business segment decreased 01 million 5 24 million 2008 services revenue provided consumer diagnostics business segment represents revenue related longterm services agreements 5050 joint venture pg formed may 2007 pursuant provide certain operational support services joint venture net product sales services revenue geographic location net product sales services revenue geographic location 2008 2007 follows thousands net product sales services revenue 12 billion 5119 million generated united states approximately 72 63 respectively total net product sales services revenue year ended december 31 2008 2007 respectively growth net product sales services revenue geographic regions resulted various acquisitions discussed organic growth partially offset decrease revenue associated formation 5050 joint venture pg may 2007 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 38 million 18 258 million 2008 220 million 2007 license royalty revenue 2008 increased primarily result acquisition biosite june 2007 contributed additional 19 million royalty revenue excess earned 2007 additionally incremental royalty revenue derived new royalty agreements entered 2008 along increases associated certain existing royalty agreements partially offset decreases royalty agreements gross profit margin gross profit increased 4668 million 119 8606 million 2008 3937 million 2007 gross profit 2008 benefited higher average margins earned revenue recently acquired businesses favorable impact low cost manufacturing facilities china included gross profit 2008 restructuring charges totaling 179 million associated closure various manufacturing operating facilities 20 million charge related writeup fair market value inventory acquired connection first quarter acquisitions bbi panbio 15 million stockbased compensation expense included gross profit 2007 restructuring charges totaling 20 million associated closure various manufacturing operating facilities 82 million charge related writeup fair market value inventory acquired connection acquisitions biosite cholestech hemosense 06 million stockbased compensation expense cost net revenue included amortization expense 434 million 240 million 2008 2007 respectively overall gross margin 52 2008 compared 47 2007 gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated services revenue license royalty revenue gross profit net product sales increased 2460 million 6155 million 2008 3695 million 2007 gross profit net product sales business segment 2008 2007 follows thousands professional diagnostics gross profit professional diagnostics net product sales increased 2751 million 90 comparing 2008 2007 principally result gross profit earned revenue acquired businesses discussed contributed higher average gross profits higher average profits partially offset 20 million charge related writeup fair market value inventory acquired connection acquisitions bbi panbio 179 million restructuring charges reducing gross profit 2007 82 million charge related writeup fair market value inventory acquired connection acquisitions biosite cholestech hemosense 05 million restructuring charges percentage professional diagnostics net product sales gross profit professional diagnostics business 58 2008 compared 54 2007 health management gross profit health management net product sales decreased 03 million 11 27 million 2008 compared 31 million 2007 percentage health management net product sales gross profit health management business 15 2008 compared 33 2007 consumer diagnostics gross profit consumer diagnostics net product sales decreased 293 million 56 comparing 2008 2007 decrease primarily result formation 5050 joint venture pg consumer diagnostics business may 2007 partially offset gross profit earned revenue acquired businesses primarily bbi acquisition manufacturing profit associated products sold manufacturing agreement joint venture gross profit 2007 adversely impacted restructuring charges totaling 15 million related formation joint venture percentage consumer diagnostics net product sales gross profit consumer diagnostics business 18 2008 compared 34 2007 decrease gross margin percentage 2008 compared 2007 driven formation 5050 joint venture pg may 2007 result joint venture consumer diagnostics net product sales consist manufacturing revenue associated manufacturing agreement joint venture whereby manufacture sell consumer diagnostics joint venture vitamins nutritional supplements gross profit vitamins nutritional supplements net product sales increased 06 million 8 comparing 2008 2007 increase primarily result higher private label sales percentage vitamin nutritional supplements net product sales gross profit vitamins nutritional supplements business 9 2008 compared 10 2007 gross profit services revenue gross profit services revenue primarily represents gross profit related newlyformed health management business segment includes recent acquisitions qas alere medical paradigmhealth matria addition gross profit services revenue generated health management businesses gross profit services revenue also includes gross profit generated professional drugs abuse testing screening business along gross profit associated longterm services agreement related consumer diagnostics joint venture formed pg may 2007 pursuant provide certain operational support services joint venture gross profit services revenue 2284 million 2008 compared 114 million 2007 gross profit services revenue business segment gross profit services revenue 2284 million 114 million 2008 2007 respectively represents gross profit related services revenue associated newlyformed health management business segment includes recent acquisitions qas alere medical paradigmhealth matria professional drugs abuse testing screening businesses longterm services agreement related consumer diagnostics joint venture formed pg may 2007 gross profit services revenue segment 2008 2007 follows thousands professional diagnostics gross profit services revenue professional diagnostics business segment 144 million 2008 represents gross profit related services provided professional drugs abuse testing screening business redwood acquired december 2007 percentage professional diagnostics services revenue gross margin 2008 49 health management gross profit services revenue newlyformed health management business segment 2116 million 89 million 2008 2007 respectively represents gross profit related services provided health management businesses primarily alere medical paradigmhealth qas matria percentage health management services revenue gross margin 2008 2007 57 63 respectively consumer diagnostics gross profit services revenue consumer diagnostics business segment 24 million 25 million 2008 2007 respectively represents gross profit services revenue related longterm services agreements joint venture pursuant provide certain operational support services joint venture presently allocate cost goods sold services revenue related longterm service agreement costs segment recorded gross profit net product sales research development expense research development expense increased 423 million 61 1118 million 2008 695 million 2007 year increase research development expense primarily result increased spending related cardiology research programs partially offset transition consumerrelated research development efforts 5050 joint venture pg additionally funding relationship iti complete december 31 2007 funding earned 2008 funding relationship reflected offset research development expense totaling 185 million 2007 also included research development expense 46 million stockbased compensation expense representing increase approximately 24 million 2007 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 72 million included research development expense 2008 representing increase approximately 47 million 2007 amortization expense 37 million 29 million included research development expense 2008 2007 respectively research development expense percentage net revenue decreased 7 2008 8 2007 purchase inprocess research development “iprd” connection two acquisitions since 2007 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably example discontinued funding certain programs listed addition cannot guarantee able develop commercialize products competitors develop commercialize products indications following table sets forth iprd projects companies certain assets acquired since 2007 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets sales marketing expense sales marketing expense increased 2185 million 130 3863 million 2008 1678 million 2007 increase sales marketing expense primarily relates additional spending related newlyacquired businesses also included sales marketing expense 43 million stockbased compensation expense representing increase approximately 26 million 2007 partially offsetting increases favorable impact formation 5050 joint venture pg restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 42 million included sales marketing expense 2008 representing increase approximately 34 million 2007 amortization expense 1486 million 345 million included sales marketing expense 2008 2007 respectively sales marketing expense percentage net revenue increased 23 2008 20 2007 general administrative expense general administrative expense increased 1402 million 89 2986 million 2008 1584 million 2007 increase general administrative expense relates primarily additional spending related newlyacquired businesses legal spending increased approximately 146 million 2008 compared 2007 also included general administrative expense 160 million stockbased compensation expense representing decrease approximately 369 million 2007 included charge 452 million related acquisition biosite partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 184 million 03 million included general administrative expense 2008 2007 respectively general administrative expense percentage net revenue decreased 18 2008 19 2007 interest expense interest expense includes interest charges amortization deferred financing costs associated debt issuances interest expense 2007 also includes writeoff deferred financing costs early termination fees associated repayment outstanding debt interest expense increased 181 million 22 1011 million 2008 830 million 2007 increase interest expense 2008 due higher average outstanding borrowing balances 2008 66 million interest expense related accelerated present value accretion lease restoration costs due early termination facility lease bedford england recorded connection 2008 restructuring plans also contributing increase 2008 08 million interest expense recorded connection legal settlement one distributors june 2008 interest expense 2007 included writeoff 156 million deferred financing costs prepayment premium related repayment outstanding debt conjunction financing arrangements related biosite acquisition income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2008 includes 125 million charge associated arbitration decision partially offset 55 million income associated settlements prior year’s royalties 2008 income expense net 2007 includes foreign exchange gain 19 million realized settlement intercompany notes 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi benefit provision income taxes benefit provision income taxes increased 157 million 167 million benefit 2008 10 million benefit 2007 effective tax rate 2008 43 compared 04 2007 increase benefit income taxes 2007 2008 primarily related recognition benefit losses germany japan united kingdom primary components 2008 provision income taxes relates us federal state income taxes foreign income recognition benefit german uk losses primary components 2007 provision income taxes relates recognition benefit us uk losses state income taxes foreign income recognized benefit us net operating loss nol carryforwards us deferred tax assets due us noncurrent deferred tax liabilities recorded purchase accounting 2007 acquisitions 2007 released approximately 830 million valuation allowance preacquisition us deferred tax assets released goodwill thereafter recognized benefit recorded provision appropriate current year us losses net loss incurred net loss 218 million 2008 incurred net loss 2448 million 2007 net loss per common share available common stockholders 046 per basic diluted common share 2008 compared net loss 475 per basic diluted common share 2007 net loss 2008 2007 resulted various factors discussed see note 15 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share year ended december 31 2007 compared year ended december 31 2006 2007 2008 entered growing health management market acquisitions qas alere medical paradigmhealth recently matria result acquisitions formed health management reporting unit 2008 presentation comparative purposes certain amounts prior periods reclassified conform current period classification net product sales net product sales increased 2488 million 45 8009 million 2007 5521 million 2006 excluding favorable impact currency translation net product sales 2007 grew approximately 2378 million 43 2006 currency adjusted increase revenue increased primarily result acquisitions first check january 2007 contributed revenue 129 million ii instant march 2007 contributed revenue 228 million iii biosite june 2007 contributed revenue 1678 million iv cholestech september 2007 contributed revenue 241 million v biostat healthcare group biostat october 2007 contributed revenue 81 million vi hemosense november 2007 contributed revenue 35 million vii various less significant acquisitions contributed aggregate 194 million increase partially offsetting increased revenue result acquisitions decrease revenue associated formation 5050 joint venture pg may 17 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion transaction form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting recorded 761 million net product sales 2007 date joint venture formed compared 1716 million net product sales 2006 2007 recorded 650 million manufacturing revenue associated manufacturing agreement joint venture whereby manufacture sell consumer diagnostics joint venture organic growth particularly professional infectious disease drugs abuse products also contributed growth well higher license royalty revenue net product sales business segment net product sales business segment 2007 2006 follows thousands professional diagnostics increase net product sales professional diagnostics business segment 2668 million 88 comparing 2007 2006 revenue increased primarily result acquisitions instant march 2007 contributed revenue 228 million ii biosite june 2007 contributed revenue 1678 million iii cholestech september 2007 contributed revenue 241 million iv biostat october 2007 contributed revenue 81 million v hemosense november 2007 contributed revenue 35 million vi various less significant acquisitions contributed aggregate 172 million increase organic growth particularly professional infectious disease drugs abuse products also contributed growth health management effective january 1 2008 formed health management business segment includes activities recent acquisitions qas acquired june 2007 alere medical acquired november 2007 paradigmhealth acquired december 2007 net product sales associated recently acquired health management businesses 92 million 2007 consumer diagnostics decrease net product sales consumer diagnostics business segment 180 million 11 comparing 2007 2006 decrease primarily driven formation 5050 joint venture pg may 17 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion transaction form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting net product sales consumer diagnostics 2007 included 650 million manufacturing revenue associated manufacturing agreement spd whereby manufacture sell consumer diagnostics joint venture partially offsetting impact joint venture 129 million net product sales first check consumer drugs abuse product line acquired january 2007 vitamins nutritional supplements vitamins nutritional supplements net product sales decreased 92 million 11 comparing 2007 2006 decrease driven primarily private label business services revenue services revenue 166 million 2007 represents revenue related health management businesses alere medical paradigmhealth qas acquired 2007 net product sales services revenue geographic location net product sales services revenue geographic location 2007 2006 follows thousands net product sales services revenue 5119 million 3230 million generated united states approximately 63 59 respectively total net product sales services revenue year ended december 31 2007 2006 respectively growth net product sales services revenue geographic regions resulted various acquisitions discussed organic growth partially offset decrease revenue associated formation 5050 joint venture pg may 2007 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 47 million 27 220 million 2007 173 million 2006 increase primarily relates 39 million royalty revenue contributed biosite acquired june 2007 additionally incremental royalty revenue derived new royalty agreements entered 2007 along increases associated certain existing royalty agreements partially offset decreases royalty agreements gross profit margin gross profit increased 1645 million 72 3937 million 2007 2292 million 2006 gross profit 2007 benefited higher average margins earned revenue recently acquired businesses favorable impact low cost manufacturing facilities china included cost net revenue 2007 restructuring charges totaling 20 million associated joint venture related restructuring plans charge 82 million associated writeup inventory acquired fair value connection acquisitions biosite cholestech hemosense 06 million stockbased compensation expense additionally gross profit 2007 unfavorably impacted formation 5050 joint venture pg included cost net revenue 2006 restructuring charge 95 million related closure abi operation san diego california along writeoff fixed assets facilities impacted 2006 restructuring plans closure cdil manufacturing facility galway ireland cost net revenue 2006 also included 04 million charge stockbased compensation expense cost net revenue included amortization expense 240 million 112 million 2007 2006 respectively overall gross margin 47 2007 compared 40 2006 gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated services revenue license royalty revenue gross profit net product sales increased 1522 million 3695 million 2007 2173 million 2006 gross profit net product sales business segment 2007 2006 follows thousands professional diagnostics gross profit professional diagnostics net product sales increased 1771 million 137 comparing 2007 2006 principally result gross profit earned revenue acquired businesses discussed contributed higher average gross profits higher average profits partially offset 82 million charge associated writeup inventory acquired fair value connection acquisitions biosite cholestech hemosense 05 million restructuring charges 03 million stockbased compensation expense reducing gross profit 2006 72 million restructuring charge associated management’s decision close abi operations san diego california percentage professional diagnostics net product sales gross profit professional diagnostics business 54 2007 compared 43 2006 health management effective january 1 2008 formed health management business segment includes activities recent acquisitions qas acquired june 2007 alere medical acquired november 2007 paradigmhealth acquired december 2007 net product sales associated recentlyacquired health management businesses 31 million 2007 percentage health management net product sales gross margin 2007 33 consumer diagnostics gross profit consumer diagnostics net product sales decreased 299 million 36 comparing 2007 2006 decrease primarily result formation 5050 joint venture pg consumer diagnostics business may 2007 partially offset gross profit earned revenue acquired businesses primarily first check acquisition discussed 5 markup products sold manufacturing agreement joint venture restructuring charge 15 million associated decision close facilities formation joint venture pg 03 million stockbased compensation expense gross profit 2006 adversely impacted restructuring charges totaling 22 million related closure cdil manufacturing facility 04 million stockbased compensation expense percentage consumer diagnostics net product sales gross profit consumer diagnostics business 34 2007 compared 48 2006 vitamins nutritional supplements gross profit vitamins nutritional supplements net product sales increased 19 million 38 comparing 2007 2006 increase primarily result improved customer mix improved factory utilization cost reduction initiatives private label manufacturing business percentage vitamins nutritional supplements net product sales gross profit vitamins nutritional supplements business 10 2007 compared 6 2006 gross profit services revenue gross profit services revenue 114 million 2007 represents gross profit related services revenue associated newlyformed health management business segment includes recent acquisitions qas alere medical paradigmhealth matria professional drugs abuse testing screening businesses longterm services agreement related consumer diagnostics joint venture formed pg may 2007 research development expense research development expense increased 208 million 43 695 million 2007 487 million 2006 research development expense 2007 2006 reported net codevelopment funding 185 million 166 million respectively arising codevelopment funding arrangement entered iti february 2005 year increase research development expense primarily result increased spending related cardiology research programs 215 million spending related 2007 acquisitions partially offset transition consumerrelated research development efforts 5050 joint venture pg second quarter 2007 also included research development expense 22 million stockbased compensation expense representing increase approximately 08 million 2006 restructuring charges associated formation 5050 joint venture 2007 restructuring plan integrate newlyacquired businesses totaling 25 million included research development expense 2007 amortization expense 29 million 33 million included research development expense 2007 2006 respectively research development expense percentage net product revenue decreased 9 2007 10 2006 purchase inprocess research development “iprd” connection three acquisitions since 2006 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably example discontinued funding certain programs listed addition cannot guarantee able develop commercialize products competitors develop commercialize products indications products based acquired iprd programs technology platforms become commercially viable results operations could materially adversely affected following table sets forth iprd projects companies certain assets acquired since 2006 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets sales marketing expense sales marketing expense increased 733 million 78 1678 million 2007 944 million 2006 increase sales marketing expense primarily result approximately 561 million additional spending related newlyacquired businesses primarily biosite instant cholestech various less significant acquisitions also included sales marketing expense 17 million stockbased compensation expense representing increase approximately 10 million 2006 partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 369 million 68 million included sales marketing expense 2007 2006 respectively sales marketing expense percentage net product sales services revenue increased 21 2007 17 2006 general administrative expense general administrative expense increased 872 million 122 1584 million 2007 712 million 2006 increase general administrative expense primarily result approximately 269 million additional spending related newlyacquired businesses primarily biosite instant cholestech various less significant acquisitions also included general administrative expense 530 million stockbased compensation expense representing increase approximately 500 million 2006 530 million stockbased compensation expense includes onetime charge 452 million associated stock option acceleration conversion connection acquisition biosite partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 03 million 04 million included general administrative expense 2007 2006 respectively general administrative expense percentage net product sales services revenue increased 19 2007 13 2006 interest expense interest expense 2007 includes interest charges amortization deferred financing costs prepayment premiums amortization noncash discounts associated debt issuances interest expense 2006 includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 interest expense increased 564 million 212 830 million 2007 266 million 2006 interest expense increased 2007 result higher debt balances prior period additionally 2007 recorded writeoff 156 million deferred financing costs prepayment premium related repayment outstanding debt conjunction financing arrangements related biosite acquisition 2006 recorded charge 13 million related prepayment penalties writeoff debt origination costs resulting early repayment 200 million 10 subordinated promissory notes september 8 2006 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2007 includes foreign exchange gain 19 million realized settlement intercompany notes 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi income expense net 2006 includes foreign exchange gain 43 million associated closure galway ireland manufacturing operation 47 million income related portion settlement vedalab sa vedalab relating periods prior 2006 benefit provision income taxes benefit provision income taxes decreased 67 million 10 million benefit 2007 57 million provision 2006 effective tax rate 2007 04 compared 52 2006 decrease provision income taxes 2006 2007 primarily related recognition benefit current year losses us united kingdom primary components 2007 provision income taxes relates recognition benefit us uk losses state income taxes foreign income recognized benefit us nol carryforwards us deferred tax assets due us noncurrent deferred tax liabilities recorded purchase accounting 2007 acquisitions released approximately 830 million valuation allowance us deferred tax assets released goodwill thereafter recognized benefit current year us losses primary components 2006 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income net loss incurred net loss 2448 million 2007 incurred net loss 168 million 2006 net loss per common share available common stockholders 475 per basic diluted common share 2007 compared net loss 049 per basic diluted common share 2006 net loss 2007 2006 resulted various factors discussed see note 15 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions currently expect fund short longterm working capital needs commitments primarily operating cash flow expect working capital position improve operating margins grow business new product introductions continuing leverage strong intellectual property position point time liquidity materially impacted recent unprecedented disruption current capital credit markets expect materially impacted near future however unprecedented nature severity ongoing financial crisis capital credit markets cannot predict certainty ultimate impact events us therefore continue closely monitor liquidity capital resources addition may also utilize revolving credit facility sources financing fund portion capital needs future commitments including future acquisitions capital credit markets continue experience volatility availability funds remains limited may incur increased costs associated issuing commercial paper andor debt instruments addition possible ability access capital credit markets may limited factors time would like need could impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated prosecuting defending existing lawsuits andor unforeseen lawsuits us integrating operations newlyacquired companies executing cost savings strategies also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result december 31 2008 addition indebtedness approximately 11 billion aggregate principal amount indebtedness outstanding first lien credit agreement 2500 million aggregate principal amount indebtedness outstanding second lien credit agreement collectively first lien credit agreement secured credit facilities 1500 million indebtedness outstanding 3 senior subordinated convertible notes senior subordinated convertible notes included secured credit facilities revolving lineofcredit 1500 million 1420 million outstanding december 31 2008 interest first lien indebtedness defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate changes periodic basis eurodollar rate equal libor rate set period one three months election applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving lineofcredit respect base rate loans 075 125 respect eurodollar rate loans 175 225 outstanding indebtedness second lien credit agreement term loan amount 2500 million interest term loan defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 year ended december 31 2008 interest expense including amortization deferred financing costs secured credit facilities 852 million december 31 2008 accrued interest related secured credit facilities amounted 34 million december 31 2008 compliance debt covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements interest expense related senior subordinated convertible notes year ended december 31 2008 including amortization deferred financing costs 50 million december 31 2008 accrued interest related senior subordinated convertible notes amounted 06 million august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan secured credit facility fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt december 31 2008 19 million shares series b preferred stock issued outstanding upon conversion shares series b preferred stock may option sole discretion satisfy entire conversion obligation cash combination cash common stock extent permitted secured credit facilities delaware law summary changes cash position december 31 2008 cash equivalents 1413 million 2734 million decrease december 31 2007 primary sources cash year ended december 31 2008 included 1478 million generated operating activities 207 million common stock issues employee stock option stock purchase plans 1372 million borrowing existing credit facilities decrease 1392 million restricted cash investing activities year ended december 31 2008 used total 7133 million cash net cash acquired primarily related acquisition activities capital expenditures financing activities aside decrease restricted cash proceeds borrowings secured credit facilities cash received common stock issues employee stock option stock purchase plans used 151 million cash related repayments secured credit facilities capital lease obligations fluctuations foreign currencies negatively impacted cash balance 57 million year ended december 31 2008 operating cash flows net cash provided operating activities year ended december 31 2008 1478 million resulted 2870 million noncash items offset net loss 218 million 1174 million cash used meet net working capital requirements period 2870 million noncash items included 2679 million related depreciation amortization 242 million related impairment assets 264 million related noncash stockbased compensation expense 59 million related amortization deferred financing costs partially offset 418 million decrease related recognition tax benefit current year losses 11 million decrease related equity investments unconsolidated entities investing cash flows investing activities year ended december 31 2008 utilized 7133 million cash including 6499 million used acquisitions transactionrelated costs net cash acquired 650 million capital expenditures net proceeds sale equipment partially offset 16 million decrease investments assets included 112 million return cash 5050 joint venture pg acquisitions matria bbi panbio 2008 accounted approximately 5765 million 6499 million cash used acquisitions financing cash flows net cash provided financing activities year ended december 31 2008 2978 million 2007 connection acquisition bbi restricted cash balance created amount approximately 1405 million subsequent acquisition bbi february 2008 cash balance became unrestricted available future financingrelated activities additionally financing activities provided 207 million issuance common stock employee stock option stock purchase plans well 1372 million borrowings existing credit facilities december 31 2008 aggregate 10 million outstanding capital lease obligations payable 2013 income taxes december 31 2008 approximately 2566 million domestic nol carryforwards 159 million foreign nol carryforwards respectively either expire various dates 2027 may carried forward indefinitely losses available reduce federal state foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic nol carryforward amount december 31 2008 included approximately 1992 million preacquisition losses matria alere medical paradigm health biosite cholestech diamics inc diamics hemosense imn ischemia ostex prior adoption statement financial accounting standards “sfas” 141r business combinations losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption sfas 141r reduction valuation allowance generally recorded reduce income tax expense also included domestic nol carryforwards december 31 2008 approximately 175 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied long term tax exempt rate recorded valuation allowance portion deferred tax assets related nol’s certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2008 contractual obligations following table summarizes principal contractual obligations december 31 2008 effects obligations expected liquidity cash flow future periods thousands 1 see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 included longterm liabilities 02 million technology license payment obligations 34 million pension obligations liability associated financial accounting standards board “fasb” interpretation 48 “fin 48” accounting uncertainty income taxes interpretation fasb statement 109 included table estimate payments annually 5 amounts represent obligations associated acquisitions discussed detail 6 purchase obligations relate inventory purchases operating expense commitments 7 amounts based 1500 million senior subordinated notes amounts exclude interest debt due variable interest rates see note 6 consolidated financial statements included elsewhere annual report form 10k contingent consideration contractual terms related acquisitions alere medical ameditech binax inc binax biostat clondiag chip technologies gmbh clondiag diamics first check gabmed gmbh gabmed global diagnostics cc global matritech promesan srl promesan spectral diagnostics private limited affiliate source diagnostics india private limited spectralsource vision biotech pty ltd vision recently acquired healthcare business exception alere medical contingent considerations accounted increases aggregate purchase prices contingencies occur respect alere medical terms acquisition agreement provided contingent consideration payable alere medical stockholder owned shares common stock retained option purchase shares common stock sixmonth anniversary closing acquisition contingent consideration payable cash stock election equal number shares common stock options purchase common stock held sixmonth anniversary multiplied amount 5831 exceeded greater average price common stock ten business days preceding sixmonth anniversary date 75 5831 accordingly based price common stock ten business days preceding sixmonth anniversary closing acquisition issued approximately 01 million shares common stock may 30 2008 alere medical stockholders based remaining outstanding shares time payment contingent consideration impact purchase price acquisition respect ameditech terms acquisition agreement require us pay earnout upon successfully meeting certain revenue targets oneyear period ending first anniversary acquisition date oneyear period ending second anniversary acquisition date maximum amount incremental consideration payable 40 million respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition december 31 2008 remaining contingent consideration earned approximately 73 million respect biostat terms acquisition provided contingent consideration payable form loan notes biostat shareholders certain ebitda earnings interest taxes depreciation amortization milestones met 2007 ebitda milestones met 2007 loan notes totaling £34 million 62 million issued third quarter 2008 december 31 2008 loan notes remain outstanding approximate value 49 million respect clondiag terms acquisition agreement provided 89 million contingent consideration consisting approximately 02 million shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date successful completion second milestone occurred first quarter 2008 made payment 09 million issued 56080 shares common stock first quarter 2008 successful completion third fourth milestones occurred third quarter 2008 made payment 16 million issued 01 million shares common stock fourth quarter 2008 milestones exist respect diamics terms acquisition agreement provide contingent consideration payable upon successful completion certain milestones including development business plans marketable products december 31 2008 remaining contingent consideration earned approximately 23 million respect first check terms acquisition agreement required us pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods 2007 milestone totaling 22 million met accrued december 31 2007 paid first quarter 2008 milestone totaling 03 million met accrued third quarter 2008 paid fourth quarter 2008 milestones exist respect gabmed terms acquisition agreement provide contingent consideration totaling 750000 payable five annual amounts beginning 2007 upon successfully meeting certain revenue ebit earnings interest taxes milestones respective annual periods 2007 milestone totaling 01 million 02 million met accrued june 30 2008 paid third quarter 2008 respect global terms acquisition agreement provided contingent consideration payable upon successfully meeting certain revenue targets 2008 december 31 2008 revenue targets met resulting accrued contingent consideration totaling 02 million milestones exist respect matritech terms acquisition agreement required us pay earnout former matritech shareholders upon successfully meeting certain revenue targets 2008 december 31 2008 milestones achieved milestones exits respect promesan terms acquisition agreement provide contingent consideration payable upon successfully meeting certain annual revenue targets total contingent consideration 06 million payable three equal annual amounts 02 million beginning 2007 ending 2009 2007 milestone totaling 02 million 03 million met accrued december 31 2007 paid first quarter 2008 milestone totaling 02 million 03 million met accrued december 31 2008 respect spectralsource terms acquisition agreement required us pay earnout equal two times consolidated revenue spectralsource less 40 million consolidated profits tax spectralsource least 09 million one year anniversary “milestone period” following acquisition date consolidated profits tax spectralsource milestone period less 09 million amount payment would equal seven times spectralsource’s consolidated profits tax less 40 million contingent consideration payable 60 cash 40 stock revenue profit milestones met accrued fourth quarter 2008 made payment 16 million issued 53372 shares common stock fourth quarter 2008 milestones exist respect vision terms acquisition agreement provide incremental consideration payable former vision shareholders maximum amount incremental consideration payable approximately 32 million 10 million guaranteed accrued december 31 2008 remaining contingent consideration payable upon completion certain milestones successfully maintaining certain production levels product costs two years following acquisition date december 31 2008 milestones met respect recently acquired healthcare business terms acquisition agreement provide contingent consideration payable upon successfully meeting certain revenue ebitda targets twelve months ending june 30 2009 december 31 2010 respectively accrued liability amount 38 million avoid recognition negative goodwill result recognizing additional purchase price consideration contingent future events december 31 2008 38 million liability remains accrued critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2008 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees connection acquisition determine business june 2005 abbott laboratories entered transition services agreement abbott whereby abbott would continue distribute acquired products parties agreed transition completed transition period recognized revenue sales products title transferred abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 480 million 489 million 528 million 4 6 10 respectively net product sales 2008 2007 2006 respectively recorded product sales derive net product sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 2806 million 1634 million net allowances doubtful accounts 128 million 122 million december 31 2008 december 31 2007 respectively additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees deferred revenue balance 220 million 53 million december 31 2008 december 31 2007 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 1991 million 1482 million net provision excess obsolete inventory 108 million 81 million december 31 2008 2007 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2008 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 2845 million 30 billion 17 billion respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited 1 future expected cash flows product sales customer contracts acquired developed technologies patents 2 expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products 3 acquired companies’ brand awareness market position 4 assumptions period time continue use acquired brand 5 discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 goodwill intangible assets requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record higher depreciation amortization future periods reduce earnings valuation goodwill perform impairment review carrying value goodwill least annually frequently events occur circumstances exist indicate reporting unit’s carrying value exceeds fair value performed annual impairment review september 30 2008 using discounted cash flows approach based upon review believe goodwill related professional diagnostics health management consumer diagnostics reporting units impaired future cash flows operating results used impairment review based management’s projections assumptions future events cause projections differ used september 30 2008 could lead significant impairment charges goodwill future december 31 2008 goodwill balances related professional diagnostics health management consumer diagnostics reporting units amounted 17 billion 13 billion 527 million respectively despite current economic conditions fluctuation common stock price fourth quarter 2008 determined based 2008 financial performance unchanged expectations future financial performance improvement common stock price subsequent year end triggering event would warrant impairment testing occurred therefore updated testing performed goodwill impairment recorded 2008 economic conditions deteriorate remain depressed prolonged period time estimates future cash flows reporting unit may insufficient support carrying value goodwill assigned requiring us test impairment charges may material results operations financial position valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2008 future events could cause us conclude otherwise stockbased compensation account stockbased compensation accordance sfas 123r sharebased payment fair value recognition provisions statement sharebased compensation cost measured grant date based value award recognized expense vesting period determining fair value sharebased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercise midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest amount expense reduced estimated forfeitures sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions application sfas 123r compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 127 million december 31 2008 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits included valuation allowance 37 million deferred tax assets acquired companies future benefits generally applied reduce income tax expense required sfas 141r business combinations reduction 62 million valuation allowance 189 million december 31 2007 resulted additional goodwill decrease primarily related recognition foreign nol’s valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 “fin 48” accounting uncertainty income taxes interpretation fasb statement 109 accordance fin 48 established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “part item 3 legal proceedings” reported material legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements recently issued standards june 2008 fasb ratified emerging issue task force “eitf” issue 0705 determining whether instrument embedded feature indexed entity’s stock addresses accounting certain instruments derivatives sfas 133 accounting derivative instruments hedging activities new pronouncement specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock issue effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement may 2008 fasb issued fasb staff position “fsp” apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement fsp apb 141 specifies issuers instruments separately account liability equity components manner reflect entity’s nonconvertible debt borrowing rate interest cost recognized subsequent periods fsp apb 141 effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years fsp applied retrospectively periods presented currently process evaluating impact adopting pronouncement april 2008 fasb issued fsp 1423 determination useful life intangible assets fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 goodwill intangible assets fsp 1423 effective financial statements issued fiscal years beginning december 15 2008 well interim periods within fiscal years currently process evaluating impact adopting pronouncement march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged currently process evaluating impact adopting pronouncement december 2007 fasb ratified consensus reached eitf issue 0701 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements amendment accounting research bulletin arb 51 statement amends arb 51 establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary clarifies noncontrolling interest subsidiary ownership interest consolidated entity therefore reported equity consolidated financial statements statement also establishes standards presentation disclosure noncontrolling results consolidated income statement sfas 160 effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 141r business combinations statement replaces sfas 141 retains fundamental requirements sfas 141 acquisition method accounting used business combinations statement requires acquirer recognize measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date statement requires acquisition costs restructuring costs associated business combination recognized separately fair value business combination sfas 141r establishes requirements recognizing measuring goodwill acquired business combination gain bargain purchase well disclosure requirements designed enable users better interpret results business combination sfas 141r effective fiscal years beginning december 15 2008 given history acquisition activity anticipate adoption sfas 141r significant impact consolidated financial statements early adoption statement permitted december 31 2008 38 million capitalized acquisition costs classified noncurrent assets capitalized costs written january 2009 statement becomes effective recently adopted standards effective october 2008 adopted fsp 1573 determining fair value financial asset market asset active fsp 1573 clarifies application sfas 157 inactive market demonstrated fair value financial asset determined market financial asset inactive adoption provisions material impact consolidated financial statements effective january 1 2008 adopted eitf issue 0703 accounting nonrefundable advance payments goods services used future research development activities eitf 0703 concludes nonrefundable advance payments future research development activities deferred capitalized goods delivered related services performed entity expect goods delivered services rendered capitalized advance payment charged expense effect applying eitf prospective new contracts entered date adoption eitf material impact consolidated financial statements effective january 1 2008 adopted sfas 159 fair value option financial assets financial liabilities including amendment fasb 115 statement provides companies option measure specified election dates many financial instruments certain items fair value currently measured fair value standard also establishes presentation disclosure requirements designed facilitate comparison entities choose different measurement attributes similar types assets liabilities fair value option elected effect first remeasurement fair value reported cumulative effect adjustment opening balance retained earnings statement applied prospectively upon adoption provisions material impact consolidated financial statements effective january 1 2008 adopted sfas 157 fair value measurements financial instruments nonfinancial instruments accounted fair value recurring basis sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances fasb provided oneyear deferral implementation nonfinancial assets liabilities adoption provisions material impact consolidated financial statements information adoption required provisions sfas 157 see note 7 item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding anticipated expansion growth certain product service offerings research development expenditures impact research development activities potential new product technology achievements impact global distribution network ability improve working capital operating margins expectations respect apollo new integrated health management technology platform ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 13 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview enable individuals take charge improving health quality life home developing new capabilities nearpatient diagnosis monitoring health management global leading products services well new product development efforts currently focus cardiology women’s health infectious disease oncology drugs abuse continuing expand product service offerings categories acquisitions new product development august 2009 acquisition concateno february 2010 acquisition kroll expanded range drugs abuse testing products services offer government employers health plans healthcare professionals february 2010 acquisition majority interest standard diagnostics brought us comprehensive range rapid diagnostic products particular strength infectious disease category december 2009 also entered agreement epocal inc become exclusive distributor epoc® pointofcare diagnostic system us key markets time expect highprecision platform support broad menu tests serving critical care pointofcare eventually home settings within health management segment september 2009 acquisition free clear brought us highly differentiated smoking cessation programs also continued make progress toward longstanding goal strengthening global network order efficiently distribute current future diagnostic products ultimately services customers around globe april 2009 acquisition remainder acon laboratories’ rapid diagnostics business greatly enhanced presence china also acquired smaller distributors switzerland ireland south korea taiwan argentina research development efforts focus developing technology platforms facilitate movement testing hospital central laboratory physician’s office ultimately home fourth quarter 2009 recognized first commercial sales pima cd4 analyzer africa developed research team jena germany portable pointofcare device provides laboratory quality results determining patient therapy eligibility hiv positive individuals monitoring patients lifelong therapy additionally strong pipeline novel proteins combinations proteins function disease biomarkers developing new pointofcare tests targeted toward areas focus first quarter 2009 launched triage ngal test outside us recent studies published ngal marker help identify patients risk acute kidney injury hope triage ngal test eventually develop broad market appeal global leading supplier nearpatient monitoring tools well valueadded healthcare services uniquely positioned improve care lower healthcare costs providers patients rapidly growing home coagulation monitoring business supports doctors’ patients’ efforts monitor warfarin therapy using inratio blood coagulation monitoring system represents early example convergence diagnostic devices health management services november 2009 supplemented growing qas home coagulation monitoring business acquiring tapestry whose strong management team core strength medicare reimbursement along qas provide us stable platform growth significantly underpenetrated market 2009 also invested heavily new integrated health management technology platform called apollo using sophisticated data engine acquiring analyzing information combined state art touch engine communicating individuals health partners expect apollo benefit healthcare providers health insurers patients alike enabling efficient effective health management programs successfully launched apollo january 1 2010 financial highlights net revenue 2009 19 billion increased 3401 million 21 16 billion 2008 net revenue increased primarily result health management professional diagnosticsrelated acquisitions contributed 2332 million increase additionally result h1n1 flu outbreak revenues north american flu sales increased approximately 665 million 192 2009 346 million 2008 gross profit increased 2007 million 24 11 billion 2009 8535 million 2008 principally result increase net product sales services revenue resulting acquisitions increase flurelated sales associated h1n1 flu outbreak organic growth professional diagnostics business segment gross profit adversely impacted 95 million 179 million 2009 2008 respectively restructuring charges related closure various manufacturing operating facilities results operations following discussions results continuing operations exclude results related vitamins nutritional supplements business segment previously presented separate operating segment prior divestiture january 2010 vitamins nutritionals supplements business segment segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” results operations follows year ended december 31 2009 compared year ended december 31 2008 net product sales services revenue net product sales services revenue increased 3368 million 22 19 billion 2009 16 billion 2008 excluding unfavorable impact currency translation net product sales services revenue 2009 grew approximately 3638 million 23 2008 currency adjusted increase revenue increased primarily result professional diagnosticrelated acquisitions contributed 2332 million increase additionally result h1n1 flu outbreak revenues north american flu sales increased approximately 665 million 192 2009 346 million 2008 net product sales services revenue business segment net product sales services revenue business segment 2009 2008 follows thousands professional diagnostics increase net product sales services revenue professional diagnostics business segment 2087 million 20 resulting 12 billion net product services revenue 2009 result h1n1 flu outbreak revenues north american flu sales increased approximately 665 million comparing 2009 2008 additionally net product sales services revenue increased result acquisitions acon second territory business april 2009 contributed 383 million net product sales services revenue ii concateno august 2009 contributed 333 million net product sales services revenue iii prodimol biotecnologia sa prodimol october 2008 contributed additional net product sales services revenue 64 million excess earned prior year’s comparative period iv vision biotech pty ltd vision september 2008 contributed additional net product sales services revenue 63 million excess earned prior year’s comparative period v various less significant acquisitions contributed aggregate 112 million increase health management health management net product sales services revenue increased 1293 million 33 5217 million 2009 3924 million 2008 increase net product sales services revenue increased primarily result acquisitions matria may 2008 contributed additional net product sales services revenue 1030 million excess earned prior year’s comparative period ii free clear september 2009 contributed 143 million net product sales services revenue iii cvs caremark’s common disease management program accordant september 2009 contributed 115 million net product sales services revenue iv various less significant acquisitions contributed aggregate 89 million increase consumer diagnostics consumer diagnostics net product sales services revenue decreased 12 million 1 1336 million 2009 1348 million 2008 decrease year ended december 31 2009 compared year ended december 31 2008 primarily driven decrease net product sales services revenue associated first check athome testing drugs abuse business net product sales services revenue geographic location net product sales services revenue geographic location 2009 2008 follows thousands net product sales services revenue 13 billion 11 billion generated united states approximately 69 71 respectively total net product sales services revenue year ended december 31 2009 2008 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 32 million 13 291 million 2009 258 million 2008 increase license royalty revenue 2009 compared 2008 primarily attributed increase royalty payments received quidel existing licensing agreements 50 million royalty payment received connection license arrangement field animal health diagnostics gross profit margin gross profit increased 2007 million 24 11 billion 2009 8535 million 2008 increase gross profit 2009 compared 2008 largely attributed increase net product sales services revenue resulting acquisitions increase flurelated sales associated h1n1 flu outbreak organic growth professional diagnostics business segment included gross profit 2009 restructuring charges totaling 95 million associated closure various manufacturing operating facilities 20 million stockbased compensation expense included gross profit 2008 restructuring charges totaling 179 million associated closure various manufacturing operating facilities 15 million stockbased compensation expense cost net revenue included amortization expense 421 million 434 million 2009 2008 respectively overall gross margin 55 2009 compared 54 2008 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 1977 million 10 billion 2009 8363 million 2008 gross profit net product sales services revenue business segment 2009 2008 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1375 million 23 7336 million 2009 compared 5962 million 2008 principally result gross profit earned revenue acquired businesses discussed reducing gross profit 2009 2008 86 million 179 million restructuring charges respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 59 2009 compared 58 2008 health management gross profit health management net product sales services revenue increased 662 million 31 2805 million 2009 compared 2144 million 2008 increase gross profit largely attributed gross margins earned revenues recent acquisitions discussed reducing gross profit 2009 06 million restructuring charges percentage health management net product sales services revenue gross profit health management business 54 2009 compared 55 2008 consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 59 million 23 198 million 2009 compared 258 million 2008 decrease gross profit primarily result net product sales services revenue mix year ended december 31 2009 compared year ended december 31 2008 percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 15 2009 compared 19 2008 research development expense research development expense increased 10 million 1 1128 million 2009 1118 million 2008 included research development expense 2009 52 million stockbased compensation expense representing increase approximately 06 million 2008 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 11 million included research development expense 2009 representing decrease approximately 62 million 2008 amortization expense 37 million included research development expense 2009 2008 research development expense percentage net revenue decreased 6 2009 7 2008 sales marketing expense sales marketing expense increased 597 million 16 4416 million 2009 3819 million 2008 amortization expense 1869 million 1486 million included sales marketing expense 2009 2008 respectively remaining increase sales marketing expense primarily relates additional spending related newlyacquired businesses also included sales marketing expense 42 million stockbased compensation expense representing decrease approximately 01 million 2008 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 19 million included sales marketing expense 2009 representing decrease approximately 24 million 2008 sales marketing expense percentage net revenue decreased 23 2009 24 2008 general administrative expense general administrative expense increased 620 million 21 3570 million 2009 2951 million 2008 increase general administrative expense relates primarily additional spending related newlyacquired businesses contributing increase general administrative expense 2009 compared 2008 159 million acquisitionrelated costs recorded connection adoption new accounting standard business combinations january 1 2009 also included general administrative expense 167 million stockbased compensation expense representing increase approximately 07 million 2008 amortization expense 229 million 182 million included general administrative expense 2009 2008 respectively general administrative expense percentage net revenue 19 2009 2008 interest expense interest expense includes interest charges amortization deferred financing costs interest expense 2009 also includes amortization original issue discounts associated certain debt issuances interest expense increased 57 million 6 1068 million year ended december 31 2009 1011 million year ended december 31 2008 increase principally due additional interest expense incurred 9 subordinated notes 7875 senior notes totaling 323 million year ended december 31 2009 substantially offsetting increase lower interest expense incurred due lower interest rates charged year ended december 31 2009 compared year ended december 31 2008 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2009 increased 28 million compared 2008 included decrease interest income 42 million resulted lower interest earned available cash balances 19 million expense associated fullyvested compensationrelated costs certain executives incurred connection acquisition concateno third quarter 2009 29 million realized foreign currency gain associated restricted cash established connection acquisition concateno 06 million stamp duty tax incurred 2009 connection incremental investment made one foreign subsidiaries income expense net 2008 includes 125 million charge associated arbitration decision 17 million realized foreign currency loss associated restricted cash established connection acquisition bbi partially offset 55 million income associated settlements prior year’s royalties 2008 provision benefit income taxes provision benefit income taxes increased 323 million 156 million provision 2009 166 million benefit 2008 effective tax rate 2009 39 compared 43 2008 increase provision income taxes 2008 2009 primarily related increased income foreign jurisdictions decrease effective tax rate two years primarily results mix tax jurisdictions along impact increased us rd credits primary components 2009 provision income taxes relates us federal state income taxes foreign income primary components 2008 benefit income taxes relates us federal state income taxes foreign income recognition benefit german uk losses discontinued operations net tax results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented year ended december 31 2009 discontinued operations generated net income 19 million compared net loss 10 million year ended december 31 2008 net income loss year ended december 31 2009 generated net income 337 million 013 per basic diluted common share preferred stock dividends based net income available common stockholders 107 million year ended december 31 2008 generated net loss 218 million 046 per basic diluted common share preferred stock dividends based net loss available common stockholders 358 million net income 2009 net loss 2008 resulted various factors discussed see note 14 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per common share year ended december 31 2008 compared year ended december 31 2007 net product sales services revenue net product sales services revenue increased 8120 million 109 16 billion 2008 7447 million 2007 excluding unfavorable impact currency translation net product sales services revenue 2008 grew approximately 8123 million 109 2007 currency adjusted increase revenue increased primarily result professional diagnosticrelated acquisitions contributed 3924 million increase organic growth particularly professional infectious disease drugs abuse products also contributed growth net product sales services revenue business segment net product sales services revenue business segment 2008 2007 follows thousands professional diagnostics increase net product sales services revenue professional diagnostics business segment 4643 million 82 resulting 10 billion net product sales services revenue 2008 increase net product sales services revenue increased primarily result acquisitions biosite june 2007 contributed additional net product sales services revenue 1617 million excess earned prior year’s comparative period ii cholestech september 2007 contributed additional net product sales services revenue 494 million excess earned prior year’s comparative period iii biostat healthcare group biostat october 2007 contributed additional net product sales services revenue 216 million excess earned prior year’s comparative period iv hemosense november 2007 contributed additional net product sales services revenue 272 million excess earned prior year’s comparative period v redwood december 2007 contributed additional net product sales services revenue 524 million excess earned prior year’s comparative period vi bbi february 2008 contributed product revenue 324 million vii various less significant acquisitions contributed aggregate 476 million increase organic growth contributed increase net revenue year ended december 31 2008 compared year ended december 31 2007 health management increase net product sales services revenue health management business segment 3690 million 1579 resulting 3924 million net product sales services revenue 2008 increase net product sales services revenue increased primarily result acquisitions matria may 2008 contributed 1977 million net product sales services revenue ii qas june 2007 contributed additional net product sales services revenue 109 million excess earned prior year’s comparative period iii alere november 2007 contributed additional net product sales services revenue 796 million excess earned prior year’s comparative period iv paradigmhealth december 2007 contributed additional net product sales services revenue 694 million excess earned prior year’s comparative period consumer diagnostics decrease net product sales services revenue consumer diagnostics business segment 213 million 14 resulting 1348 million net product sales services revenue 2008 decrease primarily driven completion 5050 joint venture pg may 2007 transferred substantially assets consumer diagnostics business manufacturing core intellectual property assets upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting net product sales services revenue consumer diagnostics business segment 2008 2007 included 1030 million 650 million respectively manufacturing revenue associated manufacturing agreement spd whereby manufacture sell consumer diagnostics joint venture partially offsetting impact joint venture increase 135 million net product sales services revenue attributed acquisitions first check diagnostics llc first check january 2007 contributed additional net product sales services revenue 11 million excess earned prior year’s comparative period ii biostat october 2007 contributed additional net product sales services revenue 46 million excess earned prior year’s comparative period iii bbi february 2008 contributed net product sales services revenue 78 million net product sales services revenue geographic location net product sales services revenue geographic location 2008 2007 follows thousands net product sales services revenue 11 billion 4455 million generated united states approximately 71 60 respectively total net product sales services revenue year ended december 31 2008 2007 respectively growth net product sales services revenue geographic regions resulted various acquisitions discussed organic growth partially offset decrease revenue associated formation 5050 joint venture pg may 2007 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 38 million 18 258 million 2008 220 million 2007 license royalty revenue 2008 increased primarily result acquisition biosite june 2007 contributed additional 19 million royalty revenue excess earned 2007 additionally incremental royalty revenue derived new royalty agreements entered 2008 along increases associated certain existing royalty agreements partially offset decreases royalty agreements gross profit margin gross profit increased 4668 million 121 8535 million 2008 3868 million 2007 gross profit 2008 benefited higher average margins earned revenue recently acquired businesses favorable impact low cost manufacturing facilities china included gross profit 2008 restructuring charges totaling 179 million associated closure various manufacturing operating facilities 20 million charge related writeup fair market value inventory acquired connection first quarter acquisitions bbi panbio 15 million stockbased compensation expense included gross profit 2007 restructuring charges totaling 20 million associated closure various manufacturing operating facilities 82 million charge related writeup fair market value inventory acquired connection acquisitions biosite cholestech hemosense 06 million stockbased compensation expense cost net revenue included amortization expense 434 million 240 million 2008 2007 respectively overall gross margin 54 2008 compared 50 2007 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 4624 million 8363 million 2008 3739 million 2007 gross profit net product sales services revenue business segment 2008 2007 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 2895 million 94 comparing 2008 2007 principally result gross profit earned revenue acquired businesses discussed contributed higher average gross profits higher average profits partially offset 20 million charge related writeup fair market value inventory acquired connection acquisitions bbi panbio 179 million restructuring charges reducing gross profit 2007 82 million charge related writeup fair market value inventory acquired connection acquisitions biosite cholestech hemosense 05 million restructuring charges percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 58 2008 compared 54 2007 health management gross profit health management net product sales services revenue increased 2024 million 1689 comparing 2008 2007 principally result gross profit earned revenue acquired businesses discussed percentage health management net product sales services revenue gross profit health management business 55 2008 compared 51 2007 consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 295 million 53 comparing 2008 2007 decrease primarily result formation 5050 joint venture pg consumer diagnostics business may 2007 partially offset gross profit earned net products sales services revenue acquired businesses primarily bbi acquisition manufacturing profit associated products sold manufacturing agreement joint venture gross profit 2007 adversely impacted restructuring charges totaling 15 million related formation joint venture percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 19 2008 compared 35 2007 decrease gross margin percentage 2008 compared 2007 driven formation 5050 joint venture pg may 2007 result joint venture consumer diagnostics net product sales services revenue primarily consist manufacturing revenue associated manufacturing agreement joint venture whereby manufacture sell consumer diagnostics joint venture research development expense research development expense increased 423 million 61 1118 million 2008 695 million 2007 year increase research development expense primarily result increased spending related cardiology research programs partially offset transition consumerrelated research development efforts 5050 joint venture pg additionally funding relationship iti scotland limited complete december 31 2007 funding earned 2008 funding relationship reflected offset research development expense totaling 185 million 2007 also included research development expense 46 million stockbased compensation expense representing increase approximately 24 million 2007 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 72 million included research development expense 2008 representing increase approximately 47 million 2007 amortization expense 37 million 29 million included research development expense 2008 2007 respectively research development expense percentage net revenue decreased 7 2008 9 2007 purchase inprocess research development “iprd” connection two acquisitions since 2007 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably example discontinued funding certain programs listed addition cannot guarantee able develop commercialize products competitors develop commercialize products indications following table sets forth iprd projects companies certain assets acquired since 2007 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets sales marketing expense sales marketing expense increased 2189 million 134 3819 million 2008 1630 million 2007 increase sales marketing expense primarily relates additional spending related newlyacquired businesses also included sales marketing expense 43 million stockbased compensation expense representing increase approximately 26 million 2007 partially offsetting increases favorable impact formation 5050 joint venture pg restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 42 million included sales marketing expense 2008 representing increase approximately 34 million 2007 amortization expense 1486 million 345 million included sales marketing expense 2008 2007 respectively sales marketing expense percentage net revenue increased 25 2008 22 2007 general administrative expense general administrative expense increased 1399 million 90 2951 million 2008 1552 million 2007 increase general administrative expense relates primarily additional spending related newlyacquired businesses legal spending increased approximately 94 million 2008 compared 2007 also included general administrative expense 160 million stockbased compensation expense representing decrease approximately 369 million 2007 included charge 452 million related acquisition biosite partially offsetting increases favorable impact formation 5050 joint venture pg amortization expense 182 million 01 million included general administrative expense 2008 2007 respectively general administrative expense percentage net revenue decreased 19 2008 20 2007 interest expense interest expense includes interest charges amortization deferred financing costs associated debt issuances interest expense 2007 also includes writeoff deferred financing costs early termination fees associated repayment outstanding debt interest expense increased 181 million 22 1011 million 2008 830 million 2007 increase interest expense 2008 due higher average outstanding borrowing balances 2008 66 million interest expense related accelerated present value accretion lease restoration costs due early termination facility lease bedford england recorded connection 2008 restructuring plans also contributing increase 2008 08 million interest expense recorded connection legal settlement one distributors june 2008 interest expense 2007 included writeoff 156 million deferred financing costs prepayment premium related repayment outstanding debt conjunction financing arrangements related biosite acquisition income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2008 includes 125 million charge associated arbitration decision partially offset 55 million income associated settlements prior year’s royalties 2008 income expense net 2007 includes foreign exchange gain 19 million realized settlement intercompany notes 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi benefit provision income taxes benefit provision income taxes increased 156 million 166 million benefit 2008 10 million benefit 2007 effective tax rate 2008 43 compared 10 2007 increase benefit income taxes 2007 2008 primarily related recognition benefit losses germany japan united kingdom primary components 2008 benefit income taxes relates us federal state income taxes foreign income recognition benefit german uk losses primary components 2007 provision income taxes relates recognition benefit us uk losses state income taxes foreign income recognized benefit us net operating loss nol carryforwards us deferred tax assets due us noncurrent deferred tax liabilities recorded purchase accounting 2007 acquisitions 2007 released approximately 830 million valuation allowance preacquisition us deferred tax assets released goodwill thereafter recognized benefit recorded provision appropriate current year us losses discontinued operations net tax results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented year ended december 31 2008 discontinued operations incurred net loss 10 million compared net loss 04 million year ended december 31 2007 net loss incurred net loss 218 million 2008 incurred net loss 2448 million 2007 net loss per common share available common stockholders 046 per basic diluted common share 2008 compared net loss 475 per basic diluted common share 2007 net loss 2008 2007 resulted various factors discussed see note 14 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions currently expect fund short longterm working capital needs commitments primarily operating cash flow expect working capital position improve operating margins grow business new product service offerings continuing leverage strong intellectual property position point time liquidity materially impacted recent unprecedented disruption current capital credit markets expect materially impacted near future however cannot predict certainty ultimate impact events us therefore continue closely monitor liquidity capital resources addition may also utilize revolving credit facility sources financing fund portion capital needs future commitments including future acquisitions utilized resources complete recent acquisitions standard diagnostics kroll capital credit markets continue experience volatility availability funds remains limited may incur increased costs associated issuing commercial paper andor debt instruments addition possible ability access capital credit markets may limited factors time would like need could impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated prosecuting defending existing lawsuits andor unforeseen lawsuits us integrating operations newlyacquired companies executing cost savings strategies also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 sold 1500 million aggregate principal amount 7875 senior notes public offering net proceeds offering amounted approximately 1450 million net underwriters’ commissions totaling 22 million original issue discount totaling 28 million net proceeds used fund acquisition concateno december 31 2009 1473 million indebtedness issuance 7875 senior notes september 28 2009 sold 1000 million aggregate principal amount 7875 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers also agreed file registration statement securities exchange commission sec holders notes may exchange notes registered notes substantially identical terms original notes net proceeds offering amounted approximately 950 million net initial purchasers’ original issue discount totaling 35 million offering expenses totaling approximately 15 million net proceeds used partially fund acquisition free clear december 31 2009 966 million indebtedness issuance 7875 senior notes 7875 senior notes issued indenture dated august 11 2009 amended supplemented indenture 7875 senior notes accrue interest dates respective issuances rate 7875 per year interest notes payable semiannually february 1 august 1 commencing february 1 2010 notes mature february 1 2016 unless earlier redeemed may redeem 7875 senior notes whole part time february 1 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3938 twelve months february 1 2013 1969 twelve months february 1 2014 zero february 1 2015 time prior august 1 2012 may redeem 35 aggregate principal amount 7875 senior notes money raise certain equity offerings long pay 107875 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 7875 senior notes remains outstanding afterwards addition time prior february 1 2013 may redeem 7875 senior notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 7875 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 7875 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 7875 senior notes unsecured equal right payment existing future senior debt including borrowing secured credit facilities obligations 7875 senior notes indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 28 guarantor financial information indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 7875 senior notes year ended december 31 2009 including amortization deferred financing costs original issue discounts 73 million december 31 2009 accrued interest related senior subordinated notes amounted 78 million 9 senior subordinated notes may 12 2009 completed sale 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 subordinated notes public offering net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million net proceeds intended used general corporate purposes december 31 2009 3883 million indebtedness 9 subordinated notes 9 subordinated notes issued indenture dated may 12 2009 amended supplemented indenture accrue interest date issuance may 12 2009 rate 9 per year interest notes payable semiannually may 15 november 15 commencing november 15 2009 notes mature may 15 2016 unless earlier redeemed may redeem 9 subordinated notes whole part time may 15 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 450 twelve months may 15 2013 225 twelve months may 15 2014 zero may 15 2015 time prior may 15 2012 may redeem 35 aggregate principal amount 9 subordinated notes money raise certain equity offerings long pay 109 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 9 subordinated notes remains outstanding afterwards addition time prior may 15 2013 may redeem 9 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 9 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 9 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 9 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 9 subordinated notes indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 28 guarantor financial information indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 9 subordinated notes year ended december 31 2009 including amortization deferred financing costs original issue discounts 250 million december 31 2009 accrued interest related senior subordinated notes amounted 50 million secured credit facility december 31 2009 approximately 10 billion aggregate principal amount indebtedness outstanding first lien credit agreement 2500 million aggregate principal amount indebtedness outstanding second lien credit agreement collectively first lien credit agreement secured credit facility included secured credit facility revolving lineofcredit 1500 million 1420 million outstanding december 31 2009 interest first lien indebtedness defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate changes periodic basis eurodollar rate equal libor rate set period one three months election applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving lineofcredit respect base rate loans 075 125 respect eurodollar rate loans 175 225 outstanding indebtedness second lien credit agreement includes term loans aggregate amount 2500 million interest term loans defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 year ended december 31 2009 interest expense including amortization deferred financing costs secured credit facility 643 million december 31 2009 accrued interest related secured credit facility amounted 09 million december 31 2009 compliance debt covenants related secured credit facility consisted principally maximum consolidated leverage minimum interest coverage requirements august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans senior credit facility fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loans secured credit facility fixed rate debt 3 senior subordinated convertible notes may 2007 sold 1500 million aggregate principal amount 3 senior subordinated convertible notes senior subordinated convertible notes december 31 2009 1500 million indebtedness senior subordinated convertible notes senior subordinated convertible notes convertible 34 million shares common stock conversion price 4398 per share interest expense related senior subordinated convertible notes year ended december 31 2009 including amortization deferred financing costs 51 million december 31 2009 accrued interest related senior subordinated convertible notes amounted 06 million series b convertible perpetual preferred stock december 31 2009 approximately 20 million shares series b preferred stock issued outstanding share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option sole discretion satisfy entire conversion obligation cash combination cash common stock extent permitted secured credit facilities delaware law conversions december 31 2009 summary changes cash position december 31 2009 cash equivalents 4928 million 3514 million increase december 31 2008 primary sources cash year ended december 31 2009 included 2875 million generated operating activities 6312 million net proceeds issuance debt 3875 million related issuance 9 subordinated notes 2437 million related issuance 7875 senior notes 126 million return capital 100 million 5050 joint venture pg 300 million common stock issuances employee stock option stock purchase plans primary uses cash year ended december 31 2009 related 4685 million net cash paid acquisitions transactional costs 998 million capital expenditures net proceeds sale equipment 110 million repayment longterm debt 179 million paid financing costs principally related issuance 9 subordinated notes 7875 senior notes 80 million related net repayments revolving linesofcredit debt capital lease obligations fluctuations foreign currencies positively impacted cash balance 138 million year ended december 31 2009 operating cash flows net cash provided operating activities year ended december 31 2009 2875 million resulted net income 342 million 3472 million noncash items offset 898 million cash used meet net working capital requirements period 3472 million noncash items included 3124 million related depreciation amortization 85 million related impairment assets 282 million related noncash stockbased compensation expense 104 million interest expense related amortization deferred financing costs original issue discounts partially offset 91 million decrease related recognition tax benefit current year losses tax loss carryforwards 76 million equity earnings unconsolidated entities investing cash flows investing activities year ended december 31 2009 utilized 5837 million cash including 4685 million used acquisitions transactionrelated costs net cash acquired 998 million capital expenditures net proceeds sale equipment 152 million increase investments assets acquisitions tapestry free clear concateno acon second territory business 2009 accounted approximately 3831 million 4685 million cash used acquisitions financing cash flows net cash provided financing activities year ended december 31 2009 6339 million financing activities year ended december 31 2009 primarily included 6312 million net proceeds issuance debt 3875 million related issuance 9 subordinated notes 2437 million related issuance 7875 senior notes 300 million cash received common stock issuances employee stock option stock purchase plans offset 111 million repayments longterm debt 179 million paid financing costs related certain debt issuances 80 million related net repayments revolving linesofcredit debt capital lease obligations december 31 2009 aggregate 18 million outstanding capital lease obligations payable 2014 income taxes december 31 2009 approximately 1845 million domestic nol capital loss carryforwards 335 million foreign nol capital loss carryforwards respectively either expire various dates 2028 may carried forward indefinitely losses available reduce federal state foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic nol carryforward amount december 31 2009 included approximately 1433 million preacquisition losses matria qas paradigmhealth biosite cholestech redwood hemosense inverness medical nutritionals group ischemia inc ostex international inc effective january 1 2009 adopted new accounting standard business combinations prior adoption standard preacquisition losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption new accounting standard reduction valuation allowance generally recorded reduce income tax expense furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2009 contractual obligations following table summarizes principal contractual obligations december 31 2009 effects obligations expected liquidity cash flow future periods thousands 1 includes original issue discounts associated 9 senior subordinated notes 7875 senior notes see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 included longterm liabilities 43 million pension obligations 5 includes 443 million deferred payments associated acquisition acon second territory business 150 million deferred payments associated acquisition accordant common disease management programs accordant 12 million deferred payments associated acquisition biolinker sa 04 million deferred payments associated acquisition jinsung meditech inc 6 purchase obligations relate inventory purchases operating expense commitments 7 includes 3 senior subordinated convertible notes nonvariable interestbearing debt see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k addition contractual obligations detailed contractual contingent consideration terms related following acquisitions • accordant maximum earnout 60 million earned paid quarterly payments 15 million beginning fourth quarter 2012 • ameditech inc ameditech maximum earnout 40 million earned paid 2010 2011 • binax inc binax maximum remaining earnout 37 million earned paid later 2010 • free clear maximum earnout 300 million earned paid 2011 • gabmed gmbh gabmed maximum remaining earnout 05 million earned paid equal annual amounts 2010 2012 • jsm maximum earnout 30 million earned paid annual amounts 2011 2013 • mologic limited mologic maximum earnout 190 million earned paid annual amounts 2011 2012 payable shares common stock • tapestry maximum earnout 250 million earned paid annual amounts 2011 2013 earnout paid shares common stock except case 2010 financial targets defined earnout agreement exceeded case seller may elect paid 2010 earnout cash • vision maximum remaining earnout 12 million earned paid 2010 • privatelyowned health management business acquired 2008 earnout earned paid 2011 information pertaining contractual contingent consideration obligations see note 11 accompanying consolidated financial statements additionally contractual contingent obligation pay £10 million compensation certain executives concateno accordance acquisition agreement earned 650 paid 2010 balance 2011 payments vest full change control event critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2009 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 602 million 358 million 384 million 4 3 5 respectively net product sales 2009 2008 2007 respectively recorded product sales derive net product sales amounts approximately 93 million 93 million 188 million 2009 2008 2007 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 3545 million 2614 million net allowances doubtful accounts 125 million 100 million december 31 2009 december 31 2008 respectively additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees deferred revenue balance 240 million 220 million december 31 2009 december 31 2008 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 2215 million 1736 million net reserve excess obsolete inventory 126 million 96 million december 31 2009 2008 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2009 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 3244 million 35 billion 17 billion respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited 1 future expected cash flows product sales customer contracts acquired developed technologies patents 2 expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products 3 acquired companies’ brand awareness market position 4 assumptions period time continue use acquired brand 5 discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition conduct impairment review carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record higher depreciation amortization future periods reduce earnings valuation goodwill perform impairment review carrying value goodwill least annually frequently events occur circumstances exist indicate reporting unit’s carrying value exceeds fair value performed annual impairment review september 30 2009 using market approach discounted cash flows approach based upon review believe goodwill related professional diagnostics health management consumer diagnostics reporting units impaired future cash flows operating results used impairment review based management’s projections assumptions future events cause projections differ used september 30 2009 could lead significant impairment charges goodwill future december 31 2009 goodwill balances related professional diagnostics health management consumer diagnostics reporting units amounted 20 billion 14 billion 522 million respectively fair value professional consumer diagnostics segments exceeding carrying value greater 10 fair value health management segment exceeding carrying value approximately 9 based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environments business units assurances estimates assumptions made purposes goodwill identifiable intangible testing september 30 2009 prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates achieved change may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present outside timing next annual evaluation valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review although believe carrying value longlived tangible intangible assets realizable december 31 2009 future events could cause us conclude otherwise stockbased compensation stockbased compensation cost measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercise midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 375 million december 31 2009 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses nols tax credits included valuation allowance 89 million deferred tax assets acquired companies future benefits generally applied reduce income tax expense increase 248 million valuation allowance 127 million december 31 2008 increase primarily related domestic state nols domestic state credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “part item 3 legal proceedings” reported material legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2r notes consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding anticipated expansion growth certain product service offerings impact research development activities potential new product technology achievements potential selective acquisitions including acquisitions health management businesses outside united states ability improve working capital operating margins expectations respect apollo integrated health management technology platform ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 13 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview enable individuals take charge improving health quality life home medical supervision developing new capabilities nearpatient diagnosis monitoring health management global leading products services well new product development efforts currently focus cardiology women’s health infectious disease oncology toxicology continuing expand product service offerings categories global leading supplier nearpatient monitoring tools well valueadded healthcare services uniquely positioned improve care lower healthcare costs providers patients rapidly growing home coagulation monitoring business supports doctors’ patients’ efforts monitor warfarin therapy using inratio blood coagulation monitoring system continues represent early example also continued introduce new integrated health management technology platform called apollo customers since launch january 1 2010 using sophisticated data engine acquiring analyzing information combined state art touch engine communicating individuals health partners expect apollo benefit healthcare providers health insurers patients alike enabling efficient effective health management programs continued grow strategic acquisitions february 2010 acquisition kroll laboratory specialists inc renamed alere toxicology well small acquisitions year expanded range toxicology testing products services offer government agencies employers health plans healthcare professionals 2010 acquisition standard diagnostics brought us comprehensive range rapid diagnostic products particular strength infectious disease category acquisition builds already significant presence asiapacific distribution capabilities south korea india additionally provides us strong management team established manufacturing facilities countries also acquired small health management provider australia expect continue expand health management business outside us selective acquisitions 2010 completed several technologybased acquisitions hope aid us bringing future products diagnostic platforms market acquisition two privatelyowned research development operations enhanced capabilities area rapid molecular diagnostic testing additionally november 2010 acquired adnagen small german company specializing development cancer diagnostics detection analysis circulating tumor cells order determine correct course therapy individual cancer patients hope acquisition assist us developing rapid molecular testing platform focused oncology allowing truly personalized cancer care continued lay groundwork 2010 future revenue earnings growth focusing efforts new product development introductions introduced alere heart check system europe european launch early stages early indicators positive alere heart check system provides quantitative reading bnp 10 minutes using fingerstick sample substantially equivalent performance lab instruments alere heart check system launched pointofcare device ultimately designed home use intended enable doctors remotely monitor bnp levels congestive heart failure patients adjust therapy accordingly additionally 2010 introduced alere cd4 analyzer additional countries africa asiapacific alere cd4 analyzer first pointofcare platform measures absolute cd4 counts hiv patients results 20 minutes singleuse disposable fingerstick cartridges also made headway 2010 sales epoc platform expect trend continue make progress securing contracts relatively long sales process associated integrated networks large hospital systems epoc enterprise pointofcare platform pointofcare analysis system provides wireless bedside blood gas electrolyte measurement testing solutions complements triage products cardiology emergency room settings utilizing easy use lowcost disposable smartcardstm epoc system produces laboratoryquality results critical acute care settings 30 seconds continue build momentum two novel biomarkers ngal placental growth factor plgf 2009 introduced triage ngal test outside us world’s first pointofcare test acute kidney injury aki expect us fda clearance product 2012 january 2010 launched triage plgf europe plgf novel biomarker aids early diagnosis preeclampsia pe leading cause maternal perinatal mortality efforts focused building awareness acceptance marker outside us key clinical studies needed gain regulatory clearance us japan expected commence 2011 financial highlights • net revenue increased 2327 million 12 22 billion 2010 19 billion 2009 • gross profit increased 804 million 8 113 billion 2010 105 billion 2009 • year ended december 31 2010 generated net loss 10 billion 1233 per basic diluted common share preferred stock dividends based net loss available common stockholders 10 billion year ended december 31 2009 generated net income 337 million 013 per basic diluted common share preferred stock dividends based net income available common stockholders 107 million 2010 net loss included 10 billion noncash charge associated impairment goodwill health management business segment reporting unit results operations following discussions results continuing operations exclude results related vitamins nutritional supplements business segment previously presented separate operating segment prior divestiture january 2010 vitamins nutritional supplements business segment segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” results excluding impact currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates trends results operations follows year ended december 31 2010 compared year ended december 31 2009 net product sales services revenue net product sales services revenue increased 2410 million 13 21 billion 2010 19 billion 2009 net product sales services revenue increased primarily result health management professional diagnosticsrelated acquisitions contributed 3380 million increase excluding impact currency translation net product sales services revenue 2010 grew approximately 2376 million 13 2009 offsetting increased net product sales services revenue contributed acquisitions decrease north american flurelated net product sales 2010 compared 2009 net product sales north american flu sales declined approximately 823 million comparing 2010 2009 1011 million 2009 188 million 2010 result weaker normal flu season 2010 unusually strong flu sales 2009 caused h1n1 flu outbreak addition worldwide respiratory sales excluding north american flu sales discussed declined approximately 194 million comparing 2010 2009 net product sales services revenue health management segment excluding impact acquisitions adversely impacted increasingly competitive environment particularly less differentiated services disease management case management net product sales services revenue business segment net product sales services revenue business segment 2010 2009 follows thousands professional diagnostics increase net product sales services revenue professional diagnostics business segment 2025 million 16 resulting 14 billion net product sales services revenue 2010 net product sales services revenue increased primarily result acquisitions acon second territory business april 2009 contributed 152 million net product sales services revenue excess earned prior year’s comparative period ii concateno august 2009 contributed 488 million net product sales services revenue excess earned prior year’s comparative period iii standard diagnostics february 2010 contributed 789 million net product sales services revenue iv alere toxicology february 2010 contributed 313 million net product sales services revenue v various less significant acquisitions contributed aggregate 418 million increase offsetting increased net product sales services revenue contributed acquisitions decrease north american flurelated net product sales 2010 compared 2009 net product sales north american flu sales declined approximately 823 million comparing 2010 2009 result weaker normal flu season 2010 unusually strong flu sales 2009 caused h1n1 flu outbreak addition worldwide respiratory sales excluding north american flu sales discussed declined approximately 194 million comparing 2010 2009 excluding impact currency translation net product sales services revenue professional diagnostics business segment increased 1987 million 16 comparing 2010 2009 excluding impact currency translation decrease flurelated sales comparable periods organic growth professional diagnostics net product sales services revenue 6 health management health management net product sales services revenue increased 771 million 15 5988 million 2010 5217 million 2009 increase net product sales services revenue increased primarily result acquisitions free clear inc free clear september 2009 contributed 555 million net products sales services revenue excess earned prior year’s comparative period ii tapestry medical inc tapestry november 2009 contributed 453 million net product sales services revenue includes revenue transferred tapestry qas subsidiary excess earned prior year’s comparative period iii cvs caremark’s common disease management program accordant september 2009 contributed 153 million net product sales services revenue excess earned prior year’s comparative period iv various less significant acquisitions contributed aggregate 59 million increase net product sales services revenue health management segment excluding impact acquisitions adversely impacted increasingly competitive environment particularly less differentiated services disease management case management consumer diagnostics consumer diagnostics net product sales services revenue decreased 386 million 29 951 million 2010 1336 million 2009 decrease 2010 compared 2009 primarily driven decrease approximately 350 million manufacturing revenue associated manufacturing agreement 5050 joint venture pg spd whereby manufacture sell consumer diagnostic products spd manufacturing revenue generated costplus basis manufacturing revenue adversely impacted result transitioning manufacturing consumer diagnosticrelated products lower cost facilities certain third party facilities net product sales spd 1938 million 1846 million 2010 2009 respectively transition manufacturing consumer diagnosticrelated products lower cost facilities substantially completed end 2010 net product sales services revenue geographic location net product sales services revenue geographic location 2010 2009 follows thousands net product sales services revenue 14 billion 13 billion generated united states approximately 64 69 respectively total net product sales services revenue year ended december 31 2010 2009 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed increase net product sales services revenue outside us europe primarily result acquisition standard diagnostics located south korea license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 83 million 29 208 million 2010 291 million 2009 decrease license royalty revenue 2010 compared 2009 largely attributed decrease royalty payments received quidel existing licensing agreements 50 million royalty payment received 2009 connection license arrangement field animal health diagnostics decrease royalties received quidel 2010 compared 2009 result decrease flurelated product sales gross profit margin gross profit increased 804 million 8 113 billion 2010 105 billion 2009 increase gross profit 2010 compared 2009 largely attributed increase net product sales services revenue resulting acquisitions organic growth professional diagnostics business segment cost net revenue 2010 included amortization 66 million relating writeup inventory fair value connection certain acquisitions cost net revenue 2009 included amortization 20 million relating writeup inventory fair value connection acquisition concateno third quarter 2009 reducing gross profit 2010 2009 39 million 95 million restructuring charges respectively cost net revenue included amortization expense 630 million 421 million 2010 2009 respectively overall gross margin 53 2010 compared 55 2009 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 869 million 11 billion 2010 10 billion 2009 gross profit net product sales services revenue business segment 2010 2009 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 681 million 9 8017 million 2010 compared 7336 million 2009 principally result gross profit earned revenue acquired businesses discussed reducing gross profit 2010 amortization 66 million relating writeup inventory fair value connection various acquisitions reducing gross profit 2009 amortization 20 million relating writeup inventory fair value connection acquisition concateno third quarter 2009 start costs incurred 2010 associated production cd4 disposable tests also contributed reduced gross profit 2010 compared 2009 reducing gross profit 2010 2009 33 million 86 million restructuring charges respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 56 2010 compared 59 2009 inventory writeups noted coupled higher revenue recently acquired toxicology businesses contribute lower segment average gross margins decrease north american flurelated net product sales contribute higher segment average gross margin contributed decrease gross margin percentage 2010 compared 2009 health management gross profit health management net product sales services revenue increased 165 million 6 2971 million 2010 compared 2805 million 2009 increase gross profit largely attributed gross profit earned revenues recent acquisitions discussed reducing gross profit 2010 2009 06 million restructuring charges percentage health management net product sales services revenue gross profit health management business 50 2010 compared 54 2009 lower margin percentage earned 2010 compared 2009 result increasingly competitive environment health management segment particularly less differentiated services disease management case management addition reserves totaling approximately 30 million established fourth quarter 2010 potential return unused test strips distributed connection home monitoring portion health management business consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 23 million 12 221 million 2010 compared 198 million 2009 increase gross profit primarily result changes net product sales services revenue mix year ended december 31 2010 compared year ended december 31 2009 percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 23 2010 compared 15 2009 research development expense research development expense increased 204 million 18 1333 million 2010 1128 million 2009 included research development expense 2010 71 million stockbased compensation expense representing increase approximately 19 million 2009 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 05 million included research development expense 2010 representing decrease approximately 06 million 2009 amortization expense 48 million 37 million included research development expense 2010 2009 respectively research development expense percentage net revenue 6 2010 2009 sales marketing expense sales marketing expense increased 575 million 13 4991 million 2010 4416 million 2009 amortization expense 2123 million 1869 million included sales marketing expense 2010 2009 respectively remaining increase sales marketing expense primarily relates additional spending related newlyacquired businesses restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 15 million included sales marketing expense 2010 representing decrease approximately 04 million 2009 sales marketing expense percentage net revenue 23 2010 2009 general administrative expense general administrative expense increased 899 million 25 4469 million 2010 3570 million 2009 increase general administrative expense relates primarily 601 million compensation expense recorded connection purchasing remaining shares minority shareholder standard diagnostics fourth quarter 2010 partially offsetting increase decrease legal spending approximately 71 million 2010 compared 2009 acquisitionrelated costs 82 million 159 million included general administrative expense 2010 2009 respectively amortization expense 184 million 229 million included general administrative expense 2010 2009 respectively general administrative expense percentage net revenue 21 19 2010 2009 respectively impairment goodwill conducted annual goodwill impairment analysis fourth quarter 2010 conducting step 1 impairment analysis prescribed asc 350 intangibles goodwill asc 350 analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment analysis prescribed asc 350 determine amount goodwill impairment charge step 2 portion analysis indicated needed record goodwill impairment charge approximately 10 billion recorded fourth quarter 2010 reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods details goodwill impairment analysis disclosed note 2 consolidated financial statements included elsewhere annual report form 10k gain disposition 2009 disposed majority ownership interest diamics inc diamics operation part professional diagnostics reporting unit business segment period date acquisition diamics july 2007 disposition september 2009 principles consolidation consolidated 100 operating results diamics operations consolidated statement operations result disposition recorded gain 34 million year ended december 31 2009 interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 326 million 31 1394 million year ended december 31 2010 1068 million year ended december 31 2009 increase principally due additional interest expense incurred 9 subordinated notes 7875 senior notes 8625 subordinated notes totaling 695 million year ended december 31 2010 compared 323 million year ended december 31 2009 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2010 includes 45 million gain sale marketable securities net recovery 33 million related certain restructuring activities 31 million net gain associated legal settlements related previously disclosed intellectual property litigation relating health management businesses approximately 05 million income associated settlement prior years’ royalties 2010 partially offset charge related accounts receivable reserve prior year’s sale income expense net 2009 includes 19 million expense associated fullyvested compensationrelated costs certain executives incurred connection acquisition concateno third quarter 2009 29 million realized foreign currency gain associated restricted cash established connection acquisition concateno 06 million stamp duty tax incurred 2009 connection incremental investment made one foreign subsidiaries provision benefit income taxes provision benefit income taxes decreased 456 million 299 million benefit 2010 156 million provision 2009 effective tax rate 2010 3 compared 39 2009 decrease provision income taxes 2009 2010 primarily related tax benefit associated goodwill impairment charge decrease effective tax rate two years primarily results inability record tax benefit majority goodwill impairment charge recorded 2010 primary components 2010 provision income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2010 primary components 2009 benefit income taxes relate us federal state income taxes foreign income equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax year ended december 31 2010 reflect following earnings 50 interest spd amount 85 million ii earnings 40 interest vedalab sa vedalab amount 02 million iii earnings 49 interest techlab inc techlab amount 19 million equity earnings unconsolidated entities net tax year ended december 31 2009 reflect following earnings 50 interest spd amount 57 million ii earnings 40 interest vedalab amount approximately 05 million iii earnings 49 interest techlab amount 17 million income loss discontinued operations net tax results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented year ended december 31 2010 discontinued operations generated net income approximately 114 million compared net income 19 million year ended december 31 2009 net income 114 million year ended december 31 2010 includes gain 187 million 116 million net tax sale vitamins nutritional supplements business net income loss year ended december 31 2010 generated net loss 10 billion 1233 per common share preferred stock dividends based net loss available common stockholders 10 billion year ended december 31 2009 generated net income 337 million 013 per diluted common share preferred stock dividends based net income available common stockholders 107 million net income loss 2010 2009 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per common share year ended december 31 2009 compared year ended december 31 2008 net product sales services revenue net product sales services revenue increased 3368 million 22 19 billion 2009 16 billion 2008 excluding unfavorable impact currency translation net product sales services revenue 2009 grew approximately 3638 million 23 2008 currency adjusted increase revenue increased primarily result professional diagnosticrelated acquisitions contributed 2332 million increase additionally result h1n1 flu outbreak revenues north american flu sales increased approximately 665 million 192 2009 346 million 2008 net product sales services revenue business segment net product sales services revenue business segment 2009 2008 follows thousands professional diagnostics increase net product sales services revenue professional diagnostics business segment 2087 million 20 resulting 12 billion net product services revenue 2009 result h1n1 flu outbreak revenues north american flu sales increased approximately 665 million comparing 2009 2008 additionally net product sales services revenue increased result acquisitions acon second territory business april 2009 contributed 383 million net product sales services revenue ii concateno august 2009 contributed 333 million net product sales services revenue iii prodimol biotecnologia sa prodimol october 2008 contributed additional net product sales services revenue 64 million excess earned prior year’s comparative period iv vision biotech pty ltd vision september 2008 contributed additional net product sales services revenue 63 million excess earned prior year’s comparative period v various less significant acquisitions contributed aggregate 112 million increase health management health management net product sales services revenue increased 1293 million 33 5217 million 2009 3924 million 2008 increase net product sales services revenue increased primarily result acquisitions matria healthcare inc matria may 2008 contributed additional net product sales services revenue 1030 million excess earned prior year’s comparative period ii free clear september 2009 contributed 143 million net product sales services revenue iii accordant september 2009 contributed 115 million net product sales services revenue iv various less significant acquisitions contributed aggregate 89 million increase consumer diagnostics consumer diagnostics net product sales services revenue decreased 12 million 1 1336 million 2009 1348 million 2008 decrease year ended december 31 2009 compared year ended december 31 2008 primarily driven decrease net product sales services revenue associated first check athome drug testing business net product sales services revenue geographic location net product sales services revenue geographic location 2009 2008 follows thousands net product sales services revenue 13 billion 11 billion generated united states approximately 69 71 respectively total net product sales services revenue year ended december 31 2009 2008 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 32 million 13 291 million 2009 258 million 2008 increase license royalty revenue 2009 compared 2008 primarily attributed increase royalty payments received quidel existing licensing agreements 50 million royalty payment received connection license arrangement field animal health diagnostics gross profit margin gross profit increased 2007 million 24 11 billion 2009 8535 million 2008 increase gross profit 2009 compared 2008 largely attributed increase net product sales services revenue resulting acquisitions increase flurelated sales associated h1n1 flu outbreak organic growth professional diagnostics business segment included gross profit 2009 restructuring charges totaling 95 million associated closure various manufacturing operating facilities 20 million stockbased compensation expense included gross profit 2008 restructuring charges totaling 179 million associated closure various manufacturing operating facilities 15 million stockbased compensation expense cost net revenue included amortization expense 421 million 434 million 2009 2008 respectively overall gross margin 55 2009 compared 54 2008 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 1977 million 10 billion 2009 8363 million 2008 gross profit net product sales services revenue business segment 2009 2008 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1375 million 23 7336 million 2009 compared 5962 million 2008 principally result gross profit earned revenue acquired businesses discussed reducing gross profit 2009 2008 86 million 179 million restructuring charges respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 59 2009 compared 58 2008 health management gross profit health management net product sales services revenue increased 662 million 31 2805 million 2009 compared 2144 million 2008 increase gross profit largely attributed gross margins earned revenues recent acquisitions discussed reducing gross profit 2009 06 million restructuring charges percentage health management net product sales services revenue gross profit health management business 54 2009 compared 55 2008 consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 59 million 23 198 million 2009 compared 258 million 2008 decrease gross profit primarily result net product sales services revenue mix year ended december 31 2009 compared year ended december 31 2008 percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 15 2009 compared 19 2008 research development expense research development expense increased 10 million 1 1128 million 2009 1118 million 2008 included research development expense 2009 52 million stockbased compensation expense representing increase approximately 06 million 2008 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 11 million included research development expense 2009 representing decrease approximately 62 million 2008 amortization expense 37 million included research development expense 2009 2008 research development expense percentage net revenue decreased 6 2009 7 2008 sales marketing expense sales marketing expense increased 597 million 16 4416 million 2009 3819 million 2008 amortization expense 1869 million 1486 million included sales marketing expense 2009 2008 respectively remaining increase sales marketing expense primarily relates additional spending related newlyacquired businesses also included sales marketing expense 42 million stockbased compensation expense representing decrease approximately 01 million 2008 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 19 million included sales marketing expense 2009 representing decrease approximately 24 million 2008 sales marketing expense percentage net revenue decreased 23 2009 24 2008 general administrative expense general administrative expense increased 620 million 21 3570 million 2009 2951 million 2008 increase general administrative expense relates primarily additional spending related newlyacquired businesses contributing increase general administrative expense 2009 compared 2008 159 million acquisitionrelated costs recorded connection adoption new accounting standard business combinations january 1 2009 also included general administrative expense 167 million stockbased compensation expense representing increase approximately 07 million 2008 amortization expense 229 million 182 million included general administrative expense 2009 2008 respectively general administrative expense percentage net revenue 19 2009 2008 interest expense interest expense includes interest charges amortization deferred financing costs interest expense 2009 also includes amortization original issue discounts associated certain debt issuances interest expense increased 57 million 6 1068 million year ended december 31 2009 1011 million year ended december 31 2008 increase principally due additional interest expense incurred 9 subordinated notes 7875 senior notes totaling 323 million year ended december 31 2009 substantially offsetting increase lower interest expense incurred due lower interest rates charged year ended december 31 2009 compared year ended december 31 2008 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2009 increased 28 million compared 2008 included decrease interest income 42 million resulted lower interest earned available cash balances 19 million expense associated fullyvested compensationrelated costs certain executives incurred connection acquisition concateno third quarter 2009 29 million realized foreign currency gain associated restricted cash established connection acquisition concateno 06 million stamp duty tax incurred 2009 connection incremental investment made one foreign subsidiaries income expense net 2008 includes 125 million charge associated arbitration decision 17 million realized foreign currency loss associated restricted cash established connection acquisition bbi partially offset 55 million income associated settlements prior year’s royalties 2008 provision benefit income taxes provision benefit income taxes increased 323 million 156 million provision 2009 166 million benefit 2008 effective tax rate 2009 39 compared 43 2008 increase provision income taxes 2008 2009 primarily related increased income foreign jurisdictions decrease effective tax rate two years primarily results mix tax jurisdictions along impact increased us research development credits primary components 2009 provision income taxes relates us federal state income taxes foreign income primary components 2008 benefit income taxes relates us federal state income taxes foreign income recognition benefit german united kingdom losses discontinued operations net tax results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented year ended december 31 2009 discontinued operations generated net income 19 million compared net loss 10 million year ended december 31 2008 net income loss year ended december 31 2009 generated net income 337 million 013 per basic diluted common share preferred stock dividends based net income available common stockholders 107 million year ended december 31 2008 generated net loss 218 million 046 per basic diluted common share preferred stock dividends based net loss available common stockholders 358 million net income 2009 net loss 2008 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions currently expect fund short longterm working capital needs primarily using existing cash operating cash flow expect working capital position improve future operating margins grow business new product service offerings continuing leverage strong intellectual property position december 31 2010 4013 million cash accompanying consolidated balance sheet addition cash resources may also utilize revolving credit line 1500 million available borrowing december 31 2010 sources financing fund portion capital needs future commitments including contractual contingent consideration obligations future acquisitions ability access capital markets may impacted amount outstanding debt equity extent assets encumbered outstanding secured debt terms conditions outstanding debt instruments also contain covenants expressly restrict ability incur additional indebtedness conduct financings december 31 2010 24 billion outstanding indebtedness comprised 4000 million 8625 subordinated notes due 2018 2448 million 7875 senior notes due 2016 3897 million 9 senior subordinated notes due 2016 9413 million first lien credit agreement 2500 million second lien credit agreement 1500 million 3 senior subordinated convertible notes terms conditions outstanding debt disclosed note 6 consolidated financial statements included elsewhere annual report form 10k capital credit markets experience volatility availability funds limited may incur increased costs associated issuing commercial paper andor debt instruments addition possible ability access capital credit markets could limited factors time would like need could impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated integrating operations newlyacquired companies executing cost savings strategies prosecuting defending existing lawsuits andor unforeseen lawsuits us also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result december 31 2010 repurchased negotiated transactions 118000 shares series b preferred stock convertible approximately 681000 shares common stock cost 314 million paid cash following repurchases approximately 186 million remaining initial 500 million repurchase program authorized board directors december 2010 connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value pg right upon certain material breaches us obligations spd acquire interest spd fair market value summary changes cash position december 31 2010 cash equivalents 4013 million 915 million decrease december 31 2009 primary sources cash year ended december 31 2010 included 2754 million generated operating activities 4000 million proceeds issuance 8625 subordinated notes 626 million net proceeds received sale vitamins nutritional supplements business 88 million return capital spd 35 million cash dividends received certain equity method investments 32 million proceeds sale certain marketable securities net cash used purchase marketable securities 190 million proceeds common stock issuances employee stock option stock purchase plans primary uses cash year ended december 31 2010 related 5235 million net cash paid acquisitions transactional costs 1468 million related net repayments revolving line credit 954 million capital expenditures net proceeds sale equipment 529 million paid acquire remaining noncontrolling interest standard diagnostics 130 million paid financing costs related certain debt issuances 98 million related repayments longterm debt 129 million increase assets primarily relating purchase licenses investments fluctuations foreign currencies negatively impacted cash balance 93 million year ended december 31 2010 operating cash flows net cash provided operating activities year ended december 31 2010 2754 million resulted net loss continuing operations 10 billion 13 billion noncash items 382 million cash used meet net working capital requirements period 13 billion noncash items included 10 billion goodwill impairment charge related health management reporting unit business segment 3728 million related depreciation amortization 299 million related noncash stockbased compensation expense 138 million noncash interest expense including amortization deferred financing costs original issue discounts partially offset 744 million decrease related changes deferred tax assets liabilities resulting amortization intangible assets partially offset utilization tax loss carryforwards 106 million equity earnings unconsolidated entities 45 million gain recognized sale marketable securities investing cash flows investing activities year ended december 31 2010 utilized 5537 million cash including 5235 million used acquisitions transactionrelated costs net cash acquired 954 million capital expenditures net proceeds sale equipment 129 million increase assets offset 626 million net proceeds received sale vitamins nutritional supplements business 88 million return capital spd 35 million cash dividends received certain equity method investments 32 million proceeds sale certain marketable securities net cash used purchase marketable securities financing cash flows net cash provided financing activities year ended december 31 2010 1961 million financing activities year ended december 31 2010 primarily included 4000 million proceeds issuance 8625 subordinated notes 190 million cash received common stock issuances employee stock option stock purchase plans offset 1468 million related net repayments revolving line credit 529 million paid acquire remaining noncontrolling interest standard diagnostics 130 million paid financing costs related certain debt issuances 98 million related repayments longterm debt december 31 2010 aggregate 35 million outstanding capital lease obligations payable 2015 income taxes december 31 2010 approximately 1561 million domestic nol capital loss carryforwards 603 million foreign nol capital loss carryforwards respectively either expire various dates 2030 may carried forward indefinitely losses available reduce federal state foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic nol carryforward amount december 31 2010 included approximately 1022 million preacquisition losses matria qas paradigmhealth biosite cholestech redwood hemosense ischemia inc ostex international inc effective january 1 2009 adopted new accounting standard business combinations prior adoption standard preacquisition losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption new accounting standard reduction valuation allowance generally recorded reduce income tax expense furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2010 contractual obligations following table summarizes principal contractual obligations december 31 2010 thousands 1 includes original issue discounts associated 9 senior subordinated notes 7875 senior notes see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 includes 145 million deferred payments associated acquisition acon second territory business 105 million deferred payments associated acquisition accordant 12 million deferred payments associated acquisition biolinker sa 08 million deferred payments associated acquisition rmd networks inc 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k addition contractual obligations detailed contractual contingent consideration arrangements related following acquisitions • privatelyowned research development business maximum earnout 575 million earned expected paid 2012 2014 • privatelyowned uk research development business maximum earnout 1250 million earned expected paid eightyear period ending eighth anniversary acquisition could extend thereafter • accordant maximum earnout 60 million earned expected paid quarterly payments 15 million beginning fourth quarter 2012 • adnagen maximum earnout 630 million earned expected paid 2012 2016 • capital toxicology maximum earnout 160 million earned expected paid annual amounts 2012 2013 • free clear achieved earnout 2010 resulting accrual approximately 110 million december 31 2010 payment earnout expected made second quarter 2011 • immunalysis maximum remaining earnout potential 47 million earned expected paid annual amounts 2012 2013 • jsm achieved portion earnout 2010 resulting accrual approximately 06 million december 31 2010 payment portion earnout expected made second quarter 2011 jsm maximum remaining earnout potential 24 million earned expected paid 20122013 • medlab maximum earnout 100 million earned expected paid annual amounts 2012 2017 • mologic limited mologic achieved portion earnout fourth quarter 2010 resulting accrual approximately 39 million december 31 2010 payment portion earnout expected made first quarter 2011 mologic maximum remaining earnout potential 150 million earned expected paid shares common stock 2012 2013 • tapestry achieved 2010 financial targets resulting accrual approximately 107 million december 31 2010 cash payment portion earnout expected made first quarter 2011 tapestry maximum remaining earnout potential 143 million earned expected paid 2012 • privatelyowned health management business acquired 2008 achieved final earnout 2010 resulting accrual approximately 318 million december 31 2010 payment earnout expected made first quarter 2011 information pertaining contractual contingent arrangements see note 11 accompanying consolidated financial statements additional contractual obligations follows • agreements epocal november 2009 entered distribution agreement epocal inc epocal distribute epoc® blood analysis system blood gas electrolyte testing 200 million recorded accompanying consolidated balance sheet intangible assets net also entered definitive agreement acquire issued outstanding equity securities epocal total potential purchase price 2550 million including base purchase price 1725 million epocal achieves certain gross margin financial milestones prior october 31 2014 plus additional payments 825 million epocal achieves certain milestones relating gross margin product development efforts prior date also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years 75 payable upon achievement certain milestones acquisition also subject closing conditions including receipt required antitrust approvals • option agreement pg connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value pg right upon certain material breaches us obligations spd acquire interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expires pg chooses exercise option deferred gain carried books would reversed connection repurchase transaction december 31 2010 deferred gain 2884 million presented current liability accompanying consolidated balance sheet december 31 2009 deferred gain 2888 million presented longterm liability critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2010 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish meeting performance criteria meet performance targets end contractual period obligated contract refund risk fees deferred revenue balance 259 million 240 million december 31 2010 2009 respectively also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 373 million 602 million 358 million 3 4 3 respectively net product sales 2010 2009 2008 respectively recorded product sales derive net product sales amounts approximately 140 million 93 million 93 million 2010 2009 2008 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 3971 million 3545 million net allowances doubtful accounts 204 million 125 million december 31 2010 2009 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 2577 million 2215 million net reserve excess obsolete inventory 123 million 126 million december 31 2010 2009 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2010 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 3905 million 28 billion 17 billion respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited 1 future expected cash flows product sales customer contracts acquired developed technologies patents 2 expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products 3 acquired companies’ brand awareness market position 4 assumptions period time continue use acquired brand 5 discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition conduct impairment review carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record higher depreciation amortization future periods reduce earnings valuation goodwill accordance asc 350 test goodwill reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach prescribed asc 350 first step requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step goodwill impairment test measure amount impairment loss second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill derived performing hypothetical purchase price allocation reporting unit measurement date allocating reporting unit’s estimated fair value assets liabilities residual amount performing allocation represents implied fair value goodwill extent amount carrying value goodwill impairment charge recorded conducted annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered weightedaverage cost capital reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review conducted annual goodwill impairment test reporting units fourth quarter 2010 impairment test indicated impairment goodwill associated health management reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis prescribed asc 360 property plant equipment utilizing undiscounted cash flow model analysis indicated impairment longlived tangible intangible assets associated health management reporting unit although believe carrying value longlived tangible intangible assets realizable december 31 2010 future events could cause us conclude otherwise stockbased compensation stockbased compensation cost measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 425 million december 31 2010 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses nols tax credits included valuation allowance 91 million deferred tax assets acquired companies future benefits generally applied reduce income tax expense increase 50 million valuation allowance 375 million december 31 2009 increase primarily related domestic state nols domestic state credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations us federal various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “part item 3 legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2r notes consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements include without limitation statements regarding anticipated expansion growth certain product service offerings impact research development activities potential new product technology achievements potential selective acquisitions including acquisitions health information solutions businesses outside united states ability improve working capital operating margins expectations respect apollo integrated health information solutions technology platform ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 17 report well factors identified time filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview enable individuals take greater control health home supervision healthcare providers combining nearpatient diagnostics health monitoring capabilities information technology solutions leading global provider pointofcare diagnostics services developed strong commercial presence cardiology infectious disease toxicology diabetes products services help healthcare practitioners make earlier effective treatment decisions improve outcomes individuals living chronic disease 2012 focused completing foundation business model process began 2011 acquisitions avee laboratories october 2011 escreen april 2012 branan medical december 2012 toxicology group fullservice provider broad range domestic foreign employers industries require rigorous drug testing also built strong presence diabetes ground following november 2011 acquisitions axis shield arriva medical effectively established diabetes business acquired several mailorder diabetes hometesting product supply businesses diabetes revenues grown 1440 million 2012 including effect acquisitions completed early 2013 service 250000 active diabetes customers believe strong foundation built diabetes specifically mailorder diabetes testing supply business provides us competitive advantage dealing impact cms’ competitive bidding program significantly reduce current reimbursement rates starting july 2013 competition pricing market diabetes testing supplies core strategy health information technologies enable diagnostic data fed directly information exchange integrates diagnostic data patientrelated information single health record second half 2011 2012 focused acquiring health information technologies would supplement internally developed information technologies including apollo improve ability execute business strategy specifically • second half 2011 acquired rals pointofcare industry’s leading data management solution aegispoc first webbased data management solution designed critical care settings since enhanced renamed rals freedom rals systems provide bidirectional interfaces connect hospital’s glucose meters pointofcare devices measuring blood gases prothrombin time cardiac parameters laboratory health information systems • december 2011 acquired wellogic alere accountable care solutions alere acs alere acs deliver health information solutions help provider organizations meet cms “meaningful use” requirements improve coordination across multiple venues care solutions include alere health information exchange harmonizes multiple streams data disparate sources single patientcentered record consult ehr gives healthcare practitioners greater visibility patient’s health status • july 2012 acquired medapps alere connect alere connect develops sells remote health monitoring solutions designed collect health readings compatible medical monitors transmit user’s electronic health record well webbased applications help practitioners manage data alere connect’s comprehensive health information platform suite cloudbased software tools enhance care patients wellness chronic disease management programs • july 2012 also acquired diagnosisone alere analytics alere analytics offer broad array analytical clinical decision support tools delivered smartpath platform result offer variety softwarebased analytics clinical decision support tools health improvement programs enable healthcare providers initiate earlier interventions personalize treatment plans lower costs reducing hospital readmissions measure improvements outcomes patient population level 2012 also continued build momentum behind next generation novel diagnostic platforms expect drive growth future years cd4 platform continues gain traction expanded global footprint leading provider chronic hiv management diagnostics currently developing expansions rapid molecular platform address additional areas hepatitis c tuberculosis second nearpatient molecular platform focused broad spectrum infectious disease targets continues progress us clinical trials anticipate first use cartridgebased system rapid flu testing applications additional targets group streptococcus respiratory syncytial virus rsv c difficile planned novel molecular diagnostic platforms launched late stages development begun refocus research development efforts away longterm projects towards product enhancements menu expansion existing platforms 2012 financial highlights • net revenue increased 4323 million 18 28 billion 2012 24 billion 2011 • gross profit increased 1825 million 15 14 billion 2012 12 billion 2011 • year ended december 31 2012 generated net loss available common stockholders 995 million 123 per basic diluted common share year ended december 31 2011 generated net loss available common stockholders 1317 million 158 per basic diluted common share 2011 net loss included 3836 million noncash charge associated impairment goodwill health information solutions business segment reporting unit results operations following discussions results continuing operations exclude results related vitamins nutritional supplements business segment previously presented separate operating segment prior divestiture january 2010 vitamins nutritional supplements business segment segregated continuing operations reflected discontinued operations consolidated financial statements see “income discontinued operations net tax” discussed results excluding impact foreign currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates trends results operations follows year ended december 31 2012 compared year ended december 31 net product sales services revenue net product sales services revenue increased 4272 million 18 28 billion 2012 24 billion 2011 net product sales services revenue increased primarily result acquisitions contributed aggregate 4476 million increase excluding impact foreign currency translation net product sales services revenue 2012 grew approximately 4600 million 19 2011 net product sales services revenue business segment net product sales services revenue business segment 2012 2011 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2012 2011 thousands net product sales services revenue professional diagnostics business segment increased 4290 million 25 22 billion 2012 17 billion 2011 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment increased 4622 million 27 comparing 2012 2011 net product sales services revenue increased primarily result acquisitions contributed aggregate 4414 million noncurrencyadjusted increase net product sales north american flurelated sales decreased approximately 25 million 461 2011 436 million 2012 net product sales services revenue professional diagnostics business segment negatively impacted fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 1503 million 2012 compared 1992 million 2011 excluding impact acquisitions decrease flurelated sales comparable periods impact reduction net product sales meterbased triage products us currencyadjusted organic growth professional diagnostics net product sales services revenue approximately 737 million 5 2011 2012 within professional diagnostics business segment net product sales services revenue cardiology business decreased approximately 152 million 3 5035 million 2012 5187 million 2011 primarily result fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 1503 million 2012 compared 1992 million 2011 decrease sales meterbased triage products partially offset 193 million sales contributed acquisition axisshield net product sales services revenue infectious disease business increased approximately 510 million 9 6160 million 2012 5650 million 2011 acquisition axisshield contributing 274 million increase net product sales services revenue toxicology business increased approximately 2001 million 52 5873 million 2012 3872 million 2011 recent acquisitions avee escreen amedica biotech inc amedica contributing approximately 1939 million increase diabetes net product sales services revenue increased approximately 1295 million 866 1444 million 2012 150 million 2011 recent acquisitions contributing nearly increase health information solutions following table summarizes net product sales services revenue health information solutions business segment groups similar products services 2012 2011 thousands net product sales services revenue heath information solutions business segment increased 09 million 5354 million 2012 5345 million 2011 within health information solutions business segment disease case management net product sales services revenue decreased approximately 196 million 8 2184 million 2012 compared 2379 million 2011 principally due increasingly competitive environment including pricing pressures impact health plans insourcing services state budget pressures patient selftesting services net product sales services revenue increased approximately 147 million 19 922 million 2012 compared 774 million 2011 principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates higher census levels result increased physician referrals led 5 increase revenue women’s children’s health business consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 28 million 3 896 million 2012 924 million 2011 net product sales spd 1878 million 2092 million 2012 2011 respectively impact foreign currency translation accounting substantially decrease net product sales services revenue geographic location net product sales services revenue geographic location 2012 2011 follows thousands net product sales services revenue 17 billion 14 billion generated united states approximately 61 total net product sales services revenue years ended december 31 2012 2011 growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 51 million 22 286 million 2012 235 million 2011 2012 received upfront royalty payment 110 million related license certain molecular intellectual property also received additional license royalty revenue 2012 result acquisition axisshield contributed approximately 37 million increase increases 2012 offset amendment license agreement quidel 2011 whereby license agreement converted fully paidup license result amendment record royalty revenue quidel 2012 opposed 75 million royalty revenue recorded quidel 2011 anticipate recording royalty revenue quidel future gross profit margin percentage gross profit increased 1825 million 15 14 billion 2012 12 billion 2011 increase gross profit 2012 largely attributed increase net product sales services revenue resulting acquisitions cost net revenue 2012 2011 included amortization 47 million 60 million respectively relating write inventory fair value connection certain acquisitions reducing gross profit 2012 2011 31 million 29 million respectively restructuring charges cost net revenue included amortization expense 723 million 632 million 2012 2011 respectively overall gross margin percentage 51 2012 compared 52 2011 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 1777 million 14 billion 2012 12 billion 2011 gross profit net product sales services revenue business segment 2012 2011 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1873 million 19 12 billion 2012 9640 million 2011 principally result gross profit earned revenue acquired businesses discussed comparing 2012 2011 gross profit negatively impacted decrease meterbased triage product sales discussed fda recall relating meterbased triage products also resulted incremental costs 2012 principally due costs refunds made period replacement products issued cost unfavorable manufacturing variances lost margin reduced volume tests sold 2012 cost professional diagnostics net product sales services revenue 2012 2011 included amortization 47 million 60 million respectively relating writeup inventory fair value connection certain acquisitions reducing gross profit 2012 2011 23 million restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 644 million 551 million 2012 2011 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 53 2012 compared 56 2011 increased revenue recently acquired toxicology businesses contribute lowerthansegmentaverage gross margins decrease meterbased triage product sales contribute higherthansegmentaverage gross margins contributed decrease gross margin respective periods health information solutions gross profit health information solutions net product sales services revenue decreased 93 million 4 2365 million 2012 2458 million 2011 primarily result increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease case management state budget pressures reducing gross profit 2012 2011 08 million 07 million respectively restructuring charges cost health information solutions net product sales services revenue included amortization expense 67 million 2012 2011 respectively percentage health information solutions net product sales services revenue gross profit health information solutions business 44 2012 compared 46 2011 lower margin percentage primarily result increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease case management state budget pressures consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 03 million 2 193 million 2012 196 million 2011 cost consumer diagnostics net product sales services revenue included amortization expense 12 million 14 million 2012 2011 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 22 2012 compared 21 2011 research development expense research development expense increased 328 million 22 1830 million 2012 1502 million 2011 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 13 million 04 million included research development expense 2012 2011 respectively amortization expense 269 million 126 million included research development expense 2012 2011 respectively included 269 million amortization expense 2012 192 million related write certain inprocess research development projects recorded connection axisshield acquisition fourth quarter 2011 included 126 million amortization expense 2011 72 million related write certain inprocess research development projects recorded connection standard diagnostics acquisition first quarter 2010 research development expense percentage net revenue 6 2012 2011 sales marketing expense sales marketing expense increased 778 million 14 6434 million 2012 5656 million 2011 increase sales marketing expense primarily relates additional spending related newlyacquired businesses amortization expense 2399 million 2209 million included sales marketing expense 2012 2011 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 25 million 50 million included sales marketing expense 2012 2011 respectively sales marketing expense percentage net revenue 23 24 2012 2011 respectively general administrative expense general administrative expense increased 934 million 23 4928 million 2012 3993 million 2011 increase general administrative expense primarily relates additional spending related newlyacquired businesses acquisitionrelated costs 97 million 115 million included general administrative expense 2012 2011 respectively included general administrative expense 2012 2011 66 million 141 million respectively income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations amortization expense 80 million 112 million included general administrative expense 2012 2011 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 134 million 200 million included general administrative expense 2012 2011 respectively general administrative expense percentage net revenue 17 2012 2011 impairment goodwill conduct annual goodwill impairment analysis fourth quarter year fourth quarter 2011 conducting step 1 impairment analysis prescribed asc 350 intangibles goodwill asc 350 analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment analysis prescribed asc 350 determine amount goodwill impairment charge step 2 portion analysis indicated needed record goodwill impairment charge approximately 3836 million recorded fourth quarter 2011 step 1 2012 impairment analysis indicate carrying value assets exceeded fair value applicable reporting unit accordingly record goodwill impairment charges 2012 details goodwill impairment analysis disclosed note 2 consolidated financial statements included elsewhere annual report form 10k interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 366 million 18 2406 million 2012 2040 million 2011 increase principally due higher interest expense recorded connection higher outstanding debt balances applicable interest rates 2012 compared outstanding debt balances applicable interest rates 2011 interest expense 2012 includes approximately 232 million expense associated repurchase substantially 7875 senior notes interest expense 2011 included interest expense amortization fees paid certain debt modifications totaling 325 million recorded connection termination former secured credit facility related interest rate swap agreement 2011 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands increase foreign exchange gains losses net 2012 compared 2011 primarily result 127 million realized foreign currency loss associated cash balance established connection axisshield acquisition 2011 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 2011 income 158 million 2012 included 155 million prior period royalty settlements included 135 million final royalty termination payment received quidel net 42 million gain recorded disposal property plant equipment 14 million income associated legal settlements related intellectual property litigation partially offsetting impact events settlement prior year dispute former distributor totaling approximately 39 million income 222 million 2011 includes 138 million income associated amendment license agreement quidel also includes settlement prior period royalties 50 million income associated settlement dispute certain intellectual property rights 48 million reversal prior period legal settlement reserve longer deemed necessary partially offset approximately 16 million losses recorded disposal fixed assets gain sale joint venture interest connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expired july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option gain totaling approximately 2889 million recognized third quarter 2011 benefit income taxes benefit income taxes increased 61 million 303 million benefit 2012 242 million benefit 2011 effective tax rate 2012 25 compared 15 2011 increase benefit income taxes corresponding effective tax rate 2011 2012 primarily related rate differential foreign earnings recognition tax benefit associated goodwill impairment charge recorded 2011 primary components 2012 benefit income taxes relate us federal state income tax benefits including favorable adjustments revaluation contingent consideration offset tax provisions foreign income increases certain valuation allowances increase reserve uncertain tax positions increase permanent adjustments primary components 2011 benefit income taxes relate us federal state income tax benefits tax benefit foreign income offset losses related 2011 goodwill impairment tax benefitted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2012 primarily reflect following earnings 50 interest spd amount 107 million ii earnings 40 interest vedalab sa vedalab amount 04 million iii earnings 49 interest techlab inc techlab amount 23 million equity earnings unconsolidated entities net tax 2011 primarily reflect following earnings 50 interest spd amount 59 million ii earnings 40 interest vedalab amount 07 million iii earnings 49 interest techlab amount 20 million net loss 2012 generated net loss available common stockholders 995 million 123 per basic diluted common share compared net loss available common stockholders 1317 million 158 per basic diluted common share 2011 net loss available common stockholders reflects 213 million 220 million preferred stock dividends paid 2012 2011 respectively 239 million income associated repurchase preferred stock 2011 net loss 2012 2011 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share year ended december 31 2011 compared year ended december 31 2010 net product sales services revenue net product sales services revenue increased 2285 million 11 24 billion 2011 21 billion 2010 net product sales services revenue increased primarily result health information solutions professional diagnosticsrelated acquisitions contributed aggregate 1632 million noncurrencyadjusted increase excluding impact foreign currency translation net product sales services revenue 2011 grew approximately 1999 million 9 2010 contributing increase net product sales services revenue increase north american flurelated net product sales 2011 increased approximately 272 million 188 million 2010 461 million 2011 result typical flu season 2011 lowerthannormal flu levels observed 2010 net product sales services revenue health information solutions segment adversely impacted increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease management also contributing decrease loss approximately 131 million revenue related discontinuance administration drug therapy terbutalene result fda’s new warning use terbutalene treat preterm labor certain situations impacted women’s children’s health business wellness net product sales services revenue alere wellbeing business formerly known free clear negatively impacted result continuation decreased funding certain states’ quitline programs additionally patient selftesting services business adversely impacted reimbursement policy change cms net product sales services revenue business segment net product sales services revenue business segment 2011 2010 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2011 2010 thousands net product sales services revenue professional diagnostics business segment increased 2955 million 21 17 billion 2011 14 billion 2010 excluding impact currency translation net product sales services revenue professional diagnostics business segment increased 2669 million 19 comparing 2011 2010 net product sales services revenue increased primarily result acquisitions contributed aggregate 1611 million noncurrencyadjusted increase contributing increase net product sales services revenue increase north american flurelated net product sales 2011 compared 2010 net product sales north american flu sales increased approximately 272 million 188 million 2010 461 million 2011 result typical flu season 2011 lowerthannormal flu levels observed 2010 excluding impact acquisitions increase flurelated sales comparable periods currencyadjusted organic growth professional diagnostics net product sales services revenue 6 within professional diagnostics business segment net product sales services revenue infectious disease business increased approximately 1273 million 29 5650 million 2011 4377 million 2010 driven increased north american flurelated hiv malaria net product sales coupled impact two recent brazilian acquisitions contributed approximately 296 million increase acquisition axisshield november 2011 contributed approximately 65 million increase net product sales services revenue cardiology business increased approximately 302 million 6 5187 million 2011 4885 million 2010 driven particularly growth outside us growth domestic cholesterol professional coagulation testing businesses acquisition axisshield contributed approximately 42 million increase offset continued softness domestic bnp net product sales primarily related issues sales beckman coulter platform toxicology business increased approximately 871 million 29 3872 million 2011 3001 million 2010 recent acquisitions contributing approximately 744 million increase diabetes net product sales services revenue 2011 relates two acquisitions completed fourth quarter 2011 health information solutions following table summarizes net product sales services revenue health information solutions business segment groups similar products services 2011 2010 thousands net product sales services revenue heath information solutions business segment decreased 643 million 11 5345 million 2011 5988 million 2010 net product sales services revenue health information solutions segment adversely impacted increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease case management also contributing decrease loss approximately 131 million revenue related discontinuance administration drug therapy terbutalene result fda’s new warning use terbutalene treat preterm labor certain situations impacted women’s children’s health business additional revenue loss approximately 28 million resulted closure genecare business located chapel hill north carolina first quarter 2011 wellness net product sales services revenue alere wellbeing business negatively impacted result continuation decreased funding certain states’ quitline programs additionally patient selftesting services business adversely impacted reimbursement change cms consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 27 million 3 924 million 2011 951 million 2010 decrease primarily driven decrease nonspd related revenue totaling approximately 44 million comparing 2011 2010 decrease nonspd related revenue primarily relates loss distribution contract certain products united kingdom late 2010 decrease nonspd related revenue partially offset increase spdrelated revenue increased approximately 18 million comparing 2011 2010 net product sales spd 2092 million 1938 million 2011 2010 respectively net product sales services revenue geographic location net product sales services revenue geographic location 2011 2010 follows thousands net product sales services revenue 14 billion 14 billion generated united states approximately 61 64 respectively total net product sales services revenue year ended december 31 2011 2010 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 27 million 13 235 million 2011 208 million 2010 increase license royalty revenue 2011 largely driven acquisition axisshield contributed approximately 18 million increase gross profit margin percentage gross profit increased 1112 million 10 12 billion 2011 11 billion 2010 increase gross profit 2011 largely attributed increase net product sales services revenue resulting acquisitions increase north american flurelated net product sales organic growth professional diagnostics business segment cost net revenue 2011 2010 included amortization 60 million 66 million respectively relating write inventory fair value connection certain acquisitions reducing gross profit 2011 2010 29 million 39 million restructuring charges respectively cost net revenue included amortization expense 632 million 630 million 2011 2010 respectively overall gross margin percentage 52 2011 compared 53 2010 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 1084 million 12 billion 2011 11 billion 2010 gross profit net product sales services revenue business segment 2011 2010 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1623 million 20 9640 million 2011 8017 million 2010 primarily result increase net product sales services revenue discussed cost professional diagnostics net product sales services revenue 2011 2010 included amortization 60 million 66 million respectively relating writeup inventory fair value connection certain acquisitions reducing gross profit 2011 2010 23 million 33 million restructuring charges respectively cost professional diagnostics net product sales services revenue included amortization expense 551 million 537 million 2011 2010 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 56 2011 2010 health information solutions gross profit health information solutions net product sales services revenue decreased 513 million 17 2458 million 2011 2971 million 2010 primarily result decrease net product sales services revenue discussed reducing gross profit 2011 2010 07 million 06 million restructuring charges respectively cost health information solutions net product sales services revenue included amortization expense 67 million 77 million 2011 2010 respectively percentage health information solutions net product sales services revenue gross profit health information solutions business 46 2011 compared 50 2010 lower margin percentage earned 2011 primarily result decrease net product sales services revenue discussed consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 25 million 11 196 million 2011 221 million 2010 decrease gross profit primarily result changes net product sales services revenue mix 2011 discussed cost consumer diagnostics net product sales services revenue included amortization expense 14 million 15 million 2011 2010 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 21 2011 compared 23 2010 lower margin percentage earned 2011 primarily result change net product sales services revenue discussed research development expense research development expense increased 169 million 13 1502 million 2011 1333 million 2010 included research development expense 2011 39 million stockbased compensation expense representing decrease approximately 32 million 2010 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 04 million 05 million included research development expense 2011 2010 respectively amortization expense 126 million 48 million included research development expense 2011 2010 respectively research development expense percentage net revenue 6 2011 2010 sales marketing expense sales marketing expense increased 665 million 13 5656 million 2011 4991 million 2010 increase sales marketing expense primarily relates additional spending related newlyacquired businesses along increase global sales force support product launches amortization expense 2209 million 2123 million included sales marketing expense 2011 2010 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 50 million 15 million included sales marketing expense 2011 2010 respectively sales marketing expense percentage net revenue 24 23 2011 2010 respectively general administrative expense general administrative expense decreased 476 million 11 3993 million 2011 4469 million 2010 general administrative expense 2010 included 601 million compensation expense recorded connection purchasing remaining shares minority shareholder standard diagnostics excluding impact 601 million compensation expense recorded 2010 general administrative expense increased approximately 125 million 3 3993 million 2011 3868 million 2010 increase adjusted general administrative expense primarily relates additional spending related newlyacquired businesses acquisitionrelated costs 115 million 82 million included general administrative expense 2011 2010 respectively included general administrative expense 2011 2010 141 million income 18 million expense respectively recorded connection fair value adjustments acquisitionrelated contingent consideration obligations amortization expense 112 million 184 million included general administrative expense 2011 2010 respectively general administrative expense percentage net revenue 17 21 2011 2010 respectively impairment goodwill conducted annual goodwill impairment analysis fourth quarter 2011 conducting step 1 impairment analysis prescribed asc 350 intangibles goodwill asc 350 analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment analysis prescribed asc 350 determine amount goodwill impairment charge step 2 portion analysis indicated needed record goodwill impairment charge approximately 3836 million recorded fourth quarter 2011 reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods details goodwill impairment analysis disclosed note 2 consolidated financial statements included elsewhere annual report form 10k interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 645 million 46 2040 million 2011 1394 million 2010 increase partially due interest expense 325 million recorded 2011 connection termination former secured credit facility related interest rate swap agreement coupled amortization fees paid certain debt modifications contributing increase interest expense recorded 2011 compared 2010 interest expense incurred 8625 senior subordinated notes issued september 2010 totaling approximately 364 million 2011 compared 99 million 2010 additionally higher outstanding debt balances 2011 compared 2010 contributed increase interest expense respective periods income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands decrease foreign exchange gains losses net 2011 compared 2010 primarily result 127 million realized foreign currency loss associated cash balance established connection axisshield acquisition 2011 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 2011 well additional net realized unrealized foreign exchange losses associated changes currency exchange rates respective periods income 222 million 2011 includes 138 million income associated amendment license agreement quidel also includes settlement prior period royalties 50 million income associated settlement dispute certain intellectual property rights 48 million reversal prior period legal settlement reserve longer deemed necessary partially offset approximately 16 million losses recorded disposal fixed assets income expense net 2010 includes 45 million gain sale marketable securities net recovery 33 million related certain restructuring activities 31 million net gain associated legal settlements related previously disclosed intellectual property litigation relating health information solutions businesses approximately 05 million income associated settlement prior years’ royalties 2010 partially offset charge related accounts receivable reserve prior year’s sale gain sale joint venture interest connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expired july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option gain totaling approximately 2889 million recognized third quarter 2011 benefit income taxes benefit income taxes decreased 57 million 242 million benefit 2011 299 million benefit 2010 effective tax rate 2011 15 compared 3 2010 decrease benefit income taxes 2010 2011 primarily related tax provision associated taxes foreign income increase effective tax rate two years primarily results rate differential foreign earnings state income taxes primary components 2011 benefit income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2011 primary components 2010 benefit income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2010 equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax year ended december 31 2011 primarily reflect following earnings 50 interest spd amount 59 million ii earnings 40 interest vedalab amount 07 million iii earnings 49 interest techlab amount 20 million equity earnings unconsolidated entities net tax year ended december 31 2010 reflect following earnings 50 interest spd amount 85 million ii earnings 40 interest vedalab amount 02 million iii earnings 49 interest techlab amount 19 million income discontinued operations net tax results vitamins nutritional supplements business included income discontinued operations net tax periods presented year ended december 31 2010 discontinued operations generated net income approximately 114 million includes gain 187 million 116 million net tax sale vitamins nutritional supplements business net loss year ended december 31 2011 generated net loss available common stockholders 1317 million 158 per common share compared net loss available common stockholders 10 billion 1233 per common share year ended december 31 2010 net loss available common stockholders reflects 220 million 242 million preferred stock dividends paid years ended december 31 2011 2010 respectively 239 million income associated repurchase preferred stock year ended december 31 2011 net loss 2011 2010 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions expect fund short longterm working capital needs primarily using existing cash operating cash flow expect working capital position improve future operating margins grow business new product service offerings continuing leverage strong intellectual property position december 31 2012 3283 million cash equivalents 800 million held domestic subsidiaries 2483 million held foreign entities plan repatriate cash held foreign entities due adverse tax implications including incremental us tax liabilities potential foreign withholding tax liabilities may also utilize secured credit facility new sources financing fund portion capital needs commitments including contractual contingent consideration obligations future acquisitions december 31 2012 outstanding borrowings totaling 225 million 2500 million revolving line credit secured credit facility leaving 2275 million available us additional borrowings ability access capital markets may impacted amount outstanding debt equity extent assets encumbered outstanding secured debt terms conditions outstanding debt instruments also contain covenants expressly restrict ability incur additional indebtedness conduct financings december 31 2012 37 billion outstanding indebtedness comprised 23 billion secured credit facility 4500 million 725 senior notes due 2018 18 million 7875 senior notes due 2016 4000 million 8625 senior subordinated notes due 2018 3929 million 9 senior subordinated notes due 2016 1500 million 3 convertible senior subordinated notes due 2016 february 2013 redeemed outstanding 7875 senior notes see note 6 consolidated financial statements included elsewhere annual report form 10k information outstanding debt balances capital credit markets experience volatility availability funds limited may incur increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated integrating operations newlyacquired companies executing costsavings strategies prosecuting defending existing lawsuits andor unforeseen lawsuits us also cannot certain underlying assumed levels revenues expenses realized addition intend continue make investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result cash flow summary changes cash position december 31 2012 cash equivalents 3283 million 292 million increase december 31 2011 primary sources cash 2012 included 3197 million generated operating activities 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans secured credit facility 224 million proceeds received sale property plant equipment 149 million common stock issuances employee stock option stock purchase plans 143 million net proceeds various revolving credit facilities 127 million return investment equity method investments 31 million sales marketable securities primary uses cash 2012 related 4246 million net cash paid acquisitions 3116 million related repayment longterm debt obligations 1374 million capital expenditures 563 million related increase assets 213 million cash dividends paid series b preferred stock 210 million related payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 70 million payment capital lease obligations 62 million related repayment shortterm debt obligations fluctuations foreign currencies negatively impacted cash balance 21 million year ended december 31 2012 operating cash flows net cash provided operating activities 2012 3197 million resulted net loss continuing operations 779 million 377 million cash used meet net working capital requirements period offset 4353 million noncash items 4353 million noncash items included among items 4568 million related depreciation amortization 306 million increase related noncash items 215 million interest expense related amortization deferred financing costs original issue discounts 157 million related noncash stockbased compensation 47 million noncash charge related writeup inventory fair value connection acquisition axisshield partially offset 846 million decrease related changes deferred tax assets liabilities resulted part amortization intangible assets 132 million equity earnings unconsolidated entities investing cash flows investing activities 2012 utilized 5742 million cash including 4246 million net cash paid acquisitions 1374 million capital expenditures 563 million related increase assets includes 460 million note receivable purchases various licensing agreements totaling approximately 43 million partially offset 224 million proceeds received sale property plant equipment 127 million return investment equity method investments included 112 million return capital spd 59 million decrease restricted cash balance 31 million received sales marketable securities financing cash flows net cash provided financing activities 2012 2857 million financing activities 2012 primarily included approximately 6485 million net proceeds received connection longterm debt issuances included 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans entered secured credit facility 143 million net proceeds various revolving credit facilities included 225 million borrowed secured credit facility revolving lineofcredit 149 million cash received common stock issuances employee stock option stock purchase plans 4432 million received connection issuance 725 senior notes offset 2674 million cash payments related repurchases 7875 senior notes 1700 million used pay portion outstanding balance revolving lineofcredit addition utilized approximately 213 million dividend payments related series b preferred stock 210 million payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 70 million payment capital lease obligations 62 million related repayment shortterm debt obligations december 31 2012 aggregate 196 million outstanding capital lease obligations payable 2019 income taxes december 31 2012 approximately 606 million domestic nol domestic capital loss carryforwards approximately 9811 million state nol carryforwards 2116 million foreign nol foreign capital loss carryforwards either expire various dates 2032 carried forward indefinitely december 31 2012 approximately 577 million domestic research development foreign tax alternative minimum tax credits either expire various dates 2031 carried forward indefinitely loss carryforwards tax credits may available reduce future federal state foreign taxable income subject review possible adjustment appropriate tax authorities effective january 1 2009 adopted new accounting standard business combinations prior adoption standard preacquisition losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption new accounting standard reduction valuation allowance generally recorded reduce income tax expense furthermore domestic losses credits subject internal revenue service code section 382 383 limitation respectively may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 383 imposes annual limitation use losses credits amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols credits certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2012 contractual obligations following table summarizes principal contractual obligations december 31 2012 thousands 1 see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 includes 47 million 18 million deferred payments associated acquisitions standard diagnostics bioeasy diagnostica ltda bioeasy respectively addition balance includes approximately 223 million contingent consideration obligations accrued december 31 2012 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k addition contractual obligations detailed contractual contingent consideration arrangements related following acquisitions • ionian technologies inc maximum earnout 575 million earned expected paid 2013 • twistdx inc maximum earnout 1250 million earned expected paid eightyear period ending eighth anniversary acquisition could extend thereafter • adnagen maximum earnout 420 million earned expected paid 2013 2016 • medlab produtos medicos hospitalares ltda known alere sa maximum remaining earnout potential 60 million earned expected paid annual amounts 2014 2017 • bioeasy maximum remaining earnout potential approximately 25 million earned expected paid 2014 • laboratory data systems inc maximum remaining earnout approximately 75 million earned expected paid 2013 2014 • mologic limited maximum remaining earnout potential 148 million earned expected paid cash shares common stock 2014 • forensics limited roar maximum remaining earnout approximately £93 million approximately 152 million december 31 2012 earned expected paid 2013 2014 • standing stone inc maximum remaining earnout 28 million earned expected paid 2014 maximum amount employee bonuses required make pursuant standing stone acquisition agreement 01 million earned also expected paid 2014 • method factory inc dba wellogic maximum remaining earnout potential 498 million based operational targets earnout maximum based profit targets earned expected paid 2014 2020 • escreen maximum earnout potential 700 million earned expected paid 2014 2015 • medapps maximum earnout potential 212 million earned expected paid 2013 2015 • amedica maximum remaining amount potential 81 million earned expected paid 2014 • diagnosisone maximum earnout potential 330 million earned expected paid 2013 2015 • diagnostik nord maximum earnout potential 14 million approximately 19 million december 31 2012 earned expected paid 2013 2014 • healthcare connections limited maximum earnout potential £35 million approximately 57 million december 31 2012 earned expected paid 2014 • nationshealth inc maximum earnout potential 80 million earned expected paid 2013 2014 • branan maximum remaining amount potential 30 million earned expected paid 2013 2015 information pertaining contractual contingent arrangements see note 11 accompanying consolidated financial statements december 31 2012 additional contractual obligations follows • agreements epocal november 2009 entered definitive agreement acquire issued outstanding equity securities epocal inc amended december 31 2012 agreement provided total potential purchase price 2630 million including milestone payments 905 million epocal achieves certain milestones relating gross margin product development efforts prior october 31 2014 agreement contains working capital adjustment whereby purchase price increased decreased extent epocal’s working capital closing less specified amount also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years 75 payable upon achievement certain milestones february 2013 completed acquisition epocal working capital adjustments made closing paid approximately 1660 million cash acquire epocal included 150 million payment achievement first two financial milestones specified agreement additional earnout payments 755 million could triggered milestones linked delivery additional product offerings epocal platform achieved critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2012 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish meeting performance criteria meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 678 million 475 million 373 million 4 3 respectively net product sales 2012 2011 2010 respectively recorded product sales derive net product sales amounts approximately 437 million 236 million 140 million 2012 2011 2010 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 5243 million 4758 million net allowances doubtful accounts 364 million 246 million december 31 2012 2011 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3371 million 3203 million net reserve excess obsolete inventory 218 million 136 million december 31 2012 2011 respectively goodwill longlived intangible assets longlived assets include property plant equipment goodwill intangible assets december 31 2012 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 5345 million 30 billion 19 billion respectively goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings interest taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2012 annual goodwill impairment test conducted 2012 annual impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 61 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets 79 94 272 respectively 2011 annual goodwill impairment test conducted 2011 annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets 2010 annual goodwill impairment test conducted 2010 annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review conduct annual goodwill impairment test reporting units fourth quarter impairment tests conducted 2011 2010 indicated impairment goodwill associated health information solutions reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis prescribed asc 360 property plant equipment utilizing undiscounted cash flow model analysis conducted 2011 2010 indicated impairment longlived tangible intangible assets associated health information solutions reporting unit stockbased compensation stockbased compensation cost measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 686 million december 31 2012 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses nols tax credits increase 170 million valuation allowance 516 million december 31 2011 increase primarily related domestic state nols certain foreign nols valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations us federal various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k entitled “part item 3 legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2v consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements include without limitation statements regarding anticipated expansion growth certain product service offerings impact research development activities potential new product technology achievements potential selective divestitures noncore assets ability improve working capital operating margins ability improve organic revenue growth rates effectiveness steps may take improve operational efficiency ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 18 report well factors identified time filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview deliver reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally highperformance diagnostics infectious disease cardiometabolic disease toxicology designed meet growing global demand accurate easytouse costeffective nearpatient tests goal make alere products accessible people around world even located remote resourcelimited areas making affordable usable setting making critical clinical diagnostic information available doctors patients actionable timeframe alere products help streamline healthcare delivery improve patient outcomes june 30 2014 board directors refocused strategy concentrate core strength leader rapid diagnostics appointing namal nawana new interim chief executive officer announced initiatives rationalize investment connected health concepts technologies reduce overall operating expenses winding certain noncore operations since time mr nawana’s leadership made substantial progress initiatives expect insights garnered strategic review process initiated 2013 continue enable transformation organization focused business portfolio october 28 2014 day board directors removed interim status title mr nawana announced reached definitive agreement sell condition management case management wellbeing wellness women’s children’s health businesses refer collectively health management business optum 6001 million completed sale january 9 2015 used net cash proceeds repay 5750 million aggregate principal amount outstanding indebtedness secured credit facility divestiture effectively exited traditional health management business meaning business providing condition case management services employers health plans health care providers remain committed divesting noncore assets intend follow disciplined approach managing business portfolio future second half 2014 also undertook costcutting measures based primarily insights gained management consultantled strategic review period reduced headcount eliminate redundancies arising historic pattern acquisitions also restructured research development organization closing beginning process closing several facilities united kingdom concentrating research development activities core projects resulted additional savings 2014 continued emphasize quality made substantial progress area achieving status “voluntary action indicated” connection fda inspection warning letter relating san diego facility status allows us continue voluntary improvement programs also allows release export certificates required certain foreign governments order us market products countries however progress come without challenges encountered product issues related alere inratio systems resulting may 2014 recall alere inratio2 ptinr professional test strips united states december 2014 voluntary urgent medical device correction initiated respect alere inratio alere inratio2 systems inform users use systems test patients certain medical conditions transitioned customers recalled alere inratio2 ptinr professional test strip alere inratio ptinr test strip included recall early understand full impact voluntary urgent medical device correction believe emphasis quality 2014 enabled us respond developments effectively past help mitigate negative impact plan continue improvements quality regulatory compliance 2015 beyond 2014 built substantial momentum behind new products technologies expect propel growth future years establish alere leading innovator pointofcare diagnostics january 2014 announced initial launch alere influenza b test received fda clearance june 2014 currently available sale united states alere rapid pointofcare molecular instrumentbased isothermal platform qualitative detection infectious diseases provides results minutes allowing healthcare providers make quick effective clinical decisions january 2015 fda granted clia waiver alere influenza b test nucleic acidbased flu diagnostic test result may used physician offices clinics public health settings influenza patients frequently examined treated alere tests strep c difficile rsv chlamydia gonorrhea currently development july 2014 submitted first assay new alere q analyzer alere q hiv12 detect ce ivd accreditation europe accreditation received february 2015 alere q analyzer technology utilizes versatile singleuse test cartridge automatically extract amplify detect multiple molecular targets single patient sample alere q hiv12 detect assay detect hiv 1 hiv 2 fingerstick heelstick samples 60 minutes current field evaluations assay africa showing high utility early diagnosis infants born hivpositive mothers anticipated expansions alere q include cartridges quantification hiv viral load diagnosis tuberculosis december 2014 alere determine hiv12 agab combo launched 2013 received cliawaived status allowing healthcare providers physician’s offices clinics public health services improve clinical outcomes earlier diagnosis treatment patients test positive hiv alere determine hiv12 agab combo first fdaapproved cliawaived rapid pointofcare test detects hiv12 antibodies free hiv1 p24 antigen may identify hiv earlier course disease efforts 2014 well 2015 sharpened focus mission enabling healthcare providers improve clinical outcomes lower costs rapid diagnostic tests enabled us reduce indebtedness enhance shareholder value remain engaged active ongoing discussions multiple parties concerning divestitures remaining noncore businesses consummated continue momentum leaving us shareholders positioned take better advantage globalleading portfolio accurate easytouse costeffective nearpatient tests recent divestitures discussed january 9 2015 completed sale health management business october 10 2014 completed sale subsidiary alere accountable care solutions llc acs except patient selftesting products services health management business acs together represented substantially assets activities comprising former health information solutions segment refer patientself testing segment reclassified assets liabilities health management business held sale within accompanying consolidated balance sheet december 31 2014 results operations health management business acs reported loss discontinued operations net tax periods presented accompanying consolidated statements operations see note 24 accompanying consolidated financial statements information divestitures discontinued operations 2014 financial highlights • net revenue decreased 332 million 1 25867 million 2014 26199 million 2013 • gross profit decreased 1005 million 8 12 billion 2014 13 billion 2013 • 2014 generated net loss available common stockholders 1864 million 225 per basic diluted common share 2013 generated net loss available common stockholders 925 million 113 per basic diluted common share results operations discussed results excluding impact foreign currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates trends year ended december 31 2014 compared year ended december 31 2013 net product sales services revenue net product sales services revenue decreased 270 million 1 25656 million 2014 25926 million 2013 excluding impact foreign currency translation net product sales services revenue 2014 decreased 175 million 1 2013 net product sales services revenue business segment net product sales services revenue business segment 2014 2013 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2014 2013 thousands net product sales services revenue professional diagnostics business segment decreased 463 million 2 23 billion 2014 24 billion 2013 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment decreased 367 million 2 comparing 2014 2013 experienced revenue declines principally us revenue decreased 934 million 9 10 billion 11 billion revenue decreased primarily result 226 million decrease us flurelated net product sales decreased 755 million 2013 529 million 2014 165 million decrease us revenues mail order diabetes sales 11 million 159 million decreases revenue result 2014 2013 dispositions bionote business spinreact operations respectively partially offset 345 million noncurrencyadjusted incremental revenues attributable acquisitions revenue mail order diabetes sales decreased 108 1370 million 2014 1536 million 2013 primarily result reduction center medicare medicaid services cms’ reimbursement rates products became effective july 1 2013 revenues us reduced lower revenues inratio sales lower toxicology pain management sales 2014 compared 2013 net product sales alere triage® meterbased products us decreased 36 million 726 million 2014 762 million 2013 revenues international sales increased 624 million 12 billion 2014 11 billion 2013 due continued strong performance india china africa together grew 503 million 17 partially offset 97 million decrease revenues markets latin america result reduction diabetes revenue brazil weak dengue season region excluding impact acquisitions decrease net product sales meterbased triage products us impact decrease flurelated sales decrease organic revenues us mail order diabetes sales dispositions bionote business spinreact operations currencyadjusted organic growth professional diagnostics net product sales services revenue 209 million 10 2013 2014 new products contributed favorably overall adjusted growth rate sales cd4 products increasing 215 million 2013 293 million 2014 epoc sales increasing 227 million 268 million periods within professional diagnostics business segment infectious disease net product sales services revenue decreased 127 million 2 7105 million 2014 7232 million 2013 decrease primarily due 226 million decrease us flurelated net product sales 755 million 2013 529 million 2014 discussed partially offset overall increase international sales discussed toxicology net product sales services revenue decreased 50 million 1 6278 million 2014 6327 million 2013 primarily result lower pain management revenues cardiometabolic net product sales services revenue decreased 217 million 5 4416 million 2014 4633 million 2013 primarily result decline sales alere inratio2 ptinr professional test strip us due voluntary recall diabetes net product sales services revenue decreased 280 million 12 1975 million 2014 2255 million 2013 decrease primarily result decline revenue attributable reduction cms’ reimbursement rates described partially offset recent acquisitions liberty business simplex contributed combined net 345 million noncurrency adjusted incremental diabetesrelated revenue included 1975 million diabetesrelated revenue 2014 1370 million mail order diabetes sales compared 1536 million 2013 patient selftesting result sales health management business january 2015 acs october 2014 former health information solutions segment referred patient selftesting segment consists primarily alere home monitoring patient selftesting services following table summarizes net product sales services revenue patient selftesting business segment groups similar products services 2014 2013 thousands patient selftesting net product sales services revenue increased 134 million 11 1371 million 2014 1236 million 2013 reflecting growth alere home monitoring patient selftesting services 1029 million 2013 1168 million 2014 increase alere home monitoring patient selftesting services net product sales services revenue principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates consumer diagnostics net product sales services revenue consumer diagnostics business segment revenue increased 59 million 6 1086 million 2014 1028 million 2013 increase revenue primarily resulted increase manufacturing revenue associated spd successfully launched clearblue advanced pregnancy test weeks estimator product us third quarter 2013 spd sales 1857 million 1784 million 2014 2013 net product sales services revenue geographic location net product sales services revenue geographic location 2014 2013 follows thousands 1 includes among many others following countries china india japan south korea brazil canada australia net product sales services revenue 136 billion 145 billion generated united states 53 55 total net product sales services revenue 2014 2013 respectively decrease net product sales services revenue united states principally related lower revenues flurelated mailorder diabetes inratio sales lost revenues dispositions lower toxicology pain management revenues discussed increase net product sales services revenue outside united states resulted primarily increase toxicologyrelated sales europe growing demand hiv malaria products asia africa latin america license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 62 million 23 211 million 2014 272 million 2013 decrease royalty revenue 2014 compared 2013 primarily result lower royalties earned existing licensing agreements included royalty revenue 2013 85 million onetime upfront issuance fee associated license certain molecular intellectual property expect future royalty revenue decline certain patents related lateral flow technology expired 2015 gross profit margin percentage gross profit decreased 1005 million 8 12 billion 2014 13 billion 2013 decrease gross profit 2014 compared 2013 largely attributed decrease net product sales services revenue principally resulting lower revenues inratio sales lower pain management rehabilitation toxicology revenues discussed weak us flurelated sales largerthanexpected reduction us healthcare utilization primarily impacted us infectious disease revenue decline diabetes revenue attributable reduction cms’ reimbursement rates described coupled impacts recall inratio2 test strips recall certain triage bnp calibrators 2014 included revenue cost sales charges totaling 75 million 2014 cost net revenue included amortization expense 645 million 681 million 2014 2013 respectively 25 million noncash charges relating writeup inventory fair value connection certain acquisitions 2013 reducing gross profit 2014 2013 118 million 61 million respectively restructuring charges included 70 million fixed asset inventory impairments 33 million severancerelated costs 15 million facility transition costs 2014 25 million severancerelated costs 23 million facility transition costs 13 million fixed asset intangible asset inventory impairments 2013 overall gross margin 2014 47 compared 50 2013 lower gross margin 2014 principally reflects lower revenues inratio sales lower pain management rehabilitation toxicology revenues impact reduced mail order diabetes reimbursement rates noted well revenue cost sales charges 75 million incurred second quarter 2014 connection recall inratio2 test strips recall certain triage bnp calibrators gross profit net product sales services revenue total business segment gross profit net product sales services revenue decreased 965 million 7 12 billion 2014 13 billion 2013 gross profit net product sales services revenue business segment 2014 2013 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue decreased 1084 million 9 11 billion 2014 compared 12 billion 2013 lower gross profit 2014 principally reflects lower revenues inratio sales 2014 compared 2013 lower pain management rehabilitation toxicology revenues lower us flurelated sales reduced mail order diabetes reimbursement rates cost professional diagnostics net product sales services revenue 2013 included noncash charge 25 million relating writeup inventory fair value connection certain acquisitions reducing gross profit 2014 2013 118 million 61 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 620 million 643 million 2014 2013 respectively percentage professional diagnostics net product sales services revenue gross margin 2014 48 compared 52 2013 lower gross margin 2014 principally reflects lower revenues inratio sales continued weakness us healthcare utilization lower pain management rehabilitation toxicology revenues coupled impacts recall inratio2 test strips recall certain beckman coulter triage bnp tests lower us flurelated sales reduced mail order diabetes reimbursement rates compared 2013 patient selftesting gross profit patient selftesting net product sales services revenue increased 87 million 15 670 million 2014 compared 582 million 2013 cost patient selftesting net product sales services revenue included amortization expense 23 million 29 million 2014 2013 respectively percentage patient selftesting net product sales services revenue gross margin 2014 49 compared 47 2013 increase gross margin primarily due operational efficiencies realized 2014 within condition case management business result various restructuring plans growth alere home monitoring patient selftesting services discussed consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 32 million 16 235 million 2014 203 million 2013 increase gross profit primarily result increase manufacturing revenue discussed cost consumer diagnostics net product sales services revenue included amortization expense 02 million 09 million 2014 2013 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 22 2014 compared 20 2013 research development expense research development expense decreased 142 million 9 1448 million 2014 1591 million 2013 research development expense 2014 reported net grant funding 95 million arising research development funding relationship bill melinda gates foundation entered february 2013 04 million funding related contract us department health human services’ biomedical advanced research development authority barda entered september 2014 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 98 million 18 million included research development expense 2014 2013 respectively amortization expense 65 million 49 million included research development expense 2014 2013 respectively research development expense percentage net revenue 6 2014 2013 respectively sales marketing expense sales marketing expense decreased 523 million 9 5138 million 2014 5661 million 2013 decrease sales marketing expense primarily driven lower amortization expense related customer relationship intangibles 2014 compared 2013 underlying economic benefit intangibles declining amortization expense 1544 million 1971 million included sales marketing expense 2014 2013 respectively restructuring charges associated various restructuring plans reduce expenses integrate businesses totaling 114 million 16 million included sales marketing expense 2014 2013 respectively sales marketing expense percentage net revenue 20 22 2014 2013 respectively general administrative expense general administrative expense increased 304 million 7 4621 million 2014 4317 million 2013 increase primarily attributable inclusion general administrative expense 2014 266 million costs associated potential business dispositions primarily related initial public offering united kingdom proposed early 2014 subsequently abandoned divestiture health management business compared 61 million 2013 239 million increase charges associated restructuring plans integrate businesses offset 64 million decrease expense recorded fair value adjustments acquisitionrelated contingent consideration 56 million costs associated 2013 proxy contest discussed 30 million decrease stockbased compensation expense 22 million decrease acquisitionrelated costs general administrative expense percentage net revenue 18 16 2014 2013 respectively impairment gain loss dispositions net december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million offset net gain approximately 31 million related various immaterial business dispositions resulting net 77 million impairment loss 2014 see note 22 july 2013 sold spinreact operations located spain 334 million proceeds result transaction recorded loss disposition 51 million 2013 financial results spinreact operations immaterial consolidated financial results see note 22 interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense decreased 462 million 18 2092 million 2014 2553 million 2013 decrease principally due 356 million loss recorded connection repurchase 9 senior subordinated notes 2013 also contributing decrease lower interest rate associated 65 senior subordinated notes issued may 2013 compared interest rate associated 9 senior subordinated notes redeemed second quarter 2013 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands expense 29 million 2014 primarily reflected 24 million writeoff investment result dissolution investee 17 million losses disposals fixed assets offset 15 million reversal legal settlement accrual expense 104 million 2013 primarily comprised 118 million expense associated various legal settlements includes provision 95 million reflect estimate settlement litigation costs expected incur connection dispute customer us toxicology business 51 million writeoff investment 33 million losses disposals fixed assets offsetting 80 million bargain purchase gain relating acquisition liberty business legal settlement associated 95 million provision settled 2014 80 million provision benefit income taxes provision income taxes increased 1021 million 667 million provision 2014 354 million benefit 2013 effective tax rate continuing operations 2014 56 compared 34 2013 increase provision income taxes corresponding effective tax rate 2013 2014 primarily related jurisdictional mix income loss increases valuation allowance foreign tax credit carryforwards impact bargain purchase gain recognized tax foreign income distributions 2014 primary components 2014 provision income taxes relate us federal state income tax benefits including tax rate changes foreign jurisdictions us research credits us manufacturing deduction impact bargain purchase gain benefits largely offset increased provisions changes valuation allowances contingent consideration losses deductible tax purposes us tax foreign income distributions 2014 increases reserves uncertain tax positions primary components 2013 provision income taxes relate us federal state income tax benefits including tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain benefits largely offset increased provisions changes valuation allowances contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 increases reserves uncertain tax positions december 2014 congress signed law tax increase prevention act retroactively extended federal research development credit january 1 2014 december 31 2014 result recognized retroactive benefit 2014 federal research development credit 14 million discrete item fourth quarter 2014 period legislation enacted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax includes share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2014 reflect following 50 interest spd amount 162 million ii 49 interest techlab inc techlab amount 16 million loss sale 40 interest vedalab sa vedalab amount 04 million equity earnings unconsolidated entities net tax 2013 reflect following 50 interest spd amount 150 million ii 49 interest techlab amount 20 million iii 40 interest vedalab amount 06 million income loss discontinued operations net tax results health management business acs included income loss discontinued operations net tax periods presented 2014 discontinued operations generated income net tax 1777 million compared loss net tax 169 million 2013 1777 million income net tax 2014 reflects gain 72 million 113 million net tax resulting 263 million 232 million net tax contingent consideration obligation associated original purchase acs 1750 million tax benefit record deferred tax asset relating outside basis health management business offset write 180 million 112 million net tax finitelived intangible assets 11 million 07 million net tax fixed assets fair value see note 7 note 10 consolidated financial statements included elsewhere report net loss available common stockholders 2014 generated net loss available common stockholders 114 million 014 per basic diluted common share compared net loss available common stockholders 925 million 113 per basic diluted common share 2013 net loss available common stockholders reflects 213 million preferred stock dividends paid 2014 2013 net loss 2014 2013 resulted various factors discussed see note 11 consolidated financial statements included elsewhere report calculation net loss per common share year ended december 31 2013 compared year ended december 31 2012 net product sales services revenue net product sales services revenue increased 2281 million 10 26 billion 2013 24 billion 2012 net product sales services revenue increased primarily result acquisitions contributed aggregate 1694 million increase excluding impact foreign currency translation net product sales services revenue 2013 grew 2455 million 10 2012 net product sales services revenue business segment net product sales services revenue business segment 2013 2012 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2013 2012 thousands net product sales services revenue professional diagnostics business segment increased 2010 million 9 24 billion 2013 22 billion 2012 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment increased 2201 million 10 comparing 2013 2012 net product sales services revenue increased primarily result acquisitions contributed aggregate 1672 million noncurrencyadjusted increase also contributing increase revenue north american flurelated sales increased 319 million 436 million 2012 755 million 2013 net product sales services revenue professional diagnostics business segment negatively impacted fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 762 million 2013 compared 1503 million 2012 furthermore net product sales services revenue professional diagnostics business segment negatively impacted disposition spinreact operations spain july 2013 sales totaled 159 million 2013 date disposition compared 222 million 2012 decrease 63 million excluding impact acquisitions increase flurelated sales comparable periods impact reduction net product sales meterbased triage products us disposition spinreact operations spain currencyadjusted organic growth professional diagnostics net product sales services revenue 1014 million 5 2012 2013 growth rate additionally impacted reduction cms’ reimbursement rates became effective july 1 2013 us mail order diabetes business excluding organic revenues mail order diabetes business along impacts previously mentioned currencyadjusted organic growth 1321 million 69 2012 2013 within professional diagnostics business segment net product sales services revenue cardiometabolic business decreased 403 million 8 4633 million 2013 5035 million 2012 primarily result impact fda review certain meterbased triage products us net product sales services revenue infectious disease business increased 1073 million 17 7232 million 2013 6160 million 2012 change driven principally growth hiv flu malaria revenues comparable periods net product sales services revenue toxicology business increased 455 million 8 6327 million 2013 5873 million 2012 recent toxicologyrelated acquisitions contributing combined net 541 million noncurrency adjusted increase offsetting increase toxicology net product sales services revenue contributed acquisitions 236 million decrease net product sales related triage toxicology products reductions commercial pricing pain management rehabilitation services implemented second quarter 2012 fourth quarter 2013 diabetes net product sales services revenue increased 810 million 56 2255 million 2013 1444 million 2012 increase primarily result recent acquisitions ammed direct llc ammed nationshealth discount diabetic llc discount diabetic medicare feeforservice assets liberty medical liberty business simplex healthcare inc simplex contributed combined net 1008 million noncurrency adjusted increase included 2255 million revenue diabetes business 2013 1536 million mail order diabetes sales compared 857 million 2012 patient selftesting following table summarizes net product sales services revenue patient selftesting business segment groups similar products services 2013 2012 thousands net product sales services revenue patient selftesting business segment increased 139 million 1236 million 2013 1097 million 2012 alere home monitoring patient selftesting services net product sales services revenue increased 128 million 14 1029 million 2013 compared 901 million 2012 principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates consumer diagnostics new product sales services revenue consumer diagnostics business segment increased 132 million 15 1028 million 2013 896 million 2012 increase revenue primarily resulted increase manufacturing revenue associated spd successfully launched clearblue advanced pregnancy test weeks estimator product us 2013 spd sales 1784 million 1878 million 2013 2012 respectively net product sales services revenue geographic location net product sales services revenue geographic location 2013 2012 follows thousands 1 includes among many others following countries china japan brazil india south korea canada australia net product sales services revenue 14 billion 13 billion generated united states approximately 55 54 total net product sales services revenue 2013 2012 respectively growth net product sales services revenue united states primarily due increase 711 million domestic diabetes net product sales services revenue resulting primarily recent diabetesrelated acquisitions discussed growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 13 million 5 272 million 2013 286 million 2012 included royalty revenues 2013 85 million onetime upfront issuance fee associated license certain molecular intellectual property compared 110 million onetime upfront issuance fee 2012 gross profit margin percentage gross profit increased 782 million 6 13 billion 2013 12 billion 2012 increase gross profit 2013 largely attributed increase net product sales services revenue resulting acquisitions cost net revenue 2013 2012 included amortization 25 million 47 million respectively relating write inventory fair value connection certain acquisitions reducing gross profit 2013 2012 61 million 23 million respectively restructuring charges included 25 million severancerelated costs 23 million facility transition costs 13 million fixed asset intangible asset inventory impairments 2013 13 million severancerelated costs 07 million facility transition costs 03 million inventory impairments 2012 cost net revenue included amortization expense 681 million 693 million 2013 2012 respectively overall gross margin percentage 50 2013 compared 52 2012 decrease gross margin principally reflects impact reduction diabetes reimbursement rates took effect july 2013 well increased costs manufacturing certain meterbased triage products gross profit net product sales services revenue total business segment gross profit net product sales services revenue increased 800 million 7 13 billion 2013 12 billion 2012 gross profit net product sales services revenue business segment 2013 2012 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 730 million 6 122 billion 2013 115 billion 2012 principally result gross profit earned revenue acquired businesses discussed comparing 2013 2012 gross profit negatively impacted lower volume us meterbased triage product sales reduction commercial pricing toxicology products pain management addiction medicine lines business discussed continued impact fda inspection san diego facility related recall certain meterbased triage products also resulted increased incremental costs 2013 principally due unfavorable manufacturing variances cost professional diagnostics net product sales services revenue 2013 2012 included noncash charge 25 million 47 million respectively relating writeup inventory fair value connection acquisition epocal inc epocal reducing gross profit 2013 2012 61 million 23 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 643 million 644 million 2013 2012 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 52 2013 compared 53 2012 continued impact fda inspection related product recall discussed resulted increased incremental costs 2013 contributed lower gross profit patient selftesting gross profit patient selftesting net product sales services revenue increased 59 million 11 582 million 2013 compared 523 million 2012 reducing gross profit 2013 2012 01 million 00 million respectively restructuring charges cost patient selftesting net product sales services revenue included amortization expense 29 million 37 million 2013 2012 respectively percentage patient selftesting net product sales services revenue gross profit patient selftesting business 47 2013 compared 48 2012 consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 10 million 5 203 million 2013 193 million 2012 increase gross profit primarily result increase manufacturing revenue discussed 07 million charge related manufacturing agreement spd recorded 2012 cost consumer diagnostics net product sales services revenue included amortization expense 09 million 12 million 2013 2012 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 20 2013 compared 22 2012 research development expense research development expense decreased 227 million 12 1591 million 2013 1817 million 2012 research development expense 2013 reported net grant funding 66 million arising research development funding relationship bill melinda gates foundation entered february 2013 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 18 million 13 million included research development expense 2013 2012 respectively amortization expense 49 million 269 million included research development expense 2013 2012 respectively included 269 million amortization expense 2012 192 million related write certain inprocess research development projects recorded connection axisshield acquisition fourth quarter 2011 discontinued 2012 research development expense percentage net revenue 6 8 2013 2012 respectively sales marketing expense sales marketing expense increased 94 million 2 5661 million 2013 5567 million 2012 amortization expense 1971 million 1979 million included sales marketing expense 2013 2012 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 16 million 21 million included sales marketing expense 2013 2012 respectively sales marketing expense percentage net revenue 22 23 2013 2012 respectively general administrative expense general administrative expense increased 828 million 24 4317 million 2013 3488 million 2012 increase general administrative expense 2012 2013 primarily attributable 258 million increase expense related fair value adjustments acquisitionrelated contingent consideration obligations 46 million increase amortization expense 35 million increase restructuring plans integrate businesses well inclusion general administrative expense 2013 75 million excise tax expense related domestic sale medical device products result 23 excise tax went effect january 1 2013 56 million costs associated conduct contested proxy solicitation 2013 61 million costs associated potential business dispositions partially offset 2013 66 million decrease acquisitionrelated costs 2013 general administrative expense percentage net revenue 16 15 2013 2012 respectively impairment gain loss dispositions net july 2013 sold spinreact operations located spain part professional diagnostics reporting unit business segment approximately 334 million proceeds result transaction recorded loss disposition 51 million 2013 financial results spinreact operations immaterial consolidated financial results interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 149 million 6 2553 million 2013 2404 million 2012 increase principally due 356 million loss recorded connection repurchase 9 senior subordinated notes 2013 partially offset effect lower interest rates associated 65 senior subordinated notes 725 senior notes issued may 2013 december 2012 respectively compared higher interest rates associated 7875 senior notes redeemed december 2012 february 2013 9 senior subordinated notes redeemed may june 2013 interest expense 2012 includes 232 million expense associated repurchase substantially 7875 senior notes income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands expense 104 million 2013 primarily comprised 118 million expense associated various legal settlements includes provision 95 million reflect estimate settlement litigation costs expected incur connection dispute customer us toxicology business 51 million writeoff investment 33 million losses disposals fixed assets offsetting 80 million bargain purchase gain relating acquisition liberty business income 171 million 2012 included 155 million prior period royalty settlements included 135 million final royalty termination payment received quidel net 42 million gain recorded disposal property plant equipment 14 million income associated legal settlements related intellectual property litigation partially offsetting impact events settlement prior year dispute former distributor totaling 39 million provision benefit income taxes benefit income taxes increased 239 million 354 million benefit 2013 115 million benefit 2012 effective tax rate 2013 34 compared 16 2012 increase benefit income taxes corresponding effective tax rate 2012 2013 primarily related tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain partially offsetting increased benefits contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 primary components 2013 benefit income taxes relate us federal state income tax benefits including tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain benefits largely offset increased provisions changes valuation allowances contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 increases reserves uncertain tax positions primary components 2012 benefit income taxes relate us federal state income tax benefits including favorable adjustments revaluation contingent consideration offset tax provisions foreign income increases certain valuation allowances increase reserve uncertain tax positions increases permanent adjustments equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2013 primarily reflect following earnings 50 interest spd amount 150 million ii earnings 40 interest vedalab amount 06 million iii earnings 49 interest techlab amount 20 million equity earnings unconsolidated entities net tax 2012 primarily reflect following earnings 50 interest spd amount 107 million ii earnings 40 interest vedalab amount 04 million iii earnings 49 interest techlab amount 23 million income loss discontinued operations net tax results health management business acs included income loss discontinued operations net tax periods presented 2013 discontinued operations generated loss net tax 169 million compared loss net tax 303 million 2012 net loss available common stockholders 2013 generated net loss available common stockholders 925 million 113 per basic diluted common share compared net loss available common stockholders 995 million 123 per basic diluted common share 2012 net loss available common stockholders reflects 213 million preferred stock dividends paid 2013 2012 net loss 2013 2012 resulted various factors discussed see note 11 consolidated financial statements included elsewhere report calculation net loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions expect fund short longterm working capital needs primarily using existing cash operating cash flow expect working capital position improve future operating margins grow business new product service offerings additionally remain engaged discussions concerning potential divestitures expect complete divestitures use net proceeds primarily reduce outstanding debt upon completion divestiture health management business january 9 2015 used 5750 million 6001 million cash proceeds sale repay outstanding indebtedness secured credit facility see note 26 consolidated financial statements included elsewhere report information use proceeds sale health management business december 31 2014 3785 million cash equivalents 1039 million held domestic subsidiaries 2746 million held foreign entities currently plan repatriate cash held foreign entities due adverse tax implications including incremental us tax liabilities potential foreign withholding tax liabilities may also utilize secured credit facility new sources financing fund portion capital needs commitments including contractual contingent consideration obligations future acquisitions december 31 2014 outstanding borrowings totaling 1270 million 2500 million revolving line credit secured credit facility leaving 1230 million available us additional borrowings terms conditions outstanding debt instruments contain covenants expressly restrict ability incur additional indebtedness conduct financings december 31 2014 37 billion aggregate principal amount outstanding indebtedness comprised 22 billion aggregate principal amount outstanding secured credit facility including borrowings revolving line credit 4500 million aggregate outstanding principal amount 725 senior notes due 2018 4000 million aggregate outstanding principal amount 8625 senior subordinated notes due 2018 4250 million aggregate outstanding principal amount 65 senior subordinated notes due 2020 1500 million aggregate outstanding principal amount 3 convertible senior subordinated notes due 2016 secured credit facility various final maturity dates occurring 2016 2017 3 convertible senior subordinated notes remain outstanding november 15 2015 subject certain exceptions provided credit agreement governing secured credit facility secured credit facility instead mature date unless able secure participation holders 3 convertible senior subordinated notes tender offer repurchase refinancing similar transaction relating notes prior november 15 2015 able secure adequate waivers maturity acceleration requirement lenders secured credit facility may required repay make arrangements restructure refinance indebtedness outstanding secured credit facility earlier expected capital credit markets experience volatility availability funds limited may incur increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted underlying assumed revenues expenses realized particular could experience unexpected costs associated potential divestitures operational integration efforts core research development projects costsaving initiatives existing unforeseen lawsuits us may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution thenexisting stockholders may result cash flow summary thousands summary changes cash position december 31 2014 cash equivalents continuing operations 3785 million 230 million increase december 31 2013 primary sources cash continuing operations 2014 included 1904 million generated continuing operating activities 516 million cash received common stock issuances employee stock option stock purchase plans 451 million received dispositions net cash divested 95 million received sale 40 equity investment vedalab 15 million proceeds sale property equipment 10 million decrease assets primary uses cash continuing operations 2014 1029 million capital expenditures 651 million related repayment longterm debt obligations 425 million related net payments revolving credit facilities 329 million related payments acquisitionrelated contingent consideration obligations 213 million cash dividends paid series b preferred stock 54 million increase restricted cash balance 61 million principal payments capital lease obligations 15 million paid financing costs fluctuations foreign currencies unfavorably impacted cash balance 163 million 2014 discontinued operations contributed 168 million cash 2014 december 31 2013 cash equivalents continuing operations 3554 million increase 389 million december 31 2012 primary sources cash continuing operations 2013 included 1773 million generated continuing operating activities 4590 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed secured credit facility revolving lineofcredit 290 million received disposition spinreact operations 147 million related decrease assets 209 million cash received common stock issuances employee stock option stock purchase plans 293 million return capital related equity investment 36 million proceeds sale property equipment primary uses cash continuing operations 2013 4706 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 1761 million net cash paid acquisitions 1008 million capital expenditures 312 million related increase restricted cash 447 million related payments acquisitionrelated contingent consideration obligations 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 213 million cash dividends paid series b preferred stock 98 million related payment debtrelated financing costs 66 million payment capital lease obligations fluctuations foreign currencies unfavorably impacted cash balance 19 million 2013 discontinued operations used 54 million cash 2013 december 31 2012 cash equivalents continuing operations 3165 million increase 289 million december 31 2011 primary sources cash continuing operations 2012 included 2795 million generated continuing operating activities 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans secured credit facility 216 million proceeds sale property plant equipment 149 million common stock issuances employee stock option stock purchase plans 143 million net proceeds various revolving credit facilities 127 million return capital related equity investments 59 million decrease restricted cash 31 million sales marketable securities primary uses cash continuing operations 2012 included 4200 million net cash paid acquisitions 3116 million related cash payments longterm debt 1091 million capital expenditures 564 million related increase assets 213 million cash dividends paid series b preferred stock 201 million related payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 101 million related financing costs 67 million payment capital lease obligations 62 million related repayment shortterm debt fluctuations foreign currencies negatively impacted cash balance 21 million 2012 discontinued operations contributed 02 million cash 2012 cash flows operating activities net cash provided continuing operating activities 2014 1904 million resulted net loss 1677 million 171 million cash used meet working capital needs period offset 3751 million noncash items 3751 million noncash items included 3358 million related depreciation amortization 162 million interest expense related amortization deferred financing costs original issue discounts 125 million related noncash stockbased compensation 98 million tax benefit related discontinued operations retained alere inc 79 million impairment longlived assets 77 million loss related impairment net gain dispositions reflects 107 million impairment charge associated closed business 30 million net gain business dispositions 65 million loss disposition fixed assets 31 million loss inventory disposal 50 million related noncash items partially offset 175 million equity earnings unconsolidated entities net tax 119 million increase related changes deferred tax assets liabilities resulted part amortization intangible assets addition 435 million net cash provided discontinued operations operating activities net cash provided continuing operating activities 2013 1773 million resulted net loss 534 million 1094 million cash used meet net working capital requirements year offset 3401 million noncash items 3401 million noncash items included among items 3745 million related depreciation amortization 356 million related loss extinguishment debt 212 million related noncash stockbased compensation 178 million interest expense related amortization deferred financing costs original issue discounts 105 million related noncash items 79 million tax benefit related discontinued operations retained us 59 million related impairment longlived assets 51 million loss disposition spinreact operations 07 million related impairment intangible assets 15 million loss sale fixed assets 25 million noncash charge related write inventory fair value connection acquisition epocal partially offset 1179 million decrease related changes deferred tax assets liabilities resulted part amortization intangible assets 174 million equity earnings unconsolidated entities net tax 80 million relating bargain purchase gain connection acquisition liberty business addition 675 million net cash provided discontinued operations operating activities net cash provided continuing operating activities 2012 2795 million resulted loss continuing operations 476 million 544 million cash used meet net working capital requirements period offset 3815 million noncash items 3815 million noncash items included among items 3839 million related depreciation amortization 74 million increase related noncash items 213 million interest expense related amortization deferred financing costs original issue discounts 157 million related noncash stockbased compensation 49 million tax benefit related discontinued operations retained us 47 million noncash charge related writeup inventory fair value connection acquisition axisshield partially offset 636 million decrease related changes deferred tax assets liabilities resulted part amortization intangible assets 132 million equity earnings unconsolidated entities 31 million gain sale fixed assets addition 402 million net cash provided discontinued operations operating activities cash flows investing activities investing activities continuing operations 2014 utilized 505 million cash including among items 1029 million capital expenditures 54 million increase restricted cash balance partially offset 451 million cash received dispositions 95 million cash proceeds sale 40 equity investment vedalab 15 million proceeds sale property plant equipment 10 million decrease assets addition discontinued operations used 90 million net cash investing activities investing activities continuing operations 2013 utilized 2314 million cash including 1761 million net cash paid acquisitions 1008 million capital expenditures increase restricted cash balance 312 million principally driven 294 million deposit connection foreign bank loan arrangement 79 million cash received bill melinda gates foundation 57 million used fund qualified expenditures partially offset 293 million return capital related equity investments 290 million proceeds relating disposition spinreact operations 147 million decrease assets 36 million proceeds sale property equipment addition discontinued operations used 270 million net cash investing activities investing activities continuing operations 2012 utilized 5421 million cash including 4200 million net cash paid acquisitions 1091 million capital expenditures 564 million related increase assets includes 460 million note receivable purchases various licensing agreements totaling approximately 43 million partially offset 216 million proceeds sale property plant equipment 127 million return capital equity investments included 112 million return capital spd 59 million decrease restricted cash balance 31 million sales marketable securities addition discontinued operations used 321 million net cash investing activities cash flows financing activities net cash used financing activities continuing operations 2014 1167 million financing activities 2014 included among items 651 million payment longterm debt obligations 425 million net payments revolving credit facilities 329 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 61 million payment capital lease obligations 15 million related financing costs received 516 million cash common stock issuances employee stock option stock purchase plans 10 million excess tax benefit associated exercised stock options addition discontinued operations used 15 million net cash financing activities net cash provided financing activities continuing operations 2013 472 million financing activities 2013 primarily included 4590 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed net 425 million paid secured credit facility revolving lineofcredit 209 million cash received common stock issuances employee stock option stock purchase plans addition utilized 4710 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 447 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 98 million related payment debtrelated financing costs 66 million payment capital lease obligations addition discontinued operations provided 18 million net cash financing activities net cash provided financing activities continuing operations 2012 2871 million financing activities 2012 primarily included 6488 million net proceeds received connection longterm debt issuances included 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans entered secured credit facility 149 million cash received common stock issuances employee stock option stock purchase plans 143 million net proceeds various revolving credit facilities included 225 million borrowed secured credit facility revolving lineofcredit 4432 million received connection issuance 725 senior notes offset 2674 million cash payments related repurchases 7875 senior notes 1700 million used pay portion outstanding balance revolving lineofcredit addition utilized 213 million dividend payments related series b preferred stock 201 million payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 101 million related payment debtrelated financing costs 67 million payment capital lease obligations 62 million related repayment shortterm debt obligations addition discontinued operations used 14 million net cash financing activities december 31 2014 aggregate 148 million outstanding capital lease obligations payable 2019 income taxes december 31 2014 469 million us federal net operating loss nol capital loss carryforwards 7402 million state nol carryforwards 2448 million foreign nol capital loss carryforwards either expire various dates 2034 carried forward indefinitely december 31 2014 1285 million federal state research development us foreign tax credit carryforwards either expire various dates 2034 carried forward indefinitely loss tax credit carryforwards may available reduce future federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities utilized furthermore us federal loss carryforwards credits subject limitations imposed sections 382 383 internal revenue code may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use loss carryforwards credits amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols capital loss credits well certain deferred tax assets reflect uncertainties might affect realization deferred tax assets offbalance sheet arrangements material offbalance sheet arrangements december 31 2014 contractual obligations following table summarizes principal contractual obligations december 31 2014 thousands 1 see description various financing arrangements note 6 consolidated financial statements included elsewhere report see note 26 consolidated financial statements included elsewhere report 2 see note 8 consolidated financial statements included elsewhere report 3 see note 10a consolidated financial statements included elsewhere report 4 includes 35 million deferred purchase price payments 10 million noncompete payments 94 million management incentive payments related acquisition epocal 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 6 consolidated financial statements included elsewhere report 7 connection certain acquisitions additional contingent consideration may become payable sellers upon satisfaction certain performance milestones amounts represent estimated fair value obligations information pertaining contingent consideration arrangements see note 10b consolidated financial statements included elsewhere report addition contractual obligations included table recorded reserves uncertain tax positions including interest penalties amount 516 million noncurrent liabilities uncertain amounts may settled see disclosure regarding uncertain tax positions note 15 consolidated financial statements included elsewhere report critical accounting policies consolidated financial statements included elsewhere report prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2014 included elsewhere report include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally respect health management business included discontinued operations generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish meeting performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 913 million 986 million 678 million 4 5 4 respectively net product sales 2014 2013 2012 respectively recorded product sales derive net product sales amounts 424 million 656 million 392 million 2014 2013 2012 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 4661 million 4894 million net allowances doubtful accounts 762 million 691 million december 31 2014 2013 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3652 million 3622 million net reserve excess obsolete inventory 273 million 214 million december 31 2014 2013 respectively goodwill longlived intangible assets longlived assets include property plant equipment net goodwill intangible assets indefinite lives finitelived intangible assets net december 31 2014 2013 respectively property plant equipment net 4568 million 4682 million goodwill 29 billion 30 billion intangible assets indefinite lives 437 million 567 million finitelived intangible assets net 13 billion 16 billion goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guideline companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2014 annual goodwill impairment test conducted 2014 annual impairment test reporting units fourth quarter 2014 patient selftesting reporting unit utilized purchase price sale health management business estimated fair value health management business combined estimated fair value remaining patient selftesting reporting unit determined using combination income approach market comparable approach market transaction approach arrive total estimated fair value patient selftesting business key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 105 155 projected compound average revenue growth rates 30 110 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 12 29 times multiples ebitda 71 118 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 22 billion 5130 million 868 million respectively 367 1177 299 respectively discussed note 24 notes consolidated financial statements included elsewhere report health management business met criteria assets held sale december 31 2014 sale subsequently completed january 9 2015 accordingly performed step 1 impairment test goodwill remaining patient selftesting reporting unit december 31 2014 step 1 impairment test indicated estimated fair value remaining patient selftesting reporting unit exceeded carrying value reporting unit’s net assets 330 estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation 2013 annual goodwill impairment test conducted 2013 annual impairment test reporting units fourth quarter 2013 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 140 projected compound average revenue growth rates 40 114 terminal value growth rates 30 40 factors considered determining appropriate discount rate key assumptions 2014 annual goodwill impairment test described based multiples implied market data selected multiples revenue 08 29 times multiples ebitda 64 106 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 16 billion 315 million 927 million respectively 302 77 455 respectively 2012 annual goodwill impairment test conducted 2012 annual impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 factors considered determining appropriate discount rate key assumptions 2014 annual goodwill impairment test described based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 54 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 3999 million 419 million 539 million 79 94 272 respectively valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review stockbased compensation stockbased compensation expense measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 2403 million december 31 2014 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us nols capital losses tax credits increase 1558 million valuation allowance 845 million december 31 2013 increase primarily related domestic state nols certain foreign nols capital losses foreign tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section report entitled “part item 3 legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2v consolidated financial statements included elsewhere report regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e exchange act identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements include without limitation statements regarding expected closing date transactions contemplated merger agreement abbott laboratories benefits improved products ability commercialize products development expected product distribution alere home monitoring future market acceptance united states alere dds2 mobile test system plans voluntarily withdraw inratio inratio2 ptinr monitoring systems market future benefits intellectual property future competition markets implementation effectiveness efforts remediate material weaknesses outcome certain tax examinations timing decisions outcome connection certain legal proceedings parties subject sources funds pay principal interest indebtedness certain expenses intention retain earnings support growth strategy anticipate paying dividends common stock pma submissions made future compensation policies practices expected implemented continued future trends respect license royalty revenues future trends respect amortization expense source funds expected ability fund short longterm working capital needs anticipated use proceeds divestitures future plans respect repatriation cash held foreign entities availability sufficient space contain operations future litigation brought us impact litigation future litigation strategies related intellectual property matters impact merger agreement change control severance agreements expected tax treatment certain compensation payments named executive officers expected impact recently announced adopted accounting standards accounting standards financial statements future contributions us certain benefit plans anticipated increases decreases certain tax benefits future changes tax positions due audits expected future expenses connection voluntary withdrawal inratio products market accounting treatment future funding arrangements gates foundation anticipated expenses costs connection certain restructuring plans future charges connection withdrawal product market impact research development activities potential new product technology achievements potential selective divestitures noncore assets actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 16 report well factors identified time filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview deliver reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally highperformance diagnostics infectious disease cardiometabolic disease toxicology designed meet growing global demand accurate easytouse costeffective nearpatient tests goal make products accessible people around world even located remote resourcelimited areas making affordable usable setting making critical clinical diagnostic information available doctors patients actionable timeframe products help streamline healthcare delivery improve patient outcomes change reporting segments january 2015 sold condition management case management wellbeing wellness women’s children’s health businesses refer collectively health management business result sale health management business largest component former patient selftesting reporting segment longer report financial information four operating segments current reportable operating segments professional diagnostics consumer diagnostics corporate information fiscal years ended december 31 2013 2014 retroactively adjusted reflect change reporting segments recent developments merger agreement abbott laboratories january 30 2016 entered merger agreement abbott information regarding merger agreement transactions contemplated thereby related matters please see item 1 “business recent developments merger agreement abbott laboratories” item 1a “risk factors risks related merger” inratio inratio2 ptinr monitoring system voluntary withdrawal july 2016 announced initiating voluntary withdrawal alere inratio® inratio®2 ptinr monitoring systems see “businessgovernment regulation” additional information plan voluntarily withdraw inratio systems market due fact circumstances giving rise voluntary withdrawal united states related action outside us existed december 31 2015 certain charges incurred connection withdrawal recorded 2015 specifically recorded charge approximately 38 million year ending december 31 2015 approximately 18 million attributable impairment certain inventory inratio inratio2 products approximately 3 million related impairment production equipment approximately 16 million related estimated costs removing inratio inratio2 market including notifications users return disposals costs related amounts additionally decision withdraw inratio inratio2 ptinr monitoring systems impacted useful life assumptions certain tangible intangible assets result change estimates recorded approximately 4 million accelerated amortization intangible assets approximately 1 million accelerated depreciation tangible assets year ending december 31 2015 finally fiscal year 2016 expect incur approximately 16 million accelerated amortization approximately 3 million accelerated depreciation 2 million onetime cash expenditures related matter divestiture bbi business november 17 2015 completed sale bbi business achieved sale subsidiary bbi diagnostic group ltd purchase price approximately 1064 million net final working capital adjustment eligible receive additional 466 million contingent cash consideration bbi business provided products services diagnostic healthcare research defense food industries globally bbi business formerly included professional diagnostics reporting unit business segment used 1150 million net cash proceeds closing sale bbi business represented net proceeds closing sale prior giving effect final working capital adjustment repay 1150 million aggregate principal amount outstanding indebtedness secured credit facility acquisition usd july 10 2015 acquired substantially assets usd located huntsville alabama provider instant onsite drug testing products designed quick accurate drug test results aggregate purchase price approximately 601 million paid cash operating results acquired business included professional diagnostics reporting unit business segment divestiture health management business january 9 2015 completed sale health management business completed sale acs october 2014 sale wellogic june 2015 reclassified assets liabilities health management business held sale within accompanying consolidated balance sheet december 31 2014 results operations health management business acs companies reported income loss discontinued operations net tax periods presented accompanying consolidated statements operations see note 3 consolidated financial statements included elsewhere annual report form 10k information divestitures discontinued operations refinancing senior secured credit facility june 18 2015 closed new senior secured credit facility secured credit facility totaling 195 billion used portion proceeds thereof repay full terminate prior credit facility new secured credit facility initially consisted term loan facilities totaling 17 billion 2500 million revolving credit facility term loans drawn closing initially consisted 6500 million “a” term loans 105 billion “b” term loans december 31 2015 aggregate outstanding principal amounts “a” term loans “b” term loans 5877 million 9712 million respectively used approximately 168 billion proceeds new term loans drawn closing repay full terminate prior credit facility pay various fees expenses associated transaction additional information secured credit facility see note 8 consolidated financial statements included elsewhere annual report form 10k refinancing senior subordinated notes june 24 2015 completed offering 4250 million 6375 senior subordinated notes due 2023 used net proceeds offering well cash resources redeem october 1 2015 outstanding 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 pay related redemption fees premiums costs expenses accrued interest notes redemption price equal 102156 principal amount 8625 notes plus accrued unpaid interest april 1 2015 excluding october 1 2015 upon settlement redemption october 1 2015 satisfied discharged obligations respect notes 3 convertible senior subordinated notes 3 convertible senior subordinated notes matured may 15 2016 based price common stock date maturity paid outstanding principal accrued interest owing notes cash aggregate amount paid noteholders maturity approximately 1520 million consisting 1250 million cash drawn revolving credit facility plus 270 million cash available date 2015 financial highlights • net revenue decreased 1120 million 4 246 billion 2015 257 billion 2014 • gross profit decreased 997 million 8 111 billion 2015 121 billion 2014 • 2015 generated loss continuing operations available common stockholders 344 million 040 per basic diluted common share 2014 generated loss continuing operations available common stockholders 1931 million 233 per basic diluted common share • 2015 generated net income available common stockholders 1851 million 217 per basic diluted common share 2014 generated net loss available common stockholders 548 million 066 per basic diluted common share results operations discussed results excluding impact foreign currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates factors connection preparation consolidated financial statements year ended december 31 2015 determined 2013 2014 incorrectly recorded timing recognition certain revenue transactions periods addition made several outofperiod adjustments related correction specific bonus accrual measurement certain royalty obligation adjustments related accounting income taxes result revising consolidated financial information december 31 2014 years ended december 31 2014 2013 following information set forth item 7 reflects revisions timing recognition certain revenue transactions outofperiod adjustments information revisions see note 2 consolidated financial statements “revision previously reported consolidated financial statements” included elsewhere annual report form 10k year ended december 31 2015 compared year ended december 31 2014 net product sales services revenue net product sales services revenue decreased 1079 million 4 25 billion 2015 26 billion 2014 excluding impact foreign currency translation net product sales services revenue 2015 increased 115 million 2014 net product sales services revenue business segment net product sales services revenue business segment 2015 2014 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2015 2014 thousands net product sales services revenue professional diagnostics business segment decreased 1039 million 4 236 billion 2015 246 billion 2014 experienced revenue decreases principally international markets revenue decreased 1018 million 9 105 billion 2015 115 billion 2014 lower sales international markets driven primarily 176 million decrease sales infectious disease products 264 million decrease revenue primarily related noncore thirdparty product sales principally europe asia latin america 125 million decrease cardiometabolic sales 98 million decrease toxicology sales 355 million decrease revenue primarily result dispositions bionote business 2014 dgp bbi businesses 2015 net product sales services revenue professional diagnostics business segment us relatively flat year 131 billion 2015 2014 decreasing 21 million revenues us decreased primarily due 454 million decrease toxicology pain management revenues resulting continued pricing pressure customer insourcing 125 million decrease revenue attributable dispositions principally result sales bionote business 2014 bbi alere analytics businesses 2015 partially offset 289 million increase toxicology revenues pain management including 107 million increase related revenue associated acquisition usd 138 million increase infectious disease revenues driven primarily 105 million increase influenza sales 64 million increase cardiometabolic sales well 67 million increase revenue within professional diagnostics business segment cardiometabolic net product sales services revenue decreased 95 million 1 8324 million 2015 8419 million 2014 primarily result 181 million decrease global sales inratio products 110 million decrease cholesterol products partially offset 111 million increase patient selftesting revenues 110 million increase us mail order diabetes business infectious disease net product sales services revenue decreased 40 million 1 7178 million 2015 7218 million 2014 decrease principally due 96 million decrease global sales crp rsv legionella products 82 million decrease global cd4 sales 72 million decrease global malaria sales partially offset 202 million increase global influenza hiv sales toxicology net product sales services revenue decreased 263 million 4 6184 million 2015 6446 million 2014 primarily result 454 million decrease pain management revenues resulting continued pricing pressure customer insourcing partially offset 105 million increase employer services escreen business 107 million revenues associated acquisition usd revenue within professional diagnostics business segment decreased 642 million 250 1926 million 2015 2568 million 2014 primarily due 445 million decrease revenue result dispositions bionote business 2014 dgp bbi alere analytics businesses 2015 closure alere connect llc facility 2015 well 207 million decrease revenues noncore thirdparty product sales principally international markets excluding impacts currency translation acquisitions dispositions net product sales services revenue professional diagnostics business segment increased 413 million 2 comparing 2015 2014 consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 40 million 4 851 million 2015 891 million 2014 consumer diagnostics revenue attributable sales spd longterm manufacturing service agreement decrease revenue largely attributable decrease sales spd consumer diagnostics revenue us flat 2015 2014 approximately 520 million periods decreased 42 million international markets 333 million 2015 compared 375 million 2014 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 41 million 19 170 million 2015 211 million 2014 decrease royalty revenue 2015 compared 2014 primarily result lower royalties earned existing licensing agreements certain patents related lateral flow technology expired 2015 based license royalty agreements effect december 31 2015 expect trend lower license royalty revenues continue 2016 compared 2015 net revenue geographic location net revenue geographic location 2015 2014 follows thousands net revenue 14 billion 14 billion generated us approximately 56 53 total net revenue 2015 2014 respectively decrease total net revenue 2015 principally result decrease revenue professional diagnostics business segment outside us described gross profit margin percentage gross profit decreased 997 million 8 111 billion 2015 121 billion 2014 decrease gross profit 2015 compared 2014 largely attributed 391 million cost goods charge connection july 2016 announcement voluntary withdrawal alere inratio alere inratio2 products market decrease gross profit 2015 also attributable decrease net product sales services revenue principally resulting lower revenues higher margin inratio pain management toxicology revenues unfavorable product mix challenging foreign exchange environment international markets addition decrease net product sales services revenue resulted decrease gross profit fixed costs spread lower volume net product sales cost net revenue included amortization expense 563 million 645 million 2015 2014 respectively based remaining amortization december 31 2015 amortization expense expected trend lower acquired intangibles become fully amortized cost net revenue also included restructuring charges 38 million 118 million 2015 2014 respectively overall gross margin 45 47 2015 2014 respectively gross profit net product sales services revenue total business segment gross profit net product sales services revenue decreased 974 million 8 11 billion 2015 12 billion 2014 gross profit net product sales services revenue business segment 2015 2014 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue decreased 933 million 8 11 billion 2015 compared 12 billion 2014 respect cardiometabolic products lower revenue higher costs 2015 associated two product recalls 2014 inratio products along lower revenues sales higher margin cholesterol meterbased triage products contributed decrease gross profit addition professional diagnostics gross profits decreased due 391 million cost goods charges costs connection july 2016 announcement voluntary withdrawal alere inratio alere inratio2 products market respect infectious disease products despite relatively flat yearoveryear respiratory product revenues mainly due belowaverage respiratory season gross profit decreased due increased revenue contribution molecular offerings lower margins due higher manufacturing costs increased competitive pressure lateral flow respiratory products additionally decrease malaria sales africa contributed decrease gross profit primarily driven increased pricing pressure partially offset increased contribution higher margin hiv sales region lower pain management toxicology revenue discussed contributed decrease gross profit driven pricing pressure increase customer insourcing 2015 challenging foreign currency environment international markets also impacted gross profit gross profit 2015 2014 reflected 38 million 118 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 563 million 643 million 2015 2014 respectively based remaining amortization december 31 2015 amortization expense expected trend lower acquired intangibles become fully amortized percentage professional diagnostics net product sales services revenue gross profit 46 48 2015 2014 respectively consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 41 million 37 71 million 2015 112 million 2014 decrease gross profit primarily result lower contract manufacturing revenue associated longterm manufacturing services agreement spd percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 8 2015 compared 13 2014 decrease gross profit primarily result lower contract manufacturing revenue associated longterm manufacturing services agreement spd research development expense research development expense decreased 253 million 17 1195 million 2015 1448 million 2014 decrease primarily attributable 88 million reduction workforcerelated costs 81 million reduction supplies expense result cost reduction initiatives 78 million favorable impact foreign exchange rates 70 million reduction restructuring expense partially offset 65 million increase amortization expense research development expense 2015 2014 reported net grant funding 39 million 95 million respectively arising research development funding relationship bill melinda gates foundation gates foundation entered february 2013 34 million 04 million respectively funding related contract us department health human services’ biomedical advanced research development authority barda entered september 2014 additional information agreements barda gates foundation including april 2016 mutual agreement terminate february 2013 grant february 2013 loan agreement gates foundation see note 19 consolidated financial statements elsewhere annual report form 10k amortization expense 111 million 65 million included research development expense 2015 2014 respectively restructuring charges associated various restructuring plans integrate businesses totaling 28 million 98 million included research development expense 2015 2014 respectively research development expense percentage net revenue 5 6 2015 2014 respectively sales marketing expense sales marketing expense decreased 778 million 15 4351 million 2015 5130 million 2014 result cost reduction initiatives driven 243 million reduction workforcerelated costs well 248 million favorable impact foreign exchange rates addition 183 million decrease sales marketing expense driven lower amortization expense related customer relationship intangibles 2015 compared 2014 underlying economic benefit intangibles declined amortization expense 1318 million 1544 million included sales marketing expense 2015 2014 respectively restructuring charges associated various restructuring plans reduce expenses integrate businesses totaling 30 million 114 million included sales marketing expense 2015 2014 respectively reflects decrease 84 million sales marketing expense percentage net revenue 18 20 2015 2014 respectively general administrative expense general administrative expense decreased 840 million 19 3696 million 2015 4536 million 2014 decrease primarily attributable 698 million benefit net decrease fair value acquisitionrelated contingent consideration 194 million decrease restructuring expense 167 million favorable impact foreign currency exchange rates 197 million reduction workforcerelated costs result cost reduction initiatives decreases partially offset 118 million increase stock compensation expense 204 million increase information technology expenses including costs software telecommunications information technology expenses 29 million increase bad debt expense 22 million increase professional fees outside services general administrative expense percentage net revenue 15 18 2015 2014 respectively impairment gain loss dispositions net 2015 generated aggregate 505 million impairment loss dispositions net connection sale certain businesses assets described november 2015 completed sale bbi business bbi business component professional diagnostics reporting unit business segment received cash consideration approximately 1064 million net final working capital adjustment eligible receive contingent consideration payments 466 million upon achievement certain milestone net assets disposed connection disposition bbi business valued aggregate 665 million value allocated goodwill 492 million aggregate value net assets goodwill disposed transaction exceeded cash consideration received recorded 93 million loss 2015 disposition bbi business july 2015 sold certain assets inverness medical innovations australia pty ltd business part professional diagnostics reporting unit business segment aud 02 million approximately 01 million date disposition cash proceeds result transaction recorded loss 12 million 2015 recorded additional charges approximately 08 million connection certain business closures divestitures 2015 may 2015 sold alere analytics business part professional diagnostics reporting unit business segment terms sale received nominal consideration agreed contribute working capital 27 million alere analytics 24 million contributed cash immediately prior closing sale remaining 03 million deposited escrow pending performance buyers certain contracts result transaction recorded loss 36 million 2015 identifying buyer alere analytics management decided close business connection decision recorded impairment charge 267 million 2015 including write 262 million acquisitionrelated intangible assets 05 million fixed assets march 2015 sold certain assets adnagen gmbh business part professional diagnostics reporting unit business segment approximately 46 million cash proceeds result transaction recorded loss 03 million 2015 march 2015 sold gesellschaft fur patientenhilfe dgp gmbh subsidiary part professional diagnostics reporting unit business segment 76 million approximately 82 million march 31 2015 result transaction recorded loss disposition 75 million 2015 december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million offset net gain approximately 31 million related various immaterial business dispositions resulting net 77 million impairment loss 2014 2015 connection decision recorded impairment charges 11 million consisting primarily severance costs inventory writeoffs closurerelated expenses see also note 25 consolidated financial statements included elsewhere annual report form 10k information impairment gain loss dispositions net interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 78 million 4 2170 million 2015 2092 million 2014 increase principally due 199 million loss extinguishment debt associated prior credit facility 8625 senior subordinated notes partially offset 117 million reduction interest expense related debt refinancing activities 2015 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands interest income related principally cash deposits including restricted cash increase interest income largely due higher cash balances foreign exchange gains losses net 2015 42 million compared 22 million 2014 change foreign exchange gains losses net 2014 2015 primarily resulted impact foreign currency translation intercompany balances net 21 million 2015 primarily reflected 50 million paid connection legal settlement 12 million loss disposal fixed assets offset part 41 million income net 24 million 2014 primarily reflected 24 million writeoff investment result dissolution investee provision benefit income taxes provision income taxes decreased 1236 million 527 million benefit 2015 709 million provision 2014 effective tax rate 2015 68 compared tax rate 60 2014 decrease provision income taxes tax rates 2014 2015 primarily related changes jurisdictional mix income tax impact contingent consideration income decrease pretax loss returntoprovision adjustments primary components 2015 benefit income taxes related us federal state income tax benefits operating losses tax impact contingent consideration income recognized tax purposes certain returntoprovision adjustments benefits partially offset increased provisions changes valuation allowances us inclusion foreign earnings increases reserves uncertain tax positions primary components 2014 provision income taxes related jurisdictional mix income loss increase valuation allowance us foreign tax credit carryforwards december 2015 congress signed law protecting americans tax hikes act retroactively extended us federal research development credit january 1 2015 december 31 2015 permanently extended credit going forward result recognized retroactive benefit 2015 us federal research development credit approximately 21 million discrete item fourth quarter 2015 period legislation enacted december 2014 congress signed law tax increase prevention act 2014 retroactively extended us federal research development credit january 1 2014 december 31 2014 result recognized retroactive benefit 2014 us federal research development credit approximately 14 million discrete item fourth quarter 2014 period legislation enacted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax includes share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2015 primarily reflect following 50 interest spd amount 143 million ii 49 interest techlab inc techlab amount 15 million equity earnings unconsolidated entities net tax 2014 primarily reflect following 50 interest spd amount 162 million ii 49 interest techlab amount 16 million 2014 also recognized 04 million loss connection sale 40 interest vedalab sa additional information spd techlab see note 20 consolidated financial statements included elsewhere annual report form 10k income discontinued operations net tax results health management business included income discontinued operations net tax periods presented given january 9 2015 divestiture business results acs included income discontinued operations net tax 2014 given october 10 2014 divestiture business 2015 discontinued operations generated income net tax 2195 million compared income net tax 1383 million 2014 income discontinued operations 2015 largely attributable 3649 million pretax gain 2224 million net tax sale health management business 1383 million income net tax 2014 reflects 1448 million tax benefit record deferred tax asset relating outside basis difference health management business offset write 180 million 112 million net tax finitelived intangible assets 11 million 07 million net tax fixed assets fair value also included 1383 million income discontinued operations net tax 2014 gain resulting elimination 263 million 163 million net tax contingent consideration obligation associated original purchase acs see note 3 consolidated financial statements included elsewhere annual report form 10k year ended december 31 2014 compared year ended december 31 2013 net product sales services revenue net product sales services revenue decreased 272 million 1 256 billion 2014 258 billion 2013 excluding impact foreign currency translation net product sales services revenue 2014 decreased 176 million 1 2013 net product sales services revenue business segment net product sales services revenue business segment 2014 2013 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2014 2013 thousands net product sales services revenue professional diagnostics business segment decreased 308 million 1 246 billion 2014 250 billion 2013 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment decreased 213 million 1 comparing 2014 2013 experienced revenue declines principally us revenue decreased 643 million 5 131 billion 138 billion us revenue decreased primarily result 261 million decrease us flurelated net product sales decreased 791 million 2013 530 million 2014 155 million 10 decrease us revenues mail order diabetes sales decreased 1530 million 2013 1375 million 2014 primarily result reduction cms’s reimbursement rates products became effective july 1 2013 partially offset 345 million increase acquisitions liberty simplex businesses components mail order diabetes business 135 million decrease inratio sales 36 million decrease alere triage meterbased product sales decreased 726 million 2014 762 million 2013 376 million decrease toxicology pain management revenue partially offset 167 million increase toxicology employer services sales well 137 million increase patient selftesting revenues us revenues negatively impacted 03 million decrease revenue primarily result 2014 2013 dispositions bionote business spinreact operations respectively net product sales services revenue international markets professional diagnostic business segment increased 335 million 3 115 billion 2014 112 billion 2013 higher sales international markets driven primarily 169 million increase sales cardiometabolic products 162 million increase sales infectious disease products principally africa india china including 78 million increase cd4 sales increased 215 million 2013 293 million 2014 82 million increase revenue primarily related noncore thirdparty product sales europe asia 50 million increase toxicology sales partially offset 130 million decrease revenue result 2014 2013 dispositions bionote business spinreact operations respectively within professional diagnostics business segment cardiometabolic net product sales services revenue decreased 169 million 2 8419 million 2014 8588 million 2013 primarily result 155 million decline us mail order diabetes business driven primarily reduction cms’ reimbursement rates described partially offset 345 million increase revenue due acquisitions liberty simplex businesses components mail order diabetes business 135 million decline sales alere inratio2 ptinr professional test strip us due 2014 voluntary recall partially offset 137 million increase patient selftesting revenues principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates 42 million increase epoc sales increased 227 million 2013 268 million 2014 infectious disease net product sales services revenue decreased 80 million 1 7218 million 2014 7298 million 2013 decrease primarily due 261 million decrease us flurelated net product sales 791 million 2013 530 million 2014 partially offset overall increase international sales discussed toxicology net product sales services revenue relatively flat year 6446 million 2014 6445 million 2013 increasing 01 million experienced 376 million decrease pain management revenue due increased pricing pressure customer insourcing offset 168 million increase employer services revenue 100 million increase toxicology reagent sales increase revenue government lab services division excluding impacts currency translation acquisitions dispositions net product sales services revenue professional diagnostics business segment decreased 493 million 2 comparing 2014 2013 consumer diagnostics net product sales services consumer diagnostics business segment increased 36 million 4 891 million 2014 855 million 2013 consumer diagnostics revenue attributable sales spd longterm manufacturing service agreement increase revenue largely attributable increase sales spd consumer diagnostics revenue united states flat 2014 2013 approximately 510 million periods increased 30 million international markets 375 million 2014 compared 345 million 2013 license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 62 million 23 211 million 2014 272 million 2013 decrease royalty revenue 2014 compared 2013 primarily result lower royalties earned existing licensing agreements included royalty revenue 2013 85 million onetime upfront issuance fee associated license certain molecular intellectual property net revenue geographic location net revenue geographic location 2014 2013 follows thousands net revenue 14 billion 14 billion generated us approximately 53 55 total revenue 2014 2013 respectively decrease total net revenue 2014 principally result decrease revenue professional diagnostics business segment us described gross profit margin percentage gross profit decreased 999 million 8 12 billion 2014 13 billion 2013 decrease gross profit 2014 compared 2013 largely attributed decrease net product sales services revenue principally resulting lower toxicology pain management revenues discussed weak us flurelated sales continued weakness us healthcare utilization impacted us infectious disease revenue lower revenues inratio sales includes decreased sales inratio monitors inratio2 test strips latter due two recalls decline us mail order diabetes revenue attributable reduction cms’ reimbursement rates described coupled impact recall certain triage bnp calibrators 2014 recalls inratio2 test strips triage bnp calibrators included revenue cost sales charges totaling 75 million 2014 cost net revenue included amortization expense 645 million 681 million 2014 2013 respectively 25 million noncash charges relating writeup inventory fair value connection certain acquisitions 2013 reducing gross profit 2014 2013 118 million 61 million respectively restructuring charges included 70 million fixed asset inventory impairments 33 million severancerelated costs 15 million facility transition costs 2014 25 million severancerelated costs 23 million facility transition costs 13 million fixed asset intangible asset inventory impairments 2013 overall gross margin 2014 47 compared 50 2013 lower gross margin 2014 principally reflects decreased toxicology pain management revenues weak us flu related sales impact reduced mail order diabetes reimbursement rates noted lower revenues inratio sales includes decreased sales inratio monitors inratio2 test strips latter due two recalls well revenue cost sales charges 75 million incurred second quarter 2014 connection two recalls inratio2 test strips recall certain triage bnp calibrators gross profit net product sales services revenue total business segment gross profit net product sales services revenue decreased 1019 million 8 12 billion 2014 13 billion 2013 gross profit net product sales services revenue business segment 2014 2013 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue decreased 970 million 8 12 billion 2014 compared 13 billion 2013 lower gross profit 2014 principally reflects lower revenues inratio sales 2014 compared 2013 includes decreased sales inratio monitors inratio2 test strips latter due two recalls lower toxicology pain management revenues lower us flurelated sales reduced mail order diabetes reimbursement rates cost professional diagnostics net product sales services revenue 2013 included noncash charge 25 million relating writeup inventory fair value connection certain acquisitions reducing gross profit 2014 2013 118 million 61 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 643 million 672 million 2014 2013 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 2014 48 compared 52 2013 lower gross margin 2014 principally reflects decreased toxicology pain management revenues lower us flu related sales reduced mail order diabetes reimbursement rates lower revenues inratio sales includes decreased sales inratio monitors inratio2 test strips latter due two recalls continued weakness us healthcare utilization coupled impact recall certain triage bnp calibrators compared 2013 consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 12 million 12 112 million 2014 100 million 2013 increase gross profit primarily result increase manufacturing revenue associated spd discussed cost consumer diagnostics net product sales services revenue included amortization expense 02 million 09 million 2014 2013 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 13 2014 compared 12 2013 research development expense research development expense decreased 142 million 9 1448 million 2014 1591 million 2013 research development expense 2014 reported net grant funding 95 million arising research development funding relationship bill melinda gates foundation entered february 2013 04 million funding related contract barda entered september 2014 additional information agreements barda gates foundation including april 2016 agreement mutually terminate february 2013 grant february 2013 loan agreement gates foundation see note 19 consolidated financial statements elsewhere annual report form 10k restructuring charges associated various restructuring plans integrate acquired businesses totaling 98 million 18 million included research development expense 2014 2013 respectively amortization expense 65 million 49 million included research development expense 2014 2013 respectively research development expense percentage net revenue 6 2014 2013 sales marketing expense sales marketing expense decreased 532 million 9 5130 million 2014 5661 million 2013 decrease sales marketing expense primarily driven lower amortization expense related customer relationship intangibles 2014 compared 2013 underlying economic benefit intangibles declining amortization expense 1544 million 1971 million included sales marketing expense 2014 2013 respectively restructuring charges associated cost reduction plans totaling 114 million 16 million included sales marketing expense 2014 2013 respectively sales marketing expense percentage net revenue 20 22 2014 2013 respectively general administrative expense general administrative expense increased 184 million 4 4536 million 2014 4352 million 2013 increase primarily attributable inclusion general administrative expense 2014 266 million costs associated potential business dispositions primarily related initial public offering united kingdom proposed early 2014 subsequently abandoned divestiture health management business compared 61 million 2013 208 million increase charges associated restructuring plans increased expenses partially offset 18 million decrease expense recorded fair value adjustments acquisitionrelated contingent consideration 56 million costs associated 2013 proxy contest 88 million decrease stockbased compensation expense 22 million decrease acquisitionrelated costs general administrative expense percentage net revenue 18 17 2014 2013 respectively impairment gain loss dispositions net december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million offset net gain approximately 31 million related various immaterial business dispositions resulting net 77 million impairment loss 2014 july 2013 sold spinreact operations located spain 334 million proceeds result transaction recorded loss disposition 51 million 2013 financial results spinreact operations immaterial consolidated financial results see note 25 consolidated financial statements included elsewhere annual report form 10k information impairment gain loss dispositions net interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense decreased 462 million 18 2092 million 2014 2553 million 2013 decrease principally due 356 million loss recorded connection repurchase 9 senior subordinated notes 2013 also contributing decrease lower interest rate associated 65 senior subordinated notes issued may 2013 compared interest rate associated 9 senior subordinated notes redeemed second quarter 2013 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands interest income related principally cash deposits including restricted cash decease interest income largely due lower cash balances expense 24 million 2014 primarily reflected 24 million writeoff investment result dissolution investee expense 104 million 2013 primarily comprised 118 million expense associated various legal settlements includes provision 95 million reflect estimate settlement litigation costs expected incur connection dispute customer us toxicology business 51 million writeoff investment 33 million losses disposals fixed assets offsetting 80 million bargain purchase gain relating acquisition liberty business legal settlement associated 95 million provision settled 2014 80 million provision benefit income taxes provision income taxes increased 1156 million 709 million provision 2014 447 million benefit 2013 2014 effective tax rate 60 compared tax rate 37 2013 increase provision income taxes 2013 2014 primarily related jurisdictional mix income loss increase valuation allowance us foreign tax credit carryforwards primary components 2014 provision income taxes related us federal foreign income taxes including 444 million increase valuation allowance us foreign tax credit carryforwards primary components 2013 benefit income taxes related us federal foreign income tax benefits including tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain benefits offset increased provisions changes valuation allowances contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 increases reserves uncertain tax positions december 2014 congress signed law tax increase prevention act 2014 retroactively extended us federal research development credit january 1 2014 december 31 2014 result recognized retroactive benefit 2014 us federal research development credit approximately 14 million discrete item fourth quarter 2014 period legislation enacted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax includes share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2014 primarily reflect following 50 interest spd amount 162 million ii 49 interest techlab amount 16 million loss sale 40 interest vedalab sa vedalab 2014 amount 04 million equity earnings unconsolidated entities net tax 2013 primarily reflect following 50 interest spd amount 150 million ii 49 interest techlab amount 20 million iii 40 interest vedalab amount 06 million additional information spd techlab see note 20 consolidated financial statements included elsewhere annual report form 10k income loss discontinued operations net tax results health management business included income discontinued operations net tax periods presented given january 9 2015 divestiture business results acs included income discontinued operations net tax 2014 given october 10 2014 divestiture business 2014 discontinued operations generated income net tax 1383 million compared loss net tax 161 million 2013 1383 million income net tax 2014 reflects 1448 million tax benefit record deferred tax asset relating outside basis difference health management business offset write 180 million 112 million net tax finitelived intangible assets 11 million 07 million net tax fixed assets fair value also included 1383 million income discontinued operations net tax gain resulting elimination 263 million 163 million net tax contingent consideration obligation associated original purchase acs see note 3 consolidated financial statements included elsewhere annual report form 10k liquidity capital resources based upon current working capital position current operating plans expected business conditions expect fund short longterm working capital needs primarily using existing cash operating cash flow may 31 2016 june 30 2016 approximately 30 billion indebtedness outstanding various debt instruments mature next several years may need want refinance indebtedness new debt including potential borrowings revolving credit facility order preserve existing cash uses including continue fund operations 2015 generated net cash proceeds 6758 million divestitures net cash divested used 6900 million cash reduce outstanding indebtedness current prior credit facilities may 2016 paid approximately 1520 million cash satisfy principal interest due 3 convertible senior subordinated notes matured may 15 2016 amount 1250 million drawn revolving credit facility 270 million paid using available cash additionally may divest one businesses accordance covenants merger agreement abbott expect completed use portion net proceeds divestitures fund working capital operations research development reduce outstanding debt among purposes case extent permitted merger agreement accordance secured credit facility indentures governing notes december 31 2015 5022 million cash equivalents 1666 million held domestic subsidiaries 3356 million held foreign entities currently plan repatriate cash held foreign entities adverse tax implications including incremental us tax liabilities potential foreign withholding tax liabilities circumstances change however may required repatriate portion cash held foreign entities could result payment significant tax liabilities june 30 2016 5062 million cash equivalents 600 million held domestic subsidiaries 4461 million held foreign entities may also utilize amounts available secured credit facility described new sources financing fund portion capital expenditures contractual contingent consideration obligations commitments refinancing existing indebtedness future acquisitions new sources financing may available acceptable terms may required obtain certain consents connection completing financings may able obtain acceptable terms june 18 2015 entered new secured credit facility initially provided term loan facilities totaling 17 billion consisting 650 million “a” term loans 105 billion “b” term loans drawn closing subject continued compliance secured credit facility 2500 million revolving credit facility includes 500 million sublimit issuance letters credit amount drawn revolving credit facility december 31 2015 1250 million drawn revolving credit facility may 2016 used approximately 168 billion proceeds term loans drawn closing repay full indebtedness outstanding prior credit facility whereupon facility terminated pay various fees expenses associated transactions contemplated new secured credit facility november 2015 used 1150 million net cash proceeds sale bbi business represented net proceeds closing sale prior giving effect final working capital adjustment repay 1150 million aggregate principal amount outstanding “a” term loans “b” term loans secured credit facility must repay “a” term loans nineteen consecutive quarterly installments began september 30 2015 continue march 31 2020 followed final installment june 18 2020 principal amount installment paid september 30 2015 8125000 giving effect prepayment portion “a” term loans connection sale bbi business principal amount subsequent installment march 31 2020 approximately 7572000 principal amount final installment approximately 461882000 must repay “b” term loans twentyseven consecutive quarterly installments began september 30 2015 continue march 31 2022 followed final installment june 18 2022 principal amount installment paid september 30 2015 2625000 giving effect prepayment portion “b” term loans connection sale bbi business principal amount subsequent installment march 31 2022 approximately 2446000 principal amount final installment approximately 912471000 may repay borrowings revolving credit facility time without premium penalty customary libor breakage costs applicable event later june 18 2020 june 24 2015 issued 4250 million aggregate principal amount 6375 senior subordinated notes due 2023 refer 6375 senior subordinated notes interest 6375 senior subordinated notes payable semiannually january 1 july 1 year beginning january 1 2016 6375 senior subordinated notes mature july 1 2023 unless earlier redeemed received net proceeds sale 6375 senior subordinated notes initial purchasers’ discount offering expenses approximately 4173 million june 24 2015 issued notice optional redemption holders 8625 senior subordinated notes 8625 senior subordinated notes october 1 2015 redemption date redeemed entire principal amount 8625 senior subordinated notes outstanding redemption price equal 102156 principal amount 8625 senior subordinated notes redeemed plus accrued unpaid interest april 1 2015 excluding redemption date amount equal net proceeds received 6375 senior subordinated notes 4173 million plus additional cash 86 million total 4259 million used fund redemption 8625 senior subordinated notes redemption date upon settlement redemption date satisfied discharged obligations respect 8625 senior subordinated notes december 31 2015 31 billion aggregate principal amount outstanding indebtedness including 16 billion aggregate principal amount outstanding secured credit facility 4500 million aggregate outstanding principal amount 725 senior notes due 2018 4250 million aggregate outstanding principal amount 65 senior subordinated notes due 2020 4250 million aggregate outstanding principal amount 6375 senior subordinated notes due 2023 1500 million aggregate outstanding principal amount 3 convertible senior subordinated notes due 2016 noted 3 convertible senior subordinated notes matured may 15 2016 used 1250 million cash drawn revolving credit facility plus 270 million available cash pay 1520 million outstanding principal accrued interest due notes terms conditions outstanding debt instruments contain covenants expressly restrict ability incur additional indebtedness conduct financings subject certain exceptions addition merger agreement abbott contains restrictions ability incur additional indebtedness conduct financings subject certain exceptions delayed filing annual report form 10k quarterly report form 10q quarter ended march 31 2016 connection previously announced review revenue recognition years ended december 31 2013 2014 2015 interim periods 2014 first three quarters 2015 order avoid events default secured credit facility indentures governing 725 senior notes 65 senior subordinated notes 6375 senior subordinated notes entered amendment credit agreement obtained consents requisite holders notes obtain extension filing annual report form 10k quarterly report form 10q quarter ended march 31 2016 sec furnishing financial information certain related deliverables holders debt april 22 2016 requisite lenders credit agreement entered amendment credit agreement april 2016 amendment pursuant april 2016 amendment lenders agreed waive certain defaults events defaults defined credit agreement may occurred occurring occur resulting among things x failure deliver administrative agents defined credit agreement financial statements certain related deliverables 2015 applicable deadline credit agreement restatement certain financial statements result incorrect application revenue recognition principles 2013 2014 2015 z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part audit financial statements 2015 extent breach due incorrect application revenue recognition principles 2013 2014 2015 ii extend deadlines delivery financial statements 2015 financial statements quarter ended march 31 2016 certain related deliverables terms amendment required deliver unaudited financial statements three months ended march 31 2016 certain related deliverables august 18 2016 failure could give rise event default credit agreement connection amendment paid among fees expenses consenting lender aggregate consent fees 0250 sum aggregate principal amount lender’s term loans outstanding effective date amendment ii lender’s revolving credit commitment defined credit agreement outstanding effective date amendment approximately 45 million aggregate consenting lenders amendment also increases applicable interest rate margins loans outstanding secured credit facility 025 per annum period july 1 2016 date delivery financial reports related deliverables secured credit facility addition april 29 2016 commenced consent solicitations relating 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes refer collectively notes consent solicitations made holders record notes april 28 2016 solicitations completed may 9 2016 pursuant consent solicitations requisite holders series notes agreed extend deadline delivery certain financial information waive 500 pm new york city time august 31 2016 default event default occurred continuing may occur indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k subsequent quarterly reports form 10q failures file connection failures file paid may july 2016 holder notes validly delivered consent aggregate cash payments equal 1500 1000 aggregate principal amount holder’s notes aggregate 192 million indebtedness outstanding june 30 2016 matures various times 2018 2023 noted may 2016 paid approximately 1520 million cash satisfy principal interest due 3 convertible senior subordinated notes matured may 15 2016 may sufficient cash resources time maturity remaining indebtedness pay aggregate principal accrued interest indebtedness capital credit markets experience volatility availability funds limited may unable refinance debt commercially reasonable terms including increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited amount indebtedness factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted underlying assumed revenues expenses realized particular could experience decreased product sales lower average selling prices unexpected costs associated potential divestitures operational integration efforts core research development projects cost saving initiatives existing unforeseen lawsuits regulatory actions governmental investigations claims us may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution thenexisting stockholders may result connection financing may required obtain consents requisite lenders secured credit facility andor requisite holders outstanding notes abbott pursuant merger agreement guarantee able obtain consents cash flow summary thousands summary changes cash position december 31 2015 cash equivalents continuing operations 5022 million 1237 million increase december 31 2014 primary sources cash continuing operations 2015 included 22 billion issuance longterm debt included amounts received secured credit facility entered june 2015 4250 million gross proceeds received connection issuance 6375 senior subordinated notes 6758 million received dispositions net cash divested 2070 million generated continuing operating activities 792 million cash received common stock issuances employee stock option stock purchase plans 261 million received equity method investments 21 million proceeds sale property equipment 15 million proceeds issuance shortterm debt primary uses cash continuing operations 2015 27 billion related repayment longterm debt obligations included 168 billion repay prior credit facility 4259 million redeem 8625 senior subordinated notes additional amounts prepay portion term loans existing credit facility 1275 million related net payments revolving credit facilities 908 million capital expenditures 601 million paid acquisition 256 million related repayment shortterm debt obligations 213 million cash dividends paid series b preferred stock 162 million paid financing costs 142 million related payments acquisitionrelated contingent consideration obligations 137 million increase restricted cash 86 million related call premium incurred connection redemption 8625 senior subordinated notes 56 million principal payments capital lease obligations 18 million increase assets fluctuations foreign currencies unfavorably impacted cash balance 114 million 2015 december 31 2014 cash equivalents continuing operations 3785 million 230 million increase december 31 2013 primary sources cash continuing operations 2014 included 1881 million generated continuing operating activities 516 million cash received common stock issuances employee stock option stock purchase plans 451 million received dispositions net cash divested 95 million received investments 97 million sale 40 equity investment vedalab 15 million proceeds sale property equipment 10 million decrease assets primary uses cash continuing operations 2014 1006 million capital expenditures 651 million related repayment longterm debt obligations 425 million related net payments revolving credit facilities 329 million related payments acquisitionrelated contingent consideration obligations 213 million cash dividends paid series b preferred stock 54 million increase restricted cash balance 61 million principal payments capital lease obligations 15 million paid financing costs fluctuations foreign currencies unfavorably impacted cash balance 163 million 2014 discontinued operations contributed 330 million cash 2014 december 31 2013 cash equivalents continuing operations 3554 million increase 389 million december 31 2012 primary sources cash continuing operations 2013 included 1747 million generated continuing operating activities 4590 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed secured credit facility revolving lineofcredit 290 million received disposition spinreact operations 147 million related decrease assets 209 million cash received common stock issuances employee stock option stock purchase plans 293 million return capital related equity investment 36 million proceeds sale property equipment primary uses cash continuing operations 2013 4706 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 1761 million net cash paid acquisitions 999 million capital expenditures 312 million related increase restricted cash 401 million related payments acquisitionrelated contingent consideration obligations 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 213 million cash dividends paid series b preferred stock 98 million related payment debt related financing costs 65 million payment capital lease obligations fluctuations foreign currencies unfavorably impacted cash balance 19 million 2013 discontinued operations contributed 394 million cash 2013 cash flows operating activities net cash provided continuing operations 2015 2070 million resulted 2961 million noncash items investing financingrelated items included net income offset 764 million cash used meet working capital needs period loss continuing operations 128 million 2961 million noncash items investing financingrelated items included net income included 3093 million related depreciation amortization 505 million loss related impairment net loss dispositions reflects 278 million impairment charge associated closed business 227 million net loss business dispositions 264 million related noncash stockbased compensation 199 million loss extinguishment debt 156 million inventory impairment 153 million related july 2016 announcement voluntary withdrawal inratio inratio2 products market 128 million noncash interest expense related amortization deferred financing costs original issue discounts 288 million related noncash items including 196 million related july 2016 announcement voluntary withdrawal inratio inratio2 products market 39 million loss disposition fixed assets 37 million fixed asset impairment 29 million related july 2016 announcement voluntary withdrawal inratio inratio2 products market partially offset 994 million gain related changes deferred income taxes resulted part amortization intangible assets 599 million noncash change fair value contingent purchase price consideration 155 million equity earnings unconsolidated entities net tax addition 03 million net cash provided discontinued operations operating activities net cash provided continuing operating activities 2014 1881 million resulted loss continuing operations 1718 million 466 million cash used meet working capital needs period offset aggregate 4064 million noncash items investing financingrelated items included net income 4064 million noncash items investing financingrelated items included net income included 3360 million related depreciation amortization 162 million interest expense related amortization deferred financing costs original issue discounts 125 million related noncash stockbased compensation 123 million related changes deferred income taxes resulted part amortization intangible assets 98 million tax benefit related discontinued operations retained us 77 million noncash change fair value contingent purchase price consideration 77 million loss related impairment net loss dispositions reflects 107 million impairment charge associated closed business 30 million net gain business dispositions 70 million impairment longlived assets 65 million loss disposition fixed assets 31 million loss inventory disposal 50 million related noncash items partially offset 175 million equity earnings unconsolidated entities net tax addition 435 million net cash provided discontinued operations operating activities net cash provided continuing operating activities 2013 1747 million resulted loss continuing operations 579 million 1223 million cash used meet net working capital requirements year offset 3549 million noncash items investing financingrelated amounts included net income 3549 million noncash items investing financing related amounts included net income included among items 3746 million related depreciation amortization 356 million related loss extinguishment debt 212 million related noncash stockbased compensation 193 million noncash change fair value contingent purchase price consideration 178 million interest expense related amortization deferred financing costs original issue discounts 105 million related noncash items 79 million tax benefit related discontinued operations retained us 65 million related impairment longlived assets 51 million loss disposition spinreact operations includes 07 million charge related impairment intangible assets 15 million loss sale fixed assets 25 million noncash charge related write inventory fair value connection acquisition epocal partially offset 1225 million decrease related changes deferred income taxes resulted part amortization intangible assets 174 million equity earnings unconsolidated entities net tax 80 million relating bargain purchase gain connection acquisition liberty business addition 692 million net cash provided discontinued operations operating activities cash flows investing activities investing activities continuing operations 2015 provided 5377 million cash including 6758 million cash received disposition health management business bbi business divestitures net cash divested 261 million cash received equity method investments 21 million proceeds sale property plant equipment partially offset 908 million capital expenditures 601 million paid acquisition usd 137 million increase restricted cash 18 million increase assets addition discontinued operations used 02 million net cash investing activities investing activities continuing operations 2014 utilized 482 million cash including among items 1006 million capital expenditures 54 million increase restricted cash balance partially offset 451 million cash received dispositions 95 million investments 97 million sale 40 equity investment vedalab 15 million proceeds sale property plant equipment 10 million decrease assets addition discontinued operations used 90 million net cash investing activities investing activities continuing operations 2013 utilized 2305 million cash including 1761 million net cash paid acquisitions 999 million capital expenditures increase restricted cash balance 312 million principally driven 294 million deposit connection foreign bank loan arrangement 79 million cash received bill melinda gates foundation 57 million used fund qualified expenditures partially offset 293 million return capital related equity investments 290 million proceeds relating disposition spinreact operations 147 million decrease assets 36 million proceeds sale property equipment addition discontinued operations used 270 million net cash investing activities cash flows financing activities net cash used financing activities continuing operations 2015 6329 million financing activities 2015 included among items 27 billion payment longterm debt obligations included 165 billion repay prior credit facility 4259 million redeem 8625 notes additional amounts prepay portion term loans existing credit facility 1275 million net payments revolving credit facilities 256 million payment shortterm debt obligations 213 million dividend payments related series b preferred stock 162 million financing costs 142 million payments acquisitionrelated contingent consideration obligations 86 million related call premium incurred connection redemption 8625 senior subordinated notes 56 million payment capital lease obligations received 22 billion proceeds issuance longterm debt included amounts received secured credit facility entered june 2015 4250 million gross proceeds received connection issuance 6375 senior subordinated notes 792 million cash common stock issuances employee stock option stock purchase plans 15 million proceeds issuance shortterm debt addition discontinued operations used less 01 million net cash financing activities net cash used financing activities continuing operations 2014 1167 million financing activities 2014 included among items 651 million payment longterm debt obligations 425 million net payments revolving credit facilities 329 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 61 million payment capital lease obligations 15 million related financing costs received 516 million cash common stock issuances employee stock option stock purchase plans 10 million excess tax benefit associated exercised stock options addition discontinued operations used 15 million net cash financing activities net cash provided financing activities continuing operations 2013 518 million financing activities 2013 primarily included 4590 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed net 425 million paid secured credit facility revolving lineofcredit 209 million cash received common stock issuances employee stock option stock purchase plans addition utilized 4706 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 401 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 98 million related payment debtrelated financing costs 66 million payment capital lease obligations addition discontinued operations used 28 million net cash financing activities december 31 2015 aggregate 111 million outstanding capital lease obligations payable 2021 income taxes december 31 2015 federal state foreign net operating loss nol carryforwards income tax purposes approximately 306 million 8765 million 2346 million respectively utilized portion federal state foreign nol carryforwards begin expire 2020 2016 2017 respectively certain foreign nol carryforwards carried forward indefinitely december 31 2015 federal foreign capital loss carryforwards income tax purposes approximately 2561 million 621 million respectively utilized portion federal capital loss carryforwards begin expire 2016 foreign capital loss carryforwards carried forward indefinitely december 31 2015 229 million us federal state research development credit carryforwards 44 million us federal alternative minimum tax amt credit carryforwards 792 million us foreign tax credit carryforwards 12 million foreign tax credit carryforwards utilized portion research development credit foreign tax credit carryforwards begin expire 2026 2018 respectively amt credit carried forward indefinitely us federal loss carryforwards credits subject limitations imposed sections 382 383 internal revenue code may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use loss carryforwards credits amount equal value company time certain ownership changes multiplied longterm tax exempt rate additionally certain state foreign losses credits may subject similar limitations based local provisions loss tax credit carryforwards may available reduce future us federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities utilized 2014 provision income taxes 709 million primarily related establishment valuation allowance 444 million deferred tax assets associated us foreign tax credit carryforwards valuation allowance established likely deferred tax assets would realized decision based weight available positive negative evidence existed december 31 2014 recorded valuation allowance portion deferred tax assets related us foreign tax credits certain nol capital loss credit carryforwards well certain deferred tax assets reflect uncertainties might affect realization deferred tax assets offbalance sheet arrangements material offbalance sheet arrangements december 31 2015 contractual obligations following table summarizes principal contractual obligations december 31 2015 thousands 1 see description various financing arrangements note 8 consolidated financial statements included elsewhere annual report form 10k 2 see note 10 consolidated financial statements included elsewhere annual report form 10k 3 see note 12a consolidated financial statements included elsewhere annual report form 10k 4 includes 30 million deferred purchase price payments 33 million management incentive payments related acquisition epocal 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 8 consolidated financial statements included elsewhere annual report form 10k 7 connection certain acquisitions additional contingent consideration may become payable sellers upon satisfaction certain performance milestones amounts represent estimated fair value obligations information pertaining contingent consideration arrangements see note 12b consolidated financial statements included elsewhere annual report form 10k critical accounting policies consolidated financial statements included elsewhere report prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2015 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title risk loss customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally respect health management business included discontinued operations generated services revenue connection contracts health plans commercial governmental selfinsured employers whereby provided clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provided portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions existed recorded amounts current liabilities consolidated balance sheet deferring recognition revenue established meeting performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned connection preparation consolidated financial statements 2015 determined 2013 2014 first three quarters 2015 incorrectly recorded revenue periods result incorrect timing recognition certain revenue transactions well certain outof period adjustments revising consolidated financial information december 31 2014 2013 information revisions related recognition certain revenue transactions see note 2 consolidated financial statements included elsewhere annual report form 10k use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers distributors generally reduce net selling prices products provide rebates customers result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 1179 million 913 million 986 million 6 5 respectively net product sales 2015 2014 2013 respectively recorded product sales derive net product sales amounts 453 million 425 million 703 million 2015 2014 2013 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 4458 million 4611 million net allowances doubtful accounts 897 million 762 million december 31 2015 2014 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3470 million 3773 million net reserve excess obsolete inventory 378 million 273 million december 31 2015 2014 respectively goodwill longlived intangible assets longlived assets include property plant equipment net goodwill intangible assets indefinite lives finitelived intangible assets net december 31 2015 2014 respectively property plant equipment net 4460 million 4542 million goodwill 28 billion 29 billion intangible assets indefinite lives 281 million 437 million finitelived intangible assets net 9973 million 13 billion goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guideline companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants credit agreement result sale january 2015 health management business largest component former patient selftesting reporting segment ceased report financial information four operating segments beginning 2015 reporting units professional diagnostics consumer diagnostics 2015 annual goodwill impairment test conducted 2015 annual impairment test reporting units fourth quarter 2015 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 90 140 projected compound average revenue growth rates 34 56 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 07 29 times multiples ebitda 73 118 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets 31 billion 449 million respectively 581 182 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review stockbased compensation stockbased compensation expense measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current prior periods accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision recorded valuation allowance 2622 million december 31 2015 due uncertainties related future benefits realization deferred tax assets related primarily us foreign tax credits certain state foreign attribute carryforwards increase 336 million valuation allowance 2286 million december 31 2014 increase primarily related assessment realizability related us foreign tax credits well certain state foreign net operating losses capital loss generated 2015 valuation allowance based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision establish reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations irs various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows november 2015 financial accounting standards board fasb issued accounting standards update asu 201517 balance sheet classification deferred taxes simplifies presentation deferred income taxes asu requires deferred tax assets liabilities classified noncurrent statement financial position adopted asu effective december 31 2015 prospective basis adoption asu resulted reclassification net current deferred tax asset net noncurrent deferred tax asset consolidated balance sheet december 31 2015 prior periods retrospectively adjusted loss contingencies section report entitled part item 3 “legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings defendant believe probable liability able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss businesses may also subject time commercial disputes product liability claims personal injury claims including claims arising relating product recalls negligence claims various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future lawsuits claims generally seek damages reimbursement sometimes substantial amounts possible unfavorable outcomes related litigation governmental investigations could materially impact business results operations financial condition cash flows recent accounting pronouncements see note 4w consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations overview general leading global developer manufacturer marketer vitro diagnostic products overthecounter pregnancy fertilityovulation test market professional rapid diagnostic test market business organized two primary segments consumer products professional diagnostics consumer products segment hold leadership position worldwide overthecounter pregnancy fertilityovulation test market sell pregnancy fertilityovulation test products premium branded sector value branded sector private label sector addition manufacture market variety vitamins nutritional supplements brands private label retailers primarily us consumer market professional diagnostics segment develop manufacture market extensive array innovative rapid diagnostic test products vitro diagnostic tests medical professionals laboratories detection infectious diseases drugs abuse pregnancy today leader worldwide professional rapid diagnostic test market grown consumer products professional diagnostics segments leveraging strong intellectual property portfolio making selected strategic acquisitions consumer professional diagnostic products sold approximately 90 countries direct sales force extensive network independent global distributors result year ended december 31 2003 approximately 36 net product sales generated outside united states year ended december 31 2003 net product sales 2867 million ebitda 374 million consumer products segment accounted 69 net product sales year ended december 31 2003 primarily targets womens health market home pregnancy detection tests home fertilityovulation prediction tests approximately 81 net product sales overthecounter womens health market 2003 sales branded products remaining represented sales private label contract manufacturing arrangements entered two separate supply arrangements pfizer pursuant began supply pfizer digital version ept pregnancy tests nonexclusive basis december 2003 agreed also supply pfizer nondigital version premium branded ept pregnancy tests beginning june 2004 continuing five years part consumer products segment also market wide variety vitamins nutritional supplements retail drug stores mass merchandisers groceries warehouse clubs primarily within united states sales products accounted 25 net product sales year ended december 31 2003 professional diagnostics segment accounted 31 net product sales year ended december 31 2003 consists diagnostic test products designed assist medical professionals preventative interventional medicine currently focusing significant portion research development efforts area cardiology history november 21 2001 johnson acquired imt former parent merger transaction simultaneously company split imt separate publicly traded company immediately prior consummation transactions imt restructured operations would hold imts nondiabetes businesses including womens health nutritional supplements clinical diagnostics closing transaction shares common stock held imt splitoff imt pro rata distribution imts stockholders imt consisted diabetes business merged became whollyowned subsidiary johnson december 20 2001 acquired unipath limited global leader home pregnancy ovulation testing associated companies assets unilever plc certain affiliated entities unipath acquisition provided us leading brand name consumer diagnostic products complement existing value branded private label home pregnancy detection fertilityovulation prediction products connection acquisition unipath business also acquired rights certain antibody clones intellectual property rights march 19 2002 acquired ivc industries inc manufacturer distributor hundreds different vitamin nutritional supplement products sold brand names private label arrangements retailers since acquisition ivc consolidated substantially vitamin nutritional supplement manufacturing ivc discontinued outsourced manufacturing arrangements ivc business inverness medical nutritionals group imn september 20 2002 acquired wampole laboratories division medpointe inc developer marketer seller distributor vitro diagnostic tests test systems wampole leader enzyme linked immunosorbent assay elisa testing within professional laboratory marketplace also offers broad line visuallyread assays pointofcare testing wampoles products sold hospitals major reference testing laboratories physicians offices clinics extensive us distribution network products compliment existing professional diagnostic products lines international distribution networks june 30 2003 acquired ostex international inc develops commercializes osteoporosis diagnostic products acquisition provides us intellectual property rights field osteoporosis diagnostics august 27 2003 acquired applied biotech inc apogent technologies inc abi developer manufacturer distributor rapid diagnostic products areas womens health infectious disease drugs abuse testing transaction also acquired abis whollyowned subsidiary forefront diagnostics inc forefront develops manufactures distributes rapid diagnostic products drugs abuse testing september 30 2003 acquired abbott laboratories certain assets related abbotts fact plus line consumer diagnostic pregnancy tests abbott testpack abbott testpack plus signify lines professional rapid diagnostics various testing needs including strep throat pregnancy drugs abuse acquired assets also include certain transferred licensed intellectual property related products february 10 2004 completed sale 1500 million 834 senior subordinated notes bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties remaining 114 million unused proceeds used bond offering expenses general corporate purposes also retained 500 million available credit primary senior credit facility repayment outstanding borrowings using bond proceeds results operations year ended december 31 2003 compared year ended december 31 2002 net product sales net product sales increased 851 million 42 2867 million 2003 2016 million 2002 excluding favorable impact currency translation net product sales 2003 grew approximately 766 million 38 2002 majority revenue increase resulted acquired businesses imn acquired march 2002 contributed 113 million increase ii wampole acquired september 2002 contributed 333 million increase including revenue certain osteoporosis products acquired part acquisition ostex june 2003 iii abi acquired august 2003 contributed 93 million increase iv rapid diagnostic product lines abbott acquired september 2003 contributed 112 million increase remaining increase net product sales 2002 2003 115 million primarily represents organic growth including launch new clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 net product sales business segment net product sales business segment 2003 2002 follows increase net product sales consumer products includes consumer diagnostic products vitamins nutritional supplements 2002 2003 primarily resulted acquisition imn business organic growth womens health care business launch clearblue easy digital pregnancy test june 2003 lesser extent acquisition abbotts fact plus line consumer diagnostic pregnancy tests contributed increase net product sales consumer products expect net product sales consumer products increase 2004 continue launch clearblue easy digital pregnancy test supply pfizers digital nondigital ept pregnancy tests latter begin june 2004 increase net product sales professional diagnostic products 2002 2003 primarily resulted acquisitions wampole abi abbott testpack abbott testpack plus signify product lines abbott net product sales geographic location net product sales geographic location 2003 2002 follows increase net product sales united states 2002 2003 primarily resulted acquisitions imn wampole businesses products primarily sold united states launch new digital pregnancy tests united states lesser extent acquisition signify product line abbott primarily sold united states contributed increase net product sales united states increase net product sales regions united states europe 2002 2003 resulted partially acquisitions abbott testpack abbott testpack plus fact plus product lines ostex abi addition imn wampole recorded higher sales canada due businesses included results full year 2003 versus partial year 2002 since respective acquisition dates remaining increase regions united states europe resulted organic growth business license revenue license revenue represents license royalty fees intellectual property license agreements thirdparties license revenue increased 33 million 52 97 million 2003 64 million 2002 increase largely resulted royalty fees pfizer beginning third quarter 2003 continuing june 2004 began record collect royalty fees pfizer part settlement infringement litigation 2003 recorded 17 million royalties pfizer acquisition wampole also provided us additional license agreements generated 621000 license revenue 2003 compared 227000 2002 remainder increase license revenue resulted increased sales minimum royalty payments certain licensees expect license revenue 2004 decrease revenue stream one significant license agreements ended december 31 2003 accordance license agreement license agreement provided us 25 million license revenue 2003 gross profit net product sales gross profit net product sales represents total gross profits less gross profits associated license revenue gross profit net product sales increased 329 million 37 1218 million 2003 889 million 2002 consistent growth net product sales increase gross profit net product sales primarily resulted acquisitions wampole contributed 119 million increase ii abi contributed 24 million increase iii rapid diagnostic product lines abbott contributed 43 million increase remaining increase gross profit net product sales 2002 2003 143 million primarily resulted organic growth including launch new clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 overall gross margin net product sales 42 2003 compared 44 2002 gross margin adversely impacted 2003 continued weakening us dollar euro british pound sterling movements foreign exchange currencies negatively impacted gross margin percentage products manufactured european subsidiaries sold us dollars currency impact effect reducing gross margins 17 percentage points 2002 2003 addition decline overall gross margin net product sales 2002 2003 resulted wampole business included 2003 results full year compared three months 2002 results addition acquired abbott products average contributed lower gross margins products impact including wampole business full year abbott business 2003 results 11 percentage point reduction overall gross margin percentage since completed abbott transaction abbott continued distribute certain acquired products behalf manufacture certain acquired products us transition agreements course 2004 transfer abbott business existing manufacturing distribution networks expect gross margins acquired abbott products increase 2004 partially offsetting negative impact gross margin due foreign currency movements wampole abbott products sales clearblue easy digital pregnancy test 2003 generated higher average margin compared consumer products gross profit net product sales business segment gross profit net product sales business segment 2003 2002 follows increase gross profit consumer product sales 2002 2003 primarily resulted organic growth womens health care business including launch clearblue easy digital pregnancy test june 2003 acquisition abbotts fact plus line consumer diagnostic pregnancy tests expect gross profit consumer product sales continue increase 2004 continue launch clearblue easy digital pregnancy test supply pfizers digital nondigital ept pregnancy tests latter begin june 2004 gross margin consumer product sales 43 2003 2002 although gross margin consumer product sales consistent prior year movements foreign currencies negatively impacted gross margin 24 percentage points consumer products manufactured european subsidiaries sold us dollars negative impact foreign currency movements gross margin consumer products basically offset organic growth womens health care sales including sales clearblue easy digital pregnancy test generated higher average margin compared consumer products increase gross profit professional diagnostic product sales 2002 2003 primarily resulted acquisitions wampole abi abbott testpack abbott testpack plus signify product lines abbott gross margin professional diagnostic products 41 2003 compared 47 2002 decline gross margin professional diagnostic products primarily resulted inclusion wampoles business full year 2003 compared three months 2002 average wampole products generate lower gross margin products professional diagnostic product lines acquired abbott currently manufactured sold abbott transition agreements also generate lower margins products effect gross margin percentage professional diagnostic products result incremental wampole business due included 2003 results full year compared three month results included 2002 abbott product lines 5 point reduction research development expense research development expense increased 98 million 68 243 million 2003 145 million 2002 primary reason increase research development expense heavy investment development new products particularly field cardiology infectious diseases example prothrombin test scheduled release late 2004 subject regulatory approvals congestive heart failure product remains track launch 2005 expect launch several infectious disease products 2004 including highsensitivity strep throat test rapid influenza b tests rapid hiv test factors may impact ability meet expectations launch products see certain factors affecting future results lesser extent acquisitions ostex abi contributed increase research development expense 2002 2003 expect level research development expenditure 2004 range 25 million 26 million sales marketing expense sales marketing expense increased 122 million 31 517 million 2003 395 million 2002 increase sales marketing expense 2002 2003 49 million resulted wampoles results included full year 2003 compared three months 2002 similarly acquisitions ostex abi contributed 898000 increase sales marketing expense addition sales marketing expense increased due organic growth primarily launch clearblue easy digital pregnancy test sales marketing expense percentage net product sales decreased 18 2003 20 2002 primarily resulted wampole business incur lower sales marketing expense percentage sales compared businesses incurred significant incremental sales marketing expenses addition product lines acquired abbott 2003 expect maintain sales marketing expense 18 net product sales 2004 general administrative expense general administrative expense increased 74 million 26 355 million 2003 281 million 2002 increase general administrative expense 2002 2003 19 million resulted wampoles results included full year 2003 compared three months 2002 similarly acquisitions ostex abi contributed 18 million increase general administrative expense addition portion increase general administrative expense resulted investment increased management infrastructure higher insurance premiums continued significant investment pursue legal remedies potential infringers intellectual property partially offsetting increase general administrative expense 2002 2003 recognition 554000 representing reimbursement insurance legal costs previously incurred connection persona lawsuit assumed defense acquired unipath business december 2001 addition another 187000 recovery legal costs included income expense net portion represented recovery legal costs incurred prior acquisition unipath business discussion persona lawsuit see item 3 legal proceedings annual report form 10k general administrative expense percentage net product sales decreased 12 2003 14 2002 improvement general administrative expense percentage net product sales achieved sales increase mentioned legal cost recovery addition product lines acquired abbott incurred significant incremental general administrative costs 2003 expect maintain general administrative expense around 12 net product sales 2004 stockbased compensation expense stockbased compensation expense 447000 2003 compared 106 million 2002 stockbased compensation expense 2003 primarily represented noncash compensation charge stock options granted lieu salary certain senior executives 2002 majority stockbased compensation charge represented amortization deferred compensation expense arose sale companys restricted stock made chief executive officer price market value stock measurement date transaction interest expense interest expense includes interest charges amortization deferred financing costs noncash discounts associated debt issuances change market value interest rate swap agreement qualify hedge accounting purposes interest expense decreased 54 million 36 97 million 2003 151 million 2002 recorded aggregate 45 million amortization deferred financing costs noncash original issue discounts form beneficial conversion feature related early extinguishment certain subordinated promissory notes bank debt also 2002 recorded noncash charge 12 million mark market interest rate swap agreement entered early 2002 2003 market value obligation swap agreement decreased 528000 recorded reduction interest expense excluding noncash charges related early extinguishment debt 2002 change market value interest rate swap agreement interest expense actually increased 08 million 2002 2003 increase resulted increased average debt balance result funding acquisitions abi rapid diagnostic product lines abbott partially offset lower average interest rates 2003 february 10 2004 completed sale 150 million 875 senior subordinated notes due 2012 private placement qualified institutional buyers proceeds used 125 million pay term loans revolving credit facility senior credit facility 9 million pay 9 subordinated notes retained remaining proceeds net fees expenses related transaction general corporate purposes result prepayment outstanding balances senior credit facility 9 subordinated notes record writeoff deferred financing costs prepayment fees penalties related prepayment debt aggregating 35 million first quarter 2004 charges recorded interest expense addition senior subordinated notes accrue interest higher rate borrowings senior credit facility expect interest expense increase 2004 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows interest income decreased 380000 27 10 million 2003 14 million 2002 decrease interest income resulted lower average cash balance 2003 used significant portion cash help finance acquisitions significant portion income expense net generally represents foreign currency exchange gains losses 2003 recognized foreign exchange gains 5000 compared 975000 2002 foreign exchange gain included 26 million realized foreign exchange transaction gain upon partial settlement intercompany loan two subsidiaries different functional currencies excluding unusual foreign exchange gain incurred foreign exchange losses 16 million significant foreign exchange loss 2002 resulted weakened us dollar japanese yen euro one bank loans prepaid november 2002 denominated japanese yen certain receivables irish subsidiary denominated us dollar functional currency euro respectively included income expense net 2003 aggregate 13 million past royalties awarded us part several patent infringement settlements onetime gain 38 million recorded connection agreement unilever resolved certain issues arose acquisition unipath business addition income expense net 2003 included gain recovery legal costs 187000 noted discussion general administrative expense included income expense net 2002 onetime noncash gain 96 million resulted repurchase beneficial conversion feature associated early extinguishment issue 20 million subordinated promissory notes march 2002 provision income tax provision income taxes decreased 15 million 56 12 million 2003 27 million 2002 effective tax rate 9 2003 compared 17 2002 significant decrease effective tax rate 2002 2003 related recognition benefit certain deferred tax assets 2003 recognized 440000 benefit reduction valuation allowance net operating loss nol carryforward irish subsidiary due assessment would likely realize benefit nol addition recognized 780000 tax benefit united kingdom enhanced deduction research development activity unipath operations lastly result certain favorable developments foreign tax authorities fourth quarter 2003 recognized 645000 tax benefit united kingdom use interest expense offset operating profits unipath operations previously benefited 2003 provision income taxes 860000 related unipath business remaining businesses recorded state local tax provisions totaling 340000 record provision us federal income taxes availability nols nol carryforwards currently anticipate 2004 effective tax rate approximately 18 income loss continuing operations generated income continuing operations 2003 120 million 2002 generated loss continuing operations 190 million taking account charges dividends redemption premium amortization beneficial conversion feature related series redeemable convertible preferred stock income continuing operations available common stockholders 110 million 112 million 070 063 per basic diluted common share respectively 2003 loss continuing operations available common stockholders 309 million 311 per basic diluted common share 2002 addition wampole september 2002 rapid diagnostic products abbott september 2003 contributed incremental income 28 million 41 million respectively 2003 compared 2002 remaining income 2003 significant losses 2002 resulted predominantly various noncash nonrecurring andor infrequent gains charges recorded respective years described following section titled year ended december 31 2002 compared year ended december 31 2001 see note 11 consolidated financial statements included elsewhere annual report form 10k calculation earnings per share ebitda represents income loss continuing operations interest income taxes depreciation amortization generated ebitda 2003 374 million 2002 generated ebitda 77 million fluctuation ebitda 2002 2003 primarily resulted addition wampole september 2002 rapid diagnostic products abbott september 2003 contributed incremental ebitda 64 million 43 million respectively 2003 compared 2002 remaining increase ebitda 2002 2003 resulted various noncash nonrecurring andor infrequent gains charges recorded respectively years described following section titled year ended december 31 2002 compared year ended december 31 2001 excluding depreciation amortization 156 million 103 million 2003 2002 respectively see footnote 3 selected consolidated financial data table included item 6 annual report form 10k reconciliation income loss continuing operations ebitda ii reasons management believes presentation ebitda provides useful information investors regarding financial condition results operations cumulative effect change accounting principle january 1 2002 adopted statement financial accounting standards sfas 142 goodwill intangible assets sfas 142 requires annual impairment tests performed reporting units defined statement carrying values goodwill based results independent appraisal obtained nutritional supplements business acquired 1997 recorded impairment charge 121 million writeoff carrying value goodwill related business january 1 2002 impairment charge recorded cumulative effect change accounting principle charges due change accounting principle 2003 net income loss generated net income 2003 120 million 2002 generated net loss 311 million taking account charges dividends redemption premium amortization beneficial conversion feature related series redeemable convertible preferred stock net income available common stockholders 110 million 112 million 070 063 per basic diluted common share respectively 2003 loss available common stockholders 431 million 433 per basic diluted common share 2002 addition wampole september 2002 rapid diagnostic products abbott september 2003 contributed incremental income 28 million 41 million respectively 2003 compared 2002 remaining income 2003 significant losses 2002 resulted predominantly various noncash nonrecurring andor infrequent gains charges described following section titled year ended december 31 2002 compared year ended december 31 2001 see note 11 consolidated financial statements included elsewhere annual report form 10k calculation earnings per share year ended december 31 2002 compared year ended december 31 2001 net product sales net product sales increased 1543 million 326 2016 million 2002 473 million 2001 significant increase resulted predominantly acquisitions unipath business imn wampole unipath business primarily includes clearblue products contributed 884 million growth net product sales generated net product sales 905 million 2002 compared 22 million 2001 acquired late 2001 imn wampole contributed 444 million 125 million respectively growth net product sales 2002 since respective acquisition dates business units existed prior acquisitions also contributed 51 million growth net product sales 2002 12 growth 2001 net product sales primarily resulted increase sales volume private label home pregnancy detection ovulation prediction tests change product sales mix well increased advertising efforts relating nutritional supplements additionally subsidiary ireland contributed onetime 40 million net product sales increase 2002 diabetesrelated packaging contract subsidiary johnson packaging contract generated net product sales 51 million 2002 11 million 2001 transitional service arrangement arising november 21 2001 splitoff merger transaction johnson acquired imt transitional service arrangement together revenue generated therefrom terminated august 2002 net product sales business segment net product sales business segment 2002 2001 follows growth net product sales consumer products primarily result acquisitions unipath business imn increase net product sales professional diagnostic products primarily result acquisitions unipath business wampole net product sales geographic location net product sales geographic location 2002 2001 follows increase net product sales united states primarily resulted addition clearblue products unipath business wampole products imn products increased sales private label home pregnancy detection ovulation prediction tests increase net product sales europe countries resulted acquisition unipath business license revenue 2002 collected 64 million license royalty fees 62 million 96 generated license agreements acquired part acquisition unipath business also acquired certain revenue generating license agreements part acquisition wampole license agreements contributed 227000 4 license revenue 2002 acquired unipath business late 2001 hold license royalty revenue generating agreements therefore collect revenue 2001 gross profit net product sales gross profit net product sales increased 683 million 332 889 million 2002 206 million 2001 total gross margin net product sales 44 2002 2001 consistent growth net product sales increase gross profit primarily due acquisitions unipath business imn wampole contributed increases gross profit net product sales 523 million 45 million 49 million respectively 2002 sales private label home pregnancy detection ovulation prediction tests contributed 32 million increase gross profit net product sales result volumerelated sales growth manufacturing efficiencies branded nutritional supplements net product sales increase together reduced returns result change product mix contributed 31 million increase gross profit net product sales gross profit net product sales business segment gross profit net product sales business segment 2002 2001 follows gross margin consumer product sales 43 2002 compared 41 2001 increase gross margin consumer product sales primarily resulted addition consumer diagnostic products obtained connection acquisition unipath business gross margin professional diagnostic product sales 47 2002 compared 53 2001 decrease resulted change product mix purchased inprocess research development fourth quarter 2001 recorded 70 million noncash charge inprocess research development project iprd project acquired part unipath business time acquisition research development staff unipath business seeking develop digitalbased technology however technology sought specific iprd project yet reached technological feasibility alternative future use date acquisition therefore portion purchase price allocated iprd project 70 million charged expense acquisition date amount purchase price allocated iprd project represented estimated fair value project determined using income approach whereby projected future cash flows discounted value technology estimated royalty rate 4 applied projected revenues calculate pretax royalty savings attributed completed technology 30 tax rate used riskadjusted discount rate 24 applied time unipath business acquisition believed many complex technical issues resolved however obtained fda approval technology therefore risk achieving commercialization developmental risk regulatory risk well work full project included demonstrating feasibility defining project design development verification clinical testing regulatory submission approval would need completed prior launch product based technology second quarter 2003 initially anticipated obtained fda clearance market sell pregnancy test uses digitalbased technology record inprocess research development charges 2002 research development expense research development expense increased 127 million 706 145 million 2002 18 million 2001 increase resulted predominantly decision invest extensively research development new products improve upon existing products evidenced acquisition unipath business pursuant acquired large research development center located unipaths facility bedford england prior acquisition unipath business research development expense mostly related development professional diagnostic products subsidiary israel sales marketing expense sales marketing expense increased 315 million 394 395 million 2002 80 million 2001 increase 254 million resulted addition unipath business imn wampole acquisitions accounted 21 million 19 million respectively increase sales marketing expense 2001 2002 remaining increase sales marketing expense resulted primarily new radio advertising efforts 2002 attempt boost nutritional supplement product sales marketing expense percentage net product sales increased 20 2002 17 2001 general administrative expense general administrative expense increased 164 million 140 281 million 2002 117 million 2001 general administrative expense percentage net product sales decreased 14 2002 compared 25 2001 addition unipath business accounted 127 million increase general administrative expenses 2002 imn wampole acquisitions accounted 24 million 847000 respectively increase general administrative expenses 2002 remaining increase general administrative expense primarily resulted increased legal fees defenses certain litigation matters inactive 2001 others acquired business combinations initiated us 2002 charge related asset impairment first quarter 2002 recorded noncash impairment charge 127 million writeoff portion value assigned trademarks brand names related certain nutritional supplement lines acquired 1997 charge recorded connection results separate impairment review performed carrying value goodwill related nutritional supplement lines discussed caption cumulative effect change accounting principle see also note 5 consolidated financial statements included elsewhere annual report form 10k impairment charge recorded 2001 stockbased compensation expense stockbased compensation expense 106 million 2002 104 million 2001 majority 2002 expense relates sale companys restricted stock made chief executive officer 2001 time sale 2001 recorded noncash deferred compensation expense 106 million purchase price stock market value measurement date transaction deferred compensation expense originally set amortize vesting period restricted stock accordingly recorded compensation expense 451000 2001 however due amendment terms restricted stock agreement february 2002 fully recognized remaining unamortized deferred compensation expense 101 million time see note 12c consolidated financial statements included elsewhere annual report form 10k additionally amendment resulted new measurement date security event employee ceases employment company prior full vesting security additional compensation expense recorded also 2001 recorded 93 million noncash stockbased compensation expense represents difference market value exercise price certain stock option grants executive officers measurement date see note 12c audited consolidated financial statements included elsewhere annual report form 10k remaining stockbased compensation expense 2002 2001 primarily represents fair value options warrants acquire companys common stock issued nonemployees interest expense interest expense increased 128 million 557 151 million 2002 23 million 2001 increase interest expense 2002 resulted two debt financings aggregated 825 million 350 million conducted fund acquisitions unipath business wampole respectively also obtained additional financing aggregate amount 530 million november 2002 significant portion used refinance debt issued connection acquisition unipath business march november 2002 recorded aggregate 45 million amortization deferred financing costs noncash original issue discounts form beneficial conversion feature related early extinguishment certain subordinated promissory notes bank debt addition 2002 recorded noncash charge 12 million mark market interest rate swap agreement swap agreement qualify hedge accounting purposes see notes 6 9 consolidated financial statements included elsewhere annual report form 10k income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows interest income increased 10 million 264 14 million 2002 385000 2001 increase interest income resulted higher average cash balances portion 2002 due followon public offering 16 million shares common stock 23 per share may 2002 414 million capitalization former parent imt splitoff imt november 2001 2002 recognized 975000 foreign exchange transaction gains net losses included 26 million realized foreign exchange transaction gain upon settlement intercompany loan two subsidiaries different functional currencies excluding unusual foreign exchange gain incurred foreign exchange losses 16 million 2002 compared losses 727000 2001 increase foreign exchange transaction losses 2002 resulted weakened us dollar versus japanese yen euro one bank loans prepaid november 2002 denominated japanese yen certain receivables irish subsidiary denominated us dollar functional currency euro respectively also included income expense net 2002 onetime noncash gain 96 million resulted repurchase beneficial conversion feature associated early extinguishment issue 200 million subordinated promissory notes march 2002 litigation settlement charge 218000 2001 also recorded litigation settlement charge 17 million included income expense net provision income taxes provision income taxes increased 549000 26 27 million 2002 21 million 2001 2002 provision income taxes 24 million related unipath business remaining businesses recorded local tax provisions totaling 309000 2002 availability net operating losses nol carryforwards included 2001 provision income taxes charge 13 million writeoff certain deferred tax assets believe would provide us future tax benefits result splitoff imt november 2001 see note 14 consolidated financial statements included elsewhere annual report form 10k income loss continuing operations 2002 generated loss continuing operations 190 million taking account charges dividends redemption premium amortization discounts form beneficial conversion feature respect series redeemable convertible preferred stock loss continuing operations available common stockholders 309 million 311 per basic diluted share 2002 2001 generated loss continuing operations 248 million 389 per basic diluted share losses 2002 2001 resulted various factors described ebitda represents income loss continuing operations interest income taxes depreciation amortization generated ebitda 2002 77 million 2001 generated ebitda 175 million significantly increase ebitda 2001 2002 resulted addition unipath business december 2001 contributed incremental ebitda 133 million 2002 compared 2001 remaining fluctuation ebitda 2001 2002 resulted various factors described excluding depreciation amortization 103 million 32 million 2002 2001 respectively see footnote 3 selected consolidated financial data table included item 6 annual report form 10k reconciliation income loss continuing operations ebitda ii reasons management believes presentation ebitda provides useful information investors regarding financial condition results operations cumulative effect change accounting principle january 1 2002 adopted statement financial accounting standard sfas 142 goodwill intangible assets sfas 142 requires annual impairment tests performed reporting units defined statement values recorded goodwill based results independent appraisal obtained nutritional supplements business acquired 1997 recorded impairment charge 121 million writeoff carrying value goodwill related business january 1 2002 impairment charge recorded cumulative effect change accounting principle see note 5 consolidated financial statements included elsewhere annual report form 10k charges due change accounting principle 2001 net income loss generated net loss 311 million 2002 taking account charges dividends redemption premium amortization discounts form beneficial conversion feature respect series redeemable convertible preferred stock net loss available common stockholders 431 million 433 per basic diluted share 2002 net loss 2002 resulted various factors described 2001 generated net loss 247 million 388 per basic diluted share 2001 dividends discounts would reduced net loss available common stockholders see notes 1 2k 11 consolidated financial statements included elsewhere annual report form 10k calculation earnings per share supplementary quarterly financial information selected quarterly financial data 2003 2002 summarized 1income loss accounting change available common stockholders basic diluted income loss per share computed consistent annual per share calculations described notes 1 2k 11 consolidated financial statements included elsewhere annual report form 10k 2included income accounting change net income second quarter 2003 onetime gain 38 million recorded connection agreement unilever resolved certain issues arose acquisition unipath business 3included income accounting change net income third quarter 2003 onetime gain 741000 result insurance recovery legal costs previously incurred 4included income accounting change net income fourth quarter 2003 reversals allowances returns trade spending specific products aggregating 905000 established prior years deemed longer needed based upon current business trends ii tax benefits aggregating 12 million resulted reduction valuation allowance nol carryforward irish subsidiary due assessment would likely realize benefit nol enhanced deduction research development activity unipath operations united kingdom 5included loss accounting change first quarter 2002 impairment charge 127 million representing writeoff certain intangible assets ii noncash stockbased compensation charge 101 million relating restricted stock award made 2001 terms amended 2002 iii gain 96 million related early extinguishment certain subordinated promissory notes related repurchase beneficial conversion feature associated subordinated promissory notes included component income net consolidated statement operations included elsewhere annual report form 10k net loss first quarter 2002 also includes 121 million charge cumulative effect accounting change 6the second quarter 2002 includes 217000 charge litigation settlement 7included income accounting change net income fourth quarter 2002 onetime foreign exchange gain 26 million settlement portion intercompany loan two subsidiaries interest expense 32 million related early extinguishment debt liquidity capital resources based upon current working capital position current longterm operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments discussed next 12 months foreseeable future may adversely impacted unexpected costs associated defending existing lawsuits andor unforeseen lawsuits us integrating operations ostex abi product lines acquired abbott laboratories also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio including intellectual property acquired connection acquisitions ostex abi abbott laboratories may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result changes cash position december 31 2003 cash equivalents 246 million 60 million decrease 20 december 31 2002 historically funded business operating cash flows proceeds borrowings issuance equity securities well contributions former parent prior splitoff merger transaction johnson november 2001 2003 generated cash 98 million operating activities resulted net income adjusted noncash items 280 million offset net working capital increase excluding change cash balance 182 million nonequity financing activities primarily borrowings senior credit facility net scheduled principal repayments financing fees provided us cash 660 million 2003 addition received 40 million proceeds exercises common stock options warrants 2003 used cash 891 million investing activities investing activities consisted 785 million paid acquisitions businesses intellectual property 111 million capital expenditures offset 05 million related decrease noncurrent assets proceeds received sale property equipment february 10 2004 sold 1500 million 834 senior subordinated notes bonds due 2012 private placement qualified institutional buyers net proceeds offering underwriters commissions prepayment certain debt facilities related financing fees prepayment penalties discussed amounted 114 million intend use net proceeds bonds issuance payment related offering expenses general corporate purposes investing activities june 30 2003 acquired 100 outstanding common stock ostex merger transaction preliminary aggregate purchase price ostex 334 million consisted 1596821 shares companys common stock aggregate fair value 235 million assumption fullyvested stock options warrants purchase aggregate 303000 shares companys common stock options warrants aggregate fair value 18 million preliminary exit costs 36 million includes severance facility lease exit costs disposal assets direct acquisition costs 16 million 29 million assumed debt intend exit current facilities ostex seattle washington merge operations business units mid2004 consequently although detailed exit plan believe current estimated exit costs 36 million reasonable actual spending exit activities may differ current estimated total exit costs might impact final aggregate purchase price august 27 2003 acquired 100 outstanding common stock abi apogent preliminary aggregate purchase price abi 288 million consisted 134 million cash 692506 shares common stock aggregate fair value 143 million preliminary direct acquisition costs 11 million financed cash portion purchase price borrowing senior credit facility discussed aggregate purchase price preliminary working settle working capital adjustment apogent purchase agreement management process finalizing restructuring plan operations abi could result adjustments aggregate purchase price september 30 2003 acquired abbott laboratories certain assets related abbotts fact plus line consumer diagnostic pregnancy tests abbott testpack abbott testpack plus signify lines professional rapid diagnostics various testing needs including strep throat pregnancy drugs abuse assets also included certain transferred licensed intellectual property related products aggregate purchase price 950 million consisted 550 million cash 375 million form 1550933 shares common stock direct acquisition costs 25 million financed cash portion purchase price borrowings senior credit facility discussed 2003 incurred 110 million capital expenditures significant portion capital expenditure spending 2003 incurred prepare facilities manufacture pfizers ept products purchase equipment manufacture improved version traditional clearblue pregnancy test addition made significant investments laboratory instrument systems placed customers connection national roll athena multilyte ana test system 2003 lesser extent capital expenditures 2003 related equipment purchased support manufacture new clearblue easy digital pregnancy test also purchased equipment support various research development activities expect 2004 capital expenditure spending least equal level 2003 spending financing activities february 10 2004 completed sale 1500 million 834 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties discussed remaining 114 million unused proceeds used bond offering expenses general corporate purposes also retained 500 million available credit primary senior credit facility repayment outstanding borrowings using bond proceeds bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commencing august 15 2004 may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest experience change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest might able pay required price bonds presented us time change control primary senior credit facility indebtedness may prohibit payment might enough funds time bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings primary senior credit facility bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility excludes subsidiary imn new jersey guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications november 14 2002 company certain subsidiaries entered primary senior credit agreement group banks credit facilities aggregate amount 550 million august 27 2003 finance cash portion acquisition abi amended senior credit agreement whereby increased borrowing capacity senior credit facilities 700 million september 30 2003 finance cash portion acquisition rapid diagnostics product lines abbott laboratories amended senior credit agreement whereby aggregate amount available senior credit facilities increased 1350 million amended senior credit agreement dated september 30 2003 consisted two us term loans term loan 351 million term loan b 400 million european term loan 99 million us revolving line credit 250 million european revolving line credit 250 million aggregate borrowings december 31 2003 amounted 849 million term loans 399 million revolving lines credit unused portion revolving lines credit totaled 101 million december 31 2003 discussed repaid outstanding borrowings primary senior credit agreement proceeds bonds issuance february 2004 retain 50 million availability revolving lines credit subject continuing covenant compliance may repay future borrowings revolving lines credit time event later march 31 2008 required make mandatory prepayments primary senior credit facility meet certain cash flow thresholds issue equity securities subordinated debt sell assets ordinary course business borrowings revolving lines credit bear interest either 1 london interbank offered rate libor defined credit agreement plus applicable margins option 2 floating index rate defined credit agreement plus applicable margins applicable margins choose use libor index rate range 325 400 200 275 respectively depending quarterly adjustments based consolidated financial performance commencing quarter ending march 31 2004 december 31 2003 applicable interest rate revolving lines credit including applicable margin 514 borrowings primary senior credit facilities secured stock us european subsidiaries substantially intellectual property rights assets businesses us europe excluding assets imn orgenics ltd israeli subsidiary unipath scandinavia ab swedish subsidiary stock imn orgenics certain smaller subsidiaries amended senior credit agreement must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditures various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally amended senior credit agreement currently prohibits us paying dividends december 31 2003 compliance covenants september 20 2002 sold units aggregate purchase price 200 million private investors help finance acquisition wampole unit issued 50000 consisted 1 10 subordinated promissory note principal amount 50000 2 warrant acquire 400 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 160000 shares common stock may exercised time prior september 20 2012 addition placement agent offering units received warrant purchase 37700 shares common stock terms identical warrants sold part units 10 subordinated notes accrue interest outstanding principal amount 10 per annum payable quarterly arrears first day calendar quarter starting october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties subject consent senior lenders may repay 10 subordinated notes pay prepayment penalty cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance refinance acquisition among purchasers units three directors officers entity controlled chief executive officer collectively purchased aggregate 37 units consisting 10 subordinated notes aggregate principal amount 185 million warrants purchase aggregate 14800 shares common stock september 20 2002 also connection financing wampole acquisition sold 9 subordinated promissory notes aggregate principal amount 90 million 3 subordinated convertible promissory notes aggregate principal amount 60 million private investors aggregate purchase price 150 million 9 subordinated notes 3 convertible notes accrue interest outstanding principal amount 9 3 per annum respectively payable quarterly arrears first day calendar quarter starting october 1 2002 9 convertible notes set mature september 20 2008 subject acceleration certain circumstances allowed prepay outstanding principal balance time subject certain prepayment penalties consent senior lenders february 2004 prepaid outstanding balance 9 subordinated notes 90 million consequential prepayment penalty 180000 proceeds bond issuance february 2004 discussed 3 subordinated notes mature september 20 2008 subject acceleration certain circumstances repay 3 convertible notes may cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date time prior maturity date holders 3 convertible notes option convert outstanding principal amounts unpaid interest shares common stock conversion price equal 1745 additionally outstanding principal amount unpaid interest 3 convertible notes automatically convert common stock conversion price equal 1745 time september 20 2004 average closing price common stock consecutive thirty day period greater 2267 entity controlled chief executive officer purchased 3 convertible notes aggregate principal amount 30 million december 31 2003 subsidiary imn total outstanding debt balance 168 million 131 million represented borrowings credit agreement senior lender 37 million related various notes payable capital leases credit agreement senior lender amended imn borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations borrowings revolving credit commitment term loan bear interest either 150 banks prime rate imns option 375 adjusted eurodollar rate used bank december 31 2003 interest rates loans senior lender ranged 492 550 notes collateralized substantially imns assets credit agreement senior lender requires imn maintain minimum tangible net worth contains various restrictions customary financial arrangements including limitations payment cash dividends december 31 2003 imn compliance requirements restrictions loans senior lender mature october 15 2004 credit agreement loans automatically extended one year maturity date unless ninety day termination notice given writing either party agreement imns notes payable capital leases mature various dates july 2008 december 31 2003 subsidiary orgenics bank debt balances totaling 478000 orgenics bank debt collateralized certain orgenics assets orgenics notes bear interest rates ranging 35 57 december 31 2003 payable various dates 2005 december 31 2003 208060 shares series redeemable convertible preferred stock series preferred stock outstanding number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 30 conversion price effect time conversion december 31 2003 conversion price 15 subject adjustment accordingly share series preferred stock convertible two shares common stock commencing december 20 2003 right convert series preferred stock common stock event average closing price common stock exceeded 20 consecutive thirty trading day period ending 10 days prior date mandatory conversion notice consequently january 14 2004 converted outstanding shares series preferred stock shares common stock conversion rate two shares common stock per share series preferred stock share series preferred stock accrued dividends quarterly basis 210 per annum days closing price common stock 15 2003 accrued 33000 dividends payable declared board directors dividends declared board directors prior conversion outstanding shares series preferred stock january 14 2004 addition primary senior credit agreement would prohibited us paying dividends income taxes december 31 2003 approximately 738 million 206 million domestic foreign net operating loss carryforwards respectively either expire various dates 2023 carried forward indefinitely losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations december 31 2003 determined approximately 44 million foreign net operating losses ireland likely realized due recent anticipated future profitable operations irish subsidiary thus reduced valuation allowance established deferred tax asset related net operating loss carryforwards ireland 440000 2003 reflect estimate offbalance sheet arrangements offbalance sheet arrangements december 31 2003 contractual obligations following table summarizes principal contractual obligations december 31 2003 effects obligations expected liquidity cash flow future periods 1see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k included payments obligation amount 2004 131 million representing borrowings imns senior credit agreement due mature october 2004 however imns senior credit agreement renews automatically one year maturity date unless ninety day termination notice given writing either party agreement 2see note 7 consolidated financial statements included elsewhere annual report form 10k 3see note 10a consolidated financial statements included elsewhere annual report form 10k 4obligations interest rate swap agreement calculated using current interest rates level 5purchase obligations include firm capital expenditure commitments open purchase orders goods services critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america accounting policies discussed considered management audit committee critical understanding financial statements application depends managements judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenues derived product sales generally enter arrangements multiple element deliverables recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based managements analyses judgments regarding certain conditions discussed critical accounting policy use estimates sales returns allowances allowance doubtful accounts future changes conditions prove managements conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts sales arrangements customers consumer products generally require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer demand acceptance products material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted approximately 465 million 439 million 48 million 2003 2002 2001 respectively recorded product sales derive net product sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 554 million 373 million net allowances doubtful accounts 797000 871000 december 31 2003 2002 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers demands requires management make assumptions estimates actual product sales may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 470 million 372 million net provision excess obsolete inventory 21 million 13 million december 31 2003 2002 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2003 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 570 million 2338 million 1023 million respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated independent thirdparty appraisers valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited future expected cash flows product sales customer contracts acquired developed technologies patents ii expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products iii acquired companies brand awareness market position iv assumptions period time continue use acquired brand v discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill balances related consumer diagnostics professional diagnostics reporting units amounted 913 million 1425 million respectively december 31 2003 december 31 2003 performed annual impairment review carrying values goodwill using discounted cash flows approach based upon review believe goodwill related consumer diagnostics professional diagnostics reporting units impaired future cash flows operating results used impairment review based managements projections assumptions future events cause projections differ used december 31 2003 could lead significant impairment charges goodwill future events circumstances occurred since review december 31 2003 would require us reassess whether carrying values goodwill impaired valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2003 future events could cause us conclude otherwise accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 667 million december 31 2003 due uncertainties related future benefits deferred tax assets related primarily us businesses certain foreign net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision legal contingencies nature business may time subject consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us currently involved certain legal proceedings discussed item 3 legal proceedings annual report form 10k accrue potential losses legal proceedings company defendant able quantify potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become quantifiable probable case progresses case begin accruing expected loss addition section annual report form 10k titled item 3 legal proceedings reported certain legal proceedings believe final ruling us could material adverse impact financial position operations extent unanticipated facts circumstances arise cause us change assessment respect matter future results operations financial position could materially affected recently issued accounting standards november 2002 emerging issues task force eitf reached consensus issue 0021 revenue arrangements multiple deliverables revenue arrangements multiple deliverables include arrangements provide delivery performance multiple products services andor rights use assets performance may occur different points time different periods time eitf issue 0021 effective revenue arrangements entered fiscal periods beginning june 15 2003 adoption guidance consensus impact financial position results operations cash flows april 2003 financial accounting standards board fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 accounting derivative instruments hedging activities particular sfas 149 clarifies circumstances contract initial net investment meets characteristic derivative discussed sfas 133 clarifies derivative contains financing component amends definition underlying initially defined sfas 133 conform language used fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others amends certain existing pronouncements sfas 149 effective contracts entered modified june 30 2003 subject certain exceptions adoption statement impact financial position results operations cash flows may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity sfas 150 requires issuer classify financial instrument within scope liability asset circumstances many instruments previously classified equity mezzanine equity statement also requires income statement treatment consistent balance sheet classification instrument classified liability payments holders interest expense dividends changes value recorded earnings statement relates three specific categories instruments mandatorily redeemable shares freestanding written put options forward contracts obligate entity purchase shares freestanding contracts obligate entity pay shares amounts either unrelated inversely related price shares sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective first interim period beginning june 15 2003 adoption statement impact financial position results operations cash flows december 2003 fasb issued revision fasb interpretation fin 46 consolidation variable interest entities revised fin 46 replaces original fin 46 issued january 2003 clarifies application accounting research bulletin 51 consolidated financial statements certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support interpretation exempts certain entities requirements also expands definition variable interest entity vie broader group entities previously considered specialpurpose entities spes specifies criteria appropriate investor consolidate vies application revised fin 46 required financial statements public entities interest structures commonly referred spes periods ending december 15 2003 types vies application revised fin 46 public entities required periods ending march 15 2004 application interpretation respect structures commonly referred spes material impact financial position results operations cash flows currently expect application interpretation respect types vies material impact financial position results operations cash flows december 2003 securities exchange commission sec published staff accounting bulletin sab 104 revenue recognition sab 104 effective upon issuance supersedes sab 101 revenue recognition financial statements rescinds accounting guidance contained sab 101 related multipleelement revenue arrangements superseded eitf issue 0021 accordingly sab 104 rescinds portions interpretive guidance included topic 13 codification staff accounting bulletins wording sab 104 changed reflect guidance eitf 0021 revenue recognition principles sab 101 remained largely unchanged adoption sab 104 material effect financial position results operations cash flows certain factors affecting future results various risks including described may materially impact investment company may future cases already materially affect us business financial condition results operations carefully consider factors respect investment securities section includes refers certain forwardlooking statements read explanation qualifications limitations forwardlooking statements beginning pages 2 62 report business substantial indebtedness could adverse consequences us currently likely continue substantial amount indebtedness february 29 2004 approximately 1921 million aggregate principal amount indebtedness outstanding 161 million secured indebtedness 515 million additional borrowing capacity revolving portions credit facilities addition subject restrictions credit facilities indenture governing senior subordinated notes may incur additional indebtedness substantial indebtedness could affect future operations important ways example could •make difficult satisfy obligations senior subordinated notes credit facilities debtrelated instruments •require us use large portion cash flow operations pay principal interest indebtedness would reduce amount cash available finance operations business activities may require us order meet debt service obligations delay reduce capital expenditures introduction new products andor forego business opportunities including acquisitions research development projects product design enhancements •limit flexibility adjust market conditions leaving us vulnerable downturn general economic conditions business less able plan react changes business industries operate •impair ability obtain additional financing •place us competitive disadvantage compared competitors less debt •expose us fluctuations interest rate environment respect indebtedness bears interest variable rates expect obtain money pay expenses pay principal interest senior subordinated notes senior credit facility debt cash flow operations additional loans senior credit facility subject continued covenant compliance ability meet expenses thus depends future performance affected financial business economic factors able control many factors economic conditions markets operate pressure competitors cannot certain cash flow sufficient allow us pay principal interest debt meet obligations cash flow capital resources prove inadequate could face substantial liquidity problems might required dispose material assets operations restructure refinance debt including notes seek additional equity capital borrow money cannot guarantee able terms acceptable us addition terms existing future debt agreements including credit agreement governing senior credit facility indenture governing senior subordinated notes may restrict us adopting alternatives entered agreements governing indebtedness subject us various restrictions may limit ability pursue business opportunities agreements governing indebtedness including credit agreement governing senior credit facility indenture governing senior subordinated notes subject us various restrictions ability engage certain activities including among things ability •incur additional indebtedness •pay dividends make distributions repurchase redeem stock •acquire businesses •make investments •make loans extend credit benefit third parties subsidiaries •enter transactions affiliates •raise additional capital •make capital finance lease expenditures •dispose encumber assets •consolidate merge sell substantially assets restrictions may limit ability pursue business opportunities strategies would otherwise consider best interests credit facilities contain certain financial covenants may satisfy satisfied could result acceleration amounts due credit facilities limitation ability borrow additional funds future february 29 2004 approximately 120 million indebtedness outstanding various credit facilities approximately 515 million additional borrowing capacity credit facilities agreements governing credit facilities subject us various financial covenants must comply ongoing periodic basis include covenants pertaining fixed charge coverage capital expenditures various leverage ratios minimum ebitda total net worth minimum cash requirements violate covenants may material adverse effect us notably outstanding debt one credit facilities could become immediately due payable lenders could proceed collateral securing indebtedness ability borrow additional funds future may limited default agreements governing indebtedness could result default acceleration indebtedness agreements governing indebtedness including senior credit facility indenture governing senior subordinated notes contain crossdefault provisions whereby default one agreement could result default acceleration repayment obligations agreements crossdefault occur may able pay debts borrow sufficient funds refinance even new financing available may commercially reasonable terms acceptable us indebtedness default reason business financial condition results operations could materially adversely affected may able satisfy debt obligations upon change control upon occurrence change control defined indenture governing senior subordinated notes holder senior subordinated notes right require us purchase notes price equal 101 principal amount together accrued unpaid interest failure purchase give notice purchase senior subordinated notes would default indenture would turn default senior credit facility addition change control may constitute event default senior credit facility default senior credit facility would result event default 3 convertible notes 10 subordinated notes lenders accelerate debt senior credit facility indenture may result acceleration indebtedness outstanding time change control occurs may enough assets repay indebtedness purchase senior subordinated notes upon occurrence change control could seek refinance existing indebtedness obtain waiver lenders holders senior subordinated notes able obtain waiver refinance indebtedness commercially reasonable terms may able satisfy obligations holders senior subordinated notes upon change control acquisitions particular recent acquisitions ostex abi abbott rapid diagnostics product lines may profitable integration businesses product lines may difficult may lead adverse effects since commenced activities november 2001 acquired attempted integrate operations unipath business ivc business inverness medical nutritionals group imn wampole june 30 2003 acquired ostex august 27 2003 acquired abi september 30 2003 acquired abbott rapid diagnostics product lines ultimate success acquisitions depends part ability realize anticipated synergies cost savings growth opportunities integrating businesses product lines existing businesses however successful integration independent companies product lines complex costly timeconsuming process difficulties integrating companies acquired assets include among others •consolidating manufacturing research development operations appropriate •integrating newly acquired businesses product lines uniform financial reporting system •coordinating sales distribution marketing functions •establishing expanding manufacturing sales distribution marketing functions order accommodate newly acquired businesses product lines •preserving important licensing research development manufacturing supply distribution marketing customer relationships •minimizing diversion managements attention ongoing business concerns •coordinating geographically separate organizations may accomplish integration acquisitions smoothly successfully diversion attention management current operations integration effort difficulties encountered combining operations could prevent us realizing full benefits anticipated result acquisitions adversely affect businesses ultimately value company product line assets acquired may greater equal purchase prices choose acquire invest new complementary businesses products technologies instead developing acquisitions investments could disrupt business depending finance acquisitions investments could result use significant amounts cash success depends part ability continually enhance broaden product offerings response changing technologies customer demands competitive pressures accordingly time may seek acquire invest businesses products technologies instead developing acquisitions investments involve numerous risks including •the inability complete acquisition investment •disruption ongoing businesses diversion management attention •difficulties integrating acquired entities products technologies •difficulties operating acquired business profitably •the inability achieve anticipated synergies cost savings growth opportunities •potential loss key employees particularly acquired business •difficulties transitioning key customer distributor supplier relationships •risks associated entering markets limited prior experience •unanticipated costs addition future acquisitions investments may result •issuances dilutive equity securities may sold discount market price •use significant amounts cash •the incurrence debt •the assumption significant liabilities •unfavorable financing terms •large onetime expenses •the creation certain intangible assets including goodwill writedown may result significant charges earnings factors could materially harm business operating results goodwill recorded connection acquisitions businesses becomes impaired could take significant charges earnings connection accounting acquisitions unipath business wampole ostex abi abbott rapid diagnostics product lines recorded significant amount goodwill intangible assets current accounting guidelines must assess least annually potentially frequently whether value goodwill intangible assets impaired reduction impairment value goodwill intangible assets result charge earnings could materially adversely affect results operations future periods could experience significant manufacturing delays disruptions ongoing research development increased production costs unilever unable successfully assign sublease us lease multipurpose facility currently use bedford england one primary operating facilities located bedford england bedford facility multipurpose facility registered fda contains stateoftheart research laboratories equipped specialized manufacturing equipment facility currently provides manufacturing clearblue clearview products serves primary research development center serves administrative center european operations also use facility manufacture digital ept pregnancy test pfizer anticipate using facility manufacture nondigital ept pregnancy test pfizer connection fiveyear supply arrangement pfizer product begins june 2004 currently using bedford facility pursuant acquisition agreement unilever relating acquisition unipath business late 2001 unilever currently leases facility third party landlord pursuant terms unilevers lease unilever cannot assign lease sublet bedford facility us without first obtaining landlords consent landlord yet may future consent assignment lease sublease us terms acquisition agreement obligate unilever provide us benefit lease bedford facility unilever unable successfully acquire consent otherwise enable us realize benefit unilevers lease bedford facility lease terminated may forced renegotiate lease bedford facility substantially less favorable terms seek alternative means producing products conducting research housing european administrative staff either case may experience increased production costs manufacturing delays could prevent us meeting contractual supply obligations jeopardize important customer relationships may also suffer disruptions ongoing research development resolving issues cannot assure able renegotiate lease bedford facility terms acceptable us find acceptable replacement facility one events may material adverse effect us manufacturing problems delays could severely affect business produce consumer products manufacturing facilities located new jersey san diego bedford england galway ireland professional diagnostic tests manufacturing facilities located bedford england san diego seattle yavne israel production processes complex require specialized expensive equipment replacement parts specialized equipment expensive cases require lead times year acquire addition private label consumer products business private label bulk nutritional supplements business particular rely operational efficiency mass produce products low margins per unit also rely third parties supply production materials cases may alternative sources immediately available addition rely third parties manufacture professional diagnostic products certain components consumer diagnostic products including products development example certain abbott rapid diagnostics product lines currently manufactured us abbott laboratories chicago terms transitional arrangement event impacting manufacturing facilities manufacturing systems equipment contract manufacturers suppliers including without limitation wars terrorist activities natural disasters outbreaks infectious disease sars could delay suspend shipments products release new products could result delivery inferior products revenues affected products would decline could incur losses time able restore production processes put place alternative contract manufacturers suppliers even though carry business interruption insurance policies may suffer losses result business interruptions exceed coverage available insurance policies may successful manufacturing shipping selling new digital pregnancy test second quarter 2003 shipped first orders new digital pregnancy test clearblue easy digital first consumer pregnancy test market display test results words also entered supply agreement pfizer pursuant agreed supply pfizer digital version ept pregnancy tests nonexclusive basis began december 2003 instead interpreting colored lines result digital display spell pregnant manufacturing distribution problems factors beyond control could negatively impact effectiveness new products prevent us meeting customer demand sales forecasts addition cannot assure market accept new products acceptance dilute market acceptance consumer pregnancy test products nondigital ept pregnancy test manufacture pfizer period five years beginning june 2004 accordingly assurance new products increase overall revenues profitability may experience difficulties may delay prevent development introduction marketing new enhanced products intend continue invest product technology development new enhanced products complex uncertain process may experience research development manufacturing marketing difficulties could delay prevent development introduction marketing new products enhancements certain •any products development prove effective clinical trials •we able obtain timely manner regulatory approval market products development contemplated •any products manufactured acceptable cost appropriate quality •any products approved successfully marketed currently expect launch prothrombin test late 2004 congestive heart failure product 2005 new infectious disease products including high sensitivity strep throat test rapid influenza b tests rapid hiv test 2004 factors listed well manufacturing distribution problems factors beyond control could delay launches addition cannot assure market accept products accordingly assurance overall revenues increase new products launched fail meet strict regulatory requirements could required pay fines even close facilities manufacturing techniques generally must conform standards established government agencies including european foreign governments well fda lesser extent us drug enforcement administration dea local health agencies regulatory agencies may conduct periodic audits facilities monitor compliance applicable regulatory standards regulatory agency finds fail comply appropriate regulatory standards may impose fines us regulatory agency determines noncompliance severe may close facilities adverse action applicable regulatory agency could impair ability produce products costeffective timely manner order meet customers demands regulatory agencies may also impose new enhanced standards would increase costs well risks associated noncompliance example anticipate fda may soon finalize implement good manufacturing practice gmp regulations nutritional supplements gmp regulations would require supplements prepared packaged held compliance certain rules might require quality control provisions similar gmp regulations drugs manufacturing facilities nutritional supplements subjected passed third party inspections anticipated gmp standards ongoing compliance required event gmp regulations adopted would involve additional costs would present new risks associated failure comply regulations future deliver products defects credibility may harmed market acceptance products may decrease may exposed liability excess product liability insurance coverage manufacturing marketing consumer professional diagnostic products involve inherent risk product liability claims addition product development production extremely complex could expose products defects could harm credibility decrease market acceptance products addition marketing vitamins nutritional supplements may cause us subjected various product liability claims including among others claims vitamins nutritional supplements inadequate warnings concerning side effects interactions substances potential product liability claims may exceed amount insurance coverage may excluded coverage terms policy event held liable claim indemnified damages exceeding limits insurance coverage claim could materially damage business financial condition sales branded nutritional supplements trending downward since 1998 due maturity market segments serve age product line may experience declines sales products sales branded nutritional products declined year since 1998 year 2002 increased slightly compared 2001 believe products underperformed part aging brands limited brand recognition face increasing private label competition overall age product line means subject future distribution loss underperforming brands opportunities new distribution existing product lines limited though experience slight increase sales 2002 overall trend declining sales products continued 2003 recently added new distribution posture entered agreement serve exclusive us distributor triomega otherwise expect significant sales growth existing branded nutritional products may experience declines overall sales branded nutritional products future vitamin nutritional supplements market subject significant fluctuations based upon media attention new developments growth vitamin nutritional supplement industry attributed new products tend generate greater attention marketplace older products positive media attention resulting new scientific studies announcements spur rapid growth individual segments market also impact individual brands conversely news challenges individual segments products negative impact industry overall well sales challenged segments products vitamin nutritional supplements products serve wellestablished market segments absent unforeseen new developments trends expected benefit rapid growth vitamin nutritional products newer products likely subject new scientific studies announcements could either positive negative news developments challenge safety effectiveness products could negatively impact profitability vitamin nutritional supplements business market orgenics professional diagnostic products small medium sized customers approximately 90 countries considerable cost reduces operating margins products small medium sized laboratories principal customers orgenics professional diagnostic products sell products worldwide order maintain sufficient sales volume orgenics professional diagnostic products marketed approximately 90 countries including many third world developing nations smaller laboratories norm expensive technologies affordable infectious diseases often prevalent worldwide sales strategy expensive results lower margins would possible could generate sufficient sales volume operating fewer markets could suffer monetary damages incur substantial costs prevented using technologies important products result number pending legal proceedings involved various legal proceedings arising consumer diagnostics nutritional supplements professional diagnostics business current material legal proceedings •a counterclaim princeton biomeditech corporation pbm us patent infringement suit maintained subsidiaries inverness medical switzerland gmbh unipath diagnostics inc pbm et al pbm alleges breached various obligations pbm arising joint venture us •a suit brought quidel corporation alleging infringing us patent 4943522 seeking declaratory finding quidel infringe certain patents certain patents owned codefendant armkel llc patents invalid andor unenforceable connection splitoff imt agreed assume extent permitted law indemnify imt liabilities arising womens health nutritional supplements professional diagnostics businesses splitoff extent liabilities otherwise retained imt acquisitions unipath business imn wampole ostex abi also assumed acquired substantially liabilities businesses unable assess materiality costs associated lawsuits time cannot assure lawsuits future lawsuits relating businesses material adverse effect us october 2003 met sec regarding informal inquiry concerning resignation former independent accountants ernst young llp certain accounting financial matters discussed sec october 2003 january 28 2004 received request sec additional factual information cannot predict outcome informal investigation october 2003 connection informal inquiry met two representatives boston office secs division enforcement respond questions regarding ernst young llps resignation certain accounting financial matters discussed sec second quarter 2003 filing current report form 8k event date april 11 2003 disclose ernst youngs resignation responded fully staffs requests information january 28 2004 connection informal investigation received request staff sec additional factual information followup past response fully responded request additional information cannot predict whether sec seek additional information outcome informal investigation profitability consumer products businesses may suffer unable establish maintain close working relationships customers consumer products businesses rely great extent close working relationships customers rather longterm exclusive contractual arrangements customer concentration businesses high especially private label nutritional supplements business addition customers branded private label consumer products businesses purchase products purchase orders obligated make future purchases therefore rely ability deliver quality products time order retain generate customers fail meet customers needs expectations whether due manufacturing issues affect quality capacity issues result late shipments harm reputation likely lose customers loss major customer failure generate new accounts could significantly reduce revenues prevent us achieving projected growth profitability consumer products businesses may suffer pfizer inc unable successfully market sell ept pregnancy tests terms manufacturing packaging supply agreement entered june 2003 pfizer inc one whollyowned subsidiaries pfizer purchase nondigital ept pregnancy tests us beginning june 6 2004 continuing june 6 2009 additionally terms separate supply agreement december 2003 began supplying pfizer digital version ept pregnancy test nonexclusive basis amount revenues profits generate agreements depend volume orders receive pfizer result pfizer unable successfully market sell ept pregnancy tests events adversely affect volume pfizers sales ept pregnancy tests future revenues profit may adversely affected private label nutritional supplements business low margin business susceptible changes costs pricing pressures private label nutritional supplements business operates low profit margins rely ability efficiently mass produce nutritional supplements order make meaningful profits business changes raw material manufacturing costs drastically cut eliminate profits generated sale particular product part longterm supply contracts required raw materials result costs increase little notice private label nutritional supplements business also highly competitive ability raise prices result increased costs limited customers generally purchase private label products via purchase order longterm contracts often purchase products lowest bidder product basis internet enhanced price competition among private label manufacturers advent online auctions customers auction right manufacture particular product lowest bidder retailer consolidation poses threat existing retailer relationships result lost revenue recent years rapid consolidation within mass retail industry drug store chains grocery stores mass merchandisers primary purchasers consumer diagnostic products vitamins nutritional supplements subject trend customers purchase orders consolidation interfere existing retailer relationships especially private label relationships result loss major customers significant revenue streams financial condition results operations may adversely affected international business risks approximately 36 net revenues generated outside united states year ended december 31 2003 significant number employees including manufacturing sales support research development personnel located foreign countries including england ireland israel conducting business outside united states subjects us numerous risks including •increased costs reduced revenue result movements foreign currency exchange rates •decreased liquidity resulting longer accounts receivable collection cycles typical foreign countries •lower productivity resulting difficulties managing sales support research development operations across many countries •lost revenues resulting difficulties associated enforcing agreements collecting receivables foreign legal systems •lost revenues resulting imposition foreign governments trade protection measures •higher cost sales resulting import export licensing requirements •lost revenues adverse affects result economic political instability affecting foreign countries sell products operate •adverse effects resulting changes foreign regulatory laws affecting sales products foreign operations business relies heavily foreign operations revenues changes foreign currency exchange rates ability convert currencies may negatively affect financial condition results operations business relies heavily foreign operations three manufacturing facilities outside united states bedford england galway ireland yavne israel approximately 36 net revenues generated outside united states year ended december 31 2003 clearblue pregnancy test product sales historically much stronger outside united states 75 net product sales products coming outside united states year ended december 31 2003 addition abbott rapid diagnostics product lines acquired september 30 2003 generate majority profits sales outside united states furthermore persona sold exclusively outside united states orgenics professional diagnostic products always sold exclusively outside united states foreign operations foreign sales face exposure movements foreign currency exchange rates primary exposures related operations european subsidiaries exposures may change time business practices evolve could result increased costs reduced revenue could impact actual cash flow orgenics subsidiary located israel operations could negatively affected due military political tensions middle east whollyowned subsidiary orgenics develops manufactures sells certain professional diagnostic products incorporated laws state israel administrative offices development manufacturing operations orgenics business located yavne israel although orgenicss sales currently customers outside israel political economic military conditions israel could nevertheless directly affect operations since establishment state israel 1948 number armed conflicts taken place israel arab neighbors state hostility varying degree intensity led security economic problems israel despite history avoiding adverse effects orgenics business could adversely affected major hostilities involving israel terrorist attacks acts war may seriously harm business terrorist attacks acts war may cause damage disruption company employees facilities customers could significantly impact revenues costs expenses financial condition terrorist attacks took place united states september 11 2001 unprecedented events created many economic political uncertainties may materially adversely affect business results operations financial condition potential future terrorist attacks national international responses terrorist attacks acts war including current conflict iraq hostility created many economic political uncertainties could materially adversely affect business results operations financial condition ways currently cannot predict intense competition could reduce market share limit ability increase market share could impair sales products harm financial performance medical products industry rapidly evolving developments expected continue rapid pace competition industry includes consumer diagnostics professional diagnostics businesses intense expected increase new products technologies become available new competitors enter market competitors united states abroad numerous include among others diagnostic testing medical products companies universities research institutions future success depends upon maintaining competitive position development products technologies areas focus competitors may •develop technologies products effective products render technologies products obsolete noncompetitive •obtain patent protection intellectual property rights would prevent us developing potential products •obtain regulatory approval commercialization products rapidly effectively also possibility patent disputes competitors holding foreign patent rights may limit delay expansion possibilities diagnostics businesses certain foreign jurisdictions addition many existing potential competitors may substantially greater research development capabilities clinical manufacturing regulatory marketing experience financial managerial resources market sale vitamins nutritional supplements also highly competitive competition based principally upon price quality products customer service marketing support numerous companies vitamins nutritional supplements industry selling products retailers mass merchandisers drug store chains independent drug stores supermarkets groceries health food stores companies privately held unable obtain information necessary assess precisely size success competitors however believe number competitors particularly manufacturers nationally advertised brand name products substantially larger greater financial resources rights rely upon protect intellectual property underlying products may adequate could enable third parties use technology would reduce ability compete market success depend part ability develop acquire commercially valuable patent rights protect intellectual property patent position generally uncertain involves complex legal factual questions degree present future protection proprietary rights uncertain risks uncertainties face respect patents proprietary rights include following •the pending patent applications filed exclusive rights may result issued patents may take longer expect result issued patents •the claims patents issued may provide meaningful protection •we may able develop additional proprietary technologies patentable •the patents licensed issued us customers may provide competitive advantage •other parties may challenge patents patent applications licensed issued us customers •patents issued companies may harm ability business •other companies may design around technologies patented licensed developed addition patents rely combination trade secrets nondisclosure agreements contractual provisions technical measures protect intellectual property rights nevertheless measures may adequate safeguard technology underlying products protect rights third parties could use technology ability compete market would reduced addition employees consultants others participate development products may breach agreements us regarding intellectual property may adequate remedies breach also may able effectively protect intellectual property rights foreign countries variety reasons may decide file patent copyright trademark protection prosecute potential infringements patents also realize trade secrets may become known means currently foreseen us despite efforts protect intellectual property competitors customers may independently develop similar alternative technologies products equal superior technology products without infringing intellectual property rights design around proprietary technologies claims companies products infringe proprietary rights could adversely affect ability sell products increase costs substantial litigation intellectual property rights exists consumer professional diagnostic industries expect products industries could increasingly subject third party infringement claims number competitors grows functionality products technology different industry segments overlaps third parties may currently may eventually issued patents products technology may infringe third parties might make claim infringement us litigation could result expenditure significant financial resources diversion managements time resources addition litigation accused infringement may cause negative publicity impact prospective customers cause product shipment delays require us develop noninfringing technology make substantial payments third parties enter royalty license agreements may available acceptable terms successful claim infringement made us could develop noninfringing technology license infringed similar technology timely costeffective basis revenue may decrease could exposed legal actions customers initiated may need initiate lawsuits protect enforce patents intellectual property rights could expensive lose could cause us lose intellectual property rights would reduce ability compete market rely patents protect portion intellectual property competitive position order protect enforce patent rights may initiate patent litigation third parties infringement suits interference proceedings litigation may necessary •assert claims infringement •enforce patents •protect trade secrets knowhow •determine enforceability scope validity proprietary rights others currently initiated number lawsuits competitors believe selling products infringe proprietary rights current lawsuits initiate could expensive take significant time divert managements attention business concerns litigation also puts patents risk invalidated interpreted narrowly patent applications risk issuing additionally may provoke third parties assert claims us patent law relating scope claims technology fields operate still evolving consequently patent positions industry generally uncertain may prevail suits damages remedies awarded may commercially valuable course suits may public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative stock price could decline noncompetition obligations restrictions limit ability take full advantage management team technology license research development capabilities members management team significant experience diabetes field addition technology license may potential applications field research development capabilities could applied field however conjunction splitoff imt agreed compete imt johnson field diabetes 10 years addition mr ron zwanziger chairman chief executive officer president two senior scientists dr david scott dr jerry mcaleer entered consulting agreements imt impose similar restrictions license agreement imt prevents us using licensed technology field diabetes result restrictions cannot pursue opportunities field diabetes obligated indemnify imt others liabilities could required pay imt others amounts may restructuring agreement postclosing covenants agreement related agreements entered connection splitoff merger transaction johnson provide indemnify imt related persons specified liabilities related businesses statements proxy statementprospectus issued connection splitoff merger businesses breaches obligations restructuring agreement postclosing covenants agreement related agreements addition tax allocation agreement imt johnson indemnify johnson imt unpaid tax liabilities attributable presplitoff operation consumer diagnostics vitamins nutritional supplements professional diagnostics businesses claims indemnification yet made may ever made unable predict amount may required us satisfy indemnification obligations agreements however claims made indemnification liable claims amount could substantial event may sufficient funds available satisfy potential indemnification obligations addition may unable obtain funds terms satisfactory us unable obtain necessary funds need consider alternatives including sales assets raise necessary funds unlikely able exercise effective remedies arthur andersen llp former independent public accountants although dismissed arthur andersen llp independent public accountants june 2002 engage bdo seidman llp consolidated financial statements december 31 2001 2000 three years period ended december 31 2001 extent included report previously filed reports registration statements audited arthur andersen march 14 2002 arthur andersen indicted federal obstruction justice charges arising governments investigation enron corporation june 15 2002 jury houston texas found arthur andersen guilty federal obstruction justice charges light jury verdict underlying events arthur andersen subsequently substantially discontinued operations dismissed essentially entire workforce therefore unlikely able exercise effective remedies collect judgments arthur andersen untrue statement material fact contained financial statements audited arthur andersen omissions state material fact required stated financial statements operating results may fluctuate due various factors result periodtoperiod comparisons results operations necessarily meaningful factors relating business make future operating results uncertain may cause fluctuate period factors include •the timing new product announcements introductions us competitors •market acceptance new enhanced versions products •changes manufacturing costs expenses •competitive pricing pressures •the gain loss significant distribution outlets customers •increased research development expenses •the timing future acquisitions •general economic conditions •general stock market conditions economic external factors historical financial information relating periods beginning prior splitoff inverness medical technology inc november 21 2001 may representative results separate company november 21 2001 splitoff imt became independent publicly owned company part transaction imt acquired johnson prior time majority owned subsidiary imt businesses acquired connection restructuring preceded splitoff represented approximately 20 imts net product sales calendar quarter concluded immediately prior splitoff historical financial information relating periods beginning prior november 21 2001 included reports filed sec report time periods prior splitoff reflect operating history businesses part imt result financial information may reflect results operations financial position cash flows would separate standalone company periods financial information also may reflect results operations financial position cash flows future related various risks associated fact standalone company long period time also •various adjustments allocations made produce financial statements imt account us single standalone business periods presented •the information extent report period ending november 21 2001 reflect many significant changes occurred financial condition capital structure operations result separation imt adjustments allocations made preparing financial information periods beginning prior november 21 2001 may appropriately reflect operations periods operated standalone company periodtoperiod comparisons operating results may meaningful due acquisitions engaged number significant acquisitions recent years make difficult analyze results compare period including acquisitions unipath business december 2001 ivc march 2002 wampole september 2002 ostex june 2003 abi august 2003 abbott rapid diagnostics product lines september 2003 periodtoperiod comparisons results operations may meaningful due acquisitions indications future performance future acquisitions also make results difficult compare period future special statement regarding forwardlooking statements report contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words may could would intend expect anticipate believe estimate continue similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state forwardlooking information may events future able predict accurately control may cause actual results differ materially expectations describe forwardlooking statements caution investors forwardlooking statements involve risks uncertainties actual results may differ materially discuss report differences may result various factors including factors described certain factors affecting future results section report risk factors identified time periodic filings sec important additional factors could cause actual results differ materially projected forwardlooking statements follows •economic factors including inflation fluctuations interest rates foreign currency exchange rates potential effect fluctuations revenues expenses resulting margins •competitive factors including technological advances achieved patents attained competitors generic competition •domestic foreign healthcare changes resulting pricing pressures including continued consolidation among healthcare providers trends toward managed care healthcare cost containment government laws regulations relating sales promotion reimbursement pricing generally •government laws regulations affecting domestic foreign operations including relating trade monetary fiscal policies taxes price controls regulatory approval new products licensing •manufacturing interruptions delays capacity constraints lack availability alternative sources components products including ability successfully maintain relationships suppliers put place alternative suppliers terms acceptable us •difficulties inherent product development including potential inability successfully continue technological innovation complete clinical trials obtain regulatory approvals united states abroad gain maintain market approval products possibility encountering infringement claims competitors respect patent intellectual property rights preclude delay commercialization product •significant litigation adverse us including product liability claims patent infringement claims antitrust claims •product efficacy safety concerns resulting product recalls declining sales •the impact business combinations including acquisitions divestitures recent acquisitions applied biotech inc abbott rapid diagnostics product lines organizational restructurings consistent evolving business strategies •our ability satisfy financial covenants conditions contained agreements governing indebtedness •our ability obtain required financing terms acceptable us •the issuance new revised accounting standards american institute certified public accountants financial accounting standards board sec foregoing list sets forth many factors could impact upon ability achieve results described forwardlooking statements readers place undue reliance forwardlooking statements invest common stock aware occurrence events described elsewhere report could harm business prospects operating results financial condition undertake obligation update forwardlooking statements result future events developments item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements include without limitation statements regarding anticipated expansion growth certain product service offerings impact research development activities potential new product technology achievements potential selective divestitures noncore assets ability improve working capital operating margins ability improve organic revenue growth rates effectiveness steps may take improve operational efficiency ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 18 report well factors identified time filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview empower individuals take greater control health home supervision healthcare providers connecting innovative diagnostics hands patients healthcare providers leading global provider diagnostic products deliver rapid accurate results point care particular emphasis fields infectious diseases toxicology cardiology diabetes connected device technologies health information solutions give providers ability speed customize treatment enabling timely access actionable data connected devices personal electronic health record solutions well decisionsupport software analytic tools health information solutions business also offer programs chronic condition management coagulation monitoring smoking cessation pregnancy management weight loss healthy living connected health approach envisions healthcare system unites patients diagnostic tools fingertips providers payers model provides patients better quality life improved outcomes simultaneously reducing healthcare costs system substantially completed foundation business 2013 focused reestablishing historic organic revenue growth rates pointofcare diagnostics business improving operational efficiency goal generating predictable earnings growth sustainable strong cash flow revenue growth impacted supply challenges certain alere triage product lines arising fda inspection san diego facility 2012 2013 overcame portion supply challenges consistently supplying market alere triage products shortnessofbreath toxicology panels expect return one panels market first half 2014 2013 also continued increase market presence accountable care organizations integrated product service offerings continuing expansion growing markets asia latin america africa also improve organic growth rates longer term addition expect new product launches 2013 including addition tests chloride creatinine epoc blood analysis system alere determine hiv12 agab combo test well increasingly robust contribution previously launched products cd4 analyzer contribute improved organic growth rates future january 2014 also announced alere influenza b test first commercially available molecular test detect differentiate influenza b virus less 15 minutes launched austria france spain switzerland germany italy uk alere test remains fda review yet available sale united states 2013 also made significant progress towards anticipated launch alere q africa first half 2014 alere q enables molecular viral load testing hiv point care applications hcv tuberculosis development alere q platform late 2012 2013 took important steps build global enterprise infrastructure believe enable us realize predictable earnings growth stronger sustainable cash flow 2013 standardized number key business processes notably began implementation global erp system many business units us europe recently completed also implemented global sourcing initiative based philippines enabled cost effective scaling mail order diabetes business serve 700000 patients already expanding initiative include alere home monitoring business expect result cost efficiencies remain engaged active ongoing discussions multiple parties concerning divestitures noncore businesses 2013 completed sale one noncore asset used 275 million proceeds transaction repay indebtedness complete expect steps sharpen focus mission enabling healthcare providers improve clinical outcomes lower costs also reduce indebtedness enhance shareholder value 2013 financial highlights • net revenue increased 2106 million 7 30 billion 2013 28 billion 2012 • gross profit increased 734 million 5 15 billion 2013 14 billion 2012 • year ended december 31 2013 generated net loss available common stockholders 925 million 113 per basic diluted common share year ended december 31 2012 generated net loss available common stockholders 995 million 123 per basic diluted common share results operations discussed results excluding impact foreign currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates trends results operations follows year ended december 31 2013 compared year ended december 31 2012 net product sales services revenue net product sales services revenue increased 2120 million 8 30 billion 2013 28 billion 2012 net product sales services revenue increased primarily result acquisitions contributed aggregate 1694 million increase excluding impact foreign currency translation net product sales services revenue 2013 grew approximately 2294 million 8 2012 net product sales services revenue business segment net product sales services revenue business segment 2013 2012 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2013 2012 thousands net product sales services revenue professional diagnostics business segment increased 2010 million 9 24 billion 2013 22 billion 2012 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment increased 2201 million 10 comparing 2013 2012 net product sales services revenue increased primarily result acquisitions contributed aggregate 1672 million noncurrencyadjusted increase also contributing increase revenue net product sales north american flurelated sales increased approximately 319 million 436 million 2012 755 million 2013 net product sales services revenue professional diagnostics business segment negatively impacted fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 762 million 2013 compared 1503 million 2012 furthermore net product sales services revenue professional diagnostics business segment negatively impacted disposition spinreact operations spain july 2013 sales totaled 159 million 2013 date disposition compared 222 million 2012 decrease 63 million excluding impact acquisitions increase flurelated sales comparable periods impact reduction net product sales meterbased triage products us disposition spinreact operations spain currencyadjusted organic growth professional diagnostics net product sales services revenue approximately 1014 million 5 2012 2013 growth rate additionally impacted reduction cms’ reimbursement rates became effective july 1 2013 us mail order diabetes business excluding organic revenues mail order diabetes business along impacts previously mentioned currencyadjusted organic growth approximately 1321 million 69 2012 2013 within professional diagnostics business segment net product sales services revenue cardiology business decreased approximately 403 million 8 4633 million 2013 5035 million 2012 primarily result impact fda review certain meterbased triage products us net product sales services revenue infectious disease business increased approximately 1073 million 17 7232 million 2013 6160 million 2012 change driven principally growth hiv flu malaria revenues comparable periods net product sales services revenue toxicology business increased approximately 455 million 8 6327 million 2013 5873 million 2012 recent toxicologyrelated acquisitions contributing combined net 541 million noncurrency adjusted increase offsetting increase net product sales services revenue toxicology business contributed acquisitions 236 million decrease net product sales related triage toxicology products reductions commercial pricing pain rehab businesses implemented second quarter 2012 fourth quarter 2013 diabetes net product sales services revenue increased approximately 810 million 56 2255 million 2013 1444 million 2012 increase primarily result recent acquisitions ammed direct llc ammed nationshealth discount diabetic llc discount diabetic medicare feeforservice assets liberty medical liberty business simplex healthcare inc simplex contributed combined net 1008 million noncurrency adjusted increase included 2255 million revenue diabetes business 2013 1536 million mail order diabetes sales compared 857 million 2012 health information solutions following table summarizes net product sales services revenue health information solutions business segment groups similar products services 2013 2012 thousands net product sales services revenue heath information solutions business segment decreased 22 million 5332 million 2013 5354 million 2012 within health information solutions business segment net product sales services revenues condition case management wellness women’s children’s health businesses decreased 2013 compared 2012 experienced customer terminations lower state enrollments wellness programs lower revenue homecare services businesses respectively given challenging contracting season expect weak sales first quarter 2014 expect resume sequential growth adjusting seasonality within segment 2014 patient selftesting services net product sales services revenue increased approximately 108 million 12 1029 million 2013 compared 922 million 2012 principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates consumer diagnostics new product sales services revenue consumer diagnostics business segment increased 132 million 15 1028 million 2013 896 million 2012 increase revenue primarily resulted increase manufacturing revenue associated spd successfully launched clearblue advanced pregnancy test weeks estimator product us 2013 spd sales 1784 million 1878 million 2013 2012 respectively net product sales services revenue geographic location net product sales services revenue geographic location 2013 2012 follows thousands 1 includes among many others following countries china japan india south korea australia canada brazil net product sales services revenue 18 billion 17 billion generated united states approximately 61 total net product sales services revenue years ended december 31 2013 2012 growth net product sales services revenue united states primarily due increase 711 million domestic diabetes net product sales services revenue resulting primarily recent diabetesrelated acquisitions discussed growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 13 million 5 272 million 2013 286 million 2012 included royalty revenues 2013 85 million onetime upfront issuance fee associated license certain molecular intellectual property compared 110 million onetime upfront issuance fee 2012 expect receive ongoing royalty payments license agreements future periods gross profit margin percentage gross profit increased 734 million 5 15 billion 2013 14 billion 2012 increase gross profit 2013 largely attributed increase net product sales services revenue resulting acquisitions cost net revenue 2013 2012 included amortization 25 million 47 million respectively relating write inventory fair value connection certain acquisitions reducing gross profit 2013 2012 79 million 31 million respectively restructuring charges cost net revenue included amortization expense 722 million 723 million 2013 2012 respectively overall gross margin percentage 50 2013 compared 51 2012 decrease gross margin principally reflects impact reduction diabetes reimbursement rates took effect july 2013 well increased costs manufacturing certain meterbased triage products gross profit net product sales services revenue total business segment gross profit net product sales services revenue increased 752 million 5 15 billion 2013 14 billion 2012 gross profit net product sales services revenue business segment 2013 2012 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 730 million 6 122 billion 2013 115 billion 2012 principally result gross profit earned revenue acquired businesses discussed comparing 2013 2012 gross profit negatively impacted lower volume us meterbased triage product sales reduction commercial pricing toxicology products pain management addiction medicine lines business discussed continued impact fda inspection san diego facility related recall certain meterbased triage products also resulted increased incremental costs 2013 principally due unfavorable manufacturing variances cost professional diagnostics net product sales services revenue 2013 2012 included noncash charge 25 million 47 million respectively relating writeup inventory fair value connection acquisition epocal inc epocal reducing gross profit 2013 2012 60 million 23 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 643 million 644 million 2013 2012 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 52 2013 compared 53 2012 continued impact fda inspection related product recall discussed resulted increased incremental costs 2013 contributed lower gross profit health information solutions gross profit health information solutions net product sales services revenue remained relatively flat 2376 million 2013 compared 2365 million 2012 reducing gross profit 2013 2012 18 million 08 million respectively restructuring charges cost health information solutions net product sales services revenue included amortization expense 69 million 67 million 2013 2012 respectively percentage health information solutions net product sales services revenue gross profit health information solutions business 45 2013 compared 44 2012 1 increase gross margin primarily due operational efficiencies realized 2013 within condition case management business consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 10 million 5 203 million 2013 193 million 2012 increase gross profit primarily result increase manufacturing revenue discussed 07 million charge related manufacturing agreement spd recorded 2012 cost consumer diagnostics net product sales services revenue included amortization expense 09 million 12 million 2013 2012 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 20 2013 compared 22 2012 research development expense research development expense decreased 222 million 12 1608 million 2013 1830 million 2012 research development expense 2013 reported net grant funding 66 million arising research development funding relationship bill melinda gates foundation entered february 2013 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 18 million 13 million included research development expense 2013 2012 respectively amortization expense 49 million 269 million included research development expense 2013 2012 respectively included 269 million amortization expense 2012 192 million related write certain inprocess research development projects recorded connection axisshield acquisition fourth quarter 2011 discontinued 2012 research development expense percentage net revenue 5 6 2013 2012 respectively sales marketing expense sales marketing expense decreased 36 million 1 6398 million 2013 6434 million 2012 decrease sales marketing expense primarily driven lower amortization expense 2013 compared 2012 amortization expense 2289 million 2399 million included sales marketing expense 2013 2012 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 28 million 25 million included sales marketing expense 2013 2012 respectively sales marketing expense percentage net revenue 21 23 2013 2012 respectively general administrative expense general administrative expense increased 685 million 14 5612 million 2013 4928 million 2012 increase general administrative expense 2012 2013 primarily attributable 246 million increase expense related fair value adjustments acquisitionrelated contingent consideration obligations 46 million increase amortization expense 15 million increase restructuring plans integrate newlyacquired businesses well inclusion general administrative expense 2013 75 million excise tax expense related domestic sale medical device products result 23 excise tax went effect january 1 2013 55 million costs associated conduct contested proxy solicitation 2013 61 million costs associated potential business dispositions partially offset 2013 66 million decrease acquisitionrelated costs 2013 general administrative expense percentage net revenue 19 17 2013 2012 respectively interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 151 million 6 2557 million 2013 2406 million 2012 increase principally due 356 million loss recorded connection repurchase 9 senior subordinated notes 2013 partially offset effect lower interest rates associated 65 senior subordinated notes 725 senior notes issued may 2013 december 2012 respectively compared higher interest rates associated 7875 senior notes redeemed december 2012 february 2013 9 senior subordinated notes redeemed may june 2013 interest expense 2012 includes approximately 232 million expense associated repurchase substantially 7875 senior notes income expense net income expense net includes interest income realized unrealized foreign exchange losses income expense components respective amounts income expense net summarized follows thousands expense 124 million 2013 primarily comprised 118 million expense associated various legal settlements includes provision 95 million reflect current estimate settlement litigation costs may incur connection ongoing dispute customer us toxicology business 51 million writeoff investment 33 million losses disposals fixed assets offsetting 80 million bargain purchase gain relating acquisition liberty business income 158 million 2012 included 155 million prior period royalty settlements included 135 million final royalty termination payment received quidel net 42 million gain recorded disposal property plant equipment 14 million income associated legal settlements related intellectual property litigation partially offsetting impact events settlement prior year dispute former distributor totaling approximately 39 million benefit income taxes benefit income taxes increased 160 million 463 million benefit 2013 303 million benefit 2012 effective tax rate 2013 35 compared 25 2012 increase benefit income taxes corresponding effective tax rate 2012 2013 primarily related tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain partially offsetting increased benefits contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 primary components 2013 benefit income taxes relate us federal state income tax benefits including tax rate changes foreign jurisdictions us research credits 2012 2013 us manufacturing deduction impact bargain purchase gain benefits largely offset increased provisions changes valuation allowances contingent consideration losses deductible tax purposes us tax foreign income distributions 2013 increases reserves uncertain tax positions primary components 2012 benefit income taxes relate us federal state income tax benefits including favorable adjustments revaluation contingent consideration offset tax provisions foreign income increases certain valuation allowances increase reserve uncertain tax positions increase permanent adjustments equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2013 primarily reflect following earnings 50 interest spd amount 150 million ii earnings 40 interest vedalab sa vedalab amount 06 million iii earnings 49 interest techlab inc techlab amount 20 million equity earnings unconsolidated entities net tax 2012 primarily reflect following earnings 50 interest spd amount 107 million ii earnings 40 interest vedalab amount 04 million iii earnings 49 interest techlab amount 23 million net loss available common stockholders 2013 generated net loss available common stockholders 925 million 113 per basic diluted common share compared net loss available common stockholders 995 million 123 per basic diluted common share 2012 net loss available common stockholders reflects 213 million preferred stock dividends paid 2013 2012 net loss 2013 2012 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share year ended december 31 2012 compared year ended december 31 2011 net product sales services revenue net product sales services revenue increased 4272 million 18 28 billion 2012 24 billion 2011 net product sales services revenue increased primarily result acquisitions contributed aggregate 4476 million increase excluding impact foreign currency translation net product sales services revenue 2012 grew approximately 4600 million 19 2011 net product sales services revenue business segment net product sales services revenue business segment 2012 2011 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2012 2011 thousands net product sales services revenue professional diagnostics business segment increased 4290 million 25 22 billion 2012 17 billion 2011 excluding impact foreign currency translation net product sales services revenue professional diagnostics business segment increased 4622 million 27 comparing 2012 2011 net product sales services revenue increased primarily result acquisitions contributed aggregate 4414 million noncurrencyadjusted increase net product sales north american flurelated sales decreased approximately 25 million 461 2011 436 million 2012 net product sales services revenue professional diagnostics business segment negatively impacted fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 1503 million 2012 compared 1992 million 2011 excluding impact acquisitions decrease flurelated sales comparable periods impact reduction net product sales meterbased triage products us currencyadjusted organic growth professional diagnostics net product sales services revenue approximately 737 million 5 2011 2012 within professional diagnostics business segment net product sales services revenue cardiology business decreased approximately 152 million 3 5035 million 2012 5187 million 2011 primarily result fda recall matters related alere triage meterbased products net product sales meterbased triage products us totaled 1503 million 2012 compared 1992 million 2011 decrease sales meterbased triage products partially offset 193 million sales contributed acquisition axisshield net product sales services revenue infectious disease business increased approximately 510 million 9 6160 million 2012 5650 million 2011 acquisition axisshield contributing 274 million increase net product sales services revenue toxicology business increased approximately 2001 million 52 5873 million 2012 3872 million 2011 recent acquisitions avee escreen amedica biotech inc amedica contributing approximately 1939 million increase diabetes net product sales services revenue increased approximately 1295 million 866 1444 million 2012 150 million 2011 recent acquisitions contributing nearly increase health information solutions following table summarizes net product sales services revenue health information solutions business segment groups similar products services 2012 2011 thousands net product sales services revenue heath information solutions business segment increased 09 million 5354 million 2012 5345 million 2011 within health information solutions business segment condition case management net product sales services revenue decreased approximately 196 million 8 2184 million 2012 compared 2379 million 2011 principally due increasingly competitive environment including pricing pressures impact health plans insourcing services state budget pressures patient selftesting services net product sales services revenue increased approximately 147 million 19 922 million 2012 compared 774 million 2011 principally driven increase home coagulation monitoring programs resulting larger patient population simultaneous reduction customer attrition rates higher census levels result increased physician referrals led 5 increase revenue women’s children’s health business consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 28 million 3 896 million 2012 924 million 2011 net product sales spd 1878 million 2092 million 2012 2011 respectively impact foreign currency translation accounting substantially decrease net product sales services revenue geographic location net product sales services revenue geographic location 2012 2011 follows thousands 1 includes among many others following countries china japan india south korea australia canada brazil net product sales services revenue 17 billion 14 billion generated united states approximately 61 total net product sales services revenue 2012 2011 growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 51 million 22 286 million 2012 235 million 2011 2012 received upfront royalty payment 110 million related license certain molecular intellectual property also received additional license royalty revenue 2012 result acquisition axisshield contributed approximately 37 million increase increases 2012 offset amendment license agreement quidel 2011 whereby license agreement converted fully paidup license result amendment record royalty revenue quidel 2012 opposed 75 million royalty revenue recorded quidel 2011 anticipate recording royalty revenue quidel future gross profit margin percentage gross profit increased 1825 million 15 14 billion 2012 12 billion 2011 increase gross profit 2012 largely attributed increase net product sales services revenue resulting acquisitions cost net revenue 2012 2011 included amortization 47 million 60 million respectively relating write inventory fair value connection certain acquisitions reducing gross profit 2012 2011 31 million 29 million respectively restructuring charges cost net revenue included amortization expense 723 million 632 million 2012 2011 respectively overall gross margin percentage 51 2012 compared 52 2011 gross profit net product sales services revenue total business segment gross profit net product sales services revenue increased 1777 million 14 billion 2012 12 billion 2011 gross profit net product sales services revenue business segment 2012 2011 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1873 million 19 12 billion 2012 9640 million 2011 principally result gross profit earned revenue acquired businesses discussed comparing 2012 2011 gross profit negatively impacted decrease meterbased triage product sales discussed fda recall relating meterbased triage products also resulted incremental costs 2012 principally due costs refunds made period replacement products issued cost unfavorable manufacturing variances lost margin reduced volume tests sold 2012 cost professional diagnostics net product sales services revenue 2012 2011 included amortization 47 million 60 million respectively relating writeup inventory fair value connection certain acquisitions reducing gross profit 2012 2011 23 million restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 644 million 551 million 2012 2011 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 53 2012 compared 56 2011 increased revenue recently acquired toxicology businesses contribute lowerthansegmentaverage gross margins decrease meterbased triage product sales contribute higherthansegmentaverage gross margins contributed decrease gross margin respective periods health information solutions gross profit health information solutions net product sales services revenue decreased 93 million 4 2365 million 2012 2458 million 2011 primarily result increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services condition case management state budget pressures reducing gross profit 2012 2011 08 million 07 million respectively restructuring charges cost health information solutions net product sales services revenue included amortization expense 67 million 2012 2011 respectively percentage health information solutions net product sales services revenue gross profit health information solutions business 44 2012 compared 46 2011 lower margin percentage primarily result increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services condition case management state budget pressures consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 03 million 2 193 million 2012 196 million 2011 cost consumer diagnostics net product sales services revenue included amortization expense 12 million 14 million 2012 2011 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 22 2012 compared 21 2011 research development expense research development expense increased 328 million 22 1830 million 2012 1502 million 2011 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 13 million 04 million included research development expense 2012 2011 respectively amortization expense 269 million 126 million included research development expense 2012 2011 respectively included 269 million amortization expense 2012 192 million related write certain inprocess research development projects recorded connection axisshield acquisition fourth quarter 2011 included 126 million amortization expense 2011 72 million related write certain inprocess research development projects recorded connection standard diagnostics acquisition first quarter 2010 research development expense percentage net revenue 6 2012 2011 sales marketing expense sales marketing expense increased 778 million 14 6434 million 2012 5656 million 2011 increase sales marketing expense primarily relates additional spending related newlyacquired businesses amortization expense 2399 million 2209 million included sales marketing expense 2012 2011 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 25 million 50 million included sales marketing expense 2012 2011 respectively sales marketing expense percentage net revenue 23 24 2012 2011 respectively general administrative expense general administrative expense increased 934 million 23 4928 million 2012 3993 million 2011 increase general administrative expense primarily relates additional spending related newlyacquired businesses acquisitionrelated costs 97 million 115 million included general administrative expense 2012 2011 respectively included general administrative expense 2012 2011 66 million 141 million respectively income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations amortization expense 80 million 112 million included general administrative expense 2012 2011 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 134 million 200 million included general administrative expense 2012 2011 respectively general administrative expense percentage net revenue 17 2012 2011 annual goodwill impairment test conduct annual goodwill impairment test fourth quarter year fourth quarter 2012 step 1 impairment test prescribed asc 350 intangibles goodwill asc 350 indicate carrying value assets exceeded fair value applicable reporting unit accordingly record goodwill impairment charges 2012 step 1 2011 impairment test indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment test prescribed asc 350 determine amount goodwill impairment charge step 2 portion test indicated needed record goodwill impairment charge approximately 3836 million recorded fourth quarter 2011 details goodwill impairment test disclosed note 2 consolidated financial statements included elsewhere annual report form 10k interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 366 million 18 2406 million 2012 2040 million 2011 increase principally due higher interest expense recorded connection higher outstanding debt balances applicable interest rates 2012 compared outstanding debt balances applicable interest rates 2011 interest expense 2012 includes approximately 232 million expense associated repurchase substantially 7875 senior notes interest expense 2011 included interest expense amortization fees paid certain debt modifications totaling 325 million recorded connection termination former secured credit facility related interest rate swap agreement 2011 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands increase foreign exchange gains losses net 2012 compared 2011 primarily result 127 million realized foreign currency loss associated cash balance established connection axisshield acquisition 2011 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 2011 income 158 million 2012 included 155 million prior period royalty settlements included 135 million final royalty termination payment received quidel net 42 million gain recorded disposal property plant equipment 14 million income associated legal settlements related intellectual property litigation partially offsetting impact events settlement prior year dispute former distributor totaling approximately 39 million income 222 million 2011 includes 138 million income associated amendment license agreement quidel also includes settlement prior period royalties 50 million income associated settlement dispute certain intellectual property rights 48 million reversal prior period legal settlement reserve longer deemed necessary partially offset approximately 16 million losses recorded disposal fixed assets gain sale joint venture interest connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expired july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option gain totaling approximately 2889 million recognized third quarter 2011 benefit income taxes benefit income taxes increased 61 million 303 million benefit 2012 242 million benefit 2011 effective tax rate 2012 25 compared 15 2011 increase benefit income taxes corresponding effective tax rate 2011 2012 primarily related rate differential foreign earnings recognition tax benefit associated goodwill impairment charge recorded 2011 primary components 2012 benefit income taxes relate us federal state income tax benefits including favorable adjustments revaluation contingent consideration offset tax provisions foreign income increases certain valuation allowances increase reserve uncertain tax positions increase permanent adjustments primary components 2011 benefit income taxes relate us federal state income tax benefits tax benefit foreign income offset losses related 2011 goodwill impairment tax benefitted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2012 primarily reflect following earnings 50 interest spd amount 107 million ii earnings 40 interest vedalab sa vedalab amount 04 million iii earnings 49 interest techlab inc techlab amount 23 million equity earnings unconsolidated entities net tax 2011 primarily reflect following earnings 50 interest spd amount 59 million ii earnings 40 interest vedalab amount 07 million iii earnings 49 interest techlab amount 20 million net loss 2012 generated net loss available common stockholders 995 million 123 per basic diluted common share compared net loss available common stockholders 1317 million 158 per basic diluted common share 2011 net loss available common stockholders reflects 213 million 220 million preferred stock dividends paid 2012 2011 respectively 239 million income associated repurchase preferred stock 2011 net loss 2012 2011 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions expect fund short longterm working capital needs primarily using existing cash operating cash flow expect working capital position improve future operating margins grow business new product service offerings continuing leverage strong intellectual property position december 31 2013 3619 million cash equivalents 1241 million held domestic subsidiaries 2378 million held foreign entities generally plan repatriate cash held foreign entities ordinary course business due adverse tax implications including incremental us tax liabilities potential foreign withholding tax liabilities may also utilize secured credit facility new sources financing fund portion capital needs commitments including contractual contingent consideration obligations future acquisitions december 31 2013 outstanding borrowings totaling 1700 million 2500 million revolving line credit secured credit facility leaving 800 million available us additional borrowings ability access capital markets may impacted amount outstanding debt equity extent assets encumbered outstanding secured debt terms conditions outstanding debt instruments also contain covenants expressly restrict ability incur additional indebtedness conduct financings december 31 2013 38 billion outstanding indebtedness included 23 billion secured credit facility including borrowings revolving line credit 4500 million 725 senior notes due 2018 4000 million 8625 senior subordinated notes due 2018 4250 million 65 senior subordinated notes due 2020 1500 million 3 convertible senior subordinated notes due 2016 february 2013 redeemed remaining 18 million outstanding principal amount 7875 senior notes pursuant optional redemption right indenture 7875 senior notes issued may 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount 9 senior subordinated notes june 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes see note 6 consolidated financial statements included elsewhere annual report form 10k information outstanding debt balances capital credit markets experience volatility availability funds limited may incur increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated integrating operations newlyacquired companies executing costsavings strategies prosecuting defending existing lawsuits andor unforeseen lawsuits us also cannot certain underlying assumed levels revenues expenses realized addition intend continue make investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result cash flow summary changes cash position cash equivalents increased 336 million 2013 compared increase 292 million 2012 primary sources cash 2013 included 2448 million generated operating activities 4600 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed net 425 million paid secured credit facility revolving lineofcredit 293 million return capital related equity investments 290 million received disposition spinreact operations 209 million cash received common stock issuances employee stock option stock purchase plans 104 million decrease related assets 36 million proceeds sale property equipment primary uses cash 2013 included 4715 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 1761 million net cash paid acquisitions 1222 million capital expenditures 424 million related payments acquisitionrelated contingent consideration obligations 324 million related increase restricted cash 213 million cash dividends paid series b preferred stock 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 98 million related payment debtrelated financing costs 71 million payment capital lease obligations fluctuations foreign currencies negatively impacted cash balance 19 million 2013 cash equivalents increased 292 million 2012 compared decrease 1021 million 2011 primary sources cash 2012 included 3197 million generated operating activities 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans secured credit facility 224 million proceeds sale property plant equipment 149 million common stock issuances employee stock option stock purchase plans 143 million net proceeds various revolving credit facilities 127 million return capital related equity investments 31 million sales marketable securities primary uses cash 2012 included 4246 million net cash paid acquisitions 3116 million related cash payments longterm debt 1374 million capital expenditures 563 million related increase assets 213 million cash dividends paid series b preferred stock 210 million related payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 70 million payment capital lease obligations 62 million related repayment shortterm debt fluctuations foreign currencies negatively impacted cash balance 21 million 2012 cash equivalents decreased 1021 million 2011 compared decrease 915 million 2010 primary sources cash 2011 included 2713 million generated operating activities 8533 million net proceeds received connection refinancing credit facilities included 21 billion cash received connection entering new secured credit facility june 2011 partially offset 13 billion cash payments related termination repayment former secured credit facility related interest rate swap agreement 379 million received common stock issuances employee stock option stock purchase plans 115 million received disposition business 92 million sales marketable securities primary uses cash 2011 included 6313 million net cash paid acquisitions 2839 million related repurchase preferred common stock 1316 million capital expenditures net proceeds sale equipment 1219 million net cash paid equity method investments includes approximately 412 million paid shares axisshield prior completion acquisition remaining shares outstanding 283 million related payments acquisitionrelated contingent consideration obligations 277 million related increase assets includes purchases various licensing agreements totaling 330 million 64 million related increase restricted cash 54 million cash dividends paid series b preferred stock fluctuations foreign currencies negatively impacted cash balance 153 million 2011 cash flows operating activities net cash provided operating activities 2013 2448 million resulted net loss 703 million 996 million cash used meet net working capital requirements year offset 4147 million noncash items 4147 million noncash items included among items 4394 million related depreciation amortization 356 million related loss extinguishment debt 212 million related noncash stockbased compensation 181 million interest expense related amortization deferred financing costs original issue discounts 86 million related noncash items 63 million related impairment longlived assets 51 million loss disposition spinreact operations 33 million related impairment intangible assets 33 million loss sale fixed assets 25 million noncash charge related write inventory fair value connection acquisition epocal partially offset 1036 million decrease related changes deferred tax assets liabilities resulted part amortization intangible assets 174 million equity earnings unconsolidated entities net tax 80 million relating bargain purchase gain connection acquisition liberty business net cash provided operating activities 2012 3197 million resulted net loss continuing operations 779 million 377 million cash used meet net working capital requirements period offset 4353 million noncash items 4353 million noncash items included among items 4568 million related depreciation amortization 306 million increase related noncash items 215 million interest expense related amortization deferred financing costs original issue discounts 157 million related noncash stockbased compensation 47 million noncash charge related writeup inventory fair value connection acquisition axisshield 35 million related impairment longlived assets 30 million related impairment intangible assets partially offset 846 million decrease related changes deferred tax assets liabilities resulted part amortization intangible assets 132 million equity earnings unconsolidated entities net cash provided operating activities 2011 2713 million resulted net loss 1333 million 747 million cash used meet net working capital requirements offset 4792 million noncash items 4792 million noncash items included among items 3916 million related depreciation amortization 3836 million goodwill impairment charge related health management reporting unit business segment 376 million interest expense related amortization deferred financing costs original issue discounts 212 million related noncash stockbased compensation 60 million noncash charge related writeup inventory fair value connection acquisition axisshield 29 million related impairment intangible assets partially offset 2889 million gain associated creation joint venture interest spd 568 million decrease related changes deferred tax assets liabilities partially resulted amortization intangible assets 122 million decrease related noncash items 85 million equity earnings unconsolidated entities cash flows investing activities investing activities 2013 utilized 2583 million cash including 1761 million net cash paid acquisitions 1222 million capital expenditures increase restricted cash balance 324 million principally driven 294 million deposit connection foreign bank loan arrangement 79 million cash received bill melinda gates foundation 57 million used fund qualified expenditures partially offset 293 million return capital related equity investments 290 million proceeds relating disposition spinreact operations 104 million decrease assets 36 million proceeds sale property equipment investing activities 2012 utilized 5742 million cash including 4246 million net cash paid acquisitions 1374 million capital expenditures 563 million related increase assets includes 460 million note receivable purchases various licensing agreements totaling approximately 43 million partially offset 224 million proceeds sale property plant equipment 127 million return capital equity investments included 112 million return capital spd 59 million decrease restricted cash balance 31 million sales marketable securities investing activities 2011 utilized 8982 million cash including 6313 million net cash paid acquisitions 1316 million capital expenditures net proceeds sale equipment 1219 million net cash paid equity method investments includes approximately 412 million paid shares axisshield prior completion acquisition remaining shares outstanding 277 million related increase assets includes purchases various licensing agreements totaling 330 million increase restricted cash balance approximately 64 million partially offset 115 million received disposition business 92 million received sales marketable securities cash flows financing activities net cash provided financing activities 2013 490 million financing activities 2013 primarily included 4600 million net proceeds received connection longterm debt issuances included 4250 million gross proceeds received connection issuance 65 senior subordinated notes 1390 million net proceeds various revolving credit facilities included 1900 million borrowed net 425 million paid secured credit facility revolving lineofcredit 209 million cash received common stock issuances employee stock option stock purchase plans addition utilized 4715 million cash payments longterm debt included 4000 million cash payments related repurchase 9 senior subordinated notes 424 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 190 million related tender offer consideration call premium incurred connection repurchase 9 senior subordinated notes 98 million related payment debtrelated financing costs 71 million payment capital lease obligations net cash provided financing activities 2012 2857 million financing activities 2012 primarily included 6485 million net proceeds received connection longterm debt issuances included 4432 million net proceeds received connection issuance 725 senior notes 1980 million net proceeds received connection “incremental b2” term loans entered secured credit facility 149 million cash received common stock issuances employee stock option stock purchase plans 143 million net proceeds various revolving credit facilities included 225 million borrowed secured credit facility revolving lineofcredit 4432 million received connection issuance 725 senior notes offset 2674 million cash payments related repurchases 7875 senior notes 1700 million used pay portion outstanding balance revolving lineofcredit addition utilized 213 million dividend payments related series b preferred stock 210 million payments acquisitionrelated contingent consideration obligations 123 million related makewhole payment incurred connection repurchase 7875 senior notes 101 million related payment debtrelated financing costs 70 million payment capital lease obligations 62 million related repayment shortterm debt obligations net cash provided financing activities 2011 5401 million financing activities 2011 primarily included 21 billion cash received connection entering new secured credit facility june 2011 379 million cash received common stock issuances employee stock option stock purchase plans 21 billion received connection secured credit facility partially offset 13 billion cash payments related termination repayment former secured credit facility related interest rate swap agreement utilized approximately 2839 million cash repurchase shares preferred common stock 283 million payments acquisitionrelated contingent consideration obligations 54 million dividend payments related series b preferred stock 42 million principal payments capital lease obligations december 31 2013 aggregate 213 million outstanding capital lease obligations payable 2019 income taxes december 31 2013 approximately 874 million domestic nol domestic capital loss carryforwards approximately 9988 million state nol carryforwards 2547 million foreign nol foreign capital loss carryforwards either expire various dates 2033 carried forward indefinitely december 31 2013 approximately 704 million domestic research development foreign tax alternative minimum tax credits either expire various dates 2033 carried forward indefinitely loss carryforwards tax credits may available reduce future federal state foreign taxable income subject review possible adjustment appropriate tax authorities effective january 1 2009 adopted new accounting standard business combinations prior adoption standard preacquisition losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption new accounting standard reduction valuation allowance generally recorded reduce income tax expense furthermore domestic losses credits subject internal revenue service code sections 382 383 limitations respectively may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use losses credits amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols credits certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2013 contractual obligations following table summarizes principal contractual obligations december 31 2013 thousands 1 see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 includes 38 million deferred purchase price payments 30 million noncompete payments 125 million management incentive payments related acquisition epocal 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k 7 connection certain acquisitions additional contingent consideration may become payable sellers upon satisfaction certain performance milestones amounts represent estimated fair value obligations information pertaining contingent consideration arrangements see note 11 consolidated financial statements included elsewhere annual report form 10k addition contractual obligations included table recorded reserves uncertain tax positions including interest penalties amount 241 million noncurrent liabilities uncertain amounts may settled see disclosure regarding uncertain tax positions note 16 consolidated financial statements included elsewhere annual report form 10k critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2013 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish meeting performance criteria meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 986 million 678 million 475 million 5 4 3 respectively net product sales 2013 2012 2011 respectively recorded product sales derive net product sales amounts approximately 703 million 437 million 236 million 2013 2012 2011 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 5487 million 5243 million net allowances doubtful accounts 766 million 364 million december 31 2013 2012 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3642 million 3371 million net reserve excess obsolete inventory 215 million 218 million december 31 2013 2012 respectively goodwill longlived intangible assets longlived assets include property plant equipment net goodwill intangible assets indefinite lives finitelived intangible assets net december 31 2013 2012 respectively property plant equipment net 5452 million 5345 million goodwill 31 billion 30 billion intangible assets indefinite lives 567 million 365 million finitelived intangible assets net 17 billion 18 billion goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guideline companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2013 annual goodwill impairment test conducted 2013 annual impairment test reporting units fourth quarter 2013 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 140 projected compound average revenue growth rates 40 114 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 29 times multiples ebitda 64 106 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 16 billion 315 million 927 million respectively 302 77 455 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation 2012 annual goodwill impairment test conducted 2012 annual impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 determination appropriate discount rate key assumptions 2013 annual goodwill impairment test based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 54 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 3999 million 419 million 539 million 79 94 272 respectively 2011 annual goodwill impairment test conducted 2011 annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determination appropriate discount rate key assumptions 2013 annual goodwill impairment test based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 5672 million 1019 million 135 535 respectively step 1 impairment test indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review conduct annual goodwill impairment test reporting units fourth quarter impairment test conducted 2011 indicated impairment goodwill associated health information solutions reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis prescribed asc 360 property plant equipment utilizing undiscounted cash flow model analysis indicated impairment longlived tangible intangible assets associated health information solutions reporting unit stockbased compensation stockbased compensation expense measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 836 million december 31 2013 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses nols tax credits increase 150 million valuation allowance 686 million december 31 2012 increase primarily related domestic state nols certain foreign nols valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations us federal various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k entitled “part item 3 legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2v consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e exchange act identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements include without limitation statements regarding expected closing date closing transactions contemplated amended merger agreement abbott laboratories abbott’s ability obtain required regulatory approvals pursuant amended merger agreement including antitrust approvals results current litigation regarding purported class action lawsuits regarding securities violations inratio well current future litigation outcomes fda oig sec department justice notifications subpoenas investigations current future government investigations future appeals regarding revocation arriva medical’s cms billing privileges result appeal revocation medicare enrollment arriva medical plans voluntarily withdraw inratio inratio2 ptinr monitoring systems market expenses related withdrawal related costs implementation effectiveness efforts remediate material weaknesses internal control financial reporting ability timely file financial periodic current reports required exchange act ability implement effective controls monitor revenue recognition including standard diagnostics foreign subsidiaries expenses related amended merger agreement potential future costs effects future healthcare reform initiated congress new presidential administration success clinical studies trials regulatory hurdles ability comply regulatory oversight united states abroad effects changes regulations benefits improved products ability commercialize products development expected product distribution alere home monitoring future development markets toxicology products future market acceptance united states alere dds2 mobile test system expected ability pay certain indebtedness maturity future benefits intellectual property future competition markets anticipated timing commercialization certain products outcome certain tax examinations timing decisions outcome connection certain legal proceedings parties subject ability navigate international business regulatory personnel manufacturing risk sources funds pay principal interest indebtedness certain expenses future plans respect repayment refinancing indebtedness intention retain earnings support growth strategy anticipate paying dividends common stock pma submissions made future compensation policies practices expected implemented continued future trends respect license royalty revenues future trends respect amortization expense source funds expected ability fund short longterm working capital needs anticipated use proceeds divestitures future plans respect repatriation cash held foreign entities availability sufficient space contain operations future litigation may brought us including relating product liability impact litigation future litigation strategies related intellectual property matters impact amended merger agreement change control severance agreements expected tax treatment certain compensation payments named executive officers expected impact recently announced adopted accounting standards accounting standards financial statements effect information security breaches cyberattacks violations applicable privacy regulations global economic conditions continuation adequate manufacturing capacity availability raw materials ability manage valuation liability relating joint ventures maintenance adequate insurance coverage relating product liability property subjects future benefit payments defined benefit plan participants future contributions us certain benefit plans future amortization gainloss benefit plans anticipated increases decreases certain tax benefits future changes tax positions due audits anticipated expenses costs connection certain restructuring plans future tax benefits liabilities future charges connection withdrawal product market impact research development activities potential new product technology achievements potential selective divestitures noncore assets actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” annual report form 10k well factors identified time filings securities exchange commission undertake obligation revise update forwardlooking statements including reflect events circumstances occurring date filing annual report form 10k except extent required law report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview deliver reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally highperformance diagnostics infectious disease cardiometabolic disease toxicology designed meet growing global demand accurate easytouse costeffective nearpatient tests goal make products accessible people around world even located remote resourcelimited areas making affordable usable setting making critical clinical diagnostic information available doctors patients actionable timeframe products help streamline healthcare delivery improve patient outcomes restatement april 12 2017 management audit committee concluded financial statements december 31 2015 2014 years ended december 31 2015 2014 2013 quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 relied upon annual report form 10k restated audited consolidated financial statements december 31 2015 years ended december 31 2015 2014 certain unaudited consolidated financial information quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 information included management’s discussion analysis financial condition results operations reflects restated annual results december 31 2015 years ended december 31 2015 2014 information restatement including adjustments made previously reported financial statements see explanatory note see note 2 “restatement previously issued consolidated financial statements” note 28 “restated selected quarterly financial information unaudited” consolidated financial statements included elsewhere annual report form 10k change segment reporting operating segments currently professional diagnostics ii consumer diagnostics iii nonreportable january 2015 sold health management business result sale health management business largest component former patient selftesting reporting segment well certain transactions 2015 component patient selftesting reporting segment retained alere home monitoring business therefore annual report form 10k fiscal year ended december 31 2015 reported financial information two operating segments professional diagnostics ii consumer diagnostics alere home monitoring reported component professional diagnostics segment due nature operations alere home monitoring manner business conducted report alere home monitoring business separate operating segment heading “other nonreportable segment” information 2015 2014 retroactively adjusted reflect foregoing changes segment presentation alere home monitoring distributes ptinr coagulation monitors facilitates distribution equipment supplies power control customers’ implanted ventricular assist devices vads also provides telemonitoring services allows vad coordinators monitor patients soon discharge receive alerts critical patient values fall outside preestablished ranges recent developments merger agreement abbott laboratories january 30 2016 entered merger agreement abbott merger agreement provides merger wholly owned subsidiary abbott alere merger alere surviving merger wholly owned subsidiary abbott surviving corporation terms merger agreement prior amendment described herein holders shares common stock entitled receive 5600 cash without interest exchange share common stock april 13 2017 abbott alere entered amendment agreement plan merger agreement amendment amends merger agreement amended merger agreement amendment amended merger agreement provides among things holders shares common stock receive 5100 cash without interest exchange share common stock expressly modified pursuant merger agreement amendment merger agreement remains full force effect information regarding amended merger agreement status antitrust clearances settlement litigation relating original merger agreement see item 1 “businessrecent developmentsmerger agreement abbott laboratories” incurred significant expenses connection responding information requests abbott received prior commencement litigation delaware chancery court connection litigation delaware chancery court prior entering amended merger agreement settlement agreement abbott april 13 2017 sale minority interest techlab september 16 2016 sold 49 interest techlab inc company provides diagnostic testing products used physicians health care customers diagnose treat monitor intestinal diseases medical conditions connection sale recorded gain equity earnings unconsolidated entities 299 million accounted interest techlab equity method investment prior sale interest techlab served distributor techlab products remain principal global distributor techlab products pursuant terms distribution agreement techlab arriva llc billing number arriva medical durable medical equipment dme supply business furnishes diabetic testing supplies via mail order including blood glucose monitors test strips lancets lancing devices control solutions well related medical supplies united states products generally covered medicare medicaid thirdparty payers october 12 2016 arriva medical received notice dated october 5 2016 medicare enrollment would revoked cms based cms’ assertion fiveyear period approximately 57 million medicare claims made one million unique beneficiaries arriva allegedly submitted claims 211 medicare beneficiaries deceased date products shipped even products appropriately ordered advance patient’s death arriva medical’s initial appeal determination denied cms arriva’s medicare enrollment revoked effective november 4 2016 pending outcome appeals arriva medical conducted investigation issue believe received retained medicare reimbursement dme items issue 211 medicare beneficiaries addition cms subsequently provided notice arriva medical’s competitive bidding contract would terminated result revocation enrollment unless enrollment status reactivated arriva medical ineligible reimbursement products services furnished medicare beneficiaries november 4 2016 enrollment reactivated retroactive november 4 2016 would able bill reimbursed covered products services furnished since date results operations year ended december 31 2016 included approximately 831 million revenue attributable arriva medical’s products services furnished november 4 2016 reimbursed cms subject cms revocation november 4 2016 period november 4 2016 december 31 2016 furnished 98 million arriva’s products services subject cms revocation customers recognize revenue products services eligible reimbursement cms time furnished fiscal year ended december 31 2016 arriva medical recognized approximately 165 million revenue sale products services diabetes supplies reimbursed commercial payers subject cms revocation amount 23 million revenue generated november 4 2016 products services continued furnished medicare beneficiaries period november 4 2016 december 31 2016 arriva medical incurred approximately 103 million expenses noted revenue associated provision products services recorded additional information matter well status appeals processes arriva medical pursuing see item 1 “businessgovernment regulationarriva medical billing number” item 1a “risk factorsrisks related business operationsarriva medical’s medicare enrollment revoked effective november 4 2016 unable enrollment reinstated medicare revoke medicare enrollment billing privileges alere entities business results operations may harmed” inratio®2 ptinr monitoring system voluntary withdrawal june 2016 announced would initiating voluntary withdrawal alere inratio inratio2 ptinr monitoring system currently implementing product withdrawal product discontinuation expect completed 2017 recorded charge approximately 380 million year ended december 31 2015 related impairment inventory production equipment estimated costs removing inratio inratio2 market december 31 2016 116 million 24 million estimated costs removing inratio 2 market included accrued expenses accounts payable respectively additionally decision withdraw inratio inratio2 ptinr monitoring systems impacted useful life assumptions certain tangible intangible assets result change estimate recorded approximately 41 million 164 million accelerated amortization intangible assets approximately 07 million 28 million accelerated depreciation tangible assets three months twelve months ended december 31 2016 respectively alere home monitoring patient selftesting business continue distribute ptinr coagulation monitors following withdrawal inratio inratio2 ptinr monitoring systems market 3 convertible senior subordinated notes 3 convertible senior subordinated notes matured may 15 2016 aggregate amount cash paid noteholders maturity approximately 1520 million consisting 1250 million cash drawn revolving credit facility plus 270 million cash available date divestiture health management business noted january 9 2015 completed sale health management business completed sale acs october 2014 sale wellogic june 2015 results operations health management business acs companies reported income loss discontinued operations net tax fiscal years ended december 31 2015 2014 accompanying consolidated statements operations see note 4 consolidated financial statements included elsewhere annual report form 10k information divestitures discontinued operations 2016 financial highlights • net revenue decreased 793 million 3 238 billion 2016 246 billion 2015 • gross profit decreased 184 million 2 109 billion 2016 111 billion 2015 • 2016 generated loss continuing operations available common stockholders 1590 million 183 per basic diluted common share 2015 generated loss continuing operations available common stockholders 371 million 043 per basic diluted common share • 2016 generated net loss available common stockholders 1590 million 183 per basic diluted common share 2015 generated net income available common stockholders 1824 million 214 per basic diluted common share results operations discussed results excluding impact foreign currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe presenting information using foreign currency exchange rates helps investors isolate impact changes rates factors year ended december 31 2016 compared year ended december 31 2015 net product sales services revenue total net product sales services revenue decreased 743 million 3 236 billion 2016 244 billion 2015 net product sales services revenue decreased 2016 compared prior year primarily result 539 million reduction revenue attributable disposition bbi business november 2015 487 million decrease revenues arriva medical due medicare reimbursement rate changes compared 2015 well impact arriva medical’s cms enrollment revocation 405 million unfavorable impact foreign currency exchange rates 97 million decrease toxicology sales revenue declines partially offset 660 million increase infectious disease sales including flu malaria hivrelated products tropical diseaserelated products 134 million increase sales alere home monitoring patient selftesting anticoagulation business net product sales services revenue business segment net product sales services revenue business segment 2016 2015 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2016 2015 thousands net product sales services revenue professional diagnostics business segment decreased 767 million 3 215 billion 2016 222 billion 2015 primarily result decreased revenues 487 million arriva medical mail order diabetic supplies business 470 million due disposition bbi business 362 million due unfavorable impact foreign currency exchange rates 97 million toxicology sales decrease partially offset revenue increases infectious disease 660 million including flu malaria hivrelated products tropical diseaserelated products bbi business sold november 2015 included sales products professional diagnostics consumer diagnostics segments net product sales services revenue professional diagnostics business segment us decreased 793 million 7 110 billion 2016 118 billion 2015 decrease 2016 compared prior year primarily driven revenue declines 487 million arriva medical 164 million us toxicology pain management business addition us revenues declined 145 million due disposition bbi business net product sales services revenue professional diagnostics business segment international markets decreased 26 million 105 billion 2016 105 billion 2015 lower sales international markets driven primarily 398 million 9 decrease revenues attributable europe primarily due disposition bbi business november 2015 impact foreign currency exchange rates european sales decreases offset increased sales 193 million asia pacific region primarily due infectious disease products 229 million africa primarily due malariarelated products within professional diagnostics business segment cardiometabolic net product sales services revenue decreased 811 million 12 6225 million 2016 7036 million 2015 primarily result decline sales arriva medical reduced revenues sales triage cholesterol products infectious disease net product sales services revenue increased 660 million 9 7762 million 2016 7102 million 2015 increase infectious disease revenue 2016 primarily attributable increased revenues flu malaria hiv tropical diseaserelated products toxicology net product sales services revenue decreased 97 million 2 6086 million 2016 6184 million 2015 primarily result decreased sales escreen pain management businesses decreases partially offset increased revenues 154 million due acquisitions us diagnostics usd july 2015 european drug testing services edts ab edts 2016 revenue decreased 519 million 27 1404 million 2016 compared 1923 million 2015 primarily due disposition bbi business consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 110 million 13 742 million 2016 851 million 2015 decrease resulted primarily 70 million decrease revenue attributable disposition bbi business november 2015 balance decrease 2016 primarily attributable decrease sales spd longterm manufacturing service agreement see note 21 consolidated financial statements included elsewhere annual report form 10k information spd nonreportable net product sales services revenue nonreportable segment increased 134 million 10 1425 million 2016 1291 million 2015 increase entirely attributable us based ptinr patient selftesting business operated alere home monitoring alere home monitoring sales increases primarily driven growth business patient base license royalty revenue license royalty revenue decreased 50 million 29 120 million 2016 170 million 2015 decrease royalty revenue 2016 compared 2015 primarily result lower royalties earned existing licensing agreements certain patents related lateral flow technology expired 2015 net revenue geographic location net revenue geographic location 2016 2015 follows thousands net revenue 13 billion 14 billion generated us approximately 54 56 total net revenue 2016 2015 respectively decrease total net revenue 2015 2016 approximately 97 result decrease revenue professional diagnostics business segment much decrease result decreased professional diagnostic products us case described gross profit margin percentage gross profit decreased 184 million 2 109 billion 2016 111 billion 2015 decrease gross profit 2016 compared 2015 largely attributable 288 million decrease gross profit arriva medical mailorder diabetes business result medicare reimbursement rate decreases well impact revocation arriva medical’s cms enrollment 244 million decrease gross profit due divested businesses 144 million negative impact foreign currency exchange rates partially offsetting decreases 99 million increase gross profit alere home monitoring business gross profit 2015 negatively impacted 391 million charge incurred 2015 connection plan voluntarily withdraw alere inratio® systems market overall gross margin 2016 46 compared 45 2015 gross profit net product sales services revenue total business segment gross profit net product sales services revenue decreased 140 million 1 108 billion 2016 110 billion 2015 gross profit net product sales services revenue business segment 2016 2015 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue decreased 224 million 2 100 billion 2016 compared 103 billion 2015 lower gross profit 2016 compared prior year principally reflects 288 million decrease gross profit arriva medical mailorder diabetes business result medicare reimbursement rate decreases well impact revocation arriva medical’s cms enrollment gross profit professional diagnostics segment also negatively impacted 240 million impact divested businesses 139 million due negative impact foreign currency exchange rates lesser degree decreased manufacturing volumes gross profit professional diagnostics segment negatively impacted 2015 391 million accrual incurred connection plan voluntarily withdraw alere inratio systems market minimal accrual 2016 matter percentage professional diagnostics net product sales services revenue gross profit 2016 47 compared 46 2015 higher gross margin principally reflects impact fewer expenses 2016 related voluntary inratio product withdrawal offset lower revenues discussed consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 15 million 21 56 million 2016 71 million 2015 decrease gross profit primarily driven decreased sales spd manufacturing services agreement percentage consumer diagnostics net product sales services revenue gross margin 8 2016 2015 nonreportable gross profit nonreportable net product sales services revenue increased 99 million 16 726 million 2016 627 million 2015 increase gross profit primarily driven increase sales volume result increase patient base alere home monitoring business percentage nonreportable net product sales services revenue gross margin 2016 51 compared 49 2015 research development expense research development expense decreased 73 million 6 1121 million 2016 1195 million 2015 primarily due 83 million reduction amortization expense 68 million benefit reduced outside services mainly driven restructuring efforts 2016 decreases partially offset 50 million increase project spending related payment made connection thirdparty achieving certain contractual milestones 31 million decrease grant funding third parties research development expense 2016 2015 reported net grant funding 64 million 95 million respectively arising research development funding relationship gates foundation contract us department health human services’ biomedical advanced research development authority barda research development expense percentage net revenue 5 2016 2015 sales marketing expense sales marketing expense decreased 314 million 7 4031 million 2016 4344 million 2015 decrease primarily attributable 108 million reduction amortization expense related customer relationship intangible assets 78 million reduction sales marketing expenses associated businesses divested 2015 including bbi business 59 million reduction workforcerelated costs 56 million favorable impact foreign currency exchange rates 12 million decrease restructuring expenses sales marketing expense percentage net revenue 17 18 2016 2015 respectively general administrative expense general administrative expense increased 1896 million 51 5638 million 2016 3742 million 2015 increase primarily attributable 603 million expenses related pending merger abbott 382 million legal consulting fees related certain government investigations 350 million accrual connection ongoing governmental investigation commenced may 2012 received subpoena oig 200 million charges associated various restructuring plans additionally 443 million increase expense relates changes estimates fair value acquisitionrelated contingent earnout obligations compared 2015 benefit us change earnout obligations significantly higher 2015 increases partially offset 82 million decrease attributable primarily reduction medical device tax expense compared 2015 general administrative expense percentage net revenue 24 2016 compared 15 2015 impairment gain loss dispositions net january 2016 completed sale alere esanté business component professional diagnostics reporting unit business segment received cash consideration approximately 81 million net final working capital adjustment totaling approximately 02 million eligible receive 15 million contingent cash consideration result transaction recorded 38 million gain 2016 disposition alere esanté business november 2015 completed sale bbi business received cash consideration approximately 1064 million net final working capital adjustment eligible receive contingent consideration payments 466 million upon achievement certain milestone net assets disposed connection disposition bbi business valued aggregate 665 million value allocated goodwill 492 million aggregate value net assets goodwill disposed transaction exceeded closing cash consideration recorded 93 million loss 2015 disposition bbi business july 2015 sold certain assets inverness medical innovations australia pty ltd business part professional diagnostics reporting unit business segment aud 02 million approximately 01 million date disposition cash proceeds result transaction recorded loss 12 million 2015 may 2015 sold alere analytics business part professional diagnostics reporting unit business segment terms sale received nominal consideration agreed contribute working capital 27 million alere analytics 24 million contributed cash immediately prior closing sale remaining 03 million deposited escrow pending performance buyers certain contracts result transaction recorded loss 36 million 2015 identifying buyer alere analytics management decided close business connection decision recorded impairment charge 267 million period including writeoff 262 million acquisitionrelated intangible assets 05 million fixed assets march 2015 sold certain assets adnagen gmbh business part professional diagnostics reporting unit business segment approximately 46 million cash proceeds result transaction recorded loss 03 million 2015 march 2015 sold gesellschaft fur patientenhilfe dgp gmbh subsidiary part professional diagnostics reporting unit business segment  76 million approximately 82 million march 31 2015 result transaction recorded loss disposition 75 million 2015 recorded additional charges approximately 08 million connection certain business closures divestitures 2015 december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million 2015 connection decision recorded impairment charges 11 million consisting primarily severance costs inventory writeoffs closurerelated expenses financial results businesses immaterial consolidated financial results interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense decreased 453 million 21 1717 million 2016 2170 million 2015 decrease attributable 102 million writeoff thirdparty costs associated refinancing credit facility including underwriter’s fees payments external advisors 199 million loss extinguishment debt associated prior credit facility case incurred 2015 balance decrease primarily due lower interest expense incurred result reduced outstanding debt balances 2016 compared 2015 partially offsetting decreases increase 47 million debt financing fees income expense net income expense net includes interest income realized unrealized foreign exchange losses income expense net components respective amounts income expense net summarized follows thousands interest income related principally cash deposits including restricted cash foreign exchange gains losses net 2016 primarily related impact foreign currency translation intercompany balances denominated british pound sterling korean net 2016 increased 32 million 57 million 25 million 2015 increase primarily driven 29 million rebate received suppliers 2016 provision benefit income taxes provision income taxes increased 890 million 354 million expense 2016 536 million benefit 2015 effective tax rate 2016 23 compared effective tax rate 62 2015 increase provision income taxes 2015 2016 primarily related changes jurisdictional mix income loss increase valuation allowance particularly related us federal state net deferred tax assets tax impact contingent consideration income primary components 2016 provision income taxes related foreign income taxes increase valuation allowance relating us net deferred tax assets increase reserves uncertain tax positions partially offset us federal income tax benefits primary components 2015 benefit income taxes related us federal state income tax benefits operating losses tax impact contingent consideration income recognized tax purposes certain returntoprovision adjustments december 2015 congress signed law protecting americans tax hikes act retroactively extended us federal research development credit january 1 2015 december 31 2015 permanently extended credit going forward result recognized retroactive benefit 2015 us federal research development credit approximately 21 million discrete item fourth quarter 2015 period legislation enacted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax includes share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2016 primarily reflect following 50 interest spd amount 190 million ii 49 interest techlab amount 18 million equity earnings unconsolidated entities net tax 2015 primarily reflect following 50 interest spd amount 143 million ii 49 interest techlab amount 15 million noted september 16 2016 sold interest techlab connection sale recorded gain equity earnings unconsolidated entities 299 million additional information spd techlab see note 21 consolidated financial statements included elsewhere annual report form 10k income discontinued operations net tax results former health management business included income discontinued operations net tax 2015 given january 9 2015 divestiture business 2015 discontinued operations generated income net tax 2195 million income discontinued operations 2015 largely attributable 3649 million pretax gain 2224 million net tax sale health management business see note 4 consolidated financial statements included elsewhere annual report form 10k additional information regarding discontinued operations year ended december 31 2015 compared year ended december 31 2014 net product sales services revenue net product sales services revenue decreased 1173 million 5 244 billion 2015 256 billion 2014 constant currency basis net product sales services revenue 2015 increased 21 million 2014 net product sales services revenue business segment net product sales services revenue business segment 2015 2014 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2015 2014 thousands net product sales services revenue professional diagnostics business segment decreased 1244 million 5 222 billion 2015 235 billion 2014 experienced revenue decreases principally international markets revenue decreased 1135 million 10 105 billion 2015 116 billion 2014 lower sales international markets driven primarily 273 million decrease sales infectious disease products 275 million decrease revenue primarily related noncore thirdparty product sales principally europe asia latin america 158 million decrease cardiometabolic sales 98 million decrease toxicology sales 355 million decrease revenue primarily result dispositions bionote business 2014 dgp bbi businesses 2015 net product sales services revenue professional diagnostics business segment us decreased 109 million 1 118 billion 2015 119 billion 2014 revenues us decreased primarily due 454 million decrease toxicology pain management revenues resulting pricing pressure customer insourcing 125 million decrease revenue attributable dispositions principally result sales bionote business 2014 bbi alere analytics businesses 2015 partially offset 289 million increase toxicology revenues pain management including 100 million increase related revenue associated acquisition usd 137 million increase infectious disease revenues driven primarily 105 million increase influenza sales well 40 million increase revenue within professional diagnostics business segment cardiometabolic net product sales services revenue decreased 219 million 3 7036 million 2015 7254 million 2014 primarily result 203 million decrease global sales inratio products 110 million decrease cholesterol products partially offset 99 million increase us mail order diabetes business infectious disease net product sales services revenue decreased 135 million 2 7102 million 2015 7237 million 2014 decrease principally due 166 million decrease global malaria sales 96 million decrease global sales crp rsv legionella products 82 million decrease global cd4 sales partially offset 202 million increase global influenza hiv sales toxicology net product sales services revenue decreased 263 million 4 6184 million 2015 6446 million 2014 primarily result 454 million decrease pain management revenues resulting continued pricing pressure customer insourcing partially offset 105 million increase employer services escreen business 103 million revenues associated acquisition usd revenue within professional diagnostics business segment decreased 628 million 25 1923 million 2015 2551 million 2014 primarily due 445 million decrease revenue result dispositions bionote business 2014 dgp bbi alere analytics businesses 2015 closure alere connect llc facility 2015 well 206 million decrease revenues noncore thirdparty product sales principally international markets consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 40 million 4 851 million 2015 891 million 2014 consumer diagnostics revenue attributable sales spd longterm manufacturing service agreement decrease revenue largely attributable decrease sales spd consumer diagnostics revenue us flat 2015 2014 approximately 52 million periods decreased 41 million international markets 333 million 2015 compared 374 million 2014 nonreportable net product sales services revenue nonreportable segment increased 111 million 9 1291 million 2015 1180 million 2014 increase entirely attributable us based patient selftesting business operated alere home monitoring alere home monitoring’s sales increases primarily driven growth sales volume result increase patient base license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 41 million 19 170 million 2015 211 million 2014 decrease royalty revenue 2015 compared 2014 primarily result lower royalties earned existing licensing agreements certain patents related lateral flow technology expired 2015 net revenue geographic location net revenue geographic location 2015 2014 follows thousands net revenue 14 billion 14 billion generated us approximately 56 53 total net revenue 2015 2014 respectively decrease total net revenue 2015 principally result decrease revenue professional diagnostics business segment outside us described gross profit margin percentage gross profit decreased 1052 million 9 111 billion 2015 121 billion 2014 decrease gross profit 2015 compared 2014 largely attributable 391 million cost goods charge connection june 2016 announcement voluntary withdrawal alere inratio alere inratio2 products market decrease gross profit 2015 also attributable decrease net product sales services revenue principally resulting lower revenues higher margin inratio pain management toxicology revenues unfavorable product mix challenging foreign exchange environment international markets addition decrease net product sales services revenue resulted decrease gross profit fixed costs spread lower volume net product sales cost net revenue included amortization expense 563 million 645 million 2015 2014 respectively cost net revenue also included restructuring charges 38 million 118 million 2015 2014 respectively overall gross margin 45 47 2015 2014 respectively gross profit net product sales services revenue total business segment gross profit net product sales services revenue decreased 1029 million 9 11 billion 2015 12 billion 2014 gross profit net product sales services revenue business segment 2015 2014 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue decreased 1057 million 9 103 billion 2015 compared 113 billion 2014 decrease primarily driven fiscal year 2015 391 million charge cost goods connection june 2016 announcement voluntary withdrawal alere inratio alere inratio2 products market remaining decrease driven additional lower revenue higher costs 2015 associated 2014 inratio product recalls along lower revenues higher margin cholesterol meterbased triage products respect infectious disease products despite relatively flat yearoveryear respiratory product revenues mainly due belowaverage respiratory season gross profit decreased due increased revenue contribution molecular offerings lower margins due higher manufacturing costs increased competitive pressure lateral flow respiratory products additionally decrease malaria sales africa contributed decrease gross profit primarily driven increased pricing pressure partially offset increased contribution higher margin hiv sales region lower pain management toxicology revenue discussed contributed decrease gross profit driven pricing pressure increase customer insourcing 2015 challenging foreign currency environment international markets also impacted gross profit gross profit 2015 2014 reflected 38 million 118 million respectively restructuring charges cost professional diagnostics net product sales services revenue included amortization expense 563 million 643 million 2015 2014 respectively percentage professional diagnostics net product sales services revenue gross profit 46 48 2015 2014 respectively consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 41 million 37 71 million 2015 112 million 2014 decrease gross profit primarily result lower contract manufacturing revenue associated longterm manufacturing services agreement spd percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 8 2015 compared 13 2014 decrease gross profit primarily result lower contract manufacturing revenue associated longterm manufacturing services agreement spd nonreportable gross profit nonreportable segment net product sales services revenue increased 69 million 12 627 million 2015 558 million 2014 increase gross profit primarily result increase patient base alere home monitoring business percentage nonreportable segment net product sales services revenue gross margin nonreportable segment 49 2015 compared 47 2014 increase gross margin primarily result increase patient base alere home monitoring business research development expense research development expense decreased 253 million 17 1195 million 2015 1448 million 2014 decrease primarily attributable 88 million reduction workforcerelated costs 81 million reduction supplies expense result cost reduction initiatives 78 million favorable impact foreign exchange rates 70 million reduction restructuring expense partially offset 65 million increase amortization expense research development expense 2015 2014 reported net grant funding 39 million 95 million respectively arising research development funding relationship bill melinda gates foundation gates foundation entered february 2013 34 million 04 million respectively funding related contract barda entered september 2014 additional information agreements barda gates foundation including april 2016 mutual agreement terminate february 2013 grant february 2013 loan agreement gates foundation see note 20 consolidated financial statements elsewhere annual report form 10k amortization expense 111 million 65 million included research development expense 2015 2014 respectively restructuring charges associated various restructuring plans integrate businesses totaling 28 million 98 million included research development expense 2015 2014 respectively research development expense percentage net revenue 5 6 2015 2014 respectively sales marketing expense sales marketing expense decreased 786 million 15 4344 million 2015 5130 million 2014 result cost reduction initiatives driven 243 million reduction workforcerelated costs well 248 million favorable impact foreign exchange rates addition 183 million decrease sales marketing expense driven lower amortization expense related customer relationship intangibles 2015 compared 2014 underlying economic benefit intangibles declined amortization expense 1318 million 1544 million included sales marketing expense 2015 2014 respectively restructuring charges associated various restructuring plans reduce expenses integrate businesses totaling 30 million 114 million included sales marketing expense 2015 2014 respectively reflects decrease 84 million sales marketing expense percentage net revenue 18 20 2015 2014 respectively general administrative expense general administrative expense decreased 790 million 17 3742 million 2015 4532 million 2014 decrease primarily attributable 698 million benefit net decrease fair value acquisitionrelated contingent consideration 194 million decrease restructuring expense 167 million favorable impact foreign currency exchange rates 197 million reduction workforcerelated costs result cost reduction initiatives decreases partially offset 118 million increase stock compensation expense 204 million increase information technology expenses including costs software telecommunications information technology expenses 58 million increase legal settlements legalrelated accruals 42 million increase bad debt expense 22 million increase professional fees outside services general administrative expense percentage net revenue 15 18 2015 2014 respectively impairment gain loss dispositions net 2015 generated aggregate 505 million impairment loss dispositions net connection sale certain businesses assets described november 2015 completed sale bbi business bbi business component professional diagnostics reporting unit business segment received cash consideration approximately 1064 million net final working capital adjustment eligible receive contingent consideration payments 466 million upon achievement certain milestone net assets disposed connection disposition bbi business valued aggregate 665 million value allocated goodwill 492 million aggregate value net assets goodwill disposed transaction exceeded cash consideration received recorded 93 million loss 2015 disposition bbi business july 2015 sold certain assets inverness medical innovations australia pty ltd business part professional diagnostics reporting unit business segment aud 02 million approximately 01 million date disposition cash proceeds result transaction recorded loss 12 million 2015 may 2015 sold alere analytics business part professional diagnostics reporting unit business segment terms sale received nominal consideration agreed contribute working capital 27 million alere analytics 24 million contributed cash immediately prior closing sale remaining 03 million deposited escrow pending performance buyers certain contracts result transaction recorded loss 36 million 2015 identifying buyer alere analytics management decided close business connection decision recorded impairment charge 267 million 2015 including write 262 million acquisitionrelated intangible assets 05 million fixed assets march 2015 sold certain assets adnagen gmbh business part professional diagnostics reporting unit business segment approximately 46 million cash proceeds result transaction recorded loss 03 million 2015 march 2015 sold gesellschaft fur patientenhilfe dgp gmbh subsidiary part professional diagnostics reporting unit business segment  76 million approximately 82 million march 31 2015 result transaction recorded loss disposition 75 million 2015 december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million offset net gain approximately 31 million related various immaterial business dispositions resulting net 77 million impairment loss 2014 2015 connection decision recorded impairment charges 11 million consisting primarily severance costs inventory writeoffs closurerelated expenses see also note 26 consolidated financial statements included elsewhere annual report form 10k information impairment gain loss dispositions net recorded additional charges approximately 08 million connection certain business closures divestitures 2015 interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 78 million 4 2170 million 2015 2092 million 2014 increase principally due 199 million loss extinguishment debt associated prior credit facility 8625 senior subordinated notes partially offset 117 million reduction interest expense related debt refinancing activities 2015 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands interest income related principally cash deposits including restricted cash increase interest income largely due higher cash balances foreign exchange gains losses net 2015 loss 42 million compared loss 22 million 2014 change foreign exchange gains losses net 2014 2015 primarily resulted impact foreign currency translation intercompany balances net income 25 million 2015 primarily reflects 41 million income offset part 12 million loss disposal fixed assets net expenses 2014 primarily reflected 36 million writeoff investment provision benefit income taxes provision income taxes decreased 1246 million 536 million benefit 2015 710 million provision 2014 effective tax rate 2015 62 compared effective tax rate 61 2014 decrease provision income taxes tax rate 2014 2015 primarily related changes jurisdictional mix income tax impact contingent consideration income decrease pretax loss returntoprovision adjustments primary components 2015 benefit income taxes related us federal state income tax benefits operating losses tax impact contingent consideration income recognized tax purposes certain returntoprovision adjustments benefits partially offset increased provisions changes valuation allowances us inclusion foreign earnings increases reserves uncertain tax positions primary components 2014 provision income taxes related jurisdictional mix income loss increase valuation allowance us foreign tax credit carryforwards december 2015 congress signed law protecting americans tax hikes act retroactively extended us federal research development credit january 1 2015 december 31 2015 permanently extended credit going forward result recognized retroactive benefit 2015 us federal research development credit approximately 21 million discrete item fourth quarter 2015 period legislation enacted december 2014 congress signed law tax increase prevention act 2014 retroactively extended us federal research development credit january 1 2014 december 31 2014 result recognized retroactive benefit 2014 us federal research development credit approximately 14 million discrete item fourth quarter 2014 period legislation enacted equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax includes share earnings entities account equity method accounting equity earnings unconsolidated entities net tax 2015 primarily reflect following 50 interest spd amount 143 million ii 49 interest techlab amount 15 million equity earnings unconsolidated entities net tax 2014 primarily reflect following 50 interest spd amount 162 million ii 49 interest techlab amount 16 million 2014 also recognized 04 million loss connection sale 40 interest vedalab sa additional information spd techlab see note 21 consolidated financial statements included elsewhere annual report form 10k income discontinued operations net tax results former health management business included income discontinued operations net tax periods presented given january 9 2015 divestiture business results acs included income discontinued operations net tax 2014 given october 10 2014 divestiture business 2015 discontinued operations generated income net tax 2195 million compared income net tax 1383 million 2014 income discontinued operations 2015 largely attributable 3649 million pretax gain 2224 million net tax sale health management business 1383 million income net tax 2014 reflects 1448 million tax benefit record deferred tax asset relating outside basis difference health management business offset write 180 million 112 million net tax finitelived intangible assets 11 million 07 million net tax fixed assets fair value also included 1383 million income discontinued operations net tax 2014 gain resulting elimination 263 million 163 million net tax contingent consideration obligation associated original purchase acs see note 4 consolidated financial statements included elsewhere annual report form 10k liquidity capital resources working capital 7809 million december 31 2016 compared 6919 million december 31 2015 cash equivalents increased 650 million december 31 2016 compared december 31 2015 primarily result operating cash flow 1793 million dispositions made 2016 including sale interest techlab based upon current working capital position current operating plans expected business conditions expect fund short longterm working capital needs primarily using existing cash operating cash flow december 31 2016 29 billion indebtedness outstanding various debt instruments mature next several years may need want refinance indebtedness new debt including potential borrowings revolving credit facility order preserve existing cash uses including continue fund operations 2016 generated net cash proceeds 215 million divestitures net cash divested used 174 million cash reduce outstanding indebtedness credit facilities additionally received cash consideration connection september 2016 sale minority stake techlab amount reflected cash equivalents balance sheet december 31 2016 may 2016 paid 1520 million cash satisfy principal interest due 3 convertible senior subordinated notes matured may 15 2016 amount 1250 million drawn revolving credit facility 270 million paid using available cash may divest one businesses accordance covenants amended merger agreement abbott expect completed use portion net proceeds divestitures fund working capital operations research development reduce outstanding debt among purposes case extent permitted amended merger agreement accordance secured credit facility indentures governing notes december 31 2016 5672 million cash equivalents 1720 million held domestic subsidiaries 3952 million held foreign entities currently plan repatriate cash held foreign entities adverse tax implications including incremental us tax liabilities potential foreign withholding tax liabilities circumstances change however may required repatriate portion cash held foreign entities could result payment significant tax liabilities may also utilize amounts available secured credit facility described new sources financing fund portion capital expenditures contractual contingent consideration obligations commitments refinancing existing indebtedness future acquisitions new sources financing may available acceptable terms may required obtain certain consents connection completing financings may able obtain acceptable terms june 18 2015 entered new secured credit facility initially provided term loan facilities totaling 17 billion consisting 6500 million “a” term loans 105 billion “b” term loans drawn closing subject continued compliance secured credit facility 2500 million revolving credit facility includes 500 million sublimit issuance letters credit december 31 2016 1250 million drawn outstanding revolving credit facility used approximately 168 billion proceeds term loans drawn closing repay full indebtedness outstanding prior credit facility whereupon facility terminated pay various fees expenses associated transactions contemplated new secured credit facility november 2015 used 1150 million net cash proceeds sale bbi business represented net proceeds closing sale prior giving effect final working capital adjustment repay 1150 million aggregate principal amount outstanding “a” term loans “b” term loans secured credit facility must repay “a” term loans nineteen consecutive quarterly installments repayments began september 30 2015 continue march 31 2020 followed final installment june 18 2020 giving effect prepayment portion “a” term loans connection sale bbi business principal amount remaining installment march 31 2020 approximately 76 million principal amount final installment approximately 4619 million must repay “b” term loans twentyseven consecutive quarterly installments repayments began september 30 2015 continue march 31 2022 followed final installment june 18 2022 giving effect prepayment portion “b” term loans connection sale bbi business principal amount remaining installment march 31 2022 approximately 24 million principal amount final installment approximately 9125 million may repay borrowings revolving credit facility time without premium penalty customary libor breakage costs applicable event later june 18 2020 december 31 2016 29 billion aggregate principal amount outstanding indebtedness including 16 billion aggregate principal amount outstanding secured credit facility 4427 million aggregate outstanding principal amount 725 senior notes due 2018 4151 million aggregate outstanding principal amount 65 senior subordinated notes due 2020 4128 million aggregate outstanding principal amount 6375 senior subordinated notes due 2023 noted 3 convertible senior subordinated notes matured may 15 2016 used 1250 million cash drawn revolving credit facility plus 270 million available cash pay 1520 million outstanding principal accrued interest due notes terms conditions outstanding debt instruments contain covenants expressly restrict ability incur additional indebtedness conduct financings subject certain exceptions addition amended merger agreement abbott contains restrictions ability incur additional indebtedness conduct financings subject certain exceptions beginning 2017 required make mandatory prepayments term loans term loans repaid revolving loans various amounts credit agreement secured credit facility credit agreement excess cash flow defined credit agreement immediately preceding year however excess cash flow 2016 therefore required make payments 2017 may however required make payments future years april 22 2016 requisite lenders credit agreement entered amendment credit agreement pursuant amendment lenders agreed waive certain defaults events defaults defined credit agreement resulting among things x failure deliver administrative agents defined credit agreement financial statements certain related deliverables 2015 applicable deadline credit agreement restatement certain financial statements result incorrect application revenue recognition principles 2013 2014 2015 z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part audit financial statements 2015 extent breach due incorrect application revenue recognition principles 2013 2014 2015 ii extend deadlines delivery financial statements 2015 financial statements quarter ended march 31 2016 certain related deliverables terms amendment required deliver unaudited financial statements three months ended march 31 2016 certain related deliverables august 18 2016 made required deliveries date connection amendment paid among fees expenses consent fees consenting lenders aggregate amount 45 million amendment also increased applicable interest rate margins loans outstanding secured credit facility 025 per annum period july 1 2016 date delivery financial reports related deliverables secured credit facility august 18 2016 requisite lenders credit agreement entered second amendment credit agreement pursuant agreed waive certain defaults events defaults defined credit agreement resulting among things failure deliver administrative agents defined credit agreement x financial statements certain related deliverables three months ended march 31 2016 refer q1 financial reports applicable deadline credit agreement financial statements certain related deliverables three months ended june 30 2016 refer q2 financial reports applicable deadline credit agreement ii extend deadline delivery q1 financial reports august 25 2016 deadline delivery q2 financial reports september 13 2016 delivered q1 financial reports q2 financial reports prior deadlines set forth amendment credit agreement connection amendment paid among fees expenses consent fees consenting lenders aggregate amount 22 million addition april 29 2016 commenced consent solicitations relating 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes refer collectively notes consent solicitations completed may 9 2016 pursuant consent solicitations requisite holders series notes agreed extend deadline delivery certain financial information waive august 31 2016 default event default indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k fiscal year ended december 31 2015 subsequent quarterly reports form 10q failures file connection failures file paid may july 2016 consent fees consenting holders aggregate amount 192 million april 24 2017 lenders credit agreement entered third amendment credit agreement pursuant agreed waive certain defaults events defaults defined credit agreement may occurred occurring may hereafter occur resulting among things x failure deliver lenders financial statements related deliverables year ended december 31 2016 applicable deadline credit agreement restatement revision adjustment certain financial statements result review described current report form 8k filed sec april 17 2017 april 8k result incorrect recognition revenue transactions korean japanese locations certain fiscal periods set forth amendment z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part review described april 8k extent breach due incorrect recognition revenue transactions korean japanese locations certain fiscal periods set forth amendment ii extend deadlines delivery financial statements fiscal year ended december 31 2016 certain related deliverables connection amendment agreed pay among fees expenses lender approved amendment consent fee 0125 sum aggregate principal amount lender’s term loans defined credit agreement outstanding effective date amendment ii lender’s revolving credit commitment defined credit agreement effect effective date amendment incurred approximately 33 million fees expenses associated amendment may 1 2017 commenced consent solicitations relating series notes may 4 2017 made certain modifications consent solicitations reflected herein pursuant consent solicitations holders series notes agreed extend deadline delivery certain financial information waive 500 pm new york city time june 15 2017 default event default occurred continuing may occur indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k fiscal year ended december 31 2016 fiscal year 2016 failure file annual report form 10k 2016 failed obtain waivers requested pursuant consent solicitations case may 16 2017 respect 725 senior notes ii may 19 2017 respect 65 senior subordinated notes iii june 2 2017 respect 6375 subordinated notes event default would arisen respective series notes among remedies available noteholders would right accelerate payment obligations upon notice relevant trustees holders 25 applicable notes subject terms conditions consent solicitations set forth consent solicitation statement dated may 1 2017 supplemented offered pay holder notes april 28 2017 cash payment equal 1750 1000 principal amount holder’s notes consent fee respect holder validly delivered validly revoke consent prior 500 pm new york city time may 5 2017 time date expiration date provided received accepted requisite consents series notes time prior 930 new york city time may 8 2017 filed sec annual report form 10k terminated consent solicitations would pay holder series notes delivered revoke valid duly executed consent prior expiration date cash payment lieu consent fee equal 1000 principal amount notes holder delivered consent termination fee may 8 2017 successfully completed solicitation connection completion paid consent fee consenting holders aggregate amount approximately 230 million may 30 2017 entered fourth amendment credit agreement pursuant lenders credit agreement agreed waive certain defaults events defaults defined credit agreement may occurred occurring hereafter occur resulting among things x failure deliver administrative agents defined credit agreement financial statements related deliverables fiscal year ended december 31 2016 fiscal quarter ended march 31 2017 case applicable deadlines credit agreement restatement revision adjustment certain financial statements result company’s review described current report form 8k filed sec may 22 2017 may 8k result incorrect recognition revenue transactions certain fiscal periods set forth amendment z breach representation affirmative covenant result certain deliverables incorrect delivered discovered part review described may 8k extent breach due incorrect recognition revenue transactions certain fiscal periods set forth amendment ii extend deadlines delivery financial statements related deliverables fiscal year ended december 31 2016 earlier july 15 2017 b date three business days prior earliest date giving effect applicable cure periods waivers types extensions event default would arise indentures 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes result failure timely deliver financial statements iii extend deadlines delivery financial statements related deliverables fiscal quarter ended march 31 2017 earliest date ten business days delivery financial statements fiscal year ended december 31 2016 b date three business days prior earliest date giving effect applicable cure periods waivers types extensions event default would arise indentures 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes result failure timely deliver financial statements fiscal quarter ended march 31 2017 c july 28 2017 incurred approximately 54 million fees expenses associated amendment delivered financial statements fiscal year ended december 31 2016 certain related deliverables prior deadline set forth amendment june 1 2017 commenced consent solicitations relating series notes solicited consents holders series notes extend deadline delivery certain financial information waive case 500 pm new york city time august 4 2017 time date “first waiver date” ii 500 pm new york city time september 5 2017 time date “second waiver date” uncured immediately prior first waiver date iii 500 pm new york city time october 4 2017 time date “third waiver date” uncured immediately prior second waiver date default event default occurred continuing may occur indentures consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures 2016 form 10k “fiscal year 2016 failure file” 2017 first quarter form 10q “first quarter 2017 failure file” together fiscal year 2016 failure file “failures file” file annual report form 10k 2016 june 15 2017 event default would arisen respective series notes among remedies available noteholders would right accelerate payment obligations upon notice relevant trustee holders 25 applicable notes subject terms conditions consent solicitations set forth consent solicitation statement dated june 1 2017 provided receive accept requisite consents series notes offering pay holder notes 500 pm new york city time may 31 2017 1 cash payment promptly following expiration date defined equal 2000 1000 principal amount 6375 notes holder delivered consent “6375 notes first consent fee” 1500 1000 principal amount 6500 notes holder delivered consent “6500 notes first consent fee” 1250 1000 principal amount 7250 notes holder delivered consent “7250 notes first consent fee” together 6375 notes first consent fee 6500 notes first consent fee “first consent fees” “first consent fee” 2 default event default remains uncured immediately prior first waiver date connection failures file additional cash payment prior first waiver date respect series notes “second consent fee” equal 500 1000 principal amount notes 3 default event default remains uncured immediately prior second waiver date connection failures file additional cash payment prior second waiver date respect series notes “third consent fee” equal 750 1000 principal amount notes case respect holder validly delivers validly revoke consent prior 500 pm new york city time june 7 2017 time date amended extended otherwise modified “expiration date” provided received accepted requisite consents series notes indebtedness outstanding december 31 2016 matures various times 2018 2023 may sufficient cash resources time maturity remaining indebtedness pay aggregate principal accrued interest indebtedness capital credit markets experience volatility availability funds limited may unable refinance debt commercially reasonable terms including increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited amount indebtedness factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted underlying assumed revenues expenses realized particular could experience decreased product sales lower average selling prices unexpected costs associated potential divestitures transaction abbott operational integration efforts core research development projects costsaving initiatives existing unforeseen lawsuits regulatory actions governmental investigations claims us incurred connection previously announced withdrawal inratio 2 products market may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution thenexisting stockholders may result connection financing may required obtain consents requisite lenders secured credit facility andor requisite holders outstanding notes abbott pursuant amended merger agreement guarantee able obtain consents cash flow summary thousands summary changes cash position december 31 2016 cash equivalents 5672 million 650 million increase december 31 2015 primary sources cash continuing operations 2016 included 1793 million generated continuing operating activities 1260 million net proceeds revolving credit facilities proceeds used satisfy portion principal interest due 3 convertible senior subordinated notes matured may 15 2016 577 million received investments 382 million sale 49 equity investment techlab 215 million received dispositions net cash divested 189 million cash received common stock issuances employee stock option stock purchase plans 14 million proceeds sale property equipment primary uses cash continuing operations 2016 1983 million related repayment longterm debt obligations 677 million capital expenditures 292 million paid financing costs 213 million cash dividends paid series b preferred stock 60 million paid acquisition 47 million increase restricted cash 40 million principal payments capital lease obligations 17 million related repayment shortterm debt obligations fluctuations foreign currencies unfavorably impacted cash balance 71 million 2016 december 31 2015 cash equivalents continuing operations 5022 million 1237 million increase december 31 2014 primary sources cash continuing operations 2015 included 22 billion issuance longterm debt included amounts received secured credit facility entered june 2015 4250 million gross proceeds received connection issuance 6375 senior subordinated notes 6758 million received dispositions net cash divested 2070 million generated continuing operating activities 792 million cash received common stock issuances employee stock option stock purchase plans 261 million received equity method investments 21 million proceeds sale property equipment 15 million proceeds issuance shortterm debt primary uses cash continuing operations 2015 27 billion related repayment longterm debt obligations included 168 billion repay prior credit facility 4259 million redeem 8625 senior subordinated notes additional amounts prepay portion term loans existing credit facility 1275 million related net payments revolving credit facilities 908 million capital expenditures 601 million paid acquisition 256 million related repayment shortterm debt obligations 213 million cash dividends paid series b preferred stock 162 million paid financing costs 142 million related payments acquisitionrelated contingent consideration obligations 137 million increase restricted cash 86 million related call premium incurred connection redemption 8625 senior subordinated notes 56 million principal payments capital lease obligations 18 million increase assets fluctuations foreign currencies unfavorably impacted cash balance 114 million 2015 december 31 2014 cash equivalents continuing operations 3785 million 230 million increase december 31 2013 primary sources cash continuing operations 2014 included 1881 million generated continuing operating activities 516 million cash received common stock issuances employee stock option stock purchase plans 451 million received dispositions net cash divested 95 million received investments 97 million sale 40 equity investment vedalab 15 million proceeds sale property equipment 10 million decrease assets primary uses cash continuing operations 2014 1006 million capital expenditures 651 million related repayment longterm debt obligations 425 million related net payments revolving credit facilities 329 million related payments acquisitionrelated contingent consideration obligations 213 million cash dividends paid series b preferred stock 54 million increase restricted cash balance 61 million principal payments capital lease obligations 15 million paid financing costs fluctuations foreign currencies unfavorably impacted cash balance 163 million 2014 discontinued operations contributed 330 million cash 2014 cash flows operating activities net cash provided continuing operations 2016 1793 million resulted 2447 million noncash items 719 million cash working capital activities period offset net loss continuing operations 1373 million 2447 million noncash items included 2856 million related depreciation amortization 418 million related noncash stockbased compensation 134 million noncash interest expense related amortization deferred financing costs original issue discounts 36 million loss disposition fixed assets 27 million inventory impairment 18 million impairment longlived assets partially offset 360 million gain related changes deferred income taxes resulted part amortization intangible assets 505 million equity earnings unconsolidated entities net tax 133 million noncash change fair value contingent consideration 38 million net gain dispositions 05 million related noncash items net cash provided continuing operations 2015 2070 million resulted 2961 million noncash items investing financingrelated items included net income offset 737 million cash used meet working capital needs period loss continuing operations 154 million 2961 million noncash items investing financingrelated items included net income included 3093 million related depreciation amortization 505 million loss related impairment net loss dispositions reflects 278 million impairment charge associated closed business 227 million net loss business dispositions 264 million related noncash stockbased compensation 199 million loss extinguishment debt 156 million inventory impairment 153 million related june 2016 announcement voluntary withdrawal inratio inratio2 products market 128 million noncash interest expense related amortization deferred financing costs original issue discounts 288 million related noncash items including 196 million related june 2016 announcement voluntary withdrawal inratio inratio2 products market 39 million loss disposition fixed assets 37 million fixed asset impairment 29 million related june 2016 announcement voluntary withdrawal inratio inratio2 products market partially offset 994 million gain related changes deferred income taxes resulted part amortization intangible assets 599 million noncash change fair value contingent purchase price consideration 155 million equity earnings unconsolidated entities net tax addition 03 million net cash provided discontinued operations operating activities net cash provided continuing operating activities 2014 1881 million resulted loss continuing operations 1714 million 469 million cash used meet working capital needs period offset aggregate 4064 million noncash items investing financingrelated items included net income 4064 million noncash items investing financingrelated items included net income included 3360 million related depreciation amortization 162 million interest expense related amortization deferred financing costs original issue discounts 125 million related noncash stockbased compensation 123 million related changes deferred income taxes resulted part amortization intangible assets 98 million tax benefit related discontinued operations retained us 77 million noncash change fair value contingent purchase price consideration 77 million loss related impairment net loss dispositions reflects 107 million impairment charge associated closed business 30 million net gain business dispositions 70 million impairment longlived assets 65 million loss disposition fixed assets 31 million inventory impairments 50 million related noncash items partially offset 175 million equity earnings unconsolidated entities net tax addition 435 million net cash provided discontinued operations operating activities cash flows investing activities investing activities continuing operations 2016 provided 26 million cash including 577 million received investments 382 million sale 49 equity investment techlab 215 million cash received business dispositions net cash divested 14 million proceeds sale property plant equipment partially offset 677 million capital expenditures 60 million paid acquisition edts 47 million increase restricted cash investing activities continuing operations 2015 provided 5377 million cash including 6758 million cash received disposition health management business bbi business divestitures net cash divested 261 million cash received equity method investments 21 million proceeds sale property plant equipment partially offset 908 million capital expenditures 601 million paid acquisition usd 137 million increase restricted cash 18 million increase assets addition discontinued operations used 02 million net cash investing activities investing activities continuing operations 2014 utilized 482 million cash including among items 1006 million capital expenditures 54 million increase restricted cash balance partially offset 451 million cash received dispositions 95 million investments 97 million sale 40 equity investment vedalab 15 million proceeds sale property plant equipment 10 million decrease assets addition discontinued operations used 90 million net cash investing activities cash flows financing activities net cash used financing activities continuing operations 2016 1098 million financing activities 2016 included among items 1983 million payment longterm debt obligations 292 million paid financing costs 213 million dividend payments related series b preferred stock 40 million paid capital lease obligations payments 17 million payment shortterm debt obligations 07 million paid acquisition related contingent consideration partially offset 1260 million proceeds revolving credit facilities 189 million cash common stock issuances employee stock option stock purchase plans december 31 2016 aggregate 103 million outstanding capital lease obligations payable 2022 net cash used financing activities continuing operations 2015 6329 million financing activities 2015 included among items 27 billion payment longterm debt obligations included 165 billion repay prior credit facility 4259 million redeem 8625 notes additional amounts prepay portion term loans existing credit facility 1275 million net payments revolving credit facilities 256 million payment shortterm debt obligations 213 million dividend payments related series b preferred stock 162 million financing costs 142 million payments acquisitionrelated contingent consideration obligations 86 million related call premium incurred connection redemption 8625 senior subordinated notes 56 million payment capital lease obligations received 22 billion proceeds issuance longterm debt included amounts received secured credit facility entered june 2015 4250 million gross proceeds received connection issuance 6375 senior subordinated notes 792 million cash common stock issuances employee stock option stock purchase plans 15 million proceeds issuance shortterm debt addition discontinued operations used less 01 million net cash financing activities net cash used financing activities continuing operations 2014 1167 million financing activities 2014 included among items 651 million payment longterm debt obligations 425 million net payments revolving credit facilities 329 million payments acquisitionrelated contingent consideration obligations 213 million dividend payments related series b preferred stock 61 million payment capital lease obligations 15 million related financing costs received 516 million cash common stock issuances employee stock option stock purchase plans 10 million excess tax benefit associated exercised stock options addition discontinued operations used 15 million net cash financing activities income taxes december 31 2016 gross tax effected federal state foreign net operating loss carryforwards approximately 1739 million 609 million 10328 million 701 million 5056 million 815 million respectively utilized portion federal state foreign net operating loss carryforwards begin expire 2020 2017 respectively certain foreign net operating loss carryforwards carried forward indefinitely december 31 2016 gross tax effected federal state foreign capital loss carryforwards approximately 2233 million 782 million 2233 million 112 million 51 million 11 million respectively utilized portion federal capital loss carryforwards begin expire 2017 addition substantially foreign capital loss carryforwards carried forward indefinitely december 31 2016 63 million us federal research development credit carryforward 216 million state research development credit carryforward 79 million us federal alternative minimum tax amt credit carryforwards 939 million us foreign tax credit carryforwards 11 million foreign tax credit carryforwards utilized portion us federal research development credit carryforwards us foreign tax credit carryforwards begin expire 2026 2018 respectively 216 million state research development credit carryforwards 68 million generated california carried forward indefinitely us federal amt credit also carried forward indefinitely us federal loss carryforwards credits subject limitations imposed sections 382 383 internal revenue code may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use loss carryforwards credits amount equal value company time certain ownership changes multiplied longterm tax exempt rate additionally certain state foreign losses credits may subject similar limitations based local provisions loss tax credit carryforwards may available reduce future us federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities utilized accounting guidance income taxes provides future realization deferred tax assets depends existence sufficient taxable income future periods possible sources taxable income include taxable income carryback periods future reversal existing taxable temporary differences recorded deferred tax liability taxplanning strategies projected future taxable income based upon available evidence positive negative likely 50 percent likely deferred tax assets realized valuation allowance recorded significant weight given positive negative evidence objectively verifiable company’s threeyear cumulative loss position significant negative evidence considering whether deferred tax assets realizable accounting guidance places less weight projected taxable income support recovery deferred tax assets extent establish increase valuation allowance period must include expense within tax provision december 31 2016 recorded valuation allowance 3233 million due uncertainties related future benefits realization deferred tax assets related primarily us federal state net deferred tax assets well foreign tax attribute carryforwards increase 750 million valuation allowance 2483 million december 31 2015 specifically established valuation allowance recorded expense within income tax provision 604 million us federal state net deferred tax assets due cumulative losses remaining 146 million valuation allowance increase relates foreign deferred tax assets particularly foreign attribute carryforwards reaching conclusion reviewed available evidence positive negative determining need valuation allowance event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact income tax provision offbalance sheet arrangements material offbalance sheet arrangements december 31 2016 contractual obligations following table summarizes principal contractual obligations december 31 2016 thousands 1 see description various financing arrangements note 9 consolidated financial statements included elsewhere annual report form 10k 2 see note 11 consolidated financial statements included elsewhere annual report form 10k 3 see note 13a consolidated financial statements included elsewhere annual report form 10k 4 purchase obligations relate inventory purchases operating expense commitments 5 includes nonvariable interestbearing debt see description various financing arrangements note 9 consolidated financial statements included elsewhere annual report form 10k 6 connection certain acquisitions additional contingent consideration may become payable sellers upon satisfaction certain performance milestones amounts represent estimated fair value obligations information pertaining contingent consideration arrangements see note 13b consolidated financial statements included elsewhere annual report form 10k 7 longterm income tax liability relates uncertain tax positions timing uncertain effectively settled critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain management bases estimates historical experience current market economic conditions assumptions management believes reasonable specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2016 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title risk loss customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses respect reserve estimated product returns allowances incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer sales transactions qualify multipleelement arrangements require us identify separate units accounting within arrangement allocate transaction consideration across separate accounting units arrangements include nonsoftware elements transaction’s consideration allocated unit accounting based relative selling price applying relative selling price method selling price deliverable determined based upon following hierarchy evidence vendorspecific objective evidence generally based upon historical prices standalone transactions thirdparty evidence generally based market data sales similar products services available management’s best estimate selling price management’s best estimate selling price generally based upon following considerations standalone sales prices established price lists costs produce profit margins similar products software softwarerelated products use relative fair value method allocate transaction consideration unit accounting whereby evidence used determination fair value estimates based solely vendor specific objective evidence extent vendor specific objective evidence exist delivered elements transaction apply residual method additionally respect health management business included discontinued operations periods presented financial statements included annual report form 10k 2016 generated services revenue connection contracts health plans commercial governmental selfinsured employers whereby provided clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provided portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions existed recorded amounts current liabilities consolidated balance sheet deferring recognition revenue established meeting performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers distributors generally reduce net selling prices products provide rebates customers result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates addition certain sales arrangements distributors include provisions whereby deliver guaranteed margin certain products total provision sales returns allowances related sales incentive arrangements amounted 1349 million 1179 million 913 million 7 6 5 respectively net product sales 2016 2015 2014 respectively recorded product sales derive net product sales amounts 487 million 453 million 425 million 2016 2015 2014 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 4135 million 4369 million net allowances doubtful accounts 758 million 897 million december 31 2016 2015 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3089 million 3509 million net reserve obsolete slowmoving inventory 284 million 378 million december 31 2016 2015 respectively goodwill longlived intangible assets longlived assets include property plant equipment net goodwill intangible assets indefinite lives finitelived intangible assets net december 31 2016 2015 respectively property plant equipment net 4412 million 4460 million goodwill 28 billion 28 billion intangible assets indefinite lives 272 million 281 million finitelived intangible assets net 8056 million 9973 million goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guideline companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants credit agreement 2016 annual goodwill impairment test conducted 2016 annual impairment test reporting units fourth quarter 2016 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 100 145 projected compound average revenue growth rates 34 56 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 06 31 times multiples ebitda 83 123 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics nonreportable reporting units exceeded carrying value reporting unit’s net assets 26 billion 885 million 2196 million respectively 50 36 194 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review stockbased compensation account stockbased compensation accordance fasb asc topic 718 compensationstock compensation asc 718 requires recognizing compensation costs sharebased payment awards made employees directors based upon awards’ grantdate fair value standard covers employee stock options restricted stock equity awards stock based compensation expense measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current prior periods accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current taxes well temporary differences resulting differing timing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes temporary differences result deferred tax assets liabilities accounting guidance income taxes provides future realization deferred tax assets depends existence sufficient taxable income future periods possible sources taxable income include taxable income carryback periods future reversal existing taxable temporary differences recorded deferred tax liability taxplanning strategies projected future taxable income based upon available evidence positive negative likely 50 percent likely deferred tax assets realized valuation allowance recorded significant weight given positive negative evidence objectively verifiable company’s threeyear cumulative loss position significant negative evidence considering whether deferred tax assets realizable accounting guidance places less weight projected taxable income support recovery deferred tax assets extent establish increase valuation allowance period must include expense within income tax provision december 31 2016 recorded valuation allowance 3233 million due uncertainties related future benefits realization deferred tax assets related primarily us federal state net deferred tax assets well foreign tax attribute carryforwards increase 750 million valuation allowance 2483 million december 31 2015 specifically established valuation allowance recorded expense within income tax provision 604 million us federal state net deferred tax assets due cumulative losses remaining 146 million valuation allowance increase relates foreign deferred tax assets particularly foreign attribute carryforwards reaching conclusion reviewed available evidence positive negative determining need valuation allowance event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact income tax provision establish reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations irs various state foreign tax authorities tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows november 2015 financial accounting standards board fasb issued accounting standards update asu 201517 balance sheet classification deferred taxes simplifies presentation deferred income taxes asu 201517 requires deferred tax assets liabilities classified noncurrent statement financial position adopted asu 201517 effective december 31 2015 prospective basis prior periods retrospectively adjusted loss contingencies part item 3 “legal proceedings” annual report form 10k reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings defendant believe probable liability able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss businesses may also subject time commercial disputes governmental investigations disputes regarding payment contingent consideration obligations product liability claims personal injury claims including claims arising relating product recalls negligence claims various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future lawsuits claims generally seek damages reimbursement sometimes substantial amounts possible unfavorable outcomes related litigation governmental investigations could materially impact business results operations financial condition cash flows recent accounting pronouncements see note 5w consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations overview develop manufacture market consumer healthcare products including selftest diagnostic products womens health market vitamins nutritional supplements also develop manufacture distribute wide variety professional diagnostic products use medical laboratory professionals shortterm business goal maintain profitability enhancing market share growing revenues simultaneously investing heavily research development new products technologies key drivers shortterm success shipping quality products ii manufacturing efficiently iii maintaining strong customer relationships iv successfully integrating businesses acquired past year may acquire 2003 longterm goal grow profitability market share successfully developing costeffective technologically advanced new products give us competitive advantage current selected new markets ii building strategic business combinations alliances enhance already strong intellectual property portfolio enable us expand targeted new markets iii defending intellectual property infringement competitors iv integrating businesses technologies acquire future 2002 recorded net revenue 2079 million compared 473 million 2001 since splitoff imt business grown significantly acquisitions unipath business december 2001 ivc industries operating inverness medical nutritionals group imn march 2002 wampole laboratories september 2002 acquisition unipath business provides us large research development facility bedford england currently houses approximately 100 scientists technicians significant intellectual property believe gives us technological competitive advantage addition evidenced research development spending 145 million 2002 committed bringing superior technologically advanced products consumer professional diagnostic markets acquisition imn provides us manufacturing facilities majority nutritional supplement products recently acquisition wampole provides us extensive distribution channels existing professional diagnostic products well new ones market future results operations year ended december 31 2002 compared year ended december 31 2001 net product sales net product sales increased 1542 million 326 2015 million 2002 473 million 2001 significant increase resulted predominantly acquisitions unipath business imn wampole unipath business primarily includes clearblue® products contributed 883 million growth net product sales generated net product sales 905 million 2002 compared 21 million 2001 acquired late 2001 imn comprehensive assortment private label vitamins nutritional supplements wampole extensive distribution channels professional diagnostic products contributed 444 million 124 million respectively growth net product sales 2002 since respective acquisition dates business units existed prior acquisitions also contributed 51 million growth net product sales 2002 12 growth 2001 net product sales primarily resulted increase sales volume private label home pregnancy detection ovulation prediction tests change product sales mix well increased advertising efforts relating nutritional supplements additionally subsidiary ireland contributed onetime 40 million net product sales increase 2002 diabetesrelated packaging contract subsidiary johnson packaging contract generated net product sales 51 million 2002 11 million 2001 transitional service arrangement arising november 21 2001 splitoff merger transaction johnson acquired imt transitional service arrangement together revenue generated therefrom terminated august 2002 terms product revenue growth reporting segment net product sales consumer products segment includes consumer diagnostic products vitamins nutritional supplements increased 1319 million 359 1686 million 2002 367 million 2001 net product sales professional diagnostic products segment increased 223 million 210 329 million 2002 106 million 2001 growth net product sales reporting segments primarily result acquisitions described license revenue license revenue represents license royalty fees intellectual property license agreements thirdparties 2002 collected 64 million license royalty fees 62 million 96 generated license agreements acquired part acquisition unipath business also acquired certain revenue generating license agreements part acquisition wampole license agreements contributed 227000 4 license revenue 2002 acquired unipath business late 2001 hold license royalty revenue generating agreements therefore collect revenue 2001 gross profit net product sales gross profit net product sales represents total gross profits less gross profits associated license revenue gross profit net product sales increased 708 million 336 919 million 2002 211 million 2001 total gross margin net product sales 46 2002 compared 45 2001 consistent growth net product sales increase gross profit primarily due acquisitions unipath business imn wampole contributed increases gross profit net product sales 524 million 70 million 49 million respectively 2002 sales private label home pregnancy detection ovulation prediction tests contributed 32 million increase gross profit net product sales result volumerelated sales growth manufacturing efficiencies branded nutritional supplements net product sales increase together reduced returns result change product mix contributed 32 million increase gross profit net product sales terms gross profit reporting segment gross profit consumer product sales increased 614 million 407 765 million 2002 151 million 2001 gross margin consumer product sales 45 2002 compared 41 2001 increase gross margin consumer product sales primarily resulted addition consumer diagnostic products obtained connection acquisition unipath business gross profit professional diagnostic product sales increased 94 million 157 154 million 2002 60 million 2001 gross margin professional diagnostic product sales 47 2002 compared 57 2001 decrease resulted change product mix research development expense research development expense increased 127 million 706 145 million 2002 18 million 2001 increase resulted predominantly decision invest extensively research development new products improve upon existing products evidenced acquisition unipath business pursuant acquired large research development center located unipaths facility bedford england prior acquisition unipath business research development expense mostly related development professional diagnostic products subsidiary israel currently expect continue invest heavily research development foreseeable future sales marketing expense sales marketing expense increased 340 million 400 425 million 2002 85 million 2001 increase 255 million resulted addition unipath business imn wampole acquisitions accounted 44 million 19 million respectively increase sales marketing expense 2002 remaining increase sales marketing expense resulted primarily new radio advertising efforts 2002 attempt boost nutritional supplement product sales marketing expense percentage net product sales increased 21 2002 18 2001 expect sales marketing expense gross basis increase bring new improved products market general administrative expense general administrative expense increased 164 million 140 281 million 2002 117 million 2001 general administrative expense percentage net product sales decreased 14 2002 compared 25 2001 addition unipath business accounted 127 million increase general administrative expenses 2002 imn wampole acquisitions accounted 24 million 847000 respectively increase general administrative expenses 2002 remaining increase general administrative expense resulted primarily increased legal fees defenses certain litigation matters inactive 2001 others acquired business combinations initiated us 2002 expect legal expenses remain high continue aggressively defend intellectual property portfolio charge related asset impairment first quarter 2002 recorded noncash impairment charge 127 million writeoff portion value assigned trademarks brand names related certain nutritional supplement lines acquired 1997 charge recorded connection results separate impairment review performed carrying value goodwill related nutritional supplement lines discussed caption cumulative effect change accounting principle see also note 5 notes consolidated financial statements impairment charge recorded 2001 stockbased compensation expense stockbased compensation expense 106 million 2002 104 million 2001 majority 2002 expense relates sale companys restricted stock made chief executive officer 2001 time sale 2001 recorded noncash deferred compensation expense 106 million purchase price stock market value measurement date transaction deferred compensation expense originally set amortize vesting period restricted stock accordingly recorded compensation expense 451000 2001 however due amendment terms restricted stock agreement february 2002 fully recognized remaining unamortized deferred compensation expense 101 million time see note 12c notes consolidated financial statement also 2001 recorded 93 million noncash stockbased compensation expense represents difference market value exercise price certain stock option grants executive officers measurement date see note 12c notes consolidated financial statement remaining stockbased compensation expense 2002 2001 primarily represents fair value options warrants acquire companys common stock issued nonemployees interest expense interest expense includes interest charges amortization deferred financing costs amortization noncash original issue discounts form beneficial conversion feature associated debt issuances interest expense increased 74 million 370 94 million 2002 20 million 2001 total interest expense 2002 27 million represented noncash amortization original issue discounts beneficial conversion features increase interest expense 2002 resulted various debt financings aggregated 825 million 350 million conducted fund acquisitions unipath business wampole respectively also obtained additional financing aggregate amount 530 million november 2002 significant portion used refinance debt issued connection acquisition unipath business see notes 6a f notes consolidated financial statement income expense net income expense net includes interest income expenses primarily foreign exchange gains losses interest income increased 10 million 264 14 million 2002 385000 2001 increase interest income resulted higher average cash balances portion 2002 due followon public offering 16 million shares common stock 23 per share may 2002 414 million capitalization former parent imt splitoff imt november 2001 2002 recognized 975000 foreign exchange transaction gains included onetime realized foreign exchange transaction gain 26 million upon settlement intercompany loan two subsidiaries different functional currencies excluding onetime foreign exchange gain incurred foreign exchange losses 16 million 2002 compared losses 727000 2001 increase foreign exchange transaction losses 2002 resulted weakened us dollar versus japanese yen euro one bank loans prepaid november 2002 denominated japanese yen certain receivables irish subsidiary denominated us dollar functional currency euro also included income expense net 2002 charge 12 million mark market interest rate swap agreement hedge deemed ineffective well litigation settlement charge 218000 2001 also recorded litigation settlement charge 17 million included income expense net provision income taxes provision income taxes increased 549000 26 27 million 2002 21 million 2001 2002 provision income taxes 24 million related unipath business remaining businesses recorded local tax provisions totaling 309000 2002 availability net operating losses nol carryforwards included 2001 provision income taxes charge 13 million writeoff certain deferred tax assets believe would provide us future tax benefits result splitoff imt november 2001 see note 13 notes consolidated financial statements loss income continuing operations 2002 generated loss continuing operations 241 million taking account charges dividends redemption premium amortization discounts form beneficial conversion feature respect series redeemable convertible preferred stock loss continuing operations available common stockholders 361 million 363 per basic diluted share 2002 loss 2002 resulted various factors described 2001 generated loss continuing operations 245 million 384 per basic diluted share extraordinary items march 2002 recorded net extraordinary gain 83 million related early retirement certain subordinated promissory notes repurchase beneficial conversion feature associated subordinated promissory notes see note 6g notes consolidated financial statements november 2002 refinanced certain bank loans accordingly recorded extraordinary loss 32 million writeoff remaining unamortized deferred financing costs original issue discount related bank loans see note 6f notes consolidated financial statements 2001 recorded extraordinary loss 327000 represented writeoff remaining unamortized deferred financing costs associated bank loan imt assumed paidoff time splitoff merger november 2001 cumulative effect change accounting principle january 1 2002 adopted statement financial accounting standard sfas 142 goodwill intangible assets sfas 142 requires annual impairment tests performed reporting units defined statement values recorded goodwill based results independent appraisal obtained nutritional supplements business acquired 1997 recorded impairment charge 121 million writeoff carrying value goodwill related business january 1 2002 impairment charge recorded cumulative effect change accounting principle see note 5 notes consolidated financial statements charges due change accounting principle 2001 net loss income generated net loss 311 million 2002 taking account charges dividends redemption premium amortization discounts form beneficial conversion feature respect series redeemable convertible preferred stock net loss available common stockholders 431 million 433 per basic diluted share 2002 net loss 2002 resulted various factors described 2001 generated net loss 247 million 388 per basic diluted share 2001 dividends discounts would reduced net loss available common stockholders see notes 1 2k 11 notes consolidated financial statements calculation earnings per share year ended december 31 2001 compared year ended december 31 2000 net product sales net product sales decreased 24 million 5 473 million 2001 497 million 2000 product sales decline predominantly due decreases sales certain nutritional supplement product lines included consumer products business segment net sales nutritional supplements decreased 65 million 36 114 million 2001 compared 179 million 2000 prior splitoff imt marketing efforts limited due size resources company added effect competitive nature business caused nutritional supplements sales decline decrease product sales nutritional supplements partially offset increase sales consumer diagnostic products home pregnancy detection ovulation prediction tests also included consumer products business segment net product sales consumer diagnostic products increased 40 million 19 252 million 2001 212 million 2000 approximately 19 million consumer diagnostic product sales increase contributed unipath business acquired december 20 2001 net sales professional diagnostics products decreased 90000 1 106 million 2001 107 million 2000 gross profit total gross profit decreased 24 million 10 211 million 2001 235 million 2000 gross margin net product sales 45 2001 compared 47 2000 decrease gross profit gross margin primarily resulted decline sales nutritional supplements higher margin products compared consumer products gross profit nutritional supplements product sales decreased 38 million 45 46 million 2001 84 million 2000 decrease gross profit sales nutritional supplements partially offset increase gross profit sales consumer diagnostic products gross profit consumer diagnostic product sales increased 17 million 19 105 million 2001 88 million 2000 gross profit professional diagnostics product sales decreased 297000 5 60 million 2001 63 million 2000 purchased inprocess research development fourth quarter 2001 recorded 70 million noncash charge inprocess research development project iprd project acquired part unipath business time acquisition research development staff unipath business seeking develop digitalbased technology however technology sought specific iprd project yet reached technological feasibility alternative future use date acquisition therefore portion purchase price allocated iprd project 70 million charged expense acquisition date amount purchase price allocated iprd project represented estimated fair value project determined using income approach whereby projected future cash flows discounted value technology estimated royalty rate 4 applied projected revenues calculate pretax royalty savings attributed completed technology 30 tax rate used riskadjusted discount rate 24 applied believe many complex technical issues resolved however technology food drug administration approval therefore risk achieving commercialization developmental risk regulatory risk well work full project includes demonstrating feasibility defining project design development verification clinical testing regulatory submission approval need completed prior launch product based technology hurdles crossed new complexities likely arise initially anticipated iprd project would take one half years acquisition date complete current estimate completion date remains unchanged initial valuation project estimated would cost approximately 27 million additional research development costs complete iprd project since incurred approximately 903000 research development costs december 31 2002 currently expect estimated costs complete approximately 988000 reduction estimated research development costs complete original estimate due subsequent decision change outsourced prototype tooling design work contractor europe one china based upon time costs incurred estimate iprd project approximately 95 complete december 31 2002 record charges 2000 research development expense research development expense increased 450000 32 18 million 2001 14 million 2000 2001 research development expense related professional diagnostic products sales marketing expense sales marketing expense increased 430000 5 85 million 2001 81 million 2000 increase resulted primarily addition unipath business since acquisition date sales marketing expense percentage net product sales increased 18 2001 16 2000 general administrative expense general administrative expense increased 47 million 67 117 million 2001 70 million 2000 general administrative expense percentage net product sales increased 25 2001 14 2000 approximately 25 million increase resulted legal fees incurred active defenses certain litigation matters 2001 increases general administrative expenses relate professional fees facilities costs due relocation united states office 2001 salaries insurance addition unipath business stockbased compensation 2001 recorded 104 million noncash stockbased compensation expense primarily resulted sale restricted stock chief executive officer stock option grants certain key executives securities sold granted market value stock measurement date see note 12c notes consolidated financial statements interest expense interest expense 2001 remained consistent 68000 decrease 3 20 million compared 2000 expense net expense net includes interest income expenses interest income increased 358000 385000 2001 27000 2000 increase interest income resulted higher average cash balances contributions imt 2001 significant portion income expense generally represents foreign currency exchange gains losses 2001 recognized 727000 foreign exchange transaction losses compared losses 389000 2000 2001 also settled lawsuit recorded loss 17 million included expense provision income taxes 2001 recorded provisions 21 million income taxes compared 18 million 2000 increase primarily due writeoff certain deferred tax assets believe would provide us future tax benefits result splitoff merger imt johnson november 2001 see note 13 notes consolidated financial statements loss income continuing operations loss continuing operations 245 million 384 per basic diluted common share 2001 compared income continuing operations 28 million 059 per basic diluted common share 2000 loss 2001 resulted various factors described income loss discontinued operations 2001 income discontinued operations 58000 compared loss discontinued operations 598000 2000 discontinued operations represented diabetes related segments acquired johnson november 21 2001 see notes 1 15d notes consolidated financial statements extraordinary loss early extinguishment debt amount charged extraordinary loss 2001 represented writeoff remaining unamortized deferred financing costs related thirdparty debt imt assumed paidoff splitoff merger net loss income net loss 247 million 388 per basic diluted common share 2001 compared net income 22 million 046 per basic diluted common share 2000 see notes 1 2k 11 notes consolidated financial statements loss 2001 resulted various factors described supplementary quarterly financial information selected quarterly financial data years 2002 2001 summarized 1loss income continuing operations available common shareholders basic diluted loss income per share computed consistent annual per share calculations described notes 1 2k 11 notes consolidated financial statements 2included loss continuing operations first quarter 2002 impairment charge 127 million representing writeoff certain intangible assets noncash stockbased compensation charge 101 million relating restricted stock award made 2001 terms amended 2002 net loss first quarter 2002 also includes extraordinary gain 83 million relating repurchase beneficial conversion feature associated debt early extinguished 121 million charge cumulative effect accounting change loss continuing operations 276 million lower 166000 002 per basic diluted share compared amount reported quarterly report form 10q amended three months ended march 31 2002 reclassification interest expense extraordinary items 3the second quarter 2002 includes 217000 litigation settlement 4included income continuing operations net income fourth quarter 2002 onetime foreign exchange gain 26 million settlement portion intercompany loan two subsidiaries addition net income fourth quarter 2002 includes 32 million extraordinary loss due early extinguishment debt 5in quarters 2001 net income loss includes loss income discontinued operations 581000 739000 441000 545000 respectively relating splitoff merger transaction imt johnson 6included loss continuing operations fourth quarter 2001 charge 70 million writeoff value allocated acquired inprocess research development project ii noncash stockbased compensation charge 104 million relating stock option grants made executive bonus plan adopted connection splitoff imt iii litigation settlement charge 17 million addition loss discontinued operations described footnote 5 net loss fourth quarter 2001 includes 327000 extraordinary loss due early extinguishment debt liquidity capital resources based upon working capital position current operating plans business conditions believe existing capital resources credit facilities adequate fund operations including current outstanding debt commitments discussed least next 12 months may adversely impacted unforeseen costs associated integrating proposed merger ostex international inc ability refinance subsidiary imns loans credit agreement congress financial corporation discussed cannot certain however underlying assumed levels revenues expenses realized addition intend continue expand research development efforts related substantial intellectual property portfolio acquired connection unipath wampole acquisitions well intellectual property may acquire connection proposed acquisition ostex may also choose expand research development may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise decide pursue activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed available may acceptable terms could negative effect business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result changes cash position december 31 2002 cash equivalents 307 million 214 million decrease 41 december 31 2001 historically funded business operating cash flows proceeds borrowings issuance equity securities well contributions imt affiliated companies imt prior november 2001 generated 117 million cash operating activities 2002 due income adjusted noncash items 141 million net working capital increase excluding cash 24 million 2002 also generated cash 563 million financing activities primarily involved bank borrowings 530 million november 2002 borrowings private investors totaling 350 million september 2002 followon public offering raised 343 million may 2002 net underwriters discounts commissions offering costs proceeds 10 million exercises certain common stock options warrants issuance 206 million preferred stock private investors march 2002 used cash 866 million investing activities primary investing activities consisted 706 million 71 million paid acquisitions wampole imn respectively 28 million paid restructuring additional costs related acquisition unipath business 10 million loans ostex discussed 61 million capital expenditures offset 15 million proceeds sale property equipment also utilized portion proceeds received debt equity securities issuances make principal prepayments repayments 200 million certain subordinated promissory notes march 2002 636 million term loans royal bank scotland plc pay financing costs 40 million working capital 282 million december 31 2002 compared 196 million december 31 2001 investing activities september 6 2002 entered agreement plan merger ostex pursuant intend acquire ostex develops commercializes osteoporosis diagnostic products expect merger provide us intellectual property rights field osteoporosis testing synergies ostexs existing inprocess intellectual property elimination redundant positions ability increase sales ostexs existing products use marketing distribution channels opportunity significant cost savings pending acquisition ostex subject several closing conditions including approval merger agreement governing acquisition ostexs shareholders receipt necessary consents respect transactions contemplated merger agreement required material loan agreements february 18 2003 order increase likelihood would obtain consent merger senior lender required material loan agreements parties amended merger agreement reduce consideration pay acquire ostex merger agreement amended aggregate number shares common stock issued merger ostexs outstanding shares reserved options warrants assumed us 19 million shares amended merger agreement effective time merger outstanding share ostex common stock shall converted right receive number shares common stock equal conversion ratio calculated dividing 19 million sum 1 total number shares ostex common stock outstanding immediately prior effective time merger 2 total number shares ostex common stock subject outstanding stock options warrants assume merger shares ostex common stock subject options warrants assumed us convert ratio also part merger transaction agreed lend 20 million ostex support operations prior effective time merger date made loans aggregating 16 million ostex merger remains subject approval holders two thirds ostexs outstanding voting stock receipt thirdparty consents including consent senior lender certain customary closing conditions assurance acquisition ostex occur complete acquisition ostex required issue significant number shares common stock likely dilute earnings per share september 20 2002 significantly expanded professional diagnostics business acquisition wampole laboratories division medpointe inc wampole leader enzyme linked immuno sorbent assay elisa testing within professional laboratory marketplace also offers broad line visuallyread assays pointofcare testing wampoles products sold hospitals major reference testing laboratories physicians offices clinics extensive us distribution network compliment existing professional diagnostic products lines international distribution networks acquisition wampole also provides us significant new intellectual property aggregate purchase price wampole approximately 715 million consisted 700 million cash approximately 15 million estimated direct acquisition costs acquisition funded portion existing cash proceeds issuance 350 million subordinated debt terms discussed march 19 2002 acquired ivc industries inc operating inverness medical nutritionals group imn manufacturer distributor vitamins nutritional supplements primarily united states addition imn able consolidate certain vitamin nutritional supplement manufacturing imn discontinue outsourced manufacturing arrangements aggregate purchase price imn 273 million consisted 56 million cash representing 250 outstanding share imns common stock fullyvested stock options purchase aggregate 115744 shares common stock options aggregate fair value 13 million approximately 16 million costs exit certain activities imn primarily severance costs 174 million assumed debt including capital leases approximately 14 million direct acquisition costs funded acquisition imn existing cash financing activities november 14 2002 company certain subsidiaries entered senior credit agreement group banks including general electric capital corporation keybank national association royal bank scotland plc credit facilities aggregate amount 550 million senior credit agreement consists us term loan 200 million european term loan 100 million european revolving line credit 250 million aggregate initial borrowings amounted 300 million term loans 2296 revolving line credit upon execution senior credit agreement amounts also outstanding december 31 2002 principal repayments us term loan made eleven equal quarterly installments 125 million starting april 30 2003 october 31 2005 final installment 625 million due november 2005 principal repayments european term loan made fourteen equal quarterly installments 25000 starting january 31 2003 april 30 2006 final installment 965 million due may 2006 may also choose prepay part term loans provided prepay least 10 million multiple thereof may repay borrowings revolving line credit time event later november 14 2005 must make mandatory prepayments loans senior credit agreement meet certain cash flow thresholds collect certain insurance proceeds excess certain thresholds issue equity securities november 14 2003 sell assets ordinary course business borrowings term loans revolving line credit bear interest either london interbank offered rate libor defined credit agreement plus applicable margins option ii floating index rate defined credit agreement plus applicable margins applicable margins depending type loan range 125 375 subject quarterly adjustments based total leverage ratio defined credit agreement december 31 2002 interest rates us term loan european term loan revolving line credit 625 675 625 respectively borrowings senior credit agreement secured stock certain us european subsidiaries significant portion intellectual property rights assets business us europe excluding assets imn orgenics ltd israeli subsidiary orgenics subsidiaries unipath scandinavia ab swedish subsidiary senior credit agreement must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios ebitda minimum cash requirement addition senior credit agreement currently prohibits us paying dividends december 31 2002 compliance covenants failure comply covenants may material adverse impact financial condition upon receipt proceeds loans senior credit agreement used 441 million thereof prepay outstanding principal balance accrued unpaid interest term loans line credit series credit agreements royal bank scotland plc related entities described september 20 2002 sold units aggregate purchase price 200 million private investors help finance acquisition wampole unit issued 50000 consisted 10 subordinated promissory note principal amount 50000 ii warrant acquire 400 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 160000 shares common stock may exercised time prior september 20 2012 addition placement agent offering units received cash commissions expense allowance totaling 970000 warrant purchase 37700 shares common stock terms identical warrants sold part units 10 subordinated notes accrue interest outstanding principal amount 10 per annum payable quarterly arrears first day calendar quarter starting october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties subject consent senior lenders may repay 10 subordinated notes pay prepayment penalty cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance acquisition among purchasers units three directors officers entity controlled chief executive officer collectively purchased aggregate 37 units consisting 10 subordinated notes aggregate principal amount 185 million warrants purchase aggregate 14800 shares common stock september 20 2002 also connection financing wampole acquisition sold 9 subordinated promissory notes aggregate principal amount 90 million 3 subordinated convertible promissory notes aggregate principal amount 60 million private investors aggregate purchase price 150 million 9 subordinated notes 3 convertible notes accrue interest outstanding principal amount 9 3 per annum respectively payable quarterly arrears first day calendar quarter starting october 1 2002 9 subordinated notes 3 convertible notes mature september 20 2008 subject acceleration certain circumstances may prepay 9 subordinated notes time subject certain prepayment penalties consent senior lenders repay 9 subordinated notes 3 convertible notes may cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date time prior maturity date holders 3 convertible notes option convert outstanding principal amounts unpaid interest shares common stock conversion price equal 1745 per share additionally outstanding principal amount unpaid interest 3 convertible notes automatically convert common stock conversion price equal 1745 per share time september 20 2004 average closing price common stock consecutive thirtyday period greater 2267 entity controlled chief executive officer purchased 3 convertible notes aggregate principal amount 30 million connection imn acquisition assumed imns longterm debt december 31 2002 imn total outstanding debt balance 173 million 117 million related credit agreement congress financial corporation subsidiary first union corporation 56 million related various notes payable capital leases credit agreement congress amended imn borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations borrowings revolving credit commitment term loan bear interest either 150 banks prime rate imns option 375 adjusted eurodollar rate used bank december 31 2002 interest rates loans congress ranged 465 575 notes collateralized substantially imns assets credit agreement congress requires imn maintain minimum tangible net worth contains various restrictions customary financial arrangements including limitations payment cash dividends december 31 2002 imn compliance requirements restrictions loans congress set mature october 16 2003 restricted funding imn senior credit agreement current intention refinance congress loans new arrangement become due however new financing arrangement may available needed available may acceptable terms could negative effect business results operations imns notes payable capital leases mature various dates july 2008 march 6 2002 prepaid outstanding subordinated promissory notes aggregate principal amount 200 million related accrued interest 568000 using proceeds issuance series redeemable convertible preferred stock discussed december 20 2001 one whollyowned subsidiaries entered series credit agreements royal bank scotland plc related entities credit facilities aggregate amount 650 million amended credit agreements royal bank scotland consisted various term loans initially aggregating 625 million 100 million denominated japanese yen 100 million represented junior loan 25 million multicurrency revolving line credit amended proceeds term loans used finance portion cash used acquire unipath business per annum interest rate loans london interbank offered rate libor plus spread 150 350 additional 200 case default depending type loan senior junior interest period addition interest 400 per annum capitalized junior loan november 14 2002 refinanced outstanding principal balances unpaid interest term loans line credit agreements royal bank scotland proceeds new senior credit agreement entered general electric capital corporation banks date discussed 1999 subsidiary cdil financed purchase one buildings houses manufacturing activities mortgage loan seller outstanding balance cdil mortgage 144000 december 31 2002 mortgage loan bears interest 6 payable semiannually 2003 december 31 2002 subsidiary orgenics bank debt balances totaling 377000 orgenics bank debt collateralized certain orgenics assets orgenics notes bear interest rates ranging 33 13 payable various dates 2004 may 2002 sold aggregate 16 million shares common stock followon public offering total net proceeds followon offering approximately 343 million deducting underwriters commissions offering costs totaling 25 million march 2002 sold private investors 531913 shares series redeemable convertible preferred stock 3901 per share gross proceeds 2075 million purposes prepaying outstanding 200 million subordinated promissory notes related accrued unpaid interest terms shares series preferred stock 1995000 shares series preferred stock issued december 2001 share series preferred stock accrues dividends quarterly basis 210 per annum days closing price common stock 15 2002 recorded 326000 dividends accrued payable declared board directors december 31 2003 accrued dividends must paid common stock number shares common stock issued payment accrued dividends equal number determined dividing aggregate amount accrued dividend payable greater 15 ii average market price 30 trading day period immediately preceding date dividend declared thereafter option pay dividends cash common stock addition senior credit agreement currently prohibits us paying dividends number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 30 conversion price effect time conversion december 31 2002 conversion price 15 subject adjustment accordingly share series preferred stock currently convertible two shares common stock effective purchase price shares common stock underlying series preferred stock issued march 2002 represented 270 12 discount fair value common stock issuance date starting december 20 2003 may convert series preferred stock common stock event average closing price common stock exceeds 20 consecutive 30 trading day period series preferred stock may redeemed upon vote holders least twothirds outstanding series preferred stock june 30 2011 redemption price per share series preferred stock equal 30 plus premium calculated 5 per annum date issuance 2002 1742347 shares series preferred stock converted 3484694 shares companys common stock december 31 2002 323060 shares series preferred stock outstanding income taxes december 31 2002 approximately 211 million 191 million domestic foreign net operating loss carryforwards respectively either expire various dates 2022 carried forward indefinitely losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable tax authorities may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations contractual obligations following table summarizes principal contractual obligations december 31 2002 effects obligations expected liquidity cash flow future periods 1see description various financing arrangements section note 6 notes consolidated financial statements 2see note 7 notes consolidated financial statements 3see note 10a notes consolidated financial statements 4purchase obligations primarily comprised firm capital expenditure commitments support production certain improved products critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states accounting policies discussed considered management critical understanding financial statements application depends managements judgment financial reporting results relying estimations assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes consolidated financial statements include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition recognize revenue accordance securities exchange commission staff accounting bulletin 101 related amendments collectively sab 101 sab 101 requires four basic criteria met revenue recognized 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenues derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based managements analyses judgments regarding certain conditions discussed critical accounting policy use estimates sales returns allowances allowance doubtful accounts future changes conditions prove managements conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected since acquisitions unipath business december 2001 wampole september 2002 also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees calculated based licensees sales recognized upon receipt license royalty payments would able determine fees time use estimates sales returns allowances allowance doubtful accounts sales arrangements customers consumer products generally require us accept product returns time also enter sales incentive arrangements customers generally reduce sale prices products product revenue recognized reporting period must establish allowances potential future product returns claims resulting sales incentive arrangements calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer demand acceptance products material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates provision sales returns allowances related sales incentive arrangements amounted approximately 439 million 2002 48 million 2001 increase primarily resulted addition unipath business imn similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 373 million 216 million net allowance doubtful accounts 871000 858000 december 31 2002 2001 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory based primarily upon factors forecasts customers demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers demands requires management make assumptions estimates actual product sales may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 372 million net provision 13 million december 31 2002 valuation goodwill longlived intangible assets longlived assets include property plant equipment goodwill intangible assets december 31 2002 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 458 million 1089 million 799 million respectively believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives indicators impairment present effective january 1 2002 sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset loss would charged expense period identify impairment addition review carrying values longlived tangible intangible assets indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill january 1 2002 adopted sfas 142 obtained independent review carrying value existing goodwill accordance statement provides specific guidance determining measuring impairment goodwill based upon results review recorded impairment charge 121 million representing remaining goodwill related reporting unit comprises nutritional supplement lines acquired 1997 amount represented excess carrying value fair value asset fair value determined using combination income approach market approach valuing business income approach valued business discounting projected future cash flows market approach valued security underlying business comparing similar businesses significant facts circumstances led conclusion impairment future cash flows nutritional supplement lines expected reduced b selling general administrative expenses relating nutritional supplement lines forecasted increase percentage sales c nutritional supplements business experiencing larger percentage decline revenues comparable businesses companies future cash flows operating results used independent review based managements projections assumptions future events cause actual results differ projections event full impairment charge 121 million taken first quarter 2002 may justified december 31 2002 goodwill balances related consumer diagnostics professional diagnostics reporting units 665 million 424 million respectively performed impairment review carrying values goodwill based discounted projected future cash flows approach believe goodwill related consumer diagnostics professional diagnostics reporting units impaired december 31 2002 future cash flows operating results used impairment review based managements projections assumptions future events cause projections differ used december 31 2002 could lead significant impairment charges goodwill future valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 independent appraisal fair value reporting unit underlying nutritional supplements business indicated impairment goodwill related reporting unit discussed proceeded also obtain independent impairment review carrying value assigned related trademarks brand names results review indicated impairment carrying value trademarks brand names full carrying amount intangible assets expected recoverable exceeded fair value full carrying amount intangible assets recoverable exceeded sum undiscounted cash flows expected result use eventual disposition assets fair value intangible assets determined using combination discounted cash flow approach relief royalty approach latter valued trademarks licensed third party based results recorded another impairment charge 127 million writeoff portion carrying value trademarks brand names first quarter 2002 remaining carrying value intangible assets 41 million december 31 2002 amortized assets average remaining useful lives 19 years impairment measured partly based projected discounted cash flow method using discount rate determined management commensurate risk inherent current business model although believe remaining carrying value longlived tangible intangible assets realizable december 31 2002 future events could cause us conclude otherwise accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 282 million december 31 2002 due uncertainties related future benefits deferred tax assets primarily related us businesses certain foreign net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance could materially impact tax provision legal contingencies nature business may time subject consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us currently involved certain legal proceedings discussed item 3 legal proceedings accrue potential losses legal proceedings company defendant able quantify potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become quantifiable case progresses case begin accruing expected loss addition item 3 report reported certain legal proceedings believe final ruling us could material adverse impact financial position operations extent unanticipated facts circumstances arise cause us change assessment respect matter future results operations financial position could materially affected recently issued accounting standards june 2001 financial accounting standards board fasb issued statement financial accounting standard sfas 143 accounting asset retirement obligations statement addresses accounting reporting obligations associated retirement tangible longlived assets related asset retirement costs particular legal obligations associated retirement result acquisition construction development normal operation longlived asset except certain obligations lessees adopted statement january 1 2003 required however adoption statement material impact financial position results operations cash flows november 2001 emerging issues task force eitf issued eitf issue 019 accounting consideration given vendor customer reseller vendors products eitf issue 019 establishes accounting reporting standards vendor consideration purchasers vendors products point along distribution chain regardless whether purchaser receiving consideration direct customer offer certain sales incentives fall within scope eitf issue 019 slotting fees cooperative advertising customers adopted provisions consensus 2002 effect reductions net product sales amounts 24 million 25 million 2001 2000 respectively reclassifications sales marketing expenses comparative purposes certain reclassifications impacting net product sales cost sales effect loss income continuing operations net loss income respective years april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections addresses reporting gains losses resulting extinguishment debt accounting saleleaseback transactions rescinds amends existing authoritative pronouncements sfas 145 requires gain loss extinguishment debt meet criteria accounting principles board apb opinion 30 classification extraordinary item shall classified extraordinary shall included earnings continuing operations adopted provisions statement january 1 2003 required result gains losses early extinguishment debt future included earnings continuing operations periods prior january 1 2003 restated accordingly consequently restatement prior period losses upon adoption statement reduce loss continuing operations 190 million 311 per basic diluted share 2002 increase loss continuing operations 248 million 389 per basic diluted share 2001 june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities addresses recognition measurement reporting costs associated exit disposal activities including restructuring activities statement supersedes guidance set forth eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring sfas 146 requires liability cost associated exit disposal activity recognized liability incurred previous guidance eitf issue 943 liability would recognized date entitys commitment exit plan statement also establishes fair value used initial measurement liability however statement apply costs associated exit activities involve entity newly acquired business combination required apply guidance sfas 146 respect exit disposal activities initiated december 31 2002 current operating plans expect adoption statement material impact financial position results operations cash flows november 2002 fasb issued interpretation fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others significantly change current practice accounting disclosure guarantees fin 45 requires guarantor recognize inception certain types guarantees liability obligation undertaken issuing guarantee fair value interpretation also requires significant new disclosures financial statements guarantor obligations certain guarantees required apply disclosure provisions fin 45 financial statements december 31 2002 accounting provisions fin 45 applicable guarantees issued modified december 31 2002 disclosure requirements fin 45 material effect financial statements expect accounting provisions interpretation material impact financial position results operations cash flows december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure statement amends sfas 123 accounting stockbased compensation provide alternative methods transition sfas 123s fair value method accounting stockbased employee compensation sfas 148 also amends disclosure provisions sfas 123 apb opinion 28 interim financial reporting require expanded disclosure effects companys accounting policy stockbased employee compensation statement require companies account employee stock options using fair value method adopted disclosure provisions sfas 148 december 31 2002 required however continue account employee stock options using intrinsic value method apb opinion 25 accounting stock issued employees permitted certain factors affecting future results various risks including described may materially impact investment company may future cases already materially affect us business financial condition results operations consider carefully factors respect investment securities section includes refers certain forwardlooking statements read explanation qualifications limitations forwardlooking statements pages 2 53 report business substantial indebtedness could result adverse consequences us december 31 2002 approximately 1064 million outstanding indebtedness credit facilities debtrelated instruments substantial level debt affects future operations several important ways including following •our ability obtain additional financing may impaired •our flexibility adjust market conditions limited leaving us vulnerable downturn general economic conditions business less able plan react changes business industries operate •we may need use large portion cash flow operations pay principal interest indebtedness would reduce amount cash available finance operations business activities may require us order meet debt service obligations delay reduce capital expenditures introduction new products andor forego business opportunities including acquisitions research development projects product design enhancements •we may competitive disadvantage compared competitors less debt furthermore cannot assure cash flow operations capital resources sufficient pay indebtedness cash flow capital resources prove inadequate could face substantial liquidity problems might required dispose material assets operations restructure refinance debt seek additional equity capital additionally agreements governing indebtedness subject us various restrictions ability engage certain activities including among things ability •incur additional indebtedness •acquire businesses •make investments •make loans extend credit benefit third parties subsidiaries •raise additional capital •make capital finance lease expenditures •dispose encumber assets restrictions may limit ability pursue business opportunities strategies would otherwise consider best interests stockholders credit facilities contain certain financial covenants may satisfy satisfied could result acceleration amounts due credit facilities limitation ability borrow additional funds future december 31 2002 approximately 647 million outstanding indebtedness various credit facilities substantially owed general electric capital corporation keybank national association royal bank scotland plc congress financial corporation agreements governing various credit facilities subject us various financial covenants must comply ongoing periodic basis include covenants pertaining fixed charge coverage capital expenditure various leverage ratios minimum ebitda total net worth minimum cash requirement violate covenants may material adverse effect us notably outstanding debt one credit facilities could become immediately due ability borrow additional funds future may limited rising interest rates would increase interest costs reduce earnings currently may incur indebtedness bears interest variable rates accordingly interest rates increase interest costs would adversely affect earnings cash flow ability service debt acquisitions unipath business ivc industries inc wampole division medpointe inc may profitable successfully integrated may result significant charges earnings december 20 2001 acquired unipath business including clearblue clearview product lines unilever certain affiliated entities march 19 2002 acquired ivc industries inc september 20 2002 acquired wampole division medpointe inc value unipath business ivc wampole us may greater equal purchase prices cannot guarantee realize benefits strategic objectives seeking obtain acquiring unipath business ivc wampole connection accounting acquisitions unipath business wampole recorded significant amount intangible assets statement financial accounting standards 142 sfas 142 goodwill intangible assets must assess least annually potentially frequently whether value goodwill intangible assets impaired reduction impairment value goodwill intangible assets result charge earnings could materially adversely affect results operations future periods may able complete pending acquisition ostex international inc case incurred substantial expenses without realizing expected benefits pending acquisition ostex international inc ostex subject several closing conditions notably approval merger agreement governing acquisition ostexs shareholders consent senior lender result assurance acquisition occur acquisition occur expect incur approximately 125 million 175 million acquisition related expenses may material adverse impact results operations financial condition realized expected benefits acquisition ostex pending acquisition ostex completed integration operations may difficult may lead adverse effects success pending acquisition ostex completed depend part ability realize anticipated synergies cost savings growth opportunities integrating ostexs business success realizing benefits timing realization depend upon successful integration operations ostex integration two independent companies complex costly timeconsuming process difficulties combining operations companies include among others •consolidating manufacturing research development operations •coordinating sales distribution marketing functions •preserving important licensing research development manufacturing supply distribution marketing customer relationships ostex •minimizing diversion managements attention ongoing business concerns •coordinating geographically separate organizations may accomplish integration smoothly successfully diversion attention management current operations integration effort difficulties encountered combining operations could prevent us realizing full benefits anticipated result acquisition adversely affect businesses expect record significant amount goodwill intangible assets connection pending acquisition ostex may result significant future charges earnings goodwill intangible assets become impaired connection accounting pending acquisition ostex expect record significant amount goodwill intangible assets sfas 142 must assess least annually potentially frequently whether value goodwill intangible assets impaired reduction impairment value goodwill intangible assets result charge earnings could materially adversely affect results operations future periods choose acquire invest new complementary businesses products technologies instead developing acquisitions investments could disrupt business depending finance acquisitions investments could result significant dilution existing stockholders success depends part ability continually enhance broaden product offerings response changing technologies customer demands competitive pressures accordingly time may seek acquire invest businesses products technologies instead developing acquisitions investments involve numerous risks including •the inability complete acquisition investment •disruption ongoing businesses diversion management attention •difficulties integrating acquired entities products technologies •difficulties operating acquired business profitably •the inability achieve anticipated cost savings •potential loss key employees particularly acquired business •difficulties transitioning key customer distributor supplier relationships •risks associated entering markets limited prior experience •unanticipated costs addition future acquisitions investments may result •dilutive issuances equity securities may sold discount market price •use significant amounts cash •the incurrence debt •the assumption liabilities •unfavorable financing terms •large onetime expenses •the creation certain intangible assets including goodwill writedown may result significant charges earnings factors could materially harm business operating results unable post bond 35 million amount determined court preliminary injunction recently obtained pfizer incs ept product take effect march 12 2003 united states district court district new jersey entered order granting motion preliminary injunction pfizer inc based finding pfizers ept® pregnancy tests manufactured mizuho usa inc subsidiary mizuho medy ltd likely infringe two patents courts order effectively would preclude pfizer selling version ept pregnancy test pending appeal subject posting 35 million bond court posted bond may able secure sufficient bond reasonable cost fail post bond may fail realize full benefits injunction imposed court may lose opportunity increase share market pregnancy tests might pfizer forced stop distributing current version ept product could liable damages pfizer inc despite preliminary injunctions preventing sale pfizers ept pregnancy tests court ultimately determines ept infringe patents united states district court district new jersey issued two preliminary injunctions effectively preclude pfizer inc selling existing versions ept® pregnancy tests based findings tests likely infringe certain patents preliminary injunctions conditioned upon us posting bonds court posted bond first injunction despite courts findings pfizers ept pregnancy tests likely infringe patents final determination whether tests infringe patents made trial occurred court could rule us trial find tests infringe patents case could held liable damages pfizer lost profits suffered period prohibited preliminary injunctions selling tests case would lose collateral provided us surety bonds posted court extent damages awarded pfizer would liable pfizer andor surety providers extent damages awarded exceed collateral provided us could experience significant manufacturing delays disruptions ongoing research development increased production costs unilever unable successfully assign sublease us lease multipurpose facility currently use bedford england one primary operating facilities located bedford england bedford facility multipurpose facility registered us food drug administration contains stateoftheart research laboratories equipped specialized manufacturing equipment facility currently provides manufacturing clearblue clearview products serves research development center serves administrative center european operations currently using bedford facility pursuant agreement unilever entered connection acquisition unipath business 2001 unilever currently leases facility third party landlord pursuant terms unilevers lease however unilever permitted assign lease sublet bedford facility without obtaining prior written consent landlord consent may unreasonably withheld landlord indicated consent assignment lease us unilever landlord currently negotiating terms sublease terms acquisition agreement obligate unilever use reasonable endeavors obtain landlords consent assignment sublease facility necessary pursue assignment sublease courts assurances unilever successful obtaining landlords consent assignment lease us sublease us unilever unable successfully acquire consent otherwise enable us realize benefit lease bedford facility may forced renegotiate lease bedford facility substantially less favorable terms seek alternative means producing products conducting research housing european administrative staff either case may experience manufacturing delays disruptions ongoing research development resolving issues increased production costs future additionally assurances able renegotiate lease bedford facility terms acceptable us find acceptable replacement facility one events may material adverse effect us manufacturing problems delays could severely affect business produce consumer products manufacturing facilities located new jersey bedford england galway ireland professional diagnostic tests manufacturing facilities located bedford england yavne israel production processes complex require specialized expensive equipment replacement parts specialized equipment expensive cases require lead times year acquire addition private label consumer products business private label bulk nutritional supplements business particular rely operational efficiency mass produce product low margins per unit also rely third parties supply production materials cases may alternative sources immediately available addition rely third parties manufacture professional diagnostic products event impacting manufacturing facilities manufacturing systems equipment contract manufacturers suppliers could delay suspend shipments products could result delivery inferior products revenues affected products would decline could incur losses time able restore production processes put place alternative contract manufacturers suppliers even though carry business interruption insurance policies may suffer losses result business interruptions exceed coverage available insurance policies fail meet strict regulatory requirements could required pay fines even close facilities manufacturing techniques generally must conform standards established government agencies including european foreign governments well united states food drug administration fda lesser extent united states drug enforcement agency dea local health agencies regulatory agencies may conduct periodic inspections facilities monitor compliance applicable regulatory standards regulatory agency finds fail comply appropriate regulatory standards may impose fines us regulatory agency determines noncompliance severe may close facilities adverse action applicable regulatory agency could impair ability produce products costeffective timely manner order meet customers demands regulatory agencies may also impose new enhanced standards would increase costs well risks associated noncompliance example anticipate fda may soon finalize implement good manufacturing practice gmp regulations nutritional supplements gmp regulations would require supplements prepared packaged held compliance certain rules might require quality control provisions similar gmp regulations drugs manufacturing facilities nutritional supplements subjected passed third party inspections anticipated gmp standards ongoing compliance required event gmp regulations adopted would involve additional costs would present new risks associated failure comply regulations future deliver products defects credibility may harmed market acceptance products may decrease may exposed liability excess product liability insurance coverage manufacturing marketing consumer professional diagnostic products involve inherent risk product liability claims addition product development production extremely complex could expose products defects could harm credibility decrease market acceptance products addition marketing vitamins nutritional supplements may cause us subjected various product liability claims including among others claims vitamins nutritional supplements inadequate warnings concerning side effects interactions substances potential product liability claims may exceed amount insurance coverage may excluded coverage terms policy event held liable claim indemnified damages exceeding limits insurance coverage claim could materially damage business financial condition sales branded nutritional supplements declined year since 1998 due maturity market segments serve age product line may experience declines sales products sales branded nutritional products declined year since 1998 year 2002 increased slightly compared 2001 believe products underperformed part aging brands limited brand recognition face increasing private label competition age product line means subject future distribution loss underperforming brands opportunities new distribution existing product lines limited despite slight increase sales seen 2002 expect significant sales growth existing branded nutritional products may experience declines sales products future vitamin nutritional supplements market subject significant fluctuations based upon media attention new developments growth vitamin nutritional supplement industry attributed new products tend generate greater attention marketplace older products positive media attention resulting new scientific studies announcements spur rapid growth individual segments market also impact individual brands conversely news challenges individual segments products negative impact industry overall well sales challenged segments products vitamin nutritional supplements products serve wellestablished market segments absent unforeseen new developments trends expected benefit rapid growth vitamin nutritional products newer products likely subject new scientific studies announcements could either positive negative news developments challenge safety effectiveness products could negatively impact profitability vitamin nutritional supplements business market orgenics professional diagnostic products small medium sized customers 90 countries considerable cost reduces operating margins products small medium sized laboratories principal customers orgenics professional diagnostic products sell products worldwide order maintain sufficient sales volume orgenics professional diagnostic products marketed 90 countries including many third world developing nations smaller laboratories norm expensive technologies affordable infectious diseases often prevalent worldwide sales strategy expensive results lower margins would possible could generate sufficient sales volume operating fewer markets could suffer monetary damages incur substantial costs prevented using technologies important products result number pending legal proceedings involved various legal proceedings arising consumer diagnostics nutritional supplements professional diagnostics business current material legal proceedings •a lawsuit abbott laboratories us princeton biomeditech corporation referred pbm manufactured products consumer diagnostics business part imt claiming among things products relating pregnancy detection ovulation prediction infringe patents abbott asserts exclusive licensee •a counterclaim pbm us patent infringement suit maintained subsidiaries inverness medical switzerland gmbh unipath diagnostics inc pbm et al pbm alleges breached various obligations pbm arising joint venture us attempted monopolize market home pregnancy tests •an action brought 68 consumers london alleging defects persona contraceptive device leading unwanted pregnancies believe liability matter fully covered separate insurance provided unilever connection acquisition unipath business claims seek damages reimbursement costs expenses without specific amounts unable assess probable outcome potential liability arising lawsuits connection splitoff imt agreed assume extent permitted law indemnify imt liabilities arising womens health nutritional supplements professional diagnostics businesses splitoff extent liabilities otherwise retained imt acquisitions unipath business ivc wampole also assumed acquired substantially liabilities businesses unable assess materiality costs associated lawsuits time cannot assure lawsuits future lawsuits relating businesses material adverse effect us profitability consumer products businesses may suffer unable establish maintain close working relationships customers consumer products businesses rely great extent close working relationships customers rather longterm exclusive contractual arrangements customer concentration businesses high especially private label nutritional supplements business addition customers branded private label consumer products businesses purchase products purchase orders obligated make future purchases therefore rely ability deliver quality products time order retain generate customers fail meet customers needs expectations whether due manufacturing issues effect quality capacity issues result late shipments harm reputation likely lose customers loss major customer failure generate new accounts could significantly reduce revenues prevent us achieving projected growth private label nutritional supplements business low margin business susceptible changes costs pricing pressures private label nutritional supplements business operates low profit margins rely ability efficiently mass produce nutritional supplements order make meaningful profits business changes raw material manufacturing costs drastically cut eliminate profits generated sale particular product part longterm supply contracts required raw materials result costs increase little notice private label nutritional supplements business also highly competitive ability raise prices result increased costs limited customers generally purchase private label products via purchase order longterm contracts often purchase products lowest bidder product basis internet enhanced price competition among private label manufacturers advent online auctions mass merchandisers auction right manufacture particular product lowest often anonymous bidder retailer consolidation poses threat existing retailer relationships result lost revenue recent years witnessed rapid consolidation within mass retail industry drug store chains grocery stores mass merchandisers primary purchasers consumer diagnostic products vitamins nutritional supplements subject trend customers purchase orders consolidation interfere existing retailer relationships especially private label relationships result loss major customers significant revenue streams financial condition results operations may adversely affected international business risks significant number employees including sales support research development personnel located outside united states conducting business outside united states subjects us numerous risks including •increased costs reduced revenue result movements foreign currency exchange rates •decreased liquidity resulting longer accounts receivable collection cycles typical foreign countries •lower productivity resulting difficulties managing sales support research development operations across many countries •lost revenues resulting difficulties associated enforcing agreements collecting receivables foreign legal systems •lost revenues resulting imposition foreign governments trade protection measures •higher cost sales resulting import export licensing requirements business relies heavily foreign operations revenues changes foreign currency exchange rates ability convert currencies may negatively affect financial condition results operations business relies heavily foreign operations three manufacturing facilities outside united states bedford england galway ireland yavne israel approximately 42 net revenues generated outside united states 2002 clearblue products pregnancy tests particular historically much stronger brands outside united states 68 net product sales clearblue products coming outside united states 2002 addition imn generated almost 175 net product sales outside united states 2002 addition persona sold exclusively outside united states orgenics professional diagnostic products always sold exclusively outside united states foreign operations foreign sales face exposure movements foreign currency exchange rates primary exposures related operations european subsidiaries exposures may change time business practices evolve could result increased costs reduced revenue could impact actual cash flow orgenics subsidiary located israel operations could negatively affected due military political tensions middle east whollyowned subsidiary orgenics develops manufactures sells certain professional diagnostic products incorporated laws state israel administrative offices development manufacturing operations orgenics business located yavne israel although orgenicss sales currently customers outside israel political economic military conditions israel could nevertheless directly affect operations since establishment state israel 1948 number armed conflicts taken place israel arab neighbors state hostility varying degree intensity led security economic problems israel despite history avoiding adverse effects orgenics business could adversely affected major hostilities involving israel including current armed conflict palestinian authority armed conflict iraq intense competition could reduce market share limit ability increase market share could impair sales products harm financial performance medical products industry rapidly evolving developments expected continue rapid pace competition industry includes consumer diagnostics professional diagnostics businesses intense expected increase new products technologies become available new competitors enter market competitors united states abroad numerous include among others diagnostic testing medical products companies universities research institutions future success depends upon maintaining competitive position development products technologies areas focus competitors may •develope technologies products effective products render technologies products obsolete noncompetitive •obtain patent protection intellectual property rights would prevent us developing potential products •obtain regulatory approval commercialization products rapidly effectively also possibility patent disputes competitors holding foreign patent rights may limit delay expansion possibilities consumer diagnostics business certain foreign jurisdictions addition many existing potential competitors may substantially greater research development capabilities clinical manufacturing regulatory marketing experience financial managerial resources market sale vitamins nutritional supplements also highly competitive competition based principally upon price quality products customer service marketing support numerous companies vitamins nutritional supplements industry selling products retailers mass merchandisers drug store chains independent drug stores supermarkets health food stores companies privately held unable obtain information necessary assess precisely size success competitors however believe number competitors particularly manufacturers nationally advertised brand name products substantially larger greater financial resources rights rely upon protect intellectual property underlying products may adequate could enable third parties use technology would reduce ability compete market success depend part ability develop acquire commercially valuable patent rights protect intellectual property patent position generally uncertain involves complex legal factual questions degree future protection proprietary rights uncertain risks uncertainties face respect patents proprietary rights include following •the pending patent applications filed exclusive rights may result issued patents may take longer expect result issued patents •the claims patents issued may provide meaningful protection •we may able develop additional proprietary technologies patentable •the patents licensed issued us customers may provide competitive advantage •other companies may challenge patents licensed issued us customers •patents issued companies may harm ability business •other companies may design around technologies licensed developed addition patents rely combination trade secrets nondisclosure agreements contractual provisions technical measures protect intellectual property rights nevertheless measures may adequate safeguard technology underlying products protect rights third parties could use technology ability compete market would reduced addition employees consultants others participate development products may breach agreements us regarding intellectual property may adequate remedies breach also may able effectively protect intellectual property rights foreign countries variety reasons may decide file patent copyright trademark protection prosecute potential infringements patents also realize trade secrets may become known means currently foreseen us despite efforts protect intellectual property competitors customers may independently develop similar alternative technologies products equal superior technology products without infringing intellectual property rights design around proprietary technologies claims companies products infringe proprietary rights could adversely affect ability sell products increase costs substantial litigation intellectual property rights exists consumer professional diagnostic industries expect products industries may increasingly subject third party infringement claims number competitors grows functionality products technology different industry segments overlaps third parties may currently may eventually issued patents products technology may infringe third parties might make claim infringement us litigation could result expenditure significant financial resources diversion managements time resources addition litigation accused infringement may cause negative publicity impact prospective customers cause product shipment delays require us develop noninfringing technology enter royalty license agreements may available acceptable terms successful claim infringement made us could develop noninfringing technology license infringed similar technology timely costeffective basis revenue may decrease could exposed legal actions customers initiated may need initiate lawsuits protect enforce patents intellectual property rights could expensive lose could cause us lose intellectual property rights would reduce ability compete market rely patents protect portion intellectual property competitive position order protect enforce patent rights may initiate patent litigation third parties infringement suits interference proceedings litigation may necessary •assert claims infringement •enforce patents •protect trade secrets knowhow •determine enforceability scope validity proprietary rights others currently initiated number lawsuits competitors believe selling products infringe proprietary rights current lawsuits initiate could expensive take significant time divert managements attention business concerns litigation also puts patents risk invalidated interpreted narrowly patent applications risk issuing additionally may provoke third parties assert claims us patent law relating scope claims technology fields operate still evolving consequently patent positions industry generally uncertain may prevail suits damages remedies awarded may commercially valuable course suits may public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative stock price could decline noncompetition obligations restrictions limit ability take full advantage management team technology license research development capabilities members management team significant experience diabetes field addition technology license may potential applications field research development capabilities could applied field however conjunction splitoff inverness medical technology inc imt agreed postclosing covenants agreement compete imt johnson field diabetes addition mr ron zwanziger chairman president chief executive officer two senior scientists dr david scott dr jerry mcaleer entered consulting agreements imt impose similar restrictions license agreement imt prevents us using licensed technology field diabetes result restrictions cannot pursue opportunities field diabetes obligated indemnify imt others liabilities could required pay imt others amounts may restructuring agreement postclosing covenants agreement related agreements entered connection splitoff merger transaction johnson provide indemnify imt related persons specified liabilities related businesses statements proxy statementprospectus issued connection splitoff merger businesses breaches obligations restructuring agreement postclosing covenants agreement related agreements addition tax allocation agreement imt johnson indemnify johnson imt unpaid tax liabilities attributable presplitoff operation consumer diagnostics vitamins nutritional supplements professional diagnostics businesses claims indemnification yet made may never made unable predict amount may required us satisfy indemnification obligations agreements however claims made indemnification liable claims amount could substantial event may sufficient funds available satisfy potential indemnification obligations addition may unable obtain funds terms satisfactory us unable obtain necessary funds need consider alternatives including sales assets raise necessary funds unlikely able exercise effective remedies arthur anderson llp former independent public accountants although dismissed arthur andersen llp independent public accountants engaged ernst young llp following financial statements incorporated reference annual report form 10k audited arthur andersen •the consolidated financial statements inverness december 31 2001 2000 three years period ended december 31 2001 •the financial statements unipath division unilever plc november 30 2001 december 31 2000 eleven months ended november 30 2001 two years period ended december 31 2000 march 14 2002 arthur andersen indicted federal obstruction justice charges arising governments investigation enron corporation june 15 2002 jury houston texas found arthur andersen guilty federal obstruction justice charges light jury verdict underlying events arthur andersen subsequently substantially discontinued operations dismissed essentially entire workforce therefore unlikely able exercise effective remedies collect judgments arthur andersen addition arthur andersen consented inclusion report document requirement file consent dispensed reliance rule 202e regulation sx arthur andersen consented inclusion report document able recover arthur andersen section 11 securities act untrue statement material fact contained financial statements audited arthur andersen omissions state material fact required stated financial statements operating results may fluctuate due various factors result periodtoperiod comparisons results operations necessarily meaningful factors relating business make future operating results uncertain may cause fluctuate period factors include •the timing new product announcements introductions us competitors •market acceptance new enhanced versions products •changes manufacturing costs expenses •competitive pricing pressures •the gain loss significant distribution outlets customers •the availability extent reimbursement products •increased research development expenses •the timing future acquisitions •general economic conditions •general stock market conditions economic external factors stock price may fluctuate significantly stockholders buy sell common stock may lose part value investment depending price common stock time common stock listed american stock exchange since november 23 2001 limited market capitalization result currently followed market analysts portion investment community limited trading common stock may therefore make difficult sell shares addition share price may volatile due operating results well factors beyond control possible future periods results operations expectations public market event market price common stock could decline furthermore stock market may experience significant price volume fluctuations may affect market price common stock reasons unrelated operating performance market price common stock may highly volatile may affected factors •our quarterly annual operating results including failure meet performance estimates securities analysts •changes financial estimates revenues operating results buysell recommendations securities analysts •the timing announcements us competitors significant products contracts acquisitions publicity regarding actual potential results performance thereof •changes general conditions economy financial markets health care industry •government regulation health care industry •changes areas tax laws •sales substantial amounts common stock perception sales could occur •changes investor perception industry businesses prospects •the loss key employees officers directors •other developments affecting us competitors holders series preferred stock entitled receive liquidation payments preference holders common stock december 31 2002 323060 shares series preferred stock outstanding pursuant terms certificate designation creating series preferred stock upon liquidation deemed liquidation company holders shares series preferred stock entitled receive liquidation payment prior payment amount respect shares common stock amount preferential liquidation payment 30 per share series preferred stock 4050 per share certain circumstances plus amount dividends accrued shares subject adjustment event stock dividend stock split combination similar recapitalization affecting series preferred stock dividends accrue shares series preferred stock rate 210 per share per annum based percentage trading days closing market price common stock less 1500 result terms holders common stock may disproportionately affected reduction value assets fluctuations market price common stock ability stockholders control policies effect change control company limited may best interests provisions certificate incorporation bylaws may discourage third party making proposal acquire us even stockholders might consider proposal best interests provisions include following •our certificate incorporation provides three classes directors term office one class expiring year commonly referred staggered board preventing stockholders voting election one class directors annual meeting stockholders provision may effect keeping current members board directors control longer period time stockholders may desire •our certificate incorporation authorizes board directors issue shares preferred stock without stockholder approval establish preferences rights preferred stock issued would allow board issue one classes series preferred stock could discourage delay tender offer change control additionally subject section 203 delaware general corporation law general imposes restrictions upon acquirers 15 stock finally board directors may future adopt protective measures stockholder rights plan could delay deter prevent change control intend pay dividends common stock benefit investment common stock appreciates value currently intend retain future earnings finance expansion business expect pay cash dividends common stock foreseeable future addition senior credit facility currently prohibits payment dividends result success investment common stock depend entirely upon future appreciation guarantee common stock appreciate value even maintain price purchased shares historical financial information relating periods beginning prior splitoff inverness medical technology inc november 21 2001 may representative results separate company november 21 2001 splitoff inverness medical technology inc imt became independent publicly owned company part transaction imt acquired johnson prior time majority owned subsidiary imt businesses acquired connection restructuring preceded splitoff represented approximately 20 imts net product sales calendar quarter concluded immediately prior splitoff historical financial information relating periods beginning prior november 21 2001 included reports filed securities exchange commission report time periods prior splitoff reflect operating history businesses part imt result financial information may reflect results operations financial position cash flows would separate standalone company periods financial information also may reflect results operations financial position cash flows future related various risks associated fact standalone company long period time also •various adjustments allocations made produce financial statements imt account us single standalone business periods presented •the information extent report period ending november 21 2001 reflect many significant changes occurred financial condition capital structure operations result separation imt adjustments allocations made preparing financial information periods beginning prior november 21 2001 may appropriately reflect operations periods operated standalone company special statement regarding forwardlooking statements annual report form 10k contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words may could would intend expect anticipate believe estimate continue similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state forwardlooking information may events future able predict accurately control may cause actual results differ materially expectations describe forwardlooking statements caution investors forwardlooking statements involve risks uncertainties actual results may differ materially discuss annual report form 10k differences may result various factors including factors described certain factors affecting future results section annual report risk factors identified time periodic filings securities exchange commission important additional factors could cause actual results differ materially projected forwardlooking statements follows •economic factors including inflation fluctuations interest rates foreign currency exchange rates potential effect fluctuations revenues expenses resulting margins •competitive factors including technological advances achieved patents attained competitors generic competition •domestic foreign healthcare changes resulting pricing pressures including continued consolidation among healthcare providers trends toward managed care healthcare cost containment government laws regulations relating sales promotion reimbursement pricing generally •government laws regulations affecting domestic foreign operations including relating trade monetary fiscal policies taxes price controls regulatory approval new products licensing •manufacturing interruptions delays capacity constraints lack availability alternative sources components products including ability successfully maintain relationships suppliers put place alternative suppliers terms acceptable us •difficulties inherent product development including potential inability successfully continue technological innovation complete clinical trials obtain regulatory approvals united states abroad gain maintain market approval products possibility encountering infringement claims competitors respect patent intellectual property rights preclude delay commercialization product •significant litigation adverse us including product liability claims patent infringement claims antitrust claims •product efficacy safety concerns resulting product recalls declining sales •the impact business combinations including acquisitions divestitures pending acquisition ostex organizational restructurings consistent evolving business strategies •our ability satisfy financial covenants conditions contained credit facilities •our ability obtain required financing terms acceptable us •the issuance new revised accounting standards american institute certified public accountants financial accounting standards board securities exchange commission foregoing list sets forth many factors could impact upon ability achieve results described forwardlooking statements readers place undue reliance forwardlooking statements invest common stock aware occurrence events described elsewhere annual report form 10k could harm business prospects operating results financial condition undertake obligation update forwardlooking statements result future events developments item 7aitem 7 managements discussion analysis financial condition results operations forwardlooking statements report including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words may could would intend expect anticipate believe estimate continue similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state forwardlooking information forwardlooking statements item 7 include without limitation statements regarding expectations respect new product introductions research development expenditures legal expenditures ability deliver high quality products increasingly cost effective basis anticipated growth professional diagnostics business funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled risk factors begins page 11 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto financial overview net revenues 2005 4219 million increased 479 million 13 3740 million 2004 result acquisitions completed 2005 higher license revenue principally resulting settlement licensing arrangement entered april 2005 acquisitions completed 2005 principally within professional diagnostics segment acquisitions including binax march 2005 determine rapid diagnostics business june 2005 biostar idt september 2005 added market leading flu hiv tests expanding portfolio rapid diagnostic tests case idt expanded direct distribution capabilities spain portugal addition acquisitions also expanded depth cardiology march 2005 acquisition ischemia ischemias product fdacleared vitro diagnostic test targeted diagnosis cardiac ischemia gross profit increased 53 million 4 1523 million 2005 1470 million 2004 principally result higher gross profit increased license revenue gross profit earned incremental revenues acquired businesses offsetting increases variety charges discussed detail totaling 81 million associated closing one manufacturing facilities 2005 charges associated excess inventories product recall gross profit nutritional supplements business also decreased 60 million principally result continuing pricing pressures private label nutritional supplements business continue evaluate opportunities better integrate utilize existing recently acquired established manufacturing facilities 2006 effort continue enhance ability deliver high quality products increasingly cost effective basis continue invest aggressively research development new products technologies reported research development expense decreased 10 million 2005 2004 expenditures 2005 reported net 172 million arising codevelopment funding arrangement entered iti scotland february 2005 research development expense considering codevelopment funding 482 million 2005 increase 162 million 2004 increase spending resulted part expenditures 50 million professional diagnostics business associated acquisitions binax biostar ischemia remaining research development spending primarily related continued significant investment development products field cardiology results operations year ended december 31 2005 compared year ended december 31 2004 net product sales net product sales increased 410 million 11 4065 million 2005 3654 million 2004 excluding unfavorable impact currency translation net product sales 2005 grew approximately 418 million 11 2004 revenue increased result acquisitions 2005 binax acquired march 31 2005 contributed 184 million increase ii determine rapid diagnostics business acquired june 30 2005 contributed revenues 172 million iii biostar acquired september 30 2005 contributed revenues 69 million iv various less significant acquisitions contributed aggregate 97 million increase net product sales business segment net product sales business segment 2005 2004 follows currency adjusted increase net product sales consumer diagnostic products 35 million 2 comparing 2005 2004 currency adjusted increase 19 million resulted acquisition consumer pregnancy test business advanced clinical systems pty ltd acs january 2005 organic growth principally us accounted remaining growth net product sales vitamins nutritional supplements decreased 25 million 3 comparing 2005 2004 decrease primarily brand name nutritional business aggregate sales brand name nutritional products including among others ferrosequels stresstabs protegra posture soycare allbee zbec declined annual basis past several years believe products underperformed part aging brands limited brand recognition face increasing private label competition currency adjusted increase net product sales professional diagnostic products 408 million 32 comparing 2005 2004 currency adjusted increase revenue increased result acquisitions 2005 binax contributed 184 million increase ii determine rapid diagnostics business contributed revenues 172 million iii biostar contributed revenues 69 million iv various less significant acquisitions contributed aggregate 78 million increase net product sales geographic location net product sales geographic location 2005 2004 follows growth net product sales geographic regions resulted various acquisitions discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements thirdparties license royalty revenue increased 68 million 80 154 million 2005 86 million 2004 increase primarily relates royalty revenues received result settlement licensing arrangement entered quidel corporation april 2005 gross profit margin gross profit increased 53 million 4 1523 million 2005 1470 million 2004 increase gross profit attributable higher gross margins increased license revenue discussed offsetting increase inclusion cost sales 41 million charge principally associated decision close cdil manufacturing facility ii charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return iii 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 offset part gross profit earned increased professional diagnostics products revenue discussed gross profit nutritional supplements business decreased 60 million 88 million 2004 27 million 2005 private label nutritional supplements business suffered excess capacity industry increasing price competition overall gross margin 36 2005 compared 39 2004 overall gross margin 2005 adversely affected 41 million charge associated cdil closing 24 million wampole inventory reserve 16 million returns inventory reserve associated drugs abuse product recalls discussed excluding charges gross margin 38 2005 gross profit net product sales business segment gross profit net product sales represents total gross profit less gross profit associated license revenue gross profit total net product sales decreased 03 million 1415 million 2005 1418 million 2004 gross profit net product sales business segment 2005 2004 follows gross profit consumer diagnostic product sales decreased 64 million 8 comparing 2005 2004 included cost sales adversely effecting gross profit 41 million charge principally associated decision close cdil manufacturing facility gross profit consumer diagnostic product sales 47 2005 compared 52 2004 excluding 41 million cdil closure charge discussed gross margin consumer diagnostic products segment 50 2005 remaining decrease gross margin consumer diagnostic product sales resulted change product mix gross profit vitamins nutritional supplements business decreased 60 million 69 comparing 2005 2004 private label nutritional supplements business suffered excess capacity industry led increasing price competition generally decreasing margins revenue decreases brand named nutritional products also contributed lower gross profit 2005 2004 gross profit professional diagnostic products increased 122 million 24 comparing 2005 2004 principally result gross profit earned revenues acquired businesses discussed reducing gross margin 2005 charge 24 million associated reserve established second quarter 2005 wampole subsidiary excess quantities certain raw materials finished goods including certain finished goods held distributors subject rights return 16 million provision returns inventory reserve established result recall drugs abuse diagnostic products first quarter 2005 excluding charges gross profit professional diagnostic products segment increased 162 million comparing 2005 2004 gross margin professional diagnostic product sales 37 2005 compared 39 2004 excluding 24 million wampole inventory reserve 16 million drugs abuse charge discussed gross margin professional diagnostic product sales 39 2005 research development expense research development expense decreased 10 million 3 310 million 2005 320 million 2004 research development expense 2005 reported net codevelopment funding 172 million arising codevelopment funding arrangement entered iti scotland february 2005 research development expense considering codevelopment funding 482 million 2005 increase 162 million 2004 increase spending resulted part expenditures 50 million professional diagnostics business associated acquisitions binax biostar ischemia remaining research development spending primarily related continued significant investment development products field cardiology sales marketing expense sales marketing expense increased 141 million 24 721 million 2005 580 million 2004 acquisitions completed 2005 accounted 83 million increase approximately 18 million increase sales marketing expense resulted increased advertising efforts promote premium consumer diagnostic products 2005 remaining increase sales marketing expense resulted expanded sales marketing infrastructure support anticipated growth professional diagnostics business sales marketing expense percentage net product sales increased 18 2005 16 2004 increase sales marketing expense percentage net product sales primarily resulted investment advertising efforts premium consumer diagnostic products sales marketing infrastructure support anticipated growth professional diagnostics business general administrative expense general administrative expense increased 73 million 14 600 million 2005 527 million 2004 acquisitions completed 2005 accounted 42 million increase remaining increase general administrative expense resulted increase consulting legal spending due formal order investigation connection previously disclosed revenue recognition matter wampole active pursuits defenses litigations including lawsuits settlements quidel princeton biomeditech corporation pbm general administrative expense percentage net revenue consistent 2005 2004 14 interest expense interest expense includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances 2004 change market value interest rate swap agreement 07 million qualify hedge accounting purposes interest expense decreased 03 million 1 218 million 2005 221 million 2004 recorded charge 38 million representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 excluding charge interest expense increased 35 million 2005 increase primarily due higher average outstanding debt balance 2153 million 2005 compared 1944 million 2004 primarily result borrowings finance various acquisitions operations offset part funds raised sale common stock august 2005 additionally 875 interest rate 1500 million bonds together 50 basis points interest penalty portion first quarter 2005 due late registration related exchange offer coupled impact increase shortterm interest rates effected borrowings senior credit facility increased average cash interest rate 90 2005 88 2004 bonds due 2012 provide us longterm fixed rate significant portion indebtedness compared variable rates senior credit facility income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows included income expense net 2005 following items 150 million income portion settlement quidel relating periods prior 2005 ii 84 million gain legal settlement class action suit several raw material suppliers vitamins nutritional supplements business iii 26 million income related value option received licensing arrangement iv 27 million charge related legal settlement nutritional segment commercial dispute arising distribution arrangement entered september 1996 v 43 million charge related legal settlement pbm included income expense net 2004 following items 05 million royalties received attributable periods prior 2004 associated license arrangement historically underpaid ii 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement iii 05 million litigation settlement gain provision income taxes provision income taxes increased 45 million 200 68 million 2005 23 million 2004 effective tax rate 2005 55 compared 16 2004 increase provision income taxes 2004 2005 primarily related taxes foreign income primary components 2005 provision income taxes related recognition us deferred tax liabilities temporary differences book tax bases goodwill certain intangible assets indefinite lives taxes foreign income amount related us deferred tax liabilities approximately 29 million 2004 recognized 08 million benefit reduction valuation allowance related net operating loss nol carryforward two foreign subsidiaries due assessment would likely realize benefit nols net loss income incurred net loss 192 million 2005 incurred net loss 166 million 2004 taking account charges redemption interest amortization beneficial conversion feature related series redeemable convertible preferred stock net loss available common stockholders 173 million 2004 net loss per common share available common stockholders 079 per basic diluted common share 2005 compared net loss 087 per basic diluted common share 2004 net loss 2005 2004 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net loss income per share year ended december 31 2004 compared year ended december 31 2003 net product sales net product sales increased 800 million 28 3654 million 2004 2854 million 2003 excluding favorable impact currency translation net product sales 2004 grew approximately 696 million 24 2003 significant portion revenue increase resulted acquisitions 2003 2004 abi contributed 140 million increase ii rapid diagnostics business abbott contributed 281 million iii various less significant acquisitions contributed aggregate 56 million increase remaining currency adjusted net product sales increase 219 million resulted organic growth primarily due launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 net product sales business segment net product sales business segment 2004 2003 follows currency adjusted increase net product sales consumer diagnostic products 236 million 19 comparing 2004 2003 currency adjusted increase 12 million 76 million resulted acquisition abi abbotts fact plus line consumer diagnostic pregnancy tests respectively remaining currency adjusted increase 148 million resulted organic growth primarily due launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 net product sales vitamins nutritional supplements increased 63 million 9 comparing 2004 2003 increase primarily private label nutritional supplements sales currency adjusted increase net product sales professional diagnostic products 397 million 46 comparing 2004 2003 currency adjusted increase 128 million resulted acquisition abi 205 million resulted acquisition abbott testpack signify product lines aggregate 56 million resulted various less significant acquisitions remaining currency adjusted increase 08 million resulted organic growth primarily due increased sales rapid diagnostic tests point care market net product sales geographic location net product sales geographic location 2004 2003 follows growth us business resulted primarily full year effect 2003 acquisitions abi portion abbott rapid diagnostic business distributed us well launch clearblue easy digital pregnancy test june 2003 commencement supply digital version pfizers ept pregnancy test december 2003 visual version pfizers ept pregnancy test june 2004 launch clearblue easy digital ovulation test june 2004 growth europe rest world primarily attributable portion abbott rapid diagnostic business distributed geography well respect europe sales contributions various less significant acquisitions license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements thirdparties license revenue decreased 11 million 11 86 million 2004 97 million 2003 decrease function net results royalties collected new licenses decrease royalties expired licenses gross profit margin gross profit increased 195 million 15 1470 million 2004 1275 million 2003 included cost sales 2004 17 million restructuring charge covering costs severance early retirement outplacement services arising completed plan termination manufacturing facility bedford england total number involuntarily terminated employees 18 terminated december 31 2004 december 31 2004 substantially restructuring costs paid excluding charge gross profit increased 212 million 17 comparing 2004 2003 gross profit increase 212 million comparing 2004 2003 adjusted restructuring charge discussed primarily resulted businesses acquired second half 2003 acquisition abi contributed 43 million gross profit increase rapid diagnostics business acquired abbott contributed 156 million gross profit increase gross margin increased 51 2004 39 2003 result transitioning manufacturing portion signify fact plus products thirdparty manufacturer manufacturing facility increased profitability arising transition production signify manufacturing attributable synergies expected benefit acquired abbott rapid diagnostics business remaining increase 13 million gross profit adjusted restructuring charge discussed primarily result launch clearblue easy digital pregnancy ovulation tests commencement supply pfizer ept products offset declining profits nutritional supplements business gross profit nutritional supplements business principally private label products declined 58 million comparing 2004 2003 sales increased 63 million private label nutritional supplements business suffered excess capacity industry led increased price competition overall gross margin 39 2004 compared 43 2003 restructuring charge discussed effect reducing gross margin 46 basis points 2004 gross margin also adversely impacted 2004 continuing weak us dollar euro british pounds sterling movements foreign exchange currencies negatively impacted gross margin percentage products manufactured european subsidiaries sold us dollars currency impact effect reducing gross margins 177 basis points comparing 2004 2003 discussed due competitive pricing nutritional supplements business gross margin nutritional supplements sales principally private label products declined significantly comparing 2004 2003 margin erosion nutritional supplements business affected overall gross margin 188 basis points somewhat offsetting negative impact gross margin improved gross margin rapid diagnostic products abbott discussed gross profit net product sales business segment gross profit net product sales represents total gross profits less gross profit associated license revenue gross profit total net product sales increased 207 million 17 1418 million 2004 1211 million 2003 gross profit net product sales business segment 2004 2003 follows gross profit consumer diagnostic product sales increased 120 million 17 comparing 2004 2003 increase gross profit consumer diagnostic product sales 40 million resulted acquisition fact plus line consumer diagnostic pregnancy tests abbott september 2003 organic growth primarily result launch clearblue easy digital pregnancy ovulation tests commencement supply ept pregnancy tests pfizer contributed remaining increase gross profit consumer diagnostic product sales gross margin consumer diagnostic product sales 52 2004 compared 56 2003 restructuring charge discussed effect reducing gross margin consumer diagnostic product sales 109 basis points comparing 2004 2003 movements foreign currencies comparing 2004 2003 negatively impacted gross margin 416 basis points consumer diagnostic products manufactured european subsidiaries sold us dollars negative margin impact restructuring charge foreign currency movements offset part sales digital pregnancy tests stateoftheart firsttomarket products able generate higher gross profit per unit sold traditional pregnancy tests despite sales increase discussed gross profit nutritional supplements business principally private label products declined 58 million 40 comparing 2004 2003 result margin erosion due pricing competition evident gross margin 11 2004 compared 20 2003 increase gross profit professional diagnostic product sales 145 million comparing 2004 2003 primarily resulted acquisitions abbott testpack signify product lines abi abbott professional diagnostic products contributed 117 million increase gross profit comparing 2004 2003 acquisition abi contributed 43 million increase gross profit professional diagnostic product sales gross margin professional diagnostic product sales 39 2004 compared 41 2003 decline gross margin professional diagnostic products primarily resulted abi products average generating lower margins professional diagnostic products research development expense research development expense increased 77 million 32 320 million 2004 243 million 2003 significant portion research development spending occurs facilities united kingdom result weak us dollar british pounds sterling causes increase dollar value research development expense translation adjusted unfavorable impact currency translation research development expense increased 52 million 21 comparing 2004 2003 acquisition abi primarily field professional diagnostic testing contributed 16 million currency adjusted increase research development expense remaining increase research development expense comparing 2004 2003 resulted increase cardiology research development expenditures 113 million 2003 179 million 2004 increase 47 million currency adjusted basis sales marketing expense sales marketing expense increased 55 million 10 580 million 2004 525 million 2003 significant portion sales marketing spending takes place european subsidiaries accordingly result continued weak us dollar currency adjusted increase sales marketing expense comparing 2004 2003 31 million 6 currency adjusted increase sales marketing expense 24 million resulted amortization customer related intangible assets acquired part acquisition rapid diagnostics business abbott remaining currency adjusted increase sales marketing expense 07 million resulted acquisition abi sales marketing expense percentage net product sales decreased 16 2004 18 2003 percentage decrease primarily resulted shift professional diagnostics business generally incurs lower sales marketing expense percentage sales vitamins nutritional supplements business addition marketing synergies realized due integration fact plus product line acquired abbott nominal increases consumer sales marketing infrastructure accounted approximately 34 basis points reduction sales marketing expense percentage sales 2003 2004 general administrative expense general administrative expense increased 172 million 48 527 million 2004 355 million 2003 excluding impact foreign currency translation general administrative expense increased 156 million 44 comparing 2004 2003 included general administrative expense 2004 establishment specific reserve doubtful accounts receivable balance 14 million legal expenses 2004 increased 40 million compared 2003 due active pursuits defenses litigations primarily related intellectual property infringements acquisitions since june 2003 contributed additional 66 million general administrative expenses 2004 compared 2003 2004 also spent additional 17 million audit consulting costs associated preparation compliance sarbanesoxley rule 404 regarding internal control financial reporting remaining currency adjusted increase 19 million general administrative expense 2003 2004 resulted investments infrastructure support growth business factors discussed herein general administrative expense percentage net revenue increased 14 2004 12 2003 interest expense interest expense includes interest charges writeoff amortization deferred financing costs amortization noncash discounts associated debt issuances change market value interest rate swap agreement qualify hedge accounting purposes interest expense increased 124 million 128 221 million 2004 97 million 2003 2004 recorded charge 38 million representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 excluding charge interest expense increased 86 million comparing 2004 2003 increase primarily due higher average outstanding debt balance 1944 million 2004 compared 1404 million 2003 primarily result borrowings finance acquisitions abi rapid diagnostics business abbott second half 2003 additionally 875 interest rate 1500 million bonds increased average cash interest rate 88 december 31 2004 compared 61 december 31 2003 bonds due 2012 provide us longterm fixed rate significant portion indebtedness compared variable rates senior credit facilities income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows foreign exchange loss 07 million 2004 primarily resulted continuing weakening us dollar british pounds sterling euro certain receivables irish uk subsidiaries denominated us dollar functional currency respective local currency included income 2004 following items 05 million royalties received attributable periods prior 2004 associated license arrangement historically underpaid ii 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement iii 05 million litigation settlement gain included income 2003 12 million past royalties received part patent infringement settlement onetime gain 38 million recorded connection agreement unilever plc seller unipath business resolved certain issues arose acquisition unipath business provision income taxes provision income taxes decreased 06 million 21 23 million 2004 29 million 2003 effective tax rate 2004 16 compared 25 2003 decrease provision income taxes 2003 2004 related recognition benefit certain current year losses certain deferred tax assets 2004 recognized 08 million benefit reduction valuation allowance related net operating loss nol carryforward two foreign subsidiaries due assessment would likely realize benefit nols primary component 2004 provision income taxes related recognition us deferred tax liability temporary differences book tax bases goodwill certain intangible assets indefinite lives net loss income incurred net loss 166 million 2004 generated net income 87 million 2003 taking account charges redemption interest amortization beneficial conversion feature related series redeemable convertible preferred stock net loss available common stockholders 173 million 087 per basic diluted common share 2004 compared net income available common stockholders 77 million 049 044 per basic diluted common share respectively 2003 net loss 2004 net income 2003 primarily resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net loss income per share liquidity capital resources based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities expected funding resulting codevelopment funding agreement iti scotland proceeds february 2006 equity offering adequate fund operations including outstanding debt commitments discussed next 12 months long run expect fund working capital needs commitments primarily codevelopment funding program iti scotland operating cash flow since expect grow business new product introductions continuing leverage strong intellectual property position also expect rely credit facilities capital markets fund portion capital needs commitments funding plans working capital needs commitments may adversely impacted unexpected costs associated prosecuting defending existing lawsuits andor unforeseen lawsuits us integrating operations ischemia binax biostar idt determine business executing cost savings strategies also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result changes cash position december 31 2005 cash equivalents 343 million 175 million increase 105 december 31 2004 since splitoff former parent company november 2001 funded business operating cash flows proceeds borrowings issuance equity securities 2005 generated cash 266 million operating activities resulted net loss 192 million adjusted noncash items 360 million net working capital increase excluding change cash balance adjusted acquired assets 98 million increase adjusted working capital primarily resulted increase inventory prepaid assets offset decrease accounts receivable net payment 170 million quidel infringement litigation settlement included net loss 2005 nonequity financing activities primarily borrowings primary senior credit facility net various debt repayments financing costs provided us cash 664 million year ended december 31 2005 addition received 974 million net proceeds equity offering exercises common stock options year ended december 31 2005 used cash 1708 million investing activities consisted 1490 million paid transaction costs associated previously acquired businesses 2005 acquisitions acs ischemia binax determine business biostar idt additionally used cash fund 200 million capital expenditures net proceeds sales equipment 18 million increase noncurrent assets fluctuations foreign currencies negatively impacted cash balance 21 million 2005 investing activities year ended december 31 2005 incurred 200 million capital expenditures net proceeds sales equipment significant capital expenditures year ended december 31 2005 included 19 million connection upgrading one vitamins nutritional supplements plants machinery 09 million connection transition manufacturing testpack product acquired part rapid diagnostics business abbott facilities 20 million related equipment support research development efforts facility stirling scotland 14 million connection manufacturing facility bedford england related expansion production capabilities remaining capital expenditures fiscal year ended december 31 2005 incurred purchase additional replacement equipment support organic growth various research development activities furnish new facility china january 24 2005 acquired consumer pregnancy test business acs aggregate purchase price 49 million consisted 46 million cash 03 million estimated direct acquisition costs acquiring business obtained rights crystal clear brand crystal clear leading consumer pregnancy test australia leading position new zealand march 16 2005 acquired ischemia privately held venturebacked company developed manufactured marketed fdacleared vitro diagnostic test targeted cardiac ischemia aggregate purchase price 272 million consisted 968000 shares common stock aggregate fair value 228 million estimated exit costs 15 million vacate ischemias manufacturing administrative facilities estimated direct acquisition costs 24 million 05 million assumed debt march 31 2005 acquired binax privately held developer manufacturer distributor rapid diagnostic products infectious disease testing primarily related respiratory system aggregate purchase price 447 million consisted 90 million cash 1422000 shares common stock aggregate fair value 352 million 05 million estimated direct acquisition costs terms acquisition agreement also provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition june 30 2005 acquired determine business determine business produces diagnostic tests designed provide rapid qualitative results detecting several diseases including hepatitis hiv 12 syphilis aggregate purchase price 581 million consisted 565 million cash 16 million estimated direct acquisition costs september 30 2005 acquired idt spanish distributor diagnostic products aggregate purchase price 203 million consisted 117 million cash 84 million working capital adjustment paid fourth quarter fiscal year 2005 02 million estimated direct acquisition costs september 30 2005 acquired biostar leading developer manufacturer highperformance rapid diagnostic tests including tests detection infectious diseases aggregate purchase price 537 million consisted 531 million cash 05 million estimated direct acquisition costs 01 million estimated exit costs financing activities february 10 2004 completed sale 1500 million 875 senior subordinated notes bonds due 2012 private placement qualified institutional buyers proceeds bond issuance used repay certain existing debt provided us additional funds operations bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commenced august 15 2004 unable consummate exchange offer march 28 2005 interest bonds increased 025 point per year first 90day period immediately following default additional 025 point per year respect subsequent 90day period maximum amount additional interest 1 point december 31 2005 accrued interest related bonds amounted 54 million bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings primary senior credit facility bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility august 2005 sold 4000000 shares common stock funds affiliated 3 accredited institutional investors private placement net proceeds private placement approximately 928 million amount repaid principal interest outstanding senior credit facility 844 million remainder net proceeds retained general corporate purposes 200 million repayment used permanently reduce outstanding term loan balance senior credit facility february 8 9 2006 sold 3400000 shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes february 28 2006 acquired 6745 capital stock clondiag chip technologies gmbh private company located jena germany developed multiplexing technology nucleic acid immunoassay based diagnostics exchange 218502 shares common stock approximately 31 million cash also agreed settle obligations totaling approximately 100 million first quarter 2006 primarily using cash agreement clondiag shareholders acquire remaining 3255 capital stock clondiag august 31 2006 additional 49 million based current exchange rates agreement also calls contingent consideration totaling approximately 89 million consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiags platform technology three years following date initial stock purchase primary senior credit facility group banks amended currently provides us revolving lines credit aggregate amount 1000 million subject continuing covenant compliance december 31 2005 890 million outstanding borrowings revolving lines credit 736 million outstanding debt used fund acquisitions biostar idt may repay future borrowings revolving lines credit time event later march 31 2008 required make mandatory prepayments primary senior credit facility meet certain cash flow thresholds issue equity securities subordinated debt sell assets ordinary course business certain thresholds borrowings revolving lines credit bear interest either 1 london interbank offered rate libor defined credit agreement plus applicable margins option 2 floating index rate defined credit agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance december 31 2005 applicable interest rate revolving lines credit including applicable margin ranged 684 925 borrowings primary senior credit facility secured stock us european subsidiaries substantially intellectual property rights assets businesses us europe excluding assets orgenics ltd israeli subsidiary inverness medical shanghai co ltd subsidiary china inverness medical australia pty ltd australian subsidiary unipath scandinavia ab swedish subsidiary stock orgenics certain smaller subsidiaries senior credit agreement amended must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditures various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends currently compliance covenants amended september 20 2002 sold units aggregate purchase price 200 million private investors help finance acquisition wampole laboratories 10 subordinated notes accrue interest outstanding principal amount 10 per annum payable quarterly arrears first day calendar quarter started october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties consent senior lenders 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance refinance acquisition december 31 2005 aggregate 17 million outstanding capital lease obligations payable 2009 income taxes december 31 2005 approximately 1702 million 260 million domestic foreign net operating loss nol carryforwards respectively either expire various dates 2025 carried forward indefinitely nol carryforward cdil approximately 147 million cdil nol fully reserved may never realized due closing facility losses available reduce federal foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic operating loss carryforward amount december 31 2005 included approximately 712 million preacquisition losses imn ischemia ostex adc future benefit losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense also included domestic nol carryforwards december 31 2005 approximately 26 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied long term tax exempt rate recorded valuation allowance portion deferred tax assets related net operating losses certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2005 contractual obligations following table summarizes principal contractual obligations december 31 2005 effects obligations expected liquidity cash flow future periods 1see description various financing arrangements section note 6 consolidated financial statements included elsewhere annual report form 10k 2see note 7 consolidated financial statements included elsewhere annual report form 10k 3see note 10a consolidated financial statements included elsewhere annual report form 10k 4included longterm liabilities 15 million technology license payment obligations 60 million pension obligations 5other purchase obligations relate inventory purchases operating expense commitments 6amounts based 1500 million senior subordinated notes 200 million subordinated promissory notes amounts exclude interest debt due variable interest rates note 6 critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends managements judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2005 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenues derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based managements analyses judgments regarding certain conditions discussed critical accounting policy use estimates sales returns allowances allowance doubtful accounts future changes conditions prove managements conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected connection acquisitions rapid diagnostics business september 2003 determine business june 2005 abbott entered transition services agreement abbott whereby abbott would continue distribute certain acquired products period 18 months following acquisition transition period recognized revenue sales products title transferred abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 512 million 552 million 462 million 13 15 16 net product sales 2005 2004 2003 respectively recorded product sales derive net product sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 705 million 613 million net allowances doubtful accounts 97 million 94 million december 31 2005 2004 respectively valuation inventories state inventories lower actual cost purchase manufacture inventory estimated current market value inventory addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers demands requires management make assumptions estimates actual product sales may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 712 million 612 million net provision excess obsolete inventory 77 million 41 million december 31 2005 2004 respectively valuation goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2005 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 722 million 3222 million 1883 million respectively goodwill intangible assets initially created result business combinations acquisitions intellectual property values record goodwill intangible assets represent fair values calculated accepted valuation methods valuations require us provide significant estimates assumptions derived information obtained management acquired businesses business plans acquired businesses intellectual property critical estimates assumptions used initial valuation goodwill intangible assets include limited future expected cash flows product sales customer contracts acquired developed technologies patents ii expected costs complete inprocess research development projects commercialize viable products estimated cash flows sales products iii acquired companies brand awareness market position iv assumptions period time continue use acquired brand v discount rates estimates assumptions may incomplete inaccurate unanticipated events circumstances may occur estimates assumptions used initially value goodwill intangible assets prove inaccurate ongoing reviews carrying values goodwill intangible assets discussed may indicate impairment require us record impairment charge period identify impairment believe property plant equipment intangible assets finite lives depreciate amortize assets estimated useful lives purposes determining whether impairment losses discussed management historically examined carrying value identifiable longlived tangible intangible assets goodwill including useful lives believe assets finite lives indicators impairment present addition sfas 142 requires impairment reviews performed carrying values goodwill least annual basis longlived tangible intangible assets goodwill impairment loss identified based fair value asset compared carrying value asset loss would charged expense period identify impairment furthermore review carrying values longlived tangible intangible assets finite lives indicates impairment assets may determine shorter estimated useful lives appropriate event required record additional depreciation amortization future periods reduce earnings valuation goodwill balances related consumer diagnostics professional diagnostics reporting units amounted 857 million 2365 million respectively december 31 2005 september 30 2005 performed annual impairment review carrying values goodwill using discounted cash flows approach based upon review believe goodwill related consumer diagnostics professional diagnostics reporting units impaired future cash flows operating results used impairment review based managements projections assumptions future events cause projections differ used september 30 2005 could lead significant impairment charges goodwill future events circumstances occurred since review september 30 2005 would require us reassess whether carrying values goodwill impaired valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review sfas 142 although believe carrying value longlived tangible intangible assets realizable december 31 2005 future events could cause us conclude otherwise accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves us estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 967 million december 31 2005 due uncertainties related future benefits deferred tax assets related primarily us businesses certain foreign net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accordance sfas 109 accounting income taxes sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows october 2004 american jobs creation act 2004 ajca signed law ajca contains series provisions several pertinent company ajca creates temporary incentive us multinational corporations repatriate accumulated income abroad providing 85 dividends received deduction certain dividends controlled foreign corporations repatriate foreign earnings provision companys practice permanently reinvest foreign earnings foreign operations currently expect continue reinvest foreign earnings permanently foreign operations plan repatriate foreign earnings future required establish income tax expense related tax liability earnings legal contingencies section annual report form 10k titled item 3 legal proceedings reported material legal proceedings addition nature business may time subject commercial disputes consumer product claims various lawsuits arising ordinary course business expect continue case future lawsuits generally seek damages sometimes substantial amounts commercial personal injuries allegedly suffered include claims punitive special damages addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims us accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recently issued accounting standards may 2005 fasb issued sfas 154 accounting changes error corrections replaces abp opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements changes requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods financial statements changes accounting principle unless impracticable determine either periodspecific effects cumulative effect change sfas 154 shall effective accounting changes corrections errors made fiscal years beginning december 15 2005 early adoption permitted accounting changes corrections errors made fiscal years beginning date sfas 154 issued present time believe adoption sfas 154 material effect financial position results operations cash flows march 2005 fasb issued fasb interpretation 47 accounting conditional asset retirement obligations interpretation fasb statement 143 accounting asset retirement obligations interpretation requires liability fair value conditional asset retirement obligation recognized fair value liability reasonable estimated interpretation effective years ending december 15 2005 interpretation expected material impact results operations financial position december 2004 fasb issued sfas 153 exchange nonmonetary assetsan amendment apb opinion 29 accounting nonmonetary transactions sfas 153 based principle exchange nonmonetary assets measured based fair market value assets exchanged sfas 153 eliminates exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance sfas 153 effective nonmonetary asset exchanges fiscal periods beginning june 15 2005 currently evaluating provisions sfas 153 believe adoption sfas 153 material impact consolidated financial statements december 2004 fasb issued sfas 123r addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments eliminates ability account sharebased compensation transactions using apb opinion 25 generally requires transactions accounted using fairvaluebased method permitted current sfas 123 accounting stockbased compensation accounting sharebased compensation employees using apb opinion 25s intrinsic value method generally recognize compensation cost employee stock options original guidance sfas 123r adopt statements provisions interim period beginning june 15 2005 however april 2005 result action securities exchange commission companies allowed adopt provisions sfas 123r beginning fiscal year begins june 15 2005 consequently adopted sfas 123r january 1 2006 adopted standard 2005 net loss 2005 would 62 million 025 per diluted share higher reported 2005 expect requirement expense stock options equity interests granted pursuant equity incentive program significantly increase operating expenses result lower earnings per share amount increase operating expenses depend level future grants terms fair values grants expected volatilities among factors present grant dates adoption sfas 123r impact cash flows november 2004 financial accounting standards board fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 sfas 151 clarifies abnormal amounts idle facility expense freight handling costs wasted material recognized current period charges circumstances additionally sfas 151 requires facilitys fixed production overhead charged inventory based normal capacity production facility required adopted sfas 151 january 1 2006 expect adoption sfas 151 material impact consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements annual report form 10k including item 7 contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended identify statements forwardlooking words “may” “could” “should” “would” “intend” “will” “expect” “anticipate” “believe” “estimate” “continue” similar words read statements contain words carefully discuss future expectations contain projections future results operations financial condition state “forwardlooking” information forwardlooking statements item 7 include without limitation statements regarding anticipated expansion growth certain product service offerings impact research development activities potential new product technology achievements potential selective acquisitions including acquisitions health management businesses outside united states ability improve working capital operating margins expectations respect apollo integrated health management technology platform ability improve care lower healthcare costs providers patients funding plans future working capital needs commitments actual results developments could differ materially projected statements result numerous factors including without limitation risks uncertainties set forth item 1a entitled “risk factors” begins page 16 report well factors identified time periodic filings securities exchange commission undertake obligation update forwardlooking statements report particular following discussion analysis financial condition results operations read light risks uncertainties conjunction accompanying consolidated financial statements notes thereto overview enable individuals take charge improving health quality life home medical supervision developing new capabilities nearpatient diagnosis monitoring health management global leading products services well new product development efforts currently focus cardiology infectious disease toxicology diabetes oncology women’s health continuing expand product service offerings categories global leading supplier nearpatient monitoring tools well valueadded healthcare services well positioned improve care lower healthcare costs providers patients home coagulation monitoring business supports doctors’ patients’ efforts monitor warfarin therapy using inratio blood coagulation monitoring system continues represent early example also continued introduce new integrated health management technology platform called apollo customers since launch january 1 2010 using sophisticated data engine acquiring analyzing information combined state art touch engine communicating individuals health partners expect apollo benefit healthcare providers health insurers patients alike enabling efficient effective health management programs continued grow strategic acquisitions including november 2011 acquisition axisshield plc axisshield innovative anglonorwegian developer manufacturer vitro diagnostic tests well small strategic acquisitions year also continued lay groundwork future revenue earnings growth focusing efforts new product development introductions important new products including epoc system alere cd4 analyzer alere heart check system begun penetrate markets launched expect trend continue also focused expanding global sales force also continued build awareness acceptance two novel biomarkers ngal placental growth factor plgf 2011 financial highlights • net revenue increased 2312 million 11 24 billion 2011 22 billion 2010 • gross profit increased 1112 million 10 12 billion 2011 11 billion 2010 • year ended december 31 2011 generated loss continuing operations attributable alere inc subsidiaries 1317 million 158 per basic diluted common share year ended december 31 2010 generated loss continuing operations attributable alere inc subsidiaries 11 billion 1247 per basic diluted common share 2011 2010 net loss included 3836 million 10 billion noncash charge respectively associated impairment goodwill health management business segment reporting unit • 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option recognized gain totaling approximately 2889 million 2011 • 2011 repurchased approximately 2839 million outstanding securities described detail • november 2011 10year noncompetition agreement johnson field diabetes expired subsequently reentered diabetes market way two acquisitions results operations following discussions results continuing operations exclude results related vitamins nutritional supplements business segment previously presented separate operating segment prior divestiture january 2010 vitamins nutritional supplements business segment segregated continuing operations reflected discontinued operations consolidated financial statements see “income discontinued operations net tax” results excluding impact currency translation calculated basis local currency results using foreign currency exchange rates applicable earlier comparative period believe discussion information using foreign currency exchange rates helps investors isolate impact changes rates trends results operations follows year ended december 31 2011 compared year ended december 31 2010 net product sales services revenue net product sales services revenue increased 2285 million 11 24 billion 2011 21 billion 2010 net product sales services revenue increased primarily result health management professional diagnosticsrelated acquisitions contributed aggregate 1632 million noncurrencyadjusted increase excluding impact currency translation net product sales services revenue 2011 grew approximately 1999 million 9 2010 contributing increase net product sales services revenue increase north american flurelated net product sales 2011 increased approximately 272 million 188 million 2010 461 million 2011 result typical flu season 2011 lowerthannormal flu levels observed 2010 net product sales services revenue health management segment adversely impacted increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease management also contributing decrease loss approximately 131 million revenue related discontinuance administration drug therapy terbutalene result food drug administration’s new warning use terbutalene treat preterm labor certain situations impacted women’s children’s health business wellness net product sales services revenue alere wellbeing business formerly known free clear negatively impacted result continuation decreased funding certain states’ quitline programs additionally patient selftesting services business adversely impacted reimbursement policy change centers medicare medicaid services net product sales services revenue business segment net product sales services revenue business segment 2011 2010 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2011 2010 thousands net product sales services revenue professional diagnostics business segment increased 2955 million 21 17 billion 2011 14 billion 2010 excluding impact currency translation net product sales services revenue professional diagnostics business segment increased 2669 million 19 comparing 2011 2010 net product sales services revenue increased primarily result acquisitions contributed aggregate 1611 million noncurrencyadjusted increase contributing increase net product sales services revenue increase north american flurelated net product sales 2011 compared 2010 net product sales north american flu sales increased approximately 272 million 188 million 2010 461 million 2011 result typical flu season 2011 lowerthannormal flu levels observed 2010 excluding impact acquisitions increase flurelated sales comparable periods currencyadjusted organic growth professional diagnostics net product sales services revenue 6 within professional diagnostics business segment net product sales services revenue infectious disease business increased approximately 1273 million 29 5650 million 2011 4377 million 2010 driven increased north american flurelated hiv malaria net product sales coupled impact two recent brazilian acquisitions contributed approximately 296 million increase acquisition axisshield november 2011 contributed approximately 65 million increase net product sales services revenue cardiology business increased approximately 302 million 6 5187 million 2011 4885 million 2010 driven particularly growth outside us growth domestic cholesterol professional coagulation testing businesses acquisition axisshield contributed approximately 42 million increase offset continued softness domestic bnp net product sales primarily related issues sales beckman coulter platform toxicology business increased approximately 871 million 29 3872 million 2011 3001 million 2010 recent acquisitions contributing approximately 744 million increase diabetes net product sales services revenue 2011 relates two acquisitions completed fourth quarter 2011 health management following table summarizes net product sales services revenue health management business segment groups similar products services 2011 2010 thousands net product sales services revenue heath management business segment decreased 643 million 11 5345 million 2011 5988 million 2010 net product sales services revenue health management segment adversely impacted increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease case management also contributing decrease loss approximately 131 million revenue related discontinuance administration drug therapy terbutalene result food drug administration’s new warning use terbutalene treat preterm labor certain situations impacted women’s children’s health business additional revenue loss approximately 28 million resulted closure genecare business located chapel hill north carolina first quarter 2011 wellness net product sales services revenue alere wellbeing business formerly known free clear negatively impacted result continuation decreased funding certain states’ quitline programs additionally patient selftesting services business adversely impacted reimbursement change centers medicare medicaid services consumer diagnostics net product sales services revenue consumer diagnostics business segment decreased 27 million 3 924 million 2011 951 million 2010 decrease primarily driven decrease nonspd related revenue totaling approximately 44 million comparing 2011 2010 decrease nonspd related revenue primarily relates loss distribution contract certain products united kingdom late 2010 decrease nonspd related revenue partially offset increase spdrelated revenue increased approximately 18 million comparing 2011 2010 net product sales spd 2092 million 1938 million 2011 2010 respectively net product sales services revenue geographic location net product sales services revenue geographic location 2011 2010 follows thousands net product sales services revenue 14 billion 14 billion generated united states approximately 61 64 respectively total net product sales services revenue year ended december 31 2011 2010 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue increased 27 million 13 235 million 2011 208 million 2010 increase license royalty revenue 2011 largely driven acquisition axisshield contributed approximately 18 million increase gross profit margin percentage gross profit increased 1112 million 10 12 billion 2011 11 billion 2010 increase gross profit 2011 largely attributed increase net product sales services revenue resulting acquisitions increase north american flurelated net product sales organic growth professional diagnostics business segment cost net revenue 2011 2010 included amortization 60 million 66 million respectively relating writeup inventory fair value connection certain acquisitions reducing gross profit 2011 2010 29 million 39 million restructuring charges respectively cost net revenue included amortization expense 632 million 630 million 2011 2010 respectively overall gross margin percentage 52 2011 compared 53 2010 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 1084 million 12 billion 2011 11 billion 2010 gross profit net product sales services revenue business segment 2011 2010 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 1623 million 20 9640 million 2011 compared 8017 million 2010 primarily result increase net product sales services revenue discussed cost professional diagnostics net product sales services revenue 2011 2010 included amortization 60 million 66 million respectively relating writeup inventory fair value connection certain acquisitions reducing gross profit 2011 2010 23 million 33 million restructuring charges respectively cost professional diagnostics net product sales services revenue included amortization expense 551 million 537 million 2011 2010 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 56 2011 2010 health management gross profit health management net product sales services revenue decreased 513 million 17 2458 million 2011 compared 2971 million 2010 primarily result decrease net product sales services revenue discussed reducing gross profit 2011 2010 07 million 06 million restructuring charges respectively cost health management net product sales services revenue included amortization expense 67 million 77 million 2011 2010 respectively percentage health management net product sales services revenue gross profit health management business 46 2011 compared 50 2010 lower margin percentage earned 2011 primarily result decrease net product sales services revenue discussed consumer diagnostics gross profit consumer diagnostics net product sales services revenue decreased 25 million 11 196 million 2011 compared 221 million 2010 decrease gross profit primarily result changes net product sales services revenue mix 2011 discussed cost consumer diagnostics net product sales services revenue included amortization expense 14 million 15 million 2011 2010 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 21 2011 compared 23 2010 lower margin percentage earned 2011 primarily result change net product sales services revenue discussed research development expense research development expense increased 169 million 13 1502 million 2011 1333 million 2010 included research development expense 2011 39 million stockbased compensation expense representing decrease approximately 32 million 2010 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 04 million 05 million included research development expense 2011 2010 respectively amortization expense 126 million 48 million included research development expense 2011 2010 respectively research development expense percentage net revenue 6 2011 2010 sales marketing expense sales marketing expense increased 665 million 13 5656 million 2011 4991 million 2010 increase sales marketing expense primarily relates additional spending related newlyacquired businesses along increase global sales force support product launches amortization expense 2209 million 2123 million included sales marketing expense 2011 2010 respectively restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 50 million 15 million included sales marketing expense 2011 2010 respectively sales marketing expense percentage net revenue 24 23 2011 2010 respectively general administrative expense general administrative expense decreased 476 million 11 3993 million 2011 4469 million 2010 general administrative expense 2010 included 601 million compensation expense recorded connection purchasing remaining shares minority shareholder standard diagnostics excluding impact 601 million compensation expense recorded 2010 general administrative expense increased approximately 125 million 3 3993 million 2011 3868 million 2010 increase adjusted general administrative expense primarily relates additional spending related newlyacquired businesses acquisitionrelated costs 115 million 82 million included general administrative expense 2011 2010 respectively included general administrative expense 2011 2010 141 million income 18 million expense respectively recorded connection fair value adjustments acquisitionrelated contingent consideration obligations amortization expense 112 million 184 million included general administrative expense 2011 2010 respectively general administrative expense percentage net revenue 17 21 2011 2010 respectively impairment goodwill conducted annual goodwill impairment analysis fourth quarter 2011 conducting step 1 impairment analysis prescribed asc 350 intangibles goodwill asc 350 analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment analysis prescribed asc 350 determine amount goodwill impairment charge step 2 portion analysis indicated needed record goodwill impairment charge approximately 3836 million recorded fourth quarter 2011 reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods details goodwill impairment analysis disclosed note 2 consolidated financial statements included elsewhere annual report form 10k interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 645 million 46 2040 million 2011 1394 million 2010 increase partially due interest expense 325 million recorded 2011 connection termination former secured credit facility related interest rate swap agreement coupled amortization fees paid certain debt modifications contributing increase interest expense recorded 2011 compared 2010 interest expense incurred 8625 senior subordinated notes issued september 2010 totaling approximately 364 million 2011 compared 99 million 2010 additionally higher outstanding debt balances 2011 compared 2010 contributed increase interest expense respective periods income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands decrease foreign exchange gains losses net 2011 compared 2010 primarily result 127 million realized foreign currency loss associated cash balance established connection axisshield acquisition 2011 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 2011 well additional net realized unrealized foreign exchange losses associated changes currency exchange rates respective periods income 222 million 2011 includes 138 million income associated amendment license agreement quidel also includes settlement prior period royalties 50 million income associated settlement dispute certain intellectual property rights 48 million reversal prior period legal settlement reserve longer deemed necessary partially offset approximately 16 million losses recorded disposal fixed assets income expense net 2010 includes 45 million gain sale marketable securities net recovery 33 million related certain restructuring activities 31 million net gain associated legal settlements related previously disclosed intellectual property litigation relating health management businesses approximately 05 million income associated settlement prior years’ royalties 2010 partially offset charge related accounts receivable reserve prior year’s sale gain sale joint venture interest connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expired july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option gain totaling approximately 2889 million recognized third quarter 2011 provision benefit income taxes provision benefit income taxes decreased 57 million 242 million benefit 2011 299 million benefit 2010 effective tax rate 2011 15 compared 3 2010 decrease benefit income taxes 2010 2011 primarily related tax provision associated taxes foreign income increase effective tax rate two years primarily results rate differential foreign earnings state income taxes primary components 2011 provision income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2011 primary components 2010 provision income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2010 equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax year ended december 31 2011 primarily reflect following earnings 50 interest spd amount 59 million ii earnings 40 interest vedalab sa vedalab amount 07 million iii earnings 49 interest techlab inc techlab amount 20 million equity earnings unconsolidated entities net tax year ended december 31 2010 reflect following earnings 50 interest spd amount 85 million ii earnings 40 interest vedalab amount 02 million iii earnings 49 interest techlab amount 19 million income discontinued operations net tax results vitamins nutritional supplements business included income discontinued operations net tax periods presented year ended december 31 2010 discontinued operations generated net income approximately 114 million includes gain 187 million 116 million net tax sale vitamins nutritional supplements business net income loss year ended december 31 2011 generated net loss available common stockholders 1317 million 158 per common share compared net loss available common stockholders 10 billion 1233 per common share year ended december 31 2010 net loss available common stockholders reflects 220 million 242 million preferred stock dividends paid years ended december 31 2011 2010 respectively 239 million income associated repurchase preferred stock year ended december 31 2011 net loss 2011 2010 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per common share year ended december 31 2010 compared year ended december 31 2009 net product sales services revenue net product sales services revenue increased 2410 million 13 21 billion 2010 19 billion 2009 net product sales services revenue increased primarily result health management professional diagnosticsrelated acquisitions contributed 3380 million increase excluding impact currency translation net product sales services revenue 2010 grew approximately 2376 million 13 2009 offsetting increased net product sales services revenue contributed acquisitions decrease north american flurelated net product sales 2010 compared 2009 net product sales north american flu sales declined approximately 823 million 1011 million 2009 188 million 2010 result weaker normal flu season 2010 unusually strong flu sales 2009 caused h1n1 flu outbreak addition worldwide respiratory sales excluding north american flu sales discussed declined approximately 194 million comparing 2010 2009 net product sales services revenue health management segment excluding impact acquisitions adversely impacted increasingly competitive environment particularly less differentiated services disease management case management net product sales services revenue business segment net product sales services revenue business segment 2010 2009 follows thousands professional diagnostics following table summarizes net product sales services revenue professional diagnostics business segment groups similar products services 2010 2009 thousands net product sales services revenue professional diagnostics business segment increased 2025 million 16 14 billion 2010 12 billion 2009 net product sales services revenue increased primarily result acquisitions contributed aggregate total 2160 million net product sales services revenue 2010 offsetting increased net product sales services revenue contributed acquisitions decrease north american flurelated net product sales 2010 compared 2009 net product sales north american flu sales declined approximately 823 million result weaker normal flu season 2010 unusually strong flu sales 2009 caused h1n1 flu outbreak addition worldwide respiratory sales excluding north american flu sales discussed declined approximately 194 million comparing 2010 2009 excluding impact currency translation net product sales services revenue professional diagnostics business segment increased 1987 million 16 comparing 2010 2009 excluding impact currency translation decrease flurelated sales comparable periods organic growth professional diagnostics net product sales services revenue 6 within professional diagnostics business segment net product sales services revenue infectious disease business remained flat 2010 compared 2009 net product sales services revenue contributed acquisitions standard diagnostics offset decrease north american flu sales described net product sales services revenue cardiology business increased approximately 470 million 11 4885 million 4415 million driven particularly acquisitions toxicology business increased approximately 1452 million 94 3001 million 2010 1550 million 2009 driven primarily acquisitions concateno alere toxicology immunalysis health management following table summarizes net product sales services revenue health management business segment groups similar products services 2010 2009 thousands health management net product sales services revenue increased 771 million 15 5988 million 2010 5217 million 2009 net product sales services revenue health management business increased primarily result acquisitions contributed aggregate 1220 million net product sales services revenue 2010 net product sales services revenue health management segment adversely impacted increasingly competitive environment including pricing pressures impact health plans insourcing less differentiated services disease case management net product sales services revenue wellness patient selftesting services businesses increased principally result acquisitions consumer diagnostics consumer diagnostics net product sales services revenue decreased 386 million 29 951 million 2010 1336 million 2009 decrease 2010 compared 2009 primarily driven decrease approximately 350 million manufacturing revenue associated manufacturing agreement 5050 joint venture pg spd whereby manufacture sell consumer diagnostic products spd manufacturing revenue generated costplus basis manufacturing revenue adversely impacted result transitioning manufacturing consumer diagnosticrelated products lower cost facilities certain third party facilities net product sales spd 1938 million 1846 million 2010 2009 respectively transition manufacturing consumer diagnosticrelated products lower cost facilities substantially completed end 2010 net product sales services revenue geographic location net product sales services revenue geographic location 2010 2009 follows thousands net product sales services revenue 14 billion 13 billion generated united states approximately 64 69 respectively total net product sales services revenue year ended december 31 2010 2009 respectively growth net product sales services revenue geographic regions resulted primarily various acquisitions organic growth discussed increase net product sales services revenue outside us europe primarily result acquisition standard diagnostics located south korea license royalty revenue license royalty revenue represents license royalty fees intellectual property license agreements third parties license royalty revenue decreased 83 million 29 208 million 2010 291 million 2009 decrease license royalty revenue 2010 largely attributed decrease royalty payments received quidel existing licensing agreements 2010 50 million royalty payment received 2009 connection license arrangement field animal health diagnostics decrease royalties received quidel 2010 result decrease flurelated product sales gross profit margin gross profit increased 804 million 8 11 billion 2010 10 billion 2009 increase gross profit 2010 compared 2009 largely attributed increase net product sales services revenue resulting acquisitions organic growth professional diagnostics business segment cost net revenue 2010 included amortization 66 million relating writeup inventory fair value connection certain acquisitions cost net revenue 2009 included amortization 20 million relating writeup inventory fair value connection acquisition concateno third quarter 2009 reducing gross profit 2010 2009 39 million 95 million restructuring charges respectively cost net revenue included amortization expense 630 million 421 million 2010 2009 respectively overall gross margin 53 2010 compared 55 2009 gross profit net product sales services revenue business segment gross profit net product sales services revenue increased 869 million 11 billion 2010 10 billion 2009 gross profit net product sales services revenue business segment 2010 2009 follows thousands professional diagnostics gross profit professional diagnostics net product sales services revenue increased 681 million 9 8017 million 2010 compared 7336 million 2009 principally result gross profit earned revenue acquired businesses discussed reducing gross profit 2010 amortization 66 million relating writeup inventory fair value connection various acquisitions reducing gross profit 2009 amortization 20 million relating writeup inventory fair value connection acquisition concateno third quarter 2009 start costs incurred 2010 associated production cd4 disposable tests also contributed reduced gross profit 2010 compared 2009 reducing gross profit 2010 2009 33 million 86 million restructuring charges respectively cost professional diagnostics net product sales services revenue included amortization expense 537 million 350 million 2010 2009 respectively percentage professional diagnostics net product sales services revenue gross profit professional diagnostics business 56 2010 compared 59 2009 inventory writeups noted coupled higher revenue recently acquired toxicology businesses contribute lower segment average gross margins decrease north american flurelated net product sales contribute higher segment average gross margin contributed decrease gross margin percentage 2010 compared 2009 health management gross profit health management net product sales services revenue increased 165 million 6 2971 million 2010 compared 2805 million 2009 increase gross profit largely attributed gross profit earned revenues recent acquisitions discussed reducing gross profit 2010 2009 06 million restructuring charges cost health management net product sales services revenue included amortization expense 77 million 56 million 2010 2009 respectively percentage health management net product sales services revenue gross profit health management business 50 2010 compared 54 2009 lower margin percentage earned 2010 compared 2009 result increasingly competitive environment health management segment particularly less differentiated services disease management case management addition reserves totaling approximately 30 million established fourth quarter 2010 potential return unused test strips distributed connection home monitoring portion health management business consumer diagnostics gross profit consumer diagnostics net product sales services revenue increased 23 million 12 221 million 2010 compared 198 million 2009 increase gross profit primarily result changes net product sales services revenue mix year ended december 31 2010 compared year ended december 31 2009 cost consumer diagnostics net product sales services revenue included amortization expense 15 million 16 million 2010 2009 respectively percentage consumer diagnostics net product sales services revenue gross profit consumer diagnostics business 23 2010 compared 15 2009 research development expense research development expense increased 204 million 18 1333 million 2010 1128 million 2009 included research development expense 2010 71 million stockbased compensation expense representing increase approximately 19 million 2009 restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 05 million included research development expense 2010 representing decrease approximately 06 million 2009 amortization expense 48 million 37 million included research development expense 2010 2009 respectively research development expense percentage net revenue 6 2010 2009 sales marketing expense sales marketing expense increased 575 million 13 4991 million 2010 4416 million 2009 amortization expense 2123 million 1869 million included sales marketing expense 2010 2009 respectively remaining increase sales marketing expense primarily relates additional spending related newlyacquired businesses restructuring charges associated various restructuring plans integrate newlyacquired businesses totaling 15 million included sales marketing expense 2010 representing decrease approximately 04 million 2009 sales marketing expense percentage net revenue 23 2010 2009 general administrative expense general administrative expense increased 899 million 25 4469 million 2010 3570 million 2009 increase general administrative expense relates primarily 601 million compensation expense recorded connection purchasing remaining shares minority shareholder standard diagnostics fourth quarter 2010 partially offsetting increase decrease legal spending approximately 71 million 2010 compared 2009 acquisitionrelated costs 82 million 159 million included general administrative expense 2010 2009 respectively amortization expense 184 million 229 million included general administrative expense 2010 2009 respectively general administrative expense percentage net revenue 21 19 2010 2009 respectively impairment goodwill conducted annual goodwill impairment analysis fourth quarter 2010 conducting step 1 impairment analysis prescribed asc 350 intangibles goodwill asc 350 analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required complete step 2 impairment analysis prescribed asc 350 determine amount goodwill impairment charge step 2 portion analysis indicated needed record goodwill impairment charge approximately 10 billion recorded fourth quarter 2010 reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods details goodwill impairment analysis disclosed note 2 consolidated financial statements included elsewhere annual report form 10k gain disposition 2009 disposed majority ownership interest diamics inc diamics operation part professional diagnostics reporting unit business segment period date acquisition diamics july 2007 disposition september 2009 principles consolidation consolidated 100 operating results diamics operations consolidated statement operations result disposition recorded gain 34 million year ended december 31 2009 interest expense interest expense includes interest charges amortization deferred financing costs original issue discounts associated certain debt issuances interest expense increased 326 million 31 1394 million 2010 1068 million 2009 increase principally due additional interest expense incurred 9 subordinated notes 7875 senior notes 8625 subordinated notes totaling 695 million 2010 compared 323 million 2009 income expense net income expense net includes interest income realized unrealized foreign exchange gains losses income expense components respective amounts income expense net summarized follows thousands income expense net 2010 includes 45 million gain sale marketable securities net recovery 33 million related certain restructuring activities 31 million net gain associated legal settlements related previously disclosed intellectual property litigation relating health management businesses approximately 05 million income associated settlement prior years’ royalties 2010 partially offset charge related accounts receivable reserve prior year’s sale income expense net 2009 includes 19 million expense associated fullyvested compensationrelated costs certain executives incurred connection acquisition concateno third quarter 2009 29 million realized foreign currency gain associated restricted cash established connection acquisition concateno 06 million stamp duty tax incurred 2009 connection incremental investment made one foreign subsidiaries provision benefit income taxes provision benefit income taxes decreased 456 million 299 million benefit 2010 156 million provision 2009 effective tax rate 2010 3 compared 39 2009 decrease provision income taxes 2009 2010 primarily related tax benefit associated goodwill impairment charge decrease effective tax rate two years primarily results inability record tax benefit majority goodwill impairment charge recorded 2010 primary components 2010 provision income taxes relate us federal state income taxes foreign income recognition tax benefit associated goodwill impairment charge recorded 2010 primary components 2009 benefit income taxes relate us federal state income taxes foreign income equity earnings unconsolidated entities net tax equity earnings unconsolidated entities reported net tax include share earnings entities account equity method accounting equity earnings unconsolidated entities net tax year ended december 31 2010 reflect following earnings 50 interest spd amount 85 million ii earnings 40 interest vedalab amount 02 million iii earnings 49 interest techlab amount 19 million equity earnings unconsolidated entities net tax year ended december 31 2009 reflect following earnings 50 interest spd amount 57 million ii earnings 40 interest vedalab amount approximately 05 million iii earnings 49 interest techlab amount 17 million income discontinued operations net tax results vitamins nutritional supplements business included income discontinued operations net tax periods presented year ended december 31 2010 discontinued operations generated net income approximately 114 million compared net income 19 million year ended december 31 2009 net income 114 million year ended december 31 2010 includes gain 187 million 116 million net tax sale vitamins nutritional supplements business net income loss year ended december 31 2010 generated net loss 10 billion 1233 per common share preferred stock dividends based net loss available common stockholders 10 billion year ended december 31 2009 generated net income 337 million 013 per diluted common share preferred stock dividends based net income available common stockholders 107 million net income loss 2010 2009 resulted various factors discussed see note 12 consolidated financial statements included elsewhere annual report form 10k calculation net income loss per common share liquidity capital resources based upon current working capital position current operating plans expected business conditions currently expect fund short longterm working capital needs primarily using existing cash operating cash flow expect working capital position improve future operating margins grow business new product service offerings continuing leverage strong intellectual property position december 31 2011 2992 million cash 1073 million held domestic subsidiaries 1919 million held foreign entities repatriation cash held foreign entities could subject adverse tax implications may also utilize new secured credit facility see note 6 new sources financing fund portion capital needs commitments including contractual contingent consideration obligations future acquisitions december 31 2011 borrowings outstanding 2500 million revolving line credit secured credit facility full amount line credit available us ability access capital markets may impacted amount outstanding debt equity extent assets encumbered outstanding secured debt terms conditions outstanding debt instruments also contain covenants expressly restrict ability incur additional indebtedness conduct financings december 31 2011 33 billion outstanding indebtedness comprised 21 billion secured credit facility 4000 million 8625 subordinated notes due 2018 3912 million 9 senior subordinated notes due 2016 2456 million 7875 senior notes due 2016 1500 million 3 senior subordinated convertible notes applicable interest rate margins secured credit facility represent increase approximately 075 225 depending type loan type interest rate involved applicable leverage ratios applicable margins former secured credit facility result increase applicable interest rate 100 floor respect base eurodollar rate defined senior credit facility “b” term loans “incremental b1” term loans secured credit facility based eurodollar rate margins larger amount outstanding secured credit facility anticipate aggregate interest expense future periods exceed aggregate interest expense 2011 capital credit markets experience volatility availability funds limited may incur increased costs associated issuing debt instruments addition possible ability access capital credit markets could limited factors time would like need could adverse impact ability refinance maturing debt andor react changing economic business conditions funding plans working capital needs commitments may adversely impacted unexpected costs associated integrating operations newly acquired companies executing costsavings strategies prosecuting defending existing lawsuits andor unforeseen lawsuits us also cannot certain underlying assumed levels revenues expenses realized addition intend continue make significant investments research development efforts related substantial intellectual property portfolio may also choose expand research development efforts may pursue acquisition new products technologies licensing arrangements business acquisitions otherwise may also choose make significant investment pursue legal remedies potential infringers intellectual property rights decide engage activities operating results fail meet expectations could required seek additional funding public private financings arrangements event adequate funds may available needed may available terms could negative impact business results operations addition raise additional funds issuing equity convertible securities dilution existing stockholders may result 2011 repurchased approximately 77 million shares common stock cost approximately 1849 million paid cash addition repurchased approximately 357788 shares series b preferred stock average cost 27689 per preferred share amount less weightedaverage fair value preferred shares issuance cash flow summary changes cash position december 31 2011 cash equivalents 2992 million 1021 million decrease december 31 2010 primary sources cash year ended december 31 2011 included 2713 million generated operating activities approximately 8533 million net proceeds received connection refinancing credit facilities 115 million received disposition business 92 million sales marketable securities 379 million common stock issuances employee stock option stock purchase plans primary uses cash year ended december 31 2011 related 6313 million net cash paid acquisitions 2839 million related repurchase preferred common stock 1316 million capital expenditures net proceeds sale equipment 283 million related payments acquisitionrelated contingent consideration obligations 277 million related increase assets includes purchases various licensing agreements totaling 330 million 1219 million net cash paid equity method investments includes approximately 412 million paid shares axisshield prior completion acquisition remaining shares outstanding increase restricted cash balance approximately 64 million fluctuations foreign currencies negatively impacted cash balance 153 million year ended december 31 2011 operating cash flows net cash provided operating activities year ended december 31 2011 2713 million resulted net loss continuing operations 1333 million 747 million cash used meet net working capital requirements period set 4792 million noncash items 4792 million noncash items included among items 3976 million related depreciation amortization 3836 million goodwill impairment charge related health management reporting unit business segment 376 million interest expense related amortization deferred financing costs original issue discounts 212 million related noncash stockbased compensation partially offset 2889 million gain associated sale joint venture interest spd 568 million decrease related changes deferred tax assets liabilities partially resulted amortization intangible assets 85 million equity earnings unconsolidated entities 122 million decrease related noncash items investing cash flows investing activities year ended december 31 2011 utilized 8982 million cash including 6313 million net cash paid acquisitions 1316 million capital expenditures net proceeds sale equipment 277 million related increase assets includes purchases various licensing agreements totaling 330 million 1219 million net cash paid equity method investments includes approximately 412 million paid shares axisshield prior completion acquisition remaining shares outstanding increase restricted cash balance approximately 64 million offset 115 million received disposition business 92 million received sales marketable securities financing cash flows net cash provided financing activities year ended december 31 2011 5401 million financing activities year ended december 31 2011 primarily included 21 billion cash received connection entering new secured credit facility june 2011 21 billion received connection secured credit facility offset 13 billion cash payments related termination repayment former secured credit facility related interest rate swap agreement utilized approximately 2839 million repurchase shares preferred common stock 283 million payments acquisitionrelated contingent consideration obligations 54 million dividend payments related series b preferred stock 42 million principal payments capital lease obligations cash payments offset 379 million cash received common stock issuances employee stock option stock purchase plans december 31 2011 aggregate 187 million outstanding capital lease obligations payable 2019 income taxes december 31 2011 approximately 2164 million domestic nol capital loss carryforwards 2095 million foreign nol capital loss carryforwards respectively either expire various dates 2031 may carried forward indefinitely losses available reduce federal state foreign taxable income future years losses also subject review possible adjustments applicable taxing authorities addition domestic nol carryforward amount december 31 2011 included approximately 971 million preacquisition losses matria qas paradigmhealth biosite cholestech redwood hemosense ischemia ostex international ionian twist effective january 1 2009 adopted new accounting standard business combinations prior adoption standard preacquisition losses applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption new accounting standard reduction valuation allowance generally recorded reduce income tax expense furthermore domestic losses subject internal revenue service code section 382 limitation may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate recorded valuation allowance portion deferred tax assets related nols certain deferred tax assets reflect uncertainties might affect realization deferred tax assets realized via profitable operations offbalance sheet arrangements material offbalance sheet arrangements december 31 2011 contractual obligations following table summarizes principal contractual obligations december 31 2011 thousands 1 see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k 2 see note 8 consolidated financial statements included elsewhere annual report form 10k 3 see note 11a consolidated financial statements included elsewhere annual report form 10k 4 includes 45 million deferred payments associated acquisition accordant 60 million deferred payments associated acquisition standard diagnostics 26 million deferred payments associated acquisition standing stone inc standing stone 18 million deferred payments associated acquisition bioeasy diagnostica ltda bioeasy 27 million deferred payments holdbacks associated various smaller acquisitions 5 purchase obligations relate inventory purchases operating expense commitments 6 includes nonvariable interestbearing debt see description various financing arrangements note 6 consolidated financial statements included elsewhere annual report form 10k addition contractual obligations detailed contractual contingent consideration arrangements related following acquisitions • ionian technologies inc maximum earnout 575 million earned expected paid 2012 2014 • twistdx inc maximum earnout 1250 million earned expected paid eightyear period ending eighth anniversary acquisition could extend thereafter • accordant maximum earnout 60 million earned expected paid quarterly payments 15 million beginning fourth quarter 2012 • adnagen maximum earnout 630 million earned expected paid 2012 2016 • arriva medical llc included obligation pay maximum earnout 34 million earned expected paid 2012 earnout relates acquisition arriva • home telehealth limited subsequently renamed alere connected health limited maximum earnout approximately 139 million earned expected paid 2014 • jinsung meditech inc known alere healthcare inc maximum remaining earnout potential 24 million earned expected paid 2013 • medlab produtos medicos hospitalares ltda known alere sa maximum remaining earnout potential 78 million earned expected paid annual amounts 2013 2017 • bioeasy maximum remaining earnout potential approximately 50 million earned expected paid 2013 2014 • capital toxicology achieved portion total potential earnout 2011 resulting accrual approximately 21 million december 31 2011 payment earnout expected made second quarter 2012 maximum remaining earnout potential 80 million earned expected paid 2013 • diagnostixx california corp dba immunalysis corporation immunalysis achieved portion total potential earnout 2011 resulting accrual approximately 19 million december 31 2011 payment earnout expected made first quarter 2012 maximum remaining earnout potential 28 million earned expected paid 2013 additionally contractual contingent obligation pay total 30 million compensation certain executives immunalysis accordance acquisition agreement earned paid connection contingent consideration payable former shareholders immunalysis calendar years 2010 2011 2012 2011 portion earnout totaling approximately 10 million earned accrued december 31 2011 payment 2011 compensation expected made first quarter 2012 maximum amount remaining compensation paid related earnout approximately 10 million • laboratory data systems inc lds maximum earnout approximately 200 million earned expected paid 2012 2013 • mologic limited mologic maximum remaining earnout potential 160 million earned expected paid cash shares common stock 2012 2014 • forensics limited roar maximum earnout approximately 162 million earned expected paid 2012 2014 • standing stone maximum earnout 115 million earned expected paid 2012 2014 • method factory inc dba wellogic maximum earnout 500 million based operational targets earnout maximum based profit targets earned expected paid 2013 2020 information pertaining contractual contingent arrangements see note 11 accompanying consolidated financial statements additional contractual obligations follows • agreements epocal november 2009 entered distribution agreement epocal inc epocal distribute epoc® blood analysis system blood gas electrolyte testing 200 million recorded accompanying consolidated balance sheet intangible assets net also entered definitive agreement acquire issued outstanding equity securities epocal total potential purchase price 2550 million including base purchase price 1725 million epocal achieves certain gross margin financial milestones prior october 31 2014 plus additional payments 825 million epocal achieves certain milestones relating gross margin product development efforts prior date agreement contains working capital adjustment whereby purchase price increased decreased extent epocal’s working capital closing less specified amount also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years 75 payable upon achievement certain milestones acquisition also subject closing conditions including receipt required antitrust approvals april 2011 entered license agreement epocal amended terms definitive agreement acquire epocal license agreement provides us royaltyfree access certain epocal intellectual property use homeuse products provided upfront license payment 180 million paid 2011 amendment definitive agreement increased working capital target 180 million may effect reducing purchase price acquisition amendment agreement also added additional potential milestone payment 80 million result maximum purchase price acquisition agreement increased 2630 million critical accounting policies consolidated financial statements included elsewhere annual report form 10k prepared accordance accounting principles generally accepted united states america gaap accounting policies discussed considered management audit committee critical understanding financial statements application depends management’s judgment financial reporting results relying estimates assumptions effect matters inherently uncertain specific risks critical accounting policies described following paragraphs policies management cautions future events rarely develop exactly forecast best estimates routinely require adjustment addition notes audited consolidated financial statements year ended december 31 2011 included elsewhere annual report form 10k include comprehensive summary significant accounting policies methods used preparation consolidated financial statements revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish meeting performance criteria meet performance targets end contractual period obligated contract refund risk fees deferred revenue balance 437 million 259 million december 31 2011 2010 respectively also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned use estimates sales returns allowances allowance doubtful accounts certain sales arrangements require us accept product returns time also enter sales incentive arrangements retail customers generally reduce sale prices products result must establish allowances potential future product returns claims resulting sales incentive arrangements product revenue recognized reporting period calculation allowances requires significant judgments estimates evaluating adequacy sales returns allowances management analyzes historical returns current economic trends changes customer consumer demand acceptance products analysis available right return exists record revenue right return longer applicable material differences amount timing product revenue reporting period may result changes conditions arise would require management make different judgments utilize different estimates total provision sales returns allowances related sales incentive arrangements amounted 475 million 373 million 602 million 3 4 respectively net product sales 2011 2010 2009 respectively recorded product sales derive net product sales amounts approximately 236 million 140 million 93 million 2011 2010 2009 respectively represent allowances future deductions provided related accruals charges balance charged directly net sales similarly management must make estimates regarding uncollectible accounts receivable balances evaluating adequacy allowance doubtful accounts management analyzes specific accounts receivable balances historical bad debts customer concentrations customer creditworthiness current economic trends changes customer payment terms patterns accounts receivable balance 4758 million 3971 million net allowances doubtful accounts 246 million 204 million december 31 2011 2010 respectively inventory state inventories lower actual cost purchase manufacture inventory estimated current market value inventory less cost sell addition periodically review inventory quantities hand record provision excess obsolete inventory provision reduces carrying value inventory calculated based primarily upon factors forecasts customers’ demands shelf lives products inventory loss customers manufacturing lead times evaluating factors particularly forecasting customers’ demands requires management make assumptions estimates actual product services revenue may prove forecasts inaccurate case may underestimated overestimated provision required excess obsolete inventory future periods inventory determined overvalued would required recognize excess value charge cost sales time determination likewise future periods inventory determined undervalued would overreported cost sales understated earnings time recorded excess obsolete provision inventory balance 3203 million 2577 million net reserve excess obsolete inventory 136 million 123 million december 31 2011 2010 respectively goodwill longlived intangible assets longlived assets include 1 property plant equipment 2 goodwill 3 intangible assets december 31 2011 balances property plant equipment goodwill intangible assets net accumulated depreciation amortization 4912 million 28 billion 19 billion respectively goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings interest taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2011 annual goodwill impairment test conducted annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations 2010 annual goodwill impairment test conducted annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations valuation longlived tangible intangible assets factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review conduct annual goodwill impairment test reporting units fourth quarter impairment tests conducted 2011 2010 indicated impairment goodwill associated health management reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis prescribed asc 360 property plant equipment utilizing undiscounted cash flow model analysis conducted 2011 2010 indicated impairment longlived tangible intangible assets associated health management reporting unit although believe carrying value longlived tangible intangible assets realizable december 31 2011 2010 future events could cause us conclude otherwise stockbased compensation stockbased compensation cost measured grant date based fair value award recognized expense vesting period determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted expected volatility based upon historical volatility stock expected term based assumption outstanding options exercised midpoint vesting date full contractual term including data experience date stockbased compensation expense recognized consolidated statements operations based awards ultimately expected vest amount expense reduced estimated forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience factors change employ different assumptions compensation expense record future periods may differ significantly recorded current period accounting income taxes part process preparing consolidated financial statements required estimate income taxes jurisdictions operate process involves estimating actual current tax exposure assessing temporary differences resulting differing treatment items reserves accruals lives assigned longlived intangible assets tax accounting purposes differences result deferred tax assets liabilities must assess likelihood deferred tax assets recovered future taxable income extent believe recovery likely must establish valuation allowance extent establish valuation allowance increase allowance period must include expense within tax provision significant management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets recorded valuation allowance 516 million december 31 2011 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses nols tax credits included valuation allowance 148 million deferred tax assets acquired companies future benefits generally applied reduce income tax expense increase 91 million valuation allowance 425 million december 31 2010 increase primarily related domestic state nols valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision established reserves tax uncertainties reflect use comprehensive model recognition measurement uncertain tax positions currently undergoing routine tax examinations us federal various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows loss contingencies section annual report form 10k titled “part item 3 legal proceedings” reported material legal proceedings nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future accrue potential losses legal proceedings company defendant able reasonably estimate potential liability due uncertainty nature extent validity claims us uncertainty nature extent damages relief sought plaintiff complexity issues involved potential liability particular case may become reasonably estimable probable case progresses case begin accruing expected loss recent accounting pronouncements see note 2s consolidated financial statements included elsewhere annual report form 10k regarding impact certain recent accounting pronouncements consolidated financial statements item 7a item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity 18 months average maturity portfolio exceed 6 months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2001 shortterm investments approximated market value december 2001 entered series credit agreements royal bank scotland plc related entities credit facilities aggregate amount 70 million credit agreements consisted term loans aggregating 625 million 10 million denominated japanese yen 75 million multicurrency revolving line credit date utilized revolving line credit aggregate outstanding balance term loans december 31 2001 622 million net reduction approximately 300000 resulting change united states dollartojapanese yen exchange rate term loans revolving line credit allow us borrow london interbank offered rate libor plus spread 15 35 additional 2 case default depending type loan senior junior interest period loans spread may vary spread depends ratio total debt earnings interest expense taxes depreciation amortization february 2002 entered interest rate swap agreement bank required credit agreements protect company bank interest rate fluctuations interest rate swap agreement libor rate set minimum 336 maximum 5 applies 417 million term loans denominated united states dollars interest rate swap agreement effective period february 25 2002 december 31 2004 december 31 2001 libor applicable term loans denominated united states dollars 192 libor applicable term loan denominated japanese yen 010 libor rate increases one percentage point compared rate december 31 2001 estimate increase interest expense approximately 271000 2002 libor rate increases two percentage points compared rate december 31 2001 estimate increase interest expense approximately 610000 2002 foreign currency risk face exposure movements foreign currency exchange rates 2001 net impact foreign currency changes loss 727000 expect exposure increase expansion markets outside united states result recent acquisitions unipath business ivc historically used derivative financial instruments financial instruments hedge economic exposures trading however significant amounts revenue expenses unipath business denominated foreign currencies starting early 2002 began utilizing foreign exchange forward contracts minimize exposure risk eventual net cash inflows outflows resulting sale products foreign customers purchases foreign suppliers adversely affected changes exchange rates goal utilize foreign exchange forward contracts recognized receivables payables firmly committed cash inflows outflows use derivative financial instruments allows us reduce overall exposure exchange rate movements since gains losses contracts expected substantially offset losses gains assets liabilities transactions contracts relate cash inflows outflows denominated foreign currency netted legal entity basis corresponding net cash flow exposure appropriately hedged december 31 2001 outstanding foreign exchange forward contracts additionally described december 2001 entered series credit agreements royal bank scotland plc related entities pursuant borrowed 10 million denominated japanese yen december 31 2001 outstanding balance loan 97 million net reduction approximately 300000 resulting change dollartoyen exchange rate entered foreign exchange forward contract hedge loan however expect collect sufficient payments yen royalty contracts recently acquired part unipath business may future december 31 2001 dollartoyen exchange rate approximately 13167 dollartoyen exchange rate decreased ten percent compared rate december 31 2001 estimate outstanding principal amount owed us loan would higher approximately 11 million date dollartoyen exchange rate decreased twenty percent compared rate december 31 2001 estimate outstanding amount owed us loan would higher 25 million date 2002 maturity dates dollartoyen exchange rate lower ten percent compared rate december 31 2001 would pay approximately 119000 principal repayments 2002 maturity dates 2002 dollartoyen exchange rate lower twenty percent compared rate december 31 2001 would pay approximately 267000 principal repayments 2002 item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2004 shortterm investments approximated market value december 31 2004 revolving lines credit available us 500 million aggregate primary senior credit facility 201 million outstanding may repay future borrowings revolving lines credit time event later march 31 2008 borrowings revolving lines credit bear interest either london interbank offered rate libor defined credit agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance december 31 2004 libor index rates applicable primary senior credit facility 240 525 respectively assuming changes leverage ratio would affect margin interest rate senior credit agreement effect interest rate fluctuations outstanding borrowings revolving lines credit december 31 2004 next twelve months quantified summarized follows foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2004 net impact foreign currency changes transactions loss 07 million generally use derivative financial instruments financial instruments original maturities excess three months hedge economic exposures however foreign currency exchange exposure transactions continues significant may decide use instruments future gross margins products manufacture european plants sell us dollar also affected foreign currency exchange rate movements gross margin total net product sales 391 2004 us dollar stronger 1 5 10 compared actual rates 2004 gross margin total net product sales would 394 400 408 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would lower approximately following amounts item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2006 shortterm investments approximated market value december 31 2006 revolving lines credit available us 1100 million term loan 448 million primary senior credit facility december 31 2006 borrowings outstanding line credit may repay future borrowings revolving lines credit time event later march 31 2008 borrowings revolving lines credit bear interest either london interbank offered rate libor defined credit agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance february 1 2007 paid remaining principal balance outstanding 448 million accrued interests senior credit facility december 31 2006 libor index rates applicable primary senior credit facility 935 11 respectively assuming changes leverage ratio would affect margin interest rate senior credit agreement effect interest rate fluctuations outstanding borrowings revolving lines credit december 31 2006 next twelve months quantified summarized follows foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2006 net impact foreign currency changes transactions loss 27 million historically used derivative financial instruments financial instruments original maturities excess three months hedge economic exposures however 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income “oci” period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrencydenominated receivable payable reclassified oci income expense end reporting period changes derivative instrument’s fair values inception hedge compared cumulative change hedged item’s fair value attributable risk hedged effectiveness based change spot rates gross margins products manufacture european plants sell us dollar also affected foreign currency exchange rate movements gross margin total net product sales 39 2006 us dollar stronger 1 5 10 compared actual rates 2006 gross margin total net product sales would 395 398 403 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would lower approximately following amounts item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2007 shortterm investments approximated market value december 31 2007 term loan amount 9705 million revolving line credit available us 1500 million 0 outstanding december 31 2007 first lien credit agreement interest term loan defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving line credit respect base rate loans 075 125 respect eurodollar rate loans 175 225 december 31 2007 also term loan amount 2500 million second lien credit agreement interest term loan defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 changes fair value interest rate swaps recorded comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows assuming changes leverage ratio would affect margin interest rates credit agreements effect interest rate fluctuations outstanding borrowings december 31 2007 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2007 net impact foreign currency changes transactions loss 16 million historically used derivative financial instruments financial instruments original maturities excess three months hedge economic exposures however 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income “oci” period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrencydenominated receivable payable reclassified oci income expense end reporting period changes derivative instrument’s fair values inception hedge compared cumulative change hedged item’s fair value attributable risk hedged effectiveness based change spot rates gross margins products manufacture european plants sell us dollars also affected foreign currency exchange rate movements gross margin total net product services revenue 47 2007 us dollar stronger 1 5 10 compared actual rates 2007 gross margin total net product services revenue would 472 477 482 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would lower approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2008 shortterm investments approximated market value december 31 2008 term loan amount 9608 million revolving lineofcredit available us 1500 million 1420 million outstanding december 31 2008 first lien credit agreement interest term loan defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate changes periodic basis eurodollar rate equal libor rate set period one three months election applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving lineofcredit respect base rate loans 075 125 respect eurodollar rate loans 175 225 december 31 2008 also term loan amount 2500 million second lien credit agreement interest term loan defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt assuming changes leverage ratio considering interest rate swaps would affect margin interest rates credit agreements effect interest rate fluctuations outstanding borrowings december 31 2008 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2008 net impact foreign currency changes transactions loss 09 million historically used derivative financial instruments financial instruments original maturities excess three months hedge economic exposures gross margins products manufacture european chinese plants sell us dollars manufacturing us plants sold currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 496 2008 us dollar stronger 1 5 10 compared actual rates 2008 gross margin total net product sales would 497 499 501 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net loss would impacted approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2009 shortterm investments approximated market value december 31 2009 term loans amount 9510 million revolving lineofcredit available us 1500 million 1420 million outstanding december 31 2009 first lien credit agreement interest term loans defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate changes periodic basis eurodollar rate equal libor rate set period one three months election applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving lineofcredit respect base rate loans 075 125 respect eurodollar rate loans 175 225 december 31 2009 also term loans amount 2500 million second lien credit agreement interest term loans defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans senior credit facility fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loans secured credit facility fixed rate debt assuming changes leverage ratio considering interest rate swaps would affect margin interest rates credit agreements effect interest rate fluctuations outstanding borrowings december 31 2009 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2009 net impact foreign currency changes transactions gain 13 million historically used derivative financial instruments financial instruments original maturities excess three months hedge economic exposures gross margins products manufacture foreign plants sell us dollars manufacturing us plants sold currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 546 2009 us dollar stronger 1 5 10 compared actual rates 2009 gross margin total net product sales would 547 549 551 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2010 shortterm investments approximated market value december 31 2010 term loans amount 9413 million revolving line credit available us 1500 million outstanding borrowings december 31 2010 first lien credit agreement interest term loans defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate changes periodic basis eurodollar rate equal libor rate set period one three months election applicable margin respect base rate loans 100 respect eurodollar rate loans 200 applicable margin ranges revolving line credit respect base rate loans 075 125 respect eurodollar rate loans 175 225 depending upon consolidated leverage december 31 2010 also term loans amount 2500 million second lien credit agreement interest term loans defined credit agreement follows case base rate loans rate per annum equal sum base rate applicable margin effect time ii case eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin base rate loans effect time applicable margin respect base rate loans 325 respect eurodollar rate loans 425 august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts paid us variable interest threemonth libor rate paid counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans secured credit facilities fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts paid us variable interest onemonth libor rate paid counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt extend terms interest rate swap january 5 2011 assuming changes leverage ratio considering interest rate swaps including interest rate swap matured january 5 2011 would affect margin interest rates credit agreements effect interest rate fluctuations outstanding borrowings december 31 2010 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2010 net impact foreign currency changes transactions gain 98 million historically used derivative financial instruments financial instruments original maturities excess three months hedge exposures gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 533 2010 us dollar stronger 1 5 10 compared actual rates 2010 gross margin total net product sales would 533 536 539 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times december 31 2012 shortterm investments consisted money market funds original maturities 90 days less december 31 2012 shortterm investments approximated market value december 31 2012 credit agreement secured credit facility term loans aggregate outstanding principal amount 23 billion consisting “a” term loans including “delayeddraw” term loans aggregate principal amount 8784 million “b” term loans aggregate principal amount 9134 million “incremental b1” term loans aggregate principal amount 2475 million “incremental b2” term loans aggregate principal amount 1967 million ii 225 million outstanding borrowings revolving line credit iii subject continued compliance credit agreement ability borrow maximum additional 2275 million revolving line credit includes 500 million sublimit issuance letters credit loans either base rate loans eurodollar rate loans election interest accrues loans obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans including “delayeddraw” term loans revolving line credit loans range respect loans base rate loans 175 250 ii respect loans eurodollar rate loans 275 350 case depending upon consolidated secured leverage ratio determined credit agreement applicable margins “b” term loans “incremental b1” term loans “incremental b2” term loans range respect loans base rate loans 250 325 ii respect loans eurodollar rate loans 350 425 case depending upon consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans “incremental b2” term loans based eurodollar rate subject 100 floor respect base eurodollar rate assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2012 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2012 net impact foreign currency changes transactions loss 79 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 513 2012 us dollar stronger 1 5 10 compared actual rates 2012 gross margin total net product sales would 514 517 521 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times december 31 2014 shortterm investments consisted money market funds original maturities 90 days less december 31 2014 shortterm investments approximated market value december 31 2014 credit agreement secured credit facility term loans aggregate outstanding principal amount 22 billion consisting “a” term loans including “delayeddraw” term loans aggregate principal amount 7859 million “b” term loans including term loans previously referred “incremental b1” term loans “incremental b2” term loans term loans converted consolidated “b” term loans aggregate principal amount 13308 million ii 1270 million outstanding borrowings revolving line credit iii subject continued compliance credit agreement ability borrow maximum additional 1230 million revolving line credit includes 500 million sublimit issuance letters credit loans either base rate loans eurodollar rate loans election december 31 2014 interest accrues loans obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans including “delayeddraw” term loans revolving line credit loans range respect loans base rate loans 175 250 ii respect loans eurodollar rate loans 275 350 case depending upon consolidated secured leverage ratio determined credit agreement applicable margins “b” term loans range respect loans base rate loans 200 275 ii respect loans eurodollar rate loans 300 375 case depending upon consolidated secured leverage ratio interest “b” term loans based eurodollar rate subject 100 floor respect base eurodollar rate assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2014 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2014 net impact foreign currency changes transactions loss 124 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 472 2014 us dollar stronger 1 5 10 compared actual rates 2014 gross margin total net product sales would 474 476 478 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements december 31 2015 exposed market risks related changes interest rates foreign currency exchange rates historically december 31 2015 use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times december 31 2015 shortterm investments consisted money market funds original maturities 90 days less december 31 2015 shortterm investments approximated market value december 31 2015 credit agreement secured credit facility term loans aggregate outstanding principal amount 16 billion consisting “a” term loans aggregate principal amount 5877 million “b” term loans aggregate principal amount 9712 million ii amounts outstanding revolving line credit iii subject continued compliance credit agreement ability borrow maximum additional 2500 million revolving line credit includes 500 million sublimit issuance letters credit loans either base rate loans eurodollar rate loans election december 31 2015 interest accrues loans payment obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case payment obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans revolving line credit loans respect loans base rate loans 200 ii respect loans eurodollar rate loans 300 applicable margins “b” term loans respect loans base rate loans 200 225 ii respect loans eurodollar rate loans 300 325 case depending upon consolidated secured net leverage ratio base eurodollar rate subject 100 floor respect “b” term loans based rate assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2015 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2015 net impact foreign currency changes transactions loss 48 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 466 2015 us dollar stronger 1 5 10 compared actual rates 2015 gross margin total net product sales would 467 468 469 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would impacted following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2003 shortterm investments approximated market value december 31 2003 two us term loans totaling 751 million european term loan 99 million outstanding 169 million outstanding borrowings us revolving line credit 230 million outstanding borrowings european revolving line credit amended senior credit agreement dated september 30 2003 february 2004 using proceeds sale 150 million 875 senior subordinated notes prepaid outstanding borrowings amended senior credit facility retain 50 million availability aggregate revolving lines credit may repay future borrowings revolving lines credit time event later march 31 2008 borrowings revolving lines credit bear interest either london interbank offered rate libor defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 325 400 200 275 respectively depending quarterly adjustments based consolidated financial performance commencing quarter ending march 31 2004 december 31 2003 applicable interest rate revolving lines credit including applicable margin 514 interest rate swap agreement bank place intended provide us limited protection fluctuations libor rate interest rate swap agreement libor rate minimum 336 maximum 5 applies 348 million 363 million us dollar denominated loans depending upon interest period remaining term agreement interest rate swap agreement effective december 30 2004 december 31 2003 libor index rates applicable amended senior credit agreement 114 4 respectively assuming changes leverage ratio would affect margin interest rate amended senior credit agreement long borrow amounts covered interest rate swap agreement increase libor rate 1 point 2 points would affect interest expense however assuming changes leverage ratio effect interest rate fluctuations 10 million borrowings revolving lines credit excess amounts covered interest rate swap agreement next twelve months quantified summarized follows subsidiary imn credit agreement bank borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations imn loans mature october 15 2004 maturity date automatically extended one year maturity date unless ninety day termination notice given writing either party agreement december 31 2003 total borrowings outstanding credit agreement bank 131 million borrowings revolving credit commitment term loan bear interest either 15 banks prime rate imns option 375 adjusted eurodollar rate used bank december 31 2003 interest rate 33 million outstanding borrowings adjusted eurodollar rate 117 plus spread 375 interest rate remaining 99 million outstanding borrowings prime rate 400 plus spread 15 effect interest rate fluctuations loans imns credit agreement next twelve months assuming credit agreement automatically extended one year current maturity date quantified summarized follows foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2003 net impact foreign currency changes transactions gain 5000 generally use derivative financial instruments financial instruments hedge economic exposures however foreign currency exchange exposure transactions continues significant may decide use instruments future gross margins products manufacture european plants sell us dollar also affected foreign currency exchange rate movements overall gross margin net product sales 425 2003 us dollar stronger 1 5 10 compared actual rates 2003 overall gross margin net product sales would 427 433 441 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would lower approximately following amounts item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times december 31 2013 shortterm investments consisted money market funds original maturities 90 days less december 31 2013 shortterm investments approximated market value december 31 2013 credit agreement secured credit facility term loans aggregate outstanding principal amount 23 billion consisting “a” term loans including “delayeddraw” term loans aggregate principal amount 8322 million “b” term loans aggregate principal amount 9042 million “incremental b1” term loans aggregate principal amount 2450 million “incremental b2” term loans aggregate principal amount 1951 million ii 1700 million outstanding borrowings revolving line credit iii subject continued compliance credit agreement ability borrow maximum additional 800 million revolving line credit includes 500 million sublimit issuance letters credit loans either base rate loans eurodollar rate loans election december 31 2013 interest accrues loans obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans including “delayeddraw” term loans revolving line credit loans range respect loans base rate loans 175 250 ii respect loans eurodollar rate loans 275 350 case depending upon consolidated secured leverage ratio determined credit agreement applicable margins “b” term loans “incremental b1” term loans “incremental b2” term loans range respect loans base rate loans 250 325 ii respect loans eurodollar rate loans 350 425 case depending upon consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans “incremental b2” term loans based eurodollar rate subject 100 floor respect base eurodollar rate assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2013 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2013 net impact foreign currency changes transactions loss 40 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 504 2013 us dollar stronger 1 5 10 compared actual rates 2013 gross margin total net product sales would 505 509 513 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted approximately following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements december 31 2016 exposed market risks related changes interest rates foreign currency exchange rates historically december 31 2016 use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements pay indebtedness maturity achieve purposes may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times december 31 2016 shortterm investments consisted money market funds original maturities 90 days less december 31 2016 shortterm investments approximated market value december 31 2016 credit agreement secured credit facility term loans aggregate outstanding principal amount 16 billion consisting “a” term loans aggregate principal amount 5447 million “b” term loans aggregate principal amount 9527 million amounts reflect original issue discounts debt issuance costs related indebtedness ii 1250 million outstanding revolving line credit iii subject continued compliance credit agreement ability borrow maximum additional 1250 million revolving line credit includes 500 million sublimit issuance letters credit loans either base rate loans eurodollar rate loans election december 31 2016 interest accrues loans payment obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case payment obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans revolving line credit loans respect loans base rate loans 200 ii respect loans eurodollar rate loans 300 applicable margins “b” term loans respect loans base rate loans 200 225 ii respect loans eurodollar rate loans 300 325 case depending upon consolidated secured net leverage ratio base eurodollar rate subject 100 floor respect “b” term loans based rate september 2015 alere switzerland gmbh entered secured credit facility hong kong shanghai banking corporation limited singapore branch hsbc principal amount 400 million facility fully drawn maturity two years facility secured cash deposited subsidiary alere shanghai medical sales co ltd affiliate hsbc china interest rate equal applicable libor rate plus margin 08 assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2016 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2016 net impact foreign currency changes transactions loss 45 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 481 2016 us dollar stronger 1 5 10 compared actual rates 2016 gross margin total net product sales would 481 482 484 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would impacted following amounts thousands item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2002 shortterm investments approximated market value december 31 2002 us term loan 200 million european term loan 100 million outstanding 230 million outstanding borrowings european revolving line credit senior credit agreement principal repayments us term loan made eleven equal quarterly installments 125 million starting april 30 2003 october 31 2005 final installment 625 million due november 2005 principal repayments european term loan made fourteen equal quarterly installments 25000 starting january 31 2003 april 30 2006 final installment 965 million due may 2006 borrowings revolving line credit mature november 14 2005 borrowings term loans revolving line credit bear interest either london interbank offered rate libor defined credit agreement plus applicable margins option ii floating index rate defined credit agreement plus applicable margins applicable margins depending type loan range 125 375 subject quarterly adjustments based total leverage ratio defined credit agreement interest rate swap agreement bank place provide us limited protection fluctuations libor rate interest rate swap agreement libor rate minimum 336 maximum 5 applies 348 million 390 million loans depending upon interest period remaining term agreement interest rate swap agreement effective december 30 2004 december 31 2002 libor index rates applicable senior credit agreement 138 425 respectively assuming changes leverage ratio would affected margin interest rates effect interest rate fluctuations loans senior credit agreement next twelve months quantified summarized follows subsidiary imn credit agreement bank borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations imn loans mature october 16 2003 december 31 2002 total borrowings outstanding credit agreement bank 117 million borrowings revolving credit commitment term loan bear interest either 15 banks prime rate imns option 375 adjusted eurodollar rate used bank december 31 2002 interest rate 43 million outstanding borrowings adjusted eurodollar rate 09 plus spread 375 interest rate remaining 75 million outstanding borrowings prime rate 425 plus spread 15 effect interest rate fluctuations loans imns credit agreement next twelve months quantified summarized follows foreign currency risk face exposure movements foreign currency exchange rates 2002 net impact foreign currency changes gain 10 million included onetime realized foreign exchange transaction gain 26 million upon settlement intercompany loan two subsidiaries different functional currencies excluding onetime foreign exchange gain incurred foreign exchange losses 16 million 2002 loss 2002 resulted weakened us dollar japanese yen portion bank debt refinanced november 2002 denominated weakened us dollar euro functional currency certain subsidiaries receivables payables denominated us dollars generally use derivative financial instruments financial instruments hedge economic exposures however foreign currency exchange exposure transactions continues significant may decide use instruments future addition significant amounts revenue expenses unipath business denominated foreign currencies unipath business historically utilized continue utilize shortterm foreign exchange forward contracts minimize exposure risk eventual net cash inflows outflows resulting sale products foreign customers purchases foreign suppliers adversely affected changes exchange rates goal utilize shortterm foreign exchange forward contracts recognized receivables payables firmly committed cash inflows outflows allow us reduce overall exposure exchange rate movements since gains losses contracts expected substantially offset losses gains assets liabilities transactions contracts relate cash inflows outflows denominated foreign currency netted legal entity basis corresponding net cash flow exposure appropriately hedged december 31 2002 outstanding foreign exchange forward contracts item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates investing strategy manage interest rate exposure invest shortterm highly liquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2005 shortterm investments approximated market value december 31 2005 revolving lines credit available us 1000 million aggregate primary senior credit facility 890 million outstanding may repay future borrowings revolving lines credit time event later march 31 2008 borrowings revolving lines credit bear interest either london interbank offered rate libor defined credit agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance december 31 2005 libor index rates applicable primary senior credit facility 437 725 respectively assuming changes leverage ratio would affect margin interest rate senior credit agreement effect interest rate fluctuations outstanding borrowings revolving lines credit december 31 2005 next twelve months quantified summarized follows foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2005 net impact foreign currency changes transactions loss 03 million historically used derivative financial instruments financial instruments original maturities excess three months hedge economic exposures however 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income oci period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrency denominated receivable payable reclassified oci income expense end reporting period changes derivative instruments fair values inception hedge compared cumulative change hedged items fair value attributable risk hedged effectiveness based change spot rates december 31 2005 two forward exchange contracts outstanding 15 million gbp contracts maturing january february 2006 effectively hedge existing receivables therefore considered fair value hedges accordingly december 31 2005 forward contracts remain effective future exchange rate changes gross margins products manufacture european plants sell us dollar also affected foreign currency exchange rate movements gross margin total net product sales 348 2005 us dollar stronger 1 5 10 compared actual rates 2005 gross margin total net product sales would 349 354 360 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net revenue net income would lower approximately following amounts item 8item 7a quantitative qualitative disclosures market risk following discussion market risk disclosures involves forwardlooking statements actual results could differ materially discussed forwardlooking statements exposed market risk related changes interest rates foreign currency exchange rates use derivative financial instruments speculative trading purposes interest rate risk exposed market risk changes interest rates primarily investing financing activities addition ability finance future acquisition transactions fund working capital requirements may impacted able obtain appropriate financing acceptable rates manage interest rate exposure strategy invest shortterm highlyliquid investments investment policy also requires investment approved instruments initial maximum allowable maturity eighteen months average maturity portfolio exceed six months least 500000 cash available times currently shortterm investments money market funds original maturities 90 days less december 31 2011 shortterm investments approximated market value december 31 2011 credit agreement secured credit facility term loans aggregate outstanding principal amount 21 billion consisting “a” term loans aggregate principal amount 9172 million “b” term loans aggregate principal amount 9227 million “incremental b1” term loans aggregate principal amount 2500 million ii subject continued compliance credit agreement ability borrow 2500 million revolving line credit includes 500 million sublimit issuance letters credit december 31 2011 outstanding borrowings revolving line credit loans either base rate loans eurodollar rate loans election interest accrues loans obligations terms credit agreement follows terms referenced paragraph meanings given credit agreement case loans base rate loans rate per annum equal sum base rate applicable margin effect time ii case loans eurodollar rate loans rate per annum equal sum eurodollar rate applicable margin effect applicable interest period iii case obligations rate per annum equal sum base rate applicable margin revolving loans base rate loans effect time base rate floating rate approximates us prime rate effect time eurodollar rate equal libor rate set period one two three six months election applicable margins “a” term loans “delayeddraw” term loans revolving line credit loans range respect loans base rate loans 175 250 ii respect loans eurodollar rate loans 275 350 case depending upon consolidated secured leverage ratio determined credit agreement applicable margins “b” term loans “incremental b1” term loans range respect loans base rate loans 250 325 ii respect loans eurodollar rate loans 350 425 case depending upon consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans based eurodollar rate subject 100 floor respect base eurodollar rate assuming changes consolidated secured leverage ratio effect interest rate fluctuations outstanding borrowings december 31 2011 next twelve months quantified summarized follows thousands foreign currency risk face exposure movements foreign currency exchange rates whenever subsidiaries enter transactions third parties denominated currencies functional currency intercompany transactions entities use different functional currencies also expose us foreign currency risk 2011 net impact foreign currency changes transactions loss 229 million gross margins products manufacture foreign plants sell us dollars manufacture us plants sell currencies us dollar also affected foreign currency exchange rate movements gross margin total net product sales 527 2011 us dollar stronger 1 5 10 compared actual rates 2011 gross margin total net product sales would 528 531 534 respectively addition substantial portion earnings generated foreign subsidiaries whose functional currencies us dollar report consolidated financial results earnings could materially impacted movements foreign currency exchange rates upon translation earnings subsidiaries us dollar us dollar uniformly stronger 1 5 10 compared actual average exchange rates used translate financial results foreign subsidiaries net product sales net income would impacted approximately following amounts thousands item 8 item 8 financial statements supplementary data financial statements supplementary data listed item 14a filed part report pages indicated item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated restated previously issued consolidated financial statements years ended december 31 2003 first three quarters 2004 correct error calculation provisions income taxes related deferred tax accounts reported gross certain deferred tax liabilities associated temporary differences related differing tax book bases goodwill intangible assets result recorded additional valuation allowance deferred tax assets associated certain net operating loss carry forwards correction error resulted incremental noncash provisions income taxes amount 04 million first three quarters 2003 07 million fourth quarter 2003 first three quarters 2004 addition revised purchase price allocation connection acquisition abbott business september 30 2003 attribute 57 million customer related intangible assets acquired acquisition also recorded commenced amortize date acquisition 113 million assets acquired abbott amortization insignificant financial results goodwill generated connection acquisition abbott business reduced amounts impact revision purchase price allocation increase amortization expense 09 million fourth quarter 2003 first three quarters 2004 selected quarterly financial data 2004 2003 summarized follows 1net loss income available common stockholders basic diluted net loss income per common share computed consistent annual per share calculations described notes 2k 11 consolidated financial statements included elsewhere annual report form 10k 2included net loss first quarter 2004 charge 35 million interest expense representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 3included net loss second quarter 2004 additional charge 03 million interest expense representing writeoff financing costs related repayment borrowings primary senior credit facility proceeds 1500 million bond offering february 2004 establishment specific reserve potential bad debt unsaleable inventory totaling 15 million associated customer failed perform terms agreement currently subject legal action 4included net loss third quarter 2004 17 million restructuring charge covering expected severance early retirement outplacement services arising completed plan termination manufacturing facility bedford england 5included net loss fourth quarter 2004 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement ii 05 million litigation settlement gain 6included net income second quarter 2003 onetime gain 38 million recorded connection agreement unilever resolved certain issues arose acquisition unipath business 7included net income third quarter 2003 onetime gain 07 million result insurance recovery legal costs previously incurred 8included net income fourth quarter 2003 reversals allowances returns trade spending specific products aggregating 09 million established prior years deemed longer needed based upon current business trends ii tax benefits aggregating 12 million resulted reduction valuation allowance nol carryforward irish subsidiary due assessment would likely realize benefit nol enhanced deduction research development activity unipath operations united kingdom item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated following table presents selected quarterly financial data quarters years ended december 31 2006 2005 1 net loss income available common stockholders basic diluted net loss income per common share computed consistent annual per share calculations described notes 2m 13 consolidated financial statements included elsewhere annual report form 10k 2 included net loss first quarter 2006 09 million charge related closure manufacturing facility galway ireland 12 million unrealized foreign exchange loss associated closure galway ireland facility 13 million noncash stockbased compensation expense 3 included net loss second quarter 2006 44 million restructuring charge including 99 million primarily related closure abi operation san diego california offset income 55 million related foreign exchange gain associated final closure manufacturing facility galway ireland 32 million net loss disposition resulting 46 million loss associated management’s decision dispose scandinavian research operation offset 14 million gain sale idle manufacturing facility 12 million noncash stockbased compensation expense 4 included net loss third quarter 2006 50 million charge writeoff inprocess research development acquired connection clondiag acquisition 12 million restructuring charge related closure abi operation along writeoff fixed assets facilities impacted restructuring plans 13 million noncash stockbased compensation expense 5 included net income fourth quarter 2006 12 million restructuring charge associated closure abi operation 03 million net loss disposition resulting finalization disposition scandinavian research operation 16 million noncash stockbased compensation expense 6 included net loss first quarter 2005 charge 16 million associated recall certain drugs abuse products 84 million gain legal settlement nutritionals business 7 included net income second quarter 2005 charge 24 million associated reserve excess quantities certain raw materials finished goods charge 35 million associated decision cease operations facility galway ireland charge 42 million related legal settlement pbm 150 million gain related intellectual property settlement quidel relating periods prior 2005 8 included net loss third quarter 2005 charge 07 million associated decision cease operations facility galway ireland 9 included net loss fourth quarter 2005 charge 09 million principally associated decision cease operations facility galway ireland item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated following table presents selected quarterly financial data quarters years ended december 31 2007 2006 thousands except per share data 1 net loss income available common stockholders basic diluted net loss income per common share computed consistent annual per share calculations described notes 2n 14 consolidated financial statements included elsewhere annual report form 10k 2 included net income first quarter 2007 06 million related restructuring charge associated closure abi operation 02 million charge writeoff deferred financing costs related payment outstanding debt 16 million noncash stockbased compensation expense 3 included net loss second quarter 2007 04 million related restructuring charges associated decision close facilities formation joint venture pg 12 million charge related inventory adjustment connection biosite acquisition charge 154 million associated writeoff debt origination costs prepayment premium paid upon early extinguishment related debt 19 million foreign currency gain realized settlement intercompany notes 473 million noncash stockbased compensation expense 4 included net loss third quarter 2007 05 million related restructuring charges associated decision close facilities formation joint venture pg 63 million charge related inventory adjustment connection biosite cholestech acquisitions writeoff 1690 million associated value purchased inprocess rd incurred connection biosite acquisition 33 million noncash stockbased compensation expense 5 included net loss fourth quarter 2007 52 million related restructuring charges associated decision close facilities formation joint venture pg 08 million charge related inventory adjustment connection cholestech hemosense acquisitions writeoff 48 million associated value purchased inprocess rd incurred connection diamics acquisition 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi 53 million noncash stockbased compensation expense 6 included net loss first quarter 2006 09 million charge related closure manufacturing facility galway ireland 12 million unrealized foreign exchange loss associated closure galway ireland facility 13 million noncash stockbased compensation expense 7 included net loss second quarter 2006 44 million restructuring charge including 99 million primarily related closure abi operation san diego california offset income 55 million related foreign exchange gain associated final closure manufacturing facility galway ireland 32 million net loss disposition resulting 46 million loss associated management’s decision dispose scandinavian research operation offset 14 million gain sale idle manufacturing facility 12 million noncash stockbased compensation expense 8 included net loss third quarter 2006 50 million charge writeoff inprocess research development acquired connection clondiag acquisition 12 million restructuring charge related closure abi operation along writeoff fixed assets facilities impacted restructuring plans 13 million noncash stockbased compensation expense 9 included net income fourth quarter 2006 12 million restructuring charge associated closure abi operation 03 million net loss disposition resulting finalization disposition scandinavian research operation 16 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated following table presents selected quarterly financial data quarters years ended december 31 2008 2007 thousands except per share data 1 net loss income available common stockholders basic diluted net loss income per common share computed consistent annual per share calculations described notes 2n 15 consolidated financial statements included elsewhere annual report form 10k 2 included net loss first quarter 2008 163 million related restructuring charges associated decision close various facilities writeoff 17 million related inventory writeups recorded connection acquisitions panbio limited bbi 17 million net realized foreign currency loss associated cash escrow established connection acquisition bbi 56 million noncash stockbased compensation expense 3 included net loss second quarter 2008 236 million related restructuring charges associated decision close various facilities writeoff 03 million related inventory writeups recorded connection acquisitions panbio limited bbi 72 million noncash stockbased compensation expense 4 included net loss third quarter 2008 58 million related restructuring charges associated decision close various facilities 70 million noncash stockbased compensation expense 5 included net income fourth quarter 2008 50 million related restructuring charges associated decision close various facilities 67 million noncash stockbased compensation expense 6 included net income first quarter 2007 06 million related restructuring charge associated closure abi operation 02 million charge writeoff deferred financing costs related payment outstanding debt 16 million noncash stockbased compensation expense 7 included net loss second quarter 2007 04 million related restructuring charges associated decision close facilities formation joint venture pg 12 million writeoff related inventory writeup recorded connection biosite acquisition charge 154 million associated writeoff debt origination costs prepayment premium paid upon early extinguishment related debt 19 million foreign currency gain realized settlement intercompany notes 473 million noncash stockbased compensation expense 8 included net loss third quarter 2007 05 million related restructuring charges associated decision close facilities formation joint venture pg 63 million writeoff related inventory writeups recorded connection biosite cholestech acquisitions writeoff 1690 million associated value purchased iprd incurred connection biosite acquisition 33 million noncash stockbased compensation expense 9 included net loss fourth quarter 2007 52 million related restructuring charges associated decision close facilities formation joint venture pg 08 million writeoff related inventory writeups recorded connection cholestech hemosense acquisitions writeoff 48 million associated value purchased iprd incurred connection diamics acquisition 39 million unrealized foreign currency loss associated cash escrow established connection acquisition bbi 53 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated january 15 2010 completed sale vitamins nutritional supplements business sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented financial statements supplementary data following table presents selected quarterly financial data quarters years ended december 31 2009 2008 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2n 14 consolidated financial statements included elsewhere annual report form 10k 2 included net income first quarter 2009 54 million related restructuring charges associated decision close various facilities writeoff amount 47 million acquisitionrelated costs recorded connection adoption asc 805 business combinations january 1 2009 59 million noncash stockbased compensation expense 3 included net income second quarter 2009 49 million related restructuring charges associated decision close various facilities writeoff amount 17 million acquisitionrelated costs recorded connection adoption asc 805 business combinations january 1 2009 66 million noncash stockbased compensation expense 4 included net income third quarter 2009 62 million related restructuring charges associated decision close various facilities writeoff amount 07 million relating inventory writeup recorded connection acquisition concateno third quarter 2009 acquisitionrelated costs amount 51 million recorded connection adoption asc 805 business combinations january 1 2009 34 million gain associated management’s decision dispose diamics inc operations 29 million net realized foreign currency gain associated restricted cash established connection acquisition concateno 19 million compensationrelated charge recorded connection acquisition concateno 03 million loss recorded connection deferred payment portion acon second territory business purchase price consideration paid common stock 78 million noncash stockbased compensation expense 5 included net income fourth quarter 2009 69 million related restructuring charges associated decision close various facilities writeoff amount 14 million relating inventory writeup recorded connection acquisition concateno third quarter 2009 acquisitionrelated costs amount 43 million recorded connection adoption asc 805 business combinations january 1 2009 18 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 32 million fair value writedown recorded connection idle facility expenses 18 million 11 million net tax incurred connection sale vitamins nutritional supplements business 79 million noncash stockbased compensation expense 6 included net loss first quarter 2008 163 million related restructuring charges associated decision close various facilities writeoff 17 million related inventory writeups recorded connection acquisitions panbio bbi 17 million net realized foreign currency loss associated cash escrow established connection acquisition bbi 56 million noncash stockbased compensation expense 7 included net loss second quarter 2008 236 million related restructuring charges associated decision close various facilities writeoff 03 million related inventory writeups recorded connection acquisitions panbio limited bbi 72 million noncash stockbased compensation expense 8 included net loss third quarter 2008 58 million related restructuring charges associated decision close various facilities 70 million noncash stockbased compensation expense 9 included net income fourth quarter 2008 50 million related restructuring charges associated decision close various facilities 67 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part annual report form 10k pages indicated january 15 2010 completed sale vitamins nutritional supplements business sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented financial statements supplementary data following table presents selected quarterly financial data quarters years ended december 31 2010 2009 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2n 12 consolidated financial statements included elsewhere annual report form 10k 2 included net income first quarter 2010 80 million related restructuring charges associated decision close various facilities writeoff amount 28 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 40 recorded connection adoption asc 805 business combinations january 1 2009 31 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations expenses 03 million 02 million net tax incurred connection sale vitamins nutritional supplements business 76 million noncash stockbased compensation expense 3 included net loss second quarter 2010 71 million related restructuring charges associated decision close various facilities writeoff amount 28 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 20 recorded connection adoption asc 805 business combinations january 1 2009 38 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 81 million noncash stockbased compensation expense 4 included net loss third quarter 2010 net recovery 16 million related restructuring charges associated decision close various facilities writeoff amount 13 million relating inventory writeups recorded connection acquisitions acquisitionrelated costs amount 09 recorded connection adoption asc 805 business combinations january 1 2009 46 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 73 million noncash stockbased compensation expense 5 included net loss fourth quarter 2010 goodwill impairment charge amount 10 billion related health management reporting unit business segment 16 million related restructuring charges associated decision close various facilities net recovery 03 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 14 million recorded connection adoption asc 805 business combinations january 1 2009 41 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 07 million fair value writedown recorded connection idle facility 601 million compensation charge associated acquisition minority shares standard diagnostics inc 69 million noncash stockbased compensation expense 6 included net income first quarter 2009 54 million related restructuring charges associated decision close various facilities writeoff amount 47 million acquisitionrelated costs recorded connection adoption asc 805 business combinations january 1 2009 59 million noncash stockbased compensation expense 7 included net loss second quarter 2009 49 million related restructuring charges associated decision close various facilities writeoff amount 17 million acquisitionrelated costs recorded connection adoption asc 805 business combinations january 1 2009 66 million noncash stockbased compensation expense 8 included net income third quarter 2009 62 million related restructuring charges associated decision close various facilities writeoff amount 07 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 51 million recorded connection adoption asc 805 business combinations january 1 2009 34 million gain associated management’s decision dispose diamics inc operations 29 million net realized foreign currency gain associated restricted cash established connection acquisition concateno 19 million compensationrelated charge recorded connection acquisition concateno 03 million loss recorded connection deferred payment portion acon second territory business purchase price consideration paid common stock 78 million noncash stockbased compensation expense 9 included net loss fourth quarter 2009 69 million related restructuring charges associated decision close various facilities writeoff amount 14 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 43 million recorded connection adoption asc 805 business combinations january 1 2009 18 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 32 million fair value writedown recorded connection idle facility expenses 18 million 11 million net tax incurred connection sale vitamins nutritional supplements business 79 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part annual report form 10k pages indicated following table presents selected quarterly financial data quarters years ended december 31 2012 2011 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2o 12 consolidated financial statements included elsewhere annual report form 10k 2 included net loss first quarter 2012 56 million related restructuring charges associated decision close various facilities writeoff amount 47 million relating inventory writeup recorded connection acquisition acquisitionrelated costs amount 15 million recorded accordance asc 805 business combinations 50 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 39 million noncash stockbased compensation expense 3 included net loss second quarter 2012 14 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 38 million recorded accordance asc 805 business combinations 67 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 44 million noncash stockbased compensation expense 4 included net loss third quarter 2012 33 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 08 million recorded accordance asc 805 business combinations 151 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 36 million noncash stockbased compensation expense 5 included net loss fourth quarter 2012 103 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 36 million recorded accordance asc 805 business combinations 102 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 232 million expense associated repurchase substantially 7875 senior notes 10 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 38 million noncash stockbased compensation expense 6 included net income first quarter 2011 64 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 19 million recorded accordance asc 805 business combinations 14 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 58 million noncash stockbased compensation expense 7 first fourth quarters 2011 include income tax benefits 14 million 56 million respectively correct items related periods 2007 2010 believe corrected items material 2011 annual financial statements previously reported quarterly annual financial statements 8 included net loss second quarter 2011 105 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 14 million recorded accordance asc 805 business combinations 72 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 299 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility related interest rate swap agreement 62 million noncash stockbased compensation expense 9 included net income third quarter 2011 34 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 29 million recorded accordance asc 805 business combinations 38 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 181 million unrealized foreign currency loss associated bank account funded acquisition axisshield plc recognition 2889 million gain originally recorded connection formation spd 5050 joint venture pg 06 million fair value writedown recorded connection idle facility 43 million noncash stockbased compensation expense 10 included net loss fourth quarter 2011 goodwill impairment charge amount approximately 3836 million related health information solutions reporting unit business segment 88 million related restructuring charges associated decision close various facilities writeoff amount 60 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 53 million recorded accordance asc 805 business combinations 44 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 54 million realized foreign currency gain associated bank account funded acquisition axisshield plc 05 million gain related previouslyowned shares axisshield plc recorded connection completion acquisition 49 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 151 filed part report pages indicated october 10 2014 completed sale acs january 9 2015 completed sale health management business results acs health management business included income loss discontinued operations net tax periods presented selected quarterly financial data see note 24 accompanying consolidated financial statements information divestitures discontinued operations following table presents selected quarterly financial data quarters years ended december 31 2014 2013 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2o 11 consolidated financial statements included elsewhere report 2 included net loss continuing operations first quarter 2014 44 million restructuring charges 57 million stockbased compensation expense 03 million acquisitionrelated costs 32 million income recorded fair value adjustments acquisitionrelated contingent consideration 30 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications 04 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 3 included net loss continuing operations second quarter 2014 154 million restructuring charges 01 million acquisitionrelated costs 167 million expense recorded fair value adjustments acquisitionrelated contingent consideration 116 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications 06 million loss associated disposition component alere informatics business 06 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations offset reversal 11 million stockbased compensation expense 4 included net loss continuing operations third quarter 2014 173 million restructuring charges 32 million stockbased compensation expense 03 million acquisitionrelated costs 62 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications 07 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 04 million loss sale equity investment vedalab sa offset reversal 55 million expense recorded fair value adjustments acquisitionrelated contingent consideration 5 included net loss continuing operations fourth quarter 2014 608 million amortization 216 million restructuring charges 47 million stockbased compensation expense 02 million acquisitionrelated costs 58 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications 02 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 71 million impairment gain loss dispositions net offset reversal 48 million expense recorded fair value adjustments acquisitionrelated contingent consideration 6 included net income continuing operations first quarter 2013 20 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 09 million 93 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 10 million interest expense recorded connection fees paid certain debt modifications termination former senior secured credit facility 41 million noncash stockbased compensation expense 07 million compensation charges associated acquisitionrelated contingent consideration obligations 05 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 02 million expense associated extinguishment debt 7 included net loss continuing operations second quarter 2013 21 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 04 million 52 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 356 million loss connection repurchase 9 senior subordinated notes 81 million bargain purchase gain associated acquisition liberty business 51 million noncash writeoff investment 08 million interest expense recorded connection fees paid certain debt modifications termination former senior secured credit facility 47 million noncash stockbased compensation expense 05 million compensation charges 02 million related interest accretion associated acquisitionrelated contingent consideration obligations 07 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 8 included net loss continuing operations third quarter 2013 61 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 05 million 18 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 55 million costs associated conduct contested proxy solicitation 59 million loss disposition spinreact operations 04 million interest expense recorded connection fees paid certain debt modifications 57 million noncash stockbased compensation expense 08 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 07 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 9 included net loss continuing operations fourth quarter 2013 amortization 705 million 42 million restructuring charges 67 million stockbased compensation expense 13 million acquisitionrelated costs 61 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications 08 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 06 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 01 million costs associated proxy contest offset 08 million reduction loss disposition spinreact sa subsidiary located spain 16 million income recorded fair value adjustments acquisitionrelated contingent consideration item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 151 filed part annual report form 10k pages indicated october 10 2014 completed sale acs january 9 2015 completed sale health management business results health management business included income loss discontinued operations net tax periods presented selected quarterly financial data except second third fourth quarters 2015 given january 9 2015 divestiture business results acs included income loss discontinued operations net tax quarters 2014 given october 10 2014 divestiture business see note 3 accompanying consolidated financial statements information divestitures discontinued operations connection preparation consolidated financial statements 2015 determined 2013 2014 interim periods 2014 first three quarters fiscal 2015 incorrectly reported revenue periods addition made several outofperiod adjustments related correction specific bonus accrual measurement certain royalty obligation adjustments related accounting income taxes result revising consolidated financial information december 31 2014 fiscal years ended december 31 2014 2013 interim periods 2014 first three quarters fiscal year 2015 revisions also apply 2014 first three quarters 2015 selected consolidated financial information presented reflects revisions evaluated cumulative impact items previouslyissued quarterly annual financial statements concluded revisions material individually aggregate previouslyissued quarterly annual financial statements information revisions see note 2 consolidated financial statements included elsewhere annual report form 10k following schedules reconcile amounts previously reported applicable financial statement corresponding revised amounts following table presents selected quarterly financial data quarters years ended december 31 2015 2014 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 4o 13 consolidated financial statements included elsewhere annual report form 10k 2 included net loss continuing operations first quarter 2015 43 million restructuring charges 37 million costs associated potential business dispositions 348 million impairment gain loss dispositions net offset 118 million net benefit net decrease expense recorded fair value adjustments acquisitionrelated contingent consideration 3 included net income continuing operations second quarter 2015 49 million restructuring charges 55 million impairment gain loss dispositions net 35 million costs related extinguishment debt 102 million financing costs expensed connection debt refinancing offset 411 million net benefit net decrease fair value acquisitionrelated contingent consideration 4 included net loss continuing operations third quarter 2015 23 million restructuring charges 19 million costs associated potential business dispositions 21 million impairment gain loss dispositions net 89 million incremental interest expense amortization deferred financing costs related debt refinancing 5 included net income continuing operations fourth quarter 2015 42 million restructuring charges 28 million costs associated potential business dispositions 82 million impairment gain loss dispositions net 164 million costs related extinguishment debt offset 57 million benefit net decrease fair value acquisitionrelated contingent consideration 6 included net loss continuing operations first quarter 2014 44 million restructuring charges 14 million expense recorded fair value adjustments acquisitionrelated contingent consideration 30 million costs associated potential business dispositions 7 included net loss continuing operations second quarter 2014 154 million restructuring charges 167 million expense recorded fair value adjustments acquisitionrelated contingent consideration 116 million costs associated potential business dispositions 8 included net loss continuing operations third quarter 2014 794 million valuation allowance establishment deferred tax assets associated us foreign tax credit carryforwards 173 million restructuring charges 62 million costs associated potential business disposition offset reversal 55 million expense recorded fair value adjustments acquisitionrelated contingent consideration 9 included net loss continuing operations fourth quarter 2014 608 million amortization 216 million restructuring charges 58 million costs associated potential business dispositions 71 million impairment gain loss dispositions net offset reversal 48 million expense recorded fair value adjustments acquisitionrelated contingent consideration item 9item 8 financial statements supplementary data financial statements supplementary data listed item 15a filed part report pages indicated item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part annual report form 10k pages indicated following table presents selected quarterly financial data quarters years ended december 31 2013 2012 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2o 12 consolidated financial statements included elsewhere annual report form 10k 2 included net income first quarter 2013 39 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 09 million recorded accordance asc 805 business combinations 110 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 10 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 41 million noncash stockbased compensation expense 07 million compensation charges associated acquisitionrelated contingent consideration obligations 05 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 02 million expense associated extinguishment debt 3 included net loss second quarter 2013 81 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 04 million recorded accordance asc 805 business combinations 53 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 356 million loss connection repurchase 9 senior subordinated notes 81 million bargain purchase gain associated acquisition liberty business 51 million noncash writeoff investment 08 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 47 million noncash stockbased compensation expense 05 million compensation charges 02 million related interest accretion associated acquisitionrelated contingent consideration obligations 07 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 4 included net loss third quarter 2013 78 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 05 million recorded accordance asc 805 business combinations 27 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 55 million costs associated conduct contested proxy solicitation 59 million loss disposition spinreact operations 04 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 57 million noncash stockbased compensation expense 08 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 07 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 5 included net loss fourth quarter 2013 78 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 13 million recorded accordance asc 805 business combinations 10 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 61 million costs associated potential business dispositions 04 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 67 million noncash stockbased compensation expense 08 million compensation charges 01 million related interest accretion associated acquisitionrelated contingent consideration obligations 06 million charge associated writeup fair market value inventory acquired connection acquisition epocal inc 01 million costs associated conduct contested proxy solicitation offset 08 million reduction loss disposition spinreact sa subsidiary located spain 6 included net loss first quarter 2012 56 million related restructuring charges associated decision close various facilities writeoff amount 47 million relating inventory writeup recorded connection acquisition acquisitionrelated costs amount 15 million recorded accordance asc 805 business combinations 50 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 39 million noncash stockbased compensation expense 7 included net loss second quarter 2012 14 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 38 million recorded accordance asc 805 business combinations 67 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 44 million noncash stockbased compensation expense 8 included net loss third quarter 2012 33 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 08 million recorded accordance asc 805 business combinations 151 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 36 million noncash stockbased compensation expense 9 included net loss fourth quarter 2012 103 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 36 million recorded accordance asc 805 business combinations 102 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 232 million expense associated repurchase substantially 7875 senior notes 10 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 38 million noncash stockbased compensation expense item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 151 filed part annual report form 10k pages indicated april 12 2017 management audit committee concluded financial statements december 31 2015 2014 years ended december 31 2015 2014 2013 quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 relied upon annual report form 10k restated audited consolidated financial statements december 31 2015 years ended december 31 2015 2014 certain unaudited financial information quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 information included audited financial statements annual report form 10k well table immediately presenting selected financial data quarters years ended december 31 2016 2015 reflects restated results information restatement including adjustments made previously reported financial statements see explanatory note see note 2 “restatement previously reported consolidated financial statements” note 28 “restated quarterly financial information unaudited” consolidated financial statements included elsewhere annual report form 10k january 9 2015 completed sale health management business results health management business included selected quarterly financial data first quarter 2015 results reported income loss discontinued operations net tax see note 4 accompanying consolidated financial statements information divestitures discontinued operations following table presents selected quarterly financial data quarters 2016 2015 thousands except per share data amounts computed independently quarter therefore sum quarterly amounts may equal total amount respective year due rounding 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 5o 14 consolidated financial statements included elsewhere annual report form 10k 2 included net loss continuing operations first quarter 2016 restructuring charges 77 million 08 million costs associated business dispositions 05 million acquisitionrelated costs 01 million expense recorded fair value adjustments acquisitionrelated contingent consideration offset 38 million gain dispositions 3 included net loss continuing operations second quarter 2016 102 million legal settlement accruals associated ongoing office inspector general investigation restructuring charges 88 million 02 million acquisitionrelated costs offset 19 million net benefit net decrease fair value acquisitionrelated contingent consideration 4 included net income continuing operations third quarter 2016 restructuring charges 113 million 105 million additional legal settlement accruals associated ongoing office inspector general investigation 03 million acquisitionrelated costs offset 299 million gain equity earnings unconsolidated entities related sale techlab amount excludes tax effect 112 million combination sale 101 million net benefit net decrease fair value acquisitionrelated contingent consideration 5 included net loss continuing operations fourth quarter 2016 750 million additional valuation allowance due uncertainties related future benefits realization us federal state net deferred tax assets 143 million additional legal settlement accruals associated ongoing office inspector general investigation restructuring charges 101 million offset 14 million net benefit net decrease fair value acquisitionrelated contingent consideration 6 included net loss continuing operations first quarter 2015 348 million impairment gain loss dispositions net 43 million restructuring charges 37 million costs associated potential business dispositions offset 118 million net benefit net decrease fair value adjustments acquisitionrelated contingent consideration 7 included net income continuing operations second quarter 2015 102 million financing costs expensed connection debt refinancing 55 million impairment gain loss dispositions net 49 million restructuring charges 35 million costs related extinguishment debt offset 411 million net benefit net decrease fair value acquisitionrelated contingent consideration 8 included net loss continuing operations third quarter 2015 89 million incremental interest expense amortization deferred financing costs related debt refinancing 23 million restructuring charges 21 million impairment gain loss dispositions net 19 million costs associated potential business dispositions 9 included net loss continuing operations fourth quarter 2015 164 million costs related extinguishment debt 82 million impairment gain loss dispositions net 42 million restructuring charges 28 million costs associated potential business dispositions offset 57 million benefit net decrease fair value acquisitionrelated contingent consideration item 9item 8 financial statements supplementary data financial statements supplementary data listed item 15a filed part report pages indicated item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part report pages indicated discussed page 27 item 6 selected consolidated financial data note 2p consolidated financial statements included elsewhere annual report form 10k previously restated consolidated financial statements year ended december 31 2004 quarters therein quarter ended march 31 2005 correct errors gaap relating recognition revenue determined certain customers one diagnostics divisions provided return exchange rights connection sale certain products reliable estimates return exchange made result revenue associated sales recognized upon shipment customers gaap result recorded 26 million net revenue reversal 21 million gross profit corresponding net loss impact spread quarters 2004 first quarter 2005 following presents selected unaudited quarterly financial data quarters years ended december 31 2005 2004 1net loss income available common stockholders basic diluted net loss income per common share computed consistent annual per share calculations described notes 2k 12 consolidated financial statements included elsewhere annual report form 10k 2included net loss first quarter 2005 charge 16 million associated recall certain drugs abuse products 84 million gain legal settlement nutritionals business 3included net income second quarter 2005 charge 24 million associated reserve excess quantities certain raw materials finished goods charge 35 million associated decision cease operations facility galway ireland charge 42 million related legal settlement pbm 150 million gain related intellectual property settlement quidel relating periods prior 2005 4included net loss third quarter 2005 charge 07 million associated decision cease operations facility galway ireland 5included net loss fourth quarter 2005 charge 09 million principally associated decision cease operations facility galway ireland 6included net loss first quarter 2004 charge 35 million interest expense representing writeoff deferred financing costs prepayment fees penalties related repayment borrowings primary senior credit facility certain subordinated notes proceeds 1500 million bond offering february 2004 7included net loss second quarter 2004 additional charge 03 million interest expense representing writeoff financing costs related repayment borrowings primary senior credit facility proceeds 1500 million bond offering february 2004 establishment specific reserve potential bad debt unsaleable inventory totaling 15 million associated customer failed perform terms agreement currently subject legal action 8included net loss third quarter 2004 17 million restructuring charge covering expected severance early retirement outplacement services arising completed plan termination manufacturing facility bedford england 9included net loss fourth quarter 2004 09 million release preacquisition legal contingency reserve upon reaching signing settlement agreement ii 05 million litigation settlement gain item 9item 8 financial statements supplementary data financial statements supplementary data except selected quarterly financial data summarized listed item 15a filed part annual report form 10k pages indicated january 15 2010 completed sale vitamins nutritional supplements business sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented financial statements supplementary data following table presents selected quarterly financial data quarters years ended december 31 2011 2010 thousands except per share data 1 net income loss available common stockholders basic diluted net income loss per common share computed consistent annual per share calculations described notes 2n 12 consolidated financial statements included elsewhere annual report form 10k 2 included net income first quarter 2011 64 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 19 million recorded accordance asc 805 business combinations 14 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 19 million realized foreign currency loss associated settlement acquisitionrelated contingent consideration obligation 58 million noncash stockbased compensation expense 3 included net loss second quarter 2011 105 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 14 million recorded accordance asc 805 business combinations 72 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 299 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility related interest rate swap agreement 62 million noncash stockbased compensation expense 4 included net income third quarter 2011 34 million related restructuring charges associated decision close various facilities acquisitionrelated costs amount 29 million recorded accordance asc 805 business combinations 38 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 181 million unrealized foreign currency loss associated bank account funded acquisition axisshield plc recognition 2889 million gain originally recorded connection formation spd 5050 joint venture pg 06 million fair value writedown recorded connection idle facility 43 million noncash stockbased compensation expense 5 included net loss fourth quarter 2011 goodwill impairment charge amount approximately 3836 million related health management reporting unit business segment 88 million related restructuring charges associated decision close various facilities writeoff amount 60 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 53 million recorded accordance asc 805 business combinations 44 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 13 million interest expense recorded connection fees paid certain debt modifications termination senior secured credit facility 54 million realized foreign currency gain associated bank account funded acquisition axisshield plc 05 million gain related previouslyowned shares axisshield plc recorded connection completion acquisition 49 million noncash stockbased compensation expense 6 included net income first quarter 2010 80 million related restructuring charges associated decision close various facilities writeoff amount 28 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 40 million recorded accordance asc 805 business combinations 31 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations expenses 03 million 02 million net tax incurred connection sale vitamins nutritional supplements business 76 million noncash stockbased compensation expense 7 included net loss second quarter 2010 71 million related restructuring charges associated decision close various facilities writeoff amount 28 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 20 million recorded accordance asc 805 business combinations 38 million income recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 81 million noncash stockbased compensation expense 8 included net loss third quarter 2010 net recovery 16 million related restructuring charges associated decision close various facilities writeoff amount 13 million relating inventory writeups recorded connection acquisitions acquisitionrelated costs amount 09 million recorded accordance asc 805 business combinations 46 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 73 million noncash stockbased compensation expense 9 included net loss fourth quarter 2010 goodwill impairment charge amount 10 billion related health management reporting unit business segment 16 million related restructuring charges associated decision close various facilities net recovery 03 million relating inventory writeup recorded connection acquisitions acquisitionrelated costs amount 14 million recorded accordance asc 805 business combinations 41 million expense recorded connection fair value adjustments acquisitionrelated contingent consideration obligations accordance asc 805 business combinations 07 million fair value writedown recorded connection idle facility 601 million compensation charge associated acquisition minority shares standard diagnostics 69 million noncash stockbased compensation expense 10 first fourth quarters 2011 include income tax benefits 14 million 56 million respectively correct items related periods 2007 2010 believe corrected items material 2011 annual financial statements previously reported quarterly annual financial statements item 9 nanitem 15 financial statement schedules exhibits a1 financial statements financial statements listed filed part report pages indicated report independent registered public accounting firm consolidated statements operations years ended december 31 2004 2003 restated 2002 restated consolidated balance sheets december 31 2004 2003 restated consolidated statements stockholders equity comprehensive income loss years ended december 31 2004 2003 restated 2002 restated consolidated statements cash flows years ended december 31 2004 2003 restated 2003 restated notes consolidated financial statements 2financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3exhibits 21 sale agreement dated december 20 2001 inverness medical innovations inc company unilever uk holdings limited incorporated reference exhibit 21 companys current report form 8k dated december 20 2001 22 stock purchase agreement dated july 30 2003 among inverness medical innovations inc applied biotech inc erie scientific company incorporated reference exhibit 21 companys current report form 8k dated august 27 2003 23 asset purchase agreement september 30 2003 among abbott laboratories inverness medical innovations inc inverness medical switzerland gmbh morpheus acquisition corp morpheus acquisition llc incorporated reference exhibit 21 companys current report form 8k dated september 30 2003 24 agreement plan merger dated february 8 2005 among inverness medical innovations inc delaware corporation formed whollyowned subsidiary inverness medical innovations inc binax inc roger n piasio myron c hamer roger n piasio stockholder representative incorporated reference exhibit 991 companys current report form 8k dated february 9 2005 25 agreement plan merger dated february 15 2005 among inverness medical innovations inc delaware corporation formed whollyowned subsidiary inverness medical innovations inc ischemia technologies inc incorporated reference exhibit 991 companys current report form 8k dated february 15 2005 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys annual report form 10k amended year ended december 31 2001 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 companys current report form 8k dated december 20 2001 33 amended restated bylaws company incorporated reference exhibit 33 companys annual report form 10k amended year ended december 31 2001 41 specimen certificate shares common stock company incorporated reference exhibit 41 companys registration statement form s4 amended file 33367392 42 indenture dated february 10 2004 inverness medical innovations inc guarantors named therein us bank trust national association incorporated reference exhibit 43 companys annual report form 10k amended year ended december 31 2004 43 registration rights agreement february 10 2004 among inverness medical innovations inc guarantors named therein ubs securities llc merrill lynch pierce fenner smith incorporated reference exhibit 44 companys annual report form 10k amended year ended december 31 2004 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company incorporated reference exhibit 101 companys annual report form 10k amended year ended december 31 2001 102 tax allocation agreement dated november 21 2001 among johnson imt company incorporated reference exhibit 102 companys annual report form 10k amended year ended december 31 2001 103 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 104 lease dated january 12 1999 among cambridge diagnostics ireland limited industrial development agency ireland incorporated reference exhibit 104 companys registration statement form s4 amended file 33367392 105 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 companys registration statement form s4 amended file 33367392 106 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 companys registration statement form s4 amended file 33367392 107 inverness medical innovations inc 2001 employee stock purchase plan first amendment incorporated reference exhibit 109 companys annual report form 10k amended year ended december 31 2001 108 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger incorporated reference exhibit 1011 companys annual report form 10k amended year ended december 31 2001 109 promissory note dated august 16 2001 ron zwanziger company incorporated reference exhibit 1012 companys annual report form 10k amended year ended december 31 2001 1010 pledge agreement dated august 16 2001 ron zwanziger company incorporated reference exhibit 1013 companys annual report form 10k amended year ended december 31 2001 1011 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 1012 promissory note dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1015 companys annual report form 10k amended year ended december 31 2001 1013 pledge agreement dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1016 companys annual report form 10k amended year ended december 31 2001 1014 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott incorporated reference exhibit 1017 companys annual report form 10k amended year ended december 31 2001 1015 promissory note dated december 4 2001 david scott company incorporated reference exhibit 1018 companys annual report form 10k amended year ended december 31 2001 1016 pledge agreement dated december 4 2001 david scott company incorporated reference exhibit 1019 companys annual report form 10k amended year ended december 31 2001 1017 note warrant purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 993 companys current report form 8k dated december 20 2001 1018 form subordinated promissory note issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 994 companys current report form 8k dated december 20 2001 1019 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 companys current report form 8k dated december 20 2001 1020 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc incorporated reference exhibit 1028 companys annual report form 10k amended year ended december 31 2001 1021 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp incorporated reference exhibit 1033 companys annual report form 10k amended year ended december 31 2001 1022 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation incorporated reference exhibit 1034 companys annual report form 10k amended year ended december 31 2001 1023 inverness medical innovations inc executive bonus plan incorporated reference exhibit 106 companys registration statement form s4 amended file 33367392 1024 licensing agreement dated march 14 1988 unilever plc behringwerke ag incorporated reference exhibit 1037 companys annual report form 10k amended period ended december 31 2001 1025 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag incorporated reference exhibit 1038 companys annual report form 10k amended period ended december 31 2001 1026 supply goods agreement dated december 19 1994 afc worldwide unipath limited incorporated reference exhibit 101 companys quarterly report form 10q amended period ended march 30 2002 1027 amendment supply goods agreement dated march 14 2002 schleicher schuell gmbh unipath limited incorporated reference exhibit 102 companys quarterly report form 10q amended period ended march 30 2002 1028 amendment 1 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 44 companys registration statement form s8 file 33390530 1029 subordinated note warrant purchase agreement dated september 20 2002 company investors named therein note warrant purchase agreement incorporated reference exhibit 991 companys current report form 8k dated september 20 2002 1030 form subordinated promissory note issued pursuant note warrant purchase agreement incorporated reference exhibit 992 companys current report form 8k dated september 20 2002 1031 form warrant agreement issued pursuant note warrant purchase agreement incorporated reference exhibit 993 companys current report form 8k dated september 20 2002 1032 subordinated note purchase agreement dated september 20 2002 company investors named therein note purchase agreement incorporated reference exhibit 994 companys current report form 8k dated september 20 2002 1033 form subordinated promissory note issued pursuant note purchase agreement incorporated reference exhibit 995 companys current report form 8k dated september 20 2002 1034 second amended restated credit agreement dated september 30 2003 among inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited credit parties signatory thereto lenders signatory thereto time general electric capital corporation administrative agent lenders merrill lynch capital division merrill lynch business financial services inc cosyndication agent ubs ag stamford branch cosyndication agent gecc capital markets group inc ml capital colead arrangers incorporated reference exhibit 101 companys quarterly report form 10q dated november 14 2003 1034 first amendment consent second amended restated credit agreement dated november 17 2003 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 1041 companys annual report form 10k amended year ended december 31 2004 1036 second amendment second amended restated credit agreement dated december 31 2003 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 1042 companys annual report form 10k amended year ended december 31 2004 1037 third amendment consent second amended restated credit agreement consent intercreditor agreement dated january 20 2004 among inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto lenders signatory thereto time general electric capital corporation administrative agent lender merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent incorporated reference exhibit 101 companys quarterly report form 10q amended period ended march 31 2004 1038 fourth amendment second amended restated credit agreement amendment loan documents dated february 5 2004 among inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto lenders signatory thereto time general electric capital corporation administrative agent lenders merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent incorporated reference exhibit 102 companys quarterly report form 10q amended period ended march 31 2004 1039 fifth amendment consent second amended restated credit agreement amendment postclosing letter dated april 28 2004 among inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto lenders signatory thereto time general electric capital corporation administrative agent lenders merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent incorporated reference exhibit 103 companys quarterly report form 10q amended period ended march 31 2004 1040 sixth amendment consent second amended restated credit agreement dated june 1 2004 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time incorporated reference exhibit 101 companys quarterly report form 10q amended period ended june 30 2004 1041 seventh amendment consent second amended restated credit agreement dated july 27 2004 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time incorporated reference exhibit 102 companys quarterly report form 10q amended period ended june 30 2004 1042 eighth amendment consent second amended restated credit agreement dated december 20 2004 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time 1043 ninth amendment consent waiver second amended restated credit agreement dated january 19 2005 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time 1044 tenth amendment consent second amended restated credit agreement dated january 31 2005 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time 1045 eleventh amendment consent second amended restated credit agreement dated february 23 2005 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lender lenders signatory thereto time 1046 commercial lease dated august 1 1998 chang family trust applied biotech inc incorporated reference exhibit 1043 companys annual report form 10k amended year ended december 31 2004 1047 amendment commercial lease dated april 2003 chang family trust applied biotech inc incorporated reference exhibit 1044 companys annual report form 10k amended year ended december 31 2004 1048 manufacturing packaging supply agreement dated june 6 2003 among inverness medical innovations inc inverness medical switzerland gmbh unipath ltd warnerlambert company llc incorporated reference exhibit 1045 amendment 2 companys annual report form 10k year ended december 31 2004 1049 first amendment subordinated promissory notes dated november 14 2003 incorporated reference exhibit 1046 companys annual report form 10k amended year ended december 31 2004 1450 inverness medical innovations business conduct guidelines incorporated reference exhibit 141 companys annual report form 10k amended year ended december 31 2004 211 list subsidiaries company march 15 2005 231 consent bdo seidman llp 311 certification chief executive officer pursuant section 302 sarbanesoxley act 312 certification chief financial officer pursuant section 302 sarbanesoxley act 321 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act filed herewith omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date march 16 2005 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date ron zwanziger ron zwanziger chief executive officer president director principal executive officer march 16 2005 christopher j lindop christopher j lindop chief financial officer principal financial officer principal accounting officer march 16 2005 ernest carabillo jr ernest carabillo jr director march 16 2005 carol r goldberg carol r goldberg director march 16 2005 robert p khederian robert p khederian director march 16 2005 john f levy john f levy director march 16 2005 jerry mcaleer jerry mcaleer director march 16 2005 john quelch john quelch director march 16 2005 david scott david scott director march 16 2005 peter townsend peter townsend director march 16 2005 alfred zeien alfred zeien director march 16 2005 inverness medical innovations inc subsidiaries consolidated financial statements page report independent registered public accounting firm consolidated statements operations years ended december 31 2004 2003 restated 2002 restated consolidated balance sheets december 31 2004 2003 restated consolidated statements stockholders equity comprehensive income loss years ended december 31 2004 2003 restated 2002 restated consolidated statements cash flows years ended december 31 2004 2003 restated 2002 restated notes consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc subsidiaries audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries company december 31 2004 2003 related consolidated statements operations stockholders equity comprehensive income loss cash flows three years period ended december 31 2004 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2004 2003 consolidated results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america discussed note 2q consolidated financial statements company restated financial statements years ended december 31 2003 2002 reverse foreign currency gain recorded 2002 record certain deferred tax liabilities associated temporary differences related differing book tax bases goodwill intangible assets 2002 2003 record adjustments related sales incentive allowances 2003 revise purchase price allocation connection acquisition rapid diagnostics business abbott laboratories 2003 2002 company adopted accounting required pursuant statement financial accounting standards sfas 142 goodwill intangible assets 2001 consolidated financial statements adjusted disclose effect adjusting statement operations exclude goodwill amortization 2001 required sfas 142 also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 14 2005 expressed unqualified opinion managements assessment effectiveness internal control financial reporting adverse opinion effectiveness internal control financial reporting existence material weakness bdo seidman llp boston massachusetts march 14 2005 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts 1stockbased compensation expense statement operations classifications follows accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation inverness medical innovations inc subsidiaries develop manufacture market vitro diagnostic products overthecounter pregnancy fertilityovulation test market professional rapid diagnostic test market worldwide addition manufacture variety vitamins nutritional supplements market brands private label retailers consumer market primarily united states business organized three primary operating segments consumer diagnostic products ii vitamins nutritional supplements iii professional diagnostic products consumer diagnostic products segment includes overthecounter pregnancy fertilityovulation tests vitamins nutritional supplements segment includes branded private label vitamins nutritional supplements sold overthecounter professional diagnostic products segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectious diseases drugs abuse pregnancy company incorporated may 11 2001 whollyowned subsidiary inverness medical technology inc imt november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 merger agreement johnson acquired imt merger transaction simultaneously company subsidiary imt splitoff imt separate publicly traded company pursuant terms merger agreement related agreements immediately prior consummation transaction imt restructured operations nondiabetes businesses womens health nutritional supplements professional diagnostics held company subsidiaries closing transaction shares common stock held imt splitoff imt since consummation splitoff merger described completed number acquisitions 2004 acquired advantage diagnostics corporation adc june 16 2004 viva diagnostika viva june 2 2004 note 4a adc closely held lateral flow diagnostic company specializes rapid test development component manufacturing viva closely held distributor professional diagnostic products german marketplace 2003 acquired rapid diagnostics business abbott laboratories abbott september 30 2003 abbott business applied biotech inc subsidiary abi apogent technologies inc august 27 2003 ostex international inc ostex june 30 2003 note 4 business acquired abbott relate consumer diagnostic pregnancy tests various professional rapid diagnostic product lines well certain transferred licensed intellectual property related products abi developer manufacturer distributor consumer diagnostic professional diagnostic products areas womens health infectious disease drugs abuse testing ostex develops commercializes osteoporosis diagnostics products holds intellectual property rights field osteoporosis diagnostics addition acquired small research development facility scandinavian micro biodevices smb november 18 2003 acquisitions occurred 2002 2001 include acquisition wampole division medpointe inc wampole september 20 2002 ivc industries inc dba inverness medical nutritionals group imn march 19 2002 certain entities businesses intellectual property unilver plc unipath business december 20 2001 wampole markets distributes pointofcare professional medical diagnostic products imn manufactures distributes vitamins nutritional supplements unipath business develops manufactures distributes womens health professional diagnostics products consolidated financial statements include accounts entities contributed us imt subsequently acquired entities businesses since respective acquisition dates along assets liabilities revenues expenses businesses intercompany accounts transactions eliminated equity accounts periods presented reflect par value stock date incorporation adjusted fixed exchange ratio set forth merger agreement related agreements related stock split historical equity accounts legal entities comprise company consolidated subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates b foreign currencies follow provisions statement financial accounting standards sfas 52 foreign currency translation general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders equity note 13 income expense accounts foreign subsidiaries translated using average rates exchange reporting period net realized unrealized foreign currency exchange transaction loss 07 million gain 5000 loss 16 million 2004 2003 2002 respectively included component income net accompanying consolidated statements operations c cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2004 2003 inventories stated lower cost firstin firstout market made raw material work process finished goods costs elements work process finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory e property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 310 years buildings 2039 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 35 years furniture fixtures 310 years land depreciated depreciation amortization expense related property plant equipment amounted 131 million 101 million 64 million 2004 2003 2002 respectively expenditures repairs maintenance expensed incurred f goodwill intangible assets following summary goodwill intangible assets december 31 2004 following summary goodwill intangible assets december 31 2003 amortize intangible assets finite lives using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate circumstances approximates pattern economic benefits consumed amortization expense intangible assets aggregate amounted 104 million 63 million 39 million 2004 2003 2002 respectively included cost sales research development sales marketing accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2004 january 1 2002 adopted sfas 142 goodwill intangible asset accordingly longer amortize goodwill intangible assets indefinite lives acquired prior june 30 2001 note 5 goodwill acquired subsequent june 30 2001 provisions sfas 142 effective immediately also sfas 142 perform annual impairment tests carrying value goodwill reporting unit 2002 recorded goodwill impairment charge 121 million result appraisal nutritional supplement segment note 5 annual impairment review september 30 2004 indicate goodwill related consumer diagnostic products vitamins nutritional supplements professional diagnostic products business segments impaired values assigned trade names acquired part abbott business wampole acquisitions notes 4b e trademarks acquired part unipath business acquisition assigned indefinite lives therefore accordance sfas 142 amortized allocate goodwill segment based relative percentage estimated future revenues generated respective segment acquisition date goodwill amounts allocated consumer diagnostic products professional diagnostic products business segments summarized follows generally expense costs incurred internally develop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks amounts capitalized connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon successful registration patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred g impairment longlived tangible intangible assets january 1 2002 adopted sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets examine periodic basis carrying value longlived tangible intangible assets determine whether impairment losses indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets carrying amount impairment loss would charged expense period impairment identified based fair value asset accordingly recorded impairment charge 127 million 2002 related trademarks brand names nutritional supplements business note 5 believe remaining carrying values longlived tangible intangible assets realizable december 31 2004 h income taxes follow provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss carryforwards extent realization benefits likely extent likely realize benefits must establish valuation allowance related deferred tax assets note 14 revenue recognition majority revenues derived product sales recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances connection acquisition abbott business september 2003 note 4 b entered transition services agreement abbott whereby abbott would continue distribute acquired products sold testpack brand period 18 months transition period recognize revenue sales testpack products title transfers abbott thirdparty customers lesser extent also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees calculated based licensees sales generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned j employee stockbased compensation arrangements adopted employee stock option plan 2001 note 12c periods presented accompanying consolidated financial statements accounted employee stockbased compensation arrangements using intrinsic value method provisions accounting principles board apb opinion 25 accounting stock issued employees related interpretations elected use disclosureonly provisions sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure compensation expense stock option grants employees determined based fair value method grant date awards stock option plans consistent method prescribed sfas 123 net loss income would increased decreased pro forma amounts indicated follows astockbased employee compensation expense reported represents amortization deferred compensation certain stock options restricted stock granted employees fair market value options granted lieu cash compensation computed pro forma disclosures stock options granted employees january 1 1995 using blackscholes option pricing model prescribed sfas 123 assumptions used three years ended december 31 2004 follows weighted average fair value blackscholes option pricing model options granted employees 2004 2003 2002 986 934 919 respectively options granted periods granted fair market value date grants required adopt sfas 123 revised 2004 sharebased payment sfas 123r interim period beginning june 15 2005 based current outstanding unvested number stock options expect record compensation charge 27 million second half 2005 k net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 11 l operating expenses expense advertising costs incurred 2004 2003 2002 advertising costs amounted 199 million 186 million 143 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost sales accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses individual customer accounts receivable balances outstanding december 31 2004 2003 excess 10 gross accounts receivable balance dates 2004 2003 one customer represented 11 net revenues years purchases consumer diagnostic products vitamins nutritional supplements customers 2002 represented 10 net revenues rely number third parties manufacture certain products third party manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results february 2002 entered interest rate swap agreement intended protect us interest rate fluctuations related portion senior longterm debt interest rate swap agreement expired december 30 2004 significant offbalancesheet arrangements concentration credit risks foreign exchange contracts option contracts foreign hedging arrangements december 31 2004 2003 see note 15 financial information geographic area business segment n financial instruments fair value financial instruments primary financial instruments december 31 2004 2003 consisted cash equivalents accounts receivable accounts payable debt estimated fair value financial instruments approximates carrying values december 31 2004 2003 estimated fair values determined information obtained market sources additionally subsidiary england enters shortterm foreign currency exchange forward contracts time minimize exposure foreign currency exchange fluctuations substantial portion business transacted currencies functional currency december 31 2004 2003 foreign currency exchange forward contracts outstanding account derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities recent accounting pronouncements november 2004 financial accounting standards board fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 clarifies abnormal amounts idle facility expense freight handling costs wasted materials recognized current period charges circumstances required adopt sfas 151 january 1 2006 expect adoption sfas 151 material impact consolidated financial statements december 2004 fasb issued sfas 123r addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments eliminates ability account sharebased compensation transactions using apb opinion 25 generally requires transactions accounted using fairvaluebased method permitted current sfas 123 accounting stockbased compensation accounting sharebased compensation employees using apb opinion 25s intrinsic value method generally recognize compensation cost employee stock options required adopt sfas 123r interim period beginning june 15 2005 based current outstanding unvested number stock options expect record compensation charge 27 million second half 2005 adoption statement impact cash flows december 2004 fasb issued fasb staff position fsp 1091 application fasb statement 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 states impact tax deduction qualified production activities provided american jobs creation act 2004 act accounted special deduction rather rate reduction fsp 1091 effective immediately impact 2004 consolidated financial statements december 2004 fasb issued fsp 1092 accounting disclosure guidance foreign earnings repatriation provision within american jobs creation act 2004 fsp 1092 grants waiver sfas 109 requirement account impacts new legislation period enactment fsp 1092 effective immediately impact 2004 consolidated financial statements december 2004 fasb issued sfas 153 exchange nonmonetary assets amendment apb opinion 29 accounting nonmonetary transactions sfas 153 based principle exchange nonmonetary assets measured based fair market value assets exchanged sfas 153 eliminates exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance sfas 153 effective nonmonetary asset exchanges fiscal periods beginning june 15 2005 currently evaluating provisions sfas 153 believe adoption sfas 153 material impact consolidated financial statements p reclassifications certain prioryear account balances reclassified consistent current years presentation q restatements 2003 2002 financial statements restated originally issued consolidated financial statements year ended december 31 2002 reverse realized foreign exchange gain 26 million related repayment portion longterm intercompany loan originally reported income net instead reflect change value intercompany loan prior repayment component accumulated comprehensive income connection restatement also restated originally issued consolidated financial statements quarterly impacts certain adjustments related sales cutoff sales incentive allowances effects operating results originally corrected periods identified rather periods related immaterial financial statements periods restatements related foreign exchange gain sales cutoff sales incentive allowances reported consolidated financial statements included 2003 annual report form 10k amendment 1 filed securities exchange commission sec april 22 2004 reflected amounts restated april 19 2004 restated previously issued consolidated financial statements years ended december 31 2003 2002 correct error calculation provisions income taxes related deferred tax accounts reported gross certain deferred tax liabilities associated temporary differences related differing tax book bases goodwill intangible assets result recorded additional valuation allowance deferred tax assets associated certain net operating loss carry forwards correction error resulted incremental noncash provisions income taxes amount 19 million 08 million 2003 2002 respectively addition revised purchase price allocation connection acquisition abbott business september 30 2003 attribute 57 million customer related intangible assets acquired acquisition also recorded commenced amortize date acquisition 113 million assets acquired abbott amortization portion amounted approximately 51000 per quarter originally recognized amortization beginning quarterly report form 10q period ended september 30 2004 goodwill generated connection acquisition abbott business reduced amounts note 4b impact revision purchase price allocation increase amortization expense 09 million 2003 restatements result error calculation provision income taxes related deferred tax accounts revision purchase price allocation connection acquisition abbott business resultant incremental amortization reported consolidated financial statements included 2003 annual report form 10k amendment 3 filed sec february 11 2005 reflected amounts restated february 10 2005 following lists accounts consolidated financial statements affected aforementioned restatements comparisons restated amounts originally reported amounts effect restatements income loss cumulative effect change accounting principle net income loss income loss per share applicable amounts relating aforementioned restatements reflected consolidated financial statements notes hereto amount balance restated date amount balance restated date amount balance restated date 3 balance sheet information components selected captions consolidated balance sheets consist 4 business combinations acquisitions discussed exception imn acquisition note 4 f resulted recognition goodwill acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses discussed excess fair value net assets acquired resultant goodwill various acquisitions december 10 2004 subsidiary inverness medical switzerland gmbh ims settled patent infringement lawsuit germany biomar diagnostic systems gmbh biomar principal stockholder alleged biomars rapid diagnostic tests infringed several patents advance court decision biomar agreed settle litigation terms agreement biomar agreed transfer rapid diagnostic business us including use biomar tradename exchange release past infringement claims accounted settlement accordance emerging issues task force eitf issue 0401 accounting preexisting relationships parties business combination recorded fair values assets acquired aggregating 05 million gain income net accompanying statement operations 2004 june 16 2004 acquired adc closely held lateral flow diagnostic company specializes rapid test development component manufacturing purchase price adc consisted 24 million cash 02 million assumed debt terms merger agreement also provide 15 million contingent consideration payable adc shareholders upon successful completion new product development december 31 2005 payment contingent consideration recorded addition purchase price believe acquisition adc addition adcs chief scientist existing staff deepen scientific research management expand intellectual property capabilities june 2 2004 acquired viva closely held distributor professional diagnostic products german marketplace purchase price viva consisted 26 million cash 02 million shares common stock aggregate fair value 30 million 03 million assumed debt believe viva established german distribution network provide us expanded distribution channel professional diagnostic products well cardiac products development financial results adc viva included professional diagnostic products reporting unit november 18 2003 acquired smb developer manufacturer customized standard devices analysis biomolecules purchase price smb consisted 30 million cash 01 million shares common stock aggregate fair value 25 million 01 million assumed debt simultaneously acquisition acquired technology license smbs former parent 02 million acquisition smb provided us access smbs intellectual property research development capabilities financial results smb included cardiology reporting unit included corporate category purpose segment reporting note 15 b acquisition abbott business september 30 2003 acquired abbott certain assets related abbotts lines consumer diagnostic pregnancy tests professional rapid diagnostics various testing needs including strep throat pregnancy drugs abuse note 1 acquired assets also include certain transferred licensed intellectual property related products acquisition complements consumer professional diagnostic product portfolios well helps establish larger global presence facilitate introduction new products aggregate purchase price 951 million consisted 550 million cash 375 million form 16 million shares common stock direct acquisition costs 26 million financed cash portion purchase price obtaining loans amended senior credit facility note 6a aggregate purchase price allocated assets acquired follows acquisition abbott business accounted purchase sfas 141 business combinations accordingly operating results abbott business included consolidated statements operations acquisition date part consumer diagnostic products professional diagnostic products reporting units acquired goodwill deductible tax purposes period 15 years allocated business segment based estimated future revenue acquired assets follows 188 million consumer diagnostic products 507 million professional diagnostic products believe signify testpack trade names represent indefinitelived intangible assets estimate useful life fact plus trade name 5 years signify testpack trade names fact plus trade name included accompanying consolidated balance sheets trademark trade names indefinite lives intangible assets net respectively patents values included core technology patents net accompanying consolidated balance sheets assigned useful lives ranging 1 18 years customer related intangible assets values included intangible assets net accompanying consolidated balance sheets assigned useful lives ranging 15 5 years weighted average amortization period acquired intangible assets finite lives approximately 5 years terms acquisition agreements abbott provide transitional services eighteen months several acquired products two years others transitional services primarily include distributing acquired products also include limited manufacturing acquisition resulted significant amount goodwill represents premium paid excess value allocated identifiable assets goodwill arose result acquired going concern value access employees via acquisition agreements synergies unique way acquisition abbott business structured access factors required maintaining continuity business achieved contractual arrangements terms two years facilitate rapid integration abbott business infrastructure minimal restructuring exit costs required reason vast majority goodwill associated acquisition attributable synergies arising application existing infrastructure acknowledged brands acquired business acquisition also attractive similarity mode operation abbott products existing products ultimately agreeing pay purchase price investment rationale focused specifically significant operating marketing synergies believed would result significant cost savings therefore increased profits combined basis ii strategic revenue market growth objectives expected operating synergies would achieved taking production fact plus volume currently manufacture production signify testpack products third party manufacturers including abbott believed benefits would arise efficiencies related increased volume redesign products onto technology platform expected marketing synergies would arise leveraged existing sales staff adding fact plus existing consumer diagnostics distribution capability significant strategic benefits exist product breadth offer international professional market combined strength testpack clearview product lines product breadth allow us develop strong cost efficient worldwide distribution network professional products later leverage support anticipated new product introductions strong brand equity present abbott business also adds significantly position leading provider rapid point care diagnostic tests worldwide basis c acquisition abi august 27 2003 acquired abi apogent technologies inc apogent note 1 abi developer manufacturer distributor rapid diagnostic products areas womens health infectious disease drugs abuse testing transaction also acquired abis whollyowned subsidiary forefront diagnostics inc forefront develops manufactures distributes rapid diagnostic products drugs abuse testing products broaden professional diagnostic product portfolio abi also provides us additional manufacturing capabilities new distribution channels professional diagnostic products aggregate purchase price abi 288 million consisted 134 million cash 07 million shares common stock aggregate fair value 143 million direct acquisition costs 12 million fair value common stock determined based average market price common stock periods prior following date merger agreement pursuant eitf issue 9912 determination measurement date market price acquirer securities issued purchase business combination financed cash portion purchase price obtaining loan amended senior credit facility note 6a following table summarizes fair value assets acquired liabilities assumed date acquisition abi accounted purchase sfas 141 accordingly operating results abi included accompanying consolidated financial statements since acquisition date part consumer diagnostic products professional diagnostic products reporting units allocated goodwill 22 million 91 million consumer diagnostic products professional diagnostic products business segments respectively based estimated future revenue acquired businesses goodwill generated acquisition deductible tax purposes estimate useful lives intangible assets 15 years included intangible assets net accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 15 years acquisition ostex june 30 2003 acquired ostex merger transaction note 1 ostex develops commercializes osteoporosis diagnostic products acquisition also provides us intellectual property rights field osteoporosis diagnostics aggregate purchase price ostex 337 million consisted 16 million shares common stock aggregate fair value 235 million assumption fullyvested stock options warrants purchase aggregate 03 million shares common stock options warrants aggregate fair value 18 million estimated exit costs 39 million primarily consists severance costs vacate ostexs manufacturing administrative facilities note 18b accordance eitf issue 953 recognition liabilities connection purchase business combination direct acquisition costs 16 million 29 million assumed debt fair value common stock issued acquire ostexs outstanding common stock determined based average market price common stock periods prior following date merger agreement amended pursuant eitf issue 9912 fair value assumed fullyvested stock options warrants calculated using blackscholes option pricing model following table summarizes fair value assets acquired liabilities assumed date acquisition ostex accounted purchase sfas 141 accordingly results ostex included accompanying consolidated financial statements since acquisition date part professional diagnostic products reporting unit business segment goodwill generated acquisition deductible tax purposes estimated useful lives core technology customer related intangible asset 15 years included core technology patents net intangible assets net respectively accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 15 years e acquisition wampole september 20 2002 acquired wampole distributor professional diagnostic pointofcare medical diagnostic products primarily united states note 1 acquisition allows us expand business pointofcare market united states provides us certain intellectual property aggregate purchase price wampole 721 million consisted 705 million cash 16 million direct acquisition costs acquisition funded issuance 350 million subordinated debt notes 6c portion existing cash time acquisition aggregate purchase price wampole allocated acquired assets assumed liabilities follows acquisition wampole accounted purchase sfas 141 accordingly results wampole included accompanying consolidated financial statements since acquisition date part professional diagnostic products reporting unit business segment assigned indefinite lives acquired goodwill trade name value goodwill fully deductible tax purposes 15 years values allocated acquired patents supplier relationships amortized straightline basis estimated useful lives 13 10 years respectively weighted average amortization period acquired intangible assets finite lives 108 years trade name patents supplier relationships allocated respectively intangible assets indefinite lives core technology patents net intangible assets net accompanying consolidated balance sheets f acquisition imn march 19 2002 acquired ivc dba imn manufacturer distributor vitamins nutritional supplements primarily united states note 1 addition imn consolidated certain vitamin nutritional supplement manufacturing imn discontinued outsourced manufacturing arrangements aggregate purchase price imn 273 million consisted 56 million cash representing 250 outstanding share imns common stock fullyvested stock options purchase aggregate 01 million shares common stock options aggregate fair value 13 million calculated using blackscholes option pricing model 16 million costs exit certain activities imn primarily severance costs involuntarily terminated employees accordance eitf issue 953 note 18b 174 million assumed debt 14 million direct acquisition costs acquisition funded existing cash aggregate purchase price imn allocated acquired assets assumed liabilities follows acquisition imn accounted purchase sfas 141 accordingly results imn included accompanying consolidated financial statements since acquisition date acquired assets assumed liabilities imn assigned vitamins nutritional supplements business reporting unit business segment g recent pending acquisitions january 24 2005 completed acquisition consumer pregnancy test business advanced clinical systems pty ltd acs 46 million acquiring acs obtained rights crystal clear brand crystal clear leading consumer pregnancy test australia leading position new zealand february 8 2005 entered definitive merger agreement binax inc binax whereby would acquire 100 binaxs outstanding common stock binax engaged primarily business developing manufacturing marketing selling rapid diagnostic tests detection infectious diseases tests enable pathogenspecific identification aid doctors treatment decisions pointofcare addition binax expected continuation strategic efforts focused expanding proprietary technology base product offerings expect benefit binaxs established reputation respiratory diagnostics potential new product development opportunities merger consideration consist 14 million shares common stock ii 86 million cash less amount expenses incurred binax connection merger transaction exceed 02 million iii contingent cash consideration 110 million become payable upon commercialization five years following merger certain products february 16 2005 entered definitive agreement acquire ischemia technologies inc ischemia purchase price include approximately 224 million common stock subject adjustment certain allocated expenses liabilities assumed liabilities using patented intellectual property rights ischemia developed manufactures markets fdacleared vitro diagnostic test specifically targeted cardiac ischemia known ischemia modified albumin ima used conjunction established ecg troponin tests emergency physicians quickly rule three five times patients whose chest pain symptoms derive noncardiac conditions expect acquisition ischemia fit strategy bringing market unique cardiac markers delivery platforms capability substantially change diagnosis cardiovascular disease h pro forma financial information following table presents selected unaudited financial information company including abbott business abi ostex smb adc viva acquisitions entities occurred january 1 2003 pro forma results exclude adjustments business acquired biomar materially affect results operations pro forma results derived historical financial results acquired businesses periods presented particular historical financial results acquired abbott business included net sales expenses acquired product lines expenses include direct costs sales expenses direct promotion advertising marketing expenses attributable product lines allocation indirect selling general administrative expenses based historical relationship sales product lines sales similar abbott products pro forma adjustments related acquired abbott business include among others following ian adjustment difference net product sales recorded historical results abbott business contractually agreed upon amounts pursuant distribution agreement entered part acquisition iian adjustment costs sales difference cost sales recorded historical results abbott business contractually agreed upon cost certain products pursuant supply agreement entered part acquisition certain common abbott expenses allocated historical financial results business acquired based management estimates product lines standalone business pro forma adjustments made historical sales cost sales abbott business acquired based agreed upon amounts according transition services agreements entered acquisition pro forma results necessarily indicative results would occurred acquisition abbott business acquisitions listed consummated january 1 2003 future results 1income per share amounts computed described note 11 5 goodwill intangible assets january 1 2002 adopted sfas 142 addresses changes financial accounting reporting acquired goodwill intangible assets indefinite lives prior adoption sfas 142 goodwill amortized estimated useful life sfas 142 longer amortize goodwill sfas 142 also provides specific guidance determining measuring impairment goodwill based upon results impairment review required sfas 142 recorded impairment charge 121 million january 1 2002 representing remaining goodwill related reporting unit comprises nutritional supplement lines acquired 1997 amount represented excess carrying value fair value asset fair value determined using combination income approach market approach valuing business income approach valued business discounting projected future cash flows market approach valued security underlying business comparing similar businesses significant facts circumstances led conclusion impairment future cash flows nutritional supplement lines expected reduced b selling general administrative expenses relating nutritional supplement lines forecasted increase percentage sales c nutritional supplements business experiencing larger percentage decline revenues comparable businesses companies impairment charge recorded first quarter 2002 classified accordance sfas 142 cumulative effect change accounting principle accompanying statement operations 2002 review fair value reporting unit underlying nutritional supplements business indicated goodwill impairment reporting unit discussed proceeded also perform impairment review carrying value assigned related trademarks brand names accordance sfas 144 results impairment review sfas 144 indicated impairment carrying value trademarks brand names full carrying amount intangible assets expected recoverable exceeded fair value fair value trademarks brand names first calculated discounting projected cash flows cost capital reporting unit comprises nutritional supplement lines value indicated approach 53 million analysis also indicated carrying value recoverable trademarks brand names valued using relief royalty approach values intangible assets licensed third party value indicated net present value cash flows equivalent 85 royalty projected product sales 2002 however brands experiencing declining revenues forecasts declining operating margins concerns lower royalty rate 5 used indicated value 32 million used average fair values determined two approaches approximately 42 million carrying value trademarks trade names january 1 2002 resulted impairment charge 127 million first quarter 2002 impairment charge included operating expenses accompanying statement operations 2002 remaining carrying value intangible assets 36 million december 31 2004 amortized remaining useful life intangible asset 17 years 6 longterm debt following longterm debt balances outstanding following describes listed debt instruments senior credit facilities november 14 2002 certain subsidiaries entered senior credit agreement group banks credit facilities aggregate amount 550 million 441 million used prepay outstanding principal balances accrued unpaid interest term loans line credit series former credit agreements note 6g 2003 finance cash portions acquisitions abi abbott business notes 4b c amended senior credit agreement whereby borrowing capacity credit facilities increased 1350 million amended senior credit facilities 1350 million borrowings consisted two us term loans term loan 351 million term loan b 400 million european term loan 99 million us revolving line credit 250 million european revolving line credit 250 million february 10 2004 outstanding borrowings accrued unpaid interest amended senior credit agreement aggregating 1250 million prepaid proceeds sale 1500 million 875 senior subordinated notes bonds bond issuance note 6b retained 500 million availability revolving lines credit subject continued covenant compliance may repay future borrowings revolving lines credit time later march 31 2008 required make mandatory prepayments senior credit facilities met certain cash flow thresholds issue equity securities subordinated debt sell assets ordinary course business december 31 2004 aggregate borrowings amounted 201 million revolving lines credit aggregate unused portion revolving lines credit totaled 299 million december 31 2004 treated prepayment outstanding borrowings senior credit facilities using proceeds bond offering refinancing accordance sfas 6 classification shortterm obligations expected refinanced therefore outstanding principal balances senior credit facilities originally due repaid within one year reclassified current longterm liabilities accompanying consolidated balance sheet december 31 2003 borrowings revolving lines credit bear interest either london interbank offered rate libor defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance commencing quarter ending march 31 2004 december 31 2004 interest rate revolving lines credit including applicable margin 615 recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 20 million 46 million 05 million 2004 2003 2002 respectively february 10 2004 connection prepayment outstanding balances senior credit agreement also recorded additional interest expense 36 million relating writeoff remaining related unamortized deferred financing costs 31 million financing fee 05 million paid banks borrowings senior credit facilities secured stock certain us european subsidiaries substantially intellectual property rights assets business us europe excluding assets orgenics ltd israeli subsidiary inverness medical shanghai co ltd subsidiary china inverness medical australia pty ltd australian subsidiary unipath scandinavia ab swedish subsidiary stock orgenics ltd certain smaller subsidiaries senior credit agreement amended must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends december 31 2004 compliance covenants b senior subordinated notes 875 principal amount 1500 million february 10 2004 completed sale 1500 million 875 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility note 6a 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties note 6d remaining 114 million proceeds used bond offering expenses general corporate purposes bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commencing august 15 2004 addition related registration rights agreement cause registration statement sec respect registered exchange offer exchange notes underlying bonds new notes declared effective securities act 1933 amended within 240 days date bonds issuance consummate exchange offer within 270 days date bonds issuance unable register exchange offer within number days specified interest bonds increased 025 point per year first 90day period immediately following default additional 025 point per year respect subsequent 90day period maximum amount additional interest 1 point consequently december 31 2004 interest rate accrue interest bonds 9 period january 7 2005 middle march 2005 accruing interest 95 recorded interest expenses related bonds including amortization deferred bond issuance costs aggregate amount 124 million 2004 february 14 2005 caused registration statement respect exchange offer declared effective expect consummate registered exchange offer mid march 2005 december 31 2004 total accrued interest related bonds amounted 50 million may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest experience change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest might able pay required price bonds presented us time change control primary senior credit facility indebtedness may prohibit payment might enough funds time bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings senior credit facilities bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility see note 19 guarantor financial information indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications c subordinated promissory notes 10 principal amount 200 million september 20 2002 sold units aggregate purchase price 200 million private investors help finance wampole acquisition note 4e unit consisted 10 subordinated promissory note 10 subordinated note principal amount 50000 ii warrant acquire 04 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 02 million shares common stock may exercised time prior september 20 2012 interest accrues 10 per annum compounded daily outstanding principal amount payable quarterly arrears first day calendar quarter started october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties may option repay 10 subordinated notes pay prepayment penalty applicable cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance acquisition allocated 12 million principal amount 10 subordinated notes warrants original issue discount represented fair value warrants date issuance addition placement agent offering 10 subordinated notes received cash commissions expense allowance totaling 10 million warrant purchase 38000 shares common stock terms identical warrants sold part units value warrant issued placement agent 03 million cash commission expense allowance recorded deferred financing costs original issue discount related warrants issued subscribers deferred financing costs amortized interest expense six year term 10 subordinated notes interest expense including amortization original issue discount deferred financing costs related 10 subordinated notes 25 million 2004 2003 07 million 2002 among purchasers 10 subordinated notes three directors officers company entity controlled chief executive officer collectively purchased units aggregated 19 million principal amount warrants purchase aggregate 15000 shares common stock subordinated promissory notes 9 principal amount 9 million convertible subordinated promissory notes 3 principal amount 6 million september 20 2002 also connection financing wampole acquisition note 4e sold subordinated promissory notes aggregate principal amount 90 million 9 subordinated notes subordinated convertible promissory notes aggregate principal amount 60 million 3 convertible notes private investors 9 subordinated notes 3 convertible notes bore interest 9 3 per annum respectively outstanding principal balance recorded interest expense including amortization deferred financing costs notes 05 million 10 million 03 million 2004 2003 2002 respectively february 10 2004 prepaid 9 subordinated notes proceeds bond issuance note 6b total payment made prepayment date aggregated 93 million represented principal balance outstanding plus accrued unpaid interest well prepayment penalty 02 million equated 2 principal balance repaid prepayment penalty along remaining unamortized deferred financing cost writeoff aggregating 02 million charged interest expense february 2004 3 subordinated notes set mature september 20 2008 subject acceleration certain circumstances addition outstanding principal amount unpaid interest 3 convertible notes would automatically convert common stock conversion price equal 1745 time september 20 2004 average closing price common stock consecutive thirty day period greater 2267 event occurred december 8 2004 consequently december 8 2004 3 subordinated notes accrued unpaid interest converted 03 million shares common stock entity controlled chief executive officer purchased 3 convertible notes aggregate principal amount 30 million e imn credit facilities connection acquisition imn assumed imns borrowings senior credit agreement imn credit agreement pursuant imn credit agreement amended imn could borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations october 2004 repaid outstanding borrowings imn credit agreement 142 million using borrowings senior credit facility note 6a terminated imn credit agreement interest expense including amortization deferred financing costs related borrowings imn credit agreement amounted 07 million 08 million 07 million 2004 2003 2002 respectively upon repayment borrowings imn credit agreement imn became us credit party senior credit facility note 6a guarantor bonds notes 6b 19 f imn bonds payable also connection acquisition imn assumed imns bonds payable imn bonds payable various installments june 30 2007 bonds payable balance bore interest 690 interest expense including amortization deferred financing costs related imn bonds amounted 01 million 2004 2003 02 million 2002 october 2004 prepaid outstanding principal balances unpaid interest imn bonds payable aggregating 16 million borrowings senior credit facilities note 6a g term loans revolving line credit december 20 2001 subsidiary ims entered series credit agreements former credit agreements bank entities related bank various credit facilities aggregate amount 650 million amended proceeds former credit agreements used finance portion cash used acquire unipath business per annum interest rate loans libor plus spread 150 350 additional 200 case default depending type loan senior junior interest period addition former credit agreement interest 400 per annum expensed deferred junior loan part former credit agreements issued bank warrant acquire 65000 shares common stock nominal cost allocated 11 million loan proceeds warrant original issue discount represented fair value warrant date issuance interest expense including amortization original issue discount deferred financing costs 2002 27 million november 14 2002 prepaid outstanding principal balances unpaid interest former credit agreements aggregating 441 million proceeds senior credit facilities obtained date note 6a accounted prepayment early extinguishment debt accordingly november 14 2002 accelerated amortization remaining unamortized original issue discount deferred financing costs 10 million 22 million respectively recorded component interest expense accompanying statement operations 2002 h subordinated bridge notes entered note warrant purchase agreement pursuant december 20 2001 issued subordinated promissory notes subordinated bridge notes aggregate principal amount 200 million purpose funding acquisition unipath business original maturity date subordinated notes april 1 2002 extension option interest accrued 12 per annum 18 maturity date extended subordinated bridge notes convertible shares series preferred stock option holder due conversion feature notes recorded discount notes form beneficial conversion feature 32 million accordance eitf issue 985 accounting convertible securities beneficial conversion features contingently adjustable conversion ratios eitf issue 0027 application eitf issue 985 certain convertible instruments value assigned beneficial conversion feature amortized interest expense life subordinated bridge notes part note warrant purchase agreement addition subordinated bridge notes also issued 10year warrants purchase total 55000 shares common stock exercise price 1812 per share allocated 07 million aggregate proceeds subordinated bridge notes warrants original issue discount represented relative fair value warrants date issuance amortizing discount interest expense life subordinated bridge notes interest expense 2002 including amortization original issue discount beneficial conversion feature deferred financing costs 29 million march 6 2002 prepaid subordinated bridge notes aggregate outstanding balance 200 million related accrued interest 06 million accounted prepayment subordinated bridge notes reacquisition related beneficial conversion feature early extinguishment debt recorded 96 million related gain early extinguishment debt income net 13 million related unamortized original issue discount initial beneficial conversion feature deferred financing costs additional interest expense accordance eitf issue nos 985 0027 gain 96 million calculated first allocating reacquisition price beneficial conversion feature measured based intrinsic value date extinguishment residual amount allocated subordinated bridge notes entity controlled chief executive officer holder 100 million subordinated bridge note holds warrant issued connection note purchase 28000 shares common stock maturities longterm debt following summary maturities longterm debt outstanding december 31 2004 7 capital leases subsidiary imn maintains capital lease warehouse distribution facility expires july 2008 renewable two successive fiveyear periods lease classified capital lease result saleleaseback transaction imn entered prior acquisition imn aggregate monthly minimum payments remaining capital lease 21 million december 31 2004 addition various capital leases certain machinery equipment computer equipment expire various dates 2009 remaining aggregate monthly minimum payments 001 million following schedule future minimum lease payments capital leases together present value payments december 31 2004 december 31 2004 capitalized amounts building machinery equipment computer equipment capital leases follows amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several us based subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 04 million 03 million 01 million 2004 2003 2002 respectively b uk pension plans subsidiary england unipath ltd unipath adopted pension plan unipath pension scheme december 2002 unipath pension scheme consists two parts defined benefit section defined benefit plan ii defined contribution section defined contribution plan employees unipath allowed join unipath pension scheme starting december 1 2002 part purchase agreement unipath business december 2001 agreed establish new defined benefit pension plan acquired employees based england former participants unilever pension plan acquired uk employees continue accumulate benefits plan period least three years acquisition date unipath business consequently defined benefit plan established part unipath pension scheme covers acquired uk employees last two years three year postacquisition period starting december 1 2002 first year three year postacquisition period november 2002 acquired uk employees continued accumulate benefits unilever pension plan unipath contributed 19 million period time acquisition pursuant sfas 87 employers accounting pensions sfas 88 employers accounting settlements curtailments defined benefit pension plans termination benefits recorded unfunded pension liability 37 million part purchase price unipath business withdrawal obligation unfunded pension liability represented excess benefit obligation 205 million fair value plan assets 168 million initially allocated unilever plan assets benefit acquired uk employees acquired uk employees terminated restructuring plan upon acquisition unfunded pension liability initially recorded us 37 million reduced portion employees severance payout represented pension benefits 11 million reclassified severance costs purposes aggregating purchase price unipath business net remaining unfunded pension liability 26 million included benefit obligation tables follow november 2004 acquired uk employees could elect option transfer contributions benefits unilever pension plan defined benefit plan required established defined benefit plan believed benefits available plan less favorable acquired uk employees unilevers plan maintained benefits period required acquisition agreement nevertheless engaged dispute unilever equity benefits old new plans may 2004 entered mediation unilever resolve differences relative levels benefits unilevers plan defined benefit plan mediation produced settlement agreement unilever us dated august 17 2004 settlement agreement provided would match certain benefits available unilever plan ensure plan viewed less favorable unilever plan employees considering whether transition november 2004 changes increased benefits available retiree defined benefit plan allow retirees upon retirement receive unreduced benefits age 60 rather age 65 ii calculate final pension benefit payable retirees based retirees salary date pension benefits ceased accruing unipath plan december 2004 plus 1 inflation year service december 2004 retirement november 2004 final number employees elected transfer defined benefit plan unilever plan determined substantially fewer acquired uk employees transferred defined benefit plan previously anticipated transfer unfunded pension liability initially established 2001 result actuarial gain 18 million recorded deferred component comprehensive income 2004 defined benefit plan operated one month 2002 changes benefit obligations plan assets net amount recognized accompanying consolidated financial statements 2002 nominal following table sets forth analysis changes benefit obligation plan assets funded status defined benefit plan 2004 2003 net amount recognized accompanying consolidated balance sheet relates defined benefit plan 2004 2003 consists measurement date used determine plan assets benefit obligations defined benefit plan december 31 2004 2003 following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2004 stocks fixed income securities represented 71 29 respectively market value pension assets expect contribute approximately 03 million british pounds sterling 06 million december 31 2004 defined benefit plan 2005 expect benefits paid plan participants approximately 01 million per year next five years benefits totaling 08 million paid five years thereafter 2004 2003 unipath contributed 03 million 02 million defined contribution plan recognized expense accompanying consolidated statement operations 2002 contributions defined contribution plan nominal 9 derivative instrument entered interest rate swap agreement one lenders effective february 25 2002 intended protect longterm debt interest charged libor fluctuation rate interest rate swap agreement libor set minimum 336 maximum 500 interest rate swap agreement qualify hedge accounting purposes sfas 133 related amendments recorded income 07 million 05 million 2004 2003 respectively expense 12 million 2002 mark market interest rate swap agreement adjustment fair value interest rate swap agreement recorded component interest expense accompanying consolidated statements operations interest rate swap agreement expired december 30 2004 10 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2027 following schedule outlines future minimum annual rental payments leases december 31 2004 rent expense relating operating leases approximately 74 million 58 million 43 million 2004 2003 2002 respectively operations unipath business england currently housed 150000 square foot manufacturing research office facility bedford england lease facility unilever third party landlord unipath business england continues use facility pursuant agreement unilever connection acquisition future minimum annual rent payments facility lease range 15 million british pounds sterling 16 million british pounds sterling approximately 29 million 31 million upward adjustments every 5 years extent rent market rate lease expires december 2021 unilever agreed use best efforts obtain landlords consent required lease agreement cannot unreasonably withheld may assign lease us remaining term required pay amounts owed lease agreed upon acquisition included table future minimum lease payments facility lease unilever unable successfully assign lease us otherwise enable us realize benefit lease bedford facility may forced renegotiate lease facility substantially less favorable terms seek alternative costly means producing products suffer adverse effects business b capital expenditure commitments december 31 2004 total outstanding noncancelable equipment purchase commitments 54 million c legal proceedings nature business may subject particular time customer product claims various lawsuits arising ordinary course business including employment matters expects continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims potential product liability claims may exceed amount insurance coverage may excluded coverage terms policy assurance existing insurance renewed cost level coverage comparable presently effect event held liable claim indemnified damages exceeding limits insurance coverage liability could material adverse effect business financial condition results operations addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims challenging validity patents rights addition final ruling counterclaims us could material adverse impact sales operations financial performance previously several lawsuits pending pfizer inc certain parties including princeton biomeditech pbm united states district court district new jersey alleging among things pregnancy tests manufactured sold defendants infringe patents owned us early june 2003 settled litigation pfizer however claims pbm codefendant one infringement suits pfizer subject two related infringement suits initiated us remain active pbm brought several counterclaims us counterclaims allege among things breached various obligations pbm arising joint venture us believe strong defenses counterclaims defending vigorously reasonable estimate possible loss range loss cannot made january 2004 subsidiary ims filed suit quidel corporation germany seeking damages injunction infringement certain patents response february 20 2004 quidel named us subsidiaries ims abi defendants suit filed united states district court southern district california quidel alleges infringing us patent 4943522 quidel also asked court declaratory finding quidel infringe certain patents owned ims certain patents owned codefendant armkel llc license patents invalid andor unenforceable quidel seeks injunctive relief damages early march 2004 filed answer claiming quidels claims without merit counterclaim seeking damages injunctive relief quidels infringement patents also filed separate action quidel court alleging infringement certain patents seeking injunctive relief damages may 2004 court held hearings regarding construction patents issue rejected various arguments made quidel effort limit scope certain patents claim construction hearings regarding quidel patent remaining patents ongoing september 2004 quidel served suit unipath diagnostics gmbh directors district court mannheim germany alleging infringement german equivalent quidel patent responded denying liability proceeding ongoing intend vigorously defend quidel claims vigorously prosecute infringement counterclaims separate claims enforce intellectual property rights reasonable estimate possible loss range loss cannot made recent settlements litigation dispute february 23 2005 settled dispute royalty charges becton dickinson company bd whereby paid 20 million past royalties bd dispute preacquisition contingency assumed part acquisition abi note 4c established estimated contingency reserve 29 million date acquisition consequently reversed 09 million reserve recorded income net accompanying consolidated statement operations 2004 february 2 2005 imn subsidiary received 84 million representing pro rata share net funds dispersed connection settlement class action suits several raw material suppliers class action suits alleged certain defendants unlawfully agreed fix prices certain vitamin products sold united states imns recovery represented 73 approved purchases settling parties period price fixing alleged e codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited iti scotland whereby iti scotland agreed provide us approximately 570 million three years partially fund research development programs focused identifying novel biomarkers nearpatient home use tests cardiovascular diseases agreed invest 720 million planned research development spending programs next three years subsidiary stirling medical innovations limited intend establish new research center stirling scotland consolidate many existing cardiology programs ultimately commercialize products arising programs f joint venture china september 2004 began manufacturing small amount product china third party february 2005 entered joint venture chinese manufacturer acquired controlling ownership manufacturing facility 11 loss income per share following table sets forth computation basic diluted loss income per share following potential dilutive securities outstanding december 31 2004 options warrants purchase aggregate 43 million shares common stock weighted average exercise price 1643 per share potential dilutive securities included computation diluted loss per share 2004 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2003 options warrants purchase aggregate 08 million shares common stock weighted average exercise price 2287 per share b 3 convertible notes convertible aggregate 03 million shares common stock c series preferred stock convertible aggregate 04 million shares common stock potential dilutive securities included calculation diluted income per share 2003 inclusion thereof together add back related interest dividends would antidilutive following potential dilutive securities outstanding december 31 2002 options warrants purchase aggregate 35 million shares common stock weighted average exercise price 1465 per share b series preferred stock convertible aggregate 06 million shares common stock c 3 convertible notes convertible aggregate 03 million shares common stock 12 million shares unvested restricted common stock issued certain executive officers e 16000 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2002 inclusion thereof would antidilutive 12 stockholders equity common stock december 31 2004 500 million shares common stock 0001 par value authorized 207 million shares issued outstanding 39 million shares reserved issuance upon grant exercise stock options current stock option plans 07 million shares reserved issuance upon exercise outstanding warrants b preferred stock december 31 2004 50 million shares preferred stock 0001 par value authorized 27 million shares designated series preferred stock 0001 par value march 6 2002 sold private investors 05 million shares series preferred stock 3901 per share gross proceeds 208 million december 20 2001 sold private investors 20 million shares series preferred stock 3000 per share gross proceeds 599 million 2004 2003 2002 02 million 01 million 22 million shares series preferred stock respectively converted 04 million 02 million 44 million shares common stock respectively shares series preferred stock remained outstanding december 31 2004 share series preferred stock accrued dividends quarterly basis 210 per annum trading days closing price common stock less 1500 result recorded dividends 33000 03 million 2003 2002 respectively reduced earnings available common stockholders computation earnings per share note 11 dividends recorded 2004 stock price close 1500 period 2004 shares series preferred stock outstanding dividends accrued payable declared board directors dividends declared board directors prior conversion shares series preferred stock effective purchase price shares common stock underlying series preferred stock issued march 6 2002 december 20 2001 represented discount 270 12 200 118 respectively fair value common stock respective issuance dates accordance eitf issue 985 eitf issue 0027 recorded beneficial conversion feature form discount two issuances series preferred stock 29 million 80 million respectively amortized accumulated deficit redemption period discussed amortization discount reduces earnings available common stockholders computation earnings per share 2004 2003 2002 amortized 07 million 05 million 96 million respectively discount 07 million 04 million 88 million respectively represented acceleration amortization due conversions series preferred stock series preferred stock could redeemed upon vote holders least 6623 outstanding shares june 30 2011 classified outstanding series preferred stock outside stockholders equity accompanying consolidated balance sheet december 31 2003 redemption price per share series preferred stock would equal 3000 plus accrued redemption interest calculated 5 per annum date issuance recorded accrued redemption interest 10000 04 million 20 million 2004 2003 2002 respectively reduced earnings available common stockholders computation earnings per share note 11 c stock options awards 2001 adopted 2001 stock option incentive plan 2001 plan allows issuance 53 million shares common stock awards amended 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2004 03 million shares available future grant 2001 plan august 15 2001 sold chief executive officer 12 million shares restricted common stock price 913 per share twothirds restricted stock 08 million shares vest ratably 36 months remaining onethird 04 million shares vests ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse chief executive officer balance promissory note recorded note receivable classified stockholders equity accompanying consolidated balance sheets note due payable august 16 2006 bears interest annual rate 499 interest income recorded note amounted 05 million years ended december 31 2004 2003 2002 accounted arrangement pursuant fasb interpretation fin 44 accounting certain transactions involving stock compensation eitf issue 9516 accounting stock compensation arrangements employer loan features apb opinion 25 eitf issue 0023 issues related accounting stock compensation apb opinion 25 fasb interpretation 44 accordingly november 20 2001 date arrangement approved stockholders measured total compensation expense approximately 106 million based intrinsic value stock date amount compensation expense deferred amortized ratably vesting periods restricted stock terms original restricted stock agreement could repurchase unvested shares cost certain circumstances february 2002 terms restricted stock agreement amended pursuant may repurchase unvested shares fair value certain circumstances also connection amendment chief executive officer surrendered 50000 shares nonqualified stock options repurchase rights unvested shares fair value subsequent amendment february 2002 fully amortized remaining portion deferred compensation expense associated restricted stock 2002 amortization deferred compensation related restricted stock arrangement 101 million 2002 recorded stockbased compensation accompanying consolidated statements operations additionally amendment resulted new measurement date security event employee ceases employment company prior full vesting security additional compensation expense would recorded august 2001 granted two nonqualified stock options purchase aggregate 08 million shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes balance promissory notes recorded note receivable classified stockholders equity accompanying consolidated balance sheets notes due payable december 4 2006 bear interest annual rate 397 applicable federal rate fiveyear note effect month exercise interest income recorded notes amounted 02 million year ended december 31 2004 2003 2002 respectively shares issued upon exercise vest ratably 36 months fully vested december 31 2004 upon splitoff merger november 2001 note 1 outstanding imt stock option imt options exchanged option purchase shares common stock exchange ratio 020 option purchase shares johnson common stock exchange ratio 05395 option split also required ratio intrinsic value market value option consequently new exercise prices options johnson options determined based relative fair values common stock johnson common stock first trading day immediately splitoff merger taking consideration relative exchange ratios accordingly total number shares common stock underlying stock options issued splitoff 09 million concurrent option split 1 vesting options accelerated 2 period exercisability imt employees become employees company extended actions deemed award modifications pursuant fin 44 fin 44 measured compensation date award modifications based intrinsic value option recognized recognize future compensation absent modifications award would forfeited pursuant awards original terms imt employees become employees company recognition charge immediate recorded stockbased compensation 2001 imt employees became employees measured potential charge maximum 12 million date modification record compensation charge unless time employees terminate employment us time portion award absent modification would forfeited awards original terms would recognized compensation expense 2003 2002 recognized stockbased compensation expense related certain imt employees became employees amount 2000 01 million respectively employees terminated employment us stockbased compensation charge recognized 2004 following summarizes stock option activity years ended december 31 following represents additional information related stock options outstanding exercisable december 31 2004 warrants following summary warrant activity three years ended december 31 2004 following represents additional information related warrants outstanding exercisable december 31 2004 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 04 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2004 value warrants issued connection debt financings yielded original issue discounts additional interest expense 02 million 2004 2003 05 million 2002 believe equity classification appropriate outstanding warrants pursuant provisions eitf issue 0019 determination whether share settlement within control issuer purposes applying eitf issue 9613 accounting derivative financial instruments indexed potentially settled companys stock e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 05 million shares common stock plan december 31 2004 02 million shares issued plan f executive bonus plan 2001 adopted stockholder approved executive bonus plan executive bonus plan amended february 2002 pursuant executive bonus plan amended certain key executives entitled receive annual basis option grants awarded fair value date grants shares common stock attain certain targeted prices per share performance determinations made end calendar year starting december 31 2002 ending december 31 2005 maximum number shares options may granted executive bonus plan amended 07 million performance targets achieved december 31 2004 13 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders equity following summary components changes accumulated comprehensive income december 31 2004 three years ended ithe balance 02 million included comprehensive income represents unrealized gains availableforsales securities aggregate fair value securities insignificant included prepaid expenses current assets accompanying consolidated balance sheets iiall components accumulated comprehensive income relate foreign subsidiaries adjustments income taxes recorded comprehensive income intend permanently invest foreign subsidiaries foreseeable future 14 income taxes income tax provision 2004 2003 2002 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath limited united kingdom inverness medical switzerland gmbh switzerland loss income taxes consists following primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets income tax effects temporary differences follows december 31 2004 approximately 1053 million domestic nol carryforwards 259 million foreign nol foreign capital loss carryforwards either expire various dates 2024 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities domestic nol carryforwards include approximately 485 million preacquisition losses imn ostex adc preacquisition losses subject internal revenue service code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate valuation allowance relates us nols deferred tax assets certain foreign deferred tax assets recorded based upon uncertainty surrounding realizability assets realized via profitable operations respective tax jurisdictions accordance sfas 109 accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2004 216 million deferred tax asset pertains acquired companies future benefits applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense included valuation allowance approximately 18 million related certain nol carryforwards resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax estimated amount undistributed earnings foreign subsidiaries 196 million december 31 2004 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability accordance sfas 109 sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows october 22 2004 american jobs creation act 2004 act signed law act contains onetime foreign dividend repatriation provision provides special deduction respect certain qualifying dividends foreign subsidiaries limited period deduction subject number limitations uncertainty remains interpret numerous provisions act however believe information necessary make informed decision impact act repatriation plans determined repatriate foreign earnings foreign dividend repatriation provision act also provides deduction income qualified domestic production activities phased 2005 2010 guidance fsp 1091 deduction treated special deduction described sfas 109 therefore special deduction effect deferred tax assets liabilities existing enactment date impact deduction reported period deduction claimed tax return expect effect phase new deduction result benefit effective tax rate us nol carryforwards fully utilized following table presents components provision income taxes following table presents reconciliation us statutory tax rate effective tax rate 15 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision making group composed chief executive officer members senior management reportable operating segments consumer diagnostic products vitamins nutritional supplements professional diagnostic products corporate included operating results corporate nonallocable corporate expenditure expenses related research development activities area cardiology latter amounted 179 million 113 million 2004 2003 respectively nominal 2002 expenditure property plant equipment related research development activities area cardiology included corporate tables amounted 44 million 2004 insignificant 2003 2002 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2004 2003 2002 follows 16 transition services agreement imt prior splitoff imt note 1 entered transition services agreements whereby would provide certain transition services imt affiliates agreedupon period time service fee transition services primarily included management services provided us subsidiary inverness medical inc imi product packaging services provided irish subsidiary cambridge diagnostics ireland ltd cdil related certain diabetes businesses products since splitoff imt imi charged approximately 02 million 19 million 2003 2002 respectively transition service fees imt believes approximate armslength costs fees reduced general administrative expenses respective periods since splitoff imt cdil generated 51 million 2002 net product sales packaging service contract affiliate imt transition services provided imi cdil terminated february 2003 july 2002 respectively 17 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component costs sales following table sets forth activities inventory reserve accounts 18 restructuring activities connection acquisitions unipath business imn ostex recorded restructuring costs part respective aggregate purchase prices accordance eitf issue 953 note 4 2004 completed plan restructuring manufacturing operations unipath following table sets forth aggregate restructuring costs balances recorded connection restructuring activities acquired businesses 2004 restructuring activities unipath irepresents foreign currency translation adjustment following describes recent restructuring plan restructuring plans remaining obligations december 31 2004 recent restructuring plan third quarter 2004 completed plan restructuring operations unipath manufacturing facility bedford england reduce operating expenses organizational complexities increase overall accountability unipath result recorded 17 million restructuring charge third quarter 2004 included cost sales accompanying statements operations cover costs severance early retirement outplacement services total number involuntarily terminated employees 18 terminated december 31 2004 december 31 2004 substantially restructuring costs paid b restructuring plans related business combinations result merger ostex note 4d established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total number employees terminated involuntarily restructuring plan 38 one remained terminated december 31 2004 total severance costs associated employees terminated involuntarily 16 million substantially paid december 31 2004 costs vacate ostex facilities 05 million 02 million paid december 31 2004 additionally remaining costs exit operations primarily facilities lease commitments 19 million 14 million paid december 31 2004 total unpaid exit costs amounted 09 million december 31 2004 immediately close acquisition reorganized business operations imn note 4f improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined existing business operations also part restructuring plan relocated one imns warehouses closer proximity manufacturing facility improve efficiency 16 million total exit costs include severance costs involuntarily terminated employees costs vacate warehouse 13 million paid 03 million remained unpaid december 31 2004 total number involuntarily terminated employees 47 terminated december 31 2003 result acquisition unipath business unilever plc 2001 reorganized operations unipath business purposes improving efficiencies achieving economies scale companywide basis reorganization affected major cost centers operations england additionally business activities us division merged existing us businesses total number involuntarily terminated employees 65 terminated december 31 2002 total exit costs primarily related severance initially estimated 23 million 2002 company finalized restructuring activities recorded additional 18 million exit costs additional exit costs recorded adjustments unipath business purchase price december 31 2004 14 million adjusted foreign exchange effect exit costs remained unpaid 19 guarantor financial information issued 1500 million bonds qualified institutional buyers reliance rule 144a securities act 1933 amended securities act outside united states compliance regulation securities act note 6b payment obligations bonds guaranteed domestic subsidiaries guarantor subsidiaries december 31 2004 guarantee full unconditional separate financial statements guarantor subsidiaries presented determined would material investors bonds following supplemental financial information sets forth consolidating basis statements operations cash flows three years period ended december 31 2004 balance sheets december 31 2004 2003 company issuer guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments guarantor subsidiaries investments guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development cost sharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties october 20 2004 subsidiary imn became guarantor subsidiary bonds prior change imn nonguarantor subsidiary result included financial results imn results guarantor subsidiaries following supplemental financial information periods presented inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2002 restated thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2002 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2002 restated thousands part item 1 business item 2 description property item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity item 6 selected consolidated financial data item 7 managements discussion analysis financial condition results operations special statement regarding forwardlooking statements item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 financial statement schedules exhibits signatures inverness medical innovations inc subsidiaries consolidated financial statements table contents report independent registered public accounting firm inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements cash flows thousands inverness medical innovations inc subsidiaries notes consolidated financial statementsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits 1022 third amendment third amended restated credit agreement dated november 22 2005 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 1035 company’s annual report form 10k amended year ended december 30 2006 1023 fourth amendment consent third amended restated credit agreement dated february 27 2006 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 1036 company’s annual report form 10k amended year ended december 30 2006 1024 fifth amendment consent third amended restated credit agreement dated march 31 2006 third amended restated credit agreement dated june 30 2005 amended supplemented otherwise modified time among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 101 company’s current report form 8k event date september 29 2005 filed october 4 2005 1025 sixth amendment consent third amended restated credit agreement dated may 3 2006 third amended restated credit agreement dated june 30 2005 amended supplemented otherwise modified time among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 101 company’s quarterly report form 10q period ended september 30 2006 1026 seventh amendment consent third amended restated credit agreement dated october 6 2006 third amended restated credit agreement dated june 30 2005 amended supplemented otherwise modified time among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 102 company’s quarterly report form 10q period ended september 30 2006 1027 eighth amendment consent third amended restated credit agreement dated october 30 2006 third amended restated credit agreement dated june 30 2005 amended supplemented otherwise modified time among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 103 company’s quarterly report form 10q period ended september 30 2006 filed herewith omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date march 1 2007 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated inverness medical innovations inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc subsidiaries audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries “company” december 31 2006 2005 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows three years period ended december 31 2006 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2006 2005 consolidated results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission “coso” report dated march 1 2007 expressed unqualified opinion management’s assessment effectiveness internal control financial reporting unqualified opinion effectiveness internal control financial reporting bdo seidman llp boston massachusetts march 1 2007 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive income loss thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation inverness medical innovations inc subsidiaries develop manufacture market vitro diagnostic products overthecounter pregnancy fertilityovulation test market professional rapid diagnostic test market worldwide addition manufacture variety vitamins nutritional supplements market brands private label retailers consumer market primarily united states business organized three primary operating segments consumer diagnostic products ii vitamins nutritional supplements iii professional diagnostic products consumer diagnostic products segment includes overthecounter pregnancy fertilityovulation tests vitamins nutritional supplements segment includes branded private label vitamins nutritional supplements sold overthecounter professional diagnostic products segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectious diseases drugs abuse pregnancy acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 december 2006 signed definitive agreement procter gamble company “pg” form 5050 joint venture development acquisition manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside fields cardiology diabetes following completion transaction contribute related consumer diagnostic monitoring assets manufacturing core intellectual property assets new joint venture entity pg acquire interest joint venture consideration cash payment 3250 million pg retain option require us purchase interest venture back fair market value 60day period beginning fourth anniversary closing primary role collaboration develop manufacture consumer diagnostic products pg’s primary role market sell distribute existing tobedeveloped products retain rights respect development sale cardiology diagnostic products professional pointofcare diagnostic businesses following completion transaction formation joint venture cease consolidate operating results consumer diagnostics business represented 1716 million net product revenue 2006 instead account 50 interest results joint venture equity method capacity manufacturer products joint venture supply product joint venture record revenue sales gain proceeds receive pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture market value expires fourth anniversary closing transaction expected close first half 2007 subject satisfaction customary closing conditions material adverse change consumer diagnostics business transaction permitted indenture governing senior subordinated notes repay outstanding senior subordinated notes receive favorable tax rulings swiss tax authorities receipt regulatory approvals obtaining certain thirdparty consents inverness medical innovations inc subsidiaries notes consolidated financial statements continued 1 description business basis presentation continued transaction assurance conditions satisfied conditions satisfied waived may unable complete joint venture consolidated financial statements include accounts inverness medical innovations inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable minority interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates b foreign currencies follow provisions statement financial accounting standards “sfas” 52 foreign currency translation general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders’ equity note 14 income expense accounts foreign subsidiaries translated using average rates exchange reporting period net realized unrealized foreign currency exchange transaction gains 26 million 2006 losses 03 million 07 million 2005 2004 respectively included component income net accompanying consolidated statements operations c cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2006 2005 inventories stated lower cost firstin firstout market made raw material workinprocess finished goods costs elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued e property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling311 years buildings2039 years leasehold improvementslesser remaining term lease estimated useful life asset computer software equipment35 years furniture fixtures315 years land depreciated depreciation expense related property plant equipment amounted 176 million 149 million 131 million 2006 2005 2004 respectively expenditures repairs maintenance expensed incurred f investment availableforsale securities availableforsale securities include publiclytraded equity investments classified availableforsale recorded fair value using specific identification method unrealized gains losses except temporary impairments recorded comprehensive income loss reported component stockholders’ equity evaluate investments quarterly basis determine potential temporary impairment exists evaluation considers investees’ specific business conditions well general industry market conditions g goodwill review valuation goodwill accordance sfas 142 goodwill intangible assets provisions sfas 142 goodwill required tested impairment annually lieu amortized using fair value approach reporting unit level furthermore goodwill required tested impairment interim basis event circumstance indicates likely impairment loss incurred impairment loss shall recognized extent carrying amount goodwill exceeds implied fair value impairment losses shall recognized operations valuation methodology assessing impairment requires management make judgments assumptions based historical experience projections future operating performance assumptions differ materially future results may record impairment charges future annual impairment review performed september 30 2006 indicate goodwill related consumer diagnostic products professional diagnostic products reporting units impaired h impairment longlived tangible intangible assets examine accordance sfas 144 accounting impairment disposal longlived assets periodic basis carrying value longlived tangible intangible assets determine whether impairment losses indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount impairment loss would charged expense period impairment identified based fair value asset believe carrying values longlived tangible intangible assets realizable december 31 2006 business acquisitions account acquisitions using purchase method accounting defined sfas 141 business combinations accordingly operating results acquired company included consolidated financial statements operations acquisition date part reporting unit relates accounting acquisitions resulted capitalization cost excess fair value net assets acquired acquisitions goodwill estimated fair values assets acquired acquisition date acquisition estimates subject adjustment complete inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued assessments within one year date acquisition undertaken certain restructurings acquired businesses realize efficiencies potential cost savings restructuring activities include elimination duplicate facilities reductions staffing levels costs associated exiting certain activities businesses acquire estimated cost restructuring activities included costs acquisition recorded additional purchase price consistent guidance emerging issue task force “eitf” issue 953 recognition liabilities connection purchase business combination common stock issued acquisitions determined based average market price common stock pursuant issue 9912 determination measurement date market price acquirer securities issued purchase business combination j income taxes follow provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss carryforwards extent realization benefits likely extent likely realize benefits must establish valuation allowance related deferred tax assets note 17 k revenue recognition majority revenues derived product sales recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances certain sale arrangements require us accept product returns right return exists record revenue right return longer applicable estimable connection acquisitions abbott rapid diagnostic business september 2003 determinedaina screen assets “the determine” business june 2005 note 4b abbott laboratories entered transition services agreement abbott whereby abbott would continue distribute certain acquired products sold period 18 months following acquisition transition period ended 2006 recognized revenue sales products title transferred abbott thirdparty customers deferred revenue recorded payments received advance performing service obligations recognized ratably service period amounts related deferred revenue included “accrued expenses current liabilities” consolidated balance sheet lesser extent also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees calculated based licensees’ sales generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned l employee stockbased compensation arrangements effective january 1 2006 began recording compensation expense associated stock options forms equity compensation accordance sfas 123r sharebased payment interpreted sec staff accounting bulletin “sab” 107 prior january 1 2006 accounted stock options according provisions accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations therefore related compensation expense recorded inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued awards granted intrinsic value adopted modified prospective transition method provided sfas 123r consequently retroactively adjusted results prior periods transition method compensation cost associated stock options includes amortization related remaining unvested portion stock option awards granted prior january 1 2006 based grantdate fair value estimated accordance original provisions sfas 123 ii amortization related stock option awards granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions sfas 123r addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized expected term options using straightline method stock options granted prior adoption sfas 123r expense stockbased compensation determined fair value method original sfas 123 year ended december 31 2005 2004 net loss per common share would adjusted following pro forma amounts stock option plans provide grants options employees purchase common stock fair market value shares grant date award options typically vest four year period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate year ended december 31 2006 chosen employ simplified method calculating expected option term averages award’s weighted average vesting period contractual term contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments plans pay dividends foreseeable future inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 13 n operating expenses expense advertising costs incurred 2006 2005 2004 advertising costs amounted 230 million 217 million 199 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost sales accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses individual customer accounts receivable balances outstanding december 31 2006 2005 excess 10 gross accounts receivable balance dates 2006 customers represented greater 10 net revenues 2005 2004 one customer represented 10 11 respectively net revenues purchased consumer diagnostic products vitamins nutritional supplements rely number third parties manufacture certain products third party manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results p financial instruments fair value financial instruments primary financial instruments december 31 2006 2005 consisted cash equivalents accounts receivable accounts payable debt estimated fair value financial instruments approximates carrying values december 31 2006 2005 estimated fair values determined information obtained market sources additionally subsidiary england enters shortterm foreign currency exchange forward contracts time minimize exposure foreign currency exchange fluctuations substantial portion business transacted currencies functional currency account derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities december 31 2006 outstanding foreign currency exchange forward contracts changes 02 million market value contracts 2006 recorded income expense net consolidated statements operations inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued q recent accounting pronouncements recently issued standards february 2006 financial accounting standards board “fasb” issued sfas 155 accounting certain hybrid financial instruments amends sfas 133 accounting derivative instruments hedging activities sfas 140 accounting transfers servicing financial assets extinguishments liabilities sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 taxes collected customers remitted governmental authorities presented income statement scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus issue 0603 effective interim annual reporting periods beginning december 15 2006 currently evaluating impact eitf 0603 need change manner record gross receipts expected change would material impact total operating revenue expenses operating income net income would affected june 2006 fasb issued fasb interpretation “fin” 48 accounting uncertainty income taxesan interpretation fasb statement 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition fin 48 effective fiscal years beginning december 15 2006 adopting provisions fin 48 beginning first quarter 2007 continue evaluate impact adoption fin 48 consolidated financial statements september 2006 fasb issued sfas 157 fair value measurements sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged continue evaluate impact adoption sfas 157 consolidated financial statements december 2006 fasb issued fasb staff position “fsp” eitf 00192 accounting registration payment arrangements fsp specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 accounting contingencies guidance fsp amends fasb statement 133 accounting derivative financial instruments hedging activities 150 accounting certain financial instruments characteristics liabilities equity fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others include scope exceptions registration payment arrangements fsp effective immediately registration payment arrangements financial instruments subject arrangements entered modified subsequent date issuance fsp registration payment arrangements financial instruments subject arrangements entered prior issuance fsp guidance shall effective financial statements issued fiscal years beginning december 15 2006 interim periods within fiscal years believe adoption eitf 00192 material impact consolidated financial statements recently adopted standards november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted materials spoilage addition statement requires allocation fixed production overheads costs conversion based normal capacity production facilities required sfas 151 adopted new accounting standard january 1 2006 adoption sfas 151 material impact financial position results operations cash flows december 2004 fasb issued sfas 123r sharebased payment addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments required sfas 123r securities exchange commission “sec” adopted sfas 123r january 1 2006 note 15 may 2005 fasb issued sfas 154 accounting changes error correctionsa replacement apb opinion 20 fasb statement 3 replaces apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements statement requires voluntary change accounting principle applied retrospectively prior period financial statements financial statements presented current accounting principle always applied apb opinion 20 previously required voluntary changes accounting principle recognized including net income period change cumulative effect changing new accounting principle addition sfas 154 carries forward without change guidance contained apb opinion 20 reporting correction error previously issued financial statements change accounting estimate sfas 154 effective accounting changes corrections errors made january 1 2006 adoption sfas 154 impact financial statements september 2006 sec issued sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements provide guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 companies evaluate misstatement based impact current year income statement well cumulative effect correcting misstatements existed prior years existing current year’s ending balance sheet sab 108 effective fiscal years ending november 15 2006 adoption sab 108 material impact financial position results operations cash flows inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued effective december 31 2006 adopted recognition provisions sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r statement requires employers recognize balance sheets overfunded underfunded status defined benefit postretirement plans measured difference fair value plan assets benefit obligation projected benefit obligation pension plans accumulated postretirement benefit obligation postretirement plans employers must recognize change funded status plan year change occurs comprehensive income statement also requires plan assets obligations measured employer’s balance sheet date measurement provision statement effective years beginning december 15 2008 early application encouraged yet adopted measurement provisions statement process determining impact adoption consolidated financial statements prior adoption recognition provisions sfas 158 accounted defined benefit postretirement plans sfas 87 employers’ accounting pensions sfas 87 required liability minimum pension liability recorded accumulated benefit obligation liability exceeded fair value plan assets adjustment recorded noncash charge accumulated comprehensive income stockholders’ equity sfas 87 changes funded status immediately recognized rather deferred recognized ratably future periods upon adoption recognition provisions sfas 158 recognized amounts prior changes funded status postretirement benefit plans accumulated comprehensive income result recognized following adjustments individual line items consolidated balance sheet december 31 2006 adoption sfas 158 effect consolidated statement operations year ended december 31 2006 prior period presented december 31 2006 included accumulated comprehensive income unrecognized prior service costs 68 million unrecognized actuarial gain 23 million estimated prior service cost actuarial loss recognized net periodic postretirement benefit obligation expense 2007 0 million 01 million respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 3 balance sheet information components selected captions consolidated balance sheets consist 4 business combinations significant acquisitions 2006 acquisition innovacon business including abon facility march 31 2006 acquired assets acon laboratories’ business researching developing manufacturing marketing selling lateral flow immunoassay directlyrelated products united states canada europe excluding russia former soviet republics part european union turkey israel australia japan new zealand “the innovacon business” preliminary aggregate purchase price approximately 939 million consisted 551 million cash 711676 shares common stock aggregate fair value 197 million 91 million estimated inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued direct acquisition costs additional liability 100 million payable sellers deferred payment date pursuant purchase agreement may 15 2006 part innovacon business acquired newlyconstructed manufacturing facility hangzhou china pursuant terms acquisition agreement acon laboratories inc affiliates connection acquisition new facility acquired abon biopharm hangzhou co ltd “abon” direct owner new factory subsidiary preliminary aggregate purchase price approximately 208 million consisted 88 million cash 417446 shares common stock aggregate fair value 120 million addition pursuant acquisition agreement made additional payment 41 million cash result amount cash acquired net indebtedness assumed increased preliminary aggregate purchase price 249 million subsequent august november 2006 made cash payments totaling 440 million issued 742128 shares common stock aggregate fair value 213 million various milestones achieved brings aggregate purchase price innovacon business including abon facility total 1841 million aggregate purchase price innovacon business including abon facility discussed allocated assets acquired liabilities assumed date acquisition follows goodwill generated acquisition deductible tax purposes estimate useful lives trademarks customer relationships supply agreements product technology 10 years 168 years 178 years 18 years 7 years respectively included core technology patents net intangible assets net respectively accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 127 years operating results innovacon business included consumer professional diagnostic products reporting units business segments additionally connection acquisition innovacon business entered agreement purchase acon laboratories’ lateral flow immunoassay sales distribution business territories included within territories acquired connection march 31 2006 acquisition inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued described terms agreement event business achieves specified level profitability acquire business 2009 formulaic price based revenues earnings business alternatively may elect complete acquisition business exchange payment equal 15 purchase price would due elected complete acquisition ii acquisition clondiag february 28 2006 acquired 6745 clondiag chip technologies gmbh “clondiag” privatelyheld company located jena germany developing multiplexing technology nucleic acid immunoassaybased diagnostics pursuant acquisition agreement purchased remaining 3255 august 31 2006 aggregate purchase price 231 million consisted initial cash payment 119 million 218502 shares common stock aggregate fair value 58 million 53 million cash payment acquire remaining 3255 stock ownership 01 million direct acquisition costs additionally pursuant terms acquisition agreement obligation settle existing employee bonus arrangements clondiag employees totaling 11 million 13 million connection obligation issued 24896 shares common stock fair value 07 million employees clondiag cash payment 05 million december 31 2006 remaining obligation 01 million obligation increased aggregate purchase price 244 million december 31 2006 resulted additional goodwill addition terms acquisition agreement provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date contingent consideration accounted increase aggregate purchase price contingency occurs aggregate purchase price allocated assets acquired liabilities assumed date acquisition follows estimate useful lives acquired patents 20 years included core technology patents net accompanying consolidated balance sheet also evaluated certain inprocess research development projects expensed inprocess research development projects yet attained technical feasibility amount expensed year ended inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued december 31 2006 50 million included research development expense consolidated statement operations operating expenses clondiag consist principally research development activities included corporate business segment goodwill generated acquisition deductible tax purposes b significant acquisitions 2005 acquisition biostar september 30 2005 acquired thermo biostar inc “biostar” leading developer manufacturer highperformance rapid diagnostic tests including tests detection infectious diseases aggregate purchase price 537 million consisted 531 million cash 05 million estimated direct acquisition costs 01 million estimated exit costs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition goodwill generated acquisition fully deductible tax purposes 15 years values allocated acquired core technology customer relationships trade name amortized straightline basis estimated useful lives 10 5 10 years respectively weighted average amortization period acquired intangible assets finite lives 68 years trademarks core technology customer relationships trade name allocated respectively intangible assets indefinite lives core technology patents net intangible assets net accompanying consolidated balance sheet december 31 2005 operating results biostar included professional diagnostic products reporting unit ii acquisition idt september 30 2005 acquired innogenetics diagnostica terapeutica sau “idt” spanish distributor diagnostic products aggregate purchase price 203 million consisted 117 million cash 84 million working capital adjustment paid fourth quarter fiscal year 2005 02 million estimated direct acquisition costs inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition goodwill generated acquisition deductible tax purposes estimate useful lives customer relationships 5 years included intangible assets net accompanying consolidated balance sheets operating results idt included professional diagnostic products reporting unit iii acquisition determine business june 30 2005 acquired determine business produces diagnostic tests designed provide rapid qualitative results detecting several diseases including hepatitis hiv 12 syphilis aggregate purchase price 581 million consisted 565 million cash 16 million estimated direct acquisition costs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition assigned indefinite lives trademark product technology goodwill resulting acquisition deductible tax purposes lives varying 10 25 years depending tax jurisdiction estimate useful lives manufacturing knowhow ten years customer relationships asset six years included intangible assets net accompanying inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 71 years operating results determine business included professional diagnostic products reporting unit iv acquisition binax march 31 2005 acquired binax inc “binax” privatelyheld developer manufacturer distributor rapid diagnostic products infectious disease testing primarily related respiratory system aggregate purchase price 447 million consisted 90 million cash 14 million shares common stock aggregate fair value 352 million 05 million estimated direct acquisition costs terms acquisition agreement also provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition contingent consideration accounted increase aggregate purchase price contingency occurs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition assigned indefinite lives trademarks goodwill generated acquisition deductible tax purposes estimate useful lives product technology customer relationships noncompete agreement 7 years 13 years 7 years respectively included core technology patents net intangible assets net respectively accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 107 years operating results binax included professional diagnostic products reporting unit inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued v acquisition ischemia march 16 2005 acquired ischemia technologies inc “ischemia” privately held venturebacked company developed manufactured marketed fdacleared vitro diagnostic test targeted cardiac ischemia aggregate purchase price 272 million consisted 968000 shares common stock aggregate fair value 228 million estimated exit costs 15 million vacate ischemia’s manufacturing administrative facilities estimated direct acquisition costs 24 million 05 million assumed debt following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition goodwill generated acquisition deductible tax purposes estimated useful lives patents 9 15 years customer related intangible asset 11 years included core technology patents net intangible assets net respectively accompanying consolidated balance sheets operating results ischemia included professional diagnostic products reporting unit c recent acquisitions february 2007 acquired substantially assets first check diagnostics llc “first check” privatelyheld diagnostics company approximately 245 million cash addition pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods first check market leader rapidlygrowing field home testing drugs abuse including marijuana cocaine methamphetamines opiates addition offers tests also sold retail channels alcohol abuse cholesterol monitoring colon cancer screening restructuring plans related business combinations connection acquisitions biostar ischemia ostex international inc “ostex” ivc industries inc operating inverness medical nutritionals group “imn” certain entities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued businesses intellectual property unilever plc “unipath business” recorded restructuring costs part respective aggregate purchase prices accordance eitf 953 2005 established restructuring plan connection acquisition biostar recorded restructuring costs 05 million 04 million related impairment fixed assets 01 million related severance costs associated headcount reduction total number employees involuntarily terminated nine terminated december 31 2006 costs recorded 2005 10000 remains unpaid december 31 2006 although believe plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs connection acquisition ischemia march 2005 established restructuring plan whereby exited current facilities ischemia denver colorado combined activities existing manufacturing distribution facilities third quarter 2005 total severance costs associated involuntarily terminated employees estimated 16 million paid december 31 2006 estimated costs vacate ischemia facilities approximately 135000 90000 paid december 31 2006 total number involuntarily terminated employees 17 terminated december 31 2006 result acquisition ostex established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total number employees involuntarily terminated restructuring plan 38 terminated december 31 2006 total severance costs associated involuntarily terminated employees 16 million paid december 31 2006 costs vacate ostex facilities 05 million 02 million paid december 31 2006 additionally remaining costs exit operations primarily facilities lease commitments 19 million 15 million paid december 31 2006 total unpaid exit costs amounted 07 million december 31 2006 immediately close acquisition reorganized business operations imn improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined existing business operations also part restructuring plan relocated one imn’s warehouses closer proximity manufacturing facility improve efficiency 16 million total exit costs includes severance costs 47 involuntarily terminated employees costs vacate warehouse 15 million paid december 31 2006 result acquisition unipath business unilever plc 2001 reorganized operations unipath business purposes improving efficiencies achieving economies scale companywide basis reorganization affected major cost centers operations england additionally business activities us division merged existing us businesses total exit costs primarily related severance early retirement obligations 65 involuntarily terminated employees 41 million december 31 2006 15 million adjusted foreign exchange effect exit costs remained unpaid e pro forma financial information following table presents selected unaudited financial information company including binax ischemia determine business biostar idt innovacon business including abon acquisitions entities occurred january 1 2005 pro forma results exclude adjustments advanced clinical systems pty ltd “acs” clondiag acquisitions materially affect results operations pro forma results derived historical financial results acquired inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2005 1 net loss per share amounts computed described note 13 5 goodwill intangible assets following summary goodwill intangible assets december 31 2006 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2005 amortize intangible assets finite lives using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate approximates pattern economic benefits consumed circumstances patterns reliably determined certain circumstances certain customer relationship assets accelerated amortization recognized reflect estimate cash flows amortization expense intangible assets aggregate amounted 218 million 129 million 104 million 2006 2005 2004 respectively included cost sales research development sales marketing accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2006 accordance sfas 142 perform annual impairment tests carrying value goodwill reporting unit annual impairment review september 30 2006 indicate goodwill related consumer diagnostic products professional diagnostic products reporting units inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued impaired values assigned trade names acquired part acquisition assigned indefinite lives therefore accordance sfas 142 amortized allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated consumer diagnostic products professional diagnostic products reporting units summarized follows 1 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internally develop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2006 approximately 38 million costs capitalized connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon successful registration patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred 6 longterm debt following longterm debt balances outstanding inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued following describes listed debt instruments senior credit facilities december 31 2005 890 million borrowings outstanding senior credit facility february 8 9 2006 sold aggregate 34 million shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes february 27 2006 borrowed 130 million european revolving line credit fund acquisition clondiag march 2006 entered amendment third amended restated credit agreement amendment increased total amount credit available us credit agreement 1550 million 1000 million consisting new 450 million us term loan 400 million us revolving line credit reduced 600 million credit agreement prior amendment 700 million european revolving line credit increased 400 million credit agreement prior amendment march 31 2006 connection acquisition innovacon business incurred 580 million indebtedness credit agreement received proceeds entire us term loan drew additional 130 million us revolving line credit may 12 2006 connection acquisition abon facility drew 130 million us revolving line credit august 23 2006 sold aggregate 50 million shares common stock 3025 per share funds affiliated 17 accredited institutional investors private placement proceeds private placement approximately 1455 million net issuance costs 57 million amount repaid principal outstanding revolving lines credit senior credit facility 540 million began repaying us term loan seven consecutive quarterly installments october 2006 amount 112500 equal 025 aggregate 450 million us term loan commitments aggregate indebtedness amended credit agreement 448 million december 31 2006 february 1 2007 using portion proceeds sale 69 million shares common stock first quarter 2007 note 14 paid remaining principal balance outstanding accrued interests senior credit facility accordance sfas 6 classification shortterm obligations expected refinanced reclassify february 2007 prepayment us term loan continued carry balance longterm december 31 2006 balance sheet borrowings revolving lines credit term loan bear interest either london interbank offered rate “libor” defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively revolving lines credit depending quarterly adjustments based consolidated financial performance 400 275 respectively term loan december 31 2006 interest rate us term loan bore interest per annum 935 recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 89 million 48 million 20 million 2006 2005 2004 respectively december 31 2006 accrued interest related senior credit facility amounted 01 million borrowings senior credit facility secured stock certain us foreign subsidiaries substantially intellectual property rights substantially assets businesses us significant portion assets businesses outside us senior credit agreement amended must comply various financial nonfinancial covenants primary inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios earnings interest taxes depreciation amortization “ebitda” minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends december 31 2006 compliance covenants b senior subordinated notes 875 principal amount 1500 million february 10 2004 completed sale 1500 million 875 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters’ commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility note 6a 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties remaining 114 million proceeds used bond offering expenses general corporate purposes bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commenced august 15 2004 addition related registration rights agreement cause registration statement sec respect registered exchange offer exchange notes underlying bonds new notes declared effective securities act 1933 amended within 240 days date bonds issuance consummate exchange offer within 270 days date bonds issuance unable consummate exchange offer march 28 2005 interest bonds increased 025 point per year first 90day period immediately following default november 7 2004 february 4 2005 additional 025 point per year march 28 2005 december 31 2006 accrued interest related bonds amounted 49 million may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest experience change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest might able pay required price bonds presented us time change control primary senior credit facility indebtedness may prohibit payment might enough funds time bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings senior credit facilities bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility see note 23 guarantor financial information indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued investments sell assets incur liens enter agreements restricting subsidiaries’ ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications c subordinated promissory notes 10 principal amount 200 million september 20 2002 sold units “units” aggregate purchase price 200 million private investors help finance wampole acquisition unit consisted 10 subordinated promissory note “10 subordinated note” principal amount 50000 ii warrant acquire 04 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 02 million shares common stock may exercised time prior september 20 2012 warrants issued relation debt classified equity pursuant provisions eitf 9613 among purchasers 10 subordinated notes three directors officers company entity controlled chief executive officer collectively purchased units aggregated 19 million principal amount warrants purchase aggregate 15000 shares common stock september 8 2006 connection august 2006 equity offering repaid 10 subordinated notes due mature september 20 2008 total payment aggregated 208 million represented principal balance outstanding plus accrued unpaid interest well prepayment penalty 04 million prepayment penalty along remaining unamortized deferred financing cost unamortized original interest discount writeoffs aggregating 09 million charged interest expense year ended december 31 2006 maturities longterm debt following summary maturities longterm debt outstanding december 31 2006 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 7 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2006 december 31 2006 capitalized amounts building machinery equipment computer equipment capital leases follows amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 08 million 05 million 04 million 2006 2005 2004 respectively b uk pension plans subsidiary england unipath ltd “unipath” adopted pension plan “unipath pension scheme” december 2002 unipath pension scheme consists two parts defined benefit section “defined benefit plan” ii defined contribution section “defined contribution plan” employees unipath allowed join unipath pension scheme starting december 1 2002 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued part purchase agreement unipath business december 2001 agreed establish new defined benefit pension plan acquired employees based england former participants unilever pension plan “acquired uk employees” continue accumulate benefits plan period least three years acquisition date unipath business consequently defined benefit plan established part unipath pension scheme covers acquired uk employees last two years three year postacquisition period starting december 1 2002 first year three year postacquisition period november 2002 acquired uk employees continued accumulate benefits unilever pension plan unipath contributed 19 million period time acquisition pursuant sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits recorded unfunded pension liability 37 million part purchase price unipath business withdrawal obligation unfunded pension liability represented excess benefit obligation 205 million fair value plan assets 168 million initially allocated unilever plan assets benefit acquired uk employees acquired uk employees terminated restructuring plan upon acquisition unfunded pension liability initially recorded us 37 million reduced portion employees’ severance payout represented pension benefits 11 million reclassified severance costs purposes aggregating purchase price unipath business november 2004 acquired uk employees could elect option transfer contributions benefits unilever pension plan defined benefit plan required established defined benefit plan believed benefits available plan less favorable acquired uk employees unilever’s plan maintained benefits period required acquisition agreement nevertheless engaged dispute unilever equity benefits old new plans may 2004 entered mediation unilever resolve differences relative levels benefits unilever’s plan defined benefit plan mediation produced settlement agreement unilever us dated august 17 2004 settlement agreement provided would match certain benefits available unilever plan ensure plan viewed less favorable unilever plan employees considering whether transition november 2004 changes increased benefits available retiree defined benefit plan allow retirees upon retirement receive unreduced benefits age 60 rather age 65 ii calculate final pension benefit payable retirees based retirees’ salary date pension benefits ceased accruing unipath plan december 2004 plus 1 inflation year service december 2004 retirement november 2004 final number employees elected transfer defined benefit plan unilever plan determined substantially fewer acquired uk employees transferred defined benefit plan previously anticipated transfer unfunded pension liability initially established 2001 result actuarial gain 18 million recorded deferred component comprehensive income 2004 discussed note 2 adopted recognition provisions sfas 158 december 31 2006 accordingly recognized liability unfunded status pension plans 45 million inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued also recognized accumulated comprehensive income loss prior service cost net actuarial gain loss plan future changes funded status plans recognized year change occurs comprehensive income prior december 31 2006 accounted defined benefit pension plan sfas 87 accordingly recognized pension liability 18 million noncash charge accumulated comprehensive income loss within stockholders’ equity december 31 2005 expect noncash pension expense 2007 following table sets forth analysis changes benefit obligation plan assets funded status defined benefit plan 2006 2005 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued net amount recognized accompanying consolidated balance sheet relates defined benefit plan 2006 2005 consists measurement date used determine plan assets benefit obligations defined benefit plan december 31 2006 2005 following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2006 stocks fixed income securities represented 70 30 respectively market value pension assets expect contribute approximately 03 million british pounds sterling 06 million december 31 2006 defined benefit plan 2007 expect benefits paid plan participants approximately 02 million per year next five years benefits totaling 02 million paid annually five years thereafter unipath contributed 12 million 11 million 03 million defined contribution plan recognized expense accompanying consolidated statement operations 2006 2005 2004 respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 derivative instruments entered interest rate swap agreement one lenders effective february 25 2002 intended protect longterm debt interest charged libor fluctuation rate interest rate swap agreement libor set minimum 336 maximum 500 interest rate swap agreement qualify hedge accounting purposes sfas 133 related amendments recorded income 07 million 2004 mark market interest rate swap agreement adjustment fair value interest rate swap agreement recorded component interest expense accompanying consolidated statements operations interest rate swap agreement expired december 30 2004 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income “oci” period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrencydenominated receivable payable reclassified oci income expense end reporting period changes derivative instrument’s fair values inception hedge compared cumulative change hedged item’s fair value attributable risk hedged effectiveness based change spot rates december 31 2005 two forward exchange contracts outstanding 15 million gbp contracts matured january february 2006 see note 12a regarding chembio diagnostics inc “chembio” warrant accounted derivative instrument 10 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2021 following schedule outlines future minimum annual rental payments leases december 31 2006 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued rent expense relating operating leases approximately 118 million 100 million 74 million 2006 2005 2004 respectively b capital expenditure commitments december 31 2006 total outstanding noncancelable equipment purchase commitments 88 million c legal proceedings currently party material pending legal proceedings nature business may subject particular time consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties suits expensive result counterclaims challenging validity patents rights december 2005 learned sec issued formal order investigation connection previously disclosed revenue recognition matter one diagnostic divisions subsequently received subpoena documents believe fully responded subpoena continue fully cooperate sec’s investigation cannot predict whether sec seek additional information outcome investigation march 2006 us federal trade commission “ftc” opened preliminary nonpublic investigation pending acquisition business acquired acon laboratories determine whether acquisition may anticompetitive subsequently received civil investigative demand subpoena requesting documents believe fully responded civil investigative demand continuing produce documents connection subpoena otherwise cooperate ftc’s investigation cannot predict whether ftc seek additional information outcome investigation ftc generally power commence administrative federal court proceedings seeking injunctive relief divestiture assets event order issued requiring divestiture significant assets imposing injunctive relief business financial condition results operations could materially adversely affected 11 arrangements codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited “iti” whereby iti agreed provide us £30 million three years partially fund research development programs focused identifying novel biomarkers nearpatient homeuse tests cardiovascular diseases “the programs” agreed invest £375 million programs three years date agreement subsidiary stirling medical innovations limited “stirling” established new research center stirling scotland consolidated many existing cardiology programs ultimately commercialize products arising programs iti stirling exclusive rights developed technology respective fields use december 31 2006 received approximately 409 million funding iti qualified expenditures made codevelopment arrangement recognize fee earned period reduction related inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 arrangements continued expenses subject certain limitations fiscal years ended december 31 2006 2005 recognized 184 million 181 million reimbursements respectively 166 million 172 million respectively offset research development spending 18 million 09 million respectively reduced general administrative marketing spending incurred stirling funds received iti excess amounts earned considered deferred revenue included accrued expenses current liabilities balance 49 million december 31 2006 b joint venture china september 2004 began manufacturing small amount product china third party february 2005 entered joint venture chinese manufacturer acquired controlling ownership manufacturing facility 12 investments availableforsale securities investment chembio september 2006 acquired 5 chembio developer manufacturer rapid diagnostic tests infectious diseases purchase 40 shares preferred stock preferred stock pays dividend 7 payable cash common stock aggregate purchase price 20 million paid cash addition preferred stock received warrant purchase 625000 shares chembio’s common stock 080 per share chembio’s stock publicly traded warrant accounted derivative instrument fair value approximately 04 million date issuance fair value warrant estimated time issuance using blackscholes pricing model assuming dividend yield expected volatility 116 riskfree rate 49 contractual term 5 years mark market warrant contractual term december 31 2006 warrant valued 04 million b equity method investments november 2006 acquired 40 vedalab sa “vedalab” french manufacturer supplier rapid diagnostic tests professional markets aggregate purchase price 97 million consisted 76 million cash 49787 shares common stock aggregate fair value 20 million 01 million estimated direct acquisition costs date settled ongoing patent infringement claim vedalab terms settlement vedalab paid us 51 million agreed pay royalties future sales ranging 5 10 depending products sold exchange license certain patents manufacture current products facility alencon france payment 51 million included income financial results year ended december 31 2006 46 million relates periods prior 2006 included income net remaining 05 million recorded license royalty revenue account 40 investment vedalab equity method accounting accordance apb opinion 18 equity method accounting investments common stock may 2006 acquired 49 techlab inc “techlab” privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibiotic associated diarrhea parasitology aggregate purchase price 88 million consisted 303417 shares common stock aggregate fair value 86 million 02 million estimated direct acquisition costs account 49 investment techlab equity method accounting accordance apb opinion 18 year ended december 31 2006 recorded inverness medical innovations inc subsidiaries notes consolidated financial statements continued 06 million income represented minority share techlab’s profit respective periods c availableforsale securities investment availableforsale securities longterm consists marketable equity securities purchased december 2006 currently intend hold investments indefinitely receipt shares recorded market value december 31 2006 fair value approximately 127 million representing unrealized holding gain approximately 01 million recorded comprehensive income within stockholders’ equity consolidated balance sheet 13 loss per share following table sets forth computation basic diluted loss per share following potential dilutive securities outstanding december 31 2006 options warrants purchase aggregate 41 million shares common stock weighted average exercise price 2075 per share potential dilutive securities included computation diluted loss per share 2006 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2005 options warrants purchase aggregate 47 million shares common stock weighted average exercise price 1844 per share b 104000 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2005 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2004 options warrants purchase aggregate 43 million shares common stock weighted average exercise price 1643 per share potential dilutive securities included computation diluted loss per share 2004 inclusion thereof would antidilutive inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity common stock december 31 2006 1000 million shares common stock 0001 par value authorized approximately 392 million shares issued outstanding 81 million shares reserved issuance upon grant exercise stock options current stock option plans 03 million shares reserved issuance upon exercise outstanding warrants august 2005 sold 40 million shares common stock 2376 per share funds affiliated three accredited institutional investors private placement proceeds private placement approximately 928 million net issuance costs 25 million amount repaid principal interest outstanding senior credit facility 844 million remainder net proceeds retained general corporate purposes february 2006 sold 34 million shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes august 2006 sold aggregate 50 million shares common stock 3025 per share funds affiliated 17 accredited institutional investors private placement proceeds private placement approximately 1455 million net issuance costs 57 million amount used 413 million payments related acquisition abon facility 53 million purchase remaining 3255 clondiag 540 million repay principal outstanding senior credit facility 208 million repay principal interest outstanding along prepayment penalty 10 subordinated promissory notes remainder net proceeds retained general corporate purposes january 2007 sold aggregate 60 million shares common stock 3965 per share underwritten public offering february 2007 underwriters exercised full option purchase additional 09 million shares cover overallotments proceeds offering approximately 2613 million net issuance costs 123 million include deductions underwriting discounts commissions take effect reimbursement underwriters portion offering expenses amount used 449 million repay principal outstanding accrued interest term loan senior credit facility remainder net proceeds retained working capital general corporate purposes b preferred stock december 31 2006 50 million shares preferred stock 0001 par value authorized 27 million shares designated series preferred stock 0001 par value 2004 2003 02 million 01 million shares series preferred stock respectively converted 04 million 02 million shares common stock respectively shares series preferred stock outstanding december 31 2006 c stock options awards 2001 adopted 2001 stock option incentive plan amended “2001 plan” allows issuance 81 million shares common stock awards amended 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2006 23 million shares available future grant 2001 plan august 2001 sold chief executive officer 12 million shares restricted common stock price 913 per share twothirds restricted stock 08 million shares vested ratably 36 months remaining onethird 04 million shares vested ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse chief executive officer note due payable august 16 2006 bore interest annual rate 499 interest income recorded note amounted 03 million year ended december 31 2006 05 million years ended december 31 2005 2004 august 2006 note accrued interest paid full note 19 august 2001 granted two nonqualified stock options purchase aggregate 08 million shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes due payable december 2006 bore interest annual rate 397 applicable federal rate fiveyear note effect month exercise notes accrued interest paid full december 2006 note 19 interest income recorded notes amounted 02 million year ended december 31 2006 2005 2004 respectively shares issued upon exercise vested ratably 36 months fully vested december 31 2004 following summarizes stock option activity year ended december 31 aggregate intrinsic value options outstanding december 31 2006 66664961 aggregate intrinsic value options exercisable december 31 2006 52139392 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued following represents additional information related stock options outstanding exercisable december 31 2006 warrants following summary warrant activity three years ended december 31 2006 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued following represents additional information related warrants outstanding exercisable december 31 2006 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 03 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2006 value warrants issued connection debt financings yielded original issue discounts additional interest expense 05 million 2006 02 million 2005 2004 outstanding warrants classified equity pursuant provision eitf 0019 e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 05 million shares common stock plan december 31 2006 03 million shares issued plan inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockbased compensation accordance sfas 123r results operations year ended december 31 2006 reflected compensation expense new stock options granted since january 1 2006 vested stock incentive plan employee stock purchase plan unvested portion previous stock option grants vested year ended december 31 2006 stockbased compensation expense amount 55 million 49 million net tax reflected consolidated statements operations year ended december 31 2006 follows prior adoption sfas 123r tax benefits resulting exercise stock options would reported operating cash flows consolidated statements cash flows accordance sfas 123r year ended december 31 2006 presentation cash flows reports excess tax benefits exercise stock options financing cash flows year ended december 31 2006 excess tax benefits generated option exercises amounted 06 million following assumptions used estimate fair value options granted year ended december 31 2006 2005 2004 using blackscholes optionpricing model weighted average fair value blackscholes option pricing model options granted employees 2006 2005 2004 1529 1185 986 respectively options granted periods granted fair market value date grants year ended december 31 2006 accordance sfas 123r recorded compensation expense 03 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 33 riskfree interest rate range 455 499 expected life 05 years charge included general administrative table inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders’ equity following summary components changes accumulated comprehensive income december 31 2006 three years ended represents realization unrealized gains availableforsale securities ii components accumulated comprehensive income relate foreign subsidiaries except item adjustments income taxes recorded comprehensive income intend permanently invest foreign subsidiaries foreseeable future 17 income taxes income tax provision 2006 2005 2004 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath limited united kingdom inverness medical japan inverness medical switzerland gmbh switzerland loss provision income taxes consists following inverness medical innovations inc subsidiaries notes consolidated financial statements continued primary temporary differences give rise deferred tax asset liability net operating loss “nol” carryforwards nondeductible reserves accruals differences bases tangible intangible assets income tax effects temporary differences follows december 31 2006 approximately 1887 million domestic nol carryforwards 315 million foreign nol foreign capital loss carryforwards either expire various dates 2026 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities domestic nol carryforwards include approximately 706 million preacquisition losses imn ischemia ostex adc preacquisition losses subject internal revenue service code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate valuation allowance relates us nols deferred tax assets certain foreign deferred tax assets recorded based upon uncertainty surrounding realizability assets realized via profitable operations respective tax jurisdictions accordance sfas 109 accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2006 173 million deferred tax asset pertains acquired companies future benefits applied first inverness medical innovations inc subsidiaries notes consolidated financial statements continued reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense included valuation allowance approximately 26 million related certain nol carryforwards resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax china based manufacturing subsidiaries qualify income tax holiday tax holiday provides income tax rate 0 2006 2007 income tax rate scheduled increase 16 2008 2009 2010 regular tax rate 32 2011 future years estimated amount undistributed earnings foreign subsidiaries 387 million december 31 2006 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability accordance sfas 109 sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows following table presents components provision income taxes inverness medical innovations inc subsidiaries notes consolidated financial statements continued following table presents reconciliation us statutory tax rate effective tax rate 18 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision making group composed chief executive officer members senior management reportable operating segments consumer diagnostic products vitamins nutritional supplements professional diagnostic products corporate allocation certain expenditures benefiting multiple segments refined 2005 applied consistent basis period presented included operating results corporate nonallocable corporate expenditures expenses related research development activities area cardiology latter amounted 302 million 168 million 194 million 2006 2005 2004 respectively respect cardiology expenditures 2006 2005 amount included corporate net 166 million 172 million respectively reimbursements received iti scotland part codevelopment arrangement entered february 2005 total assets area cardiology included corporate tables amounted 516 million december 31 2006 412 million december 31 2005 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2006 2005 2004 follows inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 financial information segment continued inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 related party transactions june 2006 issued 25000 shares common stock consideration acquisition capital stock innovative medical devices bvba seller capital stock innovative medical devices bvba spouse vice president consumer diagnostics business unit august 2006 chairman chief executive officer president paid us 11197096 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 1168191 shares common stock august 2001 note 14 december 2006 one key executive officers paid us 1606831 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 250000 shares common stock august 2001 note 14 december 2006 one key executive officers paid us 2571320 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 399381 shares common stock august 2001 note 14 20 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component costs sales following table sets forth activities inventory reserve accounts inverness medical innovations inc subsidiaries notes consolidated financial statements continued 21 restructuring activities following table sets forth aggregate restructuring charges 2006 2005 2004 recent restructuring plans may 22 2006 committed plan cease operations manufacturing facility san diego california write certain excess manufacturing equipment impacted facilities additionally june 7 2006 committed plan reorganize sales marketing customer service functions certain us professional diagnostic companies result restructuring plans recorded 121 million restructuring charges year ended december 31 2006 121 million charge included 25 million related severance charges 69 million related impairment charges fixed assets inventory 27 million related impairment charge intangible asset restructuring charge consisted 88 million charged cost sales 29 million charged research development 02 million charged sales marketing expenses 02 million charged general administrative expenses 19 million 76 million 26 million included consumer diagnostic products professional diagnostic products corporate business segments respectively expect complete plans first half 2007 including charges recorded december 31 2006 expect total restructuring charge related plans approximately 126 million additional charges 01 million relating severance 04 million relating facility exit closure costs total number employees involuntarily terminated plans 132 86 terminated december 31 2006 25 million related severance charges 16 million remains unpaid december 31 2006 b restructuring plan may 9 2005 committed plan cease operations facility galway ireland year ended december 31 2006 recorded net restructuring gain 32 million 04 million related charges severance early retirement outplacement services 01 million related impairment charge fixed assets 06 million related facility closing costs 43 million related foreign exchange gains result recording cumulative translation adjustment income relating primarily plan termination charges year ended december 31 2006 consisted 07 million charged cost goods sold 04 million charged general administrative 43 million gains recorded expense net restructuring gain 32 million included net loss year ended december 31 2006 11 million loss 43 million gain included consumer diagnostic products corporate business segments respectively additionally year ended december 31 2006 recorded 14 million gain sale cdil facility ireland recorded loss dispositions net consolidated statements operations included corporate business segment periods note 22 net restructuring charges since commitment date consist 26 million related severance early retirement outplacement services 24 million related impairment fixed assets inventory inverness medical innovations inc subsidiaries notes consolidated financial statements continued 21 restructuring activities continued 12 million related facility closing costs offset 43 million related net foreign exchange gains relating primarily plan termination 14 million gain sale manufacturing facility total 62 million restructuring charges recorded operating income 59 million 03 million included consumer diagnostic products professional diagnostic products business segments respectively 43 million 14 million gains included corporate business segment plan termination substantially complete december 31 2006 113 employees plan involuntarily terminated costs related severance early retirement outplacement services facility closing costs paid december 31 2006 c restructuring plan third quarter 2004 completed plan restructuring operations unipath manufacturing facility bedford england reduce operating expenses organizational complexities increase overall accountability unipath result recorded 17 million restructuring charge third quarter 2004 included cost sales accompanying statements operations cover costs severance early retirement outplacement services total number involuntarily terminated employees 18 terminated 2004 restructuring costs paid restructuring reserves following table summarizes liabilities related restructuring activities represents foreign currency translation adjustment 22 loss dispositions net 2006 recorded net loss dispositions 35 million included net loss 49 million charge associated management’s decision dispose scandinavian micro biodevices aps “smb” research operation part professional diagnostic products corporate business segments 20 million related impaired assets primarily goodwill associated smb 29 million estimated loss sale smb sale operation completed fourth quarter 2006 net loss dispositions also includes offsetting 14 million gain sale idle manufacturing facility galway ireland result 2005 restructuring plan facility associated consumer diagnostic products business segment 23 guarantor financial information issued 1500 million bonds qualified institutional buyers reliance rule 144a securities act 1933 amended “securities act” outside united states compliance regulation securities act note 6b payment obligations bonds guaranteed domestic subsidiaries “guarantor subsidiaries” december 31 2006 guarantee full unconditional separate financial statements guarantor subsidiaries presented inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued determined would material investors bonds following supplemental financial information sets forth consolidating basis statements operations cash flows three years period ended december 31 2006 balance sheets december 31 2006 2005 company “issuer” guarantor subsidiaries “nonguarantor subsidiaries” supplemental financial information reflects investments guarantor subsidiaries’ investments guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development cost sharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties october 20 2004 subsidiary imn became guarantor subsidiary bonds prior change imn nonguarantor subsidiary result included financial results imn results guarantor subsidiaries following supplemental financial information periods presented inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2005 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2004 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2005 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2005 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2005 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2004 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 guarantor financial information continued inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2004 thousandsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included 3 exhibits filed herewith omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date february 29 2008 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated inverness medical innovations inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries “company” december 31 2007 2006 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2007 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2007 2006 consolidated results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america described note 18 financial statements company adopted provisions fasb issued interpretation 48 “accounting uncertainty income taxes” effective january 1 2007 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission “coso” report dated february 29 2008 expressed unqualified opinion thereon bdo seidman llp boston massachusetts february 29 2008 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statement cash flows thousands inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands supplemental cash flow information cash paid interest income taxes fiscal 2007 2006 2005 made cash payments interest totaling 650 million 227 million 193 million respectively fiscal 2007 2006 2005 total net cash received paid income taxes 315 million 88 million 41 million respectively noncash investing activities fiscal 2007 2006 2005 issued shares common stock exchanged employee stock options connection several acquisitions dollars thousands 1 acquisition spectral diagnostics private limited also included affiliate source diagnostics india private limited 2 value includes 26 million associated net operating loss nol carryforwards related stock options issued biosite incorporated employees noncash financing activities 2007 recorded noncash charge accumulated comprehensive income 95 million representing change fair market value interest rate swap agreement inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation developing new capabilities nearpatient diagnosis monitoring health management inverness medical innovations inc subsidiaries enable individuals take charge improving health quality life global leader rapid pointofcare diagnostics products services well new product development efforts focused areas infectious disease cardiology oncology drugs abuse women’s health addition manufacture variety vitamins nutritional supplements market brands private label retailers consumer market primarily united states business organized three primary operating segments professional diagnostic products ii consumer diagnostic products iii vitamins nutritional supplements professional diagnostic products segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectious diseases cardiac conditions drugs abuse pregnancy consumer diagnostic products segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd holds leadership position worldwide overthecounter pregnancy fertilityovulation test market vitamins nutritional supplements segment includes branded private label vitamins nutritional supplements sold overthecounter acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 may 17 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields closing transferred related consumer diagnostic assets totaling 636 million manufacturing core intellectual property assets joint venture pg acquired interest joint venture cash payment approximately 3250 million pg retain option require us purchase interest venture back fair market value 60day period beginning fourth anniversary closing primary role collaboration develop manufacture consumer diagnostic products pg’s primary role market sell distribute existing tobedeveloped products retain rights respect development sale cardiology diagnostic products professional pointofcare diagnostic businesses following completion transaction formation joint venture ceased consolidate operating results consumer diagnostic business represented 761 million net product sales 2007 date joint venture formed 1716 million net product sales 2006 1617 million net product sales 2005 instead account 50 interest results joint venture equity method capacity manufacturer products joint venture supply product joint venture record revenue sales gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture market value expires fourth anniversary closing inverness medical innovations inc subsidiaries notes consolidated financial statements continued consolidated financial statements include accounts inverness medical innovations inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable minority interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates b foreign currencies follow provisions statement financial accounting standards “sfas” 52 foreign currency translation general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders’ equity note 17 revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month year net realized unrealized foreign currency exchange transaction losses 16 million 2007 gains 26 million 2006 losses 03 million 2005 respectively included component income expense net accompanying consolidated statements operations c cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2007 2006 restricted cash restricted cash 1419 million december 31 2007 1397 million represents cash escrow established connection january 2008 acquisition bbi holdings plc bbi note 4 e marketable securities account investment marketable securities accordance sfas 115 accounting certain investments debt equity securities classified availableforsale trading carried estimated fair value determined quoted market prices balance sheet date realized gains losses securities included earnings determined using specific identification method unrealized holding gains losses except temporary impairments securities classified available sale excluded earnings reported accumulated comprehensive income inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued net related tax effects unrealized gains losses actively traded securities included earnings marketable securities held indefinitely classified accompanying balance sheet long term marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 315 years buildings 2040 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 35 years furniture fixtures 310 years land depreciated depreciation expense related property plant equipment amounted 283 million 176 million 149 million 2007 2006 2005 respectively expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives account goodwill intangible assets accordance sfas 142 goodwill intangible assets establishes financial accounting reporting standards acquired goodwill intangible assets provisions sfas 142 goodwill indefinitelived intangible assets required tested impairment annually lieu amortized using fair value approach reporting unit level furthermore testing impairment required interim basis event circumstance indicates likely impairment loss incurred impairment loss shall recognized extent carrying amount goodwill indefinitelived intangible asset exceeds implied fair value impairment losses shall recognized operating results valuation methodology assessing impairment requires management make judgments assumptions based historical experience projections future operating performance assumptions differ materially future results may record impairment charges future annual impairment review performed september 30 2007 indicate goodwill indefinitelived intangible assets related professional diagnostic products consumer diagnostic products reporting units impaired impairment longlived tangible intangible assets accordance sfas 144 accounting impairment disposal longlived assets evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived asset reduced estimated fair value lower impairment loss would charged expense period impairment identified inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued believe carrying values longlived tangible intangible assets realizable december 31 2007 j business acquisitions account acquired businesses using purchase method accounting prescribed sfas 141 business combinations purchase method operating results acquired business included consolidated financial statements starting consummation date acquisition addition assets acquired liabilities assumed must recorded date acquisition respective estimated fair values excess purchase price estimated fair values net assets acquired recorded goodwill significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions significant estimates associated accounting acquisitions include exit costs undertaken certain restructurings acquired businesses realize efficiencies potential cost savings restructuring activities include elimination duplicate facilities reductions staffing levels costs associated exiting certain activities businesses acquire provided certain criteria met estimated costs associated restructuring activities treated assumed liabilities consistent guidance emerging issue task force “eitf” issue 953 recognition liabilities connection purchase business combination estimates assumptions associated restructuring activities may change execute approved plans decreases estimated costs generally recorded adjustment goodwill increases estimates generally recorded adjustment goodwill purchase price allocation period generally within one year acquisition date operating expenses thereafter common stock issued connection acquisitions determined based average market price common stock pursuant eitf issue 9912 determination measurement date market price acquirer securities issued purchase business combination acquisitions involved exchange employee stock options restricted stock awards accordingly accounted exchanges within purchase business combination guidance sfas 123r general extent fair value awards approximate fair value acquiredcompany awards fair value awards recognized component purchase price fair value unvested partiallyvested awards allocated vested unvested portions awards fair value unvested portion deducted purchase price recognized compensation cost portion vests inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued k income taxes follow provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss nol carryforwards extent realization benefits likely extent likely realize benefits must establish valuation allowance related deferred tax assets note 18 follow provisions financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 “fin 48” accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position note 2r 18 l revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions discussed critical accounting policy “use estimates sales returns allowances allowance doubtful accounts” future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue date immaterial connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements provide compensation services provide based number days patient case open predetermined fee patient managed revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued employee stockbased compensation arrangements effective january 1 2006 began recording compensation expense associated stock options forms equity compensation accordance sfas 123r sharebased payment interpreted sec staff accounting bulletin “sab” 107 prior january 1 2006 accounted stock options according provisions accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations therefore related compensation expense recorded awards granted intrinsic value adopted modified prospective transition method provided sfas 123r consequently retroactively adjusted results prior periods transition method compensation cost associated stock options includes amortization related remaining unvested portion stock option awards granted prior january 1 2006 based grantdate fair value estimated accordance original provisions sfas 123 ii amortization related stock option awards granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions sfas 123r addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized expected term options using straightline method stock options granted prior adoption sfas 123r expense stockbased compensation determined fair value method original sfas 123 year ended december 31 2005 net loss per common share would adjusted following pro forma amounts thousands except per share data stock option plans provide grants options employees purchase common stock fair market value shares grant date award options typically vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate years ended december 31 2007 2006 chosen employ simplified method calculating expected option term averages award’s weighted average vesting period contractual term contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments plans pay dividends foreseeable future inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued n net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 14 operating expenses expense advertising costs incurred 2007 2006 2005 advertising costs amounted 163 million 230 million 217 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost revenues accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues p concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2007 one individual customer accounts receivable balance outstanding excess 10 gross accounts receivable balance individual customer accounts receivable balance outstanding excess 10 gross accounts receivable balance december 31 2006 2007 one customer represented 17 net revenue purchased professional diagnostic products 2005 one customer represented 10 net revenue purchased professional diagnostic products consumer diagnostic products 2006 customer represented greater 10 net revenue rely number third parties manufacture certain products third party manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results q financial instruments fair value financial instruments primary financial instruments december 31 2007 2006 consisted cash equivalents marketable securities accounts receivable accounts payable debt interest rate swap contract estimated fair value financial instruments approximates carrying values december 31 2007 2006 estimated fair values determined information obtained market sources account derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued r recent accounting pronouncements recently issued standards december 2007 meeting fasb ratified consensus reached eitf issue 0701 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date currently process evaluating impact adopting pronouncement december 2007 fasb issues sfas 160 noncontrolling interests consolidated financial statementsan amendment accounting research bulletin arb 51 statement amends arb 51 establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary clarifies noncontrolling interest subsidiary ownership interest consolidated entity therefore reported equity consolidated financial statements statement also establishes standards presentation disclosure noncontrolling results consolidated income statement sfas 160 effective fiscal years beginning december 15 2008 continue evaluate impact adoption sfas 160 consolidated financial statements december 2007 fasb issued sfas 141r business combinations statement replaces sfas 141 retains fundamental requirements sfas 141 acquisition method accounting used business combinations statement requires acquirer recognize measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date statement requires acquisition costs restructuring costs associated business combination recognized separately fair value business combination sfas 141r establishes requirements recognizing measuring goodwill acquired business combination gain bargain purchase well disclosure requirements designed enable users better interpret results business combination sfas 141r effective fiscal years beginning december 15 2008 given history acquisition activity anticipate adoption sfas 141r significant impact consolidated financial statements early adoption statement permitted june 2007 eitf reached consensus eitf issue 0703 accounting nonrefundable advance payments goods services used future research development activities eitf 0703 concludes nonrefundable advance payments future research development activities deferred capitalized goods delivered related services performed entity expect goods delivered services rendered capitalized advance payment charged expense consensus effective financial statements issued inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued fiscal years beginning december 15 2007 interim periods within fiscal years earlier adoption permitted effect applying consensus prospective new contracts entered date believe adoption consensus first quarter 2008 material impact consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb 115 statement provides companies option measure specified election dates many financial instruments certain items fair value currently measured fair value standard also establishes presentation disclosure requirements designed facilitate comparison entities choose different measurement attributes similar types assets liabilities fair value option elected effect first remeasurement fair value reported cumulative effect adjustment opening balance retained earnings statement applied prospectively upon adoption sfas 159 effective fiscal years beginning november 15 2007 currently evaluating impact sfas 159 results operations financial position september 2006 fasb issued sfas 157 fair value measurements sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years financial assets liabilities well assets liabilities carried fair value recurring basis financial statements fasb provided one year deferral implementation nonfinancial assets liabilities earlier application encouraged continue evaluate impact adoption sfas 157 consolidated financial statements recently adopted standards adopted fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 january 1 2007 fin 48 clarifies accounting reporting uncertainties income tax law interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns see note 18 information pertaining effects adoption consolidated balance sheet december 2006 fasb issued fasb staff position “fsp” eitf 00192 accounting registration payment arrangements fsp specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 accounting contingencies guidance fsp amends fasb statement 133 150 accounting certain financial instruments characteristics liabilities equity fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others include scope exceptions registration payment arrangements fsp effective immediately registration payment arrangements financial instruments subject arrangements entered modified subsequent date issuance fsp registration payment arrangements financial instruments subject arrangements entered prior issuance fsp guidance effective financial statements issued fiscal years beginning december 15 2006 interim periods within fiscal years required eitf 00192 adopted new accounting inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued standard january 1 2007 adoption eitf 00192 impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 taxes collected customers remitted governmental authorities presented income statement scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 required eitf issue 0603 adopted new accounting standard interim period beginning january 1 2007 adoption eitf issue 0603 impact financial position results operations cash flows february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amends sfas 133 accounting derivative instruments hedging activities sfas 140 accounting transfers servicing financial assets extinguishments liabilities sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 adoption sfas 155 impact financial position results operations cash flows 3 balance sheet information components selected captions consolidated balance sheets consist thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 3 balance sheet information continued 4 business combinations acquisitions 2007 acquisition paradigmhealth december 21 2007 acquired paradigmhealth inc paradigmhealth privatelyowned leading provider precise medical management provide optimal health outcomes acutely ill clinically complex patients preliminary aggregate purchase price 2304 million consisted 2300 million cash 04 million direct acquisition costs operating results paradigmhealth included professional diagnostic products reporting unit business segment summary preliminary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments including adjustments liabilities associated certain exit activities restructuring activities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition redwood december 20 2007 acquired redwood toxicology laboratories inc redwood privatelyowned drugs abuse diagnostics testing company preliminary aggregate purchase price 538 million consisted 533 million cash 05 million direct acquisition costs addition assumed paid debt 477 million operating results redwood included professional diagnostic products reporting unit business segment summary preliminary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition alere november 16 2007 acquired alere medical inc alere privatelyheld leading provider care health management services preliminary aggregate purchase price 3095 million consisted 1274 million cash common stock aggregate fair value 1611 million 04 million direct acquisition costs 206 million fair value associated alere employee stock options exchanged part transaction operating results alere included professional diagnostic products reporting unit business segment respect alere terms acquisition provide contingent consideration payable alere stockholder still owns shares common stock retains option purchase shares common stock 6month anniversary closing acquisition contingent consideration equal number shares common stock options purchase common stock held 6month anniversary multiplied amount 5831 exceeds greater average price common stock 10 business days preceding 6month anniversary date 75 5831 accordingly depending price common stock around 6month anniversary closing acquisition may become obligated pay additional 93 million cash stock election time based remaining shares outstanding february 29 2008 payment contingent consideration impact purchase price acquisition summary preliminary purchase price allocation acquisition follows dollars thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisition hemosense november 6 2007 acquired hemosense inc hemosense publiclytraded developer marketer pointofcare testing products therapeutic drug monitoring preliminary aggregate purchase price 2436 million consisted common stock aggregate fair value 2264 million 05 million direct acquisition costs 167 million fair value associated hemosense employee stock options exchanged part transaction operating results hemosense included professional diagnostic products reporting unit business segment summary preliminary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments including adjustments liabilities associated certain exit activities restructuring activities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands v acquisition cholestech september 12 2007 acquired cholestech corporation cholestech publiclytraded leading provider diagnostic tools information immediate risk assessment therapeutic monitoring heart disease inflammatory disorders preliminary aggregate purchase price 3546 million consisted common stock aggregate fair value 3298 million 45 million direct acquisition costs 203 million fair value associated cholestech employee stock options restricted stock awards exchanged part transaction operating results cholestech included cardiology reporting unit professional diagnostic products business segment summary preliminary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments including adjustments liabilities associated certain exit activities restructuring activities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vi acquisition biosite june 29 2007 completed acquisition biosite incorporated biosite publiclytraded global medical diagnostic company utilizing biotechnology approach create products diagnosis critical diseases conditions preliminary aggregate purchase price 18 billion consisted 16 billion cash 688 million estimated direct acquisition costs 774 million fair value associated biosite employee stock options exchanged part transaction connection acquisition biosite also recorded 452 million compensation expense associated unvested stock options operating results biosite included cardiology reporting unit professional diagnostic products business segment summary preliminary purchase price allocation acquisition follows dollars thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued part purchase price allocation iprd projects valued 1690 million projects yet achieved technological feasibility date acquisition biosite expect substantially amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments including adjustments liabilities associated certain exit activities restructuring activities customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vii acquisition instant march 12 2007 acquired 75 issued outstanding capital stock instant technologies inc instant privatelyowned distributor rapid drugs abuse diagnostic products used workplace criminal justice testing markets december 28 2007 acquired remaining 25 interest bringing aggregate purchase price 608 million consisted 389 million cash common stock aggregate fair value 215 million 04 million direct acquisition costs addition assumed paid debt 49 million operating results instant included professional diagnostic products reporting unit business segment summary preliminary purchase price allocation acquisition follows dollars thousands expect amount allocated goodwill deductible tax purposes allocation purchase price remains subject potential adjustments inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands viii acquisitions 2007 year ended december 31 2007 acquired following businesses aggregate purchase price 1758 million paid 1099 million cash issued 963872 shares common stock aggregate fair value 520 million incurred 40 million direct acquisition costs accrued milestone payments totaling 99 million • matritech inc matritech located newton massachusetts freiburg germany biotechnology company principally engaged development manufacturing marketing distribution licensing cancer diagnostic technologies products • aska diagnostic inc aska located tokyo japan distributor professional diagnostic products japan • assets akubio research company located cambridge england • 9091 share biosystems sa biosystems located cali bogota columbia distributor diagnostics tests instruments reagents throughout colombia • biostat healthcare group biostat located cheshire united kingdom privatelyowned distributor core laboratory pointofcare diagnostic testing products uk marketplace • spectral diagnostics private limited affiliate source diagnostics india private limited spectralsource located new delhi shimla india distributes professional diagnostic products india • 5245 share diamics inc diamics located novato california developer molecularbased cancer screening diagnostic systems • quality assurance services inc qas located orlando florida privatelyowned provider diagnostic home tests services us marketplace • orange medical orange located tilburg netherlands manufacturer marketer rapid diagnostic products benelux marketplace • promesan srl promesan located milan italy distributor pointofcare diagnostic testing products italian marketplace • first check diagnostics llc first check located lake forrest california privatelyheld diagnostics company field home testing drugs abuse including marijuana cocaine methamphetamines opiates • assets nihon schering kk nskk located japan diagnostic distribution business inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • gabmed gmbh gabmed located nettetal germany distributor pointofcare diagnostic testing products german marketplace • medox chemicals limited medox located ottawa canada distributor professional diagnostic testing products canadian marketplace summary preliminary purchase price allocation acquisitions follows thousands nskk promesan included professional consumer diagnostic products reporting units business segments matritech aska biosystems biostat akubio spectralsource orange qas gabmed medox included professional diagnostic products reporting unit business segment first check included consumer diagnostic products reporting unit business segment biosystems diamics consolidated included professional diagnostic products reporting unit business segment 909 minority interest biosystems recorded longterm liabilities consolidated balance sheet december 31 2007 goodwill recognized matritech aska biosystems biostat spectralsource diamics qas orange gabmed promesan first check medox transactions amounted approximately 1063 million goodwill related acquisitions exception matritech first check deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands b acquisitions 2006 acquisition innovacon business including abon facility march 31 2006 acquired assets acon laboratories’ business researching developing manufacturing marketing selling lateral flow immunoassay directlyrelated products united states canada europe excluding russia former soviet republics part european union turkey israel australia japan new zealand innovacon business preliminary aggregate purchase price approximately 977 million consisted 551 million cash common stock aggregate fair value 197 million 129 million estimated direct acquisition costs additional liability 100 million paid 2007 pursuant purchase agreement may 15 2006 part innovacon business acquired newlyconstructed manufacturing facility hangzhou china pursuant terms acquisition agreement acon laboratories inc affiliates connection acquisition new facility acquired abon biopharm hangzhou co ltd abon direct owner new factory subsidiary preliminary aggregate purchase price approximately 208 million consisted 88 million cash common stock aggregate fair value 120 million addition pursuant acquisition agreement made additional payment 41 million cash result amount cash acquired net indebtedness assumed increased preliminary aggregate purchase price 249 million acquisition also contingent payments due attainment certain milestones met made cash payments totaling 430 million issued common stock aggregate fair value 213 million various milestones achieved brings aggregate purchase price innovacon business including abon facility total 1869 million operating results innovacon business included professional consumer diagnostic products reporting units business segments inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition including abon facility discussed follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands additionally connection acquisition innovacon business entered agreement purchase acon laboratories’ lateral flow immunoassay sales distribution business territories included within territories acquired connection march 31 2006 acquisition described terms agreement event business achieves specified level profitability acquire business 2009 formulaic price based revenues earnings business alternatively may elect complete acquisition business exchange payment equal 15 purchase price would due elected complete acquisition ii acquisition clondiag february 28 2006 acquired 6745 clondiag chip technologies gmbh clondiag privatelyheld company located jena germany developing multiplexing technology nucleic inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued acid immunoassaybased diagnostics pursuant acquisition agreement purchased remaining 3255 august 31 2006 aggregate purchase price 231 million consisted initial cash payment 119 million common stock aggregate fair value 58 million 53 million cash payment acquire remaining 3255 stock ownership 01 million direct acquisition costs additionally pursuant terms acquisition agreement obligation settle existing employee bonus arrangements clondiag employees totaling 11 million 13 million connection obligation issued common stock fair value 07 million employees clondiag cash payment 05 million december 31 2006 remaining obligation 01 million obligation increased aggregate purchase price 244 million december 31 2006 resulted additional goodwill addition terms acquisition agreement provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date contingent consideration accounted increase aggregate purchase price contingency occurs 2007 paid cash 09 million issued 56079 shares common stock fair value 15 million conjunction clondiag meeting one milestones mentioned increased aggregate purchase price 268 million operating expenses clondiag consist principally research development activities included corporate business segment summary purchase price allocation acquisition follows dollars thousands also evaluated certain inprocess research development projects expensed inprocess research development projects yet attained technical feasibility amount expensed year ended december 31 2006 50 million included research development expense consolidated statement operations inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands c acquisitions 2005 acquisition biostar september 30 2005 acquired thermo biostar inc biostar leading developer manufacturer highperformance rapid diagnostic tests including tests detection infectious diseases aggregate purchase price 537 million consisted 531 million cash 05 million estimated direct acquisition costs 01 million estimated exit costs operating results biostar included professional diagnostic products reporting unit business segment summary purchase price allocation acquisition follows thousands goodwill generated acquisition fully deductible tax purposes 15 years customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition idt september 30 2005 acquired innogenetics diagnostica terapeutica sau idt spanish distributor diagnostic products aggregate purchase price 203 million consisted 117 million cash 84 million working capital adjustment paid fourth quarter fiscal year 2005 02 million estimated direct acquisition costs operating results idt included professional diagnostic products reporting unit business segment summary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition determine business june 30 2005 acquired determine business produces diagnostic tests designed provide rapid qualitative results detecting several diseases including hepatitis hiv 12 syphilis aggregate purchase price 581 million consisted 565 million cash 16 million estimated direct acquisition costs operating results determine business included professional diagnostic products reporting unit business segment summary purchase price allocation acquisition follows thousands goodwill resulting acquisition deductible tax purposes lives varying 10 25 years depending tax jurisdiction customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisition binax march 31 2005 acquired binax inc binax privatelyheld developer manufacturer distributor rapid diagnostic products infectious disease testing primarily related respiratory system aggregate purchase price 447 million consisted 90 million cash common stock aggregate fair value 352 million 05 million estimated direct acquisition costs terms acquisition agreement also provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition contingent consideration accounted increase aggregate purchase price contingency occurs third quarter 2007 paid recorded 37 million related successful development one qualifying products increased aggregate purchase price 484 million operating results binax included professional diagnostic products reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands v acquisition ischemia march 16 2005 acquired ischemia technologies inc ischemia privately held venturebacked company developed manufactured marketed fdacleared vitro diagnostic test targeted cardiac ischemia aggregate purchase price 251 million consisted common stock aggregate fair value 227 million estimated direct acquisition costs 24 million operating results ischemia included professional diagnostic products reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands restructuring plans related business combinations connection several acquisitions initiated integration plans consolidate restructure certain functions operations including relocation termination certain personnel acquired entities closure certain acquired entities’ leased facilities costs recognized liabilities assumed connection acquisition entities accordance eitf issue 953 subject potential adjustments certain exit activities confirmed refined inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following table summarizes liabilities established exit activities related acquisitions thousands acquisitions conjunction acquisition biosite implemented integration plan improve efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within biosite organization activities combined existing business operations recorded 132 million exit costs substantially relate change control severance costs involuntarily terminate 135 employees biosite organization december 31 2007 68 million exit costs remain unpaid 7 employees remain terminated additionally formulated restructuring plan connection integration cholestech business consistent acquisition strategy realize efficiencies cost savings recorded 43 million exit costs related change control severance costs involuntarily terminate 29 employees primarily executives december 31 2007 40 million exit costs remain unpaid 10 employees remain terminated conjunction acquisition hemosense formulated restructuring plan realize efficiencies cost savings recorded 08 million severance costs involuntarily terminate 16 employees primarily executives december 31 2007 07 million severance costs remain unpaid 7 employees remain terminated conjunction acquisition paradigmhealth recorded 16 million severance costs involuntarily terminate 4 executives december 31 2007 severance costs remain unpaid employees terminated conjunction acquisition matritech formulated plan exit leased facility matritech newton massachusetts recorded 12 million facility exit costs december 31 2007 substantially facility exit costs remain unpaid although believe plans estimated exit costs 2007 acquisitions reasonable actual spending exit activities may differ current estimated exit costs inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued ii acquisitions 2005 established restructuring plan connection acquisition biostar recorded restructuring costs 01 million related severance costs associated headcount reduction total number employees involuntarily terminated 9 terminated december 31 2006 costs recorded 2005 paid december 31 2007 connection acquisition ischemia march 2005 established restructuring plan whereby exited current facilities ischemia denver colorado combined activities existing manufacturing distribution facilities third quarter 2005 total severance costs associated involuntarily terminated employees 16 million paid december 31 2006 costs vacate ischemia facilities 01 million paid december 31 2007 result acquisition ostex established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total number employees involuntarily terminated restructuring plan 38 terminated december 31 2006 total severance costs associated involuntarily terminated employees 16 million paid december 31 2006 costs vacate ostex facilities 05 million 02 million paid december 31 2006 additionally remaining costs exit operations primarily facilities lease commitments 19 million 06 million remain unpaid december 31 2007 immediately close acquisition reorganized business operations imn improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined existing business operations also part restructuring plan relocated one imn’s warehouses closer proximity manufacturing facility improve efficiency 16 million total exit costs includes severance costs 47 involuntarily terminated employees costs vacate warehouse substantially paid december 31 2007 e recent pending acquisitions january 2008 acquired outstanding shares panbio ltd panbio located brisbane australia develops manufactures diagnostic tests use diagnosis management broad range infectious diseases total purchase price approximately 370 million cash february 2008 acquired bbi located united kingdom specializes development manufacture noninvasive lateral flow purchase price consisted cash approximately £632 million approximately 1232 million approximately 251085 shares common stock fair value approximately 144 million addition existing options purchase bbi stock assumed converted options purchase approximately 360000 shares common stock fair value approximately 206 million 2008 entered definitive agreement pursuant acquire outstanding shares common stock matria healthcare inc matria consideration 650 per share ii convertible preferred stock stated value 3250 per share convertible certain circumstances common stock 6932 premium 30 prior fiveday closing average price common stock election 3900 cash convertible preferred stock issued taxdeferred transaction provides 3 dividend total transaction consideration expected approximately 12 billion consisting approximately 9000 million acquire matria shares inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued common stock assumption approximately 3000 million matria’s indebtedness outstanding proposed transaction take form indirect acquisition merger newly formed whollyowned subsidiary matria headquartered marietta georgia national provider health enhancement disease management highrisk pregnancy management programs services health enhancement women’s children’s health divisions matria provides services 1000 employers managedcare organizations completion transaction subject various closing conditions including obtaining approval matria shareholders filings hartscottrodino antitrust improvements act transaction intended qualify reorganization federal income tax purposes f pro forma financial information following table presents selected unaudited financial information company including innovacon business abon instant biosite cholestech acquisitions entities occurred january 1 2006 pro forma results also reflect impact formation joint venture consumer diagnostic business note 12ai joint venture formed january 1 2006 pro forma results exclude adjustments various less significant acquisitions completed since january 1 2006 acquisitions materially affect results operations pro forma results derived historical financial results acquired businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2006 thousands except per share amounts 1 net loss per common share amounts computed described note 14 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets following summary goodwill intangible assets december 31 2007 thousands except useful life inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2006 thousands except useful life amortize intangible assets finite lives using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate approximates pattern economic benefits consumed circumstances patterns reliably determined certain circumstances certain customer relationship assets accelerated amortization recognized reflect estimate cash flows amortization expense intangible assets aggregate amounted 621 million 218 million 129 million 2007 2006 2005 respectively included cost revenues research development sales marketing accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2007 thousands accordance sfas 142 perform annual impairment tests carrying value goodwill reporting unit annual impairment review september 30 2007 indicate inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued goodwill related professional diagnostic products consumer diagnostic products reporting units impaired allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated professional diagnostic products consumer diagnostic products reporting units summarized follows thousands 1 includes purchase accounting adjustments 2 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 3 includes amounts written connection formation 5050 joint venture pg generally expense costs incurred internally develop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2007 approximately 59 million costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon successful registration patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands following describes listed debt instruments first lien credit agreement second lien credit agreement june 26 2007 conjunction acquisition biosite entered first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements senior secured credit facility initially provided term loans aggregate amount 9000 million subject continued compliance senior secured credit facility 1500 million revolving line credit junior secured credit facility provides term loans aggregate amount 2500 million may repay future borrowings senior secured credit facility revolving line credit time event later june 26 2013 must repay entire junior facility term loan june 26 2015 december 31 2007 term loans revolving line credit senior secured credit facility bore interest 688 85 respectively term loan junior secured credit facility bore interest 909 november 15 2007 amended senior secured credit facility increasing total amount credit available us 1125000000 resulting increase term loans aggregate amount 9750 million additionally amendment must repay senior secured credit facility term loans follows two initial installments amount 2250000 september 30 2007 december 31 2007 installment payment made b twentyfive consecutive quarterly installments beginning march 31 2008 continuing march 31 2014 amount 2437500 c final installment june 26 2014 amount equal outstanding principal balance senior secured credit facility term loans december 31 2007 aggregate borrowings amounted 0 senior secured credit facility revolving line credit 12 billion term loans interest expense related secured credit facility year ended december 31 2007 including amortized deferred financing costs 543 million december 31 2007 accrued interest related credit facilities amounted 18 million december 31 2007 compliance debt covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 changes fair market value interest rate swaps recorded accumulated comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows december 31 2007 recorded 95 million accumulated comprehensive income accompanying balance sheets b 3 senior subordinated convertible notes principal amount 1500 million may 14 2007 sold 1500 million principal amount 3 senior subordinated convertible notes due 2016 “convertible notes” private placement qualified institutional buyers initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale daily volumeweighted average price per share common stock thirty consecutive trading days ending may 9 2008 less 4023 adjusted stock splits stock dividends recapitalizations similar events event conversion rate adjusted greater 130 average 4023 case adjusted stock splits stock dividends recapitalizations similar events adjustment decrease thenapplicable conversion rate adjustment result additional shares common stock becoming issuable upon conversion senior subordinated convertible rates interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th started november 15 2007 interest expense year ended december 31 2007 including amortized deferred costs 31 million evaluated convertible notes agreement potential embedded derivatives sfas 133 related applicable accounting literature including eitf issue 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” eitf issue 054 “the effect liquidated damages clause freestanding financial instrument subject issue 0019” conversion feature makewhole provision determined meet embedded derivative criteria set forth sfas 133 therefore fair value recorded items c senior credit facility december 31 2006 448 million borrowings outstanding senior credit facility dated june 30 2005 february 1 2007 using portion proceeds january 2007 sale 69 million shares common stock note 15 paid remaining principal balance outstanding accrued interest june 2005 senior credit facility terminated june 2005 senior credit facility conjunction refinancing activities discussed outstanding loans june 2005 senior credit facility time terminated borrowings revolving lines credit term loan bore interest either london interbank offered rate “libor” defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins year ended december 31 2007 interest expense including amortization deferred financing costs senior inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued credit facility 47 million included interest expense writeoff 26 million unamortized deferred financing costs years ended december 31 2006 2005 recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 89 million 48 million respectively december 31 2006 accrued interest related senior credit facility amounted 01 million senior subordinated notes 875 principal amount 1500 million june 26 2007 fully repaid 875 senior subordinated notes due 2012 “notes” total amount repaid including principal 1500 million prepayment premium 93 million 1593 million accrued interest 48 million also paid part final settlement notes unamortized deferred financing costs 37 million written result repayment e linesofcredit subsidiaries maintain local lineofcredit shortterm advances december 31 2007 total 37 million borrowed local linesofcredit f otherdebt included year ended december 31 2007 borrowings certain subsidiaries various financial institutions borrowed funds used fund capital expenditure working capital requirements interest expense borrowings 04 million year ended december 31 2007 g maturities longterm debt following summary maturities longterm debt outstanding december 31 2007 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 7 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2007 thousands december 31 2007 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 15 million 08 million 05 million 2007 2006 2005 respectively b uk pension plans subsidiary england unipath ltd unipath adopted pension plan “unipath pension scheme” december 2002 unipath pension scheme consists two parts defined benefit section “defined benefit plan” ii defined contribution section “defined contribution plan” employees unipath allowed join unipath pension scheme starting december 1 2002 part purchase agreement unipath business december 2001 agreed establish new defined benefit pension plan acquired employees based england former participants unilever pension plan “acquired uk employees” continue accumulate benefits plan period least three years acquisition date unipath business consequently defined benefit plan established part unipath pension scheme covers acquired uk inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued employees last two years three year postacquisition period starting december 1 2002 first year three year postacquisition period november 2002 acquired uk employees continued accumulate benefits unilever pension plan unipath contributed 19 million period time acquisition pursuant sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits recorded unfunded pension liability 37 million part purchase price unipath business withdrawal obligation unfunded pension liability represented excess benefit obligation 205 million fair value plan assets 168 million initially allocated unilever plan assets benefit acquired uk employees acquired uk employees terminated restructuring plan upon acquisition unfunded pension liability initially recorded us 37 million reduced portion employees’ severance payout represented pension benefits 11 million reclassified severance costs purposes aggregating purchase price unipath business november 2004 acquired uk employees could elect option transfer contributions benefits unilever pension plan defined benefit plan required established defined benefit plan believed benefits available plan less favorable acquired uk employees unilever’s plan maintained benefits period required acquisition agreement nevertheless engaged dispute unilever equity benefits old new plans may 2004 entered mediation unilever resolve differences relative levels benefits unilever’s plan defined benefit plan mediation produced settlement agreement unilever us dated august 17 2004 settlement agreement provided would match certain benefits available unilever plan ensure plan viewed less favorable unilever plan employees considering whether transition november 2004 changes increased benefits available retiree defined benefit plan allow retirees upon retirement receive unreduced benefits age 60 rather age 65 ii calculate final pension benefit payable retirees based retirees’ salary date pension benefits ceased accruing unipath plan december 2004 plus 1 inflation year service december 2004 retirement november 2004 final number employees elected transfer defined benefit plan unilever plan determined substantially fewer acquired uk employees transferred defined benefit plan previously anticipated transfer unfunded pension liability initially established 2001 result actuarial gain 18 million recorded deferred component comprehensive income 2004 adopted sfas 158 december 31 2006 required prospective basis result recognized following adjustments individual line items consolidated balance sheet december 31 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued adoption sfas 158 effect consolidated statement operations year ended december 31 2006 prior period presented changes benefit obligations plan assets funded status amounts recognized balance sheet years ended december 31 2007 2006 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets follows thousands measurement date used determine plan assets benefit obligations defined benefit plan december 31 2007 2006 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 postretirement benefit plans continued following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2007 stocks fixed income securities represented 66 34 respectively market value pension assets expect contribute approximately 04 million british pounds sterling 08 million december 31 2007 defined benefit plan 2008 expect benefits paid plan participants approximately 03 million per year next five years benefits totaling 03 million paid annually five years thereafter expect noncash pension expense 2008 unipath contributed 12 million 2007 2006 11 million 2005 defined contribution plan recognized expense accompanying consolidated statement operations 9 derivative financial instruments use derivative financial instruments interest rate swap contracts management interest rate exposure related senior credit facilities hold issue derivative financial instruments speculative purposes august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 accounting derivative instruments hedging activities changes fair value interest rate swaps recorded comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows december 31 2007 recorded inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 derivative financial instruments continued 95 million accumulated comprehensive income accompanying balance sheets connection interest rate swap contracts 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income “oci” period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrencydenominated receivable payable reclassified oci income expense end reporting period changes derivative instrument’s fair values inception hedge compared cumulative change hedged item’s fair value attributable risk hedged effectiveness based change spot rates december 31 2005 two forward exchange contracts outstanding 15 million gbp contracts matured january february 2006 see note 12b regarding chembio diagnostics inc chembio warrants note 12d regarding statsure diagnostic systems inc statsure warrants accounted derivative instruments 10 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2021 following schedule outlines future minimum annual rental payments leases december 31 2007 thousands rent expense relating operating leases approximately 174 million 118 million 100 million 2007 2006 2005 respectively b capital expenditure commitments december 31 2007 total outstanding noncancelable equipment purchase commitments 122 million inverness medical innovations inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued c contingent consideration obligations december 31 2007 contingent consideration obligations related acquisitions alere binax biostat clondiag diamics first check gabmed matritech promesan spectralsource contingent considerations accounted increases aggregate purchase prices contingencies occur respect alere terms acquisition provide contingent consideration payable alere stockholder still owns shares common stock retains option purchase shares common stock 6month anniversary closing acquisition contingent consideration equal number shares common stock options purchase common stock held 6month anniversary multiplied amount 5831 exceeds greater average price common stock 10 business days preceding 6month anniversary date 75 5831 accordingly depending price common stock around 6month anniversary closing acquisition may become obligated pay additional 93 million cash stock election time based remaining outstanding shares february 29 2008 payment contingent consideration impact purchase price acquisition respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition successful development one qualifying products completed second quarter 2007 made payment amount 37 million third quarter respect biostat terms acquisition provide contingent cash consideration payable biostat shareholders certain ebitda milestones met 2007 ebitda milestone earned 2007 contingent consideration 74 million accrued december 31 2007 respect clondiag terms acquisition agreement provide 89 million contingent consideration consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date successful completion first milestone occurred fourth quarter 2007 made payment 09 million issued 56079 shares common stock fourth quarter respect diamics terms acquisition provide contingent consideration payable upon successful completion certain milestones including development business plans marketable products december 31 2007 remaining contingent consideration earned approximately 23 million respect first check pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods december 31 2007 first period earnout requirements met resulting accrued contingent consideration totaling 22 million respect gabmed terms acquisition provide contingent consideration totaling 750000 euros payable five equal annual amounts 150000 euros beginning 2007 upon successfully meeting certain revenue ebit milestones respective periods december 31 2007 milestones met respect matritech pay earnout matritech upon successfully meeting certain revenue targets 2008 december 31 2007 milestones met inverness medical innovations inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued respect promesan terms acquisition provide contingent consideration payable upon successfully meeting certain revenue targets total contingent consideration 06 million euros payable three equal annual amounts 02 million euros beginning 2007 ending 2009 2007 milestone met contingent consideration 03 million accrued december 31 2007 respect spectralsource pay earnout equal two times consolidated revenue spectralsource less 40 million consolidated profits tax spectralsource least 09 million one year anniversary “milestone period” following acquisition date consolidated profits tax spectralsource milestone period less 09 million amount payment equal seven times spectralsource’s consolidated profits tax less 40 million contingent consideration payable 60 cash 40 stock legal proceedings currently party material pending legal proceedings nature business may subject particular time consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties suits expensive result counterclaims challenging validity patents rights december 2005 learned sec issued formal order investigation connection previously disclosed revenue recognition matter one diagnostic divisions subsequently received subpoena documents believe fully responded subpoena continue fully cooperate sec’s investigation cannot predict outcome investigation march 2006 ftc opened preliminary nonpublic investigation pending acquisition innovacon business acquired acon laboratories determine whether acquisition may anticompetitive subsequently received civil investigative demand subpoena requesting documents believe fully responded civil investigative demand continuing cooperate ftc’s investigation cannot predict whether ftc seek additional information outcome investigation ftc generally power commence administrative federal court proceedings seeking injunctive relief divestiture assets event order issued requiring divestiture significant assets imposing injunctive relief business financial condition results operations could materially adversely affected 11 codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited iti whereby iti agreed provide us £300 million three years partially fund research development programs focused identifying novel biomarkers nearpatient homeuse tests cardiovascular diseases “the programs” agreed invest £375 million programs three years date agreement subsidiary stirling medical innovations limited stirling established new research center stirling scotland consolidated many existing cardiology programs ultimately commercialize products arising programs iti stirling exclusive rights developed technology respective fields use december 31 2007 received full funding arrangement amount £300 million 560 million qualified expenditures made codevelopment arrangement recognize inverness medical innovations inc subsidiaries notes consolidated financial statements continued fee earned period reduction related expenses subject certain limitations fiscal years ended december 31 2007 2006 recognized 200 million 184 million reimbursements respectively 185 million 166 million respectively offset research development spending 15 million 18 million respectively reduced general administrative marketing spending incurred stirling 12 investment unconsolidated entities marketable securities equity method investments joint venture procter gamble company may 17 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields closing transferred related consumer diagnostic assets totaling 636 million manufacturing core intellectual property assets joint venture pg acquired interest joint venture cash payment approximately 3250 million conjunction transfer net assets joint venture determined working capital components closing balance sheet consumer diagnostic business would retained us lieu components note payable would contributed us joint venture amount 223 million note payable four installments 20 million due date note three equal installments 67 million 30th 60th 90th day respectively following date note december 31 2007 note repaid full part consummation joint venture entered shareholder agreement pg setting forth party’s rights obligations respect joint venture joint venture owned equal parts subsidiaries company pg “members” member right appoint three managers board managers general majority vote board managers required adopt approve business plan budget launch new product issue incur significant debt incur significant expenditures provided business plan budget file material income similar tax returns reports sublicense license joint venture’s intellectual property rights appoint dismiss senior officers joint venture retain otherwise appoint dismiss accountant primary legal advisor financial advisor joint venture commence settle significant litigation arbitration market permit distributor commissionaire sales agent market joint venture products third party’s label brand except private label brands ordinary course business certain circumstances members required make additional capital contributions pro rata basis accordance membership interests amounts sufficient meet funding requirements joint venture pursuant business plan budget fund working capital requirements capital expenditures capital needs may time determined action members including capital expenditures required connection acquisition new business fund deficiency working capital expenditure requirements also entered option agreement pg pursuant pg right period 60 days commencing fourth anniversary date agreement require us acquire pg’s interest joint venture fair market value pg right upon certain material breaches us obligations joint venture acquire interest joint venture fair market value gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture expires recorded deferred gain 2931 million accompanying consolidated balance sheets december 31 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 12 investment unconsolidated entities marketable securities continued also entered manufacturing agreement pg whereby manufacture consumer diagnostic products sell products joint venture entity capacity manufacturer products joint venture recorded 650 million manufacturing revenue year ended december 31 2007 included net product services revenue accompanying consolidated statement operations furthermore entered certain transition longterm services agreements joint venture pursuant provide certain operational support services joint venture revenue related service agreements amounted 25 million included net product services revenue consolidated statement operations year ended december 31 2007 customer receivables associated revenue classified receivables within prepaid current assets accompanying consolidated balance sheets amount 295 million december 31 2007 connection joint venture arrangement joint venture bears collection risk associated receivables upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting accordance apb opinion 18 equity method accounting investments common stock year ended december 31 2007 recorded 30 million earnings equity earnings unconsolidated entities net tax accompanying consolidated statement operations represented share joint venture’s net income period addition recorded restructuring charges associated formation joint venture pg connection joint venture committed plan close one sales offices germany well evaluate redundancies departments consumer diagnostic products business segment impacted formation joint venture year ended december 31 2007 recorded 12 million restructuring charges related plan 08 million relates severance costs 04 million relates facility exit costs 12 million 02 million charged cost revenues 02 million charged research development expense 05 million charged sales marketing expense 03 million charged general administrative expense total number employees involuntarily terminated plan 17 12 terminated december 31 2007 total 12 million severance exit costs 05 million remains unpaid december 31 2007 continue evaluate impact joint venture formation ongoing consumerrelated operations anticipate incurring additional charges related plan ii vedalab sa november 2006 acquired 40 vedalab sa vedalab french manufacturer supplier rapid diagnostic tests professional markets aggregate purchase price 97 million consisted 76 million cash 49787 shares common stock aggregate fair value 20 million 01 million estimated direct acquisition costs date settled ongoing patent infringement claim vedalab terms settlement vedalab paid us 51 million agreed pay us royalties future sales ranging 5 10 depending products sold exchange license certain patents manufacture current products facility alencon france payment 51 million included income financial results year ended december 31 2006 46 million relates periods prior 2006 included income net remaining 05 million recorded license royalty revenue account 40 investment vedalab equity method accounting accordance apb opinion 18 equity method accounting investments common stock january 2007 received inverness medical innovations inc subsidiaries notes consolidated financial statements continued 12 investment unconsolidated entities marketable securities continued 07 million vedalab form dividend distribution accounted reduction value investment accordance apb opinion 18 year ended december 31 2007 recorded 03 million equity earnings unconsolidated entities accompanying consolidated statement operations represented minority share vedalab’s net income respective period iii techlab inc may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibiotic associated diarrhea parasitology aggregate purchase price 88 million consisted 303417 shares common stock aggregate fair value 86 million 02 million estimated direct acquisition costs account 49 investment techlab equity method accounting accordance apb opinion 18 august 2007 received 06 million techlab form dividend distribution accounted reduction value investment accordance apb opinion 18 year ended december 31 2007 2006 recorded 11 million 06 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statement operations represented minority share techlab’s net income respective period b investment chembio september 2006 acquired 5 chembio developer manufacturer rapid diagnostic tests infectious diseases purchase 40 shares preferred stock preferred stock pays dividend 7 payable cash common stock aggregate purchase price 20 million paid cash addition preferred stock received warrant purchase 625000 shares chembio’s common stock 080 per share chembio’s stock publicly traded warrant accounted derivative instrument fair value approximately 04 million date issuance fair value warrant estimated time issuance using blackscholes pricing model assuming dividend yield expected volatility 116 riskfree rate 49 contractual term 5 years december 2007 exercised warrant purchased 625000 shares chembio’s common stock recorded 03 million loss connection markto market warrant included income expense net accompanying consolidated statement operations year ended december 31 2007 furthermore converted 40 shares preferred stock common stock december 31 2007 owned 5367831 shares common stock chembio fair market value approximately 13 million classified marketable securities noncurrent accompanying consolidated balance sheet recorded unrealized holding loss approximately 06 million accumulated comprehensive income within stockholders’ equity accompanying consolidated balance sheets c investment bbi investment bbi consists marketable equity securities purchased may 2007 receipt shares recorded market value december 31 2007 fair market value securities included marketable securities longterm accompanying consolidated balance sheet approximately 190 million representing unrealized holding gain approximately 43 million recorded accumulated comprehensive income within stockholders’ equity accompanying consolidated balance sheets subsequently acquired bbi february 2008 note 4e inverness medical innovations inc subsidiaries notes consolidated financial statements continued 12 investment unconsolidated entities marketable securities continued investment statsure october 2007 acquired 5 statsure developer marketer oral fluid collection devices drugs abuse market purchase 1428571 shares common stock aggregate purchase price 05 million paid cash addition common stock received warrant purchase 1071428 shares statsure’s common stock 035 per share statsure’s stock publicly traded warrant accounted derivative instrument accordance sfas 133 accounting derivative instruments hedging activities fair value approximately 03 million date issuance fair value warrant estimated time issuance using blackscholes pricing model assuming dividend yield expected volatility 150 riskfree rate 39 contractual term five years mark market warrant contractual term recorded unrealized gain 58928 income expense net accompanying consolidated statement operations year ended december 31 2007 december 31 2007 warrant valued 03 million 13 inprocess research development connection three acquisitions since 2006 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably addition cannot guarantee able develop commercialize products competitors develop commercialize products indications products based acquired iprd programs technology platforms become commercially viable future results operations could materially adversely affected following table sets forth iprd projects companies certain assets acquired since 2006 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 13 inprocess research development continued 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets 14 loss per share following table sets forth computation basic diluted loss per share thousands except per share amounts following potential dilutive securities outstanding december 31 2007 options warrants purchase aggregate 83 million shares common stock weighted average exercise price 3082 per share b 14715 restricted stock awards related acquisition cholestech c 18 million shares related issuance 1500 million 3 senior subordinated convertible notes potential dilutive securities included computation diluted loss per common share 2007 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2006 options warrants purchase aggregate 41 million shares common stock weighted average exercise price 2075 per share potential dilutive securities included computation diluted loss per common share 2006 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2005 options warrants purchase aggregate 47 million shares common stock weighted average exercise price 1844 per share b 104000 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2005 inclusion thereof would antidilutive 15 stockholders’ equity common stock december 31 2007 1000 million shares common stock 0001 par value authorized approximately 768 million shares issued outstanding 111 million shares reserved issuance upon grant exercise stock options current stock option plans 05 million shares reserved issuance upon exercise outstanding warrants inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued november 2007 sold aggregate 136 million shares common stock 6149 per share underwritten public offering certain officers also sold total 165698 shares common stock offering proceeds us offering approximately 8069 million net issuance costs 318 million includes deductions underwriting discounts commissions takes effect reimbursement underwriters portion offering expenses net proceeds used fund certain acquisitions remainder net proceeds retained working capital general corporate purposes january 2007 sold aggregate 69 million shares common stock 3965 per share underwritten public offering inclusive 09 million shares associated exercise underwriter’ option purchase additional shares cover overallotments proceeds offering approximately 2613 million net issuance costs 123 million included deductions underwriting discounts commissions takes effect reimbursement underwriters portion offering expenses amount used 449 million repay principal outstanding accrued interest term loan senior credit facility remainder net proceeds retained working capital general corporate purposes august 2006 sold aggregate 50 million shares common stock 3025 per share funds affiliated 17 accredited institutional investors private placement proceeds private placement approximately 1455 million net issuance costs 57 million amount used 413 million payments related acquisition abon facility 53 million purchase remaining 3255 clondiag 540 million repay principal outstanding senior credit facility 208 million repay principal interest outstanding along prepayment penalty 10 subordinated promissory notes remainder net proceeds retained general corporate purposes february 2006 sold 34 million shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes b preferred stock december 31 2006 50 million shares preferred stock 0001 par value authorized 27 million shares designated series preferred stock 0001 par value c stock options awards 2001 adopted 2001 stock option incentive plan amended “2001 plan” currently allows issuance 111 million shares common stock awards 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2007 23 million shares available future grant 2001 plan inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued august 2001 sold chief executive officer 12 million shares restricted common stock price 913 per share twothirds restricted stock 08 million shares vested ratably 36 months remaining onethird 04 million shares vested ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse chief executive officer note due payable august 16 2006 bore interest annual rate 499 interest income recorded note amounted 03 million year ended december 31 2006 05 million years ended december 31 2005 2004 august 2006 note accrued interest paid full note 20 august 2001 granted two nonqualified stock options purchase aggregate 08 million shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes due payable december 2006 bore interest annual rate 397 applicable federal rate fiveyear note effect month exercise notes accrued interest paid full december 2006 note 20 interest income recorded notes amounted 02 million year ended december 31 2006 2005 following summarizes stock option activity year ended december 31 thousands except exercise price aggregate intrinsic value options outstanding december 31 2007 1956 million aggregate intrinsic value options exercisable december 31 2007 1406 million aggregate intrinsic value stock options exercised 2007 2006 2005 625 million 74 million 46 million respectively based equity awards outstanding december 31 2007 592 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weighted average period 322 years inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued following represents additional information related stock options outstanding exercisable december 31 2007 thousands except exercise price contractual term warrants following summary warrant activity three years ended december 31 2007 thousands except exercise price inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued following represents additional information related warrants outstanding exercisable december 31 2007 thousands except exercise price contractual term majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 03 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2007 value warrants issued connection debt financings yielded original issue discounts additional interest expense 0 million 2007 05 million 2006 02 million 2005 outstanding warrants classified equity pursuant provision eitf 0019 e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 05 million shares common stock plan december 31 2007 03 million shares issued plan 16 stockbased compensation accordance sfas 123r results operations year ended december 31 2007 2006 reflected compensation expense new stock options granted since january 1 2006 vested stock incentive plan employee stock purchase plan unvested portion previous stock option grants vested years ended december 31 2007 2006 stockbased compensation expense amount 575 million 527 million net tax 55 million 49 million net tax inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockbased compensation continued reflected consolidated statements operations year ended december 31 2007 2006 respectively follows thousands included amount general administrative expense year ended december 31 2007 452 million related assumption biosite options expense relates acceleration unvested biosite employee options see note 4a regarding acquisition biosite prior adoption sfas 123r tax benefits resulting exercise stock options would reported operating cash flows consolidated statements cash flows accordance sfas 123r year ended december 31 2007 2006 presentation cash flows reports excess tax benefits exercise stock options financing cash flows year ended december 31 2007 2006 excess tax benefits generated option exercises amounted 09 million 06 million respectively following assumptions used estimate fair value options granted year ended december 31 2007 2006 2005 using blackscholes optionpricing model weighted average fair value blackscholes option pricing model options granted employees 2007 2006 2005 2405 1529 1185 respectively options granted periods granted fair market value date grants year ended december 31 2007 accordance sfas 123r recorded compensation expense 15 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 3264 6949 riskfree interest rate range 417 494 expected life 181 184 days charge included general administrative table year ended december 31 2006 accordance sfas 123r recorded compensation expense 03 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 33 riskfree interest rate range 455 499 expected life 05 years charge included general administrative table inverness medical innovations inc subsidiaries notes consolidated financial statements continued 17 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders’ equity following summary components changes accumulated comprehensive income december 31 2007 three years ended thousands represents realization unrealized gains availableforsale securities interest rate swap ii components accumulated comprehensive income relate foreign subsidiaries except item adjustments income taxes recorded comprehensive income intend permanently invest foreign subsidiaries foreseeable future consolidated statements stockholders’ equity comprehensive income loss year ended december 31 2006 set forth annual report form 10ka year ended december 31 2006 included incorrect presentation adoption sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r presentation included 37 million charge impact adoption component currentperiod comprehensive income rather displaying adoption impact adjustment accumulated comprehensive income corrected consolidated statement stockholders’ equity comprehensive loss year ended december 31 2006 annual report form 10k year ending december 31 2007 revision impact net income total accumulated comprehensive income total assets cash flows year ended december 31 2006 18 income taxes income tax provision 2007 2006 2005 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath limited united kingdom inverness medical france inverness medical switzerland loss provision income taxes consists following thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued primary temporary differences give rise deferred tax asset liability nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets gain joint venture transaction income tax effects temporary differences follows thousands december 31 2007 approximately 3351 million domestic nol carryforwards 312 million foreign nol foreign capital loss carryforwards either expire various dates 2027 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities domestic nol carryforwards include approximately 2056 million preacquisition losses alere paradigmhealth biosite cholestech diamics hemosense imn ischemia ostex adc also included domestic nol carryforwards december 31 2007 approximately 102 million resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax preacquisition losses subject internal revenue service code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued recorded valuation allowance 189 million december 31 2007 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision reduction valuation allowance 1076 million december 31 2006 decrease primarily related approximately 3839 million us jurisdiction noncurrent deferred tax liabilities recorded purchase accounting related biosite alere hemosense paradigmhealth cholestech redwood instant qas acquisitions 2007 due purchase accounting determined approximately 830 million valuation allowance relating us nols us deferred tax assets released recorded reduction goodwill accompanying consolidated balance sheets accordance sfas 109 accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2007 58 million deferred tax assets valuation allowance pertains acquired companies future benefits applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense upon adoption sfas 141r business combinations reduction valuation allowance pertains acquired companies generally recorded reduce income tax expense chinabased manufacturing subsidiaries qualify income tax holiday tax holiday provides income tax rate 0 2006 2007 absence tax holiday tax rate 33 would apply would resulted tax expense approximately 14 million 2006 38 million 2007 earnings per share effect tax holiday 004 2006 007 2007 income tax rate scheduled increase abon 125 2008 2009 2010 im shanghai 9 2008 10 2009 11 2010 24 2011 reduced rates 2008 2009 2010 2011 grandfathered china tax reform act tax rate 15 25 apply 2011 future years general tax rate 25 tax rate 15 applies companies high technology status process applying high technology status estimated amount undistributed earnings foreign subsidiaries 537 million december 31 2007 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued following table presents components provision income taxes thousands following table presents reconciliation us statutory tax rate effective tax rate adopted fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 january 1 2007 cumulative effect adopting fin 48 change january 1 2007 retained earnings balance upon adoption liability income taxes associated uncertain tax positions january 1 2007 23 million amount 23 million recognized would favorably affect effective tax rate addition consistent provisions fin 48 classified 23 million income tax liabilities noncurrent income tax liabilities payment cash anticipated within one year balance sheet date twelve month period ending december 31 2007 increased liability income taxes associated uncertain tax positions 65 million total 88 million december 31 2007 primary reason increase due acquisition biosite increased liability income taxes associated uncertain tax positions 62 million amount recorded biosite financial statement prior acquisition future recognition biosite tax benefit recorded goodwill adoption sfas 141r business combinations noncurrent income tax liabilities recorded longterm liabilities consolidated balance inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued sheet december 31 2007 anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense balance accrued interest penalties recorded consolidated balance sheet december 31 2007 03 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2002 2006 currently income tax examination number state foreign tax authorities anticipate audits completed end 2008 cannot currently estimate impact audits due uncertainties associated tax examinations 19 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision making group composed chief executive officer members senior management reportable operating segments professional diagnostic products consumer diagnostic products vitamins nutritional supplements corporate operating results include license royalty revenue allocated professional diagnostic products consumer diagnostic products basis original license royalty agreement included operating results professional diagnostic products 2007 expenses related research development activities area cardiology result 2007 cardiology related acquisitions amounted 265 million net 185 million reimbursements received iti part codevelopment arrangement entered february 2005 included operating results corporate 2006 2005 expenses related research development activities area cardiology amounted 302 million net 166 million 168 million net 172 million respectively reimbursements received iti part codevelopment arrangement mentioned operating loss 2507 million year ended december 31 2007 corporate segment includes writeoff 1738 million iprd incurred acquisitions biosite diamics 452 million stockbased compensation related employee stock options assumed acquisition biosite total assets related cardiology research operations scotland germany inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued included professional diagnostic products 2007 included corporate 2006 tables amounted 394 million december 31 2007 184 million december 31 2006 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2007 2006 2005 follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued 20 related party transactions may 17 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields december 31 2007 net payable joint venture 108 million representing obligation joint venture additionally customer receivables associated revenue earned joint venture completed classified receivables within prepaid current assets accompanying consolidated balance sheets amount 295 million december 31 2007 connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 650 million 2007 march 22 2007 entered convertible loan agreement related party whereby loaned related party £75 million 147 million transaction date terms agreement loan amount would simultaneously convert shares related party’s common stock per prescribed conversion formula defined loan agreement event related party consummated specific target acquisition september 30 2007 may 15 2007 related party consummated specific target acquisition loan converted 5208333 shares related party’s common stock included investments unconsolidated entities accompanying consolidated balance sheet december 31 2007 december 2006 one key executive officers paid us 1606831 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 250000 shares common stock august 2001 note 15 december 2006 one key executive officers paid us 2571320 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 399381 shares common stock august 2001 note 15 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 20 related party transactions continued august 2006 chairman chief executive officer president paid us 11197096 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 1168191 shares common stock august 2001 note 15 june 2006 issued 25000 shares common stock consideration acquisition capital stock innovative medical devices bvba seller capital stock innovative medical devices bvba spouse vice president consumer diagnostics business unit 21 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component costs sales following table sets forth activities inventory reserve accounts thousands 22 restructuring activities following table sets forth aggregate charges associated restructuring plans years ended december 31 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued restructuring plans 2007 committed several plans restructure integrate worldwide sales marketing order management fulfillment operations well evaluate certain research development projects objectives plans eliminate redundant costs improve customer responsiveness improve efficiencies operations result restructuring plans recorded 52 million restructuring charges year ended december 31 2007 52 million charge included 12 million related severance charges 40 million related impairment charges fixed assets restructuring charge consisted 20 million charged cost revenues 24 million charged research development 03 million charged sales marketing expenses 05 million charged general administrative expenses 34 million 18 million included professional diagnostic products consumer diagnostic products business segments respectively total number employees involuntarily terminated plans 35 15 remain terminated december 31 2007 december 31 2007 05 million severancerelated charges remain unpaid continue evaluate impact newly acquired businesses existing operations opportunities improve operating efficiencies anticipate incurring additional charges related plan addition recorded restructuring charges associated formation joint venture pg connection joint venture committed plan close one sales offices germany well evaluate redundancies departments consumer diagnostic products business segment impacted formation joint venture year ended december 31 2007 recorded 12 million restructuring charges related plan 08 million relates severance costs 04 million relates facility exit costs 12 million 02 million charged cost revenues 02 million charged research development expense 05 million charged sales marketing expense 03 million charged general administrative expense total number employees involuntarily terminated plan 17 12 terminated december 31 2007 total 12 million severance exit costs 05 million remains unpaid december 31 2007 continue evaluate impact joint venture formation ongoing consumerrelated operations anticipate incurring additional charges related plan b 2006 restructuring plans may 2006 committed plan cease operations manufacturing facility san diego california write certain excess manufacturing equipment impacted facilities additionally june 2006 committed plan reorganize sales marketing customer service functions certain us professional diagnostic companies year ended december 31 2007 recorded 04 million net restructuring charges plans primarily relates 06 million facility exit costs offset 02 million adjustment due finalization fixed asset writeoffs 04 million net charge 02 million adjustment recorded costs sales included consumer diagnostic products segment 06 million charged general administrative expense included professional diagnostic products business segment net restructuring charges since commitment date consist 67 million related impairment fixed assets inventory 27 million related impairment charge intangible asset 25 million related severance 06 million related facility closing costs 125 million recorded operating income 82 million 17 million 26 million included professional diagnostics products consumer diagnostic products corporate business segments respectively total number employees involuntarily terminated plans 133 1 employee remains terminated december 31 2007 december 31 2007 01 million severance related charges remains unpaid inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued c 2005 restructuring plan may 2005 committed plan cease operations facility galway ireland year ended december 31 2006 recorded net restructuring gain 32 million 04 million related charges severance early retirement outplacement services 01 million related impairment charge fixed assets 06 million related facility closing costs 43 million related foreign exchange gains result recording cumulative translation adjustment income relating primarily plan termination charges year ended december 31 2006 consisted 07 million charged cost goods sold 04 million charged general administrative 43 million gains recorded expense net restructuring gain 32 million included net loss year ended december 31 2006 11 million loss 43 million gain included consumer diagnostic products corporate business segments respectively additionally year ended december 31 2006 recorded 14 million gain sale cdil facility ireland recorded loss dispositions net consolidated statements operations included corporate business segment periods note 23 net restructuring charges since commitment date consist 26 million related severance early retirement outplacement services 24 million related impairment fixed assets inventory 12 million related facility closing costs offset 43 million related net foreign exchange gains relating primarily plan termination 14 million gain sale manufacturing facility total 62 million restructuring charges recorded operating income 03 million 59 million included professional diagnostic products consumer diagnostic products business segments respectively 43 million 14 million gains included corporate business segment plan termination substantially complete december 31 2006 113 employees plan involuntarily terminated costs related severance early retirement outplacement services facility closing costs paid december 31 2006 restructuring reserves following table summarizes liabilities related restructuring activities associated plans discussed thousands represents foreign currency translation adjustment 23 loss dispositions net 2006 recorded net loss dispositions 35 million included net loss 49 million charge associated management’s decision dispose scandinavian micro biodevices aps smb research operation part professional diagnostic products corporate business segments 20 million related impaired assets primarily goodwill associated smb 29 million loss sale smb sale operation completed fourth quarter 2006 net loss dispositions also includes offsetting 14 million gain sale idle manufacturing facility galway ireland result 2005 restructuring plan facility associated consumer diagnostic products business segmentitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included 3 exhibits filed herewith omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date february 27 2009 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated inverness medical innovations inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries “company” december 31 2008 2007 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2008 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2008 2007 consolidated results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission “coso” report dated february 27 2009 expressed unqualified opinion thereon bdo seidman llp boston massachusetts february 27 2009 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders’ equity comprehensive loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statement cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation developing new capabilities nearpatient diagnosis monitoring health management inverness medical innovations inc subsidiaries enable individuals take charge improving health quality life home products services well new product development efforts focus infectious disease cardiology oncology drugs abuse women’s health addition manufacture variety vitamins nutritional supplements market brands private label retailers consumer market primarily united states business organized four primary operating segments professional diagnostics ii health management iii consumer diagnostics iv vitamins nutritional supplements professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectious diseases cardiac conditions oncology drugs abuse pregnancy health management segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market vitamins nutritional supplements segment includes branded private label vitamins nutritional supplements sold overthecounter acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 following completion 5050 joint venture pg may 17 2007 note 13 ceased consolidate operating results consumer diagnostics business represented 761 million net product sales 2007 date joint venture formed 1716 million net product sales 2006 instead account 50 interest results joint venture equity method accounting capacity manufacturer products joint venture supply product joint venture record revenue sales gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture market value expires fourth anniversary closing consolidated financial statements include accounts inverness medical innovations inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable minority interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates b foreign currencies follow provisions statement financial accounting standards “sfas” 52 foreign currency translation general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders’ equity note 18 revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month year net realized unrealized foreign currency exchange transaction losses 09 million 2008 losses 16 million 2007 gains 26 million 2006 included component income expense net accompanying consolidated statements operations c cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2008 2007 restricted cash restricted cash 27 million 1419 million december 31 2008 2007 respectively 1419 million 1397 million represented cash escrow established connection february 2008 acquisition bbi holdings plc bbi note 4 e marketable securities account investment marketable securities accordance sfas 115 accounting certain investments debt equity securities classified availableforsale trading carried estimated fair value determined quoted market prices balance sheet date realized gains losses securities included earnings determined using specific identification method unrealized holding gains losses except temporary impairments securities classified available sale excluded earnings reported accumulated comprehensive income net related tax effects unrealized gains losses activelytraded securities included earnings marketable securities held indefinitely classified accompanying balance sheet longterm marketable securities inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 221 years buildings 2050 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 16 years furniture fixtures 215 years land depreciated depreciation amortization expense related property plant equipment amounted 518 million 283 million 176 million 2008 2007 2006 respectively expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives account goodwill intangible assets indefinite lives accordance sfas 142 goodwill intangible assets establishes financial accounting reporting standards acquired goodwill intangible assets provisions sfas 142 goodwill indefinitelived intangible assets required tested impairment annually lieu amortized using fair value approach reporting unit level furthermore testing impairment required interim basis event circumstance indicates likely impairment loss incurred impairment loss shall recognized extent carrying amount goodwill indefinitelived intangible asset exceeds implied fair value impairment losses shall recognized operating results valuation methodology assessing impairment using discounted cash flows approach requires management make judgments assumptions based historical experience projections future operating performance assumptions differ materially future results may record impairment charges future annual impairment review performed september 30 2008 indicate goodwill indefinitelived intangible assets related professional diagnostics health management consumer diagnostics reporting units impaired despite current economic conditions fluctuation common stock price fourth quarter 2008 determined based 2008 financial performance unchanged expectations future financial performance used fair value analysis improvement common stock price subsequent year end triggering event would warrant impairment testing occurred therefore updated testing performed goodwill impairment recorded 2008 economic conditions deteriorate remain depressed prolonged period time estimates future cash flows reporting unit may insufficient support carrying value goodwill assigned requiring us test impairment charges may material results operations financial position impairment longlived tangible intangible assets accordance sfas 144 accounting impairment disposal longlived assets evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived asset reduced estimated fair value lower impairment loss would charged expense period impairment identified believe carrying values longlived tangible intangible assets realizable december 31 2008 j business acquisitions account acquired businesses using purchase method accounting prescribed sfas 141 business combinations purchase method operating results acquired business included consolidated financial statements starting consummation date acquisition addition assets acquired liabilities assumed must recorded date acquisition respective estimated fair values excess purchase price estimated fair values net assets acquired recorded goodwill significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions significant estimates associated accounting acquisitions include exit costs undertaken certain restructurings acquired businesses realize efficiencies potential cost savings restructuring activities include elimination duplicate facilities reductions staffing levels costs associated exiting certain activities businesses acquire provided certain criteria met estimated costs associated restructuring activities treated assumed liabilities consistent guidance emerging issue task force “eitf” issue 953 recognition liabilities connection purchase business combination estimates assumptions associated restructuring activities may change execute approved plans decreases estimated costs generally recorded adjustment goodwill increases estimates generally recorded adjustment goodwill purchase price allocation period generally within one year acquisition date operating expenses thereafter common stock issued connection acquisitions determined based average market price common stock pursuant eitf issue 9912 determination measurement date market price acquirer securities issued purchase business combination acquisitions involved exchange employee stock options restricted stock awards accordingly accounted exchanges within purchase business combination guidance sfas 123r sharebased payments general extent fair value awards approximate fair value acquiredcompany awards fair value awards recognized component purchase price fair value unvested partiallyvested awards allocated vested unvested portions awards fair value unvested portion deducted purchase price recognized compensation cost portion vests inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued k income taxes follow provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss nol carryforwards extent realization benefits likely extent likely realize benefits must establish valuation allowance related deferred tax assets note 19 follow provisions financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 “fin 48” accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position note 19 l revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees connection acquisition determine business june 2005 abbott laboratories entered transition services agreement abbott whereby abbott would continue distribute acquired products parties agreed transition completed transition period recognized revenue sales products title transferred abbott third party customers also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued employee stockbased compensation arrangements effective january 1 2006 began recording compensation expense associated stock options forms equity compensation accordance sfas 123r sharebased payment interpreted sec staff accounting bulletin “sab” 107 adopted modified prospective transition method provided sfas 123r consequently retroactively adjusted results prior periods transition method compensation cost associated stock options includes amortization related remaining unvested portion stock option awards granted prior january 1 2006 based grantdate fair value estimated accordance original provisions sfas 123 ii amortization related stock option awards granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions sfas 123r addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized expected term options using straightline method stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments plans pay dividends foreseeable future n net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 15 operating expenses expense advertising costs incurred 2008 2007 2006 advertising costs amounted 157 million 163 million 230 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues p concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2008 2007 one individual customer account receivable balance outstanding represented 14 12 gross account receivable balance respectively 2008 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued one customer represented 22 17 net revenue respectively purchased professional diagnostics products 2006 customer represented greater 10 net revenue rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results q financial instruments fair value financial instruments primary financial instruments december 31 2008 2007 consisted cash equivalents marketable securities accounts receivable accounts payable debt interest rate swap contract estimated fair value financial instruments approximates carrying values december 31 2008 2007 estimated fair values determined information obtained market sources account derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities r recent accounting pronouncements recently issued standards june 2008 fasb ratified eitf issue 0705 determining whether instrument embedded feature indexed entity’s stock addresses accounting certain instruments derivatives sfas 133 accounting derivative instruments hedging activities new pronouncement specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock issue effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement may 2008 fasb issued fasb staff position “fsp” accounting principles board “apb” 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement fsp apb 141 specifies issuers instruments separately account liability equity components manner reflect entity’s nonconvertible debt borrowing rate interest cost recognized subsequent periods fsp apb 141 effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years fsp applied retrospectively periods presented currently process evaluating impact adopting pronouncement april 2008 fasb issued fsp 1423 determination useful life intangible assets fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 goodwill intangible assets fsp 1423 effective financial statements issued fiscal years beginning december 15 2008 well interim periods within fiscal years currently process evaluating impact adopting pronouncement march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activitiesan amendment fasb statement 133 statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged currently process evaluating impact adopting pronouncement december 2007 fasb ratified consensus reached eitf issue 0701 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment accounting research bulletin arb 51 statement amends arb 51 establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary clarifies noncontrolling interest subsidiary ownership interest consolidated entity therefore reported equity consolidated financial statements statement also establishes standards presentation disclosure noncontrolling results consolidated income statement sfas 160 effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 141r business combinations statement replaces sfas 141 retains fundamental requirements sfas 141 acquisition method accounting used business combinations statement requires acquirer recognize measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date statement requires acquisition costs restructuring costs associated business combination recognized separately fair value business combination sfas 141r establishes requirements recognizing measuring goodwill acquired business combination gain bargain purchase well disclosure requirements designed enable users better interpret results business combination sfas 141r effective fiscal years beginning december 15 2008 given history acquisition activity anticipate adoption sfas 141r significant impact consolidated financial statements early adoption statement permitted december 31 2008 38 million capitalized acquisition costs classified noncurrent assets capitalized costs written january 2009 statement becomes effective recently adopted standards effective october 2008 adopted fsp 1573 determining fair value financial asset market asset active fsp 1573 clarifies application sfas 157 inactive inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued market demonstrated fair value financial asset determined market financial asset inactive adoption provisions material impact consolidated financial statements effective january 1 2008 adopted eitf issue 0703 accounting nonrefundable advance payments goods services used future research development activities eitf 0703 concludes nonrefundable advance payments future research development activities deferred capitalized goods delivered related services performed entity expect goods delivered services rendered capitalized advance payment charged expense effect applying eitf prospective new contracts entered date adoption eitf material impact consolidated financial statements effective january 1 2008 adopted sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb 115 statement provides companies option measure specified election dates many financial instruments certain items fair value currently measured fair value standard also establishes presentation disclosure requirements designed facilitate comparison entities choose different measurement attributes similar types assets liabilities fair value option elected effect first remeasurement fair value reported cumulative effect adjustment opening balance retained earnings statement applied prospectively upon adoption provisions material impact consolidated financial statements effective january 1 2008 adopted sfas 157 fair value measurements financial instruments nonfinancial instruments accounted fair value recurring basis sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances fasb provided oneyear deferral implementation nonfinancial assets liabilities adoption provisions material impact consolidated financial statements information adoption required provisions sfas 157 see note 7 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 3 balance sheet information components selected captions consolidated balance sheets consist thousands 4 business combinations acquisitions 2008 acquisition matria may 9 2008 acquired matria healthcare inc matria national provider health improvement disease management highrisk pregnancy management programs services preliminary aggregate purchase price 8346 million consisted 1413 million cash series b convertible preferred stock fair value approximately 6579 million 173 million fair value associated matria employee stock options exchanged part transaction 180 million direct acquisition costs addition assumed immediately repaid debt totaling approximately 2792 million operating results matria included health management reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition bbi february 12 2008 acquired bbi holdings plc bbi publiclytraded company headquartered united kingdom specializes development manufacture noninvasive lateral flow tests gold reagents preliminary aggregate purchase price 1632 million consisted 1386 million cash including 147 million cash paid shares bbi common stock owned prior acquisition date common stock aggregate fair value 144 million 66 million direct acquisition costs 36 million fair value associated bbi employee stock options exchanged part transaction operating results bbi included professional consumer diagnostics reporting units business segments inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition panbio january 7 2008 acquired panbio limited panbio australian publiclytraded company headquartered brisbane australia develops manufactures diagnostic tests use diagnosis broad range infectious diseases preliminary aggregate purchase price 365 million consisted 359 million cash 06 million direct acquisition costs june 2008 sold certain assets totaling 18 million related particular product line sale assets acquisition date fair values reflected preliminary purchase price allocation operating results panbio included professional diagnostics reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisitions 2008 acquired following assets businesses aggregate preliminary purchase price 492 million paid 420 million cash 17 million direct acquisition costs accrued contingent consideration milestone payments totaling 55 million • certain assets mochida pharmaceutical co ltd mochida part acquisition certain assets mochida transferred exclusive distribution rights japan certain osteomark products acquired april 2008 • privatelyowned provider care health management services acquired july 2008 • vision biotech pty ltd vision located cape town south africa privatelyowned distributor rapid diagnostic products predominantly south african marketplace acquired september 2008 • global diagnostics cc global located johannesburg south africa privatelyowned contract manufacturer distributor high quality rapid diagnostic tests predominantly south african marketplace acquired september 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • diateam diagnostika und arzneimittel großhandel gmbh diateam located linz austria privatelyowned distributor high quality rapid diagnostic tests predominantly austrian marketplace acquired september 2008 • prodimol biotecnologia sa prodimol located brazil privatelyowned distributor high quality rapid diagnostic tests predominantly brazilian marketplace acquired october 2008 • ameditech inc ameditech located san diego california leading manufacturer high quality drugs abuse diagnostic tests acquired december 2008 summary preliminary purchase price allocation acquisitions follows thousands customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands mochida vision global diateam prodimol ameditech included professional diagnostics reporting unit business segment healthcare acquisition included health management reporting unit business segment goodwill recognized vision global diateam prodimol ameditech transactions amounted approximately 162 million goodwill related acquisitions excluding ameditech deductible tax purposes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued b acquisitions 2007 acquisition paradigmhealth december 21 2007 acquired paradigmhealth inc paradigmhealth privatelyowned leading provider precise medical management provide optimal health outcomes acutely ill clinically complex patients aggregate purchase price 2368 million consisted 2360 million cash 08 million direct acquisition costs operating results paradigmhealth included health management reporting unit business segment summary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition redwood december 20 2007 acquired redwood toxicology laboratories inc redwood privatelyowned drugs abuse diagnostics testing company aggregate purchase price 538 million consisted 533 million cash 05 million direct acquisition costs addition assumed inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued paid debt 477 million operating results redwood included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition alere november 16 2007 acquired alere medical inc alere medical privatelyheld leading provider care health management services aggregate purchase price 3113 million consisted 1286 million cash common stock aggregate fair value 1611 million 10 million direct acquisition costs 206 million fair value associated alere medical employee stock options exchanged part transaction operating results alere medical included health management reporting unit business segment respect alere medical terms acquisition agreement provided contingent consideration payable alere medical stockholder owned shares common stock retained option purchase shares common stock sixmonth anniversary closing acquisition contingent consideration payable cash stock election equal number shares common stock options purchase common stock held sixmonth anniversary inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued multiplied amount 5831 exceeded greater average price common stock ten business days preceding sixmonth anniversary date 75 5831 accordingly based price common stock ten business days preceding sixmonth anniversary closing acquisition issued approximately 01 million shares common stock may 30 2008 alere medical stockholders based remaining outstanding shares time payment contingent consideration impact purchase price acquisition summary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisition hemosense november 6 2007 acquired hemosense inc hemosense publiclytraded developer marketer pointofcare testing products therapeutic drug monitoring aggregate purchase price 2440 million consisted common stock aggregate fair value 2264 million 09 million direct acquisition costs 167 million fair value associated hemosense employee stock options inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued exchanged part transaction operating results hemosense included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands v acquisition cholestech september 12 2007 acquired cholestech corporation cholestech publiclytraded leading provider diagnostic tools information immediate risk assessment therapeutic monitoring heart disease inflammatory disorders aggregate purchase price 3547 million consisted common stock aggregate fair value 3298 million 46 million direct acquisition costs 203 million fair value associated cholestech employee stock options restricted stock awards exchanged part transaction operating results cholestech included cardiology reporting unit professional diagnostics business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vi acquisition biosite june 29 2007 completed acquisition biosite incorporated biosite publiclytraded global medical diagnostic company utilizing biotechnology approach create products diagnosis critical diseases conditions aggregate purchase price 18 billion consisted 16 billion cash 689 million estimated direct acquisition costs 774 million fair value associated biosite employee stock options exchanged part transaction connection acquisition biosite also recorded 452 million compensation expense associated unvested stock options operating results biosite included cardiology reporting unit professional diagnostics business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition follows dollars thousands part purchase price allocation iprd projects valued 1690 million projects yet achieved technological feasibility date acquisition biosite expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vii acquisition instant march 12 2007 acquired 75 issued outstanding capital stock instant technologies inc instant privatelyowned distributor rapid drugs abuse diagnostic products used workplace criminal justice testing markets december 28 2007 acquired remaining 25 interest bringing aggregate purchase price 608 million consisted 389 million cash common stock aggregate fair value 215 million 03 million direct acquisition costs addition assumed paid debt 49 million operating results instant included professional diagnostics reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition follows dollars thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands viii acquisitions 2007 year ended december 31 2007 acquired following businesses aggregate purchase price 1845 million paid 1160 million cash issued 10 million shares common stock aggregate fair value 541 million issued notes payable totaling 96 million incurred 45 million direct acquisition costs accrued milestone payments totaling 03 million • matritech inc matritech located newton massachusetts freiburg germany biotechnology company principally engaged development manufacturing marketing distribution licensing cancer diagnostic technologies products acquired december 2007 • aska diagnostic inc aska located tokyo japan distributor professional diagnostics japan acquired december 2007 • 9091 share biosystems sa biosystems located cali bogota colombia distributor diagnostics tests instruments reagents throughout colombia acquired december 2007 october 2008 acquired remaining 909 interest biosystems • assets akubio research company located cambridge england acquired october 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • biostat healthcare group biostat located cheshire united kingdom privatelyowned distributor core laboratory pointofcare diagnostic testing products uk marketplace acquired october 2007 • spectral diagnostics private limited affiliate source diagnostics india private limited spectralsource located new delhi shimla india distributes professional diagnostics india acquired july 2007 • 5245 share diamics inc diamics located novato california developer molecularbased cancer screening diagnostic systems acquired july 2007 • quality assured services inc qas located orlando florida privatelyowned provider diagnostic home tests services us marketplace acquired june 2007 • orange medical orange located tilburg netherlands manufacturer marketer rapid diagnostic products benelux marketplace acquired may 2007 • promesan srl promesan located milan italy distributor pointofcare diagnostic testing products italian marketplace acquired january 2007 • first check diagnostics llc first check located lake forrest california privatelyheld diagnostics company field home testing drugs abuse including marijuana cocaine methamphetamines opiates acquired january 2007 • assets nihon schering kk nskk located japan diagnostic distribution business acquired january 2007 • gabmed gmbh gabmed located nettetal germany distributor pointofcare diagnostic testing products german marketplace acquired january 2007 • medox chemicals limited medox located ottawa canada distributor professional diagnostic testing products canadian marketplace acquired january 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisitions follows thousands nskk promesan included professional consumer diagnostics reporting units business segments matritech aska biosystems biostat akubio spectralsource orange gabmed medox included professional diagnostics reporting unit business segment qas included health management reporting unit business segment first check included consumer diagnostics reporting unit business segment diamics consolidated included professional diagnostics reporting unit business segment goodwill recognized matritech aska biosystems biostat spectralsource diamics qas orange gabmed promesan first check medox transactions amounted approximately 1103 million goodwill related acquisitions exception matritech first check deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands c acquisitions 2006 acquisition innovacon business including abon facility march 31 2006 acquired assets acon laboratories’ business researching developing manufacturing marketing selling lateral flow immunoassay directlyrelated products united states canada europe excluding russia former soviet republics part european union turkey israel australia japan new zealand innovacon business preliminary aggregate purchase price approximately 977 million consisted 551 million cash common stock aggregate fair value 197 million 129 million estimated direct acquisition costs additional liability 100 million paid 2007 pursuant purchase agreement may 15 2006 part innovacon business acquired newlyconstructed manufacturing facility hangzhou china pursuant terms acquisition agreement acon laboratories inc affiliates connection acquisition new facility acquired abon biopharm hangzhou co ltd abon direct owner new factory subsidiary preliminary aggregate purchase price approximately 208 million consisted 88 million cash common stock aggregate fair value 120 million addition pursuant acquisition agreement made additional payment 41 million cash result amount cash acquired net indebtedness assumed increased preliminary aggregate purchase price 249 million acquisition also contingent payments due attainment certain milestones met milestones achieved 2008 resulting additional 60 million cash paid made cash payments totaling 490 million issued common stock aggregate fair value 213 million various milestones achieved brings aggregate purchase price innovacon business including abon facility total 1929 million operating results innovacon business included professional consumer diagnostics reporting units business segments inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary purchase price allocation acquisition including abon facility discussed follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands additionally connection acquisition innovacon business entered agreement purchase acon laboratories’ lateral flow immunoassay sales distribution business territories included within territories acquired connection march 31 2006 acquisition described terms agreement event business achieves specified level profitability acquire business 2009 formulaic price based revenues earnings business alternatively may elect complete acquisition business exchange payment equal 15 purchase price would due elected complete acquisition ii acquisition clondiag february 28 2006 acquired 6745 clondiag chip technologies gmbh clondiag privatelyheld company located jena germany developing multiplexing technology nucleic acid immunoassaybased diagnostics pursuant acquisition agreement purchased remaining inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued 3255 august 31 2006 aggregate purchase price 231 million consisted initial cash payment 119 million common stock aggregate fair value 58 million 53 million cash payment acquire remaining 3255 stock ownership 01 million direct acquisition costs additionally pursuant terms acquisition agreement obligation settle existing employee bonus arrangements clondiag employees totaling 11 million 13 million connection obligation issued common stock fair value 07 million employees clondiag cash payment 05 million december 31 2008 remaining obligation 01 million obligation increased aggregate purchase price 244 million december 31 2006 resulted additional goodwill addition terms acquisition agreement provided contingent consideration event four specified products developed clondiag’s platform technology three years following acquisition date contingent consideration accounted increase aggregate purchase price milestones achieved 2007 paid cash 09 million issued 56079 shares common stock fair value 15 million conjunction clondiag meeting one milestones mentioned 2008 paid cash 26 million issued 02 million shares common stock fair value 45 million conjunction clondiag meeting final three milestones upon settlement third fourth milestones recognized 02 million foreign currency exchange gain included aggregate purchase price payments contingent consideration increased aggregate purchase price 341 million operating expenses clondiag consist principally research development activities included corporate business segment 2006 professional diagnostics segment 2008 2007 summary purchase price allocation acquisition follows dollars thousands also evaluated certain inprocess research development projects expensed inprocess research development projects yet attained technical feasibility amount expensed year ended december 31 2006 50 million inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands restructuring plans related business combinations connection several acquisitions initiated integration plans consolidate restructure certain functions operations including relocation termination certain personnel acquired entities closure certain acquired entities’ leased facilities costs recognized liabilities assumed connection acquisition entities accordance eitf issue 953 subject potential adjustments certain exit activities confirmed refined following table summarizes liabilities established exit activities related acquisitions thousands 2008 acquisitions connection acquisition matria implemented integration plan improve operating efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within matria organization activities combined existing business operations recorded 152 million exit costs relates change control severance costs involuntarily terminate employees december 31 2008 40 million severance costs remain unpaid conjunction acquisition panbio formulated restructuring plan realize efficiencies cost savings february 2008 agreed upon plan close panbio’s facility located columbia maryland manufacturing operation marylandbased facility transferred thirdparty manufacturer sales distribution products facility transferred newlyformed shared services center orlando florida recorded 06 million exit costs including inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued 04 million related facility exit costs 02 million related severance costs december 31 2008 03 million exit costs remain unpaid see note 23 additional restructuring charges related panbio facility closure integration although believe plan estimated exit costs 2008 acquisitions reasonable actual spending exit activities may differ current estimated exit costs ii 2007 acquisitions conjunction acquisition biosite implemented integration plan improve efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within biosite organization activities combined existing business operations since inception plan recorded 154 million exit costs 151 million relates change control severance costs involuntarily terminate employees 03 million relates facility exit costs december 31 2008 13 million exit costs remain unpaid 2007 formulated restructuring plans connection acquisition cholestech consistent acquisition strategy realize operating efficiencies cost savings additionally march 2008 announced plans close cholestech facility hayward california transitioning manufacturing related products biosite facility san diego california transitioned sales distribution products newlyformed shared services center orlando florida since inception plans recorded 92 million exit costs 65 million relates executive change control agreements severance costs involuntarily terminate employees 27 million relates facility exit costs december 31 2008 67 million exit costs remain unpaid conjunction acquisition hemosense formulated restructuring plans 2007 realize operating efficiencies cost savings additionally march 2008 announced plans close hemosense facility san jose california transitioning manufacturing related products biosite facility san diego california transitioned sales distribution products newlyformed shared services center orlando florida since inception plans recorded 15 million exit costs 13 million relates severance costs terminate employees 02 million relates facility exit costs december 31 2008 05 million exit costs remain unpaid see note 23 additional restructuring charges related cholestech hemosense facility closures integration conjunction acquisition matritech formulated plan exit leased facility matritech newton massachusetts recorded 15 million facility exit costs december 31 2008 11 million facility exit costs remain unpaid conjunction acquisition alere medical paradigmhealth recorded 22 million related executive change control agreements severance costs involuntarily terminate employees december 31 2008 09 million remains unpaid although believe plans estimated exit costs 2007 acquisitions reasonable actual spending exit activities may differ current estimated exit costs iii acquisitions result acquisition ostex 2003 established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total severance costs associated involuntarily terminated inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued employees 16 million paid december 31 2006 facility exit costs including costs vacate ostex facilities lease commitments 24 million 04 million remains unpaid december 31 2008 e pro forma financial information following table presents selected unaudited financial information including assets instant biosite cholestech matria acquisitions entities occurred january 1 2007 pro forma results also reflect impact formation consumer diagnostics business joint venture pg note 13ai joint venture formed january 1 2007 pro forma results exclude adjustments various less significant acquisitions completed since january 1 2007 acquisitions materially affect results operations pro forma results derived historical financial results acquired businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2007 thousands except pet share amount 1 net loss per common share amounts computed described note 15 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets following summary goodwill intangible assets december 31 2008 thousands except useful life inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2007 thousands except useful life amortize intangible assets finite lives using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate approximates pattern economic benefits consumed circumstances patterns reliably determined certain circumstances certain customer relationship assets accelerated amortization recognized reflect estimate cash flows amortization expense intangible assets aggregate amounted 2141 million 646 million 218 million 2008 2007 2006 respectively included cost net revenue research development sales marketing general administrative accompanying consolidated statements operations 2006 amortization expense included general administrative accompanying consolidated statement operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2008 thousands accordance sfas 142 perform annual impairment tests carrying value goodwill reporting unit annual impairment review september 30 2008 indicate inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued goodwill related professional diagnostics health management consumer diagnostics reporting units impaired discussion see note 2h allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated professional diagnostics health management consumer diagnostics reporting units summarized follows thousands 1 includes purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 3 includes amounts written connection formation 5050 joint venture pg generally expense costs incurred internallydevelop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2008 approximately 78 million costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon successful registration patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands following describes listed debt instruments first lien credit agreement second lien credit agreement june 26 2007 conjunction acquisition biosite entered first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements senior secured credit facility initially provided term loans aggregate amount 9000 million subject continued compliance senior secured credit facility 1500 million revolving lineofcredit junior secured credit facility provides term loans aggregate amount 2500 million may repay future borrowings senior secured credit facility revolving lineofcredit time event later june 26 2013 must repay entire junior facility term loan june 26 2015 december 31 2008 term loans revolving lineofcredit senior secured credit facility bore interest 389 364 respectively term loan junior secured credit facility bore interest 614 november 15 2007 amended senior secured credit facility increasing total amount credit available us 1125000000 resulting increase term loans aggregate amount 9750 million additionally amendment must repay senior secured credit facility term loans follows two initial installments amount 2250000 september 30 2007 december 31 2007 installment payment made b twentyfive consecutive quarterly installments beginning march 31 2008 continuing march 31 2014 amount 2437500 c final installment june 26 2014 amount equal outstanding principal balance senior secured credit facility term loans december 31 2008 aggregate borrowings amounted 1420 million senior secured credit facility revolving lineofcredit 12 billion term loans interest expense related secured credit facility year ended december 31 2008 including amortized deferred financing costs 852 million december 31 2008 accrued interest related credit facilities amounted 34 million december 31 2008 compliance debt covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 changes fair market value interest rate swaps recorded accumulated comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows december 31 2008 2007 recorded cumulative changes 211 million 95 million respectively accumulated comprehensive income accompanying balance sheets january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt b 3 senior subordinated convertible notes principal amount 1500 million may 14 2007 sold 1500 million principal amount 3 senior subordinated convertible notes due 2016 “convertible notes” private placement qualified institutional buyers initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion senior subordinated convertible notes senior subordinated convertible notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th started november 15 2007 interest expense year ended december 31 2008 2007 including amortized deferred costs 50 million 31 million respectively evaluated convertible notes agreement potential embedded derivatives sfas 133 related applicable accounting literature including eitf issue 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” eitf issue 054 “the effect liquidated damages clause freestanding financial instrument subject issue 0019” conversion feature makewhole provision determined meet embedded derivative criteria set forth sfas 133 therefore fair value recorded items c prior senior credit facility december 31 2006 448 million borrowings outstanding senior credit facility dated june 30 2005 february 1 2007 using portion proceeds january 2007 sale 69 million shares common stock note 16 paid remaining principal balance outstanding accrued interest june 2005 senior credit facility terminated june 2005 senior credit facility conjunction refinancing activities discussed outstanding loans june 2005 senior credit facility time terminated inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued borrowings revolving linesofcredit term loan bore interest either london interbank offered rate “libor” defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins year ended december 31 2007 interest expense including amortization deferred financing costs senior credit facility 47 million included interest expense writeoff 26 million unamortized deferred financing costs year ended december 31 2006 recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 89 million senior subordinated notes 875 principal amount 1500 million june 26 2007 fully repaid 875 senior subordinated notes due 2012 “notes” total amount repaid including principal 1500 million prepayment premium 93 million 1593 million accrued interest 48 million also paid part final settlement notes unamortized deferred financing costs 37 million written result repayment e linesofcredit subsidiaries maintain local lineofcredit shortterm advances december 31 2008 total 35 million borrowed local linesofcredit f debt included year ended december 31 2008 borrowings certain subsidiaries various financial institutions borrowed funds used fund capital expenditure working capital requirements interest expense borrowings 14 million year ended december 31 2008 g maturities longterm debt following summary maturities longterm debt outstanding december 31 2008 thousands 7 fair value measurements effective january 1 2008 implemented sfas 157 fair value measurement financial assets liabilities remeasured reported fair value reporting periodend date nonfinancial assets liabilities remeasured reported fair value least annually accordance provisions fasb staff position fas 1572 effective date fasb statement 157 elected defer implementation sfas 157 relates nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements non inverness medical innovations inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued recurring basis january 1 2009 evaluating impact standard nonfinancial assets liabilities adoption sfas 157 financial assets liabilities nonfinancial assets liabilities remeasured reported fair value least annually impact financial results financial assets liabilities recorded accompanying condensed consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market company ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets examples include corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability examples include certain securities derivatives level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect management’s assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis december 31 2008 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 represents investment statsure included investments unconsolidated entities accompanying consolidated balance sheets 2 included longterm liabilities accompanying consolidated balances sheets inverness medical innovations inc subsidiaries notes consolidated financial statements continued 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2008 thousands december 31 2008 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 46 million 15 million 08 million 2008 2007 2006 respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued b uk pension plans changes benefit obligations plan assets funded status amounts recognized balance sheet years ended december 31 2008 2007 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets follows thousands measurement date used determine plan assets benefit obligations defined benefit plan december 31 2008 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2008 stocks fixed income securities represented 63 37 respectively market value pension assets expect contribute approximately 05 million british pounds sterling 06 million december 31 2008 defined benefit plan 2009 expect benefits paid plan participants approximately 02 million per year next five years benefits totaling 02 million paid annually five years thereafter unipath limited unipath contributed 10 million 2008 12 million 2007 2006 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments use derivative financial instruments interest rate swap contracts management interest rate exposure related senior credit facilities hold issue derivative financial instruments speculative purposes august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt based terms interest rate swap contracts underlying debt interest rate swap contracts determined effective thus qualify cash flow hedge sfas 133 accounting derivative instruments hedging activities changes fair value inverness medical innovations inc subsidiaries notes consolidated financial statements continued 10 derivative financial instruments continued interest rate swaps recorded comprehensive income accompanying consolidated balance sheet earnings affected variability cash flows december 31 2008 2007 recorded cumulative changes 211 million 95 million respectively accumulated comprehensive income accompanying balance sheets connection interest rate swap contracts see note 13b regarding chembio diagnostics inc chembio warrants note 13d regarding statsure diagnostic systems inc statsure warrants accounted derivative instruments 11 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2021 following schedule outlines future minimum annual rental payments leases december 31 2008 thousands rent expense relating operating leases approximately 354 million 174 million 118 million 2008 2007 2006 respectively b capital expenditure commitments december 31 2008 total outstanding noncancelable equipment purchase commitments 175 million c contingent consideration obligations contingent consideration contractual terms related acquisitions alere medical ameditech binax inc binax biostat clondiag diamics first check gabmed global matritech promesan spectralsource vision recently acquired healthcare business exception alere medical contingent considerations accounted increases aggregate purchase prices contingencies occur respect alere medical terms acquisition agreement provided contingent consideration payable alere medical stockholder owned shares common stock retained option purchase shares common stock sixmonth anniversary closing acquisition contingent consideration payable cash stock election equal number shares common stock options purchase common stock held sixmonth anniversary multiplied amount 5831 exceeded greater average price common stock ten business days preceding sixmonth anniversary date 75 5831 accordingly based price common stock ten business days preceding sixmonth anniversary closing acquisition issued approximately 01 million shares common stock may 30 2008 alere inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued medical stockholders based remaining outstanding shares time payment contingent consideration impact purchase price acquisition respect ameditech terms acquisition agreement require us pay earnout upon successfully meeting certain revenue targets one year period ending first anniversary acquisition date one year period ending second anniversary acquisition date maximum amount incremental consideration payable 40 million respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition december 31 2008 remaining contingent consideration earned approximately 73 million respect biostat terms acquisition provided contingent consideration payable form loan notes biostat shareholders certain ebitda earnings interest taxes depreciation amortization milestones met 2007 ebitda milestones met 2007 loan notes totaling £34 million 62 million issued third quarter 2008 december 31 2008 loan notes remain outstanding approximate value 49 million respect clondiag terms acquisition agreement provided 89 million contingent consideration consisting approximately 02 million shares common stock approximately 30 million cash stock event four specified products developed clondiag’s platform technology three years following acquisition date successful completion second milestone occurred first quarter 2008 made payment 09 million issued 56080 shares common stock first quarter 2008 successful completion third fourth milestones occurred third quarter 2008 made payment 16 million issued 01 million shares common stock fourth quarter 2008 milestones exist respect diamics terms acquisition agreement provide contingent consideration payable upon successful completion certain milestones including development business plans marketable products december 31 2008 remaining contingent consideration earned approximately 23 million respect first check terms acquisition agreement required us pay earnout first check equal incremental revenue growth acquired products 2007 first nine months 2008 compared immediately preceding comparable periods 2007 milestone totaling 22 million met accrued december 31 2007 paid first quarter 2008 milestone totaling 03 million met accrued third quarter 2008 paid fourth quarter 2008 milestones exist respect gabmed terms acquisition agreement provide contingent consideration totaling 750000 payable five annual amounts beginning 2007 upon successfully meeting certain revenue ebit earnings interest taxes milestones respective annual periods 2007 milestone totaling 01 million 02 million met accrued june 30 2008 paid third quarter 2008 respect global terms acquisition agreement provided contingent consideration payable upon successfully meeting certain revenue targets 2008 december 31 2008 revenue targets met resulting accrued contingent consideration totaling 02 million milestones exist inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued respect matritech terms acquisition agreement required us pay earnout former matritech shareholders upon successfully meeting certain revenue targets 2008 december 31 2008 milestones achieved milestones exits respect promesan terms acquisition agreement provide contingent consideration payable upon successfully meeting certain annual revenue targets total contingent consideration 06 million payable three equal annual amounts 02 million beginning 2007 ending 2009 2007 milestone totaling 02 million 03 million met accrued december 31 2007 paid first quarter 2008 milestone totaling 02 million 03 million met accrued december 31 2008 respect spectralsource terms acquisition agreement required us pay earnout equal two times consolidated revenue spectralsource less 40 million consolidated profits tax spectralsource least 09 million one year anniversary “milestone period” following acquisition date consolidated profits tax spectralsource milestone period less 09 million amount payment would equal seven times spectralsource’s consolidated profits tax less 40 million contingent consideration payable 60 cash 40 stock revenue profit milestones met accrued fourth quarter 2008 made payment 16 million issued 53372 shares common stock fourth quarter 2008 milestones exist respect vision terms acquisition agreement provide incremental consideration payable former vision shareholders maximum amount incremental consideration payable approximately 32 million 10 million guaranteed accrued december 31 2008 remaining contingent consideration payable upon completion certain milestones successfully maintaining certain production levels product costs two years following acquisition date december 31 2008 milestones met respect recentlyacquired healthcare business terms acquisition agreement provide contingent consideration payable upon successfully meeting certain revenue ebitda targets twelve months ending june 30 2009 december 31 2010 respectively accrued liability amount 38 million avoid recognition negative goodwill result recognizing additional purchase price consideration contingent future events december 31 2008 38 million liability remains accrued legal proceedings estate melissa prince quisenberry v alere medical inc ta associates inc covington associates et al september 19 2008 estate melissa prince quisenberry filed class action complaint superior court california behalf others similarly situated alere medical inc alere medical agora parent inc wholly owned subsidiaries ronald geraty md chief executive officer alere medical certain individuals executive officers directors andor significant shareholders alere medical well certain unaffiliated entities plaintiff class owned common andor preferred stock alere medical allege defendants forced tender stock connection march 14 2007 sale alere medical unaffiliated entity price substantially lower price bought alere medical october 24 2007 plaintiff also alleges individual defendants breached fiduciary duties good faith fair dealing loyalty candor alere medical certain unaffiliated entities aided abetted substantially participated breach fiduciary duty believe strong defenses allegations inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued made class intend defend claims vigorously however outcome alere medical could potentially material adverse impact sales operations financial performance healthways inc robert bosch north america corp v alere medical inc healthways inc robert bosch north america corp filed complaint us district court northern district illinois november 5 2008 alere medical inc alleging infringement 11 patents licensed bosch healthways alere medical answered complaint filed counterclaims seeking declarations patents invalid infringed plaintiffs subsequently filed amended complaint substituting alere llc alere consolidated health management subsidiary defendant place alere medical believe strong defenses healthways’ allegations intend defend vigorously however ruling alere could potentially material adverse impact sales operations financial performance could limit current future business opportunities claims ordinary course matters party pending legal proceedings currently believe could material adverse impact sales operations financial performance however nature business may subject particular time commercial disputes consumer product claims negligence claims various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future lawsuits generally seek damages sometimes substantial amounts example previously reported april 2008 pyramid holdings inc purchaser november 2007 public offering common stock filed putative securities class action us ron zwanziger chairman chief executive officer president david teitel chief financial officer united states district court district massachusetts alleging prospectus supplement registration statement respect november 2007 public offering inaccurate misleading omitted state material facts plaintiffs subsequently filed amended class action complaint adding defendants current directors former director former chief financial officer believe allegations baseless intend defend vigorously also subsidiary alere medical continues defend infringement claims brought health hero network inc alleges patented certain processes related home monitoring patients believe strong defenses claims brought pyramid holdings health hero intend defend vigorously claims could potentially negative impact sales operations financial performance could limit existing future business opportunities addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties suits expensive result counterclaims challenging validity patents rights 12 codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited iti whereby iti agreed provide us £300 million three years partially fund research development programs focused identifying novel biomarkers nearpatient homeuse tests cardiovascular diseases “the programs” agreed invest £375 million programs three years date agreement subsidiary stirling medical innovations limited stirling established new research center stirling scotland consolidated many inverness medical innovations inc subsidiaries notes consolidated financial statements continued 12 codevelopment agreement iti scotland limited continued existing cardiology programs ultimately commercialize products arising programs iti stirling exclusive rights developed technology respective fields use qualified expenditures made codevelopment arrangement recognized fee earned period reduction related expenses subject certain limitations december 31 2007 earned full funding arrangement amount £300 million 560 million funding earned 2008 fiscal years ended december 31 2007 2006 recognized 200 million 184 million reimbursements respectively 185 million 166 million respectively offset research development spending 15 million 18 million respectively reduced general administrative marketing spending incurred stirling though funding arrangement completed stirling continues support iti exploiting developed technology fields interest 13 investment unconsolidated entities marketable securities equity method investments joint venture pg may 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostics outside cardiology diabetes oral care fields closing transferred related consumer diagnostics assets totaling 636 million manufacturing core intellectual property assets joint venture pg acquired interest joint venture cash payment approximately 3250 million also entered option agreement pg pursuant pg right period 60 days commencing fourth anniversary date agreement require us acquire pg’s interest joint venture fair market value pg right upon certain material breaches us obligations joint venture acquire interest joint venture fair market value gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture expires deferred gain recorded accompanying consolidated balance sheets december 31 2008 2007 2870 million 2931 million respectively also entered manufacturing agreement pg whereby manufacture consumer diagnostics sell products joint venture entity capacity manufacturer products joint venture recorded 1030 million 650 million manufacturing revenue year ended december 31 2008 2007 respectively included net product sales accompanying consolidated statements operations furthermore entered certain transition longterm services agreements joint venture pursuant provide certain operational support services joint venture revenue related service agreements year ended december 31 2008 2007 24 million 25 million respectively included services revenue consolidated statements operations customer receivables associated revenue classified receivables within prepaid current assets accompanying consolidated balance sheets amount 162 million 295 million december 31 2008 2007 respectively connection joint venture arrangement joint venture bears collection risk associated receivables upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostics business related joint venture instead account 50 interest results joint venture equity method accounting accordance apb inverness medical innovations inc subsidiaries notes consolidated financial statements continued 13 investment unconsolidated entities marketable securities continued opinion 18 equity method accounting investments common stock year ended december 31 2008 2007 recorded loss 09 million earnings 30 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented share joint venture’s net income respective periods including restructuring related expenses 2008 joint venture paid 112 million cash parent companies equally reducing respective investments joint venture ii vedalab sa november 2006 acquired 40 vedalab sa vedalab french manufacturer supplier rapid diagnostic tests professional markets aggregate purchase price 97 million consisted 76 million cash 49787 shares common stock aggregate fair value 20 million 01 million estimated direct acquisition costs date settled ongoing patent infringement claim vedalab terms settlement vedalab paid us 51 million agreed pay us royalties future sales ranging 5 10 depending products sold exchange license certain patents manufacture current products facility alencon france payment 51 million included income financial results year ended december 31 2006 46 million relates periods prior 2006 included income expense net remaining 05 million recorded license royalty revenue account 40 investment vedalab equity method accounting accordance apb opinion 18 equity method accounting investments common stock january 2007 received 07 million vedalab form dividend distribution accounted reduction value investment accordance apb opinion 18 year ended december 31 2008 2007 recorded 05 million 03 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statement operations represented minority share vedalab’s net income respective period iii techlab inc may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibiotic associated diarrhea parasitology aggregate purchase price 88 million consisted 303417 shares common stock aggregate fair value 86 million 02 million estimated direct acquisition costs account 49 investment techlab equity method accounting accordance apb opinion 18 2008 2007 received 14 million 06 million respectively techlab form dividend distributions accounted reduction value investment accordance apb opinion 18 year ended december 31 2008 2007 2006 recorded 15 million 11 million 06 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statement operations represented minority share techlab’s net income respective period b investment chembio september 2006 acquired 5 chembio developer manufacturer rapid diagnostic tests infectious diseases purchase 40 shares preferred stock preferred stock pays dividend 7 payable cash common stock aggregate purchase price 20 million paid cash addition preferred stock received warrant purchase 625000 shares chembio’s common stock 080 per share chembio’s stock publiclytraded warrant accounted derivative instrument fair value approximately 04 million date issuance fair value warrant estimated time issuance using blackscholes pricing model assuming inverness medical innovations inc subsidiaries notes consolidated financial statements continued 13 investment unconsolidated entities marketable securities continued dividend yield expected volatility 116 riskfree rate 49 contractual term five years december 2007 exercised warrant purchased 625000 shares chembio’s common stock recorded 03 million loss connection markto market warrant included income expense net accompanying consolidated statement operations year ended december 31 2007 furthermore converted 40 shares preferred stock common stock december 31 2008 2007 owned 54 million shares common stock chembio fair market value approximately 06 million 13 million respectively classified marketable securities noncurrent accompanying consolidated balance sheets recorded unrealized holding loss approximately 14 million 06 million accumulated comprehensive income within stockholders’ equity accompanying consolidated balance sheets december 31 2008 2007 respectively c investment bbi investment bbi consisted marketable equity securities purchased may 2007 receipt shares recorded market value december 31 2007 fair market value securities included marketable securities longterm accompanying consolidated balance sheet approximately 190 million representing unrealized holding gain approximately 43 million recorded accumulated comprehensive income within stockholders’ equity accompanying consolidated balance sheets december 31 2007 acquired bbi february 2008 time recorded original cost investment part preliminary purchase price reversed 43 million unrealized holding gain accumulated comprehensive income investment statsure october 2007 acquired 5 statsure developer marketer oral fluid collection devices drugs abuse market purchase 14 million shares common stock aggregate purchase price 05 million paid cash addition common stock received warrant purchase 11 million shares statsure’s common stock 035 per share statsure’s stock publiclytraded warrant accounted derivative instrument accordance sfas 133 accounting derivative instruments hedging activities fair value approximately 03 million date issuance fair value warrant estimated time issuance using blackscholes pricing model assuming dividend yield expected volatility 150 riskfree rate 39 contractual term five years markedtomarket warrant contractual term recorded unrealized loss 03 million unrealized gain 01 million income expense net accompanying consolidated statement operations year ended december 31 2008 2007 respectively december 31 2008 warrant valued approximately 25000 14 inprocess research development connection three acquisitions since 2006 acquired various iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably example discontinued funding certain inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 inprocess research development continued programs listed addition cannot guarantee able develop commercialize products competitors develop commercialize products indications following table sets forth iprd projects companies certain assets acquired since 2006 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets 15 net loss per common share following table sets forth computation basic diluted net loss per common share thousands except per share amounts inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 net loss per common share continued following potential dilutive securities outstanding december 31 2008 options warrants purchase aggregate 106 million shares common stock weighted average exercise price 3215 per share b 34 million shares related issuance 1500 million 3 senior subordinated convertible notes c 19 million shares series b convertible preferred stock convertible certain circumstances 6932 per share 108 million shares common stock potential dilutive securities included computation diluted net loss per common share 2008 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2007 options warrants purchase aggregate 83 million shares common stock weighted average exercise price 3082 per share b 18 million shares related issuance 1500 million 3 senior subordinated convertible notes potential dilutive securities included computation diluted loss per common share 2007 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2006 options warrants purchase aggregate 41 million shares common stock weighted average exercise price 2075 per share potential dilutive securities included computation diluted loss per common share 2006 inclusion thereof would antidilutive 16 stockholders’ equity common stock december 31 2008 1500 million shares common stock 0001 par value authorized approximately 784 million shares issued outstanding 111 million shares reserved issuance upon grant exercise stock options current stock option plans 05 million shares reserved issuance employee stock purchase plan 05 million shares reserved issuance upon exercise outstanding warrants addition potential dilutive securities consisting 150 million 3 senior subordinated convertible notes convertible 34 million shares common stock note 6b 19 million shares seried b convertible preferred stock convertible certain circumstances 6932 per share 108 million shares common stock note 16b november 2007 sold aggregate 136 million shares common stock 6149 per share underwritten public offering certain officers also sold total 165698 shares common stock offering proceeds us offering approximately 8069 million net issuance costs 318 million includes deductions underwriting discounts commissions takes effect reimbursement underwriters portion offering expenses net proceeds used fund certain acquisitions remainder net proceeds retained working capital general corporate purposes january 2007 sold aggregate 69 million shares common stock 3965 per share underwritten public offering inclusive 09 million shares associated exercise underwriter’ option purchase additional shares cover overallotments proceeds offering approximately 2613 million net issuance costs 123 million included deductions underwriting discounts commissions takes effect reimbursement underwriters portion offering expenses amount used 449 million repay principal outstanding accrued interest term loan senior credit facility remainder net proceeds retained working capital general corporate purposes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockholders’ equity continued b preferred stock december 31 2008 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock may 8 2008 connection acquisition matria issued 18 million shares series b preferred stock fair value approximately 6579 million note 4ai share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock conversions december 31 2008 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance year ended december 31 2008 series b preferred stock dividends amounted 140 million reduced earnings available common stockholders purposes calculating net loss per common share 2008 note 15 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof september 15 2008 board directors declared dividend 477 per share series b preferred stock dividend paid shares series b preferred stock amount per share series b preferred stock equal quotient 477 divided b 97 average volumeweighted average price per share series b preferred stock american stock exchange five consecutive trading days ending second trading day immediately prior record date dividend paid cash lieu fractional shares resulting dividend totaling 85 million paid october 15 2008 holders record series b preferred stock close business october 1 2008 first dividend declared paid series b preferred stock payment covered amount dividends accrued may 9 2008 original issuance date series b preferred stock september 30 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockholders’ equity continued december 10 2008 board directors declared dividend 300 per share series b preferred stock dividend paid shares series b preferred stock amount per share series b preferred stock equal quotient 300 divided b 97 average volumeweighted average price per share series b preferred stock american stock exchange five consecutive trading days ending second trading day immediately prior record date dividend paid cash lieu fractional shares resulting dividend totaling 55 million paid january 15 2009 holders record series b preferred stock close business january 2 2009 payment covered amount dividends accrued october 1 2008 december 31 2008 december 31 2008 19 million shares series b preferred stock issued outstanding holders series b preferred stock liquidation preferences holders company’s common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2008 liquidation preference outstanding series b preferred stock 7515 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment sfas 133 accounting derivative instruments hedging activities based evaluation securities qualify derivative accounting sfas 133 c stock options awards 2001 adopted 2001 stock option incentive plan amended “2001 plan” currently allows issuance 111 million shares common stock awards 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2008 2007 08 million 23 million respectively shares available future grant 2001 plan august 2001 sold chief executive officer 12 million shares restricted common stock price 913 per share twothirds restricted stock 08 million shares vested ratably 36 months remaining onethird 04 million shares vested ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse chief executive officer note due payable august 16 2006 bore interest annual rate 499 interest income recorded note amounted 03 million year ended december 31 2006 august 2006 note accrued interest paid full note 21 august 2001 granted two nonqualified stock options purchase aggregate 08 million shares common stock exercise price 620 per share two key executive officers inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockholders’ equity continued options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes due payable december 2006 bore interest annual rate 397 applicable federal rate fiveyear note effect month exercise notes accrued interest paid full december 2006 note 21 interest income recorded notes amounted 02 million year ended december 31 2006 following summarizes stock option activity year ended december 31 thousands except exercise price aggregate intrinsic value options outstanding december 31 2008 97 million aggregate intrinsic value options exercisable december 31 2008 96 million aggregate intrinsic value stock options exercised 2008 2007 2006 182 million 625 million 74 million respectively based equity awards outstanding december 31 2008 626 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weighted average period 15 years inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockholders’ equity continued warrants following summary warrant activity three years ended december 31 following represents additional information related warrants outstanding exercisable december 31 2008 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 03 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2008 value warrants issued connection debt financings yielded original issue discounts additional interest expense 05 million 2006 expense incurred 2008 2007 outstanding warrants classified equity pursuant provision eitf 0019 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockholders’ equity continued e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 10 million shares common stock plan december 31 2008 05 million shares issued plan 17 stockbased compensation accordance sfas 123r results operations year ended december 31 2008 2007 2006 reflected compensation expense new stock options granted since january 1 2006 vested stock incentive plan employee stock purchase plan unvested portion previous stock option grants vested years ended december 31 2008 2007 2006 stockbased compensation expense amount 264 million 207 million net tax 575 million 527 million net tax 55 million 49 million net tax reflected consolidated statements operations year ended december 31 2008 2007 2006 respectively follows thousands included amount general administrative expense year ended december 31 2007 452 million related assumption biosite options expense relates acceleration unvested biosite employee options see note 4b regarding acquisition biosite accordance sfas 123r year ended december 31 2008 2007 2006 presentation cash flows reports excess tax benefits exercise stock options financing cash flows year ended december 31 2008 2007 2006 excess tax benefits generated option exercises amounted 175 million 09 million 06 million respectively following assumptions used estimate fair value options granted year ended december 31 2008 2007 2006 using blackscholes optionpricing model weighted average fair value blackscholes option pricing model options granted employees 2008 2007 2006 1066 2405 1529 respectively options granted periods granted fair market value date grants year ended december 31 2008 accordance sfas 123r recorded compensation expense 28 million related employee stock purchase plan fair value option component inverness medical innovations inc subsidiaries notes consolidated financial statements continued 17 stockbased compensation continued employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 4331 5387 riskfree interest rate range 213 332 expected life 181 184 days charge included general administrative table year ended december 31 2007 accordance sfas 123r recorded compensation expense 15 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 3264 6949 riskfree interest rate range 417 494 expected life 181 184 days charge included general administrative table year ended december 31 2006 accordance sfas 123r recorded compensation expense 03 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 33 riskfree interest rate range 455 499 expected life 05 years charge included general administrative table 18 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders’ equity following summary components changes accumulated comprehensive income december 31 2008 three years ended thousands 1 represents realization unrealized gains availableforsale securities interest rate swap 2 components accumulated comprehensive income relate foreign subsidiaries except item 1 adjustments income taxes recorded comprehensive income intend permanently invest foreign subsidiaries foreseeable future 19 income taxes income tax benefit provision 2008 2007 2006 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath united kingdom inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 income taxes continued medical france inverness medical switzerland loss benefit provision income taxes consists following thousands primary temporary differences give rise deferred tax asset liability nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets gain joint venture transaction income tax effects temporary differences follows thousands december 31 2008 approximately 2566 million domestic nol carryforwards 159 million foreign nol foreign capital loss carryforwards either expire various dates 2027 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities domestic nol carryforwards include approximately inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 income taxes continued 1992 million preacquisition losses matria alere medical paradigmhealth biosite cholestech diamics hemosense imn ischemia ostex also included domestic nol carryforwards december 31 2008 approximately 175 million resulting exercise employee stock options tax benefit recognized credit additional paidin capital rather reduction income tax domestic nol’s subject internal revenue service code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate section 382 limited amount 2009 approximately 1670 million recorded valuation allowance 127 million december 31 2008 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits reduction 62 million valuation allowance 189 million december 31 2007 decrease primarily related recognition foreign nols valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accordance sfas 109 accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2008 37 million deferred tax assets valuation allowance pertains acquired companies future benefits applied reduce income tax expense required sfas 141r business combinations adopted january 1 2009 chinabased manufacturing subsidiaries qualify reduced income tax rate 2008 income tax holiday 2007 general income tax rate 25 income tax rate abon 125 2008 2009 2010 im shanghai 9 2008 10 2009 11 2010 24 2011 reduced rates 2008 2009 2010 2011 grandfathered china tax reform act tax rate 15 25 apply 2011 future years tax rate 15 applies companies high technology status process applying high technology status reduced tax rate produced tax expense approximately 10 million absence reduced tax rate 2008 tax rate 25 would apply would resulted tax expense approximately 20 million 2008 earnings per common share effect reduced tax rate 001 2008 tax holiday provided income tax rate 0 2007 absence tax holiday tax rate 33 would apply would resulted tax expense approximately 38 million 2007 earnings per share common effect tax holiday 007 2007 estimated amount undistributed earnings foreign subsidiaries 861 million december 31 2008 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 income taxes continued following table presents components benefit provision income taxes thousands following table presents reconciliation us statutory tax rate effective tax rate adopted fin 48 accounting uncertainty income taxes interpretation fasb statement 109 january 1 2007 year ended december 31 2008 increased liability income taxes associated uncertain tax positions 24 million total 111 million december 31 2008 primary reason increase due acquisitions clondiag matria increased liability income taxes associated uncertain tax positions 18 million future recognition clondiag matria tax benefit generally recorded income due adoption sfas 141r business combinations effective january 1 2009 addition consistent provisions fin 48 classified 111 million income tax liabilities noncurrent income tax liabilities payment cash anticipated within one year balance sheet date noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 income taxes continued anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense interest penalties recorded 2008 amounted 04 million balance accrued interest penalties recorded consolidated balance sheet december 31 2008 08 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2002 2007 currently income tax examination irs number state foreign tax authorities anticipate audits completed end 2009 cannot currently estimate impact audits due uncertainties associated tax examinations 20 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health management consumer diagnostics vitamins nutritional supplements corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement included operating results professional diagnostics 2008 expenses related research development activities area cardiology result recent cardiologyrelated acquisitions amounted 370 million included operating results professional diagnostics 2007 expenses related research development activities area cardiology result 2007 cardiologyrelated acquisitions amounted 265 million net 185 million reimbursements received iti part codevelopment arrangement entered february 2005 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 20 financial information segment continued included operating results corporate 2006 expenses related research development activities area cardiology amounted 302 million net 166 million reimbursements received iti part codevelopment arrangement mentioned operating loss 2507 million year ended december 31 2007 corporate segment includes writeoff 1738 million iprd incurred connection acquisitions biosite diamics 452 million stockbased compensation related employee stock options assumed acquisition biosite total assets related cardiology research operations scotland germany included professional diagnostics 2008 2007 included corporate 2006 tables amounted 379 million december 31 2008 394 million december 31 2007 184 million december 31 2006 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2008 2007 2006 follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 20 financial information segment continued 21 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following securities common stock series b preferred stock convertible notes interests first lien credit agreement interests second lien credit agreement extent make principal interest payments convertible notes credit facilities accordance terms zwanziger family trust holder convertible notes lender credit facilities receive proportionate share connection purchases interests first lien credit agreement second lien credit agreement trust agreed whenever consent vote lenders required credit facilities vote outstanding principal amount holdings proportion votes cast lenders credit facilities may 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostics outside cardiology diabetes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 21 related party transactions continued oral care fields december 31 2008 2007 net receivable joint venture 120 million net payable joint venture 108 million respectively additionally customer receivables associated revenue earned joint venture completed classified receivables within prepaid current assets accompanying consolidated balance sheets amount 162 million 295 million december 31 2008 2007 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 1030 million 650 million year ended december 31 2008 2007 respectively included net product sales accompanying statements operations terms product supply agreement spd purchases products manufacturing facilities uk china spd turn sells portion tests back inverness final assembly packaging packaged tests sold pg distribution third party customers north america result related transactions recorded 156 million trade receivables included accounts receivable consolidated balance sheet december 31 2008 189 million trade accounts payable included accounts payable consolidated balance sheet december 31 2008 joint venture paid 112 million cash parent companies equally reducing respective investments joint venture march 22 2007 entered convertible loan agreement bbi whereby loaned £75 million 147 million transaction date terms agreement loan amount would simultaneously convert shares bbi common stock per prescribed conversion formula defined loan agreement event bbi consummated specific target acquisition september 30 2007 may 15 2007 bbi consummated specific target acquisition loan converted 5208333 shares bbi’s common stock included investments unconsolidated entities accompanying consolidated balance sheet december 31 2007 february 2008 acquired remaining outstanding shares bbi common stock connection acquisition bbi note 4 december 2006 one key executive officers paid us 1606831 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 250000 shares common stock august 2001 note 16 december 2006 one key executive officers paid us 2571320 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 399381 shares common stock august 2001 note 16 august 2006 chairman chief executive officer president paid us 11197096 full satisfaction obligations us including principal accrued interest previously disclosed fiveyear promissory note dated august 16 2001 promissory note provided us connection purchase 1168191 shares common stock august 2001 note 16 june 2006 issued 25000 shares common stock consideration acquisition capital stock innovative medical devices bvba seller capital stock innovative medical devices bvba spouse chief executive officer spd swiss precision diagnostics 5050 joint venture pg 22 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 valuation qualifying accounts continued discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands 23 restructuring activities following table sets forth aggregate charges associated restructuring plans recorded operating income loss years ended december 31 thousands 2008 restructuring plans may 2008 decided close facility located bedford england initiated steps cease operations facility transition manufacturing operations principally manufacturing facilities shanghai hangzhou china based upon decision recorded 126 million restructuring charges year ended december 31 2008 including 69 million related acceleration facility restoration costs 48 million fixed asset impairments 11 million severance costs 07 million early termination lease penalties 09 million related pension plan curtailment gain associated bedford employees terminated restructuring charges 57 million charged professional diagnostics business segment follows 35 million cost net product sales 02 million research development expense 02 million sales marketing expense 18 million general administrative expense also recorded 67 million related accelerated present value accretion lease restoration costs due early termination facility lease interest expense inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued addition restructuring charges discussed 145 million charges associated bedford facility closure borne spd consumer diagnostics joint venture pg year ended december 31 2008 included charges 84 million fixed asset impairments 32 million early termination lease penalties 26 million severance retention costs 02 million facility exit costs 01 million related acceleration facility restoration costs restructuring charges 50 72 million included equity earnings unconsolidated entities net tax consolidated statements operations year ended december 31 2008 total exit costs incurred spd us plan including severance related costs lease penalties restoration costs 101 million remains unpaid december 31 2008 anticipate incurring additional costs approximately 172 million related closure facility including limited severance retention costs rent obligations incremental interest expense associated lease obligations terminate end 2011 additional anticipated costs approximately 205 million borne spd 96 million borne us expect majority costs incurred end 2009 anticipated facility closure date february 2008 decided cease research development activities one products development bedford england facility based upon comparison product development existing products acquired hemosense acquisition year ended december 31 2008 recorded restructuring charges 94 million 68 million related impairment fixed assets 19 million related writeoff inventory 05 million related contractual obligations suppliers 02 million related severance costs involuntarily terminate employees working development product 94 million included professional diagnostics business segment included 60 million charged cost net product sales 33 million charged research development expense 01 million charged sales marketing expense 07 million contractual obligations severance costs paid december 31 2008 expect incur significant additional charges plan april 2008 initiated cost reduction efforts facilities stirling scotland consolidating business activities one facility biosite operations result efforts recorded 33 million restructuring charges year ended december 31 2008 consisting 20 million fixed asset impairments 10 million severance costs 03 million facility exit costs charges included professional diagnostics business segment follows 32 million research development expense 01 million general administrative expense 13 million severance facility exit costs 01 million remains unpaid december 31 2008 expect incur significant additional charges plan march 18 2008 announced plans close biostar inc biostar facility louisville colorado exit production biostar oia product line along plans close two newlyacquired facilities san francisco california area relating cholestech hemosense one newlyacquired facility columbia maryland relating panbio cholestech operation acquired september 2007 manufactures distributes cholestech ldx system pointofcare monitor blood cholesterol related lipids used test patients risk suffering heart disease related conditions move biosite facility san diego california middle 2009 hemosense operation acquired november 2007 manufactures distributes inratio system easytouse handheld blood coagulation monitoring system use patients healthcare professionals management warfarin commonly prescribed medication used prevent blood clots substantially moved biosite facility december 31 2008 panbio distribution facility acquired january 2008 transferred distribution center freehold new jersey december 31 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued biostar manufacturing ceased end june 2008 biostar oia products available purchase end first quarter 2009 year ended december 31 2008 incurred 106 million restructuring charges related plan consisted 51 million intangible assets impairment 14 million severancerelated costs 06 million fixed asset impairments 12 million facility exit costs 23 million related writeoff inventory 106 million included professional diagnostics business segment 71 million charged cost net product sales 20 million charged sales marketing expense 15 million charged general administrative expect incur additional 01 million charges plan first half 2009 primarily related severance facility exit costs december 31 2008 04 million severance facility exit costs remain unpaid result plans transition businesses cholestech hemosense biosite panbio orlando florida close facilities incurred 38 million restructuring charges year ended december 31 2008 27 million relates severance retention costs 04 million fixed asset impairments 05 million transition costs 02 million present value accretion facility lease costs related plans 38 million included professional diagnostics business segment 12 million charged cost net product sales 05 million charged research development expense 03 million charged sales marketing expense 16 million charged general administrative expense also recorded 02 million related present value accretion facility lease costs due early termination facility lease interest expense 34 million exit costs 25 million remains unpaid december 31 2008 anticipate incurring additional 23 million restructuring charges cholestech hemosense plans primarily related severance retention outplacement benefits along costs transition cholestech hemosense operations biosite facility see note 4d information costs related plans addition transitioning businesses cholestech hemosense biosite also made decision close innovacon facility san diego california move operating activities biosite innovacon business rapid diagnostics business acquired acon laboratories inc year ended december 31 2008 recorded 06 million restructuring charges 05 million relates facility lease exit costs 01 million relates impairment fixed assets charges included professional diagnostics business segment charged general administrative december 31 2008 02 million restructuring costs remain unpaid vacated facility august 2008 anticipate incurring additional costs plan b 2007 restructuring plans 2007 committed several plans restructure integrate worldwide sales marketing order management fulfillment operations well evaluate certain research development projects objectives plans eliminate redundant costs improve customer responsiveness improve efficiencies operations result restructuring plans recorded 30 million restructuring charges year ended december 31 2008 30 million charge included 26 million related severance charges outplacement services 04 million related facility exit costs restructuring charges consisted 01 million charged cost net revenue 16 million charged sales marketing expenses 13 million charged general administrative expenses included professional diagnostics business segments since inception plan recorded 82 million restructuring charges including 38 million related severance charges outplacement services 04 million related facility exit costs 40 million related impairment charges fixed assets 82 million recorded 18 million 64 million included consumer diagnostics inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued professional diagnostics business segment respectively december 31 2008 12 million severancerelated charges facility exit costs remain unpaid anticipate incurring additional charges related plan addition recorded restructuring charges associated formation joint venture pg connection joint venture committed plan close one sales offices germany sweden well evaluate redundancies departments consumer diagnostics business segment impacted formation joint venture year ended december 31 2008 recorded 02 million severance costs related plan primarily charged general administrative expenses recorded 14 million restructuring charges since inception plan 10 million relates severance costs 04 million relates facility exit costs total 14 million severance exit costs 01 million remains unpaid december 31 2008 anticipate incurring additional charges related plan c 2006 restructuring plans may 2006 committed plan cease operations abi manufacturing facility san diego california write certain excess manufacturing equipment impacted facilities additionally june 2006 committed plan reorganize sales marketing customer service functions certain us professional diagnostics companies year ended december 31 2007 recorded 04 million net restructuring charges plans primarily relates 06 million facility exit costs offset 02 million adjustment due finalization fixed asset writeoffs 04 million net charge 02 million adjustment recorded cost net revenue included consumer diagnostics segment 06 million charged general administrative expense included professional diagnostics business segment net restructuring charges since commitment date consist 67 million related impairment fixed assets inventory 27 million related impairment charge intangible asset 25 million related severance 06 million related facility closing costs 125 million recorded operating income 82 million 17 million 26 million included professional diagnostics consumer diagnostics corporate business segments respectively december 31 2008 01 million severance related charges remains unpaid 2005 restructuring plan may 2005 committed plan cease operations facility galway ireland year ended december 31 2006 recorded net restructuring gain 32 million 04 million related charges severance early retirement outplacement services 01 million related impairment charge fixed assets 06 million related facility closing costs 43 million related foreign exchange gains result recording cumulative translation adjustment income relating primarily plan termination charges year ended december 31 2006 consisted 07 million charged cost goods sold 04 million charged general administrative 43 million gains recorded expense net restructuring gain 32 million included net loss year ended december 31 2006 11 million loss 43 million gain included consumer diagnostics corporate business segments respectively additionally year ended december 31 2006 recorded 14 million gain sale cdil facility ireland recorded loss dispositions net consolidated statements operations included corporate business segment periods note 25 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued net restructuring charges since commitment date consist 26 million related severance early retirement outplacement services 24 million related impairment fixed assets inventory 12 million related facility closing costs offset 43 million related net foreign exchange gains relating primarily plan termination 14 million gain sale manufacturing facility total 62 million restructuring charges recorded operating income 03 million 59 million included professional diagnostics consumer diagnostics business segments respectively 43 million 14 million gains included corporate business segment plan termination substantially complete december 31 2006 costs related severance early retirement outplacement services facility closing costs paid december 31 2006 e restructuring reserves following table summarizes liabilities related restructuring activities associated plans discussed thousands 1 represents foreign currency translation adjustment 24 supplemental cash flow information cash paid interest income taxes fiscal 2008 2007 2006 made cash payments interest totaling 886 million 650 million 227 million respectively fiscal 2008 2007 2006 total net cash paid received income taxes 55 million 315 million 88 million respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 24 supplemental cash flow information continued noncash investing activities fiscal 2008 2007 2006 issued shares common stock exchanged employee stock options connection several acquisitions dollars thousands 1 acquisition spectral diagnostics private limited also included affiliate source diagnostics india private limited 2 value includes 26 million associated net operating loss nol carryforwards related stock options issued biosite incorporated employees noncash financing activities 2008 2007 recorded noncash charges accumulated comprehensive income 116 million 95 million respectively representing change fair market value interest rate swap agreement 25 loss dispositions net 2006 recorded net loss dispositions 35 million included net loss 49 million charge associated management’s decision dispose scandinavian micro biodevices aps smb research operation part professional diagnostics corporate business segments 20 million related impaired assets primarily goodwill associated smb 29 million loss sale smb sale operation completed fourth quarter 2006 net loss dispositions also includes offsetting 14 million gain sale idle manufacturing facility galway ireland result 2005 restructuring plan facility associated consumer diagnostics business segmentitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included 3 exhibits filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date february 26 2010 ron zwanziger ron zwanziger chairman chief executive officer president inverness medical innovations inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries “company” december 31 2009 2008 related consolidated statements operations equity comprehensive income loss cash flows three years period ended december 31 2009 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2009 2008 consolidated results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america described note 4 financial statements company adopted accounting standards related business combinations effective business combinations entered january 1 2009 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission “coso” report dated february 26 2010 expressed unqualified opinion thereon bdo seidman llp boston massachusetts february 26 2010 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements equity comprehensive income loss thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements equity comprehensive income loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements equity comprehensive income loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statement cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation developing new capabilities nearpatient diagnosis monitoring health management inverness medical innovations inc subsidiaries enable individuals take charge improving health quality life home global leading products services well new product development efforts focus cardiology women’s health infectious disease oncology drugs abuse business organized three primary operating segments professional diagnostics ii health management iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection cardiac conditions pregnancy infectious diseases oncology drugs abuse health management segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market january 15 2010 completed sale vitamins nutritional supplements business note 24 sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented assets liabilities associated vitamins nutritional supplements business reclassified assets held sale liabilities related assets held sale december 31 2009 2008 accompanying consolidated balance sheets acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 following completion 5050 joint venture pg may 17 2007 ceased consolidate operating results consumer diagnostics business represented 761 million net product sales 2007 date joint venture formed instead account 50 interest results joint venture equity method accounting capacity manufacturer products joint venture supply product joint venture record revenue sales gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture market value expires fourth anniversary closing consolidated financial statements include accounts inverness medical innovations inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders’ equity note 17 revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month year net realized unrealized foreign currency exchange transaction gains 13 million 2009 losses 05 million 2008 losses 20 million 2007 included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2009 2008 restricted cash restricted cash 24 million 27 million december 31 2009 2008 respectively e marketable securities classified availableforsale trading carried estimated fair value determined quoted market prices balance sheet date realized gains losses securities included earnings determined using specific identification method unrealized holding gains losses except temporary impairments securities classified available sale excluded earnings reported accumulated comprehensive income net related tax effects unrealized gains losses activelytraded securities included earnings marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 221 years buildings 2050 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 15 years furniture fixtures 215 years land depreciated depreciation expense related property plant equipment amounted 543 million 497 million 254 million 2009 2008 2007 respectively expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill indefinitelived intangible assets required tested impairment annually lieu amortized using fair value approach reporting unit level furthermore testing impairment required interim basis event circumstance indicates likely impairment loss incurred impairment loss shall recognized extent carrying amount goodwill indefinitelived intangible asset exceeds implied fair value impairment losses shall recognized operating results valuation methodology assessing impairment using discounted cash flows approach market approach requires management make judgments assumptions based historical experience projections future operating performance annual impairment review performed september 30 2009 indicate goodwill indefinitelived intangible assets related professional diagnostics health management consumer diagnostics reporting units impaired fair value professional consumer diagnostics segments exceeding carrying value greater 10 fair value health management segment exceeding carrying value approximately 9 based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environments business units assurances estimates assumptions made purposes goodwill identifiable intangible testing september 30 2009 prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates achieved change may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present outside timing next annual evaluation impairment longlived tangible intangible assets evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived asset reduced estimated fair value lower impairment loss would charged expense period impairment identified believe carrying values longlived tangible intangible assets realizable december 31 2009 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued j business acquisitions january 1 2009 adopted new accounting standard issued financial accounting standards board fasb related accounting business combinations using acquisition method accounting previously referred purchase method among significant changes standard requires redefining measurement date business combination expensing direct transaction costs incurred capitalizing inprocess research development costs intangible asset recording liability contingent consideration measurement date subsequent remeasurements recorded general administrative expense standard also requires costs business restructuring exit activities related acquired company included postcombination financial results operations also provides new guidance recognition measurement contingent assets liabilities business combination acquisitions consummated prior january 1 2009 accounted accordance previously applicable guidance 2009 incurred 159 million acquisitionrelated costs 38 million capitalized december 31 2008 significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions k income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts expected likely realized future note 18 2006 fasb issued new accounting standard clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance income tax accounting accordance update recognize benefit tax position likely sustained audit based technical merits position note 18 l revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product revenue recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts leading healthcare organizations whereby distribute clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned employee stockbased compensation arrangements account sharebased payments accordance accounting standards codification asc 71810 compensation stock compensation cost associated stock options includes amortization related remaining unvested portion stock option awards granted prior january 1 2006 based grantdate fair value estimated accordance original provisions sfas 123 ii amortization related stock option awards granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions sfas 123r addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized expected term options using straightline method stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments plans pay dividends foreseeable future n net income loss per common share net income loss per common share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 14 operating expenses inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued expense advertising costs incurred 2009 2008 2007 advertising costs amounted 154 million 157 million 157 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues p concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2009 one individual customer accounts receivable balance excess 10 december 31 2008 one individual customer accounts receivable balance outstanding represented 15 gross accounts receivable balance 2009 2008 2007 one customer represented 15 23 17 net revenue respectively purchased professional diagnostics products rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results q financial instruments fair value financial instruments primary financial instruments december 31 2009 2008 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt interest rate swap contract apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value estimated fair value financial instruments approximates carrying values december 31 2009 2008 r recent accounting pronouncements recently issued standards december 2009 fasb issued accounting standards update 200917 consolidations topic 810 improvements financial reporting enterprises involved variable interest entities asu 200917 amendments update replace quantitativebased risks rewards calculation determining reporting entity controlling financial interest variable interest entity approach focused identifying reporting entity power direct activities variable interest entity significantly impact entity’s economic performance 1 obligation absorb losses entity 2 right receive benefits entity approach expected primarily qualitative effective identifying reporting entity controlling financial inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued interest variable interest entity amendments update also require additional disclosures reporting entity’s involvement variable interest entities enhance information provided users financial statements standard effective fiscal years beginning december 15 2009 currently evaluating potential impact standard december 2009 fasb issued asu 200916 transfers servicing topic 860 accounting transfers financial assets asu 200916 amendments update improve financial reporting eliminating exceptions qualifying specialpurpose entities consolidation guidance exception permitted sale accounting certain mortgage securitizations transferor surrendered control transferred financial assets addition amendments require enhanced disclosures risks transferor continues exposed continuing involvement transferred financial assets comparability consistency accounting transferred financial assets also improved clarifications requirements isolation limitations portions financial assets eligible sale accounting standard effective january 1 2010 adoption standard impact financial position results operations cash flows october 2009 fasb issued asu 200915 accounting ownshare lending arrangements contemplation convertible debt issuance financing asu 200915 asu 200915 provides guidance equityclassified sharelending arrangements entity’s shares executed contemplation convertible debt offering financing standard effective fiscal years beginning december 15 2009 interim periods within years arrangements outstanding beginning fiscal years adoption standard impact financial position results operations cash flows october 2009 fasb issued asu 200914 software topic 985 certain revenue arrangements include software elements consensus fasb eitf asu 200914 asu 200914 changes accounting model revenue arrangements include tangible products software elements amendments update provide additional guidance determine software relating tangible product also would excluded scope software revenue recognition guidance amendments update also provide guidance vendor allocate arrangement consideration deliverables arrangement includes tangible products software well arrangements deliverables included excluded scope software revenue recognition guidance standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 currently evaluating potential impact standard october 2009 fasb issued asu 200913 revenue recognition topic 650 multipledeliverable revenue arrangements consensus fasb eitf asu 200913 asu 200913 separate multipledeliverable revenue arrangements update establishes selling price hierarchy determining selling price deliverable amendments update replace term “fair value” revenue allocation guidance “selling price” clarify allocation revenue based entityspecific assumptions rather assumptions marketplace participant amendments update eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments update require vendor determine best estimated selling price manner consistent used determine price sell deliverable standalone basis standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 currently evaluating potential impact standard recently adopted standards inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued effective december 31 2009 adopted asu 200912 fair value measurements disclosure asu 200912 standard provides additional guidance using net asset value per share provided investee estimating fair value alternate investment readily determinable fair value enhances disclosures concerning investments examples alternate investments within scope standard include investments hedge funds private equity real estate venture capital partnerships adoption standard impact financial position results operations cash flows effective october 1 2009 adopted asu 200905 measuring liabilities fair value asu 200905 asu 200905 amends accounting standards codification topic 820 fair value measurements specifically asu 200905 provides clarification circumstances quoted price active market identical liability available reporting entity required measure fair value using one following methods valuation technique uses quoted price identical liability traded asset quoted prices similar liabilities similar liabilities traded assets andor ii valuation technique consistent principles topic 820 codification eg income approach market approach asu 200905 also clarifies estimating fair value liability reporting entity required adjust include inputs relating existence transfer restrictions liability adoption standard impact financial position results operations cash flows effective july 1 2009 adopted “fasb accounting standards codification” hierarchy generally accepted accounting principles standard establishes two levels us generally accepted accounting principles “gaap” authoritative nonauthoritative fasb codification became source authoritative nongovernmental gaap except rules interpretive releases securities exchange commission sec sources authoritative gaap sec registrants nongrandfathered nonsec accounting literature included codification became nonauthoritative codification intended change alter existing gaap impact company’s consolidated financial statements effective june 30 2009 adopted new accounting standard subsequent events standard establishes general guidance accounting disclosure events occur balance sheet date financial statements issued available issued particular standard sets forth period balance sheet date management reporting entity evaluate events transactions may occur potential recognition disclosure financial statements circumstances entity recognize events transactions occurring balance sheet date financial statements disclosures entity make events transactions occurred balance sheet date adoption standard impact financial position results operations cash flows effective june 30 2009 adopted three new accounting standards provide additional application guidance enhanced disclosures regarding fair value measurements impairments securities also provide additional guidelines estimating fair value accordance fair value accounting first accounting standard provides additional guidelines estimating fair value accordance fair value accounting second accounting standard changes accounting requirements otherthantemporaryimpairment debt securities replacing current requirement holder positive intent ability hold impaired security recovery order conclude impairment temporary requirement entity conclude intend sell impaired security required sell security recovery amortized cost basis third accounting standard increases frequency fair value disclosures standards effective fiscal years interim periods ended inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued june 15 2009 adoption accounting standards impact financial position results operation cash flows effective january 1 2009 adopted new accounting standard addresses accounting certain instruments derivatives new standard specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock adoption standard impact financial position results operations cash flows effective january 1 2009 adopted new accounting standard convertible debt instruments may settled cash upon conversion including partial cash settlement standard specifies issuers instruments separately account liability equity components manner reflect entity’s nonconvertible debt borrowing rate interest cost recognized subsequent periods standard applied retrospectively periods presented adoption standard impact financial position results operations cash flows effective january 1 2009 adopted new accounting standard related fair value accounting nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value financial statements recurring basis least annually include goodwill nonamortizable intangible assets adoption standard material impact financial position results operations cash flows effective january 1 2009 adopted new accounting standard amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset adoption standard impact financial position results operations cash flows effective january 1 2009 adopted new accounting standard requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements impact hedges entity’s financial position financial performance cash flows standard required additional disclosure adoption impact consolidated results operations financial condition cash flows effective january 1 2009 adopted new accounting standard collaborative arrangements related development commercialization intellectual property standard concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure new standard applies entire collaborative agreement standard applied retrospectively periods presented collaborative arrangements existing effective date adoption standard impact current prior consolidated results operations financial condition cash flows effective january 1 2009 adopted new accounting standard issued establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary clarifies noncontrolling interest subsidiary ownership interest consolidated entity therefore reported equity consolidated financial statements standard also establishes guidance presentation disclosure noncontrolling results consolidated statement inverness medical innovations inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued operations retrospective basis adoption standard material impact financial position results operations cash flows effective january 1 2009 adopted new accounting standard business combinations standard requires acquiring company measure assets acquired liabilities assumed including contingent considerations contractual contingencies fair value acquisition date addition acquiring company required capitalize inprocess research development iprd either amortize life product write project abandoned impaired standard also amended accounting uncertainty income taxes required codification previously accounting standards generally required postacquisition adjustments related business combination deferred tax asset valuation allowances liabilities uncertain tax positions recorded increase decrease goodwill new standard permit accounting generally requires changes recorded current period income tax expense thus changes valuation allowances liabilities uncertain tax positions established acquisition accounting whether business combination originally accounted guidance recognized current period income tax expense see note 4 description impact new accounting standard effective january 1 2009 adopted new accounting standard provides guidance initial recognition measurement subsequent measurement accounting disclosure assets liabilities arising contingencies business combination early adoption statement permitted impact adopting accounting standard consolidated financial statements depend economic terms future business combinations 3 balance sheet information components selected captions consolidated balance sheets consist thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 3 balance sheet information continued 4 business combinations acquisitions 2009 acquisition tapestry medical november 6 2009 acquired tapestry medical inc tapestry located livermore california privatelyowned company provider products related services designed support anticoagulation disease management patients risk stroke clotting disorders preliminary aggregate purchase price 508 million consisted initial cash payment totaling 348 million contingent consideration obligation fair value 160 million payable shares common stock except case 2010 financial targets defined earnout agreement exceeded case seller may elect paid 2010 earnout cash addition assumed immediately repaid debt totaling approximately 24 million determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived 20102011 revenue ebitda earnings interest taxes depreciation amortization estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 16 reporting date revalue contingent consideration obligation fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 07 million consolidated statement operations year ended december 31 2009 result decrease discount period since acquisition date december 31 2009 fair value contingent consideration obligation approximately 167 million recorded liability included consolidated statement operations year ended december 31 2009 revenue totaling approximately 18 million related tapestry operating results tapestry included health management reporting unit business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary aggregate purchase price allocation acquisition follows thousands amount allocated goodwill acquisition deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected realized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition free clear september 28 2009 acquired free clear inc free clear located seattle washington privatelyowned company specializes behavioral coaching help employers health plans government agencies improve overall health productivity covered populations preliminary aggregate purchase price 1211 million consisted initial cash payment totaling 1053 million contingent consideration obligation fair value 158 million addition assumed immediately repaid debt totaling approximately 13 million determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived 2010 revenue ebitda estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 13 reporting date revalue contingent consideration obligation fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 05 million consolidated statement operations year ended december 31 2009 result decrease discount period since acquisition date december 31 2009 fair value contingent consideration obligation approximately 163 million recorded liability included consolidated statement operations year ended december 31 2009 revenue totaling approximately 143 million related free clear operating results free clear included health management reporting unit business segment summary preliminary aggregate purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected realized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition concateno august 11 2009 acquired concateno plc concateno publiclytraded company headquartered united kingdom specializes manufacture distribution rapid drugs abuse diagnostic products used health care criminal justice workplace testing markets preliminary aggregate purchase price 2114 million consisted 1383 million cash including 05 million cash inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued paid shares concateno common stock acquired prior acquisition date 2091080 shares common stock aggregate fair value 702 million 29 million fair value associated concateno employee stock options exchanged part transaction addition assumed immediately repaid debt totaling approximately 405 million consolidated statement operations year ended december 31 2009 included revenue totaling approximately 333 million related concateno operating results concateno included professional diagnostics reporting unit business segment summary preliminary aggregate purchase price allocation acquisition follows dollars thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected realized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisition acon’s second territory business april 30 2009 completed acquisition assets acon laboratories inc’s certain related entities’ collectively “acon” business researching developing manufacturing distributing marketing selling lateral flow immunoassay directlyrelated products “business” remainder world outside first territory defined including china asia pacific latin america south america middle east africa india pakistan russia eastern europe “second territory business” acquired acon’s business united states canada western europe excluding inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued russia former soviet republics part european union turkey israel australia japan new zealand “first territory” march 2006 preliminary aggregate purchase price second territory business approximately 1911 million 1891 million present value consisted cash payments totaling 1047 million 1202691 shares common stock aggregate fair value 421 million deferred purchase price consideration payable cash common stock aggregate fair value 423 million consolidated statement operations year ended december 31 2009 included revenue totaling approximately 380 million related second territory business operating results second territory business included professional diagnostics reporting unit business segment expect pay amount equal 155 million shares common stock settlement portion deferred purchase price consideration deferred payments bear interest rate 4 remainder purchase price due two installments comprising 75 total purchase price approximately 289 million dates 15 30 months acquisition date amounts bear interest may paid cash combination cash approximately 29 payments shares common stock purposes determining preliminary aggregate purchase price 1891 million present valued final two installment payments totaling 289 million using discount rate 4 resulting reduction deferred purchase price consideration approximately 20 million summary preliminary aggregate purchase price allocation acquisition follows dollars thousands goodwill resulting acquisition generally expected deductible tax purposes depending tax jurisdiction customer relationships amortized based patterns economic benefits customer relationships expected realized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands v acquisitions 2009 acquired following assets businesses preliminary aggregate purchase price 805 million 786 million present value consisted 417 million cash 128513 shares common stock aggregate fair value 51 million notes payable totaling 78 million deferred purchase price consideration payable cash aggregate fair value 143 million warrants fair value 01 million contingent consideration obligations aggregate fair value 96 million recorded liability 54 million payable shares common stock addition assumed immediately repaid debt totaling approximately 09 million determined acquisition date fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria fair value measurements based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rates ranging 618 reporting date revalue contingent consideration obligations fair value record increases decreases fair values income expense consolidated statement operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 06 million consolidated statement operations year ended december 31 2009 result decrease discount period changes discount rates since various acquisition dates december 31 2009 fair value contingent consideration obligations approximately 102 million 58 million payable shares common stock • genecare medical genetics center inc genecare located chapel hill north carolina medical genetics testing counseling business acquired july 2009 • certain assets cvs caremark’s accordant common disease management programs accordant whereby chronicallyill patients served accordant common disease management programs managed access expanded offerings provided alere acquired august 2009 • zycare inc zycare located chapel hill north carolina provider technology services used help manage many chronic illnesses acquired august 2009 • medim schweiz gmbh medim located zug switzerland distributor pointofcare diagnostics testing products primarily swiss marketplace acquired september 2009 • biosyn diagnostics limited biosyn located belfast ireland distributor pointofcare diagnostics testing products primarily irish marketplace acquired october 2009 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • mologic limited mologic located sharnbrook united kingdom research development entity wide immunoassay experience well broad understanding medical diagnostic devices antibody development acquired october 2009 • jinsung meditech inc jsm located seoul korea distributor pointofcare diagnostics testing products primarily south korean marketplace acquired december 2009 • biolinker sa biolinker located buenos aires argentina distributor pointofcare diagnostics testing products primarily argentinean marketplace acquired december 2009 • 510 share long chain international corp long chain located taipei taiwan distributor pointofcare diagnostics testing products primarily taiwanese marketplace acquired december 2009 january 2010 acquired remaining 490 interest long chain operating results medim biosyn mologic jsm biolinker long chain included professional diagnostics reporting unit business segment operating results genecare accordant zycare included health management reporting unit business segment consolidated statement operations year ended december 31 2009 included revenue totaling approximately 196 million related businesses summary preliminary aggregate purchase price allocation acquisitions follows thousands customer relationships amortized based patterns economic benefits customer relationships expected realized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands goodwill recognized transactions amounted approximately 354 million goodwill related acquisitions genecare accordant totaled 127 million expected deductible tax purposes goodwill related acquisitions deductible tax purposes b acquisitions 2008 acquisition matria may 9 2008 acquired matria healthcare inc matria national provider health improvement disease management highrisk pregnancy management programs services aggregate purchase price 8346 million consisted 1413 million cash series b convertible preferred stock fair value approximately 6579 million 173 million fair value associated matria employee stock options exchanged part transaction 180 million direct acquisition costs addition assumed immediately repaid debt totaling approximately 2792 million operating results matria included health management reporting unit business segment summary purchase price allocation acquisition follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition bbi february 12 2008 acquired bbi holdings plc bbi publiclytraded company headquartered united kingdom specializes development manufacture noninvasive lateral flow tests gold reagents aggregate purchase price 1632 million consisted 1386 million cash including 147 million cash paid shares bbi common stock owned prior acquisition date common stock aggregate fair value 144 million 66 million direct acquisition costs 36 million fair value associated bbi employee stock options exchanged part transaction operating results bbi included professional consumer diagnostics reporting units business segments summary purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition panbio january 7 2008 acquired panbio limited panbio australian publiclytraded company headquartered brisbane australia develops manufactures diagnostic tests use diagnosis broad range infectious diseases aggregate purchase price 365 million consisted 359 million cash 06 million direct acquisition costs june 2008 sold certain assets totaling 18 million related particular product line sale assets acquisition date fair values reflected purchase price allocation operating results panbio included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisitions 2008 acquired following assets businesses aggregate purchase price 506 million paid 490 million cash 18 million direct acquisition costs accrued contingent consideration milestone payments totaling 01 million upon settlement certain milestones recognized 02 million foreign currency exchange loss included aggregate purchase price • certain assets mochida pharmaceutical co ltd mochida part acquisition certain assets mochida transferred exclusive distribution rights japan certain osteomark products acquired april 2008 • privatelyowned provider care health management services acquired july 2008 • vision biotech pty ltd vision located cape town south africa privatelyowned distributor rapid diagnostic products predominantly south african marketplace acquired september 2008 • global diagnostics cc global located johannesburg south africa privatelyowned contract manufacturer distributor high quality rapid diagnostic tests predominantly south african marketplace acquired september 2008 • diateam diagnostika und arzneimittel großhandel gmbh diateam located linz austria privatelyowned distributor high quality rapid diagnostic tests predominantly austrian marketplace acquired september 2008 • prodimol biotecnologia sa prodimol located brazil privatelyowned distributor high quality rapid diagnostic tests predominantly brazilian marketplace acquired october 2008 • ameditech inc ameditech located san diego california leading manufacturer high quality drugs abuse diagnostic tests acquired december 2008 summary purchase price allocation acquisitions follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands mochida vision global diateam prodimol ameditech included professional diagnostics reporting unit business segment privatelyowned health management acquisition included health management reporting unit business segment goodwill recognized vision global diateam prodimol ameditech privatelyowned health management business transactions amounted approximately 156 million goodwill related acquisitions excluding ameditech privatelyowned health management acquisition deductible tax purposes c acquisitions 2007 acquisition paradigmhealth december 21 2007 acquired paradigmhealth inc paradigmhealth privatelyowned leading provider precise medical management provide optimal health outcomes acutely ill clinically complex patients aggregate purchase price 2368 million consisted 2360 million cash 08 million direct acquisition costs operating results paradigmhealth included health management reporting unit business segment summary purchase price allocation acquisition follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands ii acquisition redwood december 20 2007 acquired redwood toxicology laboratories inc redwood privatelyowned drugs abuse diagnostics testing company aggregate purchase price 538 million consisted 533 million cash 05 million direct acquisition costs addition assumed paid debt 477 million operating results redwood included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iii acquisition alere november 16 2007 acquired alere medical inc alere medical privatelyheld leading provider care health management services aggregate purchase price 3113 million consisted 1286 million cash common stock aggregate fair value 1611 million 10 million direct acquisition costs 206 million fair value associated alere medical employee stock options exchanged part transaction operating results alere medical included health management reporting unit business segment respect alere medical terms acquisition agreement provided contingent consideration payable alere medical stockholder owned shares common stock retained option purchase shares common stock sixmonth anniversary closing acquisition contingent consideration payable cash stock election equal number shares common stock options purchase common stock held sixmonth anniversary multiplied amount 5831 exceeded greater average price common stock ten business days preceding sixmonth anniversary date 75 5831 accordingly based price common stock ten business days preceding sixmonth anniversary closing acquisition issued approximately 01 million shares common stock may 30 2008 alere medical stockholders based remaining outstanding shares time payment contingent consideration impact purchase price acquisition summary purchase price allocation acquisition follows dollars thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands iv acquisition hemosense november 6 2007 acquired hemosense inc hemosense publiclytraded developer marketer pointofcare testing products therapeutic drug monitoring aggregate purchase price 2440 million consisted common stock aggregate fair value 2264 million 09 million direct acquisition costs 167 million fair value associated hemosense employee stock options exchanged part transaction operating results hemosense included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows dollars thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands v acquisition cholestech september 12 2007 acquired cholestech corporation cholestech publiclytraded leading provider diagnostic tools information immediate risk assessment therapeutic monitoring heart disease inflammatory disorders aggregate purchase price 3547 million consisted common stock aggregate fair value 3298 million 46 million direct acquisition costs 203 million fair value associated cholestech employee stock options restricted stock awards exchanged part transaction operating results cholestech included cardiology reporting unit professional diagnostics business segment summary purchase price allocation acquisition follows dollars thousands expect substantially amount allocated goodwill deductible tax purposes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vi acquisition biosite june 29 2007 completed acquisition biosite incorporated biosite publiclytraded global medical diagnostic company utilizing biotechnology approach create products diagnosis critical diseases conditions aggregate purchase price 18 billion consisted 16 billion cash 689 million estimated direct acquisition costs 774 million fair value associated biosite employee stock options exchanged part transaction connection acquisition biosite also recorded 452 million compensation expense associated unvested stock options operating results biosite included cardiology reporting unit professional diagnostics business segment summary purchase price allocation acquisition follows dollars thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued part purchase price allocation iprd projects valued 1690 million projects yet achieved technological feasibility date acquisition biosite expect substantially amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline basis following intangible assets acquired respective amortizable lives dollars thousands vii acquisition instant march 12 2007 acquired 75 issued outstanding capital stock instant technologies inc instant privatelyowned distributor rapid drugs abuse diagnostic products used workplace criminal justice testing markets december 28 2007 acquired remaining 25 interest bringing aggregate purchase price 608 million consisted 389 million cash common stock aggregate fair value 215 million 03 million direct acquisition costs addition assumed paid debt 49 million operating results instant included professional diagnostics reporting unit business segment summary purchase price allocation acquisition follows dollars thousands expect amount allocated goodwill deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands viii acquisitions 2007 year ended december 31 2007 acquired following businesses aggregate purchase price 1849 million initially paid 1160 million cash issued 10 million shares common stock aggregate fair value 541 million issued notes payable totaling 96 million incurred 45 million direct acquisition costs accrued milestone payments totaling 03 million subsequently repaid 96 million notes payable initially issued addition upon settlement certain milestones recognized 19 million foreign currency exchange gain included aggregate purchase price settlement milestones combination certain earn outs achieved subsequently paid resulted net cash payments totaling 1242 million • matritech inc matritech located newton massachusetts freiburg germany biotechnology company principally engaged development manufacturing marketing distribution licensing cancer diagnostic technologies products acquired december 2007 • aska diagnostic inc aska located tokyo japan distributor professional diagnostics japan acquired december 2007 • 9091 share biosystems sa biosystems located cali bogota colombia distributor diagnostics tests instruments reagents throughout colombia acquired december 2007 october 2008 acquired remaining 909 interest biosystems • assets akubio research company located cambridge england acquired october 2007 • biostat healthcare group biostat located cheshire united kingdom privatelyowned distributor core laboratory pointofcare diagnostic testing products uk marketplace acquired october 2007 • spectral diagnostics private limited affiliate source diagnostics india private limited spectralsource located new delhi shimla india distributes professional diagnostics india acquired july 2007 • 5245 share diamics inc diamics located novato california developer molecularbased cancer screening diagnostic systems acquired july 2007 • quality assured services inc qas located orlando florida privatelyowned provider diagnostic home tests services us marketplace acquired june 2007 • orange medical orange located tilburg netherlands manufacturer marketer rapid diagnostic products benelux marketplace acquired may 2007 • promesan srl promesan located milan italy distributor pointofcare diagnostic testing products italian marketplace acquired january 2007 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • first check diagnostics llc first check located lake forrest california privatelyheld diagnostics company field home testing drugs abuse including marijuana cocaine methamphetamines opiates acquired january 2007 • assets nihon schering kk nskk located japan diagnostic distribution business acquired january 2007 • gabmed gmbh gabmed located nettetal germany distributor pointofcare diagnostic testing products german marketplace acquired january 2007 • medox chemicals limited medox located ottawa canada distributor professional diagnostic testing products canadian marketplace acquired january 2007 summary purchase price allocation acquisitions follows thousands nskk promesan included professional consumer diagnostics reporting units business segments matritech aska biosystems biostat akubio spectralsource orange gabmed medox included professional diagnostics reporting unit business segment qas included health management reporting unit business segment first check included consumer diagnostics reporting unit business segment diamics consolidated included professional diagnostics reporting unit business segment goodwill recognized transactions excluding nskk amounted approximately 1106 million goodwill related acquisitions exception matritech first check deductible tax purposes customer relationships amortized based patterns economic benefits customer relationships expected utilized finitelived identifiable assets amortized straightline inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued basis following intangible assets acquired respective amortizable lives dollars thousands restructuring plans related business combinations connection several acquisitions initiated integration plans consolidate restructure certain functions operations including relocation termination certain personnel acquired entities closure certain acquired entities’ leased facilities costs recognized liabilities assumed connection acquisition entities subject potential adjustments certain exit activities confirmed refined following table summarizes liabilities established exit activities related acquisitions thousands 2008 acquisitions connection acquisition matria implemented integration plan improve operating efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within matria organization activities combined existing business operations inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued recorded 202 million exit costs 154 million relates change control severance costs involuntarily terminate employees 48 million related facility exit costs december 31 2009 58 million exit costs remain unpaid see note 22 additional restructuring charges related matria facility exit costs within health management reporting unit conjunction acquisition panbio formulated restructuring plan realize efficiencies cost savings february 2008 agreed upon plan close panbio’s facility located columbia maryland manufacturing operation marylandbased facility transferred thirdparty manufacturer sales products facility transferred shared services center orlando florida distribution operations transferred distribution facility freehold new jersey recorded 10 million exit costs including 08 million related facility exit costs 02 million related severance costs involuntarily terminate employees december 31 2009 05 million exit costs remain unpaid see note 22 additional restructuring charges related panbio facility closure integration although believe plan estimated exit costs 2008 acquisitions reasonable actual spending exit activities may differ current estimated exit costs ii 2007 acquisitions conjunction acquisition biosite implemented integration plan improve efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within biosite organization activities combined existing business operations since inception plan recorded 154 million exit costs 151 million relates change control severance costs involuntarily terminate employees 03 million relates facility exit costs december 31 2009 exit costs paid 2007 formulated restructuring plans connection acquisition cholestech consistent acquisition strategy realize operating efficiencies cost savings additionally march 2008 announced plans close cholestech facility hayward california transitioning manufacturing related products biosite facility san diego california transitioned sales distribution products shared services center orlando florida since inception plans recorded 92 million exit costs 65 million relates executive change control agreements severance costs involuntarily terminate employees 27 million relates facility exit costs december 31 2009 52 million exit costs remain unpaid conjunction acquisition hemosense formulated restructuring plans 2007 realize operating efficiencies cost savings additionally march 2008 announced plans close hemosense facility san jose california transitioned manufacturing related products biosite facility san diego california transitioned sales distribution products shared services center orlando florida since inception plans recorded 15 million exit costs 13 million relates severance costs involuntarily terminate employees 02 million relates facility exit costs december 31 2009 costs paid see note 22 additional restructuring charges related cholestech hemosense facility closures integrations conjunction acquisition matritech formulated plan exit leased facility matritech newton massachusetts recorded 15 million facility exit costs december 31 2009 06 million facility exit costs remain unpaid inverness medical innovations inc subsidiaries notes consolidated financial statements continued 4 business combinations continued conjunction acquisition alere medical paradigmhealth recorded 22 million related executive change control agreements severance costs involuntarily terminate employees december 31 2009 costs paid although believe plans estimated exit costs 2007 acquisitions reasonable actual spending exit activities may differ current estimated exit costs iii acquisitions result acquisition ostex 2003 established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total severance costs associated involuntarily terminated employees 16 million paid december 31 2006 facility exit costs including costs vacate ostex facilities lease commitments 24 million 04 million remains unpaid december 31 2009 e pro forma financial information following table presents selected unaudited financial information including assets matria acon second territory business acquisition entities occurred january 1 2008 pro forma results exclude adjustments various less significant acquisitions completed since january 1 2008 acquisitions materially affect results operations less significant 2008 2009 acquisitions contributed 1735 million net revenue 2009 pro forma results derived historical financial results acquired businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2008 thousands except per share amount 1 net income loss per common share amounts computed described note 14 5 goodwill intangible assets following summary goodwill intangible assets december 31 2009 thousands except useful life inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued 1 primarily includes trademarks trade names following summary goodwill intangible assets december 31 2008 thousands except useful life 1 primarily includes trademarks trade names amortize intangible assets finite lives except customer relationships using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate approximates pattern economic benefits consumed inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued circumstances patterns reliably determined certain circumstances certain customer relationship assets accelerated amortization recognized reflect estimate cash flows amortization expense intangible assets aggregate amounted 2554 million 2138 million 614 million 2009 2008 2007 respectively included cost net revenue research development sales marketing general administrative accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2009 thousands perform annual impairment tests carrying value goodwill reporting unit annual impairment review september 30 2009 indicate goodwill related professional diagnostics health management consumer diagnostics reporting units impaired discussion see note 2h allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated professional diagnostics health management consumer diagnostics reporting units summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internallydevelop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2009 approximately 88 million costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents inverness medical innovations inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred 6 longterm debt following longterm debt balances outstanding thousands following describes listed debt instruments first lien credit agreement second lien credit agreement june 26 2007 conjunction acquisition biosite entered first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements senior secured credit facility initially provided term loans aggregate amount 9000 million subject continued compliance senior secured credit facility 1500 million revolving lineofcredit junior secured credit facility provides term loans aggregate amount 2500 million may repay future borrowings senior secured credit facility revolving lineofcredit time event later june 26 2013 must repay entire junior facility term loan june 26 2015 december 31 2009 term loans revolving lineofcredit senior secured credit facility bore interest 389 364 respectively term loan junior secured credit facility bore interest 614 november 15 2007 amended senior secured credit facility increasing total amount credit available us 1125000000 resulting increase term loans aggregate amount 9750 million additionally amendment must repay senior secured credit facility term loans follows two initial installments amount 2250000 september 30 2007 december 31 2007 installment payment made b twentyfive consecutive quarterly installments beginning march 31 2008 continuing march 31 2014 amount 2437500 c final installment june 26 2014 amount equal outstanding principal balance senior secured credit facility term loans inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued december 31 2009 aggregate borrowings amounted 1420 million senior secured credit facility revolving lineofcredit 12 billion term loans interest expense related secured credit facility year ended december 31 2009 including amortized deferred financing costs 643 million december 31 2009 accrued interest related secured credit facility amounted 09 million december 31 2009 compliance debt covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million maturity date september 28 2010 interest rate swap contracts pay us variable interest threemonth libor rate pay counterparties fixed rate 485 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loan senior credit facility fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts pay us variable interest onemonth libor rate pay counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt b 3 senior subordinated convertible notes principal amount 1500 million may 14 2007 sold 1500 million principal amount 3 senior subordinated convertible notes due 2016 “convertible notes” private placement qualified institutional buyers initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion senior subordinated convertible notes senior subordinated convertible notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th started november 15 2007 interest expense year ended december 31 2009 2008 including amortized deferred costs 51 million 50 million respectively c 9 senior subordinated notes may 12 2009 completed sale 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 subordinated notes public offering net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million net proceeds intended used general corporate purposes december 31 2009 3883 million indebtedness 9 subordinated notes 9 subordinated notes issued indenture dated may 12 2009 amended supplemented indenture accrue interest date issuance may 12 2009 rate 9 per year interest notes payable semiannually may 15 november 15 commencing november 15 2009 notes mature may 15 2016 unless earlier redeemed may redeem 9 subordinated notes whole part time may 15 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 450 twelve months inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued may 15 2013 225 twelve months may 15 2014 zero may 15 2015 time prior may 15 2012 may redeem 35 aggregate principal amount 9 subordinated notes money raise certain equity offerings long pay 109 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 9 subordinated notes remains outstanding afterwards addition time prior may 15 2013 may redeem 9 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 9 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 9 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 9 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 9 subordinated notes indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 28 guarantor financial information indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 9 subordinated notes year ended december 31 2009 including amortization deferred financing costs original issue discounts 250 million december 31 2009 accrued interest related senior subordinated notes amounted 50 million 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 sold 1500 million aggregate principal amount 7875 senior notes public offering net proceeds offering amounted approximately 1450 million net underwriters’ commissions totaling 22 million original issue discount totaling 28 million net proceeds used fund acquisition concateno december 31 2009 1473 million indebtedness issuance 7875 senior notes inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued september 28 2009 sold 1000 million aggregate principal amount 7875 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers also agreed file registration statement sec holders notes may exchange notes registered notes substantially identical terms original notes net proceeds offering amounted approximately 950 million net initial purchasers’ original issue discount totaling 35 million offering expenses totaling approximately 15 million net proceeds used partially fund acquisition free clear december 31 2009 966 million indebtedness issuance 7875 senior notes 7875 senior notes issued indenture dated august 11 2009 amended supplemented indenture 7875 senior notes accrue interest dates respective issuances rate 7875 per year interest notes payable semiannually february 1 august 1 commencing february 1 2010 notes mature february 1 2016 unless earlier redeemed may redeem 7875 senior notes whole part time february 1 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3938 twelve months february 1 2013 1969 twelve months february 1 2014 zero february 1 2015 time prior august 1 2012 may redeem 35 aggregate principal amount 7875 senior notes money raise certain equity offerings long pay 107875 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 7875 senior notes remains outstanding afterwards addition time prior february 1 2013 may redeem 7875 senior notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 7875 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 7875 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 7875 senior notes unsecured equal right payment existing future senior debt including borrowing secured credit facilities obligations 7875 senior notes indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 28 guarantor financial information indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 7875 senior notes year ended december 31 2009 including amortization deferred financing costs original issue discounts 73 million december 31 2009 accrued interest related senior subordinated notes amounted 78 million e prior senior credit facility december 31 2006 448 million borrowings outstanding senior credit facility dated june 30 2005 february 1 2007 using portion proceeds january 2007 sale 69 million shares common stock paid remaining principal balance outstanding accrued interest june 2005 senior credit facility terminated june 2005 senior credit facility conjunction refinancing activities discussed outstanding loans june 2005 senior credit facility time terminated year ended december 31 2007 interest expense including amortization deferred financing costs senior credit facility 47 million included interest expense writeoff 26 million unamortized deferred financing costs f senior subordinated notes 875 principal amount 1500 million june 26 2007 fully repaid 875 senior subordinated notes due 2012 total amount repaid including principal 1500 million prepayment premium 93 million 1593 million accrued interest 48 million also paid part final settlement notes unamortized deferred financing costs 37 million written result repayment g linesofcredit subsidiaries maintain local lineofcredit shortterm advances december 31 2009 total 29 million borrowed local linesofcredit h debt included debt year ended december 31 2009 borrowings certain subsidiaries various financial institutions borrowed funds used fund capital expenditure working capital requirements interest expense borrowings 15 million year ended december 31 2009 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued maturities longterm debt following summary maturities longterm debt outstanding december 31 2009 thousands 7 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 1 assets liabilities include investments marketable securities related deferred compensation plan assumed business combination liabilities associated plan relate deferred compensation indexed performance underlying investments level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 2 liabilities include interest rate swap contracts level 3 unobservable inputs supported little market activity significant fair value assets liabilities fair value contingent consideration obligations related acquisitions accordant free clear jsm mologic tapestry valued using level 3 inputs inverness medical innovations inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued following table presents information assets liabilities measured fair value recurring basis december 31 2009 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 included longterm liabilities accompanying consolidated balances sheets 2 fair value measurement contingent consideration obligations related acquisitions accordant free clear jsm mologic tapestry valued using level 3 inputs determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market changes value contingent consideration obligations recorded income expense component operating income accompanying consolidated statements operations changes fair value level 3 contingent consideration obligations year ended december 31 2009 follows thousands december 31 2009 carrying amounts cash equivalents restricted cash marketable securities receivables accounts payable current liabilities approximated estimated fair values short maturity financial instruments carrying amounts estimated fair values longterm debt 21 billion december 31 2009 estimated fair value longterm debt determined using market sources derived available market information may representative actual values could realized future inverness medical innovations inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued 2009 wrote longlived assets 70 million primarily result various restructuring plans well writedown recorded connection idle facility writedowns based upon level 3 inputs 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2009 thousands december 31 2009 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 64 million 46 million 15 million 2009 2008 2007 respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued b uk pension plans changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2009 2008 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets follows thousands measurement date used determine plan assets benefit obligations defined benefit plan december 31 2009 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2009 stocks fixed income securities represented 68 32 respectively market value pension assets expect contribute approximately 05 million british pounds sterling 09 million december 31 2009 defined benefit plan 2010 expect benefits paid plan participants approximately 02 million per year next five years benefits totaling 02 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely subfunds legal general trading funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds inverness medical innovations inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued fair values pension plan assets december 31 2009 asset category presented following table fair values based quoted prices active markets identical assets level 1 fair value hierarchy unipath limited unipath contributed 08 million 2009 10 million 2008 12 million 2007 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments following tables summarize fair value derivative instruments effect derivative instruments onin accompanying consolidated balance sheets consolidated statements operations accumulated comprehensive income loss thousands 1 see note 6a regarding interest rate swaps qualify cash flow hedges use derivative financial instruments interest rate swap contracts management interest rate exposure related secured credit facilities hold issue derivative financial instruments speculative purposes 11 commitments contingencies operating leases inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued operating lease commitments certain facilities equipment expire various dates 2020 following schedule outlines future minimum annual rental payments leases december 31 2009 thousands rent expense relating operating leases approximately 373 million 342 million 163 million 2009 2008 2007 respectively b contingent consideration obligations effective january 1 2009 adopted changes issued fasb accounting business combinations changes apply assets acquired liabilities assumed business combination arise certain contingencies requires acquirer recognize fair value acquisition date asset acquired liability assumed business combination arises contingency acquisitiondate fair value asset liability determined measurement period otherwise asset liability recognized acquisition date certain defined criteria met ii contingent consideration arrangements acquiree assumed acquirer business combination recognized initially fair value adoption guidance done prospective basis acquisitions completed prior january 1 2009 contingent consideration accounted increase aggregate purchase price contingencies occur contractual contingent consideration terms related acquisitions accordant ameditech binax inc binax free clear gabmed jsm mologic tapestry vision privatelyowned health management business acquired 2008 accordant respect accordant terms acquisition agreement require us pay earnout upon successfully meeting certain revenue cash collection targets starting second anniversary acquisition date completed prior third anniversary date acquisition maximum amount earnout payment 60 million earned payment made 2012 2013 determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived revenue estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 18 reporting date revalue contingent consideration obligation reporting date fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 02 million consolidated statement inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued operations year ended december 31 2009 result decrease discount period fluctuations discount rate since acquisition date december 31 2009 fair value contingent consideration obligation approximately 34 million ii ameditech respect ameditech terms acquisition agreement require us pay earnout upon successfully meeting certain revenue targets oneyear period ending first anniversary acquisition date oneyear period ending second anniversary acquisition date maximum amount incremental consideration payable 40 million first earnout achieved fourth quarter 2009 resulting accrual approximately 23000 contingent consideration accounted increase aggregate purchase price contingency occurs iii binax respect binax terms acquisition agreement provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition second milestone totaling 37 million earned paid fourth quarter 2009 december 31 2009 remaining contingent consideration earned approximately 37 million contingent consideration accounted increase aggregate purchase price contingencies occur iv free clear respect free clear terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets fiscal year 2010 maximum amount earnout payment 300 million earned payment made 2011 determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived 2010 revenue ebitda estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 13 reporting date revalue contingent consideration obligation reporting date fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 05 million consolidated statement operations year ended december 31 2009 result decrease discount period since acquisition date december 31 2009 fair value contingent consideration obligation approximately 163 million v gabmed respect gabmed terms acquisition agreement provide contingent consideration totaling 750000 payable five annual amounts beginning 2007 upon successfully meeting certain revenue ebit earnings interest taxes milestones respective annual periods first milestone totaling 01 million 02 million earned paid 2008 second milestone totaling 02 million 02 million earned accrued fourth quarter 2009 december 31 2009 remaining contingent consideration earned approximately 05 million inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued 07 million contingent consideration accounted increase aggregate purchase price contingencies occur vi jsm respect jsm terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets fiscal years 20102012 maximum amount earnout payments approximately 30 million determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived revenue estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 16 reporting date revalue contingent consideration obligation reporting date fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded income approximately 8000 consolidated statement operations year ended december 31 2009 result decrease discount period fluctuations discount rate since acquisition date december 31 2009 fair value contingent consideration obligation approximately 11 million vii mologic respect mologic terms acquisition agreement require us pay earnouts upon successfully meeting five rd project milestones four years following acquisition maximum amount earnout payments 190 million paid shares common stock determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived expected delivery value based upon overall probability achieving targets corresponding delivery dates fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted earnout amounts discounted using discount rate 6 reporting date revalue contingent consideration obligation reporting date fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 04 million consolidated statement operations year ended december 31 2009 result decrease discount period fluctuations discount rate since acquisition date adjustments certain probability factors december 31 2009 fair value contingent consideration obligation approximately 58 million viii tapestry respect tapestry terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets fiscal years 20102011 maximum amount earnout payments 250 million earned paid shares inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued common stock except case 2010 financial targets defined earnout agreement exceeded case seller may elect paid 2010 earnout cash determined acquisition date fair value contingent consideration obligation based probabilityweighted income approach derived revenue estimates probability assessment respect likelihood achieving various earnout criteria fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted cash flows discounted using discount rate 16 reporting date revalue contingent consideration obligation reporting date fair value record increases decreases fair value income expense consolidated statements operations increases decreases fair value contingent consideration obligations may result changes discount periods rates changes timing amount revenue estimates changes probability assumptions respect likelihood achieving various earnout criteria recorded expense approximately 07 million consolidated statement operations year ended december 31 2009 result decrease discount period fluctuations discount rate since acquisition date adjustments certain probability factors december 31 2009 fair value contingent consideration obligation approximately 167 million ix vision respect vision terms acquisition agreement provide incremental consideration payable former vision shareholders upon completion certain product development milestones successfully maintaining certain production levels product costs two years following acquisition date minimum maximum amount incremental consideration payable approximately 10 million 32 million respectively first milestone achieved third quarter 2009 made payment 20 million fourth quarter 2009 contingent consideration accounted increase aggregate purchase price x privatelyowned health management business respect privatelyowned health management business acquired 2008 terms acquisition agreement provide contingent consideration payable upon successfully meeting certain revenue ebitda targets twelve months ending june 30 2009 december 31 2010 respectively revenue milestone twelve months ended june 30 2009 totaling approximately 30 million 42 million earned accrued june 30 2009 earnout totaling approximately 30 million 44 million paid third quarter 2009 contingent consideration accounted increase aggregate purchase price c contingent obligation november 2009 entered distribution agreement epocal inc epocal distribute epoc® blood analysis system blood gas electrolyte testing 200 million recorded accompanying consolidated balance sheet intangible assets net also entered definitive agreement acquire issued outstanding equity securities epocal total potential purchase price 2550 million including base purchase price 1725 million epocal achieves certain gross margin financial milestones prior october 31 2014 plus additional payments 825 million epocal achieves certain milestones relating gross margin product development efforts prior date acquisition also subject closing conditions including receipt required antitrust approvals inverness medical innovations inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued legal proceedings healthways inc robert bosch north america corp v alere inc healthways inc robert bosch north america corp filed complaint us district court northern district illinois november 5 2008 alere medical alleging infringement 11 patents licensed bosch healthways alere medical answered complaint filed counterclaims seeking declarations patents invalid infringed plaintiffs subsequently filed amended complaint substituting alere llc alere consolidated health management subsidiary defendant place alere medical august 31 2009 plaintiffs filed motion dismiss alere’s affirmative defense counterclaim patentsinsuit unenforceable due inequitable conduct alere opposed motion filed motion amend existing pleadings include newly discovered facts inequitable conduct hearing motions yet scheduled trial date yet scheduled believe strong defenses healthways’ allegations intend defend vigorously however ruling alere could potentially material adverse impact sales operations financial performance could limit current future business opportunities claims ordinary course matters party pending legal proceedings currently believe could material adverse impact sales operations financial performance however nature business may subject particular time commercial disputes consumer product claims negligence claims various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future lawsuits generally seek damages sometimes substantial amounts example subsidiary alere medical continues defend infringement claims brought health hero network inc subsidiary robert bosch north america corp alleges patented certain processes related home monitoring patients although matter stayed pending reexamination health hero patents us patent trademark office additionally alere medical continue defend previously disclosed class action lawsuit brought estate melissa prince quisenberry relate march 14 2007 sale alere medical unrelated entity believe strong defenses claims brought health hero quisenberry intend defend vigorously claims could potentially negative impact sales operations financial performance could limit existing future business opportunities addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties suits expensive result counterclaims challenging validity patents rights 12 codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited iti whereby iti agreed provide us £300 million three years partially fund research development programs focused identifying novel biomarkers nearpatient homeuse tests cardiovascular diseases “the programs” agreed invest £375 million programs three years date agreement subsidiary stirling medical innovations limited stirling established new research center stirling scotland consolidated many existing cardiology programs ultimately commercialize products arising programs iti stirling exclusive rights developed technology respective fields use qualified inverness medical innovations inc subsidiaries notes consolidated financial statements continued 12 codevelopment agreement iti scotland limited continued expenditures made codevelopment arrangement recognized fee earned period reduction related expenses subject certain limitations december 31 2007 earned full funding arrangement amount £300 million 560 million funding earned 2008 fiscal years ended december 31 2007 recognized 200 million reimbursements 185 million offset research development spending 15 million reduced general administrative marketing spending incurred stirling though funding arrangement completed stirling continues support iti exploiting developed technology fields interest 13 inprocess research development effective january 1 2009 account business combinations completed january 1 2009 accordance revised guidance accounting business combinations prescribes new accounting treatment associated acquired iprd prior january 1 2009 measured acquired iprd fair value expensed acquisition date however effective january 1 2009 acquired iprd measured fair value capitalized intangible asset tested impairment completion programs amortized date completion estimated useful life connection two acquisitions completed 2007 acquired various iprd projects accounted authoritative guidance connection acquired iprd projects substantial additional research development required prior acquired iprd programs technology platforms reaching technological feasibility addition research completed product candidate acquired need complete series clinical trials receive fda regulatory approvals prior commercialization current estimates time investment required develop products technologies may change depending different applications may choose pursue cannot give assurances programs ever reach technological feasibility develop products marketed profitably example discontinued funding certain programs listed addition cannot guarantee able develop commercialize products competitors develop commercialize products indications following table sets forth iprd projects companies certain assets acquired 2007 thousands 1 management assumes responsibility determining valuation acquired iprd projects fair value assigned iprd acquisition estimated discounting present value cash flows expected acquired projects reached technological feasibility cash flows inverness medical innovations inc subsidiaries notes consolidated financial statements continued 13 inprocess research development continued probability adjusted reflect risks advancement product approval process estimating future cash flows also considered tangible intangible assets required successful exploitation technology resulting purchased iprd projects adjusted future cash flows charge reflecting contribution value assets 14 income loss per common share following tables set forth computation basic diluted income loss per common share thousands except per share amounts inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 income loss per common share continued dilutive securities outstanding december 31 2009 consisting options warrants purchase aggregate 103 million shares common stock weighted average exercise price 3411 per share following potential dilutive securities outstanding december 31 2009 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes convertible 4398 per share b 17 million subordinated convertible promissory notes convertible 6149 per share c 20 million shares series b convertible preferred stock aggregate liquidation preference approximately 7937 million convertible certain circumstances 6932 per share 114 million shares common stock addition december 31 2009 04 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business potential dilutive securities included computation diluted net earnings per common share 2009 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2008 options warrants purchase aggregate 106 million shares common stock weighted average exercise price 3215 per share b 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes c 19 million shares series b convertible preferred stock convertible certain circumstances 6932 per share 108 million shares common stock potential dilutive securities included computation diluted net loss per common share 2008 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2007 options warrants purchase aggregate 83 million shares common stock weighted average exercise inverness medical innovations inc subsidiaries notes consolidated financial statements continued 14 income loss per common share continued price 3082 per share b 18 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes potential dilutive securities included computation diluted loss per common share 2007 inclusion thereof would antidilutive 15 stockholders’ equity common stock december 31 2009 1500 million shares common stock 0001 par value authorized approximately 836 million shares issued outstanding 110 million shares reserved issuance upon grant exercise stock options current stock option plans 11 million shares reserved issuance employee stock purchase plan 05 million shares reserved issuance upon exercise outstanding warrants following potential dilutive securities outstanding december 31 2009 1500 million 3 senior subordinated convertible notes convertible 4398 per share 34 million shares common stock reserved 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock reserved 20 million shares series b convertible preferred stock aggregate liquidation preference approximately 7937 million convertible certain circumstances 6932 per share 114 million shares common stock reserved b preferred stock december 31 2009 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock paid dividends date shares series b preferred stock december 31 2009 20 million shares series b preferred stock outstanding fair value approximately 5328 million note 4bi share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2009 would convert 114 million shares common stock reserved conversions december 31 2009 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance year ended december 31 2009 series b preferred stock dividends amounted 230 million reduced earnings available common stockholders purposes calculating net income per common share 2009 note 14 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2009 liquidation preference outstanding series b preferred stock 7937 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c stock options awards 2001 adopted 2001 stock option incentive plan amended “2001 plan” currently allows issuance 121 million shares common stock awards 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2009 2008 11 million 08 million respectively shares available future grant 2001 plan following summarizes stock option activity year ended december 31 thousands except exercise price inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued aggregate intrinsic value options outstanding december 31 2009 954 million aggregate intrinsic value options exercisable december 31 2009 728 million aggregate intrinsic value stock options exercised 2009 2008 2007 257 million 182 million 625 million respectively based equity awards outstanding december 31 2009 533 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weighted average period 15 years warrants following summary warrant activity three years ended december 31 following represents additional information related warrants outstanding exercisable december 31 2009 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 004 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2009 outstanding warrants classified equity e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 20 million shares common stock plan december 31 2009 09 million shares issued plan 16 stockbased compensation results operations year ended december 31 2009 2008 2007 reflected compensation expense new stock options granted since january 1 2006 vested stock incentive plan employee stock purchase plan unvested portion previous stock option grants vested years ended december 31 2009 2008 2007 stockbased compensation expense amount 282 million 226 million net tax 264 million 207 million net tax 575 million 527 million net tax reflected consolidated statements operations year ended december 31 2009 2008 2007 respectively follows thousands included amount general administrative expense year ended december 31 2009 10 million related assumption certain concateno options expense relates acceleration certain unvested concateno employee options see note 4a regarding acquisition concateno included amount general administrative expense year ended december 31 2007 452 million related assumption biosite options expense relates acceleration unvested biosite employee options see note 4c regarding acquisition biosite year ended december 31 2009 2008 2007 presentation cash flows reports excess tax benefits exercise stock options financing cash flows year ended inverness medical innovations inc subsidiaries notes consolidated financial statements continued 16 stockbased compensation continued december 31 2009 2008 2007 excess tax benefits generated option exercises amounted 93 million 175 million 09 million respectively following assumptions used estimate fair value options granted year ended december 31 2009 2008 2007 using blackscholes optionpricing model weighted average fair value blackscholes option pricing model options granted employees 2009 2008 2007 1511 1066 2405 per share respectively options granted periods granted fair market value date grant year ended december 31 2009 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 72 43 riskfree interest rate 028 033 expected life 181 days 184 days two respective offering periods charge included general administrative table year ended december 31 2008 recorded compensation expense 28 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 43 54 riskfree interest rate 332 213 expected life 181 days 184 days two respective offering periods charge included general administrative table year ended december 31 2007 recorded compensation expense 15 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes pricing model assumed expected volatility 33 69 riskfree interest rate 494 417 expected life 181 days 184 days two respective offering periods charge included general administrative table 17 comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders’ equity following summary components changes accumulated comprehensive income december 31 2009 three years ended thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 17 comprehensive income continued 1 represents realization unrealized gains availableforsale securities interest rate swap 2 components accumulated comprehensive income relate foreign subsidiaries except item 1 adjustments income taxes recorded comprehensive income foreign subsidiaries intend permanently invest foreign subsidiaries foreseeable future 18 income taxes income tax provision benefit 2009 2008 2007 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath inverness medical france inverness medical italia orgenics inverness medical japan inverness medical uk bbi inverness medical beijing abon inverness medical switzerland income loss provision benefit income taxes consists following thousands continuing operations discontinued operations primary temporary differences give rise deferred tax asset liability nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets gain joint venture transaction income tax effects temporary differences follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued december 31 2009 approximately 1845 million domestic nol domestic capital loss carryforwards 335 million foreign nol foreign capital loss carryforwards either expire various dates 2028 carried forward indefinitely december 31 2009 approximately 263 million domestic rd foreign tax amt credits either expire various dates 2029 carried forward indefinitely loss carryforwards tax credits available reduce future federal state foreign taxable income loss carryforwards tax credits subject review possible adjustment appropriate tax authorities domestic nol carryforwards include approximately 1433 million preacquisition losses matria qas paradigm health biosite cholestech redwood hemosense imn ischemia ostex domestic nols tax credits subject internal revenue service irs code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate acquired section 382 limited amount 2010 approximately 796 million addition total nol available use 2010 approximately 1284 million recorded valuation allowance 375 million december 31 2009 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits increase 248 million valuation allowance 127 million december 31 2008 increase primarily related domestic state nols domestic state credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied reduce income tax expense required new accounting standard business combinations adopted january 1 2009 december 31 2009 89 million deferred tax assets valuation allowance pertains acquired companies chinabased manufacturing subsidiaries qualify reduced income tax rate 2009 2008 general income tax rate 25 income tax rate abon 125 2009 2010 im shanghai 10 2009 11 2010 24 2011 reduced rates 2009 2010 2011 grandfathered china tax reform act tax rate 15 25 apply 2011 future years tax rate 15 applies companies high technology status abon approved high technology status reduced tax rate produced tax expense approximately 16 million 2009 absence reduced tax rate 2009 tax rate 25 would apply would resulted tax expense approximately 34 million 2009 earnings per common share effect reduced tax rate 002 2009 reduced tax rate produced tax expense approximately 10 million 2008 absence reduced tax rate 2008 tax rate 25 would apply would resulted tax expense approximately 20 million 2008 earnings per common share effect reduced tax rate 001 2008 estimated amount undistributed earnings foreign subsidiaries 1792 million december 31 2009 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability following table presents components benefit provision income taxes thousands continuing operations inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued following table presents components benefit provision income taxes thousands discontinued operations following table presents reconciliation us statutory tax rate effective tax rate year ended december 31 2009 decreased liability income taxes associated uncertain tax positions 62 million total 49 million december 31 2009 primary reasons decrease due settlement allowable interest expense united kingdom tax audit decreased liability income taxes associated uncertain tax positions 17 million reclass acquired biosite income tax reserve rd credits valuation allowance since credits used return decreased liability income taxes associated uncertain tax positions 35 million addition classified 49 million income tax liabilities noncurrent income tax liabilities payment cash anticipated within one year balance sheet date inverness medical innovations inc subsidiaries notes consolidated financial statements continued 18 income taxes continued noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2009 anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense interest penalties recorded 2009 amounted 09 million balance accrued interest penalties recorded consolidated balance sheet december 31 2009 05 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2004 2008 currently income tax examination irs number state foreign tax authorities anticipate audits completed end 2010 cannot currently estimate impact audits due uncertainties associated tax examinations 19 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health management consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued january 15 2010 completed sale vitamins nutritional supplements business note 24 sale included private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income loss discontinued operations net tax periods presented net assets net liabilities associated vitamins nutritional supplements business reclassified assets held sale liabilities related assets held sale within current assets current liabilities respectively presented corporate december 31 2009 2008 operating loss 2507 million year ended december 31 2007 corporate segment includes writeoff 1738 million iprd incurred connection acquisitions biosite diamics 452 million stockbased compensation related employee stock options assumed acquisition biosite accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2009 2008 2007 follows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued 20 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following securities common stock series b preferred stock convertible notes interests first lien credit agreement interests second lien credit agreement extent make principal interest payments convertible notes credit facilities accordance terms zwanziger family trust holder convertible notes lender credit facilities receive proportionate share connection purchases interests first lien credit agreement second lien credit agreement trust agreed whenever consent vote lenders required credit facilities vote outstanding principal amount holdings proportion votes cast lenders credit facilities may 2007 completed 5050 joint venture pg spd development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting inverness medical innovations inc subsidiaries notes consolidated financial statements continued 20 related party transactions continued december 31 2009 net payable joint venture 05 million compared net receivable 120 million joint venture december 31 2008 additionally customer receivables associated revenue earned joint venture completed classified receivables within prepaid current assets accompanying consolidated balance sheets amount 123 million 162 million december 31 2009 2008 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 1031 million 1030 million 650 million year ended december 31 2009 2008 2007 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 18 million 24 million 25 million year ended december 31 2009 2008 2007 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities uk china spd turn sells portion tests back us final assembly packaging packaged tests sold pg distribution thirdparty customers north america result related transactions recorded 145 million 156 million trade receivables included accounts receivable accompanying consolidated balance sheets december 31 2009 2008 respectively 232 million 189 million trade accounts payable included accounts payable accompanying consolidated balance sheets december 31 2009 2008 respectively 2009 received 100 million cash spd return capital july 2009 sold one consumerrelated australian subsidiaries spd approximately 02 million connection original terms joint venture agreement transition distribution responsibilities certain consumer diagnostic products spd sale subsidiary completed net book value resulting gain loss transaction march 22 2007 entered convertible loan agreement bbi whereby loaned £75 million 147 million transaction date terms agreement loan amount would simultaneously convert shares bbi common stock per prescribed conversion formula defined loan agreement event bbi consummated specific target acquisition september 30 2007 may 15 2007 bbi consummated specific target acquisition loan converted 5208333 shares bbi’s common stock included investments unconsolidated entities accompanying consolidated balance sheet december 31 2007 february 2008 acquired remaining outstanding shares bbi common stock connection acquisition bbi note 4 21 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 21 valuation qualifying accounts continued established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands 22 restructuring activities following table sets forth aggregate charges associated restructuring plans recorded operating income loss years ended december 31 thousands 2009 restructuring plans 2009 management developed plans reduce costs improve efficiencies health management reporting unit business segment well reduce costs consolidate operating activities among several professional diagnostics related german subsidiaries result plans recorded 32 million restructuring charges year ended december 31 2009 included 25 million severance costs 05 million contract cancellation costs 01 million present value accretion facility exit costs 01 million fixed asset impairment costs 31 million included operating income 23 million 08 million included health management professional diagnostics business segments respectively also recorded 01 million present value accretion related matria’s facility exit costs interest expense december 31 2009 13 million exit costs remain unpaid expect incur additional 05 million facility exit costs plans 2010 included primarily professional diagnostics business segment b 2008 restructuring plans may 2008 decided close facility located bedford england initiated steps cease operations facility transition manufacturing operations principally manufacturing facilities shanghai hangzhou china based upon decision year ended december 31 2009 recorded 55 million restructuring charges 28 million related primarily severancerelated costs 13 million related transition costs 07 million related fixed asset inventory writeoffs 03 million related pension plan curtailment charge 04 million related acceleration facility restoration costs year ended december 31 2008 recorded 126 million restructuring charges including 69 million related acceleration facility restoration costs 48 million fixed asset impairments 11 million severance costs 07 million early termination lease inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued penalties 09 million related pension plan curtailment gain associated bedford employees terminated 51 million included operating income year ended december 31 2009 06 million 45 million charged consumer diagnostics professional diagnostics business segments respectively 57 million included operating income year ended december 31 2008 charged professional diagnostics business segment also recorded 04 million 69 million years ended december 31 2009 2008 respectively related accelerated present value accretion lease restoration costs due early termination facility lease interest expense addition restructuring charges discussed 104 million 145 million charges associated bedford facility closure borne spd years ended december 31 2009 2008 respectively included 104 million charges year ended december 31 2009 73 million severance retention costs 12 million fixed asset inventory impairments 17 million transition costs 02 million acceleration facility exit costs included 145 million charges year ended december 31 2008 84 million fixed asset impairments 32 million early termination lease penalties 26 million severance retention costs 02 million facility exit costs 01 million related acceleration facility restoration costs restructuring charges 50 52 million 72 million included equity earnings unconsolidated entities net tax consolidated statements operations years ended december 31 2009 2008 respectively total exit costs incurred jointly spd plan including severancerelated costs lease penalties restoration costs 149 million remains unpaid december 31 2009 since inception plan recorded 181 million restructuring charges including 73 million related acceleration facility restoration costs 55 million fixed asset inventory impairments 39 million severance costs 07 million early termination lease penalties 13 million transition costs 06 million related pension plan curtailment gain associated bedford employees terminated spd allocated 249 million restructuring charges since inception plan including 96 million fixed asset inventory impairments 99 million severance retention costs 29 million early termination lease penalties 22 million facility exit costs 03 million related acceleration facility exit costs anticipate incurring additional costs approximately 110 million related closure facility including limited severance retention costs rent obligations transition costs incremental interest expense associated lease obligations terminate end 2011 additional anticipated costs approximately 81 million borne spd 29 million borne us included primarily professional diagnostics business segment expect majority costs incurred end first half 2010 anticipated facility closure date february 2008 decided cease research development activities one products development bedford england facility based upon comparison product development existing products acquired hemosense acquisition year ended december 31 2008 since inception plan recorded restructuring charges 94 million 68 million related impairment fixed assets 19 million related writeoff inventory 05 million related contractual obligations suppliers 02 million related severance costs involuntarily terminate employees working development product 94 million included professional diagnostics business segment 07 million contractual obligations severance costs paid december 31 2008 expect incur significant additional charges plan march 18 2008 announced plans close biostar inc biostar facility louisville colorado exit production biostar oia product line along plans close two newlyacquired facilities san francisco california area relating cholestech hemosense newly inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued acquired facility columbia maryland relating panbio cholestech operation acquired september 2007 manufactures distributes cholestech ldx system pointofcare monitor blood cholesterol related lipids used test patients risk suffering heart disease related conditions moved biosite facility san diego california end 2009 hemosense operation acquired november 2007 manufactures distributes inratio system easytouse handheld blood coagulation monitoring system use patients healthcare professionals management warfarin commonlyprescribed medication used prevent blood clots moved biosite facility operations panbio distribution facility acquired january 2008 transferred distribution center freehold new jersey biostar manufacturing ceased end june 2008 biostar oia products available purchase end first quarter 2009 year ended december 31 2009 incurred 01 million severancerelated restructuring charges year ended december 31 2008 incurred 106 million restructuring charges related plan consisted 51 million intangible asset impairments 14 million severancerelated costs 06 million fixed asset impairments 12 million facility exit costs 23 million related writeoff inventory since inception plan incurred 107 million restructuring charges related plan consisted 51 million intangible assets impairment 15 million severancerelated costs 06 million fixed asset impairments 12 million facility exit costs 23 million related writeoff inventory costs related plan included professional diagnostics business segment expect incur additional charges plan december 31 2009 costs paid result plans transition businesses cholestech hemosense biosite panbio orlando florida close facilities incurred 82 million restructuring charges year ended december 31 2009 24 million relates fixed asset impairments 17 million relates severance retention costs 26 million transition costs 13 million inventory writeoffs 02 million present value accretion facility lease costs incurred 38 million restructuring charges year ended december 31 2008 27 million relates severance retention costs 04 million fixed asset impairments 05 million transition costs 02 million present value accretion facility lease costs related plans years ended december 31 2009 2008 respectively 80 million 36 million charges included operating income professional diagnostics business segment charged 02 million related present value accretion facility lease costs interest expense years ended december 31 2009 2008 since inception plan incurred 120 million restructuring charges 44 million relates severance retention costs 28 million fixed asset impairments 31 million transition costs 13 million inventory writeoffs 04 million present value accretion facility lease costs related plans 79 million severance exit costs 22 million remains unpaid december 31 2009 anticipate incurring additional 23 million restructuring charges cholestech plan primarily related severance retention outplacement benefits along costs transition cholestech operations biosite facility included professional diagnostics business segment see note 4d information costs related plans addition transitioning businesses cholestech hemosense biosite also made decision close innovacon facility san diego california move operating activities biosite innovacon business rapid diagnostics business acquired acon march 2006 year ended december 31 2008 since inception recorded 06 million restructuring charges 05 million related facility lease exit costs 01 million related impairment fixed assets charges included professional diagnostics business segment december 31 2009 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued costs paid vacated facility august 2008 anticipate incurring additional costs plan april 2008 initiated cost reduction efforts facilities stirling scotland consolidating business activities one facility biosite operations result efforts recorded 33 million restructuring charges year ended december 31 2008 since inception plan consisting 20 million fixed asset impairments 10 million severance costs 03 million facility exit costs related plan included professional diagnostics business segment 13 million severance facility exit costs 01 million remains unpaid december 31 2009 expect incur significant additional charges plan c 2007 restructuring plans 2007 committed several plans restructure integrate worldwide sales marketing order management fulfillment operations well evaluate certain research development projects objectives plans eliminate redundant costs improve customer responsiveness improve operational efficiencies result restructuring plans recorded 11 million restructuring charges year ended december 31 2009 primarily related severance charges outplacement services recorded 30 million restructuring charges year ended december 31 2008 including 26 million related severance charges outplacement services 04 million related facility exit costs year ended december 31 2007 recorded 52 million restructuring charges including 12 million severance costs 40 million fixed asset impairments since inception plan recorded 93 million restructuring charges including 49 million related severance charges outplacement services 04 million related facility exit costs 40 million related impairment charges fixed assets restructuring charges related plan included professional diagnostics business segment december 31 2009 04 million severancerelated charges facility exit costs remain unpaid anticipate incurring significant additional charges related plan addition recorded restructuring charges associated formation joint venture pg connection joint venture committed plan close sales offices germany sweden well evaluate redundancies departments consumer diagnostics business segment impacted formation joint venture year ended december 31 2008 recorded 02 million severance costs related plan year ended december 31 2007 recorded 12 million restructuring charges 08 million relates severance costs 04 million relates facility exit costs recorded 14 million restructuring charges since inception plan 10 million relates severance costs 04 million relates facility exit costs total 14 million exit costs 01 million remains unpaid december 31 2009 anticipate incurring additional charges related plan 2006 restructuring plans may 2006 committed plan cease operations abi manufacturing facility san diego california write certain excess manufacturing equipment impacted facilities additionally june 2006 committed plan reorganize sales marketing customer service functions certain us professional diagnostics companies year ended december 31 2007 recorded 04 million net restructuring charges plans primarily relates 06 million facility exit costs offset 02 million adjustment due finalization fixed asset writeoffs 04 million net charge 02 million adjustment included consumer diagnostics segment 06 million included professional diagnostics business segment inverness medical innovations inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued net restructuring charges since commitment date consist 67 million related impairment fixed assets inventory 27 million related impairment charge intangible asset 25 million related severance 06 million related facility closing costs 125 million recorded operating income 82 million 17 million 26 million included professional diagnostics consumer diagnostics corporate business segments respectively december 31 2009 substantially costs paid e restructuring reserves following table summarizes liabilities related restructuring activities associated plans discussed thousands 1 represents foreign currency translation adjustment 23 equity investments account results equity investments equity method accounting accordance asc 323 investments equity methods joint ventures based percentage ownership interest business equity investments primarily include following joint venture pg may 2007 completed 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostics business related joint venture years ended december 31 2009 2007 recorded earnings 57 million 30 million respectively equity earnings losses unconsolidated entities net tax accompanying consolidated statements operations represented 50 share joint venture’s net income respective periods year ended december 31 2008 recorded loss 09 million equity earnings losses unconsolidated entities net tax accompanying consolidated statements operations represented 50 share joint venture’s net loss respective period ii techlab may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibiotic associated diarrhea parasitology years ended december 31 2009 2008 2007 recorded earnings 16 million 15 million 10 million respectively equity earnings losses unconsolidated entities net tax accompanying consolidated statements operations represented minority share techlab’s net income respective period iii vedalab november 2006 acquired 40 investment vedalab sa vedalab french manufacturer supplier rapid diagnostic tests professional market years ended december 31 2009 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 23 equity investments continued 2007 recorded 04 million 05 million 03 million respectively equity earnings losses unconsolidated entities net tax accompanying consolidated statements operations represented minority share vedalab’s net income respective period summarized financial information pg joint venture techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets 24 gain disposition september 2009 disposed majority ownership interest diamics operation part professional diagnostics reporting unit business segment since date acquisition july 2007 principles consolidation consolidated 100 operating results diamics operations consolidated statement operations result disposition recorded gain 34 million year ended december 31 2009 25 discontinued operations january 15 2010 completed sale vitamins nutritional supplements business purchase price approximately 634 million cash subject customary postclosing adjustments sale included private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment expect recognize pretax gain approximately 198 million first quarter 2010 subject postclosing adjustments results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income loss discontinued operations net tax periods presented net assets net liabilities associated vitamins nutritional supplements business reclassified assets held sale liabilities related assets held sale december 31 2009 2008 inverness medical innovations inc subsidiaries notes consolidated financial statements continued 25 discontinued operations continued following assets liabilities segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheets december 31 2009 2008 amounts presented adjusted exclude cash intercompany receivables payables certain assets liabilities business held sale company excluded transaction amounts thousands following summarized financial information related vitamins nutritionals supplements businesses segregated continuing operations reported discontinued operations amounts thousands 26 supplemental cash flow information cash paid interest income taxes fiscal 2009 2008 2007 made cash payments interest totaling 873 million 886 million 650 million respectively fiscal 2009 2008 2007 total net cash paid received income taxes 492 million 55 million 315 million respectively inverness medical innovations inc subsidiaries notes consolidated financial statements continued 26 supplemental cash flow information continued noncash investing activities fiscal 2009 2008 2007 issued shares common stock exchanged employee stock options connection several acquisitions dollars thousands 1 acquisition spectral diagnostics private limited also included affiliate source diagnostics india private limited 2 value includes 26 million associated net operating loss carryforwards related stock options issued biosite incorporated employees noncash financing activities 2009 2008 recorded noncash charges accumulated comprehensive income 114 million 116 million respectively representing change fair market value interest rate swap agreement 27 subsequent event evaluated subsequent events occurring balance sheet date time filing sec annual report form 10k year ended december 31 2009 concluded event management aware occurred balance sheet date would require adjustment accompanying consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements continued 27 subsequent event continued february 2010 acquired kroll laboratory specialists inc located gretna louisiana provides forensic quality substance abuse testing products services across united states purchase price approximately 1100 million cash subject customary working capital adjustment february 2010 acquired 6192 ownership interest standard diagnostics inc via tender offer approximately 1650 million standard diagnostics publiclytraded korean company specializes medical diagnostics industry main product lines relate diagnostic reagents devices hepatitis infectious diseases tumor markers fertility drugs abuse urine strips protein strips 28 guarantor financial information 9 senior subordinated notes due 2016 well 7875 senior notes due 2016 guaranteed certain consolidated subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2009 2008 related audited statements operations cash flows three years period ended december 31 2009 company guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments company guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement operations year ended december 31 2009 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement operations year ended december 31 2008 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement operations year ended december 31 2007 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating balance sheet december 31 2009 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating balance sheet december 31 2008 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement cash flows year ended december 31 2009 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement cash flows year ended december 31 2008 thousands inverness medical innovations inc subsidiaries notes consolidated financial statements continued 28 guarantor financial information continued consolidating statement cash flows year ended december 31 2007 thousandsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits agreements filed exhibits annual report form 10k contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized alere inc date march 1 2011 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors shareholders alere inc opinion accompanying consolidated balance sheet related consolidated statement operations statement equity comprehensive income loss cash flows present fairly material respects financial position alere inc subsidiaries december 31 2010 results operations cash flows year ended december 31 2010 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s annual report internal control financial reporting appearing item 9a alere inc’s annual report form 10k responsibility express opinions financial statements company’s internal control financial reporting based integrated audit conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described management’s annual report internal control financial reporting appearing item 9a alere inc’s annual report form 10k management excluded entities acquired purchase business combinations 2010 assessment internal control financial reporting december 31 2010 also excluded entities acquired purchase business combinations 2010 audit internal control financial reporting total assets net revenue entities represented approximately 10 6 respectively related consolidated financial statement amounts year ended december 31 2010 pricewaterhousecoopers llp boston massachusetts march 1 2011 report independent registered public accounting firm board directors stockholders alere inc audited accompanying consolidated balance sheet alere inc formerly known inverness medical innovations inc “company” december 31 2009 related consolidated statements operations equity comprehensive income loss cash flows years ended december 31 2009 2008 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position alere inc december 31 2009 consolidated results operations cash flows years ended december 31 2009 2008 conformity accounting principles generally accepted united states america described note 2 financial statements company adopted accounting standards related business combinations effective business combinations entered january 1 2009 bdo usa llp bdo usa llp formerly known bdo seidman llp boston massachusetts february 26 2010 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss continued thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation developing new capabilities nearpatient diagnosis monitoring health management alere inc subsidiaries enable individuals take charge improving health quality life home medical supervision global leading products services well new product development efforts focus cardiology women’s health infectious disease oncology toxicology business organized three primary operating segments professional diagnostics ii health management iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified health management segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market january 15 2010 completed sale vitamins nutritional supplements business note 23 sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business included income loss discontinued operations net tax periods presented assets liabilities associated vitamins nutritional supplements business reclassified assets held sale liabilities related assets held sale december 31 2009 accompanying consolidated balance sheet acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 following completion 5050 joint venture pg may 17 2007 ceased consolidate operating results consumer diagnostics business instead account 50 interest results joint venture equity method accounting capacity manufacturer products joint venture supply product joint venture record revenue sales gain proceeds received pg formation joint venture recognized financial statements pg’s option require us purchase interest joint venture market value expires fourth anniversary closing consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders’ equity note 15 revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month year net realized unrealized foreign currency exchange transaction gains 98 million 2010 13 million 2009 losses 05 million 2008 included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2010 2009 restricted cash restricted cash 26 million 24 million december 31 2010 2009 respectively e marketable securities classified availableforsale trading carried estimated fair value determined quoted market prices balance sheet date realized gains losses securities included earnings determined using specific identification method unrealized holding gains losses except temporary impairments securities classified available sale excluded earnings reported accumulated comprehensive income net related tax effects unrealized gains losses activelytraded securities included earnings marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 225 years buildings 755 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 125 years furniture fixtures 225 years land depreciated depreciation expense related property plant equipment amounted 677 million 543 million 497 million 2010 2009 2008 respectively expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives accordance accounting standards codification asc 350 intangibles goodwill asc 350 test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach prescribed asc 350 first step requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step goodwill impairment test measure amount impairment loss second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill derived performing hypothetical purchase price allocation reporting unit measurement date allocating reporting unit’s estimated fair value assets liabilities residual amount performing allocation represents implied fair value goodwill extent amount carrying value goodwill impairment charge recorded conducted annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered weightedaverage cost capital reporting unit among factors alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement impairment longlived tangible intangible assets evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived asset reduced estimated fair value lower impairment loss would charged expense period impairment identified conducted annual goodwill impairment test reporting units fourth quarter 2010 impairment test indicated impairment goodwill associated health management reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis prescribed asc 360 property plant equipment utilizing undiscounted cash flow model lowest level independent cash flows analysis indicated impairment longlived tangible intangible assets associated health management reporting unit although believe carrying value longlived tangible intangible assets realizable december 31 2010 future events could cause us conclude otherwise alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued j business acquisitions january 1 2009 adopted new accounting standard issued financial accounting standards board fasb related accounting business combinations using acquisition method accounting previously referred purchase method among significant changes standard requires redefining measurement date business combination expensing direct transaction costs incurred capitalizing inprocess research development costs intangible asset recording liability contingent consideration measurement date subsequent remeasurements recorded general administrative expense standard also requires costs business restructuring exit activities related acquired company included postcombination financial results operations also provides new guidance recognition measurement contingent assets liabilities business combination acquisitions consummated prior january 1 2009 accounted accordance previously applicable guidance 2010 2009 incurred 82 million 159 million acquisitionrelated costs included 159 million expense incurred 2009 38 million costs associated acquisitionrelated activity transactions consummated prior january 1 2009 business acquisitions historically made prices fair value acquired net assets resulting goodwill based expectations synergies combining businesses synergies include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales acquired businesses’ products use commercial infrastructure acquired businesses costeffectively expand product sales significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions allocation purchase price acquisitions based estimates fair value net assets acquired acquisitions completed within past year subject adjustment upon finalization purchase price allocation aware information indicates final purchase price allocations differ materially preliminary estimates estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized k income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued includes enactment date valuation allowances established necessary reduce deferred tax assets amounts expected likely realized future note 16 l revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund risk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned employee stockbased compensation arrangements account sharebased payments accordance asc 718 compensation stock compensation cost associated stock options includes amortization related remaining unvested portion stock option awards granted prior january 1 2006 based grantdate fair value estimated accordance original provisions statement financial accounting standards 123 ii amortization related stock option awards granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized expected term options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments plans pay dividends foreseeable future n net income loss per common share net income loss per common share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 12 operating expenses expense advertising costs incurred 2010 2009 2008 advertising costs amounted 144 million 154 million 157 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues p concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2010 2009 individual customer’s accounts receivable balance excess 10 2010 one customer represented greater 10 net revenue 2009 2008 one customer represented 15 23 net revenue respectively purchased professional diagnostics products rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results q financial instruments fair value financial instruments primary financial instruments december 31 2010 2009 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt interest rate swap contract apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value estimated fair value financial instruments approximates carrying values december 31 2010 2009 alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued r recent accounting pronouncements recently issued standards april 2010 fasb issued accounting standards update asu 201017 revenue recognition milestone method topic 605 milestone method revenue recognition asu 201017 asu 201017 allows milestone method acceptable revenue recognition methodology arrangement includes substantive milestones asu 201017 provides definition substantive milestone applied regardless whether arrangement includes single multiple deliverables units accounting asu 201017 limited transactions involving milestones relating research development deliverables asu 201017 also includes enhanced disclosure requirements arrangement individual milestones related contingent consideration information substantive milestones factors considered determination asu 201017 effective prospective basis milestones achieved fiscal years interim periods within years beginning june 15 2010 early adoption permitted adoption standard expected material impact financial position results operations cash flows october 2009 fasb issued asu 200914 software topic 985 certain revenue arrangements include software elements consensus fasb eitf asu 200914 asu 200914 changes accounting model revenue arrangements include tangible products software elements amendments update provide additional guidance determine software relating tangible product also would excluded scope software revenue recognition guidance amendments update also provide guidance vendor allocate arrangement consideration deliverables arrangement includes tangible products software well arrangements deliverables included excluded scope software revenue recognition guidance standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 adoption standard expected material impact financial position results operations cash flows october 2009 fasb issued asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb eitf asu 200913 asu 200913 separate multipledeliverable revenue arrangements update establishes selling price hierarchy determining selling price deliverable amendments update replace term “fair value” revenue allocation guidance “selling price” clarify allocation revenue based entityspecific assumptions rather assumptions marketplace participant amendments update eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments update require vendor determine best estimated selling price manner consistent used determine price sell deliverable standalone basis standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 adoption standard expected material impact financial position results operations cash flows recently adopted standards effective january 1 2010 adopted asu 201006 fair value measurements disclosures topic 820 improving disclosures fair value measurements asu 201006 reporting entity provide additional disclosures different classes assets liabilities measured fair value valuation techniques inputs used activity level 3 fair value measurements transfers levels 1 2 3 fair value measurements adoption additional disclosures level 1 alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued level 2 fair value measurements impact financial position results operations cash flows disclosures regarding level 3 fair value measurements become effective january 1 2011 given currently evaluating potential impact part update effective january 1 2010 adopted asu 200917 consolidations topic 810 improvements financial reporting enterprises involved variable interest entities asu 200917 amendments update replace quantitativebased risks rewards calculation determining reporting entity controlling financial interest variable interest entity approach focused identifying reporting entity power direct activities variable interest entity significantly impact entity’s economic performance 1 obligation absorb losses entity 2 right receive benefits entity approach expected primarily qualitative effective identifying reporting entity controlling financial interest variable interest entity amendments update also require additional disclosures reporting entity’s involvement variable interest entities enhance information provided users financial statements evaluated business relationships identify potential variable interest entities concluded consolidation entities required periods presented quarterly basis continue reassess involvement variable interest entities 3 balance sheet information components selected captions consolidated balance sheets consist thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations acquisitions 2010 immunalysis august 16 2010 acquired diagnostixx california corp dba immunalysis corporation immunalysis located pomona california privatelyowned manufacturer marketer abused prescription drug screening solutions used clinical reference forensiccrime laboratories preliminary aggregate purchase price 562 million consisted initial cash payment totaling 550 million contingent consideration obligation 50 million acquisition date fair value 12 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 79 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes ii privatelyowned uk research development operation march 11 2010 acquired privatelyowned uk research development operation preliminary aggregate purchase price 708 million consisted initial cash payment totaling 352 million contingent consideration obligation 1250 million acquisition date fair value 356 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 02 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes iii alere toxicology february 17 2010 acquired kroll laboratory specialists inc headquartered gretna louisiana provides forensic quality substance abuse testing products services across united states preliminary aggregate purchase price 1095 million paid cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 313 million related acquired business subsequently renamed alere toxicology services alere toxicology operating results alere toxicology included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv standard diagnostics february 8 2010 acquired 6192 ownership interest standard diagnostics via tender offer approximately 1621 million march 22 2010 acquired incremental 1337 ownership interest standard diagnostics via followon tender offer approximately 362 million june 2010 acquired incremental 284 ownership interest approximately 73 million bringing acquisitionrelated aggregate ownership interest standard diagnostics approximately 7813 standard diagnostics specializes medical diagnostics industry main product lines relate diagnostic reagents devices hepatitis infectious diseases tumor markers fertility drugs abuse urine strips protein strips preliminary aggregate purchase price 2056 million cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 789 million related standard diagnostics operating results standard diagnostics included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes fourth quarter 2010 acquired remaining outstanding minority interests standard diagnostics bringing aggregate ownership interest approximately 100 december 31 2010 connection purchase shares certain minority shareholder alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued incurred compensation charge 601 million result transition daytoday management control business us v acquisitions 2010 acquired following businesses preliminary aggregate purchase price 1601 million consisted initial cash payments totaling 1065 million contingent consideration obligations acquisition date fair value 529 million deferred purchase price consideration acquisition date present value 07 million • rmd networks inc rmd located denver colorado provider clinical groupware software services designed improve communication coordination care among providers patients payers healthcare environment acquired january 2010 • certain assets streck inc streck located nebraska manufacturer hematology chemistry immunology products clinical laboratory acquired january 2010 • assets diagnostics division micropharm ltd micropharm located wales united kingdom expert high quality antibody production sheep diagnostic therapeutic purposes providing antisera contract basis uk overseas companies academic institutions mainly research therapeutic diagnostic uses acquired march 2010 • quantum diagnostics group limited quantum headquartered essex england independent provider drug testing products services healthcare professionals across uk europe acquired april 2010 • assets workplace health division good health solutions pty ltd ghs located east sydney australia important player australian health wellness market focusing health screenings health related consulting services health coaching fitness instruction acquired april 2010 • certain assets unotech diagnostics inc unotech located california privatelyowned company engaged development formulation manufacture packaging supply distribution bladdercheck nmp22 lateral flow test related lateral flow products acquired june 2010 • scipac holdings limited scipac headquartered kent england diagnostic reagent company extensive product portfolio supplying purified human antigens recombinant proteins disease state plasma global customer base acquired june 2010 • privatelyowned research development operation located san diego california acquired july 2010 • adnagen ag adnagen located langenhagen germany company focuses development innovative tumor diagnostics detection rare cells acquired november 2010 • medlab produtos medicos hospitalares ltda medlab located san paulo brazil distributor medical instruments reagents public private laboratories throughout brazil uruguay acquired december 2010 • capital toxicology llc capital toxicology located austin texas privatelyheld toxicology business specializing pain management services acquired december 2010 operating results acquired businesses mentioned except rmd ghs included professional diagnostics reporting unit business segment operating results rmd alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued ghs included health management reporting unit business segment consolidated statement operations year ended december 31 2010 included revenue totaling approximately 126 million related businesses goodwill recognized acquisitions exception unotech amounted approximately 1140 million goodwill related acquisition capitol toxicology totaled 110 million expected deductible tax purposes summary preliminary aggregate purchase price allocation acquisitions consummated 2010 follows thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following intangible assets acquired respective amortizable lives dollars thousands b acquisitions 2009 acquisition tapestry medical november 6 2009 acquired tapestry medical inc tapestry located livermore california privatelyowned company provider products related services designed support anticoagulation disease management patients risk stroke clotting disorders aggregate purchase price 611 million consisted initial cash payment totaling 451 million contingent consideration obligation fair value 160 million payable shares common stock except case 2010 earnout paid cash included consolidated statements operations year ended december 31 2010 2009 revenue totaling approximately 541 million 18 million respectively related tapestry operating results tapestry included health management reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisition free clear september 28 2009 acquired free clear inc free clear located seattle washington privatelyowned company specializes behavioral coaching help employers health plans government agencies improve overall health productivity covered populations aggregate purchase price 1215 million consisted initial cash payment totaling 1073 million contingent consideration obligation fair value 142 million included consolidated statements operations year ended december 31 2010 2009 revenue totaling approximately 753 million 143 million respectively related free clear operating results free clear included health management reporting unit business segment expect amount allocated goodwill deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued iii acquisition concateno august 11 2009 acquired concateno plc concateno publiclytraded company headquartered united kingdom specializes manufacture distribution rapid drugs abuse diagnostic products used health care criminal justice workplace testing markets aggregate purchase price 2519 million consisted 1788 million cash including 05 million cash paid shares concateno common stock acquired prior acquisition date 2091080 shares common stock aggregate fair value 702 million 29 million fair value associated concateno employee stock options exchanged part transaction consolidated statements operations year ended december 31 2010 2009 included revenue totaling approximately 788 million 333 million respectively related concateno operating results concateno included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes iv acquisition acon’s second territory business april 30 2009 completed acquisition assets acon laboratories inc’s certain related entities’ collectively “acon” business researching developing manufacturing distributing marketing selling lateral flow immunoassay directlyrelated products “business” remainder world outside first territory defined including china asia pacific latin america south america middle east africa india pakistan russia eastern europe “second territory business” acquired acon’s business united states canada western europe excluding russia former soviet republics part european union turkey israel australia japan new zealand “first territory” march 2006 aggregate purchase price second territory business approximately 1910 million 1889 million present value consisted cash payments totaling 1047 million 1202691 shares common stock aggregate fair value 421 million deferred purchase price consideration payable cash common stock aggregate fair value 421 million consolidated statements operations year ended december 31 2010 2009 included revenue totaling approximately 509 million 380 million respectively related second territory business operating results second territory business included professional diagnostics reporting unit business segment goodwill resulting acquisition generally expected deductible tax purposes depending tax jurisdiction v acquisitions 2009 acquired following assets businesses aggregate purchase price 858 million 839 million present value consisted 454 million cash 128513 shares common stock aggregate fair value 51 million notes payable totaling 79 million deferred purchase price consideration payable cash aggregate fair value 158 million warrants fair value 01 million contingent consideration obligations aggregate fair value 96 million recorded liability 54 million payable shares common stock • genecare medical genetics center inc genecare located chapel hill north carolina medical genetics testing counseling business acquired july 2009 • certain assets cvs caremark’s accordant common disease management programs accordant whereby chronicallyill patients served accordant common disease management programs managed access expanded offerings provided alere acquired august 2009 • zycare inc zycare located chapel hill north carolina provider technology services used help manage many chronic illnesses acquired august 2009 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • medim schweiz gmbh medim located zug switzerland distributor pointofcare diagnostics testing products primarily swiss marketplace acquired september 2009 • biosyn diagnostics limited biosyn located belfast ireland distributor pointofcare diagnostics testing products primarily irish marketplace acquired october 2009 • mologic limited mologic located sharnbrook united kingdom research development entity extensive experience applied immunoassay technology well broad understanding medical diagnostic devices antibody development acquired october 2009 • jinsung meditech inc jsm located seoul south korea distributor pointofcare diagnostics testing products primarily south korean marketplace acquired december 2009 • biolinker sa biolinker located buenos aires argentina distributor pointofcare diagnostics testing products primarily argentinean marketplace acquired december 2009 • 510 share long chain international corp long chain located taipei taiwan distributor pointofcare diagnostics testing products primarily taiwanese marketplace acquired december 2009 january 2010 acquired remaining 490 interest long chain operating results medim biosyn mologic jsm biolinker long chain included professional diagnostics reporting unit business segment operating results genecare accordant zycare included health management reporting unit business segment consolidated statements operations years ended december 31 2010 2009 included revenue totaling approximately 616 million 196 million respectively related businesses goodwill recognized transactions amounted approximately 356 million goodwill related acquisitions genecare accordant totaled 128 million expected deductible tax purposes goodwill related acquisitions deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary aggregate purchase price allocation acquisitions consummated 2009 follows thousands following intangible assets acquired respective amortizable lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued c acquisitions 2008 acquisition matria may 9 2008 acquired matria healthcare inc matria national provider health improvement disease management highrisk pregnancy management programs services aggregate purchase price 11 billion consisted 4206 million cash series b convertible preferred stock fair value approximately 6579 million 173 million fair value associated matria employee stock options exchanged part transaction 180 million direct acquisition costs operating results matria included health management reporting unit business segment expect amount allocated goodwill deductible tax purposes ii acquisition bbi february 12 2008 acquired bbi holdings plc bbi publiclytraded company headquartered united kingdom specializes development manufacture noninvasive lateral flow tests gold reagents aggregate purchase price 1632 million consisted 1386 million cash including 147 million cash paid shares bbi common stock owned prior acquisition date common stock aggregate fair value 144 million 66 million direct acquisition costs 36 million fair value associated bbi employee stock options exchanged part transaction operating results bbi included professional consumer diagnostics reporting units business segments expect amount allocated goodwill deductible tax purposes iii acquisitions 2008 acquired following assets businesses aggregate purchase price 1200 million paid 860 million cash 23 million direct acquisition costs accrued contingent consideration milestone payments totaling 319 million upon settlement certain milestones recognized 02 million foreign currency exchange loss included aggregate purchase price • panbio limited panbio headquartered brisbane australia australian publiclytraded company develops manufactures diagnostic tests use diagnosis broad range infectious diseases acquired january 2008 • certain assets mochida pharmaceutical co ltd mochida part acquisition certain assets mochida transferred exclusive distribution rights japan certain osteomark products acquired april 2008 • privatelyowned provider care health management services acquired july 2008 • vision biotech pty ltd vision located cape town south africa privatelyowned distributor rapid diagnostic products predominantly south african marketplace acquired september 2008 • global diagnostics cc global located johannesburg south africa privatelyowned contract manufacturer distributor high quality rapid diagnostic tests predominantly south african marketplace acquired september 2008 • diateam diagnostika und arzneimittel großhandel gmbh diateam located linz austria privatelyowned distributor high quality rapid diagnostic tests predominantly austrian marketplace acquired september 2008 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • prodimol biotecnologia sa prodimol located brazil privatelyowned distributor high quality rapid diagnostic tests predominantly brazilian marketplace acquired october 2008 • ameditech inc ameditech located san diego california manufacturer high quality drugs abuse diagnostic tests acquired december 2008 summary aggregate purchase price allocation acquisitions consummated 2008 follows thousands following intangible assets acquired respective amortizable lives dollars thousands panbio mochida vision global diateam prodimol ameditech included professional diagnostics reporting unit business segment privatelyowned health management acquisition included health management reporting unit business segment goodwill recognized alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued panbio vision global diateam prodimol ameditech privatelyowned health management business transactions amounted approximately 625 million goodwill related acquisitions excluding ameditech privatelyowned health management acquisition deductible tax purposes restructuring plans related business combinations connection several acquisitions consummated 2008 prior initiated integration plans consolidate restructure certain functions operations including relocation termination certain personnel acquired entities closure certain acquired entities’ leased facilities costs recognized liabilities assumed connection acquisition entities subject potential adjustments certain exit activities confirmed refined following table summarizes liabilities established exit activities related acquisitions thousands acquisitions connection acquisition matria implemented integration plan improve operating efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within matria organization activities combined existing business operations recorded 185 million exit costs 138 million relates change control severance costs involuntarily terminate employees 47 million related facility exit costs 2010 determined 15 million change control costs 02 million facility exit costs would incurred thereby reducing assumed liability goodwill related matria acquisition 17 million december 31 2010 12 million exit costs remain unpaid see note 20 additional restructuring charges related matria facility exit costs within health management reporting unit conjunction acquisition panbio formulated restructuring plan realize efficiencies cost savings february 2008 agreed upon plan close panbio’s facility located columbia maryland manufacturing operation marylandbased facility transferred thirdparty manufacturer sales products facility transferred shared services center orlando florida distribution operations transferred distribution facility freehold new jersey recorded 10 million exit costs including 08 million related facility exit costs alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued 02 million related severance costs involuntarily terminated employees december 31 2010 03 million facility exit costs remain unpaid see note 20 additional restructuring charges related panbio facility closure integration although believe plan estimated exit costs 2008 acquisitions reasonable actual spending exit activities may differ current estimated exit costs ii acquisitions 2007 formulated restructuring plans connection acquisition cholestech corporation cholestech consistent acquisition strategy realize operating efficiencies cost savings additionally march 2008 announced plans close cholestech facility hayward california transitioned manufacturing related products facility san diego california transitioned sales distribution products shared services center orlando florida since inception plans recorded 86 million exit costs 59 million relates executive change control agreements severance costs involuntarily terminate employees 27 million relates facility exit costs third quarter 2010 determined 06 million change control severance costs would incurred thereby reducing assumed liability goodwill related cholestech acquisition december 31 2010 19 million exit costs remain unpaid although believe plans estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs conjunction acquisitions biosite incorporated biosite hemosense inc hemosense alere medical inc alere medical paradigmhealth inc paradigmhealth matritech inc matritech implemented integration plans improve efficiencies eliminate redundant costs resulting acquisitions since inception plans recorded 206 million exit costs including 186 million change control severance costs involuntarily terminated employees 20 million facility exit costs primarily related closure matritech hemosense facilities december 31 2010 substantially exit costs paid see note 20 additional restructuring charges related cholestech hemosense facility closures integrations e pro forma financial information following table presents selected unaudited financial information including assets acon second territory business standard diagnostics acquisition entities occurred january 1 2009 pro forma results exclude adjustments various less significant acquisitions completed since january 1 2009 acquisitions materially affect results operations pro forma results derived historical financial results acquired businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2009 thousands except per share amount alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued 1 net income loss per common share amounts computed described note 12 alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets following summary goodwill intangible assets december 31 2010 thousands except useful life 1 primarily includes inprocess research development recorded connection certain acquisitions completed 2009 2010 alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2009 thousands except useful life 1 primarily includes trademarks trade names 2010 began process rebranding company key products name alere connection rebranding initiative assigned economic useful lives certain intangible assets previously classified intangible assets indefinite lives 436 million recorded intangible assets indefinite lives december 31 2009 reclassified 429 million intangible assets finite lives 2010 estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortization expense intangible assets aggregate amounted 2981 million 2554 million 2138 million 2010 2009 2008 respectively included cost net revenue research development sales marketing general administrative accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2010 thousands fourth quarter perform annual impairment tests carrying value goodwill reporting unit annual impairment review conducted fourth quarter 2010 indicated goodwill impairment charge required health management business segment reporting unit discussion see note 2h allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated professional diagnostics health management consumer diagnostics reporting units summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 3 recorded goodwill impairment charge approximately 10 billion related health management business segment reporting unit reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods generally expense costs incurred internallydevelop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2010 approximately 89 million costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands following describes listed debt instruments first lien credit agreement second lien credit agreement june 26 2007 conjunction acquisition biosite entered first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements senior secured credit facility initially provided term loans aggregate amount 9000 million subject continued compliance senior secured credit facility 1500 million revolving lineofcredit junior secured credit facility provides term loans aggregate amount 2500 million may repay future borrowings senior secured credit facility revolving lineofcredit time event later june 26 2013 must repay entire junior facility term loan june 26 2015 december 31 2010 term loans revolving lineofcredit senior secured credit facility bore interest 226 425 respectively term loan junior secured credit facility bore interest 451 november 15 2007 amended senior secured credit facility increasing total amount credit available us 1125000000 resulting increase term loans aggregate amount 9750 million additionally amendment must repay senior secured credit facility term loans follows two initial installments amount 2250000 september 30 2007 december 31 2007 installment payment made b twentyfive consecutive quarterly installments beginning march 31 2008 continuing march 31 2014 amount 2437500 c final installment june 26 2014 amount equal outstanding principal balance senior secured credit facility term loans december 31 2010 aggregate borrowings amounted 12 billion term loans interest expense related secured credit facility year ended december 31 2010 including amortized deferred financing costs 606 million december 31 2010 accrued interest related secured credit facility amounted 09 million december 31 2010 compliance debt alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued covenants related debt consisted principally maximum consolidated leverage minimum interest coverage requirements august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million original maturity date september 28 2010 interest rate swap contracts paid us variable interest threemonth libor rate paid counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans secured credit facilities fixed rate debt january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts paid us variable interest onemonth libor rate paid counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan secured credit facility fixed rate debt extend terms interest rate swap january 5 2011 b 3 senior subordinated convertible notes principal amount 1500 million may 14 2007 sold 1500 million principal amount 3 senior subordinated convertible notes due 2016 convertible notes private placement qualified institutional buyers initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion senior subordinated convertible notes senior subordinated convertible notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th started november 15 2007 interest expense year ended december 31 2010 2009 including amortized deferred costs 50 million 51 million respectively c 9 senior subordinated notes may 12 2009 completed sale 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 subordinated notes public offering net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million net proceeds intended used general corporate purposes december 31 2010 3897 million indebtedness 9 subordinated notes 9 subordinated notes issued indenture dated may 12 2009 amended supplemented 9 indenture accrue interest date issuance may 12 2009 rate 9 per year interest notes payable semiannually may 15 november 15 commencing november 15 2009 notes mature may 15 2016 unless earlier redeemed may redeem 9 subordinated notes whole part time may 15 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 450 twelve months may 15 2013 225 twelve months may 15 2014 zero may 15 2015 time prior may 15 2012 may redeem 35 aggregate principal amount alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 9 subordinated notes money raise certain equity offerings long pay 109 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 9 subordinated notes remains outstanding afterwards addition time prior may 15 2013 may redeem 9 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 9 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 9 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 9 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 9 subordinated notes 9 indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information 9 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 9 subordinated notes year ended december 31 2010 including amortization deferred financing costs original issue discounts 383 million december 31 2010 accrued interest related senior subordinated notes amounted 45 million 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 sold 1500 million aggregate principal amount 7875 senior notes public offering net proceeds offering amounted approximately 1450 million net underwriters’ commissions totaling 22 million original issue discount totaling 28 million net proceeds used fund acquisition concateno december 31 2010 1477 million indebtedness issuance 7875 senior notes september 28 2009 sold 1000 million aggregate principal amount 7875 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers also agreed file registration statement sec holders notes could exchange alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued notes registered notes substantially identical terms original notes filed registration statement sec february 12 2010 exchange offer completed june 11 2010 net proceeds offering amounted approximately 950 million net initial purchasers’ original issue discount totaling 35 million offering expenses totaling approximately 15 million net proceeds used partially fund acquisition free clear december 31 2010 971 million indebtedness issuance 7875 senior notes 7875 senior notes issued indenture dated august 11 2009 amended supplemented 7875 indenture 7875 senior notes accrue interest dates respective issuances rate 7875 per year interest notes payable semiannually february 1 august 1 commencing february 1 2010 notes mature february 1 2016 unless earlier redeemed may redeem 7875 senior notes whole part time february 1 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3938 twelve months february 1 2013 1969 twelve months february 1 2014 zero february 1 2015 time prior august 1 2012 may redeem 35 aggregate principal amount 7875 senior notes money raise certain equity offerings long pay 107875 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 7875 senior notes remains outstanding afterwards addition time prior february 1 2013 may redeem 7875 senior notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 7875 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 7875 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 7875 senior notes unsecured equal right payment existing future senior debt including borrowing secured credit facilities obligations 7875 senior notes 7875 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 25 guarantor financial information 7875 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 7875 senior notes year ended december 31 2010 including amortization deferred financing costs alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued original issue discounts 213 million december 31 2010 accrued interest related senior notes amounted 82 million e 8625 senior subordinated notes september 21 2010 completed sale 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 8625 subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states proceeds intended used working capital general corporate purposes december 31 2010 4000 million indebtedness 8625 subordinated notes 8625 subordinated notes issued supplemental indenture dated september 21 2010 amended supplemented 8625 indenture accrue interest date issuance rate 8625 per year interest notes payable semiannually april 1 october 1 commencing april 1 2011 notes mature october 1 2018 unless earlier redeemed may redeem 8625 subordinated notes whole part time may october 1 2014 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4313 twelve months october 1 2014 2156 twelve months october 1 2015 zero october 1 2016 prior october 1 2013 may redeem whole part time may 35 aggregate principal amount 8625 subordinated notes money raise certain equity offerings long pay 108625 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 8625 subordinated notes including 8625 subordinated notes issued september 21 2010 remains outstanding afterwards addition time prior october 1 2014 may redeem 8625 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 8625 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 8625 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 8625 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 8625 subordinated notes 8625 indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information 8625 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 8625 subordinated notes year ended december 31 2010 including amortization deferred financing costs 99 million december 31 2010 accrued interest related subordinated notes amounted 96 million f lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit approximately 54 million 44 million borrowed outstanding december 31 2010 g debt included debt year ended december 31 2010 borrowings certain subsidiaries various financial institutions borrowed funds used fund capital expenditure working capital requirements interest expense borrowings 11 million year ended december 31 2010 maturities longterm debt following summary maturities longterm debt outstanding december 31 2010 thousands 7 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 1 assets liabilities include investments marketable securities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 2 liabilities include interest rate swap contracts level 3 unobservable inputs supported little market activity significant fair value assets liabilities fair value contingent consideration obligations related acquisitions completed january 1 2009 valued using level 3 inputs following table presents information assets liabilities measured fair value recurring basis december 31 2010 2009 indicates fair value hierarchy valuation techniques utilized determine fair value thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued 1 fair value interest rate swaps based application standard discounted cash flow models using market interest rate data 2 fair value measurements contingent consideration obligations related acquisitions completed january 1 2009 valued using level 3 inputs determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market changes value contingent consideration obligations recorded income expense component operating income consolidated statement operations see note 11 additional information valuation contingent consideration obligations changes fair value level 3 contingent consideration obligations year ended december 31 2010 follows thousands december 31 2010 2009 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amounts estimated fair values longterm debt 24 billion 21 billion december 31 2010 2009 respectively estimated fair value longterm debt determined using market sources derived available market information may representative actual values could realized future alere inc subsidiaries notes consolidated financial statements continued 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2010 thousands december 31 2010 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 69 million 64 million 46 million 2010 2009 2008 respectively alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued b uk pension plans changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2010 2009 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown current liabilities 35 million 41 million years ended december 31 2010 2009 respectively amounts recognized accumulated comprehensive income loss years ending december 31 2010 2009 follows measurement date used determine plan assets benefit obligations defined benefit plan december 31 2010 2009 alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2010 2009 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2010 stocks fixed income securities represented 70 30 respectively market value pension assets expect contribute approximately 06 million british pounds sterling 09 million december 31 2010 defined benefit plan 2011 expect benefits paid plan participants approximately 03 million per year next five years benefits totaling 04 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued fair values pension plan assets december 31 2010 2009 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath limited unipath contributed 04 million 2010 08 million 2009 10 million 2008 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments use derivative financial instruments interest rate swap contracts management interest rate exposure related secured credit facilities hold issue derivative financial instruments speculative purposes following tables summarize fair value derivative instruments effect derivative instruments onin accompanying consolidated balance sheets consolidated statements operations accumulated comprehensive income loss thousands 1 see note 6a regarding interest rate swaps qualify cash flow hedges alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2020 following schedule outlines future minimum annual rental payments leases december 31 2010 thousands rent expense relating operating leases approximately 390 million 373 million 342 million 2010 2009 2008 respectively b contingent consideration obligations effective january 1 2009 adopted changes issued fasb accounting business combinations changes apply assets acquired liabilities assumed business combination arise certain contingencies require acquirer recognize fair value acquisition date asset acquired liability assumed business combination arises contingency acquisitiondate fair value asset liability determined measurement period otherwise asset liability recognized acquisition date certain defined criteria met ii contingent consideration arrangements acquiree assumed acquirer business combination recognized initially fair value determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving targets corresponding delivery dates fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted milestone payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria adoption guidance done prospective basis acquisitions completed prior january 1 2009 contingent consideration accounted increase aggregate purchase price goodwill contingencies occur contractual contingent consideration obligations related acquisitions accordant adnagen capital toxicology free clear immunalysis privatelyowned research development operation jsm medlab mologic tapestry privatelyowned uk research development operation privatelyowned health management business acquired 2008 certain small businesses alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued acquisitions completed prior january 1 2009 • privatelyowned health management business respect privatelyowned health management business acquired 2008 terms acquisition agreement provide contingent consideration payable upon successfully meeting certain revenue ebitda targets final earnout achieved fourth quarter 2010 resulting accrual approximately 318 million payment expected made first quarter 2011 achievement milestone accounted increase aggregate purchase price goodwill fourth quarter 2010 ii acquisitions completed january 1 2009 • accordant respect accordant terms acquisition agreement require us pay earnout upon successfully meeting certain revenue cash collection targets starting second anniversary acquisition date completed prior third anniversary date acquisition maximum amount earnout payment 60 million earned payment expected made 2012 2013 recorded expense approximately 05 million 02 million within general administrative expense consolidated statements operations years ended december 31 2010 2009 respectively net result decrease discount period fluctuations discount rate since acquisition date december 31 2010 fair value contingent consideration obligation approximately 39 million • adnagen respect adnagen terms acquisition agreement require us pay earnouts upon successfully meeting certain financial targets two years following acquisition ii achieving multiple product development milestones three years following acquisition iii creating pharmaceutical alliances six years following acquisition maximum amount earnout payments approximately 630 million recorded expense approximately 01 million within general administrative expense consolidated statement operations year ended december 31 2010 net result decrease discount period fluctuations discount rate since acquisition date december 31 2010 fair value contingent consideration obligation approximately 206 million • capital toxicology respect capital toxicology terms acquisition agreement require us pay earnout upon successfully meeting certain operating income targets calendar years 2011 2012 maximum amount earnout payments approximately 160 million december 31 2010 fair value contingent consideration obligation approximately 29 million • free clear respect free clear terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets fiscal year 2010 recorded income approximately 37 million expense 05 million within general administrative expense consolidated statements operations years ended december 31 2010 2009 respectively net result changes revenue ebitda estimates changes probability assumptions decrease discount period fluctuations discount rate since acquisition date earnout achieved alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued december 31 2010 resulting accrual approximately 110 million payment expected made second quarter 2011 • immunalysis respect immunalysis terms acquisition agreement require us pay earnouts upon successfully meeting certain gross profit targets calendar years 2010 2012 maximum amount earnout payments 50 million recorded income approximately 01 million within general administrative expense consolidated statement operations year ended december 31 2010 net result decrease discount period changes probability assumptions fluctuations discount rate since acquisition date december 31 2010 fair value contingent consideration obligation approximately 11 million additionally contractual contingent obligation pay total 30 million compensation certain executives immunalysis accordance acquisition agreement earned paid connection contingent consideration payable former shareholders immunalysis calendar years 2010 2011 2012 december 31 2010 approximately 03 million compensation earned payment expected made first quarter 2011 case aggregate total two contingent obligations noted exceed 60 million • jsm respect jsm terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets calendar years 2010 2012 recorded expense approximately 02 million within general administrative expense consolidated statement operations year ended december 31 2010 net result decrease discount period changes probability assumptions fluctuations discount rate since acquisition date 2010 portion earnout totaling approximately 06 million earned december 31 2010 payment 2010 earnout expected made second quarter 2011 december 31 2010 fair value contingent consideration obligation including 06 million earned 2010 approximately 12 million maximum remaining amount earnout payments approximately 24 million • medlab respect medlab terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets calendar years 2011 2016 maximum amount earnout payments approximately 100 million december 31 2010 fair value contingent consideration obligation approximately 43 million • mologic respect mologic terms acquisition agreement require us pay earnouts upon successfully meeting four rd project milestones four years following acquisition recorded expense approximately 50 million 04 million within general administrative expense consolidated statements operations year ended december 31 2010 2009 respectively net result decrease discount period adjustments certain probability factors fluctuations discount rate since acquisition date portion earnout achieved fourth quarter 2010 resulting accrual approximately 39 million december 31 2010 payment portion earnout expected made first quarter 2011 december 31 2010 fair value contingent consideration obligation including 39 million earned 2010 alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued approximately 108 million maximum remaining amount earnout payments 150 million paid shares common stock • privatelyowned research development operation respect acquisition privatelyowned research development operation terms acquisition agreement require us pay earnouts upon successfully meeting multiple product development milestones five years following acquisition maximum amount earnout payments 575 million recorded expense approximately 03 million within general administrative expense consolidated statement operations year ended december 31 2010 net result decrease discount period fluctuations discount rate since acquisition date december 31 2010 fair value contingent consideration obligation approximately 248 million • privatelyowned uk research development operation respect acquisition privatelyowned uk research development operation terms acquisition agreement require us pay earnout upon successfully meeting certain revenue product development targets maximum amount earnout payments 1250 million earned payments expected made eightyear period following acquisition date could extend thereafter recorded expense approximately 22 million within general administrative expense consolidated statement operations year ended december 31 2010 net result decrease discount period fluctuations discount rate since acquisition date december 31 2010 fair value contingent consideration obligation approximately 378 million • tapestry respect tapestry terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets calendar years 2010 2011 maximum amount earnout payments 250 million earned paid shares common stock except 2010 earnout amended agreement plan merger paid cash recorded income approximately 27 million expense 07 million within general administrative expense consolidated statements operations year ended december 31 2010 2009 respectively net result decrease discount period adjustments certain probability factors fluctuations discount rate since acquisition date december 31 2010 financial targets achieved resulting accrual approximately 107 million cash payment expected made first quarter 2011 december 31 2010 fair value contingent consideration obligation includes 107 million earned 2010 approximately 140 million c contingent obligations • agreements epocal november 2009 entered distribution agreement epocal inc epocal distribute epoc® blood analysis system blood gas electrolyte testing 200 million recorded accompanying consolidated balance sheet intangible assets net also entered definitive agreement acquire issued outstanding equity securities epocal total potential purchase price 2550 million including base purchase price 1725 million epocal achieves certain gross margin financial milestones prior october 31 2014 plus additional payments 825 million epocal achieves certain milestones relating gross margin product development efforts prior date also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued 75 payable upon achievement certain milestones acquisition also subject closing conditions including receipt required antitrust approvals • option agreement pg connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value pg right upon certain material breaches us obligations spd acquire interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd expires pg chooses exercise option deferred gain carried books would reversed connection repurchase transaction december 31 2010 deferred gain 2884 million presented current liability accompanying consolidated balance sheet december 31 2009 deferred gain 2888 million presented longterm liability legal proceedings party pending legal proceedings currently believe could material adverse impact sales operations financial performance however nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future 12 net income loss per common share following tables set forth computation basic diluted income loss per common share thousands except per share amounts alere inc subsidiaries notes consolidated financial statements continued 12 net income loss per common share continued following potential dilutive securities outstanding december 31 2010 options purchase aggregate 10148 million shares common stock weighted average exercise price 3561 per share b warrants purchase 024 million shares weighted average exercise price 1600 per share c 34 million shares issuable upon conversion 1500 million 3 senior subordinated alere inc subsidiaries notes consolidated financial statements continued 12 net income loss per common share continued convertible notes convertible 4398 per share 17 million subordinated convertible promissory notes convertible 6149 per share e 21 million shares series b convertible preferred stock aggregate liquidation preference approximately 8362 million convertible certain circumstances 6932 per share 121 million shares common stock addition december 31 2010 03 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business 003 million common stock equivalents potential settlement contingent consideration obligation potential dilutive securities included computation diluted net earnings per common share 2010 inclusion thereof would antidilutive dilutive securities outstanding december 31 2009 consisting options warrants purchase aggregate 103 million shares common stock weighted average exercise price 3411 per share following potential dilutive securities outstanding december 31 2009 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes convertible 4398 per share b 17 million subordinated convertible promissory notes convertible 6149 per share c 20 million shares series b convertible preferred stock aggregate liquidation preference approximately 7937 million convertible certain circumstances 6932 per share 114 million shares common stock addition december 31 2009 04 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business potential dilutive securities included computation diluted net earnings per common share 2009 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2008 options warrants purchase aggregate 106 million shares common stock weighted average exercise price 3215 per share b 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes c 19 million shares series b convertible preferred stock convertible certain circumstances 6932 per share 108 million shares common stock potential dilutive securities included computation diluted net loss per common share 2008 inclusion thereof would antidilutive 13 stockholders’ equity common stock december 31 2010 2000 million shares common stock 0001 par value authorized approximately 849 million shares issued outstanding 111 million shares reserved issuance upon grant exercise equity awards current equity compensation plans 08 million shares reserved issuance employee stock purchase plan 02 million shares reserved issuance upon exercise outstanding warrants following potential dilutive securities outstanding december 31 2010 1500 million 3 senior subordinated convertible notes convertible 4398 per share 34 million shares common stock reserved 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock reserved 21 million shares series b convertible preferred stock aggregate liquidation preference approximately 8362 million convertible certain circumstances 6932 per share 121 million shares common stock reserved alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued b preferred stock december 31 2010 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock december 31 2010 paid dividends outstanding shares series b prefered stock additional shares series b preferred stock december 31 2010 21 million shares series b preferred stock outstanding fair value approximately 5215 million note 4ci share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2010 would convert 121 million shares common stock reserved conversions december 31 2010 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance year ended december 31 2010 series b preferred stock dividends amounted 242 million reduced earnings available common stockholders purposes calculating net income per common share 2010 note 12 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2010 liquidation preference outstanding series b preferred stock 8362 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows issuance 17 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2010 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2010 plan december 31 2010 09 million shares available future grant 2010 plan december 31 2009 11 million shares available future grant 2001 plan following summarizes stock option activity year ended december 31 thousands except exercise price aggregate intrinsic value options outstanding december 31 2010 615 million aggregate intrinsic value options exercisable december 31 2010 508 million aggregate intrinsic value stock options exercised 2010 2009 2008 69 million 257 million 182 million respectively based equity awards outstanding december 31 2010 401 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weighted average period 15 years alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued warrants following summary warrant activity three years ended december 31 following table presents additional information related warrants outstanding exercisable december 31 2010 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 004 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2010 outstanding warrants classified equity e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 20 million shares common stock plan december 31 2010 12 million shares issued plan alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation recorded stockbased compensation expense consolidated statements operations year ended december 31 2010 2009 2008 respectively follows thousands included amount general administrative expense year ended december 31 2009 10 million related assumption certain concateno options expense relates acceleration certain unvested concateno employee options see note 4biii regarding acquisition concateno year ended december 31 2010 2009 2008 presentation cash flows reports excess tax benefits exercise stock options financing cash flows year ended december 31 2010 2009 2008 excess tax benefits generated option exercises amounted 17 million 93 million 175 million respectively following assumptions used estimate fair value options granted year ended december 31 2010 2009 2008 using blackscholes optionpricing model weighted average fair value blackscholes option pricing model options granted employees 2010 2009 2008 1354 1511 1066 per share respectively options granted periods granted fair market value date grant year ended december 31 2010 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 39 45 riskfree interest rate 018 022 expected life 181 days 184 days two respective offering periods charge included general administrative expense table year ended december 31 2009 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 72 43 riskfree interest rate 028 033 expected life 181 days 184 days two respective offering periods charge included general administrative expense table alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation continued year ended december 31 2008 recorded compensation expense 28 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 43 54 riskfree interest rate 332 213 expected life 181 days 184 days two respective offering periods charge included general administrative expense table 15 comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders’ equity following summary components changes accumulated comprehensive income december 31 2010 three years ended thousands 1 represents realization unrealized gains availableforsale securities interest rate swaps 2 components accumulated comprehensive income relate foreign subsidiaries except item 1 adjustments income taxes recorded comprehensive income foreign subsidiaries intend permanently invest foreign subsidiaries foreseeable future 16 income taxes income tax provision benefit 2010 2009 2008 mainly represents recorded us certain us subsidiaries foreign subsidiaries located australia united kingdom france italy israel japan china switzerland income loss provision benefit income taxes consists following thousands continuing operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued discontinued operations primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets gain joint venture transaction income tax effects temporary differences follows thousands december 31 2010 approximately 1561 million domestic nol domestic capital loss carryforwards 603 million foreign nol foreign capital loss carryforwards either expire various dates 2030 carried forward indefinitely december 31 2010 approximately 265 million domestic rd foreign tax amt credits either expire various dates 2030 carried forward indefinitely loss carryforwards tax credits available reduce future federal state foreign taxable income loss carryforwards tax credits subject review possible adjustment appropriate tax authorities domestic nol alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued carryforwards include approximately 1022 million preacquisition losses domestic nols tax credits subject internal revenue service irs code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate acquired section 382 limited amount 2011 approximately 748 million addition total nol available use 2011 approximately 1328 million recorded valuation allowance 425 million december 31 2010 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits increase 50 million valuation allowance 375 million december 31 2009 increase primarily related foreign nols domestic state credits valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent relevant acquisition applied reduce income tax expense required new accounting standard business combinations adopted january 1 2009 december 31 2010 131 million deferred tax assets valuation allowance pertains acquired companies two chinabased manufacturing subsidiaries qualify reduced income tax rate 2010 2009 general income tax rate 25 income tax rate one subsidiaries 125 2009 2010 10 2009 11 2010 reduced rates 2009 2010 grandfathered china tax reform act tax rate 15 25 apply 2011 future years tax rate 15 applies companies high technology status subsidiaries approved high technology status therefore 15 tax rate apply companies 2011 reduced tax rate produced tax expense approximately 13 million 2010 absence reduced tax rate 2010 tax rate 25 would applied would resulted tax expense approximately 29 million 2010 earnings per common share effect reduced tax rate 002 2009 reduced tax rate produced tax expense approximately 16 million 2009 absence reduced tax rate 2009 tax rate 25 would applied would resulted tax expense approximately 34 million 2009 earnings per common share effect reduced tax rate 002 2009 estimated amount undistributed earnings foreign subsidiaries 2316 million december 31 2010 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued following table presents components provision benefit income taxes thousands continuing operations following table presents components provision benefit income taxes thousands discontinued operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued following table presents reconciliation us statutory tax rate effective tax rate goodwill impairment charge created deferred tax impact due existence goodwill deductible tax purposes deferred tax calculated based methodology allocates goodwill impairment loss proportionally goodwill deductible tax purposes compared total goodwill impairment allocated goodwill deductible tax purposes created deferred tax asset 259 million december 31 2010 year ended december 31 2010 increased liability income taxes associated uncertain tax positions 13 million total 62 million december 31 2010 primary reasons increase due acquisition german company increased liability income taxes associated uncertain tax positions 19 million classify 62 million income tax liabilities noncurrent income tax liabilities payment cash anticipated within one year balance sheet date noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2010 anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense interest penalties recorded 2010 amounted 02 million balance accrued interest penalties recorded consolidated balance sheet december 31 2010 07 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2004 2009 currently income tax examination irs number state foreign tax authorities anticipate audits completed end 2011 cannot currently estimate impact audits due uncertainties associated tax examinations 17 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health management consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement january 15 2010 completed sale vitamins nutritional supplements business note 23 sale included private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income loss discontinued operations net tax periods presented net assets net liabilities associated vitamins nutritional supplements business reclassified assets held sale liabilities related assets held sale within alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued current assets current liabilities respectively presented corporate december 31 2009 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2010 2009 2008 follows thousands alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued 18 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following securities common stock series b preferred stock convertible notes interests first lien credit agreement interests second lien credit agreement extent make principal interest payments convertible notes credit facilities accordance terms zwanziger family trust holder convertible notes lender credit facilities receive proportionate share connection purchases interests first lien credit agreement second lien credit agreement trust agreed whenever consent vote lenders required credit facilities vote outstanding principal amount holdings proportion votes cast lenders credit facilities may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting december 31 2010 2009 net payable joint venture 28 million 05 million respectively additionally customer receivables associated revenue earned joint venture completed classified receivables within prepaid current assets accompanying consolidated balance sheets amount 78 million 123 million december 31 2010 2009 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 681 million 1031 million 1030 million years ended december 31 2010 2009 2008 respectively additionally services revenue generated pursuant longterm services alere inc subsidiaries notes consolidated financial statements continued 18 related party transactions continued agreement joint venture totaled 12 million 18 million 24 million years ended december 31 2010 2009 2008 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities uk china spd turn sells portion tests back us final assembly packaging packaged tests sold pg distribution thirdparty customers north america result related transactions recorded 70 million 145 million trade receivables included accounts receivable accompanying consolidated balance sheets december 31 2010 2009 respectively 205 million 232 million trade accounts payable included accounts payable accompanying consolidated balance sheets december 31 2010 2009 respectively 2010 2009 received 88 million 100 million respectively cash spd return capital july 2009 sold one consumerrelated australian subsidiaries spd approximately 02 million connection original terms joint venture agreement transition distribution responsibilities certain consumer diagnostic products spd sale subsidiary completed net book value resulting gain loss transaction 19 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities following table sets forth aggregate charges associated restructuring plans recorded operating income loss years ended december 31 thousands 2010 restructuring plans 2010 management developed additional plans reduce costs improve efficiencies health management business segment result plans recorded 74 million charges year ended december 31 2010 included 46 million severance costs 24 million costs associated facility exit costs 02 million fixed asset impairments 02 million present value accretion facility exit costs included interest expense december 31 2010 30 million costs remains unpaid anticipate incurring 02 million additional restructuring costs associated present value accretion facility exit costs plans well minimal severance charges 2010 management also developed several plans reduce costs improve efficiencies professional diagnostics business segment result plans recorded 34 million charges year ended december 31 2010 included 24 million severancerelated costs 08 million facility exit costs 02 million fixed asset impairments september 30 2010 03 million costs remains unpaid anticipate incurring additional severance facility exit costs 02 million plans b 2009 restructuring plans 2009 management developed plans reduce costs improve efficiencies health management reporting unit business segment well reduce costs consolidate operating activities among several professional diagnostics related german subsidiaries result plans recorded 04 million severancerelated restructuring charges professional diagnostics business segment year ended december 31 2010 recorded 32 million restructuring charges year ended december 31 2009 included 25 million severance costs 05 million contract cancellation costs 01 million present value accretion facility exit costs 01 million fixed asset impairment costs 31 million included operating income year ended december 31 2009 23 million 08 million included health management professional diagnostics business segments respectively also recorded 01 million present value accretion related matria’s facility exit costs interest expense year ended december 31 2009 incurred total 36 million plan expect incur additional costs december 31 2010 costs paid c 2008 restructuring plans may 2008 decided close facility located bedford england initiated steps cease operations facility transition manufacturing operations principally manufacturing facilities shanghai hangzhou china based upon decision year ended december 31 2010 recorded net recoveries 12 million restructuring charges 02 million related severancerelated costs 16 million related transition costs 04 million related fixed asset alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued inventory writeoffs 34 million net recovery related facility restoration facility exit costs year ended december 31 2009 recorded 55 million restructuring charges 28 million related primarily severancerelated costs 13 million related transition costs 07 million related fixed asset inventory writeoffs 03 million related pension plan curtailment charge 04 million related acceleration facility restoration costs year ended december 31 2008 recorded 126 million restructuring charges including 69 million related acceleration facility restoration costs 48 million fixed asset impairments 11 million severance costs 07 million early termination lease penalties 09 million related pension plan curtailment gain associated bedford employees terminated 22 million charge included operating income year ended december 31 2010 substantially charged professional diagnostics business segment 51 million included operating income year ended december 31 2009 06 million 45 million charged consumer diagnostics professional diagnostics business segments respectively 57 million included operating income year ended december 31 2008 charged professional diagnostics business segment included interest expense years ended december 31 2010 2009 2008 charges 01 million 04 million 69 million respectively related accelerated present value accretion lease restoration costs due early termination facility lease also recorded net recovery 35 million related facility lease obligation settlement year ended december 31 2010 income expense net addition restructuring charges discussed 60 million 104 million 145 million charges associated bedford facility closure borne spd years ended december 31 2010 2009 2008 respectively included 60 million charges year ended december 31 2010 47 million facility transition costs 15 million severance retention costs 01 million inventory writeoffs 03 million acceleration facility exit costs net recovery 06 million fixed asset impairments due unanticipated asset sales included 104 million charges year ended december 31 2009 73 million severance retention costs 12 million fixed asset inventory impairments 17 million transition costs 02 million acceleration facility exit costs included 145 million charges year ended december 31 2008 84 million fixed asset impairments 32 million early termination lease penalties 26 million severance retention costs 02 million facility exit costs 01 million related acceleration facility restoration costs restructuring charges 50 30 million 52 million 72 million included equity earnings unconsolidated entities net tax consolidated statements operations years ended december 31 2010 2009 2008 respectively total exit costs incurred jointly spd plan including severancerelated costs lease penalties restoration costs 58 million remains unpaid december 31 2010 since inception plan recorded 169 million restructuring charges including 59 million fixed asset inventory impairments 46 million related acceleration facility restoration costs early termination lease penalties 41 million severance costs 29 million transition costs 06 million related pension plan curtailment gain associated bedford employees terminated spd allocated 309 million restructuring charges since inception plan including 91 million fixed asset inventory impairments 114 million severance retention costs 29 million early termination lease penalties 69 million facility exit costs 06 million related acceleration facility exit costs anticipate incurring additional costs approximately 10 million related closure facility primarily related severance transition costs end 2011 additional anticipated costs approximately 08 million borne spd 02 million borne us included primarily professional diagnostics business segment alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued march 18 2008 announced plans close biostar inc biostar facility louisville colorado exit production biostar oia product line along plans close two newlyacquired facilities san francisco california area relating cholestech hemosense newlyacquired facility columbia maryland relating panbio cholestech operation acquired september 2007 manufactures distributes cholestech ldx system pointofcare monitor blood cholesterol related lipids used test patients risk suffering heart disease related conditions moved biosite facility san diego california hemosense operation acquired november 2007 manufactures distributes inratio system easytouse handheld blood coagulation monitoring system use patients healthcare professionals management warfarin commonlyprescribed medication used prevent blood clots moved biosite facility operations panbio distribution facility acquired january 2008 transferred distribution center freehold new jersey biostar manufacturing ceased end june 2008 biostar oia products available purchase end first quarter 2009 year ended december 31 2009 incurred 01 million severancerelated restructuring charges year ended december 31 2008 incurred 106 million restructuring charges related plan consisted 51 million intangible asset impairments 14 million severancerelated costs 06 million fixed asset impairments 12 million facility exit costs 23 million related writeoff inventory since inception plan incurred 107 million restructuring charges related plan consisted 51 million intangible assets impairment 15 million severancerelated costs 06 million fixed asset impairments 12 million facility exit costs 23 million related writeoff inventory costs related plan included professional diagnostics business segment expect incur additional charges plan december 31 2009 costs paid result plans transition businesses cholestech hemosense biosite panbio orlando florida close facilities incurred 25 million restructuring charges year ended december 31 2010 02 million relates severance retention costs 13 million facility closure transition costs 09 million fixed asset inventory writeoffs 01 million present value accretion facility lease costs incurred 82 million restructuring charges year ended december 31 2009 24 million relates fixed asset impairments 17 million relates severance retention costs 26 million transition costs 13 million inventory writeoffs 02 million present value accretion facility lease costs incurred 38 million restructuring charges year ended december 31 2008 27 million relates severance retention costs 04 million fixed asset impairments 05 million transition costs 02 million present value accretion facility lease costs related plans years ended december 31 2010 2009 2008 respectively 24 million 80 million 36 million charges included operating income professional diagnostics business segment charged 01 million 02 million 02 million related present value accretion facility lease costs interest expense years ended december 31 2010 2009 2008 respectively since inception plan incurred 145 million restructuring charges 46 million relates severance retention costs 34 million fixed asset impairments 44 million transition costs 16 million inventory writeoffs 05 million present value accretion facility lease costs related plans 95 million severance exit costs 06 million remains unpaid december 31 2010 anticipate incurring significant additional restructuring charges plans see note 4d information costs related plans addition transitioning businesses cholestech hemosense biosite also made decision close innovacon facility san diego california move operating activities biosite innovacon business rapid diagnostics business acquired acon march 2006 alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued year ended december 31 2008 since inception recorded 06 million restructuring charges 05 million related facility lease exit costs 01 million related impairment fixed assets charges included professional diagnostics business segment december 31 2009 costs paid vacated facility august 2008 anticipate incurring additional costs plan february 2008 decided cease research development activities one products development bedford england facility based upon comparison product development existing products acquired hemosense acquisition year ended december 31 2008 since inception plan recorded restructuring charges 94 million 68 million related impairment fixed assets 19 million related writeoff inventory 05 million related contractual obligations suppliers 02 million related severance costs involuntarily terminate employees working development product 94 million included professional diagnostics business segment 07 million contractual obligations severance costs paid december 31 2008 expect incur additional charges plan april 2008 initiated cost reduction efforts facilities stirling scotland consolidating business activities one facility biosite operations result efforts recorded 33 million restructuring charges year ended december 31 2008 since inception plan consisting 20 million fixed asset impairments 10 million severance costs 03 million facility exit costs related plan included professional diagnostics business segment 13 million severance facility exit costs substantially paid december 31 2010 expect incur additional charges plan 2007 restructuring plans 2007 committed several plans restructure integrate worldwide sales marketing order management fulfillment operations well evaluate certain research development projects objectives plans eliminate redundant costs improve customer responsiveness improve operational efficiencies result restructuring plans recorded recovery 03 million restructuring charges year ended december 31 2010 related severance charges recorded 11 million restructuring charges year ended december 31 2009 primarily related severance charges outplacement services recorded 30 million restructuring charges year ended december 31 2008 including 26 million related severance charges outplacement services 04 million related facility exit costs since inception plans recorded 90 million restructuring charges including 46 million related severance charges outplacement services 04 million related facility exit costs 40 million related impairment charges fixed assets restructuring charges related plan included professional diagnostics business segment december 31 2010 costs paid anticipate incurring additional charges related plan addition recorded restructuring charges associated formation joint venture pg connection joint venture committed plan close sales offices germany sweden well evaluate redundancies departments consumer diagnostics business segment impacted formation joint venture year ended december 31 2008 recorded 02 million severance costs related plan recorded 14 million restructuring charges since inception plan 10 million relates severance costs 04 million relates facility exit costs total 14 million exit costs paid december 31 2010 anticipate incurring additional charges related plan alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued e restructuring reserves following table summarizes liabilities related restructuring activities associated plans discussed thousands 1 represents foreign currency translation adjustment 21 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following spd may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form spd ceased consolidate operating results consumer diagnostics business related spd years ended december 31 2010 2009 recorded earnings 85 million 57 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented 50 share spd’s net income respective periods year ended december 31 2008 recorded loss 09 million equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented 50 share spd’s net loss respective period ii techlab may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibiotic associated diarrhea parasitology years ended december 31 2010 2009 2008 recorded earnings 19 million 17 million 15 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented minority share techlab’s net income respective period alere inc subsidiaries notes consolidated financial statements continued 21 equity investments continued summarized financial information pg joint venture techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets 22 gain disposition september 2009 disposed majority ownership interest diamics operation part professional diagnostics reporting unit business segment since date acquisition july 2007 principles consolidation consolidated 100 operating results diamics operations consolidated statement operations result disposition recorded gain 34 million year ended december 31 2009 23 discontinued operations january 15 2010 completed sale vitamins nutritional supplements business purchase price approximately 626 million cash net final working capital adjustment sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment recognized gain approximately 187 million 116 million net tax 2010 results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income loss discontinued operations net tax periods presented net assets net liabilities associated vitamins nutritional supplements business classified assets held sale liabilities related assets held sale december 31 2009 following assets liabilities segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheet december 31 2009 amounts presented adjusted exclude cash intercompany receivables payables certain assets liabilities business held sale company excluded transaction amounts thousands alere inc subsidiaries notes consolidated financial statements continued 23 discontinued operations continued following summarized financial information related vitamins nutritionals supplements businesses segregated continuing operations reported discontinued operations amounts thousands 24 supplemental cash flow information cash paid interest income taxes fiscal 2010 2009 2008 made cash payments interest totaling 1171 million 873 million 886 million respectively fiscal 2010 2009 2008 total net cash paid income taxes 311 million 492 million 55 million respectively alere inc subsidiaries notes consolidated financial statements continued 24 supplemental cash flow information continued noncash investing activities fiscal 2010 2009 2008 issued shares common stock exchanged employee stock options connection several acquisitions dollars thousands 1 includes 1210842 shares common stock fair value 424 million issued 2009 includes 470412 shares common stock fair value approximately 163 million issued second quarter 2010 settlement deferred purchase price consideration noncash financing activities fiscal 2010 2009 2008 recorded noncash income expense accumulated comprehensive income expense 24 million 114 million 116 million respectively representing change fair market value interest rate swap agreement 25 guarantor financial information 9 senior subordinated notes due 2016 7875 senior notes due 2016 8625 subordinated notes due 2018 guaranteed certain consolidated whollyowned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2010 2009 related audited statements operations cash flows three years period ended december 31 2010 company guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments company guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2010 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2009 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2008 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2009 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2009 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2008 thousandsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits agreements filed exhibits annual report form 10k contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • may constituted allocation risk responsibility among parties rather statements fact • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets related consolidated statements operations equity comprehensive income loss cash flows present fairly material respects financial position alere inc subsidiaries december 31 2012 december 31 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s annual report internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described management’s annual report internal control financial reporting management excluded 14 entities assessment internal control financial reporting december 31 2012 acquired company purchase business combinations 2012 also excluded entities audit internal control financial reporting total assets net revenue entities represented 1 5 respectively related consolidated financial statement amounts year ended december 31 2012 pricewaterhousecoopers llp boston massachusetts march 1 2013 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity thousands alere inc subsidiaries consolidated statements equity continued thousands alere inc subsidiaries consolidated statements equity continued thousands alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation alere inc enables individuals take greater control health home supervision healthcare providers combining nearpatient diagnostics health monitoring capabilities information technology solutions leading global provider pointofcare diagnostics services developed strong commercial presence cardiology infectious disease toxicology diabetes business organized three operating segments professional diagnostics ii health information solutions formerly health management iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified health information solutions segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based upon expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resulting goodwill note 4 consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income loss note 15 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month net realized unrealized foreign currency exchange transaction losses 79 million 229 million 2012 2011 respectively gains 98 million 2010 included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2012 2011 restricted cash restricted cash 31 million 90 million december 31 2012 2011 respectively 90 million december 31 2011 approximately 53 million purchase remaining outstanding shares axisshield plc axisshield acquired prior december 31 2011 settled first quarter 2012 e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive income net related tax effects marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory recorded financial statements represent costs acquire inventory alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 115 years buildings 761 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 17 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 1097 million 837 million 677 million 2012 2011 2010 respectively fullydepreciated property plant equipment still use remain books disposal retirement property plant equipment retired disposed cost respective accumulated depreciation removed books gain loss disposal recorded income statement expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings interest taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environment anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2012 annual goodwill impairment test conducted 2012 annual impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 61 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets 79 94 272 respectively 2011 annual goodwill impairment test conducted 2011 annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets 2010 annual goodwill impairment test conducted 2010 annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development patents trademarks trade names customer relationships distribution rights noncompetition agreements majority intangible assets recorded connection various business combinations intangible assets recorded fair value time acquisition amortize intangible assets estimated useful lives estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived assets reduced estimated fair value lower impairment loss charged expense period impairment identified conduct annual goodwill impairment test reporting units fourth quarter year impairment tests conducted 2011 2010 indicated impairment goodwill associated health information solutions reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis utilizing undiscounted cash flow model analyses conducted 2011 2010 indicated impairment longlived tangible intangible assets associated health information solutions reporting unit j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire part business combinations completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life k business acquisitions business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis aware information indicates final fair value analysis differ materially preliminary estimates 2012 2011 2010 expensed acquisitionrelated costs 97 million 115 million 82 million respectively general administrative expense l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts likely realized future note 16 account uncertain tax positions using “morelikelythannot” threshold recognizing resolving uncertain tax positions evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title products thirdparty customers less reserve estimated product returns alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue license royalty agreements recognized straightline basis obligation period related license agreements time obligations license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned n employee stockbased compensation arrangements account sharebased payments accordance accounting standards codification asc 718 compensation stock compensation expense associated stock options includes amortization based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future net loss per common share net loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 12 p operating expenses expense advertising costs incurred 2012 2011 2010 advertising costs amounted 226 million 99 million 144 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations charge customers shipping handling costs recorded along product revenues q concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2012 2011 individual customer’s accounts receivable balance excess 10 aggregate accounts receivable 2012 2011 2010 one customer represented greater 10 net revenue rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results r financial instruments fair value financial instruments primary financial instruments december 31 2012 2011 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities software internal use resale may capitalize certain costs associated development internaluse software including direct materials services capitalized software amortized straightline basis estimated useful life included computer software equipment within property plant equipment also develop software resale lease external parties expense costs developing software resale lease incurred establishment technological feasibility underlying software costs incurred establishment technological feasibility general release software capitalized software amortized estimated useful life capitalized software resale lease included computer software equipment within property plant equipment research development research development programs focus development cardiology infectious disease toxicology diabetes oncology women’s health products together health information technologies facilitate connectivity information data management solutions research development costs expensed incurred payments received external parties fund research development activities reduce recorded research development expenses u leases lease certain facilities equipment external parties operating leases rent expense related operating leases recorded income statement incurred also lease machinery laboratory equipment tooling equipment capital leases determining whether lease capital operating lease estimate expected term lease includes certain renewable options required lease accounting guidance rent deferrals landlord incentives rent escalations included calculation minimum lease payments performing capital lease tests calculating rent expense operating leases leased property plant equipment meet capital lease criteria capitalized lower present value minimum lease payments fair value underlying asset inception date lease assets capital leases depreciated straightline basis lease term alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued leasehold improvements capitalized amortized shorter estimated useful lives remainder expected term lease v recent accounting pronouncements recently issued standards july 2012 fasb issued accounting standards update asu 201202 intangibles goodwill topic 350 testing indefinitelived intangible assets impairment asu 201202 asu 201202 allows entity option first assess qualitative factors determine whether existence events circumstances indicates likely indefinitelived intangible asset impaired entity concludes likely indefinitelived intangible asset impaired entity required take action however entity concludes otherwise required determine fair value indefinitelived intangible asset perform quantitative impairment test comparing fair value carrying amount entity also option bypass qualitative assessment indefinitelived intangible asset period proceed directly performing quantitative impairment test entity able resume performing qualitative assessment subsequent period asu 201202 effective annual interim impairment tests fiscal years beginning september 15 2012 adoption standard expected material impact financial position results operations comprehensive income cash flows recently adopted standards effective january 1 2012 adopted asu 201108 intangibles goodwill topic 350 testing goodwill impairment asu 201108 asu 201108 allows entity option first assess qualitative factors determine whether necessary perform current twostep impairment test entity believes result qualitative assessment likely fair value reporting unit less carrying amount quantitative twostep impairment test required otherwise testing required update change current guidance testing indefinitelived intangible assets impairment adoption standard impact financial position results operations comprehensive income cash flows based upon qualitative assessment performed step 1 twostep impairment test reporting units 2012 effective january 1 2012 adopted asu 201105 comprehensive income topic 220 presentation comprehensive income asu 201105 asu 201105 1 eliminates option present components comprehensive income part statement changes stockholders’ equity 2 requires consecutive presentation statement net income comprehensive income 3 requires entity present reclassification adjustments face financial statements comprehensive income net income update change items must reported comprehensive income item comprehensive income must reclassified net income amendments affect earnings per share amounts calculated presented effective january 1 2012 fasb issued asu 201112 comprehensive income topic 220 deferral effective date amendments presentation reclassifications items accumulated comprehensive income accounting standards update 201105 asu 201112 accounting standards require enhanced disclosure adoption standards impact financial position results operations comprehensive income cash flows alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued effective january 1 2012 adopted asu 201104 fair value measurements topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss asu 201104 asu 201104 provides common requirements measuring fair value disclosing information fair value measurements accordance us gaap 3 balance sheet information components selected captions consolidated balance sheets consist thousands b note receivable fgst investments inc december 2012 entered arrangement whereby issued 400 million shortterm note unrelated party fgst investments inc fgst primary purpose providing funding connection acquisition polymedica corporation “liberty” line business medical supply business subsidiary express scripts holding company note bears interest rate 325 per annum collateralized substantially assets fgst parent entity atls 400 million shortterm note classified within prepaid expenses current assets consolidated balance sheet december 31 2012 connection alere inc subsidiaries notes consolidated financial statements continued 3 balance sheet information continued note obtained call option certain assets acquired fgst strike price 400 million lieu repayment note may exercise option tendering note obtain assets exercise option 100 million becomes repayable five days expiration option 300 million plus accrued unpaid interest becomes repayable 60th day following expiration option upon evaluation significant terms note arrangement call option concluded note option represent variable interest fgst therefore fgst variable interest entity assessed whether primary beneficiary relation fgst concluded power significant activities fgst primarily operating decision making obligation absorb losses receive benefits fgst limited note receivable given concluded primary beneficiary therefore include financial results fgst consolidated financial statements see also note 25 4 business combinations acquisitions 2012 escreen april 2 2012 acquired escreen inc escreen headquartered overland park kansas technologyenabled provider employment drug screening solutions hiring maintaining healthier efficient workforces preliminary aggregate purchase price approximately 2950 million consisted 2714 million cash contingent consideration obligation aggregate acquisition date fair value 236 million included consolidated statements operations year ended december 31 2012 revenue totaling approximately 1167 million related escreen operating results escreen included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2012 acquired following businesses preliminary aggregate purchase price 1994 million included cash payments totaling 1474 million contingent consideration obligations aggregate acquisition date fair values 520 million • reatrol comercializacao de produtos de saude lda subsequently renamed alere lda located vila nova de gaia portugal distributor products drugs abuse testing acquired january 2012 • kullgren holding ab kullgren located gensta sweden company manufactures distributes highquality intimacy pharmaceutical products acquired february 2012 • wellogic fzllc wellogic uae located dubai united arab emirates company provides development services alere wellogic llc acquired assets method factory inc dba wellogic december 2011 acquired february 2012 • certain assets primarily including customer patient lists ammed direct llc ammed located near nashville tennessee privatelyowned mailorder provider homediabetes testing products supplies acquired march 2012 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • medapps holding company inc medapps headquartered scottsdale arizona developer innovative remote health monitoring solutions deliver efficient costeffective connectivity patient care provider electronic medical records acquired july 2012 • amedica biotech inc amedica located hayward california company focused development manufacture vitro diagnostic tests acquired july 2012 • diagnosisone inc diagnosisone located lowell massachusetts software company provides clinical analytics technology datadriven content hospitals physician groups insurers governments acquired july 2012 • seelen care laegeog hospitalsartikler aps seelen located holstebro denmark distributor consumables instruments equipment doctors specialists physiotherapists acquired august 2012 • certain assets diagnostik nord diagnostik located schwerin germany company focused sale drug screening vitro diagnostic medical devices provider diagnostic solutions acquired september 2012 • healthcare connections limited hcc located buckinghamshire united kingdom occupational health provider specializing employment medical programs preventative health schemes drug alcohol sample collection services acquired november 2012 • diagnostic division medial spol sro subsequently renamed alere sro located prague czech republic distributor laboratory diagnostic devices operating pointofcare testing regime diagnostic kits tests biochemistry hematology microbiology acquired november 2012 • certain assets quantum diagnostics quantum australia located australia online medical supply company provides range affordable drug alcohol tests personal business professional medical use acquired november 2012 • certain assets nationshealth inc nationshealth headquartered sunrise florida privatelyowned mailorder provider diabetes hometesting products supplies share acquisition nationshealth’s subsidiary philippines nationshealth philippines acquired december 2012 • branan medical corporation branan headquartered irvine california manufacturer drugs abuse testing products acquired december 2012 operating results alere lda ammed medapps amedica seelen diagnostik hcc alere sro quantum australia nationshealth branan included professional diagnostics reporting unit business segment operating results wellogic uae diagnosisone included health information solutions reporting unit business segment operating results kullgren included consumer diagnostics reporting unit business segment consolidated statements operations year ended december 31 2012 included revenue totaling approximately 446 million related businesses goodwill recognized acquisitions amounted approximately 1029 million goodwill related acquisitions ammed diagnostik usbased assets nationshealth totaled 88 million deductible tax purposes goodwill related remaining 2012 acquisitions deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary fair values net assets acquired acquisitions consummated 2012 follows thousands 1 includes approximately 40 million acquired cash following intangible assets acquired respective fair values weightedaverage useful lives dollars thousands b acquisitions 2011 arriva november 23 2011 acquired arriva medical llc arriva located coral springs florida privatelyowned mailorder provider diabetes hometesting products supplies aggregate purchase price 795 million consisted cash payment totaling 644 million 806452 shares common stock aggregate fair value 152 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 53 million related acquired business operating results arriva included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued ii axisshield november 1 2011 acquired axisshield located dundee scotland uk publicly traded company focused development manufacture vitro diagnostic tests use clinical laboratories point care aggregate purchase price 3888 million consisted cash payments totaling 2796 million fair value previouslyheld investment totaling 1092 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 367 million including 18 million license royalty revenue related acquired business operating results axisshield included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes iii avee october 3 2011 acquired avee laboratories inc related companies refer collectively avee located tampa florida privatelyowned provider drug testing services field pain management aggregate purchase price 1205 million paid cash included consolidated statement operations year ended december 31 2011 revenue totaling approximately 272 million related acquired business operating results avee included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv acquisitions 2011 acquired following businesses aggregate purchase price 1985 million included cash payments totaling 1393 million previouslyheld investment fair value totaling 39 million 25463 shares common stock acquisition date fair value 10 million contingent consideration obligations aggregate acquisition date fair value 487 million deferred purchase price consideration acquisition date fair value 42 million debt forgiveness fair value 15 million • 90 interest bionote inc bionote headquartered south korea manufacturer diagnostic products veterinary industry acquired january 2011 previously owned 10 interest bionote • assets including domain name pregnancyorg llc pregnancyorg usbased company providing website preconception pregnancy newborn care content tools sharing acquired january 2011 • home telehealth limited subsequently renamed alere connected health limited alere connected health located cardiff wales company focuses delivering integrated comprehensive services programs health social care providers insurers acquired february 2011 • bioeasy diagnostica ltda bioeasy located belo horizonte brazil company markets sells rapid diagnostic tests systems laboratory diagnosis prevention monitoring immunological diseases fertility acquired march 2011 • 8092 interest standing stone inc standing stone located westport connecticut company focuses disease state management enhancing quality care provided patients require longterm therapy chronic disease management acquired may 2011 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • certain assets rights liabilities properties drug detection devices inc 3dl located alpharetta georgia distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired july 2011 • colibri medical ab colibri located helsingborg sweden distributor pointofcare drugs abuse diagnostic products primarily scandinavian marketplace acquired july 2011 • laboratory data systems inc lds located tampa florida provider healthcare software products services consulting solutions acquired august 2011 • certain assets liabilities properties abatek medical llc abatek located dover new hampshire distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired september 2011 • forensics limited roar located worcestershire england company provides forensic quality toxicology services across united kingdom acquired september 2011 • mahsan diagnostika vertriebsgesellschaft mbh mahsan located reinbek germany distributor vitro diagnostic drugs abuse products primarily german marketplace acquired october 2011 • medical automation systems inc mas located charlottesville virginia provider networkbased software solutions pointofcare testing acquired october 2011 • certain assets properties 1 medical distribution inc 1 medical located worthington ohio distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired november 2011 • method factory inc dba wellogic headquartered waltham massachusetts provider software solutions designed connect healthcare community acquired december 2011 operating results bionote bioeasy 3dl colibri lds abatek roar mahsan mas 1 medical included professional diagnostics reporting unit business segment operating results pregnancyorg alere connected health standing stone wellogic included health information solutions reporting unit business segment consolidated statement operations year ended december 31 2011 included revenue totaling approximately 211 million related businesses goodwill recognized acquisitions exception 1 medical amounted approximately 1313 million goodwill related acquisitions pregnancyorg 3dl abatek lds wellogic totaled 328 million expected deductible tax purposes goodwill related remaining 2011 acquisitions expected deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary aggregate purchase price allocation acquisitions consummated 2011 follows thousands 1 includes cash acquired approximately 232 million following intangible assets acquired respective amortizable lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued c acquisitions 2010 immunalysis august 16 2010 acquired diagnostixx california corp dba immunalysis corporation immunalysis located pomona california privatelyowned manufacturer marketer abused prescription drug screening solutions used clinical reference forensiccrime laboratories aggregate purchase price 562 million consisted initial cash payment totaling 550 million contingent consideration obligation 50 million acquisition date fair value 12 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 79 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii twist march 11 2010 acquired twistdx inc twist headquartered cambridge massachusetts privatelyowned research development company research development operation united kingdom aggregate purchase price 708 million consisted initial cash payment totaling 352 million contingent consideration obligation 1250 million acquisition date fair value 356 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 02 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iii alere toxicology february 17 2010 acquired kroll laboratory specialists inc subsequently renamed alere toxicology services alere toxicology headquartered gretna louisiana provides forensic quality substance abuse testing products services across united states aggregate purchase price 1095 million paid cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 313 million related acquired business operating results alere toxicology included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv standard diagnostics february 8 2010 acquired 6192 ownership interest standard diagnostics via tender offer approximately 1621 million march 22 2010 acquired incremental 1337 ownership interest standard diagnostics via followon tender offer approximately 362 million june 2010 acquired incremental 284 ownership interest approximately 73 million bringing acquisitionrelated aggregate ownership interest standard diagnostics approximately 7813 standard diagnostics specializes medical diagnostics industry main product lines relate diagnostic reagents devices hepatitis infectious diseases tumor markers fertility drugs abuse urine strips protein strips aggregate purchase price 2056 million cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 789 million related standard diagnostics operating results alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued standard diagnostics included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes fourth quarter 2010 acquired remaining outstanding minority interests standard diagnostics bringing aggregate ownership interest approximately 100 december 31 2010 connection purchase shares certain minority shareholder incurred compensation charge 601 million result transition daytoday management control business us v acquisitions 2010 acquired following businesses aggregate purchase price 1619 million consisted initial cash payments totaling 1083 million contingent consideration obligations acquisition date fair value 529 million deferred purchase price consideration acquisition date present value 07 million • rmd networks inc rmd located denver colorado provider clinical groupware software services designed improve communication coordination care among providers patients payers healthcare environment acquired january 2010 • certain assets streck inc streck located nebraska manufacturer hematology chemistry immunology products clinical laboratory acquired january 2010 • assets diagnostics division micropharm ltd micropharm located wales united kingdom expert high quality antibody production sheep diagnostic therapeutic purposes providing antisera contract basis uk overseas companies academic institutions mainly research therapeutic diagnostic uses acquired march 2010 • quantum diagnostics group limited quantum headquartered essex england independent provider drug testing products services healthcare professionals across uk europe acquired april 2010 • assets workplace health division good health solutions pty ltd subsequently renamed alere health pty ltd located east sydney australia important player australian health wellness market focusing health screenings health related consulting services health coaching fitness instruction acquired april 2010 • certain assets unotech diagnostics inc unotech located california privatelyowned company engaged development formulation manufacture packaging supply distribution bladdercheck nmp22 lateral flow test related lateral flow products acquired june 2010 • scipac holdings limited scipac headquartered kent england diagnostic reagent company extensive product portfolio supplying purified human antigens recombinant proteins disease state plasma global customer base acquired june 2010 • ionian technologies inc ionian located san diego california acquired july 2010 • adnagen ag known adnagen gmbh adnagen located langenhagen germany company focuses development innovative tumor diagnostics detection rare cells acquired november 2010 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • medlab produtos medicos hospitalares ltda known alere sa located san paulo brazil distributor medical instruments reagents public private laboratories throughout brazil uruguay acquired december 2010 • capital toxicology llc capital toxicology located austin texas privatelyheld toxicology business specializing pain management services acquired december 2010 operating results acquired businesses mentioned except rmd alere health pty ltd included professional diagnostics reporting unit business segment operating results rmd alere health pty ltd included health information solutions reporting unit business segment consolidated statement operations year ended december 31 2010 included revenue totaling approximately 126 million related businesses goodwill recognized acquisitions exception unotech micropharm amounted approximately 1162 million goodwill related acquisition capital toxicology totaled 116 million deductible tax purposes goodwill related acquisitions deductible tax purposes summary aggregate purchase price allocation acquisitions consummated 2010 follows thousands 1 includes cash acquired approximately 229 million alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following intangible assets acquired respective amortizable lives dollars thousands 5 goodwill intangible assets following summary goodwill intangible assets december 31 2012 dollars thousands 1 primarily includes inprocess research development asset recorded connection certain acquisitions alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2011 dollars thousands 1 primarily includes inprocess research development asset recorded connection certain acquisitions estimated useful lives individual categories intangible assets based nature applicable intangible assets expected future cash flows derived intangible assets amortization intangible assets finite lives recognized shorter respective lives underlying license agreements applicable period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortization expense intangible assets aggregate amounted 3469 million 3077 million 2981 million 2012 2011 2010 respectively included cost net revenue research development sales marketing general administrative expenses accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2012 thousands fourth quarter perform annual impairment tests carrying value goodwill reporting unit annual impairment review conducted fourth quarters 2011 2010 indicated goodwill impairment charge required health information solutions business segment reporting unit discussion see note 2h alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued goodwill amounts professional diagnostics health information solutions consumer diagnostics reporting units summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 recorded goodwill impairment charge approximately 3836 million 2011 related health information solutions business segment reporting unit reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods 3 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 4 correction prior period balance sheet classification error believe material 2011 2012 annual financial statements previously reported quarterly financial statements represents fair value noncontrolling interest december 31 2011 related acquisition axisshield generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2012 2011 approximately 97 million 92 million respectively costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands 1 incurred secured credit facility 2 includes “a” term loans “delayed draw” term loans secured credit facility connection significant longterm debt issuances recorded interest expense including amortization writeoffs deferred financing costs original issue discounts consolidated statements operations years ended december 31 2012 2011 2010 respectively follows thousands 1 includes “a” term loans including “delayeddraw” term loans “b” term loans “incremental b1” term loans “incremental b2” term loans revolving lineofcredit loans amount includes 50 million 29 million 2012 2011 respectively related amortization fees paid certain debt modifications 2 consists loans former first lien credit agreement second lien credit agreement 3 amount includes approximately 297 million recorded connection termination former secured credit facility related interest rate swap agreement coupled amortization fees paid certain debt modifications alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 4 amount includes approximately 232 million loss recorded connection repurchase substantially 7875 senior notes included 232 million 123 million makewhole payment classified within cash flow financing activities consolidated statement cash flows following describes debt instruments listed secured credit facility june 30 2011 entered credit agreement secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement december 7 2011 entered amendment secured credit facility provide additional term loan facility “incremental b1” term loans described borrowed date march 28 2012 entered amendment secured credit facility provide additional term loan facility “incremental b2” term loans described borrowed date secured credit facility amended provides credit facilities totaling 255 billion aggregate consisting term loans aggregate principal amount 23 billion consisting “a” term loans including “delayed draw” term loans aggregate principal amount 9250 million “b” term loans aggregate principal amount 9250 million “incremental b1” term loans aggregate principal amount 2500 million “incremental b2” term loans aggregate principal amount 2000 million fully drawn subject continued compliance secured credit facility 2500 million revolving line credit includes 500 million sublimit issuance letters credit must repay “a” term loans excluding “delayed draw” term loans eighteen consecutive quarterly installments began december 31 2011 continue march 31 2016 amount 7812500 final installment june 30 2016 amount 484375000 must repay “delayeddraw” term loans included within “a” term loans fifteen consecutive quarterly installments began september 30 2012 continue march 31 2016 amount 3750000 final installment june 30 2016 amount 243750000 must repay “b” term loans twentytwo consecutive quarterly installments began december 31 2011 continue march 31 2017 amount 2312500 final installment june 30 2017 amount 874125000 must repay “incremental b1” term loans twentyone consecutive quarterly installments began march 31 2012 continue march 31 2017 amount 625000 final installment june 30 2017 amount 236875000 must repay “incremental b2” term loans twenty consecutive quarterly installments began june 30 2012 continue march 31 2017 amount 500000 final installment june 30 2017 amount 190000000 paid full installments term loans due december 31 2012 may repay borrowings revolving line credit time without premium penalty must repay borrowings event later june 30 2016 notwithstanding foregoing subject certain exceptions provided credit agreement event existing 9 senior subordinated notes existing 3 convertible senior subordinated notes remain outstanding date six months prior relevant maturity date thereof respectively term loans revolving credit loans secured credit facility shall instead mature full relevant prior date “a” term loans including “delayed draw” term loans borrowings revolving credit facility bear interest rate per annum option either base rate alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued defined credit agreement plus applicable margin varies 175 250 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies 275 350 depending consolidated secured leverage ratio “b” term loans “incremental b1” term loans “incremental b2” term loans bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies 250 325 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies 350 425 depending consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans “incremental b2” term loans based eurodollar rate subject 100 floor respect base eurodollar rate required pay fee unused portion revolving credit facility rate per annum 050 december 31 2012 “a” term loans including “delayeddraw” term loans “b” term loans “incremental b1” term loans “incremental b2” term loans revolving line credit loans bore interest rates 321 475 321 respectively per annum december 31 2012 compliance financial covenants related debt consisted principally maximum consolidated secured leverage ratio minimum consolidated interest coverage ratio limit capital expenditures december 31 2012 accrued interest related secured credit facility amounted 14 million b first lien credit agreement second lien credit agreement connection entering secured credit facility june 30 2011 repaid full outstanding indebtedness terminated first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively senior secured credit facility former secured credit facility dated june 26 2007 certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements aggregate outstanding principal amount loans repaid former secured credit facility connection termination thereof approximately 12 billion august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million original maturity date september 28 2010 interest rate swap contracts paid us variable interest threemonth libor rate paid counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans former secured credit facility fixed rate debt connection entering secured credit facility june 30 2011 paid 101 million terminate interest rate swap contracts recorded interest expense including amortization original issue discounts deferred financing costs consolidated statements operations january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts paid us variable interest onemonth libor rate alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued paid counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan former secured credit facility fixed rate debt extend terms interest rate swap contracts january 5 2011 c 725 senior notes december 11 2012 sold total 4500 million aggregate principal amount 725 senior notes due 2018 725 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 725 senior notes initial offering price 100 net proceeds offering amounted 4432 million net underwriters’ commissions offering expenses totaling 68 million used 2674 million net proceeds purchase 2482 million outstanding principal amount 7875 senior notes described 1700 million pay portion outstanding balance revolving line credit 725 senior notes issued indenture dated august 11 2009 amended supplemented 725 indenture 725 senior notes accrue interest rate 725 per annum interest 725 senior notes payable semiannually june 15 december 15 beginning june 15 2013 725 senior notes mature july 1 2018 unless earlier redeemed may redeem 725 senior notes whole part time december 15 2015 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3625 twelve months december 15 2015 1813 six months december 15 2016 zero june 15 2017 time prior december 15 2015 may redeem 35 aggregate principal amount 725 senior notes money raise certain equity offerings long pay 10725 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 725 senior notes remains outstanding afterwards addition time prior december 15 2015 may redeem 725 senior notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 725 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 725 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes would 100 principal amount plus accrued unpaid interest 725 senior notes unsecured equal right payment existing future senior debt including borrowings secured credit facility obligations 725 senior notes 725 indenture fully unconditionally guaranteed jointly alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 24 guarantor financial information 725 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications 725 indenture contains customary events default entitling trustee holders 725 senior notes declare amounts owed pursuant 725 senior notes immediately payable violate certain obligations december 31 2012 accrued interest related 725 senior notes amounted 19 million 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 september 28 2009 net proceeds offerings amounted approximately 2400 million net underwriters’ commissions totaling 37 million original issue discount totaling 63 million 7875 senior notes issued indenture dated august 11 2009 amended supplemented 7875 indenture 7875 senior notes accrued interest dates respective issuances rate 7875 per annum interest notes payable semiannually february 1 august 1 commencing february 1 2010 terms notes provided matured february 1 2016 unless earlier redeemed december 2012 used 2674 million net proceeds sale 725 senior notes purchase 2482 million outstanding principal amount 7875 senior notes purchased 7875 senior notes represented 993 total thenoutstanding principal amount 7875 senior notes february 13 2013 redeemed remaining 18 million outstanding principal amount 7875 senior notes pursuant optional redemption right 7875 indenture subsequently terminated 7875 indenture december 31 2012 accrued interest related 7875 senior notes amounted 01 million e senior subordinated notes may 12 2009 sold 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 subordinated notes public offering initial offering price 96865 net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued september 21 2010 sold 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 8625 subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 8625 subordinated notes initial offering price 100 net proceeds offering amounted 3930 million net underwriters’ commissions totaling 70 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act refer 9 subordinated notes 8625 subordinated notes collectively senior subordinated notes 9 subordinated notes issued indenture dated may 12 2009 amended supplemented accrue interest date issuance may 12 2009 rate 9 per annum interest 9 subordinated notes payable semiannually may 15 november 15 beginning november 15 2009 9 subordinated notes mature may 15 2016 unless earlier redeemed 8625 subordinated notes issued supplemental indenture dated september 21 2010 amended supplemented accrue interest date issuance september 21 2010 rate 8625 per annum interest 8625 notes payable semiannually april 1 october 1 beginning april 1 2011 8625 subordinated notes mature october 1 2018 unless earlier redeemed may redeem 9 subordinated notes whole part time may 15 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 450 twelve months may 15 2013 225 twelve months may 15 2014 zero may 15 2015 addition time prior may 15 2013 may redeem 9 subordinated notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date may redeem 8625 subordinated notes whole part time may october 1 2014 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4313 twelve months october 1 2014 2156 twelve months october 1 2015 zero october 1 2016 prior october 1 2013 may redeem whole part time may 35 aggregate principal amount 8625 subordinated notes money raise certain equity offerings long pay 108625 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 8625 subordinated notes including 8625 subordinated notes issued september 21 2010 remains outstanding afterwards addition time prior october 1 2014 may redeem 8625 subordinated notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount senior subordinated notes pro rata basis respect 9 subordinated notes 8625 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price senior subordinated notes would 100 principal amount plus accrued unpaid interest senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility senior notes equal right payment 3 convertible senior subordinated notes obligations senior subordinated notes indentures issued fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt including guarantees respect secured credit facility senior notes see note 24 guarantor financial information indentures senior subordinated notes issued contain covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications indentures contain customary events default entitling trustee holders relevant senior subordinated notes declare amounts owed pursuant relevant senior subordinated notes immediately payable violate certain obligations respect thereto december 31 2012 accrued interest related 9 subordinated notes 8625 subordinated notes amounted 45 million 86 million respectively f 3 convertible senior subordinated notes may 14 2007 sold 1500 million principal amount 3 convertible senior subordinated notes due 2016 3 convertible senior subordinated notes private placement qualified institutional buyers initial offering price 100 initial conversion price 5230 3 convertible senior subordinated notes convertible aggregate 29 million shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion 3 convertible senior subordinated notes 3 convertible senior subordinated notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount 3 convertible senior subordinated notes payable arrears may 15th november 15th year beginning november 15 2007 paid full installments interest 3 convertible senior subordinated notes due december 31 2012 alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued may redeem 3 convertible senior subordinated notes prior stated maturity event certain fundamental changes defined indenture governing 3 convertible senior subordinated notes termination trading common stock described indenture may required repurchase 3 convertible senior subordinated notes cash price equal 100 unconverted principal amount thereof plus accrued unpaid interest 3 convertible senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility senior notes equal right payment senior subordinated notes indenture governing 3 convertible senior subordinated notes contains customary events default entitling trustee holders thereof declare amounts owed pursuant 3 convertible senior subordinated notes immediately payable violate certain obligations respect thereto december 31 2012 accrued interest related 3 convertible senior subordinated notes amounted 06 million g lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit approximately 197 million 95 million borrowed outstanding december 31 2012 h debt included debt year ended december 31 2012 borrowings certain subsidiaries various financial institutions borrowed funds primarily used fund capital expenditures working capital requirements interest expense borrowings 51 million year ended december 31 2012 maturities longterm debt following summary maturities longterm debt outstanding december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements following tables present information assets liabilities measured fair value recurring basis december 31 2012 2011 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market significant increases decreases inputs could result significantly higher lower fair value measurement changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations see note 11 additional information valuation contingent consideration obligations 2 fair value foreign exchange forward contracts measured using readily observable market inputs quotations forward foreign exchange points foreign interest rates changes fair value level 3 contingent consideration obligations year ended december 31 2012 follows thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued december 31 2012 2011 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt 37 billion december 31 2012 carrying amount estimated fair value longterm debt 33 billion december 31 2011 estimated fair value longterm debt determined using information derived available market sources level 2 fair value hierarchy may representative actual values could realized future 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2012 thousands december 31 2012 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 88 million 76 million 69 million 2012 2011 2010 respectively b uk pension plans changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2012 2011 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown current liabilities 43 million 37 million years ended december 31 2012 2011 respectively following represents amounts recognized comprehensive income loss year ended december 31 2012 amortization prior service cost expected approximately 04 million 2013 amounts recognized accumulated comprehensive income loss years ending december 31 2012 2011 follows alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued measurement dates used determine plan assets benefit obligations defined benefit plan december 31 2012 2011 following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2012 2011 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning presented year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2012 stocks fixed income securities represented 69 31 respectively market value pension assets expect contribute approximately £06 million 09 million december 31 2012 defined benefit plan 2013 expect benefits paid plan participants range approximately 03 million 04 million per year next five years benefits totaling 05 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued fair values pension plan assets december 31 2012 2011 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath limited unipath contributed 04 million 2012 03 million 2011 04 million 2010 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments may manage economic transaction exposure certain marketbased risks use derivative instruments objective holding derivative instruments reduce volatility net earnings cash flows associated changes interest rates foreign currency exchange rates hold issue derivative financial instruments speculative purposes interest rate risk used interest rate swap contracts time management interest rate exposure related former secured credit facility june 30 2011 entered new secured credit facility connection therewith repaid full outstanding indebtedness terminated former secured credit facility related interest rate swaps b foreign currency risk connection acquisition axisshield acquired number foreign currency forward contracts specific risk hedged contracts undiscounted foreign currency spot rate risk forecasted foreign currency revenue december 31 2012 acquired foreign currency forward contracts settled december 31 2011 notional value contracts 166 million chf 54 million report effective portion gain loss cash flow hedge component comprehensive income subsequently reclassified net earnings period hedged transaction affected net earnings forecasted transaction longer probable occurring alere inc subsidiaries notes consolidated financial statements continued 10 derivative financial instruments continued following tables summarize fair value derivative instruments effect derivative instruments onin accompanying consolidated balance sheets consolidated statements operations thousands 11 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2019 following schedule outlines future minimum annual rental payments leases december 31 2012 thousands rent expense relating operating leases approximately 512 million 423 million 390 million 2012 2011 2010 respectively b contingent consideration obligations determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving targets corresponding delivery dates fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted milestone payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria contractual contingent consideration obligations related acquisitions accordant adnagen alere healthcare alere sa amedica bioeasy branan capital toxicology diagnosisone diagnostik escreen hcc immunalysis ionian lds medapps mologic nationshealth roar standing stone twist wellogic certain small businesses • accordant respect accordant terms acquisition agreement require us pay earnout upon successfully meeting certain revenue cash collection targets starting second anniversary acquisition date completed prior third anniversary date acquisition maximum amount earnout totaling 60 million achieved 2012 payment 15 million made fourth quarter 2012 remaining payments made quarterly installments 15 million 2013 • adnagen respect adnagen terms acquisition agreement require us pay earnouts upon successfully meeting certain financial performance targets two years following acquisition ii achieving multiple product development milestones three years following acquisition iii creating pharmaceutical alliances six years following acquisition maximum remaining amount earnout payments approximately 420 million • alere healthcare respect alere healthcare terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets calendar years 2010 2012 portion earnout totaling approximately 03 million earned accrued december 31 2012 payment 2012 earnout expected made second quarter 2013 • alere sa respect alere sa terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets calendar years 2011 2016 conditions 2012 2011 earnouts achieved maximum remaining amount earnout payments approximately 60 million • amedica respect amedica terms acquisition agreement require us make earnout payments upon successfully meeting certain financial targets calendar years 2012 2013 2012 portion earnout totaling approximately 69 million earned accrued december 31 2012 payment 2012 earnout expected made second quarter 2013 maximum remaining amount earnout payments 81 million alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued • bioeasy respect bioeasy terms acquisition agreement require us pay earnouts upon successfully meeting certain revenue ebitda targets calendar years 2011 2013 2011 2012 earnouts achieved maximum remaining amount earnout payments approximately 25 million • branan respect branan terms acquisition agreement require us pay earnouts upon successfully achieving various regulatory product approval milestones second anniversary acquisition date four milestones achieved 2012 resulting accrual totaling approximately 20 million december 31 2012 payment 2012 milestones expected made first quarter 2013 maximum remaining amount earnout payments 30 million • capital toxicology initial terms acquisition agreement capital toxicology provided earnout calculated based amount ebitda derived acquired business exceeded specified targets calendar years 2011 2012 portion earnout 2011 calendar year totaling approximately 21 million earned accrued december 31 2011 first quarter 2012 acquisition agreement modified base earnout excess actual cash collections 2011 sales 2011 expenses rather ebitda new criterion resulted incremental 29 million accrual related earnout 2011 calendar year based cash collections march 31 2012 41 million paid respect earnout 2011 calendar year second quarter 2012 additional payment approximately 15 million made fourth quarter 2012 incremental cash collections 2011 sales received prior august 31 2012 earnout totaling 50 million achieved 2012 paid fourth quarter 2012 contingent consideration obligations related acquisition exist december 31 2012 • diagnosisone respect diagnosisone terms acquisition agreement require us pay earnouts upon successfully meeting certain financial targets within five years acquisition date maximum amount earnout payments 330 million • diagnostik respect diagnostik terms acquisition agreement require us pay earnouts upon successfully meeting certain financial targets within two years acquisition date maximum amount earnout payments approximately 14 million approximately 19 million december 31 2012 • escreen respect escreen terms acquisition agreement require us pay earnouts upon successfully meeting certain financial targets calendar years 2012 2014 2012 portion earnout achieved maximum remaining amount earnout payments 700 million alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued • hcc respect hcc terms acquisition agreement require us pay earnout upon successfully meeting certain ebitda targets calendar year 2013 maximum amount earnout payments £35 million approximately 57 million december 31 2012 • immunalysis respect immunalysis terms acquisition agreement require us pay earnouts upon successfully meeting certain gross profit targets calendar years 2010 2012 payment 2011 portion earnout totaling approximately 09 million paid second quarter 2012 portion earnout totaling approximately 19 million earned accrued december 31 2012 payment expected made second quarter 2013 additionally contractual contingent obligation pay total 30 million compensation certain executives immunalysis accordance acquisition agreement earned paid connection contingent consideration payable former shareholders immunalysis calendar years 2010 2011 2012 payment 2011 compensation totaling approximately 10 million made second quarter 2012 portion compensation totaling approximately 10 million earned accrued december 31 2012 payment expected made second quarter 2013 • ionian respect acquisition ionian terms acquisition agreement require us pay earnouts upon successfully meeting multiple product development milestones five years following acquisition maximum amount earnout payments 575 million • lds respect lds terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets twelvemonth periods ending june 30 2012 2013 third quarter 2012 acquisition agreement modified base earnout criteria revenue operating income targets twelvemonth period ending june 30 2012 certain integration milestones achieved 2012 various product milestones achieved 2012 2013 portion earnout related revenue operating income targets totaling 100 million earned paid 2012 portion earnout related integration milestones certain 2012 product milestones totaling 35 million earned accrued december 31 2012 maximum remaining amount earnout payments 75 million • medapps respect medapps terms acquisition agreement require us make earnout payments upon achievement certain technological product development milestones january 15 2015 portion earnout totaling 08 million earned paid fourth quarter 2012 maximum remaining amount earnout payments 212 million • mologic respect mologic terms acquisition agreement require us pay earnouts shares common stock cash election upon successfully meeting nine research development project milestones five years following acquisition 2012 portion alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued earnout totaling approximately 12 million determined achieved settled shares common stock maximum remaining amount earnout payments 148 million • nationshealth respect nationshealth terms acquisition agreement require us pay earnout upon successfully meeting certain operational targets within one year acquisition date maximum amount earnout payment 80 million • roar respect roar terms acquisition agreement require us pay earnout upon successfully meeting certain ebitda targets 2012 2014 roar achieved approximately £12 million approximately 19 million december 31 2012 earnout payments 2012 accrued december 31 2012 payment earnout expected made first quarter 2013 maximum remaining amount earnout payments £93 million approximately 152 million december 31 2012 • standing stone respect standing stone terms acquisition agreement require us pay earnouts employee bonuses upon successfully meeting certain operational product development revenue targets period date acquisition calendar year 2013 earnout payment totaling approximately 82 million employee bonus payments totaling approximately 04 million achievement milestones made 2012 maximum remaining amount earnout payments approximately 28 million maximum remaining amount employee bonuses 01 million • twist respect acquisition twist terms acquisition agreement require us pay earnout upon successfully meeting certain revenue product development targets approximately 03 million earnout payments paid 2012 maximum amount earnout payments 1250 million earned payments expected made eightyear period following acquisition date could extend thereafter • wellogic respect wellogic terms acquisition agreement require us pay earnout upon successfully meeting certain operational profit targets 2012 2019 maximum remaining amount earnout payments based upon operational targets approximately 498 million earnout based financial targets maximum c legal proceedings • matters relating san diego facility october 9 2012 received warning letter fda referencing inspectional observations set forth fda form 483 received june 2012 observations result inspection san diego facility conducted earlier 2012 relating alere triage alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued products resulted two recalls certain alere triage products revised release specifications alere triage meterbased products october 30 2012 responded warning letter submitted evidence completion actions previously detailed prior response fda form 483 worked cooperatively fda effort fully address inspectional observations intend continue may 2012 also received subpoena office inspector general department health human services oig seeking documents relating primarily quality control testing performance characteristics alere triage products cooperating oig continue supply documents oig subpoena unable predict matters resolved action government take connection except increases manufacturing costs decreased profitability alere triage products unable predict impact matters ensuing proceedings financial condition results operations cash flows • class action litigation alere home monitoring january 24 2013 class action complaint filed us district court northern district california alere home monitoring ahm asserting claims damages relief california state law including california’s confidentiality medical information act relating inadvertent disclosure personally identifiable information approximately 116000 patients resulting theft laptop computer employee ahm office civil rights us department health human services notified inadvertent disclosure accordance breach notification rule hitech act certain state agencies • claims ordinary course matters nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future lawsuits often seek damages sometimes substantial amounts alere inc subsidiaries notes consolidated financial statements continued 12 net loss per common share following tables set forth computation basic diluted net loss per common share thousands except per share amounts following potential dilutive securities included calculation diluted net loss per common share inclusion thereof would antidilutive thousands 13 stockholders’ equity common stock december 31 2012 2000 million shares common stock 0001 par value authorized 77 million shares held treasury 809 million shares outstanding 118 million shares reserved issuance upon grant exercise equity awards current alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued equity compensation plans 10 million shares reserved issuance employee stock purchase plan 4000 shares reserved issuance upon exercise outstanding warrants also shares common stock reserved issuance upon conversion following securities outstanding december 31 2012 1500 million aggregate principal amount 3 convertible senior subordinated notes convertible 4398 per share 34 million shares common stock 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock b preferred stock december 31 2012 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2012 18 million shares series b preferred stock outstanding fair value approximately 3285 million share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2012 would convert 102 million shares common stock reserved conversions december 31 2012 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued date issuance year ended december 31 2012 series b preferred stock dividends amounted 213 million reduced earnings available common stockholders purposes calculating net loss per common share 2011 note 12 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2012 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c share repurchases first quarter 2011 repurchased open market privatelynegotiated transactions 183000 shares series b preferred stock convertible approximately 11 million shares common stock cost approximately 494 million paid cash repurchase preferred stock average cost 26984 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 137 million income attributable common stockholders also first quarter 2011 pursuant repurchase program repurchased 16700 shares common stock cost approximately 06 million paid cash second quarter 2011 repurchased open market privatelynegotiated transactions 174788 shares series b preferred stock convertible approximately 10 million shares common stock cost approximately 497 million paid cash repurchase preferred stock average cost 28428 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 102 million income attributable common stockholders also second quarter 2011 pursuant repurchase program repurchased 8300 shares common stock cost approximately 03 million paid cash third quarter 2011 repurchased approximately 76 million shares common stock cost approximately 1839 million paid cash stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued issuance 52 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2010 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2010 plan december 31 2012 2011 10 million 11 million shares respectively available future grant 2010 plan following summarizes stock option activity year ended december 31 2012 thousands except exercise price aggregate intrinsic value options outstanding december 31 2012 06 million aggregate intrinsic value options exercisable december 31 2012 06 million aggregate intrinsic value stock options exercised 2012 2011 2010 13 million 171 million 69 million respectively addition december 30 2012 granted restricted stock unit rsu award one executive employees amount 110000 units rsu award vests threeyear period however executive’s employment involuntarily terminated without cause within three years rsu award accelerate fully vest rsu award also accelerate fully vest executive terminates employment voluntarily one year presence facts circumstances would constitute cause termination us fair value rsu award 1837 per unit calculated based closing market price common stock date grant aggregate fair value rsu award expensed straightline basis recipient’s service requirement completion period one year none units underlying rsu award vested released december 31 2012 based equity awards outstanding december 31 2012 296 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weightedaverage period 191 years alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued e warrants following summary warrant activity three years ended december 31 following table presents additional information related warrants outstanding exercisable december 31 2012 warrants included table issued connection acquisition genecare warrants purchase shares common stock outstanding issued officers directors company entities controlled officers directors december 31 2012 outstanding warrants classified equity f employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every sixmonth offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 30 million shares common stock plan december 31 2012 20 million shares issued plan alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation recorded stockbased compensation expense consolidated statements operations years ended december 31 2012 2011 2010 respectively follows thousands years ended december 31 2012 2011 2010 presentation cash flows reports excess tax benefits exercise stock options financing cash flows years ended december 31 2012 2011 2010 excess tax benefits generated option exercises amounted 05 million 34 million 17 million respectively following assumptions used estimate fair value options granted years ended december 31 2012 2011 2010 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted employees 2012 2011 2010 737 1095 1354 per share respectively options granted periods granted fair market value date grant year ended december 31 2012 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 44 47 riskfree interest rate 006 015 expected life 182 days 184 days two respective offering periods first half 2012 second offering period accommodate employees recent acquisition fair value option component employee stock purchase plans shares offering estimated grant date march 1 2012 using blackscholes option pricing model assumed expected volatility 40 riskfree rate 010 expected life 122 days 2012 charge included employee’s respective cost classification table year ended december 31 2011 recorded compensation expense 25 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 34 riskfree interest rate 019 010 expected life 181 days 184 days two respective offering periods 2011 charge included employee’s respective cost classification table alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation continued year ended december 31 2010 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 39 45 riskfree interest rate 018 022 expected life 181 days 184 days two respective offering periods 2010 charge included general administrative expense table 15 accumulated comprehensive income loss accumulated comprehensive income loss consisted following thousands 1 represents unrealized gains losses availableforsale securities hedging instruments 16 income taxes income loss provision benefit income taxes consists following thousands continuing operations discontinued operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences basis tangible intangible assets income tax effects temporary differences follows thousands december 31 2012 approximately 606 million domestic nol domestic capital loss carryforwards approximately 9811 million state nol carryforwards 2116 million foreign nol foreign capital loss carryforwards either expire various dates 2032 carried forward indefinitely december 31 2012 approximately 577 million domestic research development foreign tax alternative minimum tax credits either expire various dates 2031 carried forward indefinitely loss carryforwards tax credits may available reduce future federal state foreign taxable income subject review possible adjustment appropriate tax authorities section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate domestic nols subject various internal revenue service irs code section 382 limitations however forecast fully utilize nols expiration section 383 imposes annual limitation use credits amount equal value company time ownership change multiplied longterm tax exempt rate domestic credits subject various internal revenue service irs code section 383 limitations forecast portion credits expire utilized therefore recorded valuation allowance assets 09 million state nol carryforwards subject various statutory limitations require certain companies realize taxable income order fully utilize nols alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued recorded valuation allowance 686 million december 31 2012 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits increase 170 million valuation allowance 516 million december 31 2011 increase primarily related foreign state nols valuation allowance based estimates taxable income jurisdictions operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision two chinabased manufacturing subsidiaries qualify reduced income tax rate 2012 2011 2010 chinese entities qualify high technology status companies status due expire one 2013 2014 companies intend file renewal status prescribed statutory rate 2012 2011 25 reduced rate high technology status 15 2010 companies qualified china tax reform act income tax rate one subsidiaries 125 11 reduced tax rate produced tax expense approximately 10 million 2012 absence reduced tax rate 2012 tax rate 25 would applied would resulted tax expense approximately 17 million 2012 earnings per common share effect reduced tax rate 001 2012 reduced tax rate produced tax expense approximately 05 million 2011 absence reduced tax rate 2011 tax rate 25 would applied would resulted tax expense approximately 08 million 2011 earnings per common share effect reduced tax rate 001 2011 reduced tax rate produced tax expense approximately 13 million 2010 absence reduced tax rate 2010 tax rate 25 would applied would resulted tax expense approximately 29 million 2010 earnings per common share effect reduced tax rate 002 2010 estimated amount undistributed earnings foreign subsidiaries 6542 million december 31 2012 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings would subject us income tax foreign withholding taxes subject possible offset us foreign tax credits determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation following table presents components benefit income taxes thousands continuing operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued benefit income taxes 2011 includes benefit 70 million correct items related periods 2007 2010 believe corrected items material 2011 previously reported quarterly annual financial statements result restated previously issued annual quarterly financial statements following table presents components provision income taxes thousands discontinued operations following table presents reconciliation us statutory tax rate effective tax rate goodwill impairment charge created deferred tax impact due existence goodwill deductible tax purposes deferred tax calculated based methodology allocates goodwill impairment loss proportionally goodwill deductible tax purposes compared total goodwill impairment allocated goodwill deductible tax purposes created deferred tax asset 353 million december 31 2011 change goodwill impairment charge deferred tax asset 2012 alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued year ended december 31 2012 increased liability income taxes associated uncertain tax positions 32 million total 190 million december 31 2012 primary reasons increase foreign tax exposures associated certain restructurings increased liability income taxes associated uncertain tax positions 48 million decreased liability 15 million primarily related reversal domestic reserves longer required due audit settlements classify 126 million income tax liabilities noncurrent income tax liabilities 09 million income taxes payable 55 million income tax liabilities reserves net longterm deferred tax assets anticipated paid within one year balance sheet date noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2012 anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense interest penalties recorded 2012 amounted 05 million income due reduction required accrual interest balance accrued interest penalties recorded consolidated balance sheet december 31 2012 04 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2006 2011 currently income tax examination irs number state foreign tax authorities anticipate audits completed end 2013 cannot currently estimate impact audits due uncertainties associated tax examinations alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health information solutions consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement january 15 2010 completed sale vitamins nutritional supplements business note 22 sale included private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results entire vitamins nutritional supplements business included income discontinued operations net tax consolidated financial statements accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2012 2011 2010 follows thousands alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued following tables summarize net revenue professional diagnostics health information solutions reporting segments groups similar products services 2012 2011 2010 thousands professional diagnostics segment health information solutions segment following tables summarize net revenue geographic area 2012 2011 2010 respectively longlived tangible assets geographic area december 31 2012 2011 respectively thousands alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued 18 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following outstanding securities common stock series b preferred stock convertible notes extent make principal interest payments convertible notes accordance terms zwanziger family trust holder convertible notes receive proportionate share may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting december 31 2012 2011 net receivable joint venture 23 million 25 million respectively included 23 million receivable balance december 31 2012 approximately 16 million costs incurred connection 2008 spdrelated restructuring plans included 25 million receivable balance december 31 2011 approximately 15 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 146 million 155 million december 31 2012 december 31 2011 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned formation joint venture completed classified receivables within prepaid expenses current assets accompanying consolidated balance sheets amount 69 million 73 million december 31 2012 2011 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 636 million 712 million 681 million years ended december 31 2012 2011 2010 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 11 million 11 million 12 million years ended december 31 2012 2011 2010 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities uk china spd turn sells portion tests back us alere inc subsidiaries notes consolidated financial statements continued 18 related party transactions continued final assembly packaging packaged tests sold pg distribution thirdparty customers north america result related transactions recorded 73 million 89 million trade receivables included accounts receivable accompanying consolidated balance sheets december 31 2012 2011 respectively 213 million 193 million trade accounts payable included accounts payable accompanying consolidated balance sheets december 31 2012 2011 respectively 2012 2010 received 112 million 88 million respectively cash spd return investment following table summarizes related party balances spd within consolidated balance sheets thousands connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value pg right upon certain material breaches us obligations spd acquire interest spd fair market value july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option recognized gain amount approximately 2889 million third quarter 2011 19 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 19 valuation qualifying accounts continued established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands 20 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2012 2011 2010 thousands 2012 restructuring plans 2012 management developed cost reduction plans within professional diagnostics business segment including integration business brazil europe united states additionally management developed new plans continue efforts reduce costs within health information solutions business segment including impairment fixed assets intangibles associated terminated projects following table summarizes restructuring activities related 2012 restructuring plans year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued anticipate incurring approximately 22 million additional severance facility costs plans related health information solutions business segment 2014 well 03 million additional severance facility costs plans related professional diagnostics business segment 2013 december 31 2012 34 million severance exit costs plans remain unpaid b 2011 restructuring plans 2011 management executed companywide cost reduction plan impacted corporate business segment well health information solutions professional diagnostics business segments management also developed plans within professional diagnostics business segment consolidate operating activities among certain us european asia pacific subsidiaries including transferring manufacturing panbio products australia standard diagnostics facility south korea eliminating redundant costs among newly acquired axisshield subsidiaries additionally within health information solutions business segment management executed plans reduce costs improve efficiencies well cease operations genecare medical genetics center inc genecare facility chapel hill north carolina transfer majority quality assured services inc operation orlando florida facility livermore california following table summarizes restructuring activities related 2011 restructuring plans years ended december 31 2012 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued anticipate incurring approximately 18 million additional costs plans related professional diagnostics business segment primarily related severance facility exit costs may also incur impairment charges assets plans finalized anticipate incurring minimal additional costs plans related health information solutions business segment primarily related imputed interest facility lease obligations december 31 2012 15 million cash charges remain unpaid c 2010 restructuring plans 2010 management developed several plans reduce costs improve efficiencies within health information solutions professional diagnostics business segments following table summarizes restructuring activities related 2010 restructuring plans years ended december 31 2012 2011 2010 since inception thousands anticipate incurring significant additional charges plans december 31 2012 07 million facilityrelated costs remain unpaid alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued 2008 restructuring plans may 2008 management decided close facility located bedford england initiated steps cease operations facility transition manufacturing operations principally manufacturing facilities shanghai hangzhou china following table summarizes restructuring activities plan years ended december 31 2012 2011 2010 since inception thousands year ended december 31 2010 recorded net recoveries 34 million exit costs result settlement facility restoration lease costs landlord bedford facility costs incurred years ended december 31 2012 2011 2010 included professional diagnostics business segment addition restructuring charges discussed certain charges associated bedford facility closure borne spd 5050 joint venture pg restructuring charges recorded spd 50 included equity earnings unconsolidated entities net tax consolidated statements operations following table summarizes 50 portion restructuring charges borne spd included equity earnings unconsolidated entities net tax years ended december 31 2011 2010 since inception thousands december 31 2012 cash charges paid anticipate incurring significant additional restructuring charges plan alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued additionally 2008 management developed initiated plans transition businesses cholestech hemosense inc hemosense san diego california facility restructuring charges plans related professional diagnostics business segment following table summarizes restructuring activities plans years ended december 31 2012 2011 2010 since inception thousands anticipate incurring additional 01 million facility lease obligation charges march 2017 december 31 2012 06 million facilityrelated costs remain unpaid f restructuring reserves following table summarizes restructuring reserves related plans described 50 million included accrued expenses current liabilities 12 million included longterm liabilities consolidated balance sheets thousands 1 amounts represent 100 charges borne spd alere inc subsidiaries notes consolidated financial statements continued 21 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following axisshield third quarter 2011 acquired various transactions approximately 150 million shares axisshield represented 299 ownership interest axisshield september 30 2011 fourth quarter 2011 acquired controlling interest axisshield note 4 equity earnings attributable investment 2011 immaterial ii spd may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form spd ceased consolidate operating results consumer diagnostics business related spd years ended december 31 2012 2011 2010 recorded earnings 107 million 59 million 85 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented 50 share spd’s net income respective periods iii techlab may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibioticassociated diarrhea parasitology years ended december 31 2012 2011 2010 recorded earnings 23 million 20 million 19 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented minority share techlab’s net income respective period summarized financial information pg joint venture techlab combined basis follows thousands combined condensed results operations alere inc subsidiaries notes consolidated financial statements continued 21 equity investments continued combined condensed balance sheets 22 discontinued operations january 15 2010 completed sale vitamins nutritional supplements business purchase price approximately 626 million cash net final working capital adjustment sale included entire private label branded nutritional businesses represents complete divestiture entire vitamins nutritional supplements business segment recognized gain approximately 187 million 116 million net tax 2010 results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income discontinued operations net tax consolidated financial statements following summarized financial information related vitamins nutritional supplements businesses segregated continuing operations reported discontinued operations date disposition thousands 23 supplemental cash flow information cash paid interest income taxes 2012 2011 2010 made cash payments interest totaling 2050 million 1647 million 1171 million respectively 2012 2011 2010 total net cash paid income taxes 319 million 478 million 311 million respectively alere inc subsidiaries notes consolidated financial statements continued 23 supplemental cash flow information continued noncash investing activities 2011 issued shares common stock connection certain acquisitions dollars thousands noncash financing activities 2011 2010 recorded noncash income expense accumulated comprehensive income loss 73 million 24 million respectively representing change fair market value interest rate swap agreement 2012 issued shares common stock connection settlement acquisitionrelated contingent consideration obligation dollars thousands 24 guarantor financial information 725 senior notes due 2018 7875 senior notes due 2016 9 senior subordinated notes due 2018 8625 senior subordinated notes due 2018 guaranteed certain consolidated wholly owned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2012 2011 related statements operations statements comprehensive income loss cash flows three years period ended december 31 2012 respectively alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement operations year ended december 31 2012 alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement operations year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement operations year ended december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating balance sheet december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating balance sheet december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement cash flows year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement cash flows year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 24 guarantor financial information continued consolidating statement cash flows year ended december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 25 subsequent events epocal november 2009 entered definitive agreement acquire issued outstanding equity securities epocal inc amended december 31 2012 agreement provided total potential purchase price 2630 million including milestone payments 905 million epocal achieves certain milestones relating gross margin product development efforts prior october 31 2014 agreement contains working capital adjustment whereby purchase price increased decreased extent epocal’s working capital closing less specified amount also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years 75 payable upon achievement certain milestones february 2013 completed acquisition epocal working capital adjustments made closing paid approximately 1660 million cash acquire epocal included 150 million payment achievement first two financial milestones specified agreement additional earnout payments 755 million could triggered milestones linked delivery additional product offerings epocal platform achieved b shortterm note december 2012 made 400 million secured loan third party shortterm note 3 b connection potential acquisition december 31 2012 loan included face value prepaid expenses current assets consolidated balance sheet february 2013 issuer shortterm note filed protection chapter 11 us bankruptcy code bankruptcy court subsequently granted us “continuing valid binding enforceable perfected first priority liens security interests” postpetition collateral debtor “same extent priority enforceability” held prepetition collateral order secure obligations debtor us shortterm note related agreements bankruptcy court directed debtor pay us postpetition interest contractual default rate times set forth shortterm note assessed short term note impairment considered following factors perfected first priority lien postpetition collateral debtor value available collateral represented debtor bankruptcy court significantly exceeds amount owed us shortterm note based factors along protections afforded us secured creditor bankruptcy law determined shortterm note fully realizable accordingly recorded reserve amount receivable december 31 2012 bankruptcy process inherently complicated subject uncertainties future changes circumstances certainty outcome proceedingsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits agreements filed exhibits report contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • may constituted allocation risk responsibility among parties rather statements fact • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive loss equity cash flows present fairly material respects financial position alere inc subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso material weakness internal control financial reporting relating accounting deferred tax assets become recognizable result dispositions existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weakness referred described management’s annual report internal control financial reporting appearing item 9a considered material weakness determining nature timing extent audit tests applied audit 2014 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed notes 2 24 consolidated financial statements effective october 1 2014 company changed manner accounts discontinued operations company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts march 5 2015 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements comprehensive loss thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation financial information alere inc delivers reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally leading global provider pointofcare diagnostics services developed strong commercial presence cardiometabolic disease infectious disease toxicology diabetes business organized three operating segments professional diagnostics ii patient selftesting iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified patientself testing segment provides services designed provide physicians actionable data allow make effective decisions real time deliver quality care put individuals treat pathway better health consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market acquisitions historically important part growth strategy acquired businesses sought complement existing products services enhance expand product lines andor expand customer base determined willing pay acquisition partially based upon expectation could cost effectively integrate products services acquired companies existing infrastructure addition utilized existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resulting goodwill note 4 consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification reclassifications effect net income equity year ended december 31 2014 recorded net aftertax expense charges 05 million correct prior period items net aftertax charge 28 million related fair value medapps holding company inc medapps contingent consideration obligations recorded first quarter 2014 included yeartodate charge consider adjustments immaterial prior period current period financial statements certain amounts presented may recalculate directly due rounding alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income loss note 14 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month net realized unrealized foreign currency exchange transaction losses 124 million 40 million 79 million 2014 2013 2012 respectively included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2014 2013 restricted cash restricted cash 376 million 328 million december 31 2014 2013 respectively december 31 2013 294 million classified noncurrent consolidated balance sheet secures foreign bank loan arrangement entered third quarter 2013 terms loan agreement required remain deposit two years e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive income loss net related tax effects marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory recorded financial statements represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 115 years buildings 761 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 110 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 983 million 943 million 843 million 2014 2013 2012 respectively fullydepreciated property plant equipment still use remain books disposal retirement property plant equipment retired disposed cost respective accumulated depreciation removed books gain loss disposal recorded income statement expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing annual goodwill impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guidelines companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 annual goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2014 annual goodwill impairment test conducted 2014 annual goodwill impairment test reporting units fourth quarter 2014 patient selftesting reporting unit utilized purchase price sale health management business estimated fair value health management business combined estimated fair value remaining patient selftesting reporting unit determined using combination income approach market comparable approach market transaction approach arrive total estimated fair value patient selftesting business key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 105 155 projected compound average revenue growth rates 30 110 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 12 29 times multiples ebitda 71 118 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 22 billion 5130 million 868 million respectively 367 1177 299 respectively discussed note 24 health management business met criteria assets held sale december 31 2014 sale subsequently completed january 9 2015 accordingly alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued performed step 1 impairment test goodwill remaining patient selftesting reporting unit december 31 2014 step 1 impairment test indicated estimated fair value remaining patient selftesting reporting unit exceeded carrying value reporting unit’s net assets 330 estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environment anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation 2013 annual goodwill impairment test conducted 2013 annual goodwill impairment test reporting units fourth quarter 2013 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 140 projected compound average revenue growth rates 40 114 terminal value growth rates 30 40 factors considered determining appropriate discount rate key assumptions 2014 annual goodwill impairment test described based multiples implied market data selected multiples revenue 08 29 times multiples ebitda 64 106 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 16 billion 315 million 927 million respectively 302 77 455 respectively 2012 annual goodwill impairment test conducted 2012 annual goodwill impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 factors considered determining appropriate discount rate key assumptions 2014 annual goodwill impairment test described based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 61 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 4000 million 412 million 540 million respectively 79 94 272 respectively impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development patents trademarks trade names customer relationships distribution rights noncompetition agreements majority intangible assets recorded connection various business combinations intangible assets recorded fair value time acquisition amortize intangible assets estimated useful lives estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived assets reduced estimated fair value lower impairment loss charged expense period impairment identified j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire part business combinations completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life utilize discounted probable future cash flow model projectbyproject basis value acquired iprd significant assumptions used model include period material net cash inflows significant projects expected commence anticipated material changes historical pricing margins expense levels appropriate risk adjusted discount rate applied project’s cash flows k business acquisitions business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis aware information indicates final fair value analysis differ materially preliminary estimates 2014 2013 2012 expensed acquisitionrelated costs 09 million 31 million 96 million respectively general administrative expense l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts likely realized future note 15 account uncertain tax positions using “morelikelythannot” threshold recognizing resolving uncertain tax positions evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally respect health management business included discontinued operations generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue license royalty agreements recognized straightline basis obligation period related license agreements time obligations license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned n employee stockbased compensation arrangements account sharebased payments accordance accounting standards codification asc 718 compensation stock compensation expense associated stock options includes amortization based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future net loss per common share net loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 11 p operating expenses expense advertising costs incurred 2014 2013 2012 advertising costs amounted 80 million 106 million 220 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations charge customers shipping handling costs recorded along product revenues q concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2014 2013 individual customer’s accounts receivable balance 10 aggregate accounts receivable 2014 2013 2012 one customer represented 10 net revenue rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results r financial instruments fair value financial instruments primary financial instruments december 31 2014 2013 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities software internal use resale may capitalize certain costs associated development internaluse software including direct materials services capitalized software amortized straightline basis estimated useful life included computer software equipment within property plant equipment also develop software resale lease external parties expense costs developing software resale lease incurred establishment technological feasibility underlying software costs incurred establishment technological feasibility general release software capitalized software amortized estimated useful life capitalized software resale lease included computer software equipment within property plant equipment research development research development programs focus development cardiometabolic infectious disease toxicology products research development costs expensed incurred payments received external parties fund research development activities reduce recorded research development expenses u leases lease certain facilities equipment external parties operating leases rent expense related operating leases recorded income statement incurred also lease machinery laboratory equipment tooling equipment capital leases determining whether lease capital operating lease estimate expected term lease includes certain renewable options required lease accounting guidance rent deferrals landlord incentives rent escalations included calculation minimum lease payments performing capital lease tests calculating rent expense operating leases leased property plant equipment meet capital lease criteria capitalized lower present value minimum lease payments fair value underlying asset inception date lease assets capital leases depreciated straightline basis lease term alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued leasehold improvements capitalized amortized shorter estimated useful lives remainder expected term lease v recent accounting pronouncements recently issued standards august 2014 fasb issued accounting standards update asu 201415 presentation financial statements going concern subtopic 20540 disclosure uncertainties entity’s ability continue going concern asu 201415 asu 201415 intended define management’s responsibility evaluate whether substantial doubt organization’s ability continue going concern provide related footnote disclosures asu 201415 effective fiscal years ending december 15 2016 interim periods within fiscal years beginning december 15 2016 early adoption permitted currently evaluating potential impacts new standard consolidated financial statements june 2014 fasb issued asu 201412 compensation stock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period asu 201412 asu 201412 requires performance target affects vesting could achieved requisite service period treated performance condition asu 201412 effective fiscal years beginning december 15 2015 interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201412 consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 asu 201409 requires entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective fiscal years beginning december 15 2016 interim periods within fiscal years early adoption permitted currently evaluating impact new guidance method adoption consolidated financial statements believe accounting standards recently issued expected material impact consolidated financial statements recently adopted standards april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu 201408 asu 201408 requires disposals representing strategic shift operations major effect organization’s operations financial results disposal major geographic area major line business major equity method investment presented discontinued operations addition new guidance requires expanded disclosures discontinued operations provide financial statement users information assets liabilities income expenses discontinued operations asu 201408 effective first quarter 2015 early adoption permitted effective october 1 2014 adopted asu 201408 result early adoption standard reported divestiture bionote inc bionote gain disposition within operating income continuing operations see note 22 note 24 alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued november 2014 fasb issued asu 201417 business combinations topic 805 pushdown accounting asu 201417 asu 201417 provides acquired entity option apply pushdown accounting separate financial statements upon occurrence event acquirer obtains control acquired entity asu 201417 effective november 18 2014 effective november 18 2014 adopted asu 201417 adoption standard material impact consolidated financial statements effective january 1 2014 adopted asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 clarifies guidance eliminates diversity practice presentation unrecognized tax benefits net operating loss carryforward similar tax loss tax credit carryforward exists limited exceptions adoption standard material impact consolidated financial statements 3 balance sheet information components selected captions consolidated balance sheets consist thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations acquisitions accounted using acquisition method acquired companies’ results included accompanying consolidated financial statements respective dates acquisition 2014 2013 2012 recorded acquisitionrelated costs 09 million 31 million 97 million respectively general administrative expense business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner net assets acquired recorded fair value subject adjustment upon finalization fair value analysis estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized acquisitions 2013 epocal february 1 2013 acquired epocal inc epocal located ottawa canada provider technologies support blood gas electrolyte testing point care aggregate purchase price approximately 2485 million consisted 1514 million cash 221 million settlement preexisting arrangement contingent consideration obligation aggregate acquisition date fair value 750 million operating results epocal included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2013 year ended december 31 2013 acquired following businesses aggregate purchase price 576 million included cash payments totaling 282 million 175 million settlement preexisting arrangement contingent consideration obligations aggregate acquisition date fair value 13 million deferred purchase price consideration acquisition date fair value 08 million 80 million bargain purchase gain • certain assets pt mega medika mandiri mega medika located south jakarta indonesia distributor infectious disease products indonesian marketplace well materials vaccines pharmaceutical customer acquired january 2013 • discount diabetic llc discount diabetic located phoenix arizona provider blood glucose monitoring products including diabetes testing systems test strips products acquired april 2013 • medicare feeforservice assets liberty medical liberty business located port st lucie florida leading mail order provider diabetes testing supplies serving needs type 1 type 2 diabetic patients acquired april 2013 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • 51 share cardio selfcare bv subsequently renamed alere health services bv alere health services located ede netherlands developer innovative software healthcare industry develops licenses software sells medical devices enable patients perform medical selfcare including thrombosis selfcare acquired may 2013 • 749 interest pantech proprietary limited pantech located durban south africa supplier rapid diagnostic test kits including hiv malaria syphilis drugs abuse 10 parameter urine sticks glucometers glucose sticks acquired july 2013 • certain assets simplex healthcare inc subsidiaries simplex located tennessee provider home delivery diabetesrelated medical supplies products acquired november 2013 operating results mega medika discount diabetic liberty business alere health services pantech simplex included professional diagnostics reporting unit business segment consolidated statement operations year ended december 31 2013 included revenue totaling approximately 830 million related businesses goodwill recognized mega medika alere health services pantech simplex acquisitions amounted approximately 24 million goodwill related mega medika simplex acquisitions deductible tax purposes goodwill related pantech alere health services acquisitions respect acquisition liberty business purchase price acquisition allocated net tangible intangible assets acquired excess fair value assets acquired purchase price recorded bargain purchase gain 80 million bargain purchase gain recorded income expense net consolidated statement operations recognized tax purposes bargain purchase gain resulted operating cost structure believe allow us operate business cost effectively sellers alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary fair values net assets acquired acquisitions consummated 2013 follows thousands 1 includes approximately 33 million acquired cash following intangible assets acquired 2013 respective fair values weightedaverage useful lives dollars thousands b acquisitions 2012 escreen april 2 2012 acquired escreen inc escreen headquartered overland park kansas technologyenabled provider employment drug screening solutions hiring maintaining healthier efficient workforces aggregate purchase price approximately 2950 million consisted 2714 million cash contingent consideration obligation aggregate acquisition date fair value 236 million included consolidated statements alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued operations year ended december 31 2012 revenue totaling approximately 1167 million related escreen operating results escreen included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2012 acquired following businesses aggregate purchase price 1995 million included cash payments totaling 1475 million contingent consideration obligations aggregate acquisition date fair values 520 million • reatrol comercializacao de produtos de saude lda subsequently renamed alere lda located vila nova de gaia portugal distributor products drugs abuse testing acquired january 2012 • kullgren holding ab kullgren located gensta sweden company manufactures distributes highquality intimacy pharmaceutical products acquired february 2012 • wellogic fzllc wellogic uae located dubai united arab emirates company provides development services alere wellogic llc acquired assets method factory inc dba wellogic december 2011 acquired february 2012 • certain assets primarily including customer patient lists ammed direct llc ammed located near nashville tennessee privatelyowned mailorder provider homediabetes testing products supplies acquired march 2012 • medapps holding company inc medapps headquartered scottsdale arizona developer innovative remote health monitoring solutions deliver efficient costeffective connectivity patient care provider electronic medical records acquired july 2012 • amedica biotech inc amedica located hayward california company focused development manufacture vitro diagnostic tests acquired july 2012 • diagnosisone inc diagnosisone located lowell massachusetts software company provides clinical analytics technology datadriven content hospitals physician groups insurers governments acquired july 2012 • seelen care laegeog hospitalsartikler aps seelen located holstebro denmark distributor consumables instruments equipment doctors specialists physiotherapists acquired august 2012 • certain assets diagnostik nord diagnostik located schwerin germany company focused sale drug screening vitro diagnostic medical devices provider diagnostic solutions acquired september 2012 • healthcare connections limited hcc located buckinghamshire united kingdom occupational health provider specializing employment medical programs preventative health schemes drug alcohol sample collection services acquired november 2012 • diagnostic division medial spol sro subsequently renamed alere sro located prague czech republic distributor laboratory diagnostic devices operating pointofcare testing regime diagnostic kits tests biochemistry hematology microbiology acquired november 2012 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • certain assets quantum diagnostics quantum australia located australia online medical supply company provides range affordable drug alcohol tests personal business professional medical use acquired november 2012 • certain assets nationshealth inc nationshealth headquartered sunrise florida privatelyowned mailorder provider diabetes hometesting products supplies share acquisition nationshealth’s subsidiary philippines nationshealth philippines acquired december 2012 • branan medical corporation branan headquartered irvine california manufacturer drugs abuse testing products acquired december 2012 operating results alere lda ammed medapps amedica seelen diagnostik hcc alere sro quantum australia nationshealth branan included professional diagnostics reporting unit business segment operating results diagnosisone included patient selftesting reporting unit business segment operating results kullgren included consumer diagnostics reporting unit business segment operating results wellogic uae reflected discontinued operations consolidated statements operations year ended december 31 2012 included revenue totaling approximately 446 million related businesses goodwill recognized acquisitions amounted approximately 942 million goodwill related acquisitions ammed diagnostik usbased assets nationshealth totaled 88 million deductible tax purposes goodwill related remaining 2012 acquisitions deductible tax purposes summary fair values net assets acquired acquisitions consummated 2012 follows thousands 1 includes approximately 38 million acquired cash alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following intangible assets acquired respective fair values weightedaverage useful lives dollars thousands 5 goodwill intangible assets following summary goodwill intangible assets december 31 2014 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2013 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions estimated useful lives individual categories intangible assets based nature applicable intangible assets expected future cash flows derived intangible assets amortization intangible assets finite lives recognized shorter respective lives underlying license agreements applicable period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortization expense intangible assets aggregate amounted 2372 million 2800 million 2994 million 2014 2013 2012 respectively included cost net revenue research development sales marketing general administrative expenses accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued fourth quarter perform annual impairment tests carrying value goodwill reporting unit discussion see note 2h goodwill amounts professional diagnostics patient selftesting consumer diagnostics reporting units summarized follows thousands 1 december 31 2012 balance patient selftesting reporting unit reflects allocation goodwill related condition management case management wellbeing wellness women’s children’s health businesses collective health management business held sale date 2 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 3 reflects writeoff related dispositions spinreact 2013 bionote 2014 4 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2014 2013 approximately 95 million 96 million respectively costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands december 31 2014 december 31 2013 respectively 1 incurred secured credit facility 2 includes “a” term loans “delayed draw” term loans secured credit facility 3 includes term loans previously referred “incremental b1” term loans “incremental b2” term loans secured credit facility term loans converted consolidated “b” term loans secured credit facility connection significant longterm debt issuances recorded interest expense including amortization writeoffs deferred financing costs original issue discounts accompanying consolidated statements operations 2014 2013 2012 respectively follows thousands 1 includes “a” term loans including “delayeddraw” term loans “b” term loans including term loans previously referred “incremental b1” term loans “incremental b2” term loans term loans converted consolidated “b” term loans revolving line credit loans 2014 2013 2012 amounts include 15 million 26 million 50 million respectively related amortization fees paid certain debt modifications alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 2 amount includes approximate 02 million loss recorded connection repurchase 7875 senior notes 3 amount includes approximate 232 million loss recorded connection repurchase substantially 7875 senior notes included 232 million 123 million makewhole payment classified within cash flow financing activities consolidated statement cash flows 4 amount includes approximate 356 million loss recorded connection repurchase 9 senior subordinated notes included 356 million 190 million related tender offer consideration call premium classified within cash flow financing activities consolidated statement cash flows following describes debt instruments listed secured credit facility june 30 2011 entered credit agreement secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement december 7 2011 entered amendment secured credit facility provide additional term loan facility “incremental b1” term loans borrowed date march 28 2012 entered amendment provide additional term loan facility “incremental b2” term loans borrowed date may 30 2014 entered amendment pursuant among changes “incremental b1” term loans “incremental b2” term loans converted consolidated “b” term loans thereunder secured credit facility amended repayments loans pursuant amendment described immediately following paragraph comprises credit facilities totaling 255 billion aggregate original principal amount consisting term loans aggregate original principal amount 23 billion consisting “a” term loans including “delayed draw” term loans aggregate original principal amount 9250 million “b” term loans aggregate original principal amount 1375 billion including respective 2500 million 2000 million aggregate original principal amounts “incremental b1” term loans “incremental b2” term loans converted “b” term loans described fully drawn subject continued compliance secured credit facility 2500 million revolving line credit includes 500 million sublimit issuance letters credit december 2014 used net cash proceeds sale bionote business repay revolving credit loans aggregate amount 430 million may reborrow amounts repaid 2500 million revolving credit facility subject compliance terms secured credit facility must repay “a” term loans excluding “delayed draw” term loans eighteen consecutive quarterly installments began december 31 2011 continue march 31 2016 amount 7812500 final installment june 30 2016 amount 484375000 must repay “delayeddraw” term loans included within “a” term loans fifteen consecutive quarterly installments began september 30 2012 continue march 31 2016 amount 3750000 final installment june 30 2016 alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued amount 243750000 must repay “b” term loans including amounts thereof converted previously outstanding “incremental b1” term loans “incremental b2” term loans described twentytwo consecutive quarterly installments began december 31 2011 continue march 31 2017 remaining payment amount 3437500 final installment due june 30 2017 amount 1301000000 paid full installments term loans due december 31 2014 may repay borrowings revolving line credit time without premium penalty must repay borrowings event later june 30 2016 notwithstanding foregoing subject certain exceptions provided credit agreement event existing 3 convertible senior subordinated notes remain outstanding november 15 2015 term loans revolving credit loans secured credit facility shall instead mature full prior date “a” term loans including “delayed draw” term loans borrowings revolving credit facility bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies within range 175 250 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies within range 275 350 depending consolidated secured leverage ratio march 22 2013 entered amendment secured credit facility provided among changes 50 basis point reductions interest rate margins applicable “b” term loans reductions also applied “incremental b1” term loans “incremental b2” term loans outstanding secured credit facility amended “b” term loans including amounts thereof converted previously outstanding “incremental b1” term loans “incremental b2” term loans described bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies within range 200 275 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies within range 300 375 depending consolidated secured leverage ratio interest “b” term loans including amounts thereof converted previously outstanding “incremental b1” term loans “incremental b2” term loans described based eurodollar rate subject 100 floor respect base eurodollar rate required pay fee unused portion revolving credit facility rate per annum 050 december 31 2014 “a” term loans including “delayeddraw” term loans “b” term loans including amounts thereof converted previously outstanding “incremental b1” term loans “incremental b2” term loans described revolving line credit loans bore interest rates 317 425 317 respectively per annum must comply various customary financial nonfinancial covenants credit agreement primary financial covenants consist maximum consolidated secured leverage ratio minimum consolidated interest coverage ratio limit capital expenditures compliance financial covenants december 31 2014 primary nonfinancial covenants limit ability pay dividends distributions capital stock repurchase capital stock conduct mergers acquisitions make investments loans incur future indebtedness place liens assets prepay certain indebtedness alter capital structure sell assets covenants subject certain important exceptions qualifications set forth credit agreement alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued lenders credit agreement entitled terminate revolving line credit accelerate repayment loans outstanding credit agreement upon occurrence various customary events default december 31 2014 accrued interest related secured credit facility amounted 02 million b 725 senior notes december 11 2012 sold total 4500 million aggregate principal amount 725 senior notes due 2018 725 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 725 senior notes initial offering price 100 net proceeds offering amounted 4432 million net underwriters’ commissions offering expenses totaling 68 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act used 2674 million net proceeds purchase 2482 million outstanding principal amount 7875 senior notes described 1700 million pay portion outstanding balance revolving line credit 725 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 725 indenture 725 senior notes accrue interest rate 725 per annum interest 725 senior notes payable semiannually june 15 december 15 beginning june 15 2013 725 senior notes mature july 1 2018 unless earlier redeemed may redeem 725 senior notes whole part time december 15 2015 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3625 twelve months december 15 2015 1813 six months december 15 2016 zero june 15 2017 time prior december 15 2015 may redeem 35 aggregate principal amount 725 senior notes money raise certain equity offerings long pay 10725 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 725 senior notes remains outstanding afterwards addition time prior december 15 2015 may redeem 725 senior notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 725 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 725 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes would 100 principal amount plus accrued unpaid interest alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 725 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge person certain affiliates transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 725 indenture time 725 senior notes rated investment grade certain covenants suspended respect 725 indenture contains customary events default entitling trustee holders 725 senior notes declare amounts owed pursuant 725 senior notes immediately payable event default occurs 725 senior notes senior unsecured obligations equal right payment existing future senior debt including borrowings secured credit facility obligations 725 senior notes 725 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 25 guarantor financial information december 31 2014 accrued interest related 725 senior notes amounted 14 million c 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 september 28 2009 7875 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 7875 indenture 7875 senior notes accrued interest dates respective issuances rate 7875 per annum interest notes payable semiannually february 1 august 1 commencing february 1 2010 terms notes provided matured february 1 2016 unless earlier redeemed december 2012 used 2674 million net proceeds sale 725 senior notes purchase 2482 million outstanding principal amount 7875 senior notes purchased 7875 senior notes represented 993 total thenoutstanding principal amount 7875 senior notes february 2013 redeemed remaining 18 million outstanding principal amount 7875 senior notes pursuant optional redemption right 7875 indenture subsequently terminated 7875 indenture 65 senior subordinated notes may 2013 sold total 4250 million aggregate principal amount 65 senior subordinated notes due 2020 65 senior subordinated notes private placement initial alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued purchasers agreed resell notes qualified institutional buyers persons outside united states sold 65 senior subordinated notes initial offering price 100 net proceeds offering amounted 4177 million net underwriters’ commissions offering expenses totaling approximately 73 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act may 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount 9 senior subordinated notes pursuant tender offer notes june 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes pursuant optional redemption right indenture notes subsequently terminated indenture 65 senior subordinated notes issued supplemental indenture dated may 24 2013 65 indenture 65 senior subordinated notes accrue interest rate 65 per annum interest 65 senior subordinated notes payable semiannually june 15 december 15 beginning december 15 2013 65 senior subordinated notes mature june 15 2020 unless earlier redeemed may option redeem 65 senior subordinated notes whole part time may june 15 2016 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3250 twelve months june 15 2016 1625 twelve months june 15 2017 zero june 15 2018 addition may option time may 24 2015 redeem 10 aggregate principal amount 65 senior subordinated notes two twelvemonth periods preceding may 24 2015 redemption price 103 principal amount thereof plus accrued unpaid interest excluding redemption date addition time may prior june 15 2016 may option redeem 35 aggregate principal amount 65 senior subordinated notes money raise certain equity offerings long pay 1065 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 65 senior subordinated notes within 90 days completing equity offering iii least 65 aggregate principal amount 65 senior subordinated notes remains outstanding afterwards addition time may prior june 15 2016 may option redeem 65 senior subordinated notes paying principal amount 65 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 65 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 65 senior subordinated notes pro rata basis respect 65 senior subordinated notes 8625 senior subordinated notes equal excess net cash proceeds subject certain exceptions alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued purchase price 65 senior subordinated notes would 100 principal amount plus accrued unpaid interest 65 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge person certain affiliates transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 65 indenture time 65 senior subordinated notes rated investment grade certain covenants suspended respect 65 indenture contains customary events default entitling trustee holders 65 senior subordinated notes declare amounts owed pursuant 65 senior subordinated notes immediately payable event default occurs 65 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 8625 senior subordinated notes 3 convertible senior subordinated notes obligations 65 senior subordinated notes 65 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information december 31 2014 accrued interest related 65 senior subordinated notes amounted 13 million e 8625 senior subordinated notes september 2010 sold 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 8625 senior subordinated notes subsequently exchanged new notes substantially terms exchange offer registered securities act 8625 senior subordinated notes issued supplemental indenture dated september 21 2010 amended supplemented 8625 indenture 8625 senior subordinated notes accrue interest rate 8625 per annum interest 8625 notes payable semiannually april 1 october 1 beginning april 1 2011 8625 subordinated notes mature october 1 2018 unless earlier redeemed may redeem 8625 senior subordinated notes whole part time may october 1 2014 paying principal amount notes alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4313 twelve months october 1 2014 2156 twelve months october 1 2015 zero october 1 2016 change control occurs subject specified conditions must give holders 8625 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 8625 senior subordinated notes pro rata basis respect 8625 senior subordinated notes 65 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price senior subordinated notes would 100 principal amount plus accrued unpaid interest 8625 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 8625 indenture time 8625 senior subordinated notes rated investment grade certain covenants suspended respect 8625 indenture contains customary events default entitling trustee holders 8625 senior subordinated notes declare amounts owed pursuant 8625 senior subordinated notes immediately payable event default occurs 8625 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 65 senior subordinated notes 3 convertible senior subordinated notes obligations 8625 senior subordinated notes 8625 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information december 31 2014 accrued interest related 8625 senior subordinated notes amounted 86 million alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued f 9 senior subordinated notes may 12 2009 sold 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 senior subordinated notes 9 senior subordinated notes issued supplemental indenture dated may 12 2009 amended supplemented 9 indenture 9 senior subordinated notes accrued interest date issuance rate 9 per annum interest 9 senior subordinated notes payable semiannually may 15 november 15 commencing november 15 2009 terms 9 senior subordinated notes provided matured may 15 2016 unless earlier redeemed may 24 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount 9 senior subordinated notes pursuant tender offer notes purchased 9 senior subordinated notes represented approximately 477 total thenoutstanding principal amount 9 senior subordinated notes june 24 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes pursuant optional redemption right 9 indenture subsequently terminated 9 indenture g 3 convertible senior subordinated notes may 14 2007 sold 1500 million principal amount 3 convertible senior subordinated notes due 2016 3 convertible senior subordinated notes 3 convertible senior subordinated notes convertible approximately 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount 3 convertible senior subordinated notes payable arrears may 15th november 15th year beginning november 15 2007 may redeem 3 convertible senior subordinated notes prior stated maturity event certain fundamental changes defined indenture governing 3 convertible senior subordinated notes termination trading common stock described indenture may required repurchase 3 convertible senior subordinated notes cash price equal 100 unconverted principal amount thereof plus accrued unpaid interest 3 convertible senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility senior notes equal right payment senior subordinated notes indenture governing 3 convertible senior subordinated notes contains customary events default entitling trustee holders thereof declare amounts owed pursuant 3 convertible senior subordinated notes immediately payable event default occurs december 31 2014 accrued interest related 3 convertible senior subordinated notes amounted 06 million h lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit december 31 2014 approximately 2678 million 1277 million borrowed outstanding date alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued debt included debt december 31 2014 borrowings certain subsidiaries various financial institutions borrowed funds primarily used fund capital expenditures working capital requirements interest expense borrowings 33 million 2014 j maturities longterm debt following summary maturities longterm debt including current portions thereof outstanding december 31 2014 thousands 7 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued following tables present information assets liabilities measured fair value recurring basis december 31 2014 2013 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market significant increases decreases inputs could result significantly higher lower fair value measurement changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations see note 10 additional information valuation contingent consideration obligations alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued changes fair value level 3 contingent consideration obligations year ended december 31 2014 follows thousands 1 acs divested october 2014 connection transaction contingent consideration obligation terminated see note 24 december 31 2014 2013 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt 37 billion december 31 2014 carrying amount estimated fair value longterm debt 38 billion 39 billion respectively december 31 2013 estimated fair value longterm debt determined using information derived available market sources level 2 fair value hierarchy may representative actual values could realized future 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 8 capital leases continued december 31 2014 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 92 million 94 million 88 million 2014 2013 2012 respectively b uk pension plans subsidiary england unipath ltd unipath defined benefit pension plan established certain employees alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2014 2013 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown current liabilities 44 million 43 million respectively years ended december 31 2014 2013 following represents amounts recognized comprehensive income loss year ended december 31 2014 amortization prior service cost expected approximately 04 million 2015 amounts recognized accumulated comprehensive loss years ending december 31 2014 2013 follows alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued measurement dates used determine plan assets benefit obligations defined benefit plan december 31 2014 2013 following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2014 2013 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning presented year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities calculated using weightedaverage expected returns asset class held plan longterm expected return assets net investment expenses annual net periodic benefit costs defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2014 stocks fixed income securities represented 72 28 respectively market value pension assets expect contribute approximately £06 million 09 million december 31 2014 defined benefit plan 2015 expect benefits paid plan participants range approximately 03 million 05 million per year next five years benefits totaling 05 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds fair values pension plan assets december 31 2014 2013 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath contributed 04 million 2014 03 million 2013 04 million 2012 defined contribution plan recognized expense accompanying consolidated statement operations 10 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2019 following schedule outlines future minimum annual rental payments leases december 31 2014 thousands rent expense relating operating leases approximately 484 million 460 million 417 million 2014 2013 2012 respectively yearoveryear increases rent expense result new leases entered years alere inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued b acquisitionrelated contingent consideration obligations contractual contingent purchase price consideration obligations related certain acquisitions determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving certain performance targets including product development milestones financial metrics fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted earnout payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria following table summarizes contractual contingent purchase price consideration obligations related certain acquisitions follows thousands 1 terms acquisition agreement require us pay earnout upon successfully meeting certain revenue product development targets 2025 2 terms acquisition agreement require us pay earnouts upon successfully meeting multiple product development milestones five years following acquisition 3 terms acquisition agreement required us pay earnout upon successfully meeting certain revenue operating income targets twelvemonth periods ending june 30 2012 2013 4 terms acquisition agreement required us pay earnout upon successfully meeting certain ebitda targets 2012 2014 alere inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued 5 terms acquisition agreement required us pay earnout upon successfully meeting certain operational profit targets 2012 2019 see also 11 6 terms acquisition agreement required us make earnout payments upon achievement certain technological product development milestones december 31 2014 7 terms acquisition agreement required us make earnout payments upon successfully meeting certain financial targets calendar years 2012 2013 8 terms acquisition agreement require us pay earnouts upon successfully meeting certain financial targets within five years acquisition date 9 terms acquisition agreement require us pay earnouts management incentive payments upon successfully meeting certain product development united states food drug administration regulatory approval milestones date acquisition december 31 2018 10 maximum earnout period ends fifteenth anniversary acquisition date 11 earnout comprised three components two components aggregate maximum remaining earnout potential 494 million dollar cap third earnout component however earnout potential limited remaining earnout period acs divested october 2014 earnouts terminated connection divestiture transaction see note 24 c legal proceedings • matters relating san diego facility october 9 2012 received warning letter fda referencing inspectional observations set forth fda form 483 received june 2012 observations result inspection san diego facility conducted earlier 2012 relating alere triage products resulted two recalls certain alere triage products revised release specifications alere triage meterbased products submitted evidence completion actions committed response fda form 483 warning letter september 2014 follow inspection san diego facility fda notified us recent inspection classified “voluntary action indicated” meaning objectionable conditions practices found inspection meet threshold significance requiring regulatory action formal closeout october 2012 warning letter could occur future inspection may 2012 also received subpoena office inspector general department health human services oig seeking documents relating primarily quality control testing performance characteristics alere triage products cooperating oig provided documents response oig subpoena unable predict matters resolved action government take connection • matters related theft laptop september 2012 passwordprotected laptop containing personally identifiable information approximately 116000 patients stolen employee alere home monitoring ahm january 24 2013 class action complaint filed us district court northern district california ahm asserting claims damages relief california state law including california’s confidentiality medical information act cmia arising theft alere inc subsidiaries notes consolidated financial statements continued 10 commitments contingencies continued october 7 2014 class action dismissed leave amend complaint october 28 2014 amended complaint filed november 17 2014 ahm responded filing another motion dismiss february 23 2015 ahm’s motion dismiss granted part denied plaintiffs’ amended cmia claims • claims ordinary course matters party pending legal proceedings currently believe could material adverse impact business however december 10 2014 subsidiary avee laboratories inc avee received subpoenas united states attorney district new jersey seeking marketing materials documents relating primarily billing marketing practices related toxicology testing cooperating investigation begun provide documents responsive subpoenas subsidiary arriva medical llc arriva also process responding civil investigative demand cid united states attorney middle district tennessee connection investigation possible improper claims submitted medicare medicaid cid requests patient billing records investigations preliminary stages cannot predict effect investigations resulting claims could alere subsidiaries diabetes toxicology patient selftesting business areas subject audit claims reimbursement brought ordinary course zone program integrity contractors zpics medicare administrative contractors macs monitor compliance coverage reimbursement rules guidelines medicare medicaid types audits often lead determinations certain claims paid medicare medicaid programs seek recoup offset amounts assert paid error businesses may also subject time commercial disputes consumer product claims negligence claims various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future lawsuits claims generally seek damages reimbursement sometimes substantial amounts alere inc subsidiaries notes consolidated financial statements continued 11 net loss per common share following tables set forth computation basic diluted net loss per common share thousands except per share amounts following potential dilutive securities included calculation diluted net loss per common share continuing operations inclusion thereof would antidilutive thousands alere inc subsidiaries notes consolidated financial statements continued 12 stockholders’ equity common stock december 31 2014 2000 million shares common stock 0001 par value authorized 77 million shares held treasury 839 million shares outstanding 102 million shares reserved issuance upon grant exercise equity awards current equity compensation plans 21 million shares reserved issuance employee stock purchase plan 4000 shares reserved issuance upon exercise outstanding warrants also shares common stock reserved issuance upon conversion following securities outstanding december 31 2014 1500 million aggregate principal amount 3 convertible senior subordinated notes convertible 4398 per share 34 million shares common stock 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock b preferred stock december 31 2014 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2014 18 million shares series b preferred stock outstanding fair value approximately 5589 million share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2014 would convert 102 million shares common stock reserved conversions december 31 2014 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock alere inc subsidiaries notes consolidated financial statements continued 12 stockholders’ equity continued share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance years ended december 31 2014 2013 2012 series b preferred stock dividends amounted 213 million 213 million 213 million respectively reduced earnings available common stockholders purposes calculating net loss per common share 2014 2013 2012 note 12 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof series b preferred stock dividends years ended december 31 2014 2013 paid cash holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2014 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c share repurchases first quarter 2011 repurchased open market privatelynegotiated transactions 183000 shares series b preferred stock convertible approximately 11 million shares common stock cost approximately 494 million paid cash repurchase preferred stock average cost 26984 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 137 million income attributable common stockholders also first quarter 2011 pursuant repurchase program repurchased 16700 shares common stock cost approximately 06 million paid cash second quarter 2011 repurchased open market privatelynegotiated transactions 174788 shares series b preferred stock convertible approximately 10 million shares common stock cost approximately 497 million paid cash repurchase preferred stock average cost 28428 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 102 million income attributable common stockholders also second quarter 2011 pursuant repurchase program repurchased 8300 shares common stock cost approximately 03 million paid cash third quarter 2011 repurchased approximately 76 million shares common stock cost approximately 1839 million paid cash alere inc subsidiaries notes consolidated financial statements continued 12 stockholders’ equity continued stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows issuance 92 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards restricted stock units unrestricted stock awards performance share awards dividend equivalent rights 2010 plan also generally provides automatic vesting acceleration options automatic removal conditions restrictions restricted stock awards restricted stock units performance share awards upon change control defined 2010 plan december 31 2014 2013 28 million 11 million shares respectively available future grant 2010 plan following summarizes stock option activity year ended december 31 2014 thousands except exercise price aggregate intrinsic value options outstanding december 31 2014 428 million aggregate intrinsic value options exercisable december 31 2014 239 million aggregate intrinsic value stock options exercised 2014 2013 2012 149 million 45 million 13 million respectively december 30 2012 granted restricted stock unit rsu award one executive employees amount 110000 units rsu award vests threeyear period however executive’s employment involuntarily terminated without cause within three years rsu award accelerate fully vest rsu award also accelerate fully vest executive terminates employment voluntarily one year presence facts circumstances would constitute cause termination us fair value rsu award 1837 per unit calculated based closing market price common stock date grant aggregate fair value rsu award expensed straightline basis recipient’s service requirement completion period one year 10000 units underlying rsu award vested december 31 2014 addition august 31 2014 october 31 2014 december 31 2014 granted 385000 50000 4000 rsus respectively various employees fair value rsu awards 3545 august 31 2014 3997 october 31 2014 3800 december 31 2014 vesting onethird per year three years rsu awards outstanding december 31 2014 alere inc subsidiaries notes consolidated financial statements continued 12 stockholders’ equity continued based equity awards outstanding december 31 2014 474 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weightedaverage period 142 years e warrants following summary warrant activity three years ended december 31 2014 following table presents additional information related warrants outstanding exercisable december 31 2014 warrants included table issued connection acquisition genecare warrants purchase shares common stock outstanding issued officers directors company entities controlled officers directors december 31 2014 outstanding warrants classified equity f employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every sixmonth offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 50 million shares common stock plan december 31 2014 29 million shares issued plan alere inc subsidiaries notes consolidated financial statements continued 13 stockbased compensation recorded stockbased compensation expense consolidated statements operations years ended december 31 2014 2013 2012 respectively follows thousands connection departure three senior executives recorded reversal stockbased compensation expense amount 56 million second quarter 2014 relating termination stock option awards following resignations 56 million reversal 22 million recorded research development 34 million general administrative years ended december 31 2014 2013 2012 presentation cash flows reports excess tax benefits exercise stock options financing cash flows years ended december 31 2014 2013 2012 excess tax benefits generated option exercises amounted 10 million 14 million 05 million respectively following assumptions used estimate fair value options granted years ended december 31 2014 2013 2012 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted employees 2014 2013 2012 1955 1522 737 per share respectively options granted periods granted fair market value date grant year ended december 31 2014 recorded compensation expense 26 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 32 riskfree interest rate 009 006 expected life 181 days 184 days two respective offering periods 2014 charge included employee’s respective cost classification table year ended december 31 2013 recorded compensation expense 26 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing alere inc subsidiaries notes consolidated financial statements continued 13 stockbased compensation continued model assumed expected volatility 41 40 riskfree interest rate 012 009 expected life 181 days 184 days two respective offering periods 2013 charge included employee’s respective cost classification table year ended december 31 2012 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 44 47 riskfree interest rate 006 015 expected life 182 days 184 days two respective offering periods first half 2012 second offering period accommodate employees recent acquisition fair value option component employee stock purchase plans shares offering estimated grant date march 1 2012 using blackscholes option pricing model assumed expected volatility 40 riskfree rate 010 expected life 122 days 2012 charge included employee’s respective cost classification table 14 accumulated comprehensive income loss accumulated comprehensive income loss consisted following thousands 1 represents unrealized gains losses availableforsale securities hedging instruments 15 income taxes income loss provision benefit income taxes consists following thousands continuing operations alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued discontinued operations primary temporary differences give rise deferred tax assets liabilities net operating loss nol carryforwards capital loss carryforwards tax credit carryforwards nondeductible reserves accruals outside basis differences basis tangible intangible assets income tax effects temporary differences inclusive discontinued operations follows thousands december 31 2014 recorded deferred tax asset tax book outside basis differences related health management business due anticipated reversal deferred tax asset foreseeable future portion deferred tax asset expected capital nature alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued therefore valuation allowance recorded portion deferred tax asset likely deferred tax assets realized december 31 2014 469 million federal nol carryforwards 7402 million state nol carryforwards 2448 million foreign nol foreign capital loss carryforwards either expire various dates 2034 carried forward indefinitely december 31 2014 1285 million federal state research development us foreign tax credit carryforwards either expire various dates 2034 carried forward indefinitely loss tax credit carryforwards may available reduce future federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities internal revenue service irs code section 382 imposes annual limitation use losses amount equal value company time certain ownership changes multiplied longterm tax exempt rate federal nols subject various section 382 limitations however forecast fully utilize nols expiration section 383 imposes annual limitation use credits amount equal value company time certain ownership changes multiplied longterm tax exempt rate federal credits subject various section 383 limitations state foreign losses credits may subject similar limitations based local provisions year ended december 31 2014 provision income taxes included provision 667 million primarily related establishment valuation allowance deferred tax assets associated us foreign tax credit carryforwards valuation allowance established likely deferred tax assets realized decision based weight available positive negative evidence existed december 31 2014 recorded valuation allowance 2403 million december 31 2014 due uncertainties related future benefits realization deferred tax assets related primarily us foreign tax credits outside basis differences certain state foreign attributes carryforward increase 1558 million valuation allowance 845 million december 31 2013 increase primarily related changes assessment related us foreign tax credits outside basis differences valuation allowance based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision two chinabased manufacturing subsidiaries qualified reduced income tax rate 2013 2012 chinese entities qualified reduced rate 15 high technology status companies status expired 2014 neither chinese entity qualified high technology status 2014 therefore current deferred tax rate two entities increased 25 prescribed statutory rate 2014 2013 2012 25 reduced rate 2013 2012 high technology status 15 reduced tax rate resulted current tax expense 14 million 10 million 2013 2012 respectively absence reduced rate tax rate 25 would applied would resulted tax expense approximately 24 million 2013 17 million 2012 tax benefit rate change 10 million 07 million 2013 2012 respectively earnings per common share effect reduced tax rate 001 2013 2012 respectively alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued december 2014 swiss subsidiary declared paid dividend 435 million us parent recorded estimated tax liabilities us taxation dividend depends amount available earnings profits swiss subsidiary calculation involves reviewing numerous tax computations intercompany transactions estimates certain portions calculation actual results could differ estimates different assumptions conditions estimated amount undistributed earnings foreign subsidiaries 2948 million december 31 2014 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings would subject us income foreign withholding taxes subject possible offset us foreign tax credits determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation following table presents components provision benefit income taxes thousands continuing operations alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued following table presents components provision benefit income taxes thousands discontinued operations following table presents reconciliation us statutory tax rate effective tax rate impact rate 2012 2014 relating contingent consideration due fair value accounting used contingent consideration stock acquisitions corresponding basis tax purposes change valuation allowances primarily relates increase valuation allowance attributable us foreign tax credits outside basis differences well state foreign losses likely realized alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued year ended december 31 2014 increased gross liability income taxes associated uncertain tax positions 218 million total 555 million december 31 2014 primary reason increase relates certain tax return positions prior year returns decrease primarily relates effective settlement states foreign audits included balance unrecognized tax benefits december 31 2014 495 million tax benefits recognized would affect effective tax rate also included balance unrecognized tax benefits december 31 2014 60 million tax benefits recognized would result adjustments tax accounts primarily deferred taxes classify 487 million income tax liabilities noncurrent income tax liabilities 68 million longterm deferred tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2014 anticipate material increases decreases unrecognized tax benefits next twelvemonth period reconciliation beginning ending amount gross unrecognized tax benefits uncertain tax positions excluding interest penalties follows thousands interest penalties related income tax liabilities included income tax expense gross interest penalties recorded 2014 2013 2012 amounted 11 million 13 million 05 million respectively net balance accrued interest penalties recorded consolidated balance sheet december 31 2014 2013 2012 24 million 19 million 04 million respectively alere inc subsidiaries notes consolidated financial statements continued 15 income taxes continued subject federal state foreign income tax audits tax authorities open years include 2007 present currently income tax examination number state foreign tax authorities cannot currently estimate impact audits due uncertainties associated tax examinations management expect material changes tax position result ongoing audits december 2014 tax increase prevention act retroactively extended federal research development credit january 1 2014 december 31 2014 result recognized retroactive benefit 2014 federal research development credit approximately 14 million discrete item fourth quarter 2014 period legislation enacted 16 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics patient selftesting consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement alere inc subsidiaries notes consolidated financial statements continued 16 financial information segment continued accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income revenues attributed geographic areas based customer located segment information 2014 2013 2012 follows thousands alere inc subsidiaries notes consolidated financial statements continued 16 financial information segment continued following tables summarize net revenue professional diagnostics patient selftesting reporting segments groups similar products services 2014 2013 2012 thousands professional diagnostics segment patient selftesting segment result sales health management business january 2015 acs october 2014 former health information solutions segment referred patient selftesting segment consists primarily alere home monitoring patient selftesting services following tables summarize net revenue geographic area 2014 2013 2012 respectively longlived tangible assets geographic area december 31 2014 2013 respectively thousands 1 includes among many others following countries china india japan south korea brazil canada australia alere inc subsidiaries notes consolidated financial statements continued 16 financial information segment continued 1 includes among many others following countries germany norway south korea canada brazil 17 arrangements september 2014 entered contract us department health human services’ biomedical advanced research development authority barda develop diagnostic countermeasures pandemic influenza terms 35 year contract barda provide 129 million us support development rapid molecular lowcost influenza diagnostic device pcrlike performance pointofcare project designed help support future preparedness medical response influenza pandemic funding barda subject successful completion various interim feasibility development milestones defined agreement december 31 2014 incurred 04 million qualified expenditures contract received cash reimbursement barda amount 01 million 03 million recorded receivable date reimbursements qualified expenditures contract recorded reduction related qualified research development expenditures february 2013 entered agreement bill melinda gates foundation gates foundation whereby awarded grant gates foundation amount 216 million support development commercialization validated lowcost nucleicacid assay clinical tuberculosis tb detection drugresistance test cartridges adaptation analyzer platform capable operation rudimentary laboratories lowresource settings connection agreement also entered loan agreement gates foundation gates loan agreement provides making subordinated term loans gates foundation us time subject achievement certain milestones aggregate principal amount 206 million funding gates loan agreement used connection purchase equipment automated highthroughput manufacturing line uses necessary manufacture tb hivrelated products loans gates loan agreement evidenced promissory notes executed delivered gates foundation bear interest rate 3 per annum except extent earlier repaid us mature required repaid full december 31 2019 december 31 2014 borrowed amounts gates loan agreement december 31 2014 received approximately 174 million grantrelated funding gates foundation recorded restricted cash deferred grant funding deferred grant funding classified within accrued expenses current liabilities accompanying consolidated balance sheet qualified expenditures incurred terms grant use deferred funding recognize reduction related qualified research development expenditures year ended december 31 2014 incurred approximately 95 million qualified expenditures reduced deferred grant funding balance recorded offset research alere inc subsidiaries notes consolidated financial statements continued 17 arrangements continued development expenses year ended december 31 2013 incurred approximately 66 million qualified expenditures reduced deferred grant funding balance recorded offset research development expenses 18 related party transactions divestiture acs companies october 10 2014 completed sale acs subsidiary acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs also agreed sell subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser subject satisfaction routine requirements dubai law relating transfer equity see note 24 mr nagpal director wellogic served chief executive officer director acs resignation september 2 2014 mr nagpal also owner method factory inc company sold business assets acs alere 2011 sold wellogic alere 2012 b spd joint venture may 2007 completed formation spd swiss precision diagnostics gmbh spd 5050 joint venture procter gamble pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiometabolic diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting net payable spd 40 million december 31 2014 net receivable spd 21 million december 31 2013 included 40 million payable balance december 31 2014 receivable approximately 16 million costs incurred connection 2008 spdrelated restructuring plans included 21 million receivable balance december 31 2013 approximately 18 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 109 million 132 million december 31 2014 2013 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned formation joint venture completed classified receivables within prepaid current assets consolidated balance sheets amount 96 million 124 million december 31 2014 2013 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 832 million 780 million 636 million years ended december 31 2014 2013 2012 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 13 million 13 million 11 million years ended december 31 2014 2013 2012 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 18 related party transactions continued terms product supply agreement spd purchases products manufacturing facilities china spd turn sells portion tests back us final assembly packaging packaged portion tests sold pg distribution thirdparty customers north america result related transactions recorded 105 million 94 million trade receivables included accounts receivable consolidated balance sheets december 31 2014 2013 respectively 308 million 188 million trade accounts payable included accounts payable consolidated balance sheets december 31 2014 2013 respectively 2013 received 280 million cash spd return capital following table summarizes related party balances spd within consolidated balance sheets thousands c entrustment loan arrangement spd shanghai alere shanghai diagnostics co ltd alere shanghai spd trading shanghai co ltd spd shanghai entered entrustment loan arrangement maximum cny 23 million approximately 38 million december 31 2014 order finance latter’s shortterm working capital needs royal bank scotland china co ltd shanghai branch rbs agreement governs setting entrustment loan account rbs alere shanghai deposits certain monies restricted cash account provides guarantee rbs amounts borrowed rbs spd shanghai alere shanghai rbs account recorded restricted cash alere shanghai’s balance sheet amounted 17 million december 31 2014 19 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 19 valuation qualifying accounts continued established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands established valuation allowance deferred tax assets based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable following table sets forth activities deferred tax accounts thousands 20 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2014 2013 2012 thousands 2014 restructuring plans 2014 management developed worldwide cost reduction plans reduce costs improve operational efficiencies within professional diagnostics patient selftesting corporate business segments primarily impacting global sales marketing information technology research development groups well closing certain business locations europe asia alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued following table summarizes restructuring activities related 2014 restructuring plans year ended december 31 2014 thousands anticipate incurring approximately 140 million additional costs 2014 restructuring plans related professional diagnostics business segment including connection closure facility israel several locations europe anticipate incurring significant additional costs existing 2014 restructuring plans relating corporate patient selftesting business segments december 31 2014 138 million severance transition costs arising 2014 restructuring plans remain unpaid b 2013 restructuring plans 2013 management developed cost reduction plans within professional diagnostics business patient selftesting business segments impacting businesses us europe asia pacific regions following tables summarize restructuring activities professional diagnostics patient selftesting business segments related 2013 restructuring plans years ended december 31 2014 2013 since inception thousands anticipate incurring significant additional costs 2013 restructuring plans related professional diagnostics patient selftesting business segments december 31 2014 03 million severance facility costs arising 2013 restructuring plans remain unpaid alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued c restructuring plans prior 2013 2012 management developed cost reduction plans within professional diagnostics business segment including integration businesses brazil europe united states additionally management developed new plans continue efforts reduce costs within patient selftesting business segment 2011 management also developed plans within professional diagnostics business segment consolidate operating activities among certain us european asia pacific subsidiaries including transferring manufacturing panbio products australia standard diagnostics facility south korea eliminating redundant costs among newlyacquired axisshield subsidiaries additionally within patient selftesting business segment management executed plans transfer majority quality assured services inc operation orlando florida facility livermore california 2008 management developed initiated plans transition business cholestech san diego california facility impacted professional diagnostics business segment following table summarizes restructuring activities related active 2012 2011 2008 restructuring plans years ended december 31 2014 2013 2012 since inception thousands anticipate incurring significant additional costs plans related professional diagnostics patient selftesting business segments december 31 2014 07 million cash charges remain unpaid primarily related facility lease obligations anticipated continue 2017 alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued restructuring reserves following table summarizes restructuring reserves related plans described 142 million included accrued expenses current liabilities 05 million included longterm liabilities consolidated balance sheets thousands 21 equity investments account results equity investments equity method accounting accordance accounting standards codification asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following spd recorded earnings 162 million 150 million 107 million years ended december 31 2014 2013 2012 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented 50 share spd’s net income respective periods b techlab 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibioticassociated diarrhea parasitology recorded earnings 16 million 20 million 23 million years ended december 31 2014 2013 2012 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented minority share techlab’s net income respective periods alere inc subsidiaries notes consolidated financial statements continued 21 equity investments continued summarized financial information spd techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets 22 impairment gain loss dispositions net december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million including writeoffs intangible assets 73 million inventories 16 million assets 05 million accrual divestiturerelated commitments 14 million november 2014 sold bionote former owner company also chief executive officer owned alere received cash consideration krw 48 billion approximately 432 million date disposition resulting gain disposition 65 million october 2014 sold subsidiary mologic ltd located united kingdom former owners company also members management owned alere consideration received nominal resulting loss disposition 28 million april 2014 sold glucostabilizer business alere informatics inc part professional diagnostics reporting unit business segment medical decision network llc mdn 11 million cash proceeds 15 million note receivable fully reserved based assessment collectability result transaction recorded loss disposition 06 million year ended december 31 2014 financial results businesses immaterial consolidated financial results alere inc subsidiaries notes consolidated financial statements continued 22 impairment gain loss dispositions net continued july 2013 sold spinreact operations located spain part professional diagnostics reporting unit business segment approximately 334 million proceeds result transaction recorded loss disposition 51 million 2013 financial results spinreact operations immaterial consolidated financial results 23 supplemental cash flow information cash paid interest income taxes 2014 2013 2012 made cash payments interest totaling 1023 million 2063 million 2050 million respectively 2014 2013 2012 total net cash paid income taxes 588 million 491 million 319 million respectively 2012 issued shares common stock connection settlement acquisitionrelated contingent consideration obligation dollars thousands 24 discontinued operations october 10 2014 completed sale acs subsidiary acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs also agreed sell subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser subject satisfaction routine requirements dubai law relating transfer equity acs companies included patient selftesting segment purchase price acs companies consisted cash proceeds 200 closing contingent consideration aggregate 70 million consisting payments based gross revenues acs companies ii payments made connection financing transactions purchaser acs companies iii payments made connection sale purchaser acs companies connection sale agreed reimburse purchaser 750000 purchaser’s acs companies’ transitional expenses accounted divestiture acs companies accordance asc 205 presentation financial statements see note 2 january 9 2015 completed sale health management business optumhealth care solutions purchase price approximately 6001 million subject customary post alere inc subsidiaries notes consolidated financial statements continued 24 discontinued operations continued closing working capital adjustment used net cash proceeds sale repay 5750 million aggregate principal amount outstanding indebtedness senior secured credit facility accounted divestiture health management business accordance asu 201408 see note 2 following assets liabilities associated health management business segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheets december 31 2014 2013 respectively thousands alere inc subsidiaries notes consolidated financial statements continued 24 discontinued operations continued following summarized financial information related businesses acs companies health management business previously included patient selftesting reporting segment segregated continuing operations reported discontinued operations consolidated statements operations thousands 25 guarantor financial information 725 senior notes due 2018 8625 senior subordinated notes due 2018 65 senior subordinated notes due 2020 guaranteed certain consolidated wholly owned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2014 2013 related statements operations statements comprehensive loss cash flows three years period ended december 31 2014 respectively alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 26 subsequent event january 9 2015 completed sale health management business conducted alere health subsidiaries optumhealth care solutions inc closing sale optum paid alere 6001 million amount reflected initial adjustment based preliminary determination alere health’s working capital net cash closing date subject postclosing adjustments based final determination alere health’s working capital net cash closing date used net cash proceeds sale repay 5750 million aggregate principal amount indebtedness secured credit facility consisting repayment 1270 million aggregate principal amount revolving credit loans outstanding thereunder 1663 million aggregate principal amount “a” term loans including “delayed draw” term loans outstanding thereunder 2817 million aggregate principal amount “b” term loans outstanding thereunder repaid term loan amounts may reborrowed repaid revolving credit loan amount may reborrowed subject compliance terms secured credit facility result purchase price adjustment receive additional net cash proceeds sale obligated use proceeds make additional repayments “a” term loans including “delayed draw” term loans “b” term loans outstanding see note 6 information secured credit facilityitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 exhibits agreements filed exhibits report contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • may constituted allocation risk responsibility among parties rather statements fact • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact company agrees furnish supplementally securities exchange commission “commission” copy omitted schedule exhibit agreement upon request commission filed herewith omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income loss equity cash flows present fairly material respects financial position alere inc subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso material weaknesses internal control financial reporting related 1 insufficient complement resources adequate experience expertise accounting income taxes related dispositions us taxes foreign earnings 2 insufficient complement resources company’s subsidiaries appropriate knowledge experience training accounting revenue recognition 3 ineffective controls information communication relates revenue recognition company’s subsidiaries 4 ineffectively designed controls review terms purchase orders customer contracts related revenue recognition 5 ineffectively designed controls ensure revenue would recognized title risk loss passed existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weaknesses referred described management’s annual report internal control financial reporting appearing item 9a considered material weaknesses determining nature timing extent audit tests applied audit december 31 2015 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 4 17 consolidated financial statements company changed manner classifies deferred taxes 2015 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts august 8 2016 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity thousands alere inc subsidiaries consolidated statements equity continued thousands alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation financial information alere inc delivers reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally highperformance diagnostics infectious disease cardiometabolic disease toxicology designed meet growing global demand accurate easytouse costeffective nearpatient tests business organized three operating segments professional diagnostics ii consumer diagnostics iii corporate professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market result sale january 2015 health management business largest component former patient selftesting reporting segment longer report separate financial information segment forms part professional diagnostics segment financial information segment 2014 retroactively adjusted reflect change reporting segments consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain reclassifications prior period amounts made order retrospectively present discontinued operations noncash changes fair value contingent purchase price consideration reclassifications effect net income equity certain amounts presented may recalculate directly due rounding 2 revision previously reported consolidated financial statements connection preparation consolidated financial statements fiscal year ended december 31 2015 determined fiscal years 2013 2014 interim periods 2014 first three quarters fiscal year 2015 incorrectly reported timing recognition certain revenue transactions periods result revising consolidated financial statements december 31 2014 fiscal years ended december 31 2014 2013 interim periods 2014 first three quarters fiscal year 2015 specifically errors application generally accepted accounting principles us gaap rules regarding timing revenue recognition primarily relate transactions principally africa recognized revenue product shipped distributor contractually retained title products distributor paid products full distributor obligated pay us products sold enduser ii “bill alere inc subsidiaries notes consolidated financial statements continued 2 revision previously reported consolidated financial statements continued hold” transactions principally china meet criteria revenue recognition us gaap iii transactions recognized revenue prior full satisfaction contractual criteria title risk loss passing customer errors impact total amount revenue recorded related transaction connection establishing returns allowance indian subsidiary material amount however misstatements would require adjustments period certain revenues recognized revenues recognized period physical delivery occurred defined contractual relationship title risk loss transferred buyer contractual obligation pay amounts invoiced required us gaap revenue recognition rules accounting policy relating revenue recognition evaluated cumulative impact items previouslyissued annual financial statements 2013 2014 interim financial statements 2014 2015 guidance accounting standards codification 250 accounting changes error corrections asc 250 relating sec staff accounting bulletin sab 99 materiality concluded revisions material individually aggregate previouslyissued interim annual financial statements also evaluated impact revising items adjustment financial statements year ended december 31 2015 concluded based guidance within asc 250 relating sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements appropriate revise previouslyissued financial statements reflect impact revisions cumulative effect reflecting revisions current year would material financial statements year ended december 31 2015 additionally reflected several outofperiod adjustments periods adjustments originated adjustments identified financial closing process 2015 adjustments identified periods ended june 30 september 30 2015 previously recorded financial statements periods identified previously concluded correction errors material individually aggregate previously issued financial statements financial statements included annual report form 10k adjusted include adjustments period originated outofperiod adjustments treated corrections prior period financial results revised financial information included annual report form 10k identified adjustments related correction specific bonus accrual recorded sales marketing general administrative expenses ii errors measurement royalty obligation recorded income expense net iii 67 million 1 million net tax benefit years ended december 31 2014 2013 respectively primarily related 97 million tax benefit associated adjustment us foreign earnings offset 15 million tax expense associated adjustment section 199 deduction revisions impact increasing accumulated deficit consolidated statement stockholders’ equity december 31 2012 48 million revisions consolidated statements cash flows impact previously reported net cash flows operating activities investing activities financing activities result net impact net change cash equivalents previously reported periods alere inc subsidiaries notes consolidated financial statements continued 2 revision previously reported consolidated financial statements continued result foregoing review future quarterly reports also revisions comparative interim quarterly financial statements within fiscal year ended december 31 2015 concluded none revisions consolidated financial statements interim periods 2014 2015 material individually aggregate previously issued financial statements individual interim periods following schedules reconcile amounts previously reported applicable financial statement corresponding revised amounts alere inc subsidiaries notes consolidated financial statements continued 2 revision previously reported consolidated financial statements continued alere inc subsidiaries notes consolidated financial statements continued 2 revision previously reported consolidated financial statements continued alere inc subsidiaries notes consolidated financial statements continued 2 revision previously reported consolidated financial statements continued also reflected corrections applicable consolidated financial statements related notes thereto also consolidating financial statements presented note 27 guarantor financial information alere inc subsidiaries notes consolidated financial statements continued 3 discontinued operations january 9 2015 completed sale health management business optumhealth care solutions purchase price 5999 million used net cash proceeds sale repay 5750 million aggregate principal amount outstanding indebtedness prior credit facility accounted divestiture health management business accordance accounting standards update asu 201408 following assets liabilities associated health management business segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheet december 31 2014 thousands october 10 2014 completed sale acs subsidiary acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs also agreed sell subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser completed june 2015 acs companies included former patient selftesting segment prior sale purchase price acs companies consisted cash proceeds 200 closing contingent consideration aggregate 70 million consisting payments based gross revenues acs companies ii payments made connection financing transactions purchaser acs companies iii payments made connection sale purchaser acs companies connection sale agreed reimburse purchaser 750000 purchaser’s acs companies’ transitional expenses accounted divestiture acs companies accordance accounting standards codification asc 205 presentation financial statements alere inc subsidiaries notes consolidated financial statements continued 3 discontinued operations continued following summarized financial information related businesses acs companies health management business segregated continuing operations reported discontinued operations consolidated statements operations results health management business included periods presented given january 9 2015 divestiture business results acs companies wellogic included 2014 2013 given october 31 2014 divestiture business results follows thousands 4 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income loss note 16 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month net realized unrealized foreign currency exchange transaction losses 48 million 22 million 40 million 2015 2014 2013 respectively included component income expense net consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2015 2014 restricted cash restricted cash 489 million 376 million december 31 2015 2014 respectively 489 million restricted cash december 31 2015 432 million classified noncurrent consolidated balance sheet secures foreign bank loan arrangement entered third quarter 2015 terms loan agreement required remain deposit two years unless loan terminated prior maturity e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive income loss net related tax effects f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory recorded financial statements represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 115 years buildings 7 61 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 110 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 987 million 976 million 943 million 2015 2014 2013 respectively fullydepreciated property plant equipment still use remain books disposal retirement property plant equipment retired disposed cost respective accumulated depreciation removed books gain loss disposal recorded income statement expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing annual goodwill impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guidelines companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 annual goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement result sale health management business january 2015 largest component former patient selftesting reporting segment ceased report financial information four operating segments beginning 2015 reporting units professional diagnostics consumer diagnostics 2015 annual goodwill impairment test conducted 2015 annual impairment test reporting units fourth quarter 2015 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 90 140 projected compound average revenue growth rates 34 56 terminal value growth rates 30 40 determining alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 07 29 times multiples ebitda 73 118 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 31 billion 449 million respectively 581 182 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation 2014 annual goodwill impairment test conducted 2014 annual goodwill impairment test reporting units fourth quarter 2014 patient selftesting reporting unit utilized purchase price sale health management business estimated fair value health management business combined estimated fair value remaining patient selftesting reporting unit determined using combination income approach market comparable approach market transaction approach arrive total estimated fair value patient selftesting business key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 105 155 projected compound average revenue growth rates 30 110 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 12 29 times multiples ebitda 71 118 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 22 billion 5156 million 868 million respectively 424 1621 380 respectively discussed note 3 health management business met criteria assets held sale december 31 2014 sale subsequently completed january 9 2015 accordingly performed step 1 impairment test goodwill remaining patient selftesting reporting unit december 31 2014 step 1 impairment test indicated estimated fair value remaining patient selftesting reporting unit exceeded carrying value reporting unit’s net assets 67 2013 annual goodwill impairment test conducted 2013 annual goodwill impairment test reporting units fourth quarter 2013 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 140 projected compound average revenue growth rates 40 114 terminal value growth rates 30 40 factors considered determining appropriate discount rate key assumptions 2014 annual goodwill impairment test described based multiples implied market data selected multiples revenue 08 29 times multiples ebitda 64 106 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics patient selftesting consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 16 billion 347 million 927 million respectively 303 85 455 respectively impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development patents trademarks trade names customer relationships distribution rights noncompetition agreements majority intangible assets recorded connection various business combinations intangible assets recorded fair value time acquisition amortize intangible assets estimated useful lives estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized amortize majority intangible assets straightline basis methodology closely approximates pattern economic benefits assets alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived assets reduced estimated fair value lower impairment loss charged expense period impairment identified j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire part business combinations completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life utilize discounted probable future cash flow model projectbyproject basis value acquired iprd significant assumptions used model include period material net cash inflows significant projects expected commence anticipated material changes historical pricing margins expense levels appropriate risk adjusted discount rate applied project’s cash flows k business acquisitions business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis 2015 2014 2013 expensed acquisitionrelated costs 05 million 09 million 31 million respectively general administrative expense alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts likely realized future account uncertain tax positions using “morelikelythannot” threshold recognizing resolving uncertain tax positions evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position november 2015 fasb issued accounting standards update 201517 asu 201517 balance sheet classification deferred taxes simplifies presentation deferred income taxes asu requires deferred tax assets liabilities classified noncurrent statement financial position adopted asu effective december 31 2015 prospective basis adoption asu resulted reclassification net current deferred tax asset net noncurrent deferred tax asset consolidated balance sheet december 31 2015 prior periods retrospectively adjusted revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title risk loss products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally respect health management business included discontinued operations generated services revenue connection contracts health plans alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued commercial governmental selfinsured employers whereby provided clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provided portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions existed recorded amounts current liabilities consolidated balance sheet deferring recognition revenue established meeting performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue license royalty agreements recognized straightline basis obligation period related license agreements time obligations license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned connection preparation consolidated financial statements fiscal year ended december 31 2015 determined 2013 2014 first three quarters 2015 incorrectly recognized revenue transactions periods result errors related timing certain revenue transactions well certain outofperiod adjustments revising consolidated financial information december 31 2014 years ended december 31 2014 2013 interim periods 2014 first three quarters 2015 information revisions related recognition certain revenue transactions see note 2 n employee stockbased compensation arrangements account sharebased payments accordance asc 718 compensation stock compensation expense associated stock options includes amortization based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future net income loss per common share net income loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 13 p operating expenses expense advertising costs direct response advertising incurred 2015 2014 2013 advertising costs amounted 90 million 80 million 106 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations charge customers shipping handling costs recorded along product revenues legal fees incurred us included general administrative expenses expensed period costs incurred payments third parties connection resolution legal disputes investigations contingencies included general administrative expenses expensed unfavourable outcome probable amount loss reasonably estimated accordance statement financial accounting standards 5 accounting contingencies q directresponse advertising connection mail order diabetes business incurred directresponse advertising associated costs connection placement advertisements directresponse advertising associated costs payable third parties period presented capitalized amortized selling general administrative expenses accelerated basis month following broadcast month management assesses realizability amounts directresponse advertising costs reported assets balance sheet date comparing net carrying value capitalized advertising net present value estimated future orders expected result directly advertising meet capitalization requirements expensed current period change existing accounting rules business change impacts expected future orders shortens period net future benefits estimated realized could result accelerated charges earnings addition new different marketing initiatives may qualify directresponse advertising could result accelerated charges earnings whether impairment loss determined comparing net carrying value directresponse advertising costs capitalized assets balance sheet date probable remaining future orders expected result directly advertising net carrying value assets exceeds probable remaining future orders expected result directly assets impairment loss recognized amount equal excess future benefits determined alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued calculating net present value estimated future orders per cost pool net present value calculated based upon value order multiplied estimated future orders estimate future orders determined based historical customer reorder rates perform impairment test directresponse advertising asset quarter following advertising broadcast quarter r concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2015 2014 individual customer’s accounts receivable balance 10 aggregate accounts receivable 2015 2014 2013 one customer represented 10 net revenue financial instruments fair value financial instruments primary financial instruments december 31 2015 2014 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities software internal use resale may capitalize certain costs associated development internaluse software including direct materials services capitalized software amortized straightline basis estimated useful life included computer software equipment within property plant equipment also develop software resale lease external parties expense costs developing software resale lease incurred establishment technological feasibility alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued underlying software costs incurred establishment technological feasibility general release software capitalized software amortized estimated useful life capitalized software resale lease included computer software equipment within property plant equipment u research development research development programs focus development cardiometabolic infectious disease toxicology products research development costs expensed incurred payments received external parties fund research development activities reduce recorded research development expenses v leases lease certain facilities equipment external parties operating leases rent expense related operating leases recorded income statement incurred straightline basis material escalation clauses also lease machinery laboratory equipment tooling equipment capital leases determining whether lease capital operating lease estimate expected term lease includes certain renewable options required lease accounting guidance rent deferrals landlord incentives rent escalations included calculation minimum lease payments performing capital lease tests calculating rent expense operating leases leased property plant equipment meet capital lease criteria capitalized lower present value minimum lease payments fair value underlying asset inception date lease assets capital leases depreciated straightline basis lease term leasehold improvements capitalized amortized shorter estimated useful lives remainder expected term lease w recent accounting pronouncements recently issued standards march 2016 financial accounting standards board fasb issued asu 201609 compensationstock compensation topic 718 improvements employee sharebased payment accounting asu 201609 asu 201609 simplifies several aspects accounting sharebased payment award transactions including income tax consequences classification awards either equity liabilities classification statement cash flows asu 201609 effective fiscal years beginning december 15 2016 including interim periods within fiscal years early adoption permitted expect adoption asu 201609 significant impact consolidated financial statements september 2015 fasb issued asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments asu 201516 asu 201516 requires acquirer recognize adjustments estimated amounts identified measurement period reporting period adjustment amounts determined asu 201516 effective fiscal years beginning december 15 2015 including interim periods within alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued fiscal years amendments applied prospectively adjustments provisional amounts occur effective date earlier application permitted financial statements issued expect adoption asu 201516 significant impact consolidated financial statements july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory asu 201511 asu 201511 requires entity measure inscope inventory lower cost net realizable value asu 201511 effective fiscal years beginning december 15 2016 interim periods within fiscal years reporting entity apply asu 201511 prospectively earlier application permitted beginning interim annual reporting period expect adoption asu 201511 significant impact consolidated financial statements april 2015 fasb issued asu 201503 interestimputation interest subtopic 83530 simplifying presentation debt issuance costs asu 201503 asu 201503 intended simplify presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts asu 201503 effective fiscal years beginning december 15 2015 interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201503 consolidated financial statements upon adoption revise current presentation debt issuance costs consolidated balance sheet august 2015 fasb issued asu 201515 interest imputation interest subtopic 83530 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements amendments sec paragraphs pursuant staff announcement june 18 2015 eitf meeting asu 201515 asu 201515 adds authoritative guidance presentation subsequent measurement debt issuance costs related lineofcredit arrangements asu 201503 expect adoption asu 201503 asu 201515 significant impact consolidated financial statements august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 disclosure uncertainties entity’s ability continue going concern asu 201415 asu 201415 intended define management’s responsibility evaluate whether substantial doubt organization’s ability continue going concern provide related footnote disclosures asu 201415 effective fiscal years ending december 15 2016 interim periods within fiscal years beginning december 15 2016 early adoption permitted expect adoption asu 201415 significant impact consolidated financial statements june 2014 fasb issued asu 201412 compensation stock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period asu 201412 asu 201412 requires performance target affects vesting could achieved requisite service period treated performance condition asu 201412 effective fiscal years beginning december 15 2015 interim periods within fiscal years early adoption permitted expect adoption asu 201412 significant impact consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 new topic accounting standards codification topic 606 asu 201409 sets forth alere inc subsidiaries notes consolidated financial statements continued 4 summary significant accounting policies continued new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb finalized oneyear delay effective date standard effective us january 1 2018 however early adoption permitted time original effective date us january 1 2017 yet selected transition method currently evaluating impact asu 201409 consolidated financial statements believe accounting standards recently issued expected material impact consolidated financial statements recently adopted standards november 2015 fasb issued asu 201517 balance sheet classification deferred taxes simplifies presentation deferred income taxes asu requires deferred tax assets liabilities classified noncurrent statement financial position adopted asu effective december 31 2015 prospective basis adoption asu resulted reclassification net current deferred tax asset net noncurrent deferred tax asset consolidated balance sheet december 31 2015 prior periods retrospectively adjusted april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu 201408 asu 201408 requires disposals representing strategic shift operations major effect organization’s operations financial results disposal major geographic area major line business major equity method investment presented discontinued operations addition new guidance requires expanded disclosures discontinued operations provide financial statement users information assets liabilities income expenses discontinued operations asu 201408 effective first quarter 2015 early adoption permitted effective october 1 2014 adopted asu 201408 result early adoption standard reported divestiture bionote inc bionote gain disposition within operating income continuing operations see note 3 note 25 alere inc subsidiaries notes consolidated financial statements continued 5 balance sheet information components selected captions consolidated balance sheets consist thousands 6 business combinations acquisitions accounted using acquisition method acquired companies’ results included accompanying consolidated financial statements respective dates acquisition 2015 2014 2013 recorded acquisitionrelated costs 05 million 09 million 31 million respectively general administrative expense alere inc subsidiaries notes consolidated financial statements continued 6 business combinations continued net assets acquired recorded fair value subject adjustment upon finalization fair value analysis estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized amortize majority intangible assets straightline basis methodology closely approximates pattern economic benefits assets acquisitions 2015 usd july 10 2015 acquired substantially assets us diagnostics inc usd located huntsville alabama provider instant onsite drug testing products designed quick accurate drug test results aggregate purchase price approximately 601 million paid cash operating results usd included professional diagnostics reporting unit business segment consolidated statements operations 2015 included revenue totaling approximately 107 million related business goodwill recognized acquisition amounted approximately 294 million deductible tax purposes summary preliminary fair values net assets acquired usd follows thousands following intangible assets acquired connection usd acquisition respective preliminary fair values weightedaverage useful lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 6 business combinations continued b acquisitions 2013 epocal february 1 2013 acquired epocal inc epocal located ottawa canada provider technologies support blood gas electrolyte testing point care aggregate purchase price approximately 2485 million consisted 1514 million cash 221 million settlement preexisting arrangement contingent consideration obligation aggregate acquisition date fair value 750 million operating results epocal included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2013 year ended december 31 2013 acquired following businesses aggregate purchase price 576 million included cash payments totaling 282 million 175 million settlement preexisting arrangement contingent consideration obligations aggregate acquisition date fair value 13 million deferred purchase price consideration acquisition date fair value 08 million 80 million bargain purchase gain • certain assets pt mega medika mandiri mega medika located south jakarta indonesia distributor infectious disease products indonesian marketplace well materials vaccines pharmaceutical customer acquired january 2013 • discount diabetic llc discount diabetic located phoenix arizona provider blood glucose monitoring products including diabetes testing systems test strips products acquired april 2013 • medicare feeforservice assets liberty medical liberty business located port st lucie florida leading mail order provider diabetes testing supplies serving needs type 1 type 2 diabetic patients acquired april 2013 • 51 share cardio selfcare bv subsequently renamed alere health services bv alere health services located ede netherlands developer innovative software healthcare industry develops licenses software sells medical devices enable patients perform medical selfcare including thrombosis selfcare acquired may 2013 • 749 interest pantech proprietary limited pantech located durban south africa supplier rapid diagnostic test kits including hiv malaria syphilis drugs abuse 10 parameter urine sticks glucometers glucose sticks acquired july 2013 • certain assets simplex healthcare inc subsidiaries simplex located tennessee provider home delivery diabetesrelated medical supplies products acquired november 2013 operating results mega medika discount diabetic liberty business alere health services pantech simplex included professional diagnostics reporting unit business segment consolidated statement operations year ended december 31 2013 included revenue totaling approximately 830 million related businesses goodwill recognized mega medika alere health services pantech simplex acquisitions amounted approximately 24 million goodwill related mega medika simplex acquisitions deductible tax purposes goodwill related pantech alere health services acquisitions alere inc subsidiaries notes consolidated financial statements continued 6 business combinations continued respect acquisition liberty business purchase price acquisition allocated net tangible intangible assets acquired excess fair value assets acquired purchase price recorded bargain purchase gain 80 million bargain purchase gain recorded income expense net consolidated statement operations recognized tax purposes bargain purchase gain resulted operating cost structure believe allow us operate business cost effectively sellers summary fair values net assets acquired acquisitions consummated 2013 follows thousands 1 includes approximately 33 million acquired cash following intangible assets acquired 2013 respective fair values weightedaverage useful lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 7 goodwill intangible assets following summary goodwill intangible assets december 31 2015 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions following summary goodwill intangible assets december 31 2014 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions alere inc subsidiaries notes consolidated financial statements continued 7 goodwill intangible assets continued 2015 2014 performed annual impairment test inprocess research development assets certain cases found impaired due combination suspending certain projects allow resource allocation projects considered management strategically valuable delays completing projects resulted decrease estimated future revenues expected achieved upon completion 2015 2014 recorded impairment charges totaling 74 million 16 million respectively reduce carrying values assets zero estimated fair value asset estimated useful lives individual categories intangible assets based nature applicable intangible assets expected future cash flows derived intangible assets amortization intangible assets finite lives recognized shorter respective lives underlying license agreements applicable period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortize majority intangible assets straightline basis methodology closely approximates pattern economic benefits assets amortization expense intangible assets aggregate amounted 2105 million 2372 million 2800 million 2015 2014 2013 respectively included cost net revenue research development sales marketing general administrative expenses accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2015 thousands fourth quarter perform annual impairment tests carrying value goodwill reporting unit discussion see note 4h goodwill amounts professional diagnostics consumer diagnostics reporting units along former patient selftesting reporting unit rolled professional diagnostics reporting unit january 1 2015 summarized follows thousands alere inc subsidiaries notes consolidated financial statements continued 7 goodwill intangible assets continued 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 reflects writeoff related dispositions bionote 2014 bbi business alere analytics 2015 3 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 4 result sale health management business january 2015 largest component former patient selftesting reporting segment ceased report financial information four operating segments beginning january 1 2015 reporting units included professional diagnostics consumer diagnostics generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2015 2014 approximately 89 million 95 million respectively costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred 8 longterm debt following longterm debt balances outstanding thousands december 31 2015 2014 respectively 1 incurred secured credit facility entered june 18 2015 alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued 2 included “a” term loans “delayed draw” term loans prior credit facility 3 included term loans previously referred “incremental b1” term loans “incremental b2” term loans prior credit facility term loans converted consolidated “b” term loans prior credit facility 4 principal amount 3 convertible senior subordinated notes included shortterm debt current portion longterm debt consolidated balance sheet december 31 2015 notes matured may 15 2016 connection significant longterm debt issuances recorded interest expense including amortization writeoffs deferred financing costs original issue discounts accompanying consolidated statements operations 2015 2014 2013 respectively follows thousands 1 includes “a” term loans “b” term loans revolving line credit loans 2 includes following loans prior credit facility “a” term loans including “delayeddraw” term loans “b” term loans including term loans previously referred “incremental b1” term loans “incremental b2” term loans later converted consolidated “b” term loans revolving line credit loans 2015 2014 2013 amounts include 11 million 15 million 26 million respectively related amortization fees paid certain debt modifications 3 includes 199 million loss extinguishment debt associated redemption 8625 senior subordinated notes 2015 included 199 million 86 million related call premium classified within cash flow financing activities consolidated statements cash flows 4 amount includes approximate 02 million loss recorded connection repurchase 7875 senior notes 5 amount includes approximate 356 million loss recorded connection repurchase 9 senior subordinated notes included 356 million 190 million related tender offer consideration call premium classified within cash flow financing activities consolidated statement cash flows alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued following describes debt instruments listed secured credit facility june 18 2015 entered credit agreement secured credit facility certain lenders goldman sachs bank usa b term loan administrative agent general electric capital corporation pro rata administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement secured credit facility provides term loans aggregate initial principal amount 17 billion consisting “a” term loans aggregate initial principal amount 6500 million “b” term loans aggregate initial principal amount 105 billion drawn closing ii subject continued compliance terms secured credit facility 2500 million revolving line credit revolving line credit includes 500 million sublimit issuance letters credit amount drawn revolving credit facility closing used approximately 168 billion proceeds term loans drawn closing repay full indebtedness outstanding prior credit facility whereupon agreement terminated described pay various fees expenses associated transactions contemplated secured credit facility subject certain limits restrictions may use remaining proceeds term loans proceeds revolving credit loans proceeds incremental term loans described incremental revolving credit commitments described finance permitted acquisitions finance capital expenditures provide working capital general corporate purposes november 2015 used net cash proceeds initial closing sale bbi diagnostic group ltd bbi business repay outstanding “a” term loans “b” term loans secured credit facility aggregate principal amount 1150 million must repay “a” term loans nineteen consecutive quarterly installments began september 30 2015 continue march 31 2020 followed final installment june 18 2020 principal amount installment paid september 30 2015 8125000 giving effect prepayment portion “a” term loans connection sale bbi business principal amount subsequent installment march 31 2020 approximately 7572000 principal amount final installment approximately 461882000 must repay “b” term loans twentyseven consecutive quarterly installments began september 30 2015 continue march 31 2022 followed final installment june 18 2022 principal amount installment paid september 30 2015 2625000 giving effect prepayment portion “b” term loans connection sale bbi business principal amount subsequent installment march 31 2022 approximately 2446000 principal amount final installment approximately 912471000 may repay borrowings secured credit facility revolving line credit time without premium penalty customary libor breakage costs applicable event later june 18 2020 required make mandatory prepayments term loans mandatory prepayments revolving credit loans various amounts excess cash flow defined credit agreement commencing respect fiscal year ending december 31 2016 issue certain types debt make certain sales assets outside ordinary course business certain thresholds suffer certain property loss events certain thresholds may make alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued optional prepayments term loans revolving credit loan time without premium penalty subject payment customary libor breakage costs applicable “a” term loans borrowings revolving credit facility bear interest rate per annum option either base rate defined credit agreement plus applicable margin 200 ii eurodollar rate defined credit agreement plus applicable margin 300 “b” term loans bear interest rate per annum option either base rate plus applicable margin 200 225 depending consolidated secured net leverage ratio ii eurodollar rate plus applicable margin 300 325 depending consolidated secured net leverage ratio base eurodollar rate subject 100 floor respect “b” term loans based rate required pay fee unused portion revolving credit facility rate per annum equal 050 december 31 2015 “a” term loans “b” term loans bore interest 343 425 respectively december 31 2015 borrowings revolving line credit secured credit facility subject pro forma compliance certain financial tests certain terms conditions set forth credit agreement may request time lenders credit agreement andor financial institutions become lenders thereunder make incremental term loans provide incremental revolving credit commitments credit agreement addition committed credit facilities described subject obtaining agreement relevant new existing lenders case may credit agreement also includes certain provisions allow us add one new term loan facilities new revolving credit facilities order refinance portion term loans revolving credit commitments ii certain “amend extend” provisions allow us extend maturity date term loans revolving credit commitments make related changes terms relevant loans subject case obtaining agreement relevant new existing lenders case may must comply various financial nonfinancial covenants terms secured credit facility set forth credit agreement primary financial covenant security credit facility maximum consolidated secured net leverage ratio applicable “a” term loans revolving credit loans nonfinancial covenants subject certain important exceptions qualifications lenders secured credit facility entitled accelerate repayment loans terminate revolving credit commitments thereunder upon occurrence various events default described credit agreement merger agreement described note 28 consummated constitute event default credit agreement borrowings secured credit facility guaranteed substantially domestic subsidiaries unrestricted subsidiaries domestic subsidiaries certain foreign subsidiaries secured stock substantially domestic subsidiaries unrestricted subsidiaries domestic subsidiaries certain foreign subsidiaries portions stock certain foreign subsidiaries substantially guarantor subsidiaries’ property assets case subject various exceptions december 31 2015 aggregate borrowings secured credit facility amounted 16 billion consisting “a” term loans aggregate outstanding principal amount 5877 million giving effect installment repayment due date “b” term loans alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued aggregate outstanding principal amount 9712 million giving effect installment repayment due date december 31 2015 compliance maximum consolidated secured net leverage ratio secured credit facility december 31 2015 accrued interest related secured credit facility amounted 05 million see note 28 discussion certain amendments waivers entered april 2016 regarding senior credit facility b prior credit facility connection entry secured credit facility june 18 2015 repaid full outstanding indebtedness terminated prior senior credit agreement prior credit facility dated june 30 2011 amended time certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements aggregate outstanding principal amount loans repaid prior credit facility connection termination thereof approximately 165 billion assessed repayment lenderbylender basis order differentiate portion constituting extinguishment portion constituting modification unamortized deferred financing fees relating extinguished portion prior credit facility debt expensed portion relating modifications prior credit facility debt carried forward amortized contractual life new secured credit facility c 6375 senior subordinated notes june 24 2015 sold total 4250 million aggregate principal amount 6375 senior subordinated notes due 2023 6375 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 6375 senior subordinated notes initial offering price 100 net proceeds offering amounted 4173 million net initial purchasers’ discount offering expenses totaling approximately 77 million 6375 senior subordinated notes issued supplemental indenture dated june 24 2015 6375 indenture 6375 senior subordinated notes accrue interest rate 6375 per annum interest 6375 senior subordinated notes payable semiannually january 1 july 1 year beginning january 1 2016 6375 senior subordinated notes mature july 1 2023 unless earlier redeemed may option redeem 6375 senior subordinated notes whole part time may july 1 2018 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4781 twelve months july 1 2018 3188 twelve months july 1 2019 1594 twelve months july 1 2020 zero july 1 2021 addition time may prior july 1 2018 may option redeem 35 aggregate principal amount 6375 senior subordinated notes money raise certain qualifying equity offerings long pay 106375 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 6375 senior subordinated notes within 90 days completing equity offering iii least alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued 65 aggregate principal amount 6375 senior subordinated notes remains outstanding afterwards addition time may prior july 1 2018 may option redeem 6375 senior subordinated notes paying principal amount 6375 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 6375 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase merger agreement described note 28 consummated constitute change control 6375 indenture restricted subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 6375 senior subordinated notes pro rata basis respect 6375 senior subordinated notes 65 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price 6375 senior subordinated notes would 100 principal amount plus accrued unpaid interest 6375 indenture provides restricted subsidiaries must comply various covenants subject certain important exceptions qualifications set forth 6375 indenture time 6375 senior subordinated notes rated investment grade certain covenants suspended respect 6375 indenture contains events default entitling trustee holders requisite percentage aggregate outstanding principal amount 6375 senior subordinated notes declare amounts owed pursuant 6375 senior subordinated notes immediately payable event default occurs 6375 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment existing future senior subordinated debt including 65 senior subordinated notes obligations 6375 senior subordinated notes 6375 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt equal right payment existing future senior subordinated debt see note 27 guarantor financial information december 31 2015 accrued interest related 6375 senior subordinated notes amounted 141 million see note 28 discussion certain consents waivers obtained may 2016 holders 6375 senior subordinated notes alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued 725 senior notes december 11 2012 sold total 4500 million aggregate principal amount 725 senior notes due 2018 725 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 725 senior notes initial offering price 100 net proceeds offering amounted 4432 million net underwriters’ commissions offering expenses totaling 68 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act used 2674 million net proceeds purchase 2482 million outstanding principal amount former 7875 senior notes due 2016 7875 senior notes 1700 million pay portion outstanding balance revolving line credit prior credit facility 725 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 725 indenture 725 senior notes accrue interest rate 725 per annum interest 725 senior notes payable semiannually june 15 december 15 beginning june 15 2013 725 senior notes mature july 1 2018 unless earlier redeemed may redeem 725 senior notes whole part time paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3625 twelve months december 15 2015 1813 six months december 15 2016 zero june 15 2017 change control occurs subject specified conditions must give holders 725 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase merger agreement described note 28 consummated constitute change control 725 indenture subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 725 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes would 100 principal amount plus accrued unpaid interest 725 indenture provides subsidiaries must comply various customary covenants subject certain important exceptions qualifications set forth 725 indenture time 725 senior notes rated investment grade certain covenants suspended respect 725 indenture contains customary events default entitling trustee holders requisite percentage aggregate outstanding principal amount 725 senior notes declare amounts owed pursuant 725 senior notes immediately payable event default occurs 725 senior notes senior unsecured obligations senior right payment existing future subordinated debt including 6375 senior subordinated notes 65 senior subordinated notes equal right payment existing future senior debt including borrowings secured credit facility obligations 725 alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued senior notes 725 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt senior right payment existing future subordinated debt see note 27 guarantor financial information december 31 2015 accrued interest related 725 senior notes amounted 14 million see note 28 discussion certain consents waivers obtained may 2016 holders 725 senior notes e 7875 senior notes february 2013 redeemed remaining 18 million outstanding principal amount 7875 senior notes subsequently terminated related indenture f 65 senior subordinated notes may 2013 sold total 4250 million aggregate principal amount 65 senior subordinated notes due 2020 65 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 65 senior subordinated notes initial offering price 100 net proceeds offering amounted 4177 million net underwriters’ commissions offering expenses totaling approximately 73 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act may 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount former 9 senior subordinated notes 9 senior subordinated notes june 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes 65 senior subordinated notes issued supplemental indenture dated may 24 2013 65 indenture 65 senior subordinated notes accrue interest rate 65 per annum interest 65 senior subordinated notes payable semiannually june 15 december 15 beginning december 15 2013 65 senior subordinated notes mature june 15 2020 unless earlier redeemed may option redeem 65 senior subordinated notes whole part time may june 15 2016 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3250 twelve months june 15 2016 1625 twelve months june 15 2017 zero june 15 2018 addition time may prior june 15 2016 may option redeem 35 aggregate principal amount 65 senior subordinated notes money raise certain equity offerings long pay 1065 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 65 senior subordinated notes within 90 days completing equity offering iii least 65 aggregate principal amount 65 senior subordinated alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued notes remains outstanding afterwards addition time may prior june 15 2016 may option redeem 65 senior subordinated notes paying principal amount 65 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 65 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase merger agreement described note 28 consummated constitute change control 65 indenture subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 65 senior subordinated notes pro rata basis respect 65 senior subordinated notes 6375 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price 65 senior subordinated notes would 100 principal amount plus accrued unpaid interest 65 indenture provides subsidiaries must comply various customary covenants subject certain important exceptions qualifications set forth 65 indenture time 65 senior subordinated notes rated investment grade certain covenants suspended respect 65 indenture contains customary events default entitling trustee holders requisite percentage aggregate outstanding principal amount 65 senior subordinated notes declare amounts owed pursuant 65 senior subordinated notes immediately payable event default occurs 65 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 6375 senior subordinated notes obligations 65 senior subordinated notes 65 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt equal right payment existing future senior subordinated debt see note 27 guarantor financial information december 31 2015 accrued interest related 65 senior subordinated notes amounted 13 million see note 28 discussion certain consents waivers obtained may 2016 holders 65 senior subordinated notes g 8625 senior subordinated notes june 24 2015 issued notice optional redemption holders 8625 senior subordinated notes due 2018 8625 senior subordinated notes october 1 2015 redemption date would redeem entire principal amount 8625 senior subordinated alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued notes outstanding redemption price equal 102156 principal amount 8625 senior subordinated notes redeemed plus accrued unpaid interest april 1 2015 excluding redemption date upon terms set forth notice optional redemption transferred amount equal net proceeds received 6375 notes 4173 million plus additional cash 86 million total 4259 million irrevocable trust used fund redemption 8625 senior subordinated notes october 1 2015 redeemed entire 4000 million aggregate principal amount 8625 senior subordinated notes october 1 2015 upon settlement redemption date satisfied discharged obligations respect 8625 senior subordinated notes connection redemption notes incurred extinguishment costs amount 199 million included 199 million 86 million related call premium 3 convertible senior subordinated notes may 14 2007 sold total 1500 million aggregate principal amount 3 convertible senior subordinated notes due 2016 3 convertible senior subordinated notes 3 convertible senior subordinated notes matured may 15 2016 paid 1520 million cash consisting 1250 million cash drawn revolving credit facility plus 270 million available cash pay outstanding principal accrued interest owing notes thereupon satisfied discharged obligations respect notes repayment maturity interest accrued 3 per annum outstanding principal amount 3 convertible senior subordinated notes payable arrears may 15th november 15th year repayment maturity 3 convertible senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 65 senior subordinated notes 6375 senior subordinated notes december 31 2015 accrued interest related 3 convertible senior subordinated notes amounted 06 million j lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit december 31 2015 approximately 141 million 01 million borrowed outstanding date k debt september 2015 alere switzerland gmbh entered secured credit facility hong kong shanghai banking corporation limited singapore branch hsbc principal amount 400 million facility fully drawn maturity 2 years facility ultimately secured local currency cash deposited subsidiary alere shanghai medical sales co ltd affiliate hsbc china interest rate equal applicable libor rate plus margin 08 included debt december 31 2015 borrowings certain subsidiaries various financial institutions borrowed funds primarily used fund capital expenditures working capital requirements interest expense borrowings 18 million 2015 alere inc subsidiaries notes consolidated financial statements continued 8 longterm debt continued l maturities longterm debt following summary maturities longterm debt including current portions thereof outstanding december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 9 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value following tables present information assets liabilities measured fair value recurring basis december 31 2015 2014 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market significant increases decreases inputs could result significantly higher lower fair value measurement changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations see note 12 additional information valuation contingent consideration obligations alere inc subsidiaries notes consolidated financial statements continued 9 fair value measurements continued changes fair value level 3 contingent consideration obligations years ended december 31 2015 2014 follows thousands 1 acs divested october 2014 connection transaction contingent consideration obligation terminated december 31 2015 2014 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt 31 billion 30 billion respectively december 31 2015 carrying amount estimated fair value longterm debt 37 billion december 31 2014 estimated fair value longterm debt determined using information derived available market sources level 2 fair value hierarchy may representative actual values could realized future 10 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 10 capital leases continued december 31 2015 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 11 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 58 million 92 million 94 million 2015 2014 2013 respectively b uk pension plans subsidiary england unipath ltd unipath defined benefit pension plan established certain employees changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2015 2014 defined benefit plan follows thousands alere inc subsidiaries notes consolidated financial statements continued 11 postretirement benefit plans continued net amounts recognized accompanying consolidated balance sheets shown longterm liabilities 30 million 44 million respectively december 31 2015 2014 following represents amounts recognized comprehensive loss year ended december 31 2015 2014 thousands december 31 2015 amortization prior service cost expected approximately 03 million 2016 amounts recognized accumulated comprehensive loss years ending december 31 2015 2014 follows measurement dates used determine plan assets benefit obligations defined benefit plan december 31 2015 2014 following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2015 2014 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning presented year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities calculated using weightedaverage expected returns asset class held plan longterm expected return assets net investment expenses alere inc subsidiaries notes consolidated financial statements continued 11 postretirement benefit plans continued annual net periodic benefit costs defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2015 stocks fixed income securities represented 73 27 respectively market value pension assets expect contribute approximately £06 million 09 million december 31 2015 defined benefit plan 2016 expect benefits paid plan participants range approximately 03 million 04 million per year next five years benefits totaling 05 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds fair values pension plan assets december 31 2015 2014 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath contributed 03 million 2015 04 million 2014 03 million 2013 defined contribution plan recognized expense accompanying consolidated statement operations alere inc subsidiaries notes consolidated financial statements continued 12 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2028 following schedule outlines future minimum annual rental payments leases december 31 2015 thousands rent expense relating operating leases approximately 418 million 484 million 460 million 2015 2014 2013 respectively 24 million increase rent expense 2013 2014 result new leases entered year primary drivers 66 million decrease rent expense 2014 2015 impact currency exchange rates divestitures b acquisitionrelated contingent consideration obligations contractual contingent purchase price consideration obligations related certain acquisitions determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving certain performance targets including product development milestones financial metrics fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted earnout payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria 2015 revised fair value estimates milestones related twistdx inc contingent consideration obligation reflect increased probabilities success result positive technological developments regulatory approvals certain related platforms accordingly recorded charge associated resulting change fair value 121 million included general administrative expense consolidated statement operations 2015 revised fair value estimates certain milestones related epocal contingent consideration obligation reflect decreased probabilities success delayed cash inflows clinical development timelines due strategic shift reallocation research development resources result recorded net reduction expense 2015 325 million included general administrative expense consolidated statement alere inc subsidiaries notes consolidated financial statements continued 12 commitments contingencies continued operations additionally one milestone achieved 2015 resulting cash payment 100 million year furthermore 2015 recorded reduction expense 245 million associated change fair value ionian contingent consideration obligation zero included general administrative expense accompanying consolidated statement operations remaining product development milestones agreement achieved july 2015 deadline probability making related milestone payments reduced zero following table summarizes contractual contingent purchase price consideration obligations related certain acquisitions follows thousands 1 terms acquisition agreement require us pay earnout upon successfully meeting certain revenue product development targets 2025 2 earnout period terms acquisition agreement expired july 12 2015 december 2015 entered amended agreement former shareholders ionian technologies inc whereby could required make milestone payments approximately 438 million amendment entered earnout period acquisition agreement lapsed accounted asc 450 contingencies milestones expensed deemed probable occurring payments connection program become due payable upon successful achievement certain milestones achievement milestones probable december 31 2015 recorded accrual contingent milestones financial statements 3 march 25 2015 remaining earnout settled 60 million 45 million paid march 27 2015 15 million paid april 3 2015 4 terms acquisition agreement require us pay earnouts management incentive payments upon successfully meeting certain product development united states food drug administration regulatory approval milestones date acquisition december 31 2018 5 maximum earnout period ends fifteenth anniversary acquisition date 6 maximum remaining earnout potential acquisitions determinable due nature one earnouts tied unlimited revenue metric alere inc subsidiaries notes consolidated financial statements continued 12 commitments contingencies continued c legal proceedings us securities exchange commission subpoena august 28 2015 received subpoena sec indicated conducting formal investigation alere sec’s subpoena relates among things previously filed restatement revision financial statements including accounting deferred taxes discontinued operations well tax strategies policies ii sales practices dealings third parties including distributors foreign government officials africa relating sales government entities january 14 2016 received second subpoena sec connection formal investigation seeking among things additional information related sales products services endusers africa well revenue recognition relating sales products services endusers africa also received time requests connection investigation voluntarily produce additional information sec including information pertaining certain countries asia latin america cooperating sec provided documents response subpoenas voluntary requests unable predict matter resolved action sec may take connection department justice grand jury subpoena march 11 2016 received grand jury subpoena united states department justice requiring production documents relating among things sales practices dealings third parties including distributors foreign governmental officials africa asia latin america matters related us foreign corrupt practices act cooperating department justice provided information response subpoena unable predict matter resolved action department justice may take connection securities class actions april 21 2016 class action lawsuit captioned godinez v alere inc filed us united states district court district massachusetts may 4 2016 second class action lawsuit captioned breton v alere inc filed us united states district court district massachusetts class actions purport assert claims us certain current former officers alleged violations section 10b section 20a exchange act rule 10b5 exchange act plaintiff seeks represent proposed class persons purchased otherwise acquired common stock period may 9 2013 april 20 2016 complaint seeks damages allegedly caused alleged materially misleading statements andor material omissions us officers regarding business prospects operations plaintiff claims allegedly operated inflate artificially price paid common stock class period complaint seeks unspecified compensatory damages attorneys’ fees costs july 11 2016 court entered order consolidating two actions appointing lead plaintiffs lead counsel july 19 2016 court ordered schedule filing consolidated amended complaint motion dismiss briefing unable time determine outcome class action lawsuit potential liability alere inc subsidiaries notes consolidated financial statements continued 12 commitments contingencies continued matters relating san diego facility october 9 2012 received warning letter fda referencing inspectional observations set forth form fda 483 received june 2012 observations result inspection san diego facility conducted earlier 2012 relating alere triage products resulted two recalls certain alere triage products revised release specifications alere triage meterbased products september 2014 follow inspection san diego facility fda notified us inspection classified “voluntary action indicated” meaning objectionable conditions practices found inspection meet threshold significance requiring regulatory action formal closeout october 2012 warning letter could occur future inspection may 2012 also received subpoena office inspector general department health human services oig seeking documents relating primarily quality control testing performance characteristics alere triage products cooperating oig responding investigation ongoing unable predict matters resolved action government take connection inratio class actions may 26 2016 class action lawsuit captioned dina andren sidney bludman v alere inc et al filed us united states district court southern district california addition july 22 2016 class action lawsuit captioned je jd others similarly situated v alere inc alere san diego inc alere home monitoring inc filed us united states district court district massachusetts class actions purport assert claims us several legal theories including fraud breach warranty unjust enrichment violation applicable unfair competitionbusiness practice statutes connection manufacturing marketing sale inratio products plaintiffs dina andren sidney bludman class action seek represent proposed class persons purchased rented otherwise paid inratio system period january 1 2009 may 26 2016 united states alternatively california maryland andor new york plaintiffs je jd others similarly situated class action seek represent proposed class persons purchased rented otherwise paid inratio system period april 1 2008 present class action complaints seek restitution damages allegedly resulting inaccurate ptinr readings purchase devices claimants say would purchased known alleged propensity devices yield inaccurate ptinr results among things plaintiffs class action lawsuits seek refund money spent inratio products complaint also seeks unspecified compensatory damages injunctive relief attorneys’ fees costs audren action also appears seek damages personal injury unable time determine outcome class action lawsuits potential liability claims ordinary course matters also party certain legal proceedings governmental investigations requested provide information connection proceedings investigations example december 2014 subsidiary avee laboratories inc avee received subpoenas alere inc subsidiaries notes consolidated financial statements continued 12 commitments contingencies continued united states attorney district new jersey seeking marketing materials documents relating primarily billing marketing practices related toxicology testing addition received us department justice criminal subpoena addressed alere toxicology services inc july 1 2016 seeks records related medicare medicaid tricare billings dating back 2010 specific patient samples tested austin texas pain management laboratory payments made physicians cooperating investigations providing documents response subpoenas subsidiary arriva medical llc also process responding civil investigative demands cids recent cid received july 2016 united states attorney middle district tennessee connection investigation possible improper claims submitted medicare medicaid cids request patient billing records related interactions third parties cooperating investigation united states attorney middle district tennessee providing documents responsive cids cannot predict effect investigations resulting claims could alere subsidiaries received time additional subpoenas requests information united states department justice federal government agencies state attorneys general cases cooperated applicable governmental entity responding applicable subpoena request information example may 2016 received subpoena us attorney district new jersey seeks various documents related accuracy reliability performance inratio system including documents relating prior interactions fda others regarding system diabetes toxicology patient selftesting businesses subject audit claims reimbursement brought ordinary course private thirdparty payers including health insurers zone program integrity contractors zpics medicare administrative contractors macs monitor compliance coverage reimbursement rules guidelines types audits claims include limited claims relating proper documentation support claims relating medical necessity certain testing lead assertions determinations certain claims longer paid private thirdparty payer medicare medicaid cases payer program may seek recoup offset amounts assert paid error businesses may also subject time commercial disputes product liability claims personal injury claims including claims arising relating product recalls negligence claims thirdparty subpoenas various lawsuits arising ordinary course business including infringement employment investor matters expect continue case future example several individuals filed suits us alleging personal injury claims connection use inratio products addition class action suits described lawsuits claims generally seek damages reimbursement sometimes substantial amounts possible unfavorable outcomes related litigation governmental investigations could adversely impact business results operations financial condition cash flows alere inc subsidiaries notes consolidated financial statements continued 13 net income loss per common share following tables set forth computation basic diluted net income loss per common share thousands except per share amounts alere inc subsidiaries notes consolidated financial statements continued 13 net income loss per common share continued following potential dilutive securities included calculation diluted net income loss per common share continuing operations inclusion thereof would antidilutive thousands 14 stockholders’ equity common stock december 31 2015 2000 million shares common stock 0001 par value authorized 77 million shares held treasury 863 million shares outstanding 141 million shares reserved issuance upon grant exercise equity awards current equity compensation plans 18 million shares reserved issuance employee stock purchase plan 4000 shares reserved issuance upon exercise outstanding warrants also shares common stock reserved issuance upon conversion following securities outstanding december 31 2015 1500 million aggregate principal amount 3 convertible senior subordinated notes convertible 4398 per share 34 million shares common stock 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock b preferred stock december 31 2015 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2015 18 million shares series b preferred stock outstanding fair value approximately 4989 million share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares alere inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2015 would convert 102 million shares common stock reserved conversions december 31 2015 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance years ended december 31 2015 2014 2013 series b preferred stock dividends amounted 213 million 213 million 213 million respectively reduced earnings available common stockholders purposes calculating net loss per common share 2015 2014 2013 note 13 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2015 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows alere inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued issuance 161 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards restricted stock units unrestricted stock awards performance share awards dividend equivalent rights awards granted april 23 2015 2010 plan generally provides automatic vesting acceleration options automatic removal conditions restrictions restricted stock awards restricted stock units performance share awards upon change control defined 2010 plan awards granted april 23 2015 2010 plan generally provides acceleration either provision made assumption continuation substitution awards upon change control ii provision made assumption continuation substitution awards upon change control within one year change control terminate award recipient’s employment without cause defined 2010 plan award recipient terminates employment good reason defined 2010 plan case director service director terminated reason december 31 2015 2014 79 million 28 million shares respectively available future grant 2010 plan 2001 adopted 2001 employee stock purchase plan espp eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every sixmonth offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 50 million shares common stock plan december 31 2015 32 million shares issued plan following summarizes stock option activity year ended december 31 2015 thousands except exercise price aggregate intrinsic value options outstanding december 31 2015 295 million weightedaverage remaining contractual term 670 years aggregate intrinsic value options exercisable december 31 2015 209 million weightedaverage remaining contractual term 447 years aggregate intrinsic value stock options exercised 2015 2014 2013 314 million 149 million 45 million respectively december 31 2015 550 million unrecognized compensation cost related stock options costs expected recognized weightedaverage period 153 years alere inc subsidiaries notes consolidated financial statements continued 14 stockholders’ equity continued following summarizes restricted stock unit activity year ended december 31 2015 thousands except grant date fair value fair values restricted stock units rsus based market value stock date grant weightedaverage grant date fair value rsus granted 2015 2014 2804 3599 respectively rsus granted 2013 aggregate intrinsic value rsus december 31 2015 254 million weightedaverage remaining contractual term 134 years aggregate intrinsic value rsus expected vest december 31 2015 231 million weightedaverage remaining contractual term 132 years december 31 2015 199 million unrecognized compensation cost related rsus expected recognized weightedaverage period 134 years following summarizes stock appreciation rights sars activity year ended december 31 2015 thousands total cash paid settlement sars exercised 2015 2014 2013 11 million 09 million 00 million respectively recorded liability accounting december 31 2015 2014 accrual related sars 20 million 24 million respectively 15 stockbased compensation recorded stockbased compensation expense consolidated statements operations years ended december 31 2015 2014 2013 respectively follows thousands alere inc subsidiaries notes consolidated financial statements continued 15 stockbased compensation continued connection departure three senior executives june 2014 recorded reversal stockbased compensation expense amount 56 million second quarter 2014 relating termination stock option awards following resignations 56 million reversal 22 million recorded research development 34 million general administrative excess tax benefits exercise stock options reported financing cash flows consolidated statements cash flows years ended december 31 2015 2014 2013 excess tax benefits generated option exercises amounted 00 million 10 million 05 million respectively following assumptions used estimate fair value options granted years ended december 31 2015 2014 2013 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted employees 2015 2014 2013 1851 1955 1522 per share respectively options granted periods granted fair market value date grant year ended december 31 2015 recorded compensation expense 19 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 30 29 riskfree interest rate 011 013 expected life 181 days 184 days two respective offering periods 2015 charge included employee’s respective cost classification table year ended december 31 2014 recorded compensation expense 26 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 32 riskfree interest rate 009 006 expected life 181 days 184 days two respective offering periods 2014 charge included employee’s respective cost classification table year ended december 31 2013 recorded compensation expense 26 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 41 40 riskfree interest rate 012 009 expected life 181 days 184 days two respective offering periods 2013 charge included employee’s respective cost classification table alere inc subsidiaries notes consolidated financial statements continued 16 accumulated comprehensive income loss accumulated comprehensive income loss consisted following thousands 1 represents unrealized gains losses availableforsale securities hedging instruments 17 income taxes income loss provision benefit income taxes consists following thousands continuing operations november 2015 fasb issued accounting standards update 201517 asu 201517 “balance sheet classification deferred taxes” simplifies presentation deferred income taxes asu requires deferred tax assets liabilities classified noncurrent statement financial position early adopted asu effective december 31 2015 prospective basis adoption asu resulted reclassification net current deferred tax asset net noncurrent deferred tax asset consolidated balance sheet december 31 2015 prior periods retrospectively adjusted alere inc subsidiaries notes consolidated financial statements continued 17 income taxes continued primary temporary differences give rise deferred tax assets liabilities net operating losses capital loss carryforwards tax credit carryforwards nondeductible reserves accruals outside basis differences basis tangible intangible assets income tax effects temporary differences follows thousands december 31 2014 recorded deferred tax asset tax book outside basis differences related health management business due anticipated realization deferred tax asset foreseeable future portion deferred tax asset expected capital nature therefore valuation allowance recorded portion deferred tax asset likely deferred tax assets would realized recognition deferred tax asset resulted recording tax benefit 1448 million reflected income discontinued operations net tax 2014 january 9 2015 divested health management business resulted reversal deferred tax asset december 31 2015 federal state foreign net operating loss carryforwards income tax purposes approximately 306 million 8765 million 2346 million respectively utilized portion federal state foreign net operating loss carryforwards begin alere inc subsidiaries notes consolidated financial statements continued 17 income taxes continued expire 2020 2016 2017 respectively certain foreign net operating loss carryforwards carried forward indefinitely december 31 2015 federal foreign capital loss carryforwards income tax purposes approximately 2561 million 621 million respectively utilized portion federal capital loss carryforwards begin expire 2016 foreign capital loss carryforwards carried forward indefinitely december 31 2015 229 million us federal state research development credit carryforwards 44 million us federal alternative minimum tax “amt” credit carryforwards 792 million us foreign tax credit carryforwards 12 million foreign tax credit carryforwards utilized portion research development credit foreign tax credit begin expire 2026 2018 respectively amt credit carried forward indefinitely us federal loss carryforwards credits subject limitations imposed section 382 383 internal revenue code may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use loss carryforwards credits amount equal value company time certain ownership changes multiplied longterm tax exempt rate additionally certain state foreign losses credits may subject similar limitations based local provisions loss tax credit carryforwards may available reduce future us federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities utilized year ended december 31 2014 provision income taxes 709 million primarily related establishment valuation allowance 444 million deferred tax assets associated us foreign tax credit carryforwards valuation allowance established likely deferred tax assets realized decision based weight available positive negative evidence existed december 31 2014 recorded valuation allowance 2622 million december 31 2015 due uncertainties related future benefits realization deferred tax assets related primarily us foreign tax credits certain state foreign attribute carryforwards increase 336 million valuation allowance 2286 million december 31 2014 increase primarily related assessment realizability related us foreign tax credits well certain state foreign net operating losses capital loss generated current period valuation allowance based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision estimated amount undistributed earnings foreign subsidiaries 3202 million december 31 2015 provided 28 million foreign withholding taxes certain undistributed earnings amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings would subject us income foreign withholding taxes potentially would offset us foreign tax credits determination amount tax liability would incurred practicable complexities associated hypothetical calculation alere inc subsidiaries notes consolidated financial statements continued 17 income taxes continued following table presents components provision benefit income taxes thousands continuing operations following table presents reconciliation us statutory tax rate effective tax rate impact rate 2013 2015 relating contingent consideration due fair value accounting used contingent consideration stock acquisitions corresponding basis tax purposes change valuation allowances primarily relates increase valuation allowance attributable us foreign tax credits well state foreign losses likely realized alere inc subsidiaries notes consolidated financial statements continued 17 income taxes continued year ended december 31 2015 increased gross liability income taxes associated uncertain tax positions 708 million total 1207 million december 31 2015 primary reason increase relates valuation certain assets reconciliation beginning ending amount gross unrecognized tax benefits uncertain tax positions excluding interest penalties follows thousands included balance unrecognized tax benefits december 31 2015 862 million tax benefits recognized would affect effective tax rate anticipate material increases decreases unrecognized tax benefits 2016 interest penalties related income tax liabilities included income tax expense total net amount interest penalties recorded 2015 2014 2013 14 million 11 million 13 million respectively total net amount accrued interest penalties recorded consolidated balance sheet december 31 2015 2014 2013 37 million 23 million 19 million respectively subject us federal state foreign income tax audits tax authorities open years include 2010 present currently income tax examination irs number state foreign tax authorities cannot currently estimate impact audits due uncertainties associated tax examinations management expect material changes tax position result ongoing audits december 2015 congress signed law protecting americans tax hikes act retroactively extended us federal research development credit january 1 2015 december 31 2015 permanently extended credit going forward result recognized retroactive benefit 2015 us federal research development credit approximately 21 million discrete item fourth quarter 2015 period legislation enacted alere inc subsidiaries notes consolidated financial statements continued 18 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management result sale health management business january 2015 largest component patient selftesting reporting segment longer report financial information four operating segments current reportable operating segments professional diagnostics consumer diagnostics corporate information 2015 2014 2013 retroactively adjusted reflect change reporting segments operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement evaluate performance operating segments based revenue operating income loss segment information 2015 2014 2013 december 31 2015 2014 follows thousands alere inc subsidiaries notes consolidated financial statements continued 18 financial information segment continued following tables summarize net revenue professional diagnostics reporting segment groups similar products services 2015 2014 2013 thousands following tables summarize net revenue segments geographic area 2015 2014 2013 respectively longlived tangible assets geographic area december 31 2015 2014 respectively thousands 1 includes among many others following countries china india japan south korea brazil canada uganda nigeria 1 includes among many others following countries south korea germany norway canada brazil 19 arrangements september 2014 entered contract us department health human services’ biomedical advanced research development authority barda develop diagnostic countermeasures pandemic influenza terms 35 year contract barda provide 129 million us support development rapid molecular lowcost influenza diagnostic device pcrlike performance point care project designed help support future preparedness medical response influenza pandemic funding barda subject successful completion various interim feasibility development milestones alere inc subsidiaries notes consolidated financial statements continued 19 arrangements continued defined agreement december 31 2015 2014 incurred 34 million 04 million respectively qualified expenditures contract received cash reimbursement barda amount 27 million 01 million respectively 07 million 03 million recorded receivable december 31 2015 2014 reimbursements qualified expenditures contract recorded reduction related qualified research development expenditures february 2013 entered agreement bill melinda gates foundation gates foundation whereby awarded grant gates foundation amount 216 million support development commercialization validated lowcost nucleicacid assays cartridges clinical tuberculosis tb detection drugresistance testing adaptation analyzer platform capable operation rudimentary laboratories lowresource settings connection agreement also entered loan agreement gates foundation gates loan agreement provided making subordinated term loans gates foundation us time subject achievement certain milestones aggregate principal amount 206 million april 2016 gates foundation agreed mutually terminate grant loan agreement therefore additional grants advances available loan agreement december 31 2015 mutual termination april 2016 borrowed amounts gates loan agreement december 31 2015 received approximately 197 million grantrelated funding gates foundation grant funds recorded upon receipt restricted cash deferred grant funding deferred grant funding classified within accrued expenses current liabilities accompanying consolidated balance sheet qualified expenditures incurred terms grant used deferred funding recognize reduction related qualified research development expenditures years ended december 31 2015 2014 2013 incurred approximately 39 million 95 million 66 million respectively qualified expenditures reduced deferred grant funding balance recorded offset research development expenses amounts remaining restricted cash deferred grant funding december 31 2015 addition february 2013 grant discussed awarded grant november 2014 gates foundation amount approximately 04 million support elimination malaria 2015 incurred approximately 03 million qualifying expenses connection grant returned remaining 01 million excess funds gates foundation support goal eliminate malaria awarded grant june 2015 amount approximately 09 million grant november 2015 amount approximately 11 million gates foundation connection june 2015 grant received total funding 05 million 2015 incurred qualifying expenses totaling approximately 01 million connection november 2015 grant received total funding approximately 08 million 2015 qualifying expenditures incurred 2015 related november 2015 grant december 31 2015 received total approximately 17 million net 01 million returned funds grantrelated funding gates foundation connection malariarelated grants expect qualified expenditures incurred terms grants use deferred grant funding recognize reduction related qualified research development expenditures year ended december 31 2015 incurred approximately 05 million qualified expenditures grants reduced deferred grant funding balance recorded offset research development expenses alere inc subsidiaries notes consolidated financial statements continued 19 arrangements continued december 31 2015 12 million recorded restricted cash deferred grant funding accompanying consolidated balance sheet 20 related party transactions divestiture acs companies october 10 2014 completed sale acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs june 2015 also sold subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser see note 3 mr nagpal director wellogic served chief executive officer director acs resignation september 2 2014 mr nagpal also owner method factory inc company sold business assets acs alere 2011 sold wellogic us 2012 b spd joint venture may 2007 completed formation spd swiss precision diagnostics gmbh spd 5050 joint venture procter gamble pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiometabolic diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting net payable spd 12 million 40 million december 31 2015 2014 respectively included 12 million net payable balance december 31 2015 receivable approximately 15 million costs incurred connection 2008 spdrelated restructuring plans included 40 million net payable balance december 31 2014 approximately 16 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 89 million 109 million december 31 2015 2014 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned formation joint venture completed classified receivables within prepaid current assets consolidated balance sheets amount 78 million 96 million december 31 2015 2014 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 771 million 832 million 780 million years ended december 31 2015 2014 2013 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 11 million 13 million 13 million years ended december 31 2015 2014 2013 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities china spd turn sells portion tests back us final assembly packaging packaged portion tests sold pg distribution thirdparty alere inc subsidiaries notes consolidated financial statements continued 20 related party transactions continued customers north america defer profit products sold spd products sold customer result related transactions recorded 99 million 105 million trade receivables included accounts receivable consolidated balance sheets december 31 2015 2014 respectively 236 million 308 million trade accounts payable included accounts payable consolidated balance sheets december 31 2015 2014 respectively 2015 2013 received 234 million 280 million respectively cash spd distribution earnings included cash flows investing activities consolidated statements cash flows following table summarizes related party balances spd within consolidated balance sheets thousands previously disclosed spd currently involved civil litigation brought competitor united states respect advertising one spd’s products united states 2015 spd appealed district court’s injunction respect sales advertising product based finding spd violated certain laws respect advertising product appellate court issued stay injunction pending outcome appeal ruling appeal expected near future addition class action lawsuit initiated spd united states district court central district california alleging violations certain laws connection sales advertising one spd’s products claims based similar grounds issue litigation described paragraph spd moved dismiss class action lawsuit ground among others claims pleaded preempted federal law decision motion expected shortly addition may additional lawsuits spd us relating matter future ultimate resolution matters known time potential impact may spd us including whether resolution damages imposed either court would material adverse impact spd ultimately virtue 50 interest spd financial position results operations c entrustment loan arrangement spd shanghai alere shanghai diagnostics co ltd alere shanghai spd trading shanghai co ltd spd shanghai entered entrustment loan arrangement maximum cny 23 million approximately 35 million december 31 2015 order finance latter’s shortterm working capital needs royal bank scotland china co ltd shanghai branch rbs agreement governs setting entrustment loan account rbs alere shanghai deposits certain monies restricted cash account provides guarantee rbs amounts borrowed rbs spd shanghai alere shanghai rbs account recorded restricted cash alere shanghai’s balance sheet amounted 35 million december 31 2015 alere inc subsidiaries notes consolidated financial statements continued 20 related party transactions continued techlab equity method investment techlab inc techlab company provides diagnostic testing products used physicians health care customers diagnose treat monitor intestinal diseases medical conditions approximately 49 techlab also entered exclusive distributor agreement techlab agreement grants us global distribution rights techlab’s products certain exceptions trade payables owed techlab 32 million 22 million december 31 2015 2014 respectively made product purchases techlab 271 million 248 million 252 million years ended december 31 2015 2014 2013 respectively 21 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands established valuation allowance deferred tax assets based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable following table sets forth activities deferred tax accounts thousands alere inc subsidiaries notes consolidated financial statements continued 22 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2015 2014 2013 thousands 2014 restructuring plans 2014 management developed worldwide cost reduction plans reduce costs improve operational efficiencies within professional diagnostics corporate business segments primarily impacting global sales marketing information technology research development groups well closing certain business locations europe asia following table summarizes restructuring activities related 2014 restructuring plans year ended december 31 2015 2014 since inception restructuring plans thousands anticipate incurring approximately 44 million additional costs 2014 restructuring plans related professional diagnostics business segment primarily related closure manufacturing facility israel anticipate incurring significant additional costs existing 2014 restructuring plans relating corporate business segment december 31 2015 28 million severance transition costs arising 2014 restructuring plans remain unpaid b restructuring plans prior 2014 2013 management developed cost reduction plans impacting businesses united states europe asia pacific regions 2012 management developed cost reduction plans integrate alere inc subsidiaries notes consolidated financial statements continued 22 restructuring activities continued businesses brazil europe united states 2011 management developed plans consolidate operating activities among certain united states european asia pacific subsidiaries including transferring manufacturing panbio products australia standard diagnostics facility south korea eliminating redundant costs among axisshield subsidiaries additionally 2008 management developed initiated plans transition cholestech business san diego california facility plans impacted professional diagnostics business segment following table summarizes restructuring activities related active restructuring plans years ended december 31 2015 2014 2013 since inception restructuring plans thousands 1 includes amounts related former patient selftesting segment anticipate incurring significant additional costs plans related professional diagnostics business segments december 31 2015 11 million cash charges remain unpaid primarily related facility lease obligations anticipated continue 2017 restructuring reserves following table summarizes restructuring reserves related plans described 32 million included accrued expenses current liabilities 06 million included longterm liabilities consolidated balance sheets thousands alere inc subsidiaries notes consolidated financial statements continued 23 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following spd recorded earnings 143 million 162 million 150 million years ended december 31 2015 2014 2013 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented 50 share spd’s net income respective periods elimination intercompany profit inventory related sales alere spd reflected spd’s net income b techlab recorded earnings 15 million 16 million 20 million years ended december 31 2015 2014 2013 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented minority share techlab’s net income respective periods december 31 2015 continued meet held sale criteria respect 49 investment techlab intend use portion proceeds sale investment fund working capital operations research development repay portion outstanding indebtedness accordingly classified investment techlab assets held sale noncurrent consolidated balance sheet december 31 2015 summarized financial information spd techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets alere inc subsidiaries notes consolidated financial statements continued 23 equity investments continued dividends received cash return capital equity investments included consolidated statements cash flows periods presented 24 assets held sale alere esanté december 2015 entered agreement air liquide santé international sell 100 shares voting rights alere esanté sas alere esanté wholly owned subsidiary alere inc total purchase price 90 million including 15 million contingent cash consideration final purchase price subject postclosing working capital adjustment esanté business component professional diagnostics reporting unit segregated classified 42 million various assets associated esanté business including 32 million allocated goodwill assets held salecurrent 04 million various liabilities related assets held salecurrent consolidated balance sheet december 31 2015 january 2016 completed sale alere esanté received cash consideration approximately 81 million net final working capital adjustment result transaction recorded 38 million gain 2016 disposition alere esanté business b sale techlab equity method investment december 31 2015 continued meet held sale criteria respect 49 investment techlab intend use portion proceeds sale investment fund working capital operations research development repay portion outstanding indebtedness accordingly classified investment techlab value approximately 133 million assets held sale noncurrent consolidated balance sheet december 31 2015 see note 23b 25 impairment gain loss dispositions net november 2015 completed sale bbi business bbi business component professional diagnostics reporting unit business segment received cash consideration approximately 1064 million net final working capital adjustment eligible receive contingent consideration payments 466 million upon achievement certain milestones net assets disposed connection disposition bbi business valued aggregate 665 million value allocated goodwill 492 million aggregate value net assets goodwill disposed transaction exceeded closing cash consideration recorded 93 million loss 2015 disposition bbi business july 2015 sold certain assets inverness medical innovations australia pty ltd business part professional diagnostics reporting unit business segment aud 02 million approximately 01 million date disposition cash proceeds result transaction recorded loss 12 million 2015 may 2015 sold alere analytics business part professional diagnostics reporting unit business segment terms sale received nominal consideration agreed contribute working capital 27 million alere analytics 24 million alere inc subsidiaries notes consolidated financial statements continued 25 impairment gain loss dispositions net continued contributed cash immediately prior closing sale remaining 03 million deposited escrow pending performance buyers certain contracts result transaction recorded loss 36 million 2015 identifying buyer alere analytics management decided close business connection decision recorded impairment charge 267 million 2015 including writeoff 262 million acquisitionrelated intangible assets 05 million fixed assets march 2015 sold certain assets adnagen gmbh business part professional diagnostics reporting unit business segment approximately 46 million cash proceeds result transaction recorded loss 03 million 2015 march 2015 sold gesellschaft fur patientenhilfe dgp gmbh subsidiary part professional diagnostics reporting unit business segment 76 million approximately 82 million march 31 2015 result transaction recorded loss disposition 75 million 2015 recorded additional charges approximately 08 million connection certain business closures divestitures 2015 december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million 2015 connection decision recorded impairment charges 11 million consisting primarily severance costs inventory writeoffs closurerelated expenses november 2014 sold bionote former owner company also chief executive officer owned us received cash consideration krw 480 billion approximately 432 million date disposition resulting gain disposition 65 million october 2014 sold subsidiary mologic ltd located united kingdom former owners company also members management owned us consideration received nominal resulting loss disposition 28 million financial results businesses immaterial consolidated financial results 26 supplemental cash flow information cash paid interest income taxes 2015 2014 2013 made cash payments interest totaling 1676 million 1921 million 2063 million respectively 2015 2014 2013 total net cash paid income taxes 365 million 588 million 491 million respectively 27 guarantor financial information 725 senior notes due 2018 65 senior subordinated notes due 2020 6375 senior subordinated notes due 2023 guaranteed redemption october 1 2015 8625 senior subordinated notes due 2018 guaranteed certain consolidated 100 owned subsidiaries guarantor subsidiaries guarantees full unconditional joint alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2015 2014 related statements operations statements comprehensive income loss cash flows three years period ended december 31 2015 respectively alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification prior periods presented basis consistent current period giving retrospective effect impact discontinued operations discussed note 2 connection preparation consolidated financial statements 2015 determined 2013 2014 interim periods 2014 first three quarters fiscal 2015 incorrectly recorded revenue periods addition made several outofperiod adjustments related correction specific bonus accrual measurement certain royalty obligation adjustments related accounting income taxes result revising consolidated financial information december 31 2014 2013 interim periods 2014 first three quarters 2015 revisions guarantor consolidating statements cash flows impact previously reported net cash flows operating activities investing activities financing activities result net impact net change cash equivalents previously reported periods following schedules reconcile amounts previously reported guarantor financial information consolidating financial statements corresponding revised amounts alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement operations year ended december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement operations year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement operations year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement comprehensive income year ended december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating balance sheet december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating balance sheet december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement cash flows year ended december 31 2015 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement cash flows year ended december 31 2014 thousands alere inc subsidiaries notes consolidated financial statements continued 27 guarantor financial information continued consolidating statement cash flows year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 28 subsequent events merger agreement abbott laboratories january 30 2016 entered agreement plan merger agreement abbott laboratories abbott merger agreement provides merger newly formed wholly owned subsidiary abbott alere merger alere surviving merger wholly owned subsidiary abbott surviving corporation terms merger agreement holders shares common stock receive 5600 cash without interest exchange share common stock share series b convertible perpetual preferred stock par value 0001 per share series b preferred stock issued outstanding immediately prior effective time merger remain issued outstanding immediately following consummation merger one share series b convertible preferred stock par value 0001 per share surviving corporation merger agreement approved board directors completion merger subject customary closing conditions including 1 adoption merger agreement affirmative vote holders least majority outstanding shares common stock 2 judgment law enjoining otherwise prohibiting consummation merger 3 expiration waiting period applicable merger hartscottrodino antitrust improvements act 1976 amended hsr act receipt required antitrust approvals obligation parties consummate merger also conditioned party’s representations warranties true correct subject certain materiality exceptions party performed material respects obligations merger agreement merger agreement contains certain termination rights provides upon termination merger agreement certain circumstances alere would required pay abbott termination fee equal 1770 million company currently expects transaction close end 2016 may 2 2016 abbott alere received request additional information “second request” united states federal trade commission ftc relating abbott’s potential acquisition alere second request issued hsr act addition abbott agreed voluntarily provide ftc least 60 days advance notice certifying substantial compliance second request extend waiting period imposed hsr act 60 days abbott alere substantially complied second request unless period extended voluntarily parties terminated sooner ftc june 23 2016 abbott alere received request additional information “supplemental information request” canadian competition bureau relating abbott’s potential acquisition alere supplemental information request issued competition act canada competition act effect supplemental information request extend waiting period imposed competition act 30 days abbott alere complied supplemental information request unless period extended voluntarily parties terminated sooner bureau terms merger agreement abbott agreed make certain divestitures necessary obtain consent antitrust authorities transaction contemplated merger agreement subject certain materiality exceptions provided merger agreement addition entering merger agreement abbott informed alere serious concerns among things accuracy various representations warranties covenants made us merger agreement abbott indicated concerns relate delay filing annual report form 10k fiscal year ended december 31 2015 well governmental investigations previously announced alere abbott since requested information alere matters citing contractual rights receive information merger agreement initial meeting abbott expressed concerns alere part discussion potential alere inc subsidiaries notes consolidated financial statements continued 28 subsequent events continued paths forward abbott requested alere agree terminate merger agreement return payment abbott alere range 30 50 million respect alere’s transaction expenses alere’s board directors promptly rejected request discussions abbott affirmed commitment abide obligations merger agreement amendments credit facilities indenture delayed filing annual report form 10k fiscal year ended december 31 2015 quarterly report form 10q quarter ended march 31 2016 connection previously announced review certain aspects timing revenue recognition specifically revenue cutoff africa china years ended december 31 2013 2014 2015 quarters annual periods order avoid events default secured credit facility indentures governing 725 senior notes 65 senior subordinated notes 6375 senior subordinated notes entered amendment credit agreement obtained consents requisite holders notes obtain extension filing annual report form 10k fiscal year ended december 31 2015 quarterly report form 10q quarter ended march 31 2016 sec furnishing financial information certain related deliverables holders debt april 22 2016 requisite lenders credit agreement entered amendment credit agreement pursuant agreed waive certain defaults events defaults defined credit agreement may occurred occurring occur resulting among things x failure deliver administrative agents defined credit agreement financial statements certain related deliverables year ended december 31 2015 applicable deadline credit agreement restatement certain financial statements result incorrect application revenue recognition principles years ended december 31 2013 2014 2015 z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part audit financial statements year ended december 31 2015 extent breach due incorrect application revenue recognition principles years ended december 31 2013 2014 2015 ii extend deadlines delivery financial statements year ended december 31 2015 financial statements quarter ended march 31 2016 certain related deliverables terms amendment required deliver unaudited financial statements three months ended march 31 2016 certain related deliverables august 18 2016 failure could give rise event default credit agreement may result acceleration amounts due connection amendment paid among fees expenses consenting lender aggregate consent fees 0250 sum aggregate principal amount lender’s term loans outstanding effective date amendment ii lender’s revolving credit commitment defined credit agreement outstanding effective date amendment approximately 45 million aggregate consenting lenders amendment also increases applicable interest rate margins loans outstanding secured credit facility 025 per annum period july 1 2016 date delivery financial reports related deliverables secured credit facility alere inc subsidiaries notes consolidated financial statements continued 28 subsequent events continued addition april 29 2016 commenced consent solicitations relating 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes refer collectively notes consent solicitations made holders record notes april 28 2016 solicitations completed may 9 2016 pursuant consent solicitations requisite holders series notes agreed extend deadline delivery certain financial information waive 500 pm new york city time august 31 2016 default event default occurred continuing may occur indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k year ended december 31 2015 subsequent quarterly reports form 10q failures file connection failures file paid may july 2016 holder notes validly delivered consent aggregate cash payments equal 1500 1000 aggregate principal amount holder’s notes aggregate 192 million maturity 30 convertible senior subordinated notes 3 convertible senior subordinated notes matured may 15 2016 based price common stock date maturity paid outstanding principal accrued interest owing notes cash aggregate amount paid noteholders maturity approximately 1520 million consisting 1250 million cash drawn revolving credit facility plus 270 million cash available date inratio®2 ptinr monitoring system voluntary withdrawal following collaborative process fda july 2016 announced initiating voluntary withdrawal alere inratio inratio2 ptinr monitoring system currently working fda implementing product withdrawal eventual product discontinuation december 2014 initiated voluntary correction inform users alere inratio inratio2 ptinr monitoring systems patients certain medical conditions tested systems proactively reported device concerns fda began conducting thorough investigation events course past two years alere invested research development software enhancements intended address potential certain cases system deliver result differs another measurement method submitted software enhancements fda end 2015 fda notified us believes company’s studies adequately demonstrate effectiveness software modification advised us submit proposed plan voluntarily remove inratio® device market light input fda business considerations july 2016 determined voluntarily remove inratio systems market due fact circumstances giving rise voluntary withdrawal united states related action outside us existed december 31 2015 certain charges incurred alere inc subsidiaries notes consolidated financial statements continued 28 subsequent events continued connection recall recorded 2015 specifically recorded charge approximately 38 million year ending december 31 2015 approximately 18 million attributable impairment certain inventory inratio inratio2 products approximately 3 million related impairment production equipment approximately 16 million related estimated costs removing inratio inratio2 market including notifications users return disposals costs related amounts additionally decision withdraw inratio inratio2 ptinr monitoring systems impacted useful life assumptions certain tangible intangible assets result change estimate recorded approximately 4 million accelerated amortization intangible assets approximately 1 million accelerated depreciation tangible assets year ending december 31 2015 finally fiscal year 2016 expect incur approximately 16 million accelerated amortization approximately 3 million accelerated depreciation 2 million onetime cash expendituresitem 15 exhibits financial statement schedules reports form 8k a1 financial statements financial statements listed filed part report pages indicated 2financial statement schedules provision made applicable accounting regulation securities exchange commission required related instructions inapplicable omitted 3exhibits 21 sale agreement dated december 20 2001 inverness medical innovations inc company unilever uk holdings limited incorporated reference exhibit 21 companys current report form 8k dated december 20 2001 22 amendment agreement plan merger dated february 18 2003 among inverness medical innovations inc geras acquisition corp ostex international inc incorporated reference exhibit 992 companys current report form 8k dated february 19 2003 23 stock purchase agreement dated july 30 2003 among inverness medical innovations inc applied biotech inc erie scientific company incorporated reference exhibit 21 companys current report form 8k dated august 27 2003 24 asset purchase agreement september 30 2003 among abbott laboratories inverness medical innovations inc inverness medical switzerland gmbh morpheus acquisition corp morpheus acquisition llc incorporated reference exhibit 21 companys current report form 8k dated september 30 2003 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys annual report form 10k amended year ended december 31 2001 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 companys current report form 8k dated december 20 2001 33 amended restated bylaws company incorporated reference exhibit 33 companys annual report form 10k amended year ended december 31 2001 41 specimen certificate shares common stock company incorporated reference exhibit 41 companys registration statement form s4 amended file 33367392 42 registration rights agreement september 30 2003 among inverness medical innovations inc abbott laboratories incorporated reference exhibit 992 companys current report form 8k dated september 30 2003 43 indenture dated february 10 2004 inverness medical innovations inc guarantors named therein us bank trust national association 44 registration rights agreement february 10 2004 among inverness medical innovations inc guarantors named therein ubs securities llc merrill lynch pierce fenner smith incorporated 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company incorporated reference exhibit 101 companys annual report form 10k amended year ended december 31 2001 102 tax allocation agreement dated november 21 2001 among johnson imt company incorporated reference exhibit 102 companys annual report form 10k amended year ended december 31 2001 103 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 104 lease dated january 12 1999 among cambridge diagnostics ireland limited industrial development agency ireland incorporated reference exhibit 104 companys registration statement form s4 amended file 33367392 105 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 companys registration statement form s4 amended file 33367392 106 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 companys registration statement form s4 amended file 33367392 107 inverness medical innovations inc 2001 employee stock purchase planfirst amendment incorporated reference exhibit 109 companys annual report form 10k amended year ended december 31 2001 108 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger incorporated reference exhibit 1011 companys annual report form 10k amended year ended december 31 2001 109 promissory note dated august 16 2001 ron zwanziger company incorporated reference exhibit 1012 companys annual report form 10k amended year ended december 31 2001 1010 pledge agreement dated august 16 2001 ron zwanziger company incorporated reference exhibit 1013 companys annual report form 10k amended year ended december 31 2001 1011 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 1012 promissory note dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1015 companys annual report form 10k amended year ended december 31 2001 1013 pledge agreement dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1016 companys annual report form 10k amended year ended december 31 2001 1014 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott incorporated reference exhibit 1017 companys annual report form 10k amended year ended december 31 2001 1015 promissory note dated december 4 2001 david scott company incorporated reference exhibit 1018 companys annual report form 10k amended year ended december 31 2001 1016 pledge agreement dated december 4 2001 david scott company incorporated reference exhibit 1019 companys annual report form 10k amended year ended december 31 2001 1017 stock purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 992 companys current report form 8k dated march 14 2002 1018 note warrant purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 993 companys current report form 8k dated december 20 2001 1019 form subordinated promissory note issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 994 companys current report form 8k dated december 20 2001 1020 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 companys current report form 8k dated december 20 2001 1021 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc incorporated reference exhibit 1028 companys annual report form 10k amended year ended december 31 2001 1022 loan security agreement dated october 16 2000 ivc congress financial corporation incorporated reference exhibit 1029 companys annual report form 10k amended year ended december 31 2001 1023 amendment 1 loan security agreement dated june 13 2001 congress financial corporation ivc incorporated reference exhibit 1030 companys annual report form 10k amended year ended december 31 2001 1024 amendment 2 loan security agreement dated june 14 2001 congress financial corporation ivc incorporated reference exhibit 1031 companys annual report form 10k amended year ended december 31 2001 1025 amendment 3 loan security agreement dated march 19 2002 congress financial corporation ivc incorporated reference exhibit 1032 companys annual report form 10k amended year ended december 31 2001 1026 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp incorporated reference exhibit 1033 companys annual report form 10k amended year ended december 31 2001 1027 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation incorporated reference exhibit 1034 companys annual report form 10k amended year ended december 31 2001 1028 inverness medical innovations inc executive bonus plan incorporated reference exhibit 106 companys registration statement form s4 amended file 33367392 1029 licensing agreement dated march 14 1988 unilever plc behringwerke ag incorporated reference exhibit 1037 companys annual report form 10k amended period ended december 31 2001 1030 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag incorporated reference exhibit 1038 companys annual report form 10k amended period ended december 31 2001 1031 supply goods agreement dated december 19 1994 afc worldwide unipath limited incorporated reference exhibit 101 companys quarterly report form 10q amended period ended march 30 2002 1032 amendment supply goods agreement dated march 14 2002 schleicher schuell gmbh unipath limited incorporated reference exhibit 102 companys quarterly report form 10q amended period ended march 30 2002 1033 amendment 1 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 44 companys registration statement form s8 file 33390530 1034 subordinated note warrant purchase agreement dated september 20 2002 company investors named therein note warrant purchase agreement incorporated reference exhibit 991 companys current report form 8k dated september 20 2002 1035 form subordinated promissory note issued pursuant note warrant purchase agreement incorporated reference exhibit 992 companys current report form 8k dated september 20 2002 1036 form warrant agreement issued pursuant note warrant purchase agreement incorporated reference exhibit 993 companys current report form 8k dated september 20 2002 1037 subordinated note purchase agreement dated september 20 2002 company investors named therein note purchase agreement incorporated reference exhibit 994 companys current report form 8k dated september 20 2002 1038 form subordinated promissory note issued pursuant note purchase agreement incorporated reference exhibit 995 companys current report form 8k dated september 20 2002 1039 form convertible subordinated promissory note issued pursuant note purchase agreement incorporated reference exhibit 996 companys current report form 8k dated september 20 2002 1040 second amended restated credit agreement dated september 30 2003 among inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited credit parties signatory thereto lenders signatory thereto time general electric capital corporation administrative agent lenders merrill lynch capital division merrill lynch business financial services inc cosyndication agent ubs ag stamford branch cosyndication agent gecc capital markets group inc ml capital colead arrangers incorporated reference exhibit 101 companys quarterly report form 10q dated november 14 2003 1041 first amendment consent second amended restated credit agreement dated november 17 2003 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent lenders signatory thereto time 1042 second amendment second amended restated credit agreement dated december 31 2003 among general electric capital corporation agent lender inverness medical innovations inc wampole laboratories inc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent ubs securities llc cosyndication agent lenders signatory thereto time 1043 commercial lease dated august 1 1998 chang family trust applied biotech inc 1044 amendment commercial lease dated april 2003 chang family trust applied biotech inc 1045 manufacturing packaging supply agreement dated june 6 2003 among inverness medical innovations inc inverness medical switzerland gmbh unipath ltd warnerlambert company llc 1046 first amendment subordinated promissory notes dated november 14 2003 1047 first amendment convertible subordinated promissory notes dated january 15 2004 141 inverness medical innovations business conduct guidelines 211 list subsidiaries company march 15 2004 231 consent bdo seidman llp 311 certification chief executive officer pursuant section 302 sarbanes 312 certification chief financial officer pursuant section 302 sarbanes 321 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanes filed herewith portions exhibit omitted pursuant request confidential treatment breports form 8k october 9 2003 filed current report form 8k dated september 30 2003 item 2 connection acquisition certain assets abbott laboratories november 5 2003 filed current report form 8k dated november 5 2003 item 12 connection press release relating financial results third quarter 2003 november 10 2003 filed current report form 8ka amendment 1 dated august 27 2003 item 7 order file financial statements pro forma financial information required item 7 form 8k connection acquisition applied biotech inc november 20 2003 filed current report form 8ka amendment 1 dated september 30 2003 item 7 order file financial statements pro forma financial information required item 7 form 8k connection acquisition certain assets abbott laboratories december 17 2003 filed current report form 8k dated december 10 2003 item 5 connection entry manufacturing supply agreement warnerlambert company llc signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date march 15 2004 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date ron zwanziger ron zwanziger chief executive officer president director principal executive officer march 15 2004 christopher j lindop christopher j lindop chief financial officer principal financial officer principal accounting officer march 15 2004 ernest carabillo jr ernest carabillo jr director march 15 2004 carol r goldberg carol r goldberg director march 15 2004 robert p khederian robert p khederian director march 15 2004 john f levy john f levy director march 15 2004 jerry mcaleer jerry mcaleer director march 15 2004 john quelch john quelch director march 15 2004 david scott david scott director march 15 2004 peter townsend peter townsend director march 15 2004 alfred zeien alfred zeien director march 15 2004 inverness medical innovations inc subsidiaries consolidated financial statements report independent auditors board directors stockholders inverness medical innovations inc subsidiaries audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries company december 31 2003 2002 related consolidated statements operations stockholders equity comprehensive income loss cash flows two years ended december 31 2003 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits consolidated financial statements company december 31 2001 year ended audited auditors ceased operations whose report dated march 28 2002 expressed unqualified opinion statements reclassifications adjustments described conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion 2003 2002 consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2003 2002 consolidated results operations cash flows two years ended december 31 2003 conformity accounting principles generally accepted united states america discussed financial statements company december 31 2001 year ended audited auditors ceased operations 2002 company adopted accounting required pursuant emerging issues task force eitf issue 0109 accounting consideration given vendor customer reseller vendors products statement financial accounting standards sfas 145 rescission fasb statement 4 44 64 amendment fasb statement 13 technical corrections sfas 142 goodwill intangible assets 2001 consolidated financial statements adjusted reclassify certain amounts net product sales marketing expenses statement operations required eitf issue 0109 ii reclassify certain amounts extraordinary loss income expense net required sfas 145 note 5 consolidated financial statements discloses effect adjusting statement operations exclude goodwill amortization 2001 required sfas 142 audited adjustments applied reclassify certain amounts net product sales marketing expenses statement operations 2001 procedures included agreeing adjusted amounts net product sales marketing expenses companys underlying accounting records obtained management ii testing mathematical accuracy adjusted amounts net product sales marketing expenses also audited adjustments applied reclassify amounts extraordinary loss early extinguishment debt income expense net statement operations 2001 procedures included agreeing adjusted amounts income expense net companys underlying accounting records obtained management ii testing mathematical accuracy adjusted amounts income expense net audit procedures respect goodwill disclosures note 5 relating 2001 included agreeing previously reported net income loss adjustments reported net income loss representing amortization expense recognized 2001 related goodwill previously issued financial statements underlying accounting records obtained management ii testing mathematical accuracy reconciliation adjusted net income loss reported net income loss related earnings loss per share amounts opinion adjustments disclosures appropriate properly applied however engaged audit review apply procedures 2001 consolidated financial statements company respect adjustments accordingly express opinion form assurance consolidated financial statements december 31 2001 year ended taken whole bdo seidman llp boston massachusetts february 17 2004 provided pursuant rule 202e regulation sx copy accountants report issued arthur andersen llp former independent public accountants connection filing annual report form 10k year ended december 31 2001 audit report reissued arthur andersen connection filing annual report form 10k year ended december 31 2003 unable obtain reissued accountants report arthur andersen unable obtain future accountants reports arthur andersen arthur andersen discontinued auditing practice means also unable obtain consents incorporate financial statements audited arthur andersen registration statements may file future accordingly investors able sue arthur andersen pursuant section 11a4 securities act respect registration statements therefore ultimate recovery successful claim may limited ability investors recover arthur andersen may also limited result arthur andersens financial condition matters resulting various civil criminal lawsuits firm report independent public accountants inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc delaware corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states arthur andersen llp boston massachusetts march 28 2002 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements thousands except per share amounts 1 description business basis presentation inverness medical innovations inc subsidiaries company develop manufacture market diagnostic products overthecounter pregnancy fertilityovulation test market professional rapid diagnostic test market worldwide addition company manufactures variety vitamins nutritional supplements markets brands private label retailers consumer market primarily united states companys business organized two reportable segments consumer products professional diagnostics consumer products segment includes companys overthecounter pregnancy fertilityovulation tests vitamins nutritional supplements professional diagnostic products segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectiouse diseases drugs abuse pregnancy november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 merger agreement johnson acquired inverness medical technology inc imt merger transaction simultaneously company subsidiary imt splitoff imt separate publicly traded company pursuant terms merger agreement related agreements immediately prior consummation transaction imt restructured operations imts nondiabetes businesses womens health nutritional supplements professional diagnostics held company subsidiaries closing transaction shares companys common stock held imt splitoff imt pro rata distribution imt stockholders imt consisted primarily diabetes care business merged became whollyowned subsidiary johnson company incorporated may 11 2001 purpose receiving imts contribution womens health nutritional supplements professional diagnostics businesses connection transactions described merger agreement related agreements companys consolidated financial statements include imt subsidiaries businesses contributed company periods presented subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements primary subsidiaries businesses contributed company imt follows •inverness medical inc imi us corporation whollyowned subsidiary canam care corporation canam us corporation •cambridge diagnostics ireland ltd cdil irish corporation •orgenics ltd orgenics israeli corporation •the womens health business inverness medical europe gmbh ime german corporation •inverness medical benelux bvba imb belgian corporation •the womens health assets held imt plus allocations company imt common expenditures company consolidated financial statements individual legal entities newly acquired entities businesses discussed along assets liabilities revenues expenses businesses periods prior splitoff merger financial statements combined manner consistent consolidated financial statements material intercompany transactions balances eliminated amounts due imt affiliates part company reflected amounts due inverness medical technology inc affiliates companys equity accounts periods presented reflect par value companys stock date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split note 2k historical equity accounts legal entities comprise company consolidated subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements pursuant merger agreement related agreements november 21 2001 immediately prior splitoff merger company transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes businesses cdil imb result company presented historical diabetes operations subsidiaries discontinued operations accompanying consolidated financial statements accounting principles board apb opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions discontinuation diabetes businesses one number transactions occurred upon closing transactions set forth merger agreement related agreements significant impact companys financial statements prior splitoff merger imt capitalized company approximately 41400 cash connection restructuring businesses described herein imt also assumed discharged companys thirdparty relatedparty debt except thirdparty debt maintained cdil orgenics closing transactions set forth merger agreement related agreements imt distributed stockholders one share common stock company every five imt shares held order imt company declared stock split effected dividend accordingly earnings per share information periods presented represents actual number shares companys common stock outstanding date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 2k 11 companys consolidated financial statements periods prior splitoff merger also reflect allocation imts common expenditures allocations made accordance staff accounting bulletin sab 55 allocation expenses related disclosure financial statements subsidiaries divisions lesser business components another entity accompanying consolidated financial statements reflect substantially costs business including incurred imt companys behalf costs clearly identifiable applicable company subsidiary business allocated company significant costs included category include salary benefits certain employees legal professional fees costs centralized departments corporate operations serve operations allocated allocations would material using relevant allocation measures estimated percentage time worked salary benefits certain executives employees square feet occupied occupancy costs shared facilities corporate costs clearly relate businesses subsidiaries retained imt provide significant direct indirect benefit company allocated company periods prior splitoff merger company accounted income taxes using separate return method pursuant statement financial accounting standard sfas 109 accounting income taxes imt historically charged interest loans made subsidiaries accordingly companys consolidated statements operations periods prior splitoff merger reflect interest expense amounts due entities included companys consolidated financial statements primarily imt note 16b interest expense also reflects amounts recorded thirdparty notes payable notes relate specifically companys operations interest expense include amounts recorded general corporate borrowings imt company believes allocation methods described herein reasonable fairly reflect financial position results operations immediately prior splitoff merger imt option warrant split new imt option warrant company option warrant new imt options warrants subsequently converted johnson options warrants merger option warrant split accomplished manner aggregate intrinsic value two options warrants equals intrinsic value imt option warrant split option warrant split also required ratio intrinsic value market value option warrant accordingly total number shares common stock underlying stock options warrants company issued splitoff 929 118 respectively concurrent option split 1 vesting company options accelerated 2 period exercisability imt employees become employees company extended actions deemed award modifications pursuant financial accounting standards board fasb interpretation fin 44 accounting certain transactions involving stock compensation fin 44 company measured compensation date award modifications based intrinsic value option recognized recognize future compensation absent modifications award would forfeited pursuant awards original terms imt employees become employees company recognition charge 645 immediate recorded stockbased compensation expense accompanying consolidated statements operations 2001 imt employees became company employees company measured potential charge maximum 1173 date modification record compensation charge unless time company employees terminate employment company time portion award absent modification would forfeited awards original terms would recognized compensation expense 2003 2002 company recognized stockbased compensation expense related certain imt employees became company employees amount 2 121 respectively employees terminated employment company since consummation splitoff merger described company completed number acquisitions 2003 company acquired certain assets abbott laboratories abbott september 30 2003 abbott business applied biotech inc subsidiary abi apogent technologies inc august 27 2003 ostex international inc ostex june 30 2003 note 4 assets acquired abbott relate consumer diagnostic pregnancy tests various professional rapid diagnostic product lines well certain transferred licensed intellectual property related products abi developer manufacturer distributor consumer diagnostic professional diagnostic products areas womens health infectious disease drugs abuse testing ostex develops commercializes osteoporosis diagnostics products holds intellectual property rights field osteoporosis diagnostics addition company acquired small research development facility scandinavian micro biodevices smb november 18 2003 acquisitions occurred 2002 2001 include companys acquisition wampole division medpointe inc wampole september 20 2002 ivc industries inc dba inverness medical nutritionals group imn march 19 2002 certain entities businesses intellectual property unilever plc unipath business december 20 2001 note 4 wampole markets distributes pointofcare professional medical diagnostic products imn manufactures distributes vitamins nutritional supplements unipath business develops manufactures distributes womens health professional diagnostics products results acquisitions included consolidated financial statements company since respective acquisition dates 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america companys management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates b foreign currencies company follows provisions sfas 52 foreign currency translation general functional currencies companys foreign subsidiaries local currencies purpose consolidating financial statements companys foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders equity note 13 income expense accounts companys foreign subsidiaries translated using average rates exchange reporting period net realized unrealized foreign currency exchange transaction gains 5 975 losses 727 2003 2002 2001 respectively included component income expense net accompanying consolidated statements operations foreign currency exchange transaction gain 2002 included onetime foreign exchange gain 2593 settlement portion intercompany loan two companys subsidiaries c cash equivalents company considers highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2003 2002 inventories stated lower cost firstin firstout market e depreciation amortization company records property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 316 years buildings 2039 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 36 years furniture fixtures 310 years depreciation amortization expense related property plant equipment amounted 10116 6364 1864 2003 2002 2001 respectively f goodwill intangible assets following summary goodwill intangible assets december 31 2003 company amortizes intangible assets finite lives using straightline method estimated useful lives respective intangible asset company believes straightline method appropriate approximates pattern economic benefits consumed amortization expense intangible assets amounted 5469 3944 1377 2003 2002 2001 respectively included cost sales research development accompanying consolidated statements operations following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2003 company historically amortized goodwill generated acquisitions prior june 30 2001 estimated useful life goodwill january 1 2002 company adopted sfas 142 goodwill intangible asset accordingly longer amortizes goodwill intangible assets indefinite lives acquired prior june 30 2001 note 5 goodwill acquired subsequent june 30 2001 provisions sfas 142 effective immediately also sfas 142 company performs annual impairment tests carrying value goodwill reporting unit 2002 company recorded goodwill impairment charge 12148 result independent appraisal nutritional supplement reporting unit note 5 based impairment review december 31 2003 company believe goodwill related consumer products professional diagnostic products business segments impaired values assigned trade names acquired part abbott business wampole acquisitions notes 4a trademarks acquired part unipath business acquisition note 4f assigned indefinite lives therefore accordance sfas 142 amortized company allocates goodwill segment based percentage estimated future revenues generated respective segment acquisition date goodwill allocated business segment follows g impairment longlived tangible intangible assets january 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets company examines periodic basis carrying value longlived tangible intangible assets determine whether impairment losses indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets carrying amount impairment loss would charged expense period impairment identified based fair value asset accordingly company recorded impairment charge 12682 2002 related trademarks brand names companys nutritional supplements business note 5 company believes remaining carrying values longlived tangible intangible assets realizable december 31 2003 h income taxes company follows provisions sfas 109 deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss carryforwards extent realization benefits likely extent likely company benefit benefits company must establish valuation allowance related deferred tax assets note 14 revenue recognition majority companys revenues derived product sales company generally enter arrangements multiple element deliverables company recognizes revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured company recognizes revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances lesser extent company also receives license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees calculated based licensees sales generally recognized upon receipt license royalty payments unless company able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned j employee stockbased compensation arrangements company adopted employee stock option plan 2001 note 12c periods presented accompanying consolidated financial statements company accounted employee stockbased compensation arrangements using intrinsic value method provisions apb opinion 25 accounting stock issued employees related interpretations company elected use disclosureonly provisions sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure addition accordance fin 44 company included disclosures imt options held individuals became companys employees time splitoff merger retroactively converted companys options historically granted company note 12c compensation expense stock option grants employees determined based fair value method grant date awards stock option plans consistent method prescribed sfas 123 companys net income loss would decreased increased pro forma amounts indicated follows astockbased employee compensation expense reported represents amortization deferred compensation certain stock options restricted stock granted fair market value options granted lieu cash compensation company computed pro forma disclosures stock options granted employees january 1 1995 using blackscholes option pricing model prescribed sfas 123 assumptions used three years ended december 31 2003 follows weighted average fair value blackscholes option pricing model options granted employees 2003 2002 2001 934 919 1035 respectively k net income loss per common share net income loss per common share computed accordance sfas 128 earnings per share based upon actual number common shares issued outstanding upon incorporation company periods presented effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 1 11 l operating expenses company expenses advertising costs incurred 2003 2002 2001 advertising costs amounted 18594 14306 354 respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost sales accompanying consolidated statements operations additionally extent company charges customers shipping handling costs recorded product revenues concentration credit risk financial instruments potentially subject company concentration credit risk primarily consist cash equivalents accounts receivable company invests excess cash primarily high quality securities limits amount credit exposure one financial institution company require collateral securities support customer receivables however performs ongoing credit evaluations customers maintains allowances potential credit losses accounts receivable balances outstanding december 31 2003 excess 10 gross accounts receivable balance date company accounts receivable balance outstanding december 31 2002 one customer represented 14 gross accounts receivable balance date 2003 2001 company one customer represented 11 14 respectively net revenues customers 2002 represented 10 companys net revenues company relies number third parties manufacture certain products companys third party manufacturers cannot manufacture companys products required volumes costeffective basis timely manner company secure additional manufacturing capacity interruption delay manufacturing could material adverse effect companys business operating results february 2002 company entered interest rate swap agreement intended protect interest rate fluctuations related portion senior longterm debt interest rate swap agreement company significant concentration credit risks foreign exchange contracts option contracts foreign hedging arrangements december 31 2003 2002 company offbalance sheet arrangements december 31 2003 see note 15 financial information geographic area business segment n financial instruments fair value financial instruments companys primary financial instruments december 31 2003 2002 consisted cash equivalents accounts receivable debt addition company also interest rate swap agreement estimated fair value financial instruments approximates carrying values december 31 2003 2002 estimated fair values determined information obtained market sources additionally companys subsidiary england enters shortterm foreign currency exchange forward contracts time minimize exposure foreign currency exchange fluctuations substantial portion business transacted currencies functional currency december 31 2003 company foreign currency exchange forward contracts outstanding company accounts derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities recent accounting pronouncements november 2002 emerging issues task force eitf reached consensus issue 0021 revenue arrangements multiple deliverables revenue arrangements multiple deliverables include arrangements provide delivery performance multiple products services andor rights use assets performance may occur different points time different periods time eitf issue 0021 effective revenue arrangements entered fiscal periods beginning june 15 2003 adoption guidance consensus impact companys financial position results operations cash flows april 2003 fasb issued sfas 149 amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 particular sfas 149 clarifies circumstances contract initial net investment meets characteristic derivative discussed sfas 133 clarifies derivative contains financing component amends definition underlying initially defined sfas 133 conform language used fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others amends certain existing pronouncements sfas 149 effective contracts entered modified june 30 2003 subject certain exceptions adoption statement impact companys financial position results operations cash flows may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity sfas 150 requires issuer classify financial instrument within scope liability asset circumstances many instruments previously classified equity mezzanine equity statement also requires income statement treatment consistent balance sheet classification instrument classified liability payments holders interest expense dividends changes value recorded earnings statement relates three specific categories instruments mandatorily redeemable shares freestanding written put options forward contracts obligate entity purchase shares freestanding contracts obligate entity pay shares amounts either unrelated inversely related price shares sfas 150 effective immediately financial instruments entered modified may 31 2003 otherwise effective first interim period beginning june 15 2003 adoption statement impact companys financial position results operations cash flows december 2003 fasb issued revision fin 46 consolidation variable interest entities revised fin 46 replaces original fin 46 issued january 2003 clarifies application accounting research bulletin 51 consolidated financial statements certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support interpretation exempts certain entities requirements also expands definition variable interest entity vie broader group entities previously considered specialpurpose entities spes specifies criteria appropriate investor consolidate vies application revised fin 46 required financial statements public entities interest structures commonly referred spes periods ending december 15 2003 types vies application revised fin 46 public entities required periods ending march 15 2004 application interpretation respect structures commonly referred spes material impact companys financial position results operations cash flows company currently expect application interpretation respect types vies material impact financial position results operations cash flows december 2003 securities exchange commission sec published sab 104 revenue recognition sab 104 effective upon issuance supersedes sab 101 revenue recognition financial statements rescinds accounting guidance contained sab 101 related multipleelement revenue arrangements superseded eitf issue 0021 accordingly sab 104 rescinds portions interpretive guidance included topic 13 codification staff accounting bulletins wording sab 104 changed reflect guidance eitf 0021 revenue recognition principles sab 101 remained largely unchanged adoption sab 104 material effect companys financial position results operations cash flows p reclassifications certain prioryear account balances reclassified consistent current years presentation 3 balance sheet information components selected captions consolidated balance sheets consist 4 business combinations acquisition abbott business september 30 2003 company acquired abbott certain assets related abbotts lines consumer diagnostic pregnancy tests professional rapid diagnostics various testing needs including strep throat pregnancy drugs abuse note 1 acquired assets also include certain transferred licensed intellectual property related products acquisition compliments companys consumer professional diagnostic product portfolios well helps establish larger global presence facilitate introduction new products aggregate purchase price 94987 consisted 55000 cash 37500 form 1551 shares companys common stock direct acquisition costs 2487 company financed cash portion purchase price obtaining loans amended senior credit facility note 6a aggregate purchase price allocated assets acquired follows fair value assigned property plant equipment trade names based upon independent appraisal acquisition abbott business accounted purchase sfas 141 business combinations accordingly operating results abbott business included companys consolidated statements operations acquisition date part companys consumer diagnostic products professional diagnostic products reporting units acquired goodwill deductible tax purposes period 15 years allocated business segment based estimated future revenue acquired assets follows 23385 consumer products 63066 professional diagnostic products company assigned indefinite life signify trade name 5 years useful life fact plus trade name signify fact plus trade names included accompanying consolidated balance sheet december 31 2003 trademark trade names indefinite lives intangible assets net respectively terms acquisition agreements abbott provide transitional services eighteen months several acquired products two years others transitional services primarily include distributing acquired products also include limited manufacturing b acquisition abi august 27 2003 company acquired abi apogent technologies inc apogent note 1 abi developer manufacturer distributor rapid diagnostic products areas womens health infectious disease drugs abuse testing transaction company also acquired abis whollyowned subsidiary forefront diagnostics inc forefront develops manufactures distributes rapid diagnostic products drugs abuse testing products broaden companys professional diagnostic product portfolio abi also provides company additional manufacturing capabilities new distribution channels companys professional diagnostic products preliminary aggregate purchase price abi 28840 consisted 13400 cash 693 shares companys common stock aggregate fair value 14267 preliminary direct acquisition costs 1173 fair value companys common stock determined based average market price companys common stock periods prior following date merger agreement pursuant eitf issue 9912 determination measurement date market price acquirer securities issued purchase business combination company financed cash portion purchase price obtaining loan amended senior credit facility note 6a aggregate purchase price preliminary company working settle working capital adjustment apogent purchase agreement management process finalizing restructuring plan operations abi could result adjustments aggregate purchase price following table summarizes preliminary fair value assets acquired liabilities assumed date acquisition values assigned property plant equipment intangible assets based upon results independent appraisal acquisition abi accounted purchase sfas 141 accordingly operating results abi included accompanying consolidated financial statements since acquisition date part companys consumer diagnostic products professional diagnostic products reporting units company allocated goodwill 2003 8112 consumer products professional diagnostic products business segments respectively based estimated future revenue acquired businesses goodwill generated acquisition deductible tax purposes company estimates useful lives intangible assets 15 years included intangible assets net accompanying consolidated balance sheet december 31 2003 weighted average amortization period acquired intangible assets finite lives estimated 15 years c acquisition ostex june 30 2003 company acquired ostex merger transaction note 1 ostex develops commercializes osteoporosis diagnostic products acquisition also provides company intellectual property rights field osteoporosis diagnostics preliminary aggregate purchase price ostex 33424 consisted 1597 shares companys common stock aggregate fair value 23537 assumption fullyvested stock options warrants purchase aggregate 303 shares companys common stock options warrants aggregate fair value 1752 estimated exit costs 3632 primarily consists severance costs vacate ostexs manufacturing administrative facilities accordance eitf issue 953 recognition liabilities connection purchase business combination direct acquisition costs 1628 2875 assumed debt fair value companys common stock issued acquire ostexs outstanding common stock determined based average market price companys common stock periods prior following date merger agreement amended pursuant eitf issue 9912 fair value assumed fullyvested stock options warrants calculated using blackscholes option pricing model result business combination ostex company established restructuring plan whereby exit current facilities ostex seattle washington combine activities companys existing manufacturing distribution facilities mid2004 total number employees terminated involuntarily 41 30 remain terminated december 31 2003 total severance costs associated employees terminated involuntarily estimated 1592 1132 paid december 31 2003 company estimated costs vacate ostex facilities approximately 100 none paid december 31 2003 additionally remaining costs exit operations primarily facilities lease commitments estimated 1940 414 paid december 31 2003 total unpaid estimated exit costs amounted 2086 december 31 2003 although company believes plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs might impact final aggregate purchase price following table summarizes preliminary estimated fair value assets acquired liabilities assumed date acquisition values assigned property plant equipment intangible assets based upon results independent appraisals acquisition ostex accounted purchase sfas 141 accordingly results ostex included accompanying consolidated financial statements since acquisition date part companys professional diagnostic products reporting unit business segment goodwill generated acquisition deductible tax purposes company estimates useful lives core technology customer relationships 15 years includes core technology patents net intangible assets net respectively accompanying consolidated balance sheet december 31 2003 weighted average amortization period acquired intangible assets finite lives estimated 15 years acquisition wampole september 20 2002 company acquired wampole distributor professional diagnostic pointofcare medical diagnostic products primarily united states note 1 acquisition allows company expand business pointofcare market united states provides company certain intellectual property aggregate purchase price wampole 72068 consisted 70489 cash 1579 direct acquisition costs acquisition funded issuance 35000 subordinated debt notes 6b c portion companys existing cash time acquisition aggregate purchase price wampole allocated acquired assets assumed liabilities follows allocation aggregate purchase price wampole acquired intangible assets based upon independent appraisal acquisition wampole accounted purchase sfas 141 accordingly results wampole included accompanying consolidated financial statements since acquisition date part companys professional diagnostic products reporting unit business segment company assigned indefinite lives acquired goodwill trade name value goodwill fully deductible tax purposes 15 years values allocated acquired patents supplier relationships amortized straightline basis estimated useful lives 13 10 years respectively weighted average amortization period acquired intangible assets finite lives estimated 108 years trade name patents supplier relationships allocated respectively trademarks trade names indefinite lives core technology patents net intangible assets net accompanying consolidated balance sheets december 31 2003 2002 e acquisition ivc march 19 2002 company acquired ivc dba imn manufacturer distributor vitamins nutritional supplements primarily united states note 1 addition imn company consolidated certain vitamin nutritional supplement manufacturing imn discontinued outsourced manufacturing arrangements aggregate purchase price imn 27300 consisted 5619 cash representing 250 outstanding share imns common stock fullyvested stock options purchase aggregate 116 shares companys common stock options aggregate fair value 1299 calculated using blackscholes option pricing model 1587 costs exit certain activities imn primarily severance costs involuntarily terminated employees accordance eitf issue 953 17359 assumed debt 1436 direct acquisition costs acquisition funded companys existing cash aggregate purchase price imn allocated acquired assets assumed liabilities follows acquisition imn accounted purchase sfas 141 accordingly results imn included accompanying consolidated financial statements since acquisition date acquired assets assumed liabilities imn assigned companys nutritional supplements business reporting unit included companys consumer products business segment immediately close acquisition company reorganized business operations imn improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined companys existing business operations also part restructuring plan company process relocating one imns warehouses closer proximity manufacturing facility improve efficiency warehouse relocation expected completed mid2004 1587 total exit costs include severance costs involuntarily terminated employees costs vacate warehouse 1068 paid 519 remain unpaid december 31 2003 total number involuntarily terminated employees 47 terminated december 31 2003 f acquisition unipath business december 20 2001 company acquired unipath business unilever plc unilever note 1 unipath business core operations based england develops manufactures distributes home pregnancy ovulation testing natural family planning products sold worldwide together acquisition unipath business company also acquired rights certain antibody clones intellectual property unipath business provides company leading brand name consumer diagnostic products compliment companys existing value branded private label home pregnancy detection ovulation prediction products aggregate purchase price unipath business 158446 consisted 146490 cash 4159 costs exit certain activities acquired business primarily severance costs accordance eitf issue 953 estimated unfunded pension liability 2634 upon assumption pension benefits acquired employees based england note 8b 5163 direct acquisition costs acquisition funded issuance 1995 shares series convertible redeemable preferred stock series preferred stock aggregate proceeds 59850 note 12b 62500 loans series credit agreements bank entities related bank note 6f issuance subordinated promissory notes warrants aggregate proceeds 20000 note 6g companys existing cash aggregate purchase price unipath business allocated acquired assets assumed liabilities follows allocation purchase price assets acquired based upon results independent appraisal fair value assets acquisition unipath business accounted purchase sfas 141 accordingly results unipath business included accompanying consolidated financial statements since acquisition date primarily included companys womens health reporting unit within consumer products business segment much lesser extent results unipath business included companys professional diagnostics business segment acquired goodwill majority deductible tax purposes trademarks assigned indefinite lives goodwill 65703 7026 allocated consumer products professional diagnostic products business segments respectively based estimated future revenue acquired unipath business company amortizing portion purchase price allocated certain intangible assets finite lives comprised core technology patents license agreements straightline basis estimated useful lives 13 7 years respectively weighted average amortization period assets 112 years trademarks core technology patents license agreements allocated trademarks trade names indefinite lives core technology patents net intangible assets net respectively accompanying consolidated balance sheets december 31 2003 2002 time acquisition research development staff unipath business seeking develop digitalbased technology however technology sought specific inprocess research development project iprd project yet reached technological feasibility alternative future use date acquisition therefore portion purchase price allocated iprd project 6980 charged expense upon acquisition amount purchase price allocated iprd project represents estimated fair value determined using income approach whereby projected future cash flows discounted value technology estimated royalty rate 4 applied projected revenues calculate pretax royalty savings attributed completed technology 30 tax rate used riskadjusted discount rate 24 applied time unipath business acquisition management believed many complex technical issues resolved however company obtained food drug administration fda approval technology therefore risk achieving commercialization developmental risk regulatory risk well work full project included demonstrating feasibility defining project design development verification clinical testing regulatory submission approval would need completed prior launch product based technology second quarter 2003 originally anticipated company obtained fda clearance market sell pregnancy test uses digitalbased technology result business combination company reorganized operations unipath business purposes improving efficiencies achieving economies scale companywide basis reorganization affected major cost centers operations england additionally business activities us division merged companys existing us businesses total number involuntarily terminated employees 65 terminated december 31 2002 total exit costs primarily related severance initially estimated 2340 2002 company finalized restructuring activities recorded additional 1819 exit costs additional exit costs recorded adjustments unipath business purchase price december 31 2003 1347 adjusted foreign exchange effect exit costs remained unpaid g pro forma financial information following table presents selected unaudited financial information company including abbott business abi ostex wampole imn acquisitions entities occurred january 1 2002 pro forma results exclude adjustment smb acquisition materially affect companys results operations unaudited pro forma results necessarily indicative results would occurred acquisitions consummated january 1 2002 future results 1earnings per share computed described note 11 5 goodwill intangible assets january 1 2002 company adopted sfas 142 addresses changes financial accounting reporting acquired goodwill intangible assets indefinite lives result company longer records amortization goodwill 2001 company recorded amortization expense 398 related goodwill amortization expense allocated general administrative expenses accompanying consolidated statement operations 2001 following table presents loss continuing operations net loss company amortization goodwill recorded sfas 142 period sfas 142 also provides specific guidance determining measuring impairment goodwill based upon results independent impairment review required sfas 142 company recorded impairment charge 12148 representing remaining goodwill related reporting unit comprises nutritional supplement lines company acquired 1997 amount represented excess carrying value fair value asset fair value determined using combination income approach market approach valuing business income approach valued business discounting projected future cash flows market approach valued security underlying business comparing similar businesses significant facts circumstances led conclusion impairment future cash flows nutritional supplement lines expected reduced b selling general administrative expenses relating nutritional supplement lines forecasted increase percentage sales c nutritional supplements business experiencing larger percentage decline revenues comparable businesses companies impairment charge recorded first quarter 2002 classified accordance sfas 142 cumulative effect change accounting principle accompanying statement operations 2002 independent appraisal fair value reporting unit underlying companys nutritional supplements business indicated goodwill impairment reporting unit discussed company proceeded also obtain independent impairment review carrying value assigned related trademarks brand names accordance sfas 144 results impairment review sfas 144 indicated impairment carrying value trademarks brand names full carrying amount intangible assets expected recoverable exceeded fair value carrying amount intangible assets recoverable exceeded sum undiscounted cash flows expected result use eventual disposition assets fair value intangible assets determined using combination discounted cash flow approach relief royalty approach latter valued trademarks licensed third party based results company recorded impairment charge 12682 first quarter 2002 included operating expenses accompanying statement operations 2002 remaining carrying value intangible assets 3858 december 31 2003 amortized remaining useful life intangible asset 18 years 6 longterm debt company following longterm debt balances outstanding following describes listed debt instruments senior credit facilities november 14 2002 company certain subsidiaries entered senior credit agreement group banks credit facilities aggregate amount 55000 44111 used prepay outstanding principal balances accrued unpaid interest term loans line credit series former credit agreements note 6f august 27 2003 finance cash portion acquisition abi note 4b company amended senior credit agreement whereby borrowing capacity credit facilities increased 70000 september 30 2003 finance cash portion acquisition abbott business note 4a company amended senior credit agreement whereby borrowing capacity credit facilities increased 135000 amended senior credit agreement september 30 2003 consisted two us term loans term loan 35075 term loan b 40000 european term loan 9900 us revolving line credit 25000 european revolving line credit 25000 aggregate borrowings december 31 2003 amounted 84975 term loans 39859 revolving lines credit aggregate unused portion revolving lines credit totaled 10141 december 31 2003 february 10 2004 outstanding borrowings accrued unpaid interest senior credit agreement aggregating 125046 prepaid proceeds companys sale 150000 875 senior subordinated notes bondsor bond issuance note 6h company retained 50000 availability revolving lines credit subject continued covenant compliance may repay future borrowings revolving lines credit time event later march 31 2008 company required make mandatory prepayments senior credit facilities meets certain cash flow thresholds issues equity securities subordinated debt sells assets ordinary course business company treated prepayment outstanding borrowings senior credit facilities using proceeds form bond offering refinancing accordance sfas 6 classification shortterm obligations expected refinanced therefore outstanding principal balances senior credit facilities originally due repaid within one year reclassified current longterm liabilities accompanying consolidated balance sheet december 31 2003 borrowings credit facilities bear interest either london interbank offered rate libor defined agreement plus applicable margins companys option ii floating index rate defined agreement plus applicable margins applicable margins company chooses use libor index rate range 325 450 200 275 respectively depending quarterly adjustments based companys consolidated financial performance commencing quarter ending march 31 2004 december 31 2003 interest rate revolving lines credit including applicable margin 514 interest rates ranging 514 564 applicable borrowings term loans december 31 2003 company recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 4602 521 2003 2002 respectively february 10 2004 connection prepayment outstanding balances senior term loans company also recorded interest expense 3297 writeoff remaining related unamortized deferred financing costs 2847 expense financing fee 450 paid banks borrowings senior credit facilities secured stock certain companys us european subsidiaries substantially companys intellectual property rights assets companys business us europe excluding assets imn orgenics ltd companys israeli subsidiary unipath scandinavia ab companys swedish subsidiary senior credit agreement company must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits payment dividends december 31 2003 company compliance covenants b subordinated promissory notes 10 principal amount 20000 september 20 2002 company sold units aggregate purchase price 20000 private investors help finance wampole acquisition note 4d unit consisted 10 subordinated promissory note 10 subordinated note principal amount 50 ii warrant acquire 04 shares companys common stock exercise price 1354 per share aggregate company issued fully vested warrants purchase 160 shares common stock may exercised time prior september 20 2012 interest accrues 10 per annum compounded daily outstanding principal amount payable quarterly arrears first day calendar quarter started october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances company may prepay 10 subordinated notes time subject certain prepayment penalties company may option repay 10 subordinated notes pay prepayment penalty applicable cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 150000 indebtedness borrowed money incurred guaranteed company plus indebtedness company incurs finance acquisition company allocated 1200 principal amount 10 subordinated notes warrants original issue discount represented fair value warrants date issuance addition placement agent offering 10 subordinated notes received cash commissions expense allowance totaling 970 warrant purchase 38 shares companys common stock terms identical warrants sold part units value warrant issued placement agent 302 cash commission expense allowance recorded deferred financing costs original issue discount related warrants issued subscribers deferred financing costs amortized interest expense six year term 10 subordinated notes interest expense including amortization original issue discount deferred financing costs related 10 subordinated notes 2465 693 2003 2002 respectively among purchasers 10 subordinated notes three directors officers company entity controlled companys chief executive officer collectively purchased units aggregated 1850 principal amount warrants purchase aggregate 15 shares companys common stock c subordinated promissory notes 9 principal amount 9000 convertible subordinated promissory notes 3 principal amount 6000 september 20 2002 also connection financing wampole acquisition note 4d company sold subordinated promissory notes aggregate principal amount 9000 9 subordinated notes subordinated convertible promissory notes aggregate principal amount 6000 3 convertible notes private investors 9 subordinated notes 3 convertible notes bear interest 9 3 per annum respectively outstanding principal balance payable quarterly arrears first day calendar quarter started october 1 2002 company recorded interest expense including amortization deferred financing costs notes 1003 282 2003 2002 respectively 3 convertible notes mature september 20 2008 subject acceleration certain circumstances february 10 2004 company prepaid 9 subordinated notes proceeds bond issuance note 6h total payment made prepayment date aggregated 9271 represented principal balance outstanding plus accrued unpaid interest well prepayment penalty 180 equated 2 principal balance repaid prepayment penalty along remaining unamortized deferred financing cost writeoff aggregating 216 charged interest expense february 2004 upon maturity 3 convertible notes company option repay notes cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date time prior maturity date holders 3 convertible notes option convert outstanding principal amounts unpaid interest companys common stock conversion price equal 1745 per share 125 average closing price companys common stock ten consecutive trading days ending two days prior september 20 2002 additionally outstanding principal amount unpaid interest 3 convertible notes automatically convert companys common stock conversion price equal 1745 time september 20 2004 average closing price companys common stock consecutive thirtyday period greater 2267 3 convertible notes expressly subordinated 150000 indebtedness borrowed money incurred guaranteed company plus indebtedness company incurs finance acquisition provided 3 convertible notes rank equally 10 subordinated notes entity controlled companys chief executive officer purchased 3 convertible notes aggregate principal amount 3000 imn credit facilities connection acquisition imn company assumed imns borrowings senior credit agreement imn credit agreement pursuant imn credit agreement amended imn borrow 15000 revolving credit commitment 4200 term loan commitment subject specified borrowing base limitations december 31 2003 imn 10783 outstanding borrowings revolving credit commitment 2292 outstanding principal amount term loan borrowings imn credit agreement mature october 15 2004 automatically extended one year maturity date unless ninety day termination notice given writing either party agreement borrowings revolving credit commitment term loan bear interest either 150 banks prime rate imns option 375 adjusted eurodollar rate used bank december 31 2003 interest rates loan facilities ranged 492 550 interest expense including amortization deferred financing costs imns credit facilities 835 661 2003 2002 respectively december 31 2003 availability revolving credit commitment amounted 426 reduced borrowing base limitations notes collateralized substantially imns assets imn credit agreement requires imn maintain minimum tangible net worth contains various restrictions customary financial arrangements including limitations payment cash dividends december 31 2003 imn compliance requirements restrictions e imn bonds payable also connection acquisition imn company assumed imns bonds payable imn bonds aggregate outstanding balance 1450 december 31 2003 bonds payable various installments june 30 2007 bonds payable balance bear interest 690 interest bonds payable balance payable semiannually imn recorded interest expense including amortization deferred financing costs bonds 121 214 2003 2002 respectively bonds collateralized certain property equipment imn additionally bonds require imn maintain letters credit bank equal outstanding principal balances bonds fees letters 85 per annum november 30 2003 1 per annum thereafter f term loans revolving line credit december 20 2001 whollyowned subsidiary company entered series credit agreements former credit agreements bank entities related bank various credit facilities aggregate amount 65000 amended proceeds former credit agreements used finance portion cash used acquire unipath business note 4f per annum interest rate loans libor plus spread 150 350 additional 200 case default depending type loan senior junior interest period addition former credit agreement interest 400 per annum expensed deferred junior loan part former credit agreements company issued bank warrant acquire 65 shares companys common stock nominal cost company allocated 1105 loan proceeds warrant original issue discount represented fair value warrant date issuance interest expense including amortization original issue discount deferred financing costs 2002 2001 2733 134 respectively november 14 2002 company prepaid outstanding principal balances unpaid interest former credit agreements aggregating 44111 proceeds senior credit facilities obtained date note 6a company accounted prepayment early extinguishment debt accordingly november 14 2002 company accelerated amortization remaining unamortized original issue discount deferred financing costs 972 2237 respectively recorded component interest expense accompanying statements operations g subordinated bridge notes company entered note warrant purchase agreement pursuant december 20 2001 issued subordinated promissory notes subordinated bridge notes aggregate principal amount 20000 purpose funding acquisition unipath business note 4f original maturity date subordinated notes april 1 2002 extension option interest accrued 12 per annum 18 maturity date extended subordinated bridge notes convertible shares companys series preferred stock option holder due conversion feature notes company recorded discount notes form beneficial conversion feature 3243 accordance eitf issue 985 accounting convertible securities beneficial conversion features contingently adjustable conversion ratios eitf issue 0027 application eitf issue 985 certain convertible instruments value assigned beneficial conversion feature amortized interest expense life subordinated bridge notes part note warrant purchase agreement addition subordinated bridge notes company also issued 10year warrants purchase total 55 shares companys common stock exercise price 1812 per share company allocated 672 aggregate proceeds subordinated bridge notes warrants original issue discount represented relative fair value warrants date issuance amortizing discount interest expense life subordinated bridge notes interest expense 2002 2001 including amortization original issue discount beneficial conversion feature deferred financing costs 2974 564 respectively march 6 2002 company prepaid subordinated bridge notes aggregate outstanding balance 20000 related accrued interest 568 company accounted prepayment subordinated bridge notes reacquisition related beneficial conversion feature early extinguishment debt recorded 9600 related gain early extinguishment debt income expense net 1260 related unamortized original issue discount initial beneficial conversion feature deferred financing costs additional interest expense accordance eitf issue nos 985 0027 gain 9600 calculated first allocating reacquisition price beneficial conversion feature measured based intrinsic value date extinguishment residual amount allocated subordinated bridge notes entity controlled companys chief executive officer holder 10000 subordinated bridge note holds warrant issued connection note purchase 28 shares companys common stock h 150000 senior subordinated notes february 10 2004 company completed sale 150000 875 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 145950 net underwriters commissions 4050 net proceeds 125259 used repay outstanding indebtedness related financing fees senior credit facilities note 6a 9180 used prepay outstanding 9 subordinated notes related prepayment penalties note 6 c company retained remaining unused proceeds bond offering expenses general corporate purposes bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commencing august 15 2004 company may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 company may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest company experiences change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest bonds unsecured subordinated right payment companys existing future senior debt including guarantee borrowings companys senior credit facilities bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed companys domestic subsidiaries guarantors borrowers senior credit facilities excludes subsidiary imn new jersey guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings companys senior credit facilities see note 18 guarantor financial information indenture governing bonds contains covenants limit companys ability subsidiaries among things incur additional indebtedness pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries ability pay dividends enter transactions affiliates consolidate merge sell substantially companys assets covenants subject certain exceptions qualifications maturities longterm debt following summary maturities longterm debt outstanding december 31 2003 7 capital leases companys subsidiary imn maintains capital lease warehouse distribution facility expires july 2008 renewable two successive fiveyear periods lease classified capital lease result saleleaseback transaction imn entered prior acquired company aggregate monthly minimum payments remaining capital lease 2643 december 31 2003 addition company various capital leases certain machinery equipment computer equipment expire various dates 2006 remaining aggregate monthly minimum payments 121 following schedule future minimum lease payments capital leases together present value payments december 31 2003 december 31 2003 capitalized amounts building machinery equipment computer equipment capital leases follows amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several us based subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants contributions 401k savings plans company matches contributions designated level prior splitoff imt companys employees option participated imts 401k savings plan similar terms companys current plans companys results 2001 prior splitoff imt include allocations imts matching contribution related 401k savings plan allocations made accordance sab 55 note 1 total matching contributions related employee savings plans 308 125 15 2003 2002 2001 respectively b uk pension plans companys subsidiary england unipath ltd adopted pension plan unipath pension scheme december 2002 unipath pension scheme consists two parts defined benefit section defined benefit plan ii defined contribution section defined contribution plan employees unipath ltd allowed join unipath pension scheme starting december 1 2002 part purchase agreement unipath business company agreed establish new defined benefit pension plan acquired employees based england former participants unilever pension plan acquired uk employees continue accumulate benefits plan period least three years acquisition date unipath business consequently defined benefit plan established part unipath pension scheme covers acquired uk employees last two years three year postacquisition period starting december 1 2002 first year three year postacquisition period november 2002 acquired uk employees continued accumulate benefits unilever pension plan unipath ltd contributed 1919 period time acquisition pursuant sfas 87 employers accounting pensions sfas 88 employers accounting settlements curtailments defined benefit pension plans termination benefits company recorded unfunded pension liability 3685 part purchase price unipath business withdrawal obligation unfunded pension liability represented excess benefit obligation 20485 fair value plan assets 16800 initially allocated unilever plan assets benefit acquired uk employees acquired uk employees terminated companys restructuring plan upon acquisition unfunded pension liability initially recorded company 3685 reduced portion employees severance payout represented pension benefits 1051 reclassified severance costs purposes aggregating purchase price unipath business note 4f acquired uk employees may also elect option transfer contributions benefits unilever pension plan defined benefit plan company believes uk defined benefit plan less favorable acquired uk employees unilevers plan company intends maintain benefit period three years acquisition date nevertheless company unilever currently engaged litigation issue outcome litigation cannot estimated time december 31 2003 number identities acquired uk employees may elect transfer contributions benefits defined benefit plan unknown addition current dispute unilever company certain terms defined benefit plan could affect amount withdrawal obligation required company acquired uk employees elect transfer contributions benefits unilevers pension plan therefore withdrawal obligation company acquired uk employees elect participate transfer pension assets unilevers pension plan defined benefit plan estimable december 31 2003 result remaining pension liability balance 2634 initially recorded part purchase price unipath business included liabilities accompanying consolidated balance sheet may need adjusted upon settlement disputed terms plan election acquired uk employees transfer contributions benefits unilevers pension plan defined benefit plan defined benefit plan contributory established solely purpose substituting unilevers pension plan acquired uk employees therefore acquired uk employees eligible join defined benefit plan end 2004 end three year postacquisition period defined benefit plan frozen participants transferred defined contribution plan accumulated benefits plan assets remain defined benefit plan new employees eligible participate defined contribution plan 2003 unipath ltd contributed 172 defined contribution plan recognized expense accompanying consolidated statement operations 2002 contributions defined contribution plan nominal defined benefit plan operating one month 2002 changes benefit obligations plan assets net amount recognized accompanying consolidated financial statements 2002 december 31 2002 nominal following table sets forth analysis changes benefit obligation plan assets funded status defined benefit plan 2003 net amount recognized accompanying consolidated balance sheet relates defined benefit plan 2003 consists measurement date used determine plan assets benefit obligations defined benefit plan december 31 2003 accumulated benefit obligation defined benefit plan amounted 2530 december 31 2003 following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2003 stocks fixed income securities represented 55 23 respectively market value pension assets trustee defined benefit plan adopted longterm investment strategy investing 375 uk equities 375 equities outside uk 25 corporate bonds plan assets switched allocations market opportunities arise addition funding objective maintain funding level least 100 ongoing basis unipath ltd expects contribute approximately 800 british pounds sterling 1424 december 31 2003 defined benefit plan 2004 subject withdrawal obligation acquired uk employees elect transfer unilevers pension plan companys settlement terms defined benefit plan unilever c orgenics severance obligations israeli law provides employers certain severance obligations employees israel orgenics liability severance pay pursuant law provided insurance policies severance pay funds severance expenses 127 96 12 2003 2002 2001 respectively december 31 2003 orgenics made fund payments excess liability 7 included prepaid expenses current assets accompanying balance sheet balance unfunded severance liability 10 december 31 2002 company accrued date france governmentrun mandatory pension plan contributions made monthly employee employer based employees gross monthly salary orgenics liability employees france fully covered contributions addition pursuant industry employment agreements lumpsum severance payable upon retirement employees still service orgenics french subsidiary date retirement obligations outstanding december 31 2003 2002 9 derivative instrument company entered interest rate swap agreement one lenders effective february 25 2002 intended protect companys longterm debt interest charged libor fluctuation rate interest rate swap agreement libor set minimum 336 maximum 500 interest rate swap agreement qualify hedge accounting purposes sfas 133 related amendments company recorded income 528 expense 1223 2003 2002 respectively mark market interest rate swap agreement adjustment fair value interest rate swap agreement recorded component interest expense accompanying consolidated statements operations fair value included component accrued expenses current liabilities accompanying consolidated balance sheets 10 commitments contingencies operating leases company operating lease commitments certain facilities equipment expire various dates 2027 following schedule outlines future minimum annual rental payments leases december 31 2003 rent expense relating operating leases approximately 5755 4311 1029 2003 2002 2001 respectively operations unipath business england currently housed 150 square foot manufacturing research office facility bedford england lease facility unilever third party landlord unipath business england continues use facility pursuant agreement unilever connection acquisition future minimum annual rent payments facility lease range 1460 british pounds sterling 1560 british pounds sterling approximately 2599 2777 upward adjustments every 5 years extent rent market rate lease expires december 2021 unilever agreed use best efforts obtain landlords consent required lease agreement cannot unreasonably withheld may assign lease company remaining term company required pay amounts owed lease agreed upon acquisition included table future minimum lease payments facility lease unilever unable successfully assign lease company otherwise enable company realize benefit lease bedford facility company may forced renegotiate lease facility substantially less favorable terms seek alternative costly means producing products suffer adverse effects business b capital expenditure commitments december 31 2003 company total outstanding noncancelable equipment purchase commitments 2084 c legal proceedings nature business company may subject particular time consumer product claims various lawsuits arising ordinary course business including employment matters expects continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims potential product liability claims may exceed amount companys insurance coverage may excluded coverage terms policy assurance existing insurance renewed cost level coverage comparable presently effect event company held liable claim indemnified damages exceeding limits insurance coverage liability could material adverse effect business financial condition results operations addition company aggressively defends patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims challenging validity companys patents rights addition final ruling counterclaims company could material adverse impact sales operations financial performance company previously several lawsuits pending pfizer inc certain parties including princeton biomeditech pbm alleging among things pregnancy tests manufactured sold defendants infringe patents owned company early june 2003 company settled litigation pfizer however claims pbm codefendant one infringement suits pfizer subject two related infringement suits initiated company remain active pbm brought several counterclaims company counterclaims allege among things company breached various obligations pbm arising joint venture company believes strong defenses counterclaims defending vigorously february 2004 quidel corporation served germany suit companys subsidiary inverness medical switzerland gmbh ims filed january 2004 seeking damages injunction infringement certain companys patents response february 20 2004 quidel named company subsidiaries ims abi defendants suit filed quidel alleges company infringing patent issued 1990 titled lateral flow nonbibulous membrane assay protocols quidel also asked court declaratory finding quidel infringe certain patents owned ims certain patents owned codefendant armkel llc patents invalid andor unenforceable quidel seeks injunctive relief damages indicated intent file motion preliminary injunction scope disclosed early march 2004 company filed answer claiming quidels claims without merit counterclaim seeking damages injunctive relief quidels infringement patents company also filed separate action quidel court alleging infringement certain patents seeking injunctive relief damages company intends vigorously defend quidel claims vigorously prosecute infringement counterclaims separate claims enforce intellectual property rights orgenics royalty commitment orgenics received participation payments programs sponsored chief scientist ministry industry commerce israel chief scientist support research development projects event development products chief scientist participates successful orgenics obligated pay royalties rate 20 35 sales products developed funds provided chief scientist amount equal 100 chief scientists participation payments projects balance maximum contingent royalty december 31 2003 2002 200 orgenics liability state israel amounts received support unsuccessful programs unsaleable products 2001 orgenics paid 169 royalties chief scientist royalties paid 2003 2002 11 earnings per share following table sets forth computation basic diluted income loss per share company following potential dilutive securities outstanding december 31 2003 options warrants purchase aggregate 800 shares companys common stock weighted average exercise price 2287 per share b series preferred stock convertible aggregate 416 shares companys common stock potential dilutive securities included calculation diluted income per share 2003 inclusion thereof together add back series preferred stock redemption interest dividends would antidilutive company following potential dilutive securities outstanding december 31 2002 options warrants purchase aggregate 3553 shares companys common stock weighted average exercise price 1465 per share b series preferred stock convertible aggregate 646 shares companys common stock c 3 convertible notes convertible aggregate 344 shares companys common stock 1214 shares unvested restricted common stock issued certain executive officers e 16 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2002 inclusion thereof would antidilutive company following potential dilutive securities outstanding december 31 2001 options warrants purchase aggregate 2576 shares companys common stock weighted average exercise price 1285 per share b series preferred stock convertible aggregate 3990 shares companys common stock c 1818 shares unvested restricted common stock issued certain executive officers 32 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2001 inclusion thereof would antidilutive 12 stockholders equity note amounts pertaining shares share prices securities issued granted prior companys splitoff imt november 2001 restated assuming stock split described note 1 splitoff imt occurred dates securities issued common stock december 31 2003 company 50000 shares common stock 0001 par value authorized 19640 shares issued outstanding 416 shares reserved issuance upon conversion outstanding series preferred stock 344 shares reserved issuance upon conversion outstanding 3 convertible notes 3985 shares reserved issuance upon grant exercise stock options current stock option plans 712 shares reserved issuance upon exercise outstanding warrants b preferred stock december 31 2003 company 5000 shares preferred stock 0001 par value authorized 2667 shares designated series preferred stock 0001 par value march 6 2002 company sold private investors 532 shares series preferred stock 3901 per share gross proceeds 20750 december 20 2001 company sold private investors 1995 shares series preferred stock 3000 per share gross proceeds 59850 help finance acquisition unipath business note 4f private investors december 2001 issuance include certain directors company entities affiliated directors companys chief executive officer aggregate purchased 627 shares series preferred stock number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 3000 conversion price effect time conversion december 31 2003 conversion price 1500 subject adjustment accordingly share series preferred stock convertible two shares common stock december 31 2003 2002 115 2204 shares series preferred stock converted 230 4408 shares companys common stock 208 shares series preferred stock remained outstanding december 31 2003 starting second anniversary original issue date company right convert remaining series preferred stock common stock event average closing price common stock exceeds 20 consecutive 30 trading day period consequently january 14 2004 company converted remaining outstanding shares series preferred stock shares common stock conversion rate two shares common stock per share series preferred stock share series preferred stock accrued dividends quarterly basis 210 per annum trading days closing price companys common stock less 1500 result company accrued dividends 33 326 2003 2002 respectively reduced earnings available common stockholders computation earnings per share note 11 dividends recorded 2001 companys stock price close 1500 period 2001 series preferred stock outstanding dividends accrued payable declared board directors dividends declared board directors prior conversion outstanding shares series preferred stock january 14 2004 addition companys senior credit agreement currently prohibits paying dividends note 6a effective purchase price shares common stock underlying series preferred stock issued march 6 2002 december 20 2001 represented discount 270 12 2 118 respectively fair value companys common stock respective issuance dates accordance eitf issue 985 eitf issue 0027 company recorded beneficial conversion feature form discount two issuances series preferred stock 2867 7980 respectively amortized accumulated deficit redemption period discussed amortization discount reduces earnings available common stockholders computation earnings per share 2003 2002 company amortized 509 9575 respectively discount 362 8811 respectively represented acceleration amortization due conversions series preferred stock total amount discount amortized 2001 material companys consolidated financial statements upon conversions remaining outstanding series preferred stock january 14 2004 remaining unamortized discount 739 accelerated charged accumulated deficit series preferred stock could redeemed upon vote holders least 6623 outstanding shares june 30 2011 company classified outstanding series preferred stock outside stockholders equity accompanying consolidated balance sheets statements stockholders equity comprehensive income loss redemption price per share series preferred stock would equal 3000 plus accrued redemption interest calculated 5 per annum date issuance company recorded accrued redemption interest 415 2048 2003 2002 respectively reduced earnings available common stockholders computation earnings per share amount accrued redemption interest 2001 material companys consolidated financial statements holders series preferred stock liquidation preferences holders companys common stock classes stock outstanding time liquidation upon liquidation holders outstanding series preferred stock would receive amount equal 30 per share series preferred stock subject adjustment event stock dividend stock split combination similar recapitalization plus undeclared unpaid dividends holder series preferred stock two votes every one share series preferred stock currently equal number common shares converted holders series preferred stock shall vote together holders companys common stock single class c stock options awards 2001 company adopted 2001 stock option incentive plan 2001 plan allows issuance 5324 shares common stock awards amended 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2003 587 shares available future grant 2001 plan august 15 2001 company sold chief executive officer 1168 shares restricted common stock price 913 per share twothirds restricted stock 779 shares vest ratably 36 months remaining onethird 389 shares vests ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse companys chief executive officer balance promissory note recorded note receivable classified stockholders equity accompanying consolidated balance sheets note due payable august 16 2006 bears interest annual rate 499 interest income recorded note amounted 532 200 2003 2002 2001 respectively company accounted arrangement pursuant fin 44 eitf issue 9516 accounting stock compensation arrangements employer loan features apb opinion 25 eitf issue 0023 issues related accounting stock compensation apb opinion 25 fasb interpretation 44 accordingly november 20 2001 date arrangement approved stockholders company measured total compensation expense approximately 10595 based intrinsic value stock date amount compensation expense deferred amortized ratably vesting periods restricted stock terms original restricted stock agreement company could repurchase unvested shares cost certain circumstances february 2002 terms restricted stock agreement amended pursuant company may repurchase unvested shares fair value certain circumstances also connection amendment chief executive officer surrendered 50 shares nonqualified stock options company repurchase rights unvested shares fair value subsequent amendment february 2002 company fully amortized remaining portion deferred compensation expense associated restricted stock 2002 amortization deferred compensation related restricted stock arrangement 10145 451 2002 2001 respectively recorded stockbased compensation accompanying consolidated statements operations additionally amendment resulted new measurement date security event employee ceases employment company prior full vesting security additional compensation expense would recorded august 2001 company granted two nonqualified stock options purchase aggregate 779 shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes balance promissory notes recorded note receivable classified stockholders equity accompanying consolidated balance sheets notes due payable december 4 2006 bear interest annual rate 397 applicable federal rate fiveyear note effect month exercise interest income recorded notes amounted 160 12 2003 2002 2001 respectively shares issued upon exercise vest ratably 36 months certain circumstances company may repurchase unvested shares fair value one executive officers exercised option portion underlying shares result accordance terms original option agreement company granted replacement option executive officer remaining unexercised shares exercise price equal fair value common stock date grant company accounted arrangements fin 44 eitf issue nos 9516 0023 accordingly november 20 2001 date arrangements approved stockholders company measured total compensation expense 9346 based intrinsic value stock date repurchase rights unvested shares fair value company recorded full intrinsic value stockbased compensation accompanying consolidated statements operations 2001 company also granted immediately effective date splitoff imt options purchase additional 389 shares common stock two key executive officers options vest ratably four years expire 10 years date grant exercise price per share equal fair value companys common stock date grant options permit exercise cash companys shares paid least 6 months prior exercise date proceeds promissory note contain terms substantially described connection former credit agreements note 6f companys chief executive officer required enter lock agreement bank pursuant restricted trading companys securities various specified periods amounts lock agreement since terminated result prepayments outstanding borrowings former credit agreements consideration entry lock agreement company granted chief executive officer option acquire 115 shares companys common stock 1715 per share fair value companys common stock date grant simultaneously entity controlled companys chief executive officer also received warrant purchase 385 shares companys common stock company determined entity controlled companys chief executive officer chief executive officer viewed one 1 entitys participation financing basis terms investors 2 companys chief executive officer entity required enter lockup agreements bank 3 companys chief executive officer family owners entity accordingly company accounted warrants issued accordance apb opinion 25 result compensation expense recorded options intrinsic value upon splitoff merger november 2001 outstanding imt stock option imt options exchanged option purchase shares companys common stock company options exchange ratio 020 option purchase shares johnson common stock exchange ratio 05395 new exercise prices company options johnson options determined based relative fair values johnson common stock companys common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices stock options granted prior splitoff merger date following tables restated reflect exchange imt options company options exchange occurred grant date applicable imt option following summarizes stock option activity years ended december 31 following represents additional information related stock options outstanding exercisable december 31 2003 warrants upon splitoff imt november 2001 outstanding imt warrant imt warrants exchanged warrant purchase shares companys common stock company warrants exchange ratio 020 warrant purchase shares johnson common stock exchange ratio 05935 new exercise prices company warrants johnson warrants determined based relative fair values johnson common stock companys common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices warrants issued prior splitoff merger date following tables restated reflect exchange imt warrants company warrants exchange occurred issuance date applicable imt warrant following summary warrant activity three years ended december 31 2003 following represents additional information related warrants outstanding exercisable december 31 2003 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 428 shares companys common stock issued officers directors company entities controlled officers directors outstanding december 31 2003 value warrants issued connection debt financings yielded original issue discounts additional interest expense 206 2003 492 2002 103 period splitoff merger date december 31 2001 company believes equity classification appropriate outstanding warrants pursuant provisions eitf issue 0019 determination whether share settlement within control issuer purposes applying eitf issue 9613 accounting derivative financial instruments indexed potentially settled companys stock e employee stock purchase plan 2001 company adopted 2001 employee stock purchase plan eligible employees allowed purchase shares companys common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value companys common stock either beginning end offering period whichever lower company may issue 500 shares common stock plan december 31 2003 92 shares issued plan f executive bonus plan 2001 company adopted stockholder approved executive bonus plan executive bonus plan amended february 2002 pursuant executive bonus plan amended certain key executives company entitled receive annual basis option grants awarded fair value date grants shares companys common stock attain certain targeted prices per share performance determinations made end calendar year starting december 31 2002 ending december 31 2005 maximum number shares options may granted executive bonus plan amended 713 performance targets achieved december 31 2003 13 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders equity following summary components changes accumulated comprehensive income december 31 2003 three years ended ithe balance 136 included comprehensive income represents unrealized gains availableforsales securities aggregate fair value securities insignificant included prepaid expenses current assets accompanying consolidated balance sheet december 31 2003 iiall components accumulated comprehensive income relate companys foreign subsidiaries adjustments income taxes recorded comprehensive income company intends permanently invest foreign subsidiaries foreseeable future 14 income taxes companys income tax provision 2003 2002 mainly represents recorded foreign subsidiaries unipath limited england inverness medical switzerland gmbh switzerland us subsidiary wampole 2001 income tax provision represented mainly recorded inverness medical inc imi income loss continuing operations income taxes consists following federal state income tax filing purposes results imis operations consolidated imts date splitoff merger november 21 2001 imi standalone tax filing responsibilities states prior splitoff imt tax accounts maintained imi companys subsidiaries computed using separate return method imt net loss position accordingly paid virtually income taxes jurisdiction prior splitoff imt imi tax sharing agreement imt agreed pay imis tax liabilities offset liabilities via imts net operating loss carryforwards imis cumulative taxable income beginning january 1 1998 exceeded 15500 imis cumulative taxable income passed threshold imi required pay dividend imt equal 40 amount exceeded threshold pursuant agreement imi recorded capital contribution imt taxes paid imt offset via imts net operating loss carryforward upon splitoff imt agreement cancelled companys primary temporary differences give rise deferred tax asset liability nondeductible reserves accruals differences bases tangible intangible assets income tax effects temporary differences follows december 31 2003 company approximately 73762 domestic operating loss carryforwards 20556 foreign net operating loss foreign capital loss carryforwards either expire various dates 2023 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities valuation allowance relates companys us net operating losses deferred tax assets certain foreign deferred tax assets recorded based upon uncertainty surrounding realizability assets realized via profitable operations respective tax jurisdictions accordance sfas 109 accounting tax benefits acquired deductible temporary differences recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2003 22525 companys deferred tax asset pertains acquired companies future benefits applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing companys income tax expense included valuation allowance approximately 1612 related certain operating loss carryforwards resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax amount us income tax provided undistributed earnings companys foreign subsidiaries company considers earnings indefinitely reinvested event distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability following table presents components companys provision income taxes following table presents reconciliation us statutory tax rate companys effective tax rate continuing operations 15 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance companys chief operating decision making group composed chief executive officer members senior management companys reportable segments consumer products comprised operating segments consumer diagnostic products vitamins nutritional supplements professional diagnostic products corporate accounting policies segments described summary significant accounting policies company evaluates performance based ebitda presented company believes useful indicator performance ability meet debt service capital expenditure requirements allows investors management evaluate compare companys operating results continuing operations period meaningful consistent manner addition standard financial measurements generally accepted accounting principles gaap management internally evaluates performance businesses using ebitda measures ebitda measurement financial performance gaap considered alternative cash flow operating activities net income measure liquidity indicator operating performance measure performance derived accordance gaap companys calculation ebitda may different calculation used companies accordingly comparability may limited revenues attributed geographic areas based customer located segment information 2003 2002 2001 follows income loss continuing operations includes following noncash unusual items adjustments ebitda made items 16 transactions inverness medical technology inc affiliates management services periods prior splitoff imt results companys subsidiary imi include expenses represent crosscharges imt crosscharges include among things support services financial computer legal sales marketing customer support accounting well rent administrative costs imi recorded crosscharges imt approximately 3033 2001 november 21 2001 date splitoff merger believes approximates armslength costs charges imt imi included respective captions accompanying consolidated statement operations 2001 made following b loans imt february 1997 connection imis purchase nutritional supplement product line american home products known wyeth imi borrowed 2000 imt interest accruing annual rate 65 interest expense note included accompanying statements operations 115 2001 december 31 2000 companys irish subsidiary cdil note payable balance plus accrued interest totaling approximately 2208 due imt loan agreement originally dated july 1 1997 amended interest accruing annual rate 9 interest expense note included accompanying statements operations 183 2001 discussed note 1 upon splitoff merger november 2001 imt affiliates forgave outstanding balances due company companys affiliates forgiveness indebtedness 10369 recorded component capital contribution imt c transition services agreement imt prior splitoff imt company entered transition services agreements whereby would provide certain transition services imt affiliates agreedupon period time service fee transition services primarily included management services provided imi product packaging services provided cdil related certain diabetes businesses products since splitoff imt imi charged approximately 152 1910 181 2003 2002 2001 respectively transition service fees imt believes approximate armslength costs fees reduced companys general administrative expenses respective periods since splitoff imt cdil generated 5108 1059 2002 2001 respectively net product sales packaging service contract affiliate imt transition services provided imi cdil terminated february 2003 july 2002 respectively discontinued operations pursuant merger agreement related agreements connection splitoff imt company transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes business imb discussed note 1 accompanying consolidated financial statements reflect transfer diabetes businesses company discontinued operations accompanying consolidated statement operations 2001 include income discontinued operations november 21 2001 date splitoff merger follows 17 valuation qualifying accounts company established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities companys accounts receivable reserve accounts connection acquisitions unipath business imn ostex company recorded restructuring costs part respective aggregate purchase prices accordance eitf issue 953 following table sets forth aggregate restructuring costs balances recorded connection restructuring activities acquired businesses 18 guarantor financial information company issued 150000 bonds qualified institutional investors reliance rule 144a securities act 1933 amended securities act outside united states compliance regulation securities act note 6h companys payment obligations bonds guaranteed certain companys domestic subsidiaries guarantor subsidiaries guarantee full unconditional separate financial statements guarantor subsidiaries presented companys management determined would material investors bonds following supplemental financial information sets forth consolidating basis statements operations cash flows three years period ended december 31 2003 balance sheets december 31 2003 2002 company issuer guarantor subsidiaries companys subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments company guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting company extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development cost sharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties companys 2001 financial statements audited arthur andersen llp ceased operations accordingly 2001 condensed consolidating financial information follows presented unaudited upon reliance sec staffs guidance given staff speech american institute certified public accountants annual national conference current sec developments december 2003 inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2003 inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2002 inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2001 unaudited consolidating balance sheet december 31 2003 consolidating balance sheet december 31 2002 inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2003 inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2003 inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2002 inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2002 inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2001 unaudited inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2001 unaudited part item 1 business item 2 description property item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected consolidated financial data item 7 managements discussion analysis financial condition results operations special statement regarding forwardlooking statements item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules reports form 8k signatures inverness medical innovations inc subsidiaries consolidated financial statements table contents report independent auditors report independent public accountants inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements cash flows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements thousands except per share amountsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits agreements filed exhibits annual report form 10k contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • may constituted allocation risk responsibility among parties rather statements fact • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets related consolidated statements operations equity comprehensive income loss cash flows present fairly material respects financial position alere inc subsidiaries december 31 2013 december 31 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal controlintegrated framework 1992 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s annual report internal control financial reporting responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described management’s annual report internal control financial reporting management excluded 3 entities assessment internal control financial reporting december 31 2013 acquired company purchase business combinations 2013 also excluded entities audit internal control financial reporting total assets net revenue entities represented 05 02 respectively related consolidated financial statement amounts year ended december 31 2013 pricewaterhousecoopers llp boston massachusetts march 3 2014 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements comprehensive loss thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation financial information alere inc empowers individuals take greater control health home supervision healthcare providers connecting innovative nearpatient diagnostic tools health information solutions leading global provider pointofcare diagnostics services developed strong commercial presence cardiology infectious disease toxicology diabetes business organized three operating segments professional diagnostics ii health information solutions iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified health information solutions segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market acquisitions historically important part growth strategy acquired businesses sought complement existing products services enhance expand product lines andor expand customer base determined willing pay acquisition partially based upon expectation could cost effectively integrate products services acquired companies existing infrastructure addition utilized existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resulting goodwill note 4 consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification reclassifications effect net income equity certain amounts presented may recalculate directly due rounding 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income loss note 15 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month net realized unrealized foreign currency exchange transaction losses 40 million 79 million 229 million 2013 2012 2011 respectively included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2013 2012 restricted cash restricted cash 357 million 31 million december 31 2013 2012 respectively 357 million december 31 2013 294 million classified noncurrent consolidated balance sheet secures foreign bank loan arrangement entered third quarter 2013 terms loan agreement required remain deposit two years e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive income net related tax effects marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory recorded financial statements represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued laboratory equipment tooling 115 years buildings 761 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 110 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 1209 million 1097 million 837 million 2013 2012 2011 respectively fullydepreciated property plant equipment still use remain books disposal retirement property plant equipment retired disposed cost respective accumulated depreciation removed books gain loss disposal recorded income statement expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing annual goodwill impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guidelines companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 annual goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2013 annual goodwill impairment test conducted 2013 annual goodwill impairment test reporting units fourth quarter 2013 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 140 projected compound average revenue growth rates 40 114 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 29 times multiples ebitda 64 106 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 16 billion 315 million 927 million respectively 302 77 455 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environment anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation 2012 annual goodwill impairment test conducted 2012 annual goodwill impairment test reporting units fourth quarter 2012 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 150 projected compound average revenue growth rates 30 81 terminal value growth rates 30 40 determination appropriate discount rate key assumptions 2013 annual goodwill impairment test based multiples implied market data selected multiples revenue 09 24 times multiples ebitda 61 89 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued step 1 impairment test indicated estimated fair value professional diagnostics health information solutions consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 4000 million 412 million 540 million respectively 79 94 272 respectively 2011 annual goodwill impairment test conducted 2011 annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value dcf approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determination appropriate discount rate key assumptions 2013 annual goodwill impair test based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics reporting units exceeded carrying value reporting unit’s net assets follows 5672 million 1019 million 135 535 respectively step 1 impairment test also indicated carrying value net assets health information solutions reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health information solutions reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment primarily driven reduced future cash flow expectations reporting unit principally result increasingly competitive business environment services provided reporting unit including insourcing certain services key customers reduction spending customers result part continuing difficult economic climate also contributing impairment charge lower valuations ascribed similar comparable businesses public markets impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development patents trademarks trade names customer relationships distribution rights noncompetition agreements majority intangible assets recorded connection various business combinations intangible assets recorded fair value time acquisition amortize intangible assets estimated useful lives estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived assets reduced estimated fair value lower impairment loss charged expense period impairment identified conduct annual goodwill impairment test reporting units fourth quarter year impairment test conducted 2011 indicated impairment goodwill associated health information solutions reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis utilizing undiscounted cash flow model analysis indicated impairment longlived tangible intangible assets associated health information solutions reporting unit j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire part business combinations completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life utilize discounted probable future cash flow model projectbyproject basis value acquired iprd significant assumptions used model include period material net cash inflows significant projects expected commence anticipated material changes historical pricing margins expense levels appropriate risk adjusted discount rate applied project’s cash flows k business acquisitions business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis aware information indicates final fair value analysis differ materially preliminary estimates 2013 2012 2011 expensed acquisitionrelated costs 31 million 97 million 115 million respectively general administrative expense l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts likely realized future note 16 account uncertain tax positions using “morelikelythannot” threshold recognizing resolving uncertain tax positions evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue license royalty agreements recognized straightline basis obligation period related license agreements time obligations license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned n employee stockbased compensation arrangements account sharebased payments accordance accounting standards codification asc 718 compensation stock compensation expense associated stock options includes amortization based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued net loss per common share net loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 12 p operating expenses expense advertising costs incurred 2013 2012 2011 advertising costs amounted 118 million 226 million 99 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations charge customers shipping handling costs recorded along product revenues q concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2013 2012 individual customer’s accounts receivable balance 10 aggregate accounts receivable 2013 2012 2011 one customer represented 10 net revenue rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results r financial instruments fair value financial instruments primary financial instruments december 31 2013 2012 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities software internal use resale may capitalize certain costs associated development internaluse software including direct materials services capitalized software amortized straightline basis estimated useful life included computer software equipment within property plant equipment also develop software resale lease external parties expense costs developing software resale lease incurred establishment technological feasibility underlying software costs incurred establishment technological feasibility general release software capitalized software amortized estimated useful life capitalized software resale lease included computer software equipment within property plant equipment research development research development programs focus development cardiology infectious disease toxicology diabetes oncology women’s health products together health information technologies facilitate connectivity information data management solutions research development costs expensed incurred payments received external parties fund research development activities reduce recorded research development expenses u leases lease certain facilities equipment external parties operating leases rent expense related operating leases recorded income statement incurred also lease machinery laboratory equipment tooling equipment capital leases determining whether lease capital operating lease estimate expected term lease includes certain renewable options required lease accounting guidance rent deferrals landlord incentives rent escalations included calculation minimum lease payments performing capital lease tests calculating rent expense operating leases leased property plant equipment meet capital lease criteria capitalized lower present value minimum lease payments fair value underlying asset inception date lease assets capital leases depreciated straightline basis lease term leasehold improvements capitalized amortized shorter estimated useful lives remainder expected term lease alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued v recent accounting pronouncements recently issued standards july 2013 fasb issued accounting standards update asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 asu 201311 requires entity present unrecognized tax benefits reduction deferred tax assets net operating loss carryforward similar tax loss tax credit carryforward exists limited exceptions asu 201311 effective fiscal years beginning december 15 2013 interim periods within fiscal years adoption standard material impact consolidated financial statements recently adopted standards effective january 1 2013 adopted asu 201202 intangibles goodwill topic 350 testing indefinitelived intangible assets impairment asu 201202 asu 201202 allows entity option first assess qualitative factors determine whether existence events circumstances indicates likely indefinitelived intangible asset impaired entity concludes likely indefinitelived intangible asset impaired entity required take action however entity concludes otherwise required determine fair value indefinitelived intangible asset perform quantitative impairment test comparing fair value carrying amount entity also option bypass qualitative assessment indefinitelived intangible asset period proceed directly performing quantitative impairment test entity able resume performing qualitative assessment subsequent period adoption standard expected impact financial position results operations comprehensive income cash flows alere inc subsidiaries notes consolidated financial statements continued 3 balance sheet information components selected captions consolidated balance sheets consist thousands 4 business combinations acquisitions accounted using acquisition method acquired companies’ results included accompanying consolidated financial statements respective dates acquisition 2013 2012 2011 recorded acquisitionrelated costs 31 million 97 million 115 million respectively general administrative expense business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner net assets acquired recorded fair value subject adjustment upon finalization fair value analysis aware information indicates final fair value analysis differ materially preliminary estimates estimated useful lives individual categories intangible assets based nature applicable intangible asset alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized acquisitions 2013 epocal february 1 2013 acquired epocal inc epocal located ottawa canada provider technologies support blood gas electrolyte testing point care preliminary aggregate purchase price approximately 2485 million consisted 1514 million cash 221 million settlement preexisting arrangement contingent consideration obligation aggregate acquisition date fair value 750 million operating results epocal included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2013 year ended december 31 2013 acquired following businesses preliminary aggregate purchase price 576 million included cash payments totaling 282 million 175 million settlement preexisting arrangement contingent consideration obligations aggregate acquisition date fair value 13 million deferred purchase price consideration acquisition date fair value 08 million 80 million bargain purchase gain • certain assets pt mega medika mandiri mega medika located south jakarta indonesia distributor infectious disease products indonesian marketplace well materials vaccines pharmaceutical customer acquired january 2013 • discount diabetic llc discount diabetic located phoenix arizona provider blood glucose monitoring products including diabetes testing systems test strips products acquired april 2013 • medicare feeforservice assets liberty medical liberty business located port st lucie florida leading mail order provider diabetes testing supplies serving needs type 1 type 2 diabetic patients acquired april 2013 • 51 share cardio selfcare bv subsequently renamed alere health services bv alere health services located ede netherlands developer innovative software healthcare industry develops licenses software sells medical devices enable patients perform medical selfcare including thrombosis selfcare acquired may 2013 • 749 interest pantech proprietary limited pantech located durban south africa supplier rapid diagnostic test kits including hiv malaria syphilis drugs abuse 10 parameter urine sticks glucometers glucose sticks acquired july 2013 • certain assets simplex healthcare inc subsidiaries simplex located tennessee provider home delivery diabetesrelated medical supplies products acquired november 2013 operating results mega medika discount diabetic liberty business alere health services pantech simplex included professional diagnostics reporting unit business segment alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued consolidated statement operations year ended december 31 2013 included revenue totaling approximately 830 million related businesses goodwill recognized mega medika alere health services pantech simplex acquisitions amounted approximately 28 million goodwill related mega medika simplex acquisitions deductible tax purposes goodwill related pantech acquisition respect acquisition liberty business purchase price acquisition allocated net tangible intangible assets acquired excess fair value assets acquired purchase price recorded bargain purchase gain 80 million bargain purchase gain recorded income expense net consolidated statement operations recognized tax purposes bargain purchase gain resulted operating cost structure believe allow us operate business cost effectively sellers summary preliminary fair values net assets acquired acquisitions consummated 2013 follows thousands 1 includes approximately 33 million acquired cash alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following intangible assets acquired respective fair values weightedaverage useful lives dollars thousands b acquisitions 2012 escreen april 2 2012 acquired escreen inc escreen headquartered overland park kansas technologyenabled provider employment drug screening solutions hiring maintaining healthier efficient workforces preliminary aggregate purchase price approximately 2950 million consisted 2714 million cash contingent consideration obligation aggregate acquisition date fair value 236 million included consolidated statements operations year ended december 31 2012 revenue totaling approximately 1167 million related escreen operating results escreen included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisitions 2012 acquired following businesses preliminary aggregate purchase price 1995 million included cash payments totaling 1475 million contingent consideration obligations aggregate acquisition date fair values 520 million • reatrol comercializacao de produtos de saude lda subsequently renamed alere lda located vila nova de gaia portugal distributor products drugs abuse testing acquired january 2012 • kullgren holding ab kullgren located gensta sweden company manufactures distributes highquality intimacy pharmaceutical products acquired february 2012 • wellogic fzllc wellogic uae located dubai united arab emirates company provides development services alere wellogic llc acquired assets method factory inc dba wellogic december 2011 acquired february 2012 • certain assets primarily including customer patient lists ammed direct llc ammed located near nashville tennessee privatelyowned mailorder provider homediabetes testing products supplies acquired march 2012 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • medapps holding company inc medapps headquartered scottsdale arizona developer innovative remote health monitoring solutions deliver efficient costeffective connectivity patient care provider electronic medical records acquired july 2012 • amedica biotech inc amedica located hayward california company focused development manufacture vitro diagnostic tests acquired july 2012 • diagnosisone inc diagnosisone located lowell massachusetts software company provides clinical analytics technology datadriven content hospitals physician groups insurers governments acquired july 2012 • seelen care laegeog hospitalsartikler aps seelen located holstebro denmark distributor consumables instruments equipment doctors specialists physiotherapists acquired august 2012 • certain assets diagnostik nord diagnostik located schwerin germany company focused sale drug screening vitro diagnostic medical devices provider diagnostic solutions acquired september 2012 • healthcare connections limited hcc located buckinghamshire united kingdom occupational health provider specializing employment medical programs preventative health schemes drug alcohol sample collection services acquired november 2012 • diagnostic division medial spol sro subsequently renamed alere sro located prague czech republic distributor laboratory diagnostic devices operating pointofcare testing regime diagnostic kits tests biochemistry hematology microbiology acquired november 2012 • certain assets quantum diagnostics quantum australia located australia online medical supply company provides range affordable drug alcohol tests personal business professional medical use acquired november 2012 • certain assets nationshealth inc nationshealth headquartered sunrise florida privatelyowned mailorder provider diabetes hometesting products supplies share acquisition nationshealth’s subsidiary philippines nationshealth philippines acquired december 2012 • branan medical corporation branan headquartered irvine california manufacturer drugs abuse testing products acquired december 2012 operating results alere lda ammed medapps amedica seelen diagnostik hcc alere sro quantum australia nationshealth branan included professional diagnostics reporting unit business segment operating results wellogic uae diagnosisone included health information solutions reporting unit business segment operating results kullgren included consumer diagnostics reporting unit business segment consolidated statements operations year ended december 31 2012 included revenue totaling approximately 446 million related businesses goodwill recognized acquisitions amounted approximately 942 million goodwill related acquisitions ammed diagnostik usbased assets nationshealth totaled 88 million deductible tax purposes goodwill related remaining 2012 acquisitions deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary fair values net assets acquired acquisitions consummated 2012 follows thousands 1 includes approximately 38 million acquired cash following intangible assets acquired respective fair values weightedaverage useful lives dollars thousands c acquisitions 2011 arriva november 23 2011 acquired arriva medical llc arriva located coral springs florida privatelyowned mailorder provider diabetes hometesting products supplies aggregate purchase price 795 million consisted cash payment totaling 644 million 806452 shares common stock aggregate fair value 152 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 53 million related acquired business operating results arriva included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued ii axisshield november 1 2011 acquired axisshield located dundee scotland uk publicly traded company focused development manufacture vitro diagnostic tests use clinical laboratories point care aggregate purchase price 3888 million consisted cash payments totaling 2796 million fair value previouslyheld investment totaling 1092 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 367 million including 18 million license royalty revenue related acquired business operating results axisshield included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes iii avee october 3 2011 acquired avee laboratories inc related companies refer collectively avee located tampa florida privatelyowned provider drug testing services field pain management aggregate purchase price 1205 million paid cash included consolidated statement operations year ended december 31 2011 revenue totaling approximately 272 million related acquired business operating results avee included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv acquisitions 2011 acquired following businesses aggregate purchase price 1985 million included cash payments totaling 1393 million previouslyheld investment fair value totaling 39 million 25463 shares common stock acquisition date fair value 10 million contingent consideration obligations aggregate acquisition date fair value 487 million deferred purchase price consideration acquisition date fair value 42 million debt forgiveness fair value 15 million • 90 interest bionote inc bionote headquartered south korea manufacturer diagnostic products veterinary industry acquired january 2011 previously owned 10 interest bionote • assets including domain name pregnancyorg llc pregnancyorg usbased company providing website preconception pregnancy newborn care content tools sharing acquired january 2011 • home telehealth limited subsequently renamed alere connected health limited alere connected health located cardiff wales company focuses delivering integrated comprehensive services programs health social care providers insurers acquired february 2011 • bioeasy diagnostica ltda bioeasy located belo horizonte brazil company markets sells rapid diagnostic tests systems laboratory diagnosis prevention monitoring immunological diseases fertility acquired march 2011 • 8092 interest standing stone inc standing stone located westport connecticut company focuses disease state management enhancing quality care provided patients require longterm therapy chronic disease management acquired may 2011 • certain assets rights liabilities properties drug detection devices inc 3dl located alpharetta georgia distributor promotes markets distributes sells drugs abuse alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued diagnostic products including consumables pointofcare diagnostic kits related products services acquired july 2011 • colibri medical ab colibri located helsingborg sweden distributor pointofcare drugs abuse diagnostic products primarily scandinavian marketplace acquired july 2011 • laboratory data systems inc lds located tampa florida provider healthcare software products services consulting solutions acquired august 2011 • certain assets liabilities properties abatek medical llc abatek located dover new hampshire distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired september 2011 • forensics limited roar located worcestershire england company provides forensic quality toxicology services across united kingdom acquired september 2011 • mahsan diagnostika vertriebsgesellschaft mbh mahsan located reinbek germany distributor vitro diagnostic drugs abuse products primarily german marketplace acquired october 2011 • medical automation systems inc mas located charlottesville virginia provider networkbased software solutions pointofcare testing acquired october 2011 • certain assets properties 1 medical distribution inc 1 medical located worthington ohio distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired november 2011 • method factory inc dba wellogic headquartered waltham massachusetts provider software solutions designed connect healthcare community acquired december 2011 operating results bionote bioeasy 3dl colibri lds abatek roar mahsan mas 1 medical included professional diagnostics reporting unit business segment operating results pregnancyorg alere connected health standing stone wellogic included health information solutions reporting unit business segment consolidated statement operations year ended december 31 2011 included revenue totaling approximately 211 million related businesses goodwill recognized acquisitions exception 1 medical amounted approximately 1313 million goodwill related acquisitions pregnancyorg 3dl abatek lds wellogic totaled 328 million expected deductible tax purposes goodwill related remaining 2011 acquisitions expected deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary aggregate purchase price allocation acquisitions consummated 2011 follows thousands 1 includes cash acquired approximately 232 million following intangible assets acquired respective amortizable lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets following summary goodwill intangible assets december 31 2013 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2012 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions estimated useful lives individual categories intangible assets based nature applicable intangible assets expected future cash flows derived intangible assets amortization intangible assets finite lives recognized shorter respective lives underlying license agreements applicable period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortization expense intangible assets aggregate amounted 3184 million 3469 million 3077 million 2013 2012 2011 respectively included cost net revenue research development sales marketing general administrative expenses accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued fourth quarter perform annual impairment tests carrying value goodwill reporting unit annual impairment review conducted fourth quarter 2011 indicated goodwill impairment charge required health information solutions business segment reporting unit discussion see note 2h goodwill amounts professional diagnostics health information solutions consumer diagnostics reporting units summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 correction prior period balance sheet classification error believe material 2011 2012 annual financial statements previously reported quarterly financial statements represents fair value noncontrolling interest december 31 2011 related acquisition axisshield 3 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates 4 reflects writeoff related disposition spinreact operations generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2013 2012 approximately 96 million 97 million respectively costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands 1 incurred secured credit facility 2 includes “a” term loans “delayed draw” term loans secured credit facility connection significant longterm debt issuances recorded interest expense including amortization writeoffs deferred financing costs original issue discounts accompanying consolidated statements operations years ended december 31 2013 2012 2011 respectively follows thousands 1 includes “a” term loans including “delayeddraw” term loans “b” term loans “incremental b1” term loans “incremental b2” term loans revolving line credit loans years ended december 31 2013 2012 2011 amounts include 26 million 50 million 29 million respectively related amortization fees paid certain debt modifications 2 consists loans former first lien credit agreement former second lien credit agreement 3 amount includes approximate 297 million loss recorded connection termination former secured credit facility related interest rate swap agreement coupled amortization fees paid certain debt modifications alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 4 amount includes approximate 02 million loss recorded connection repurchase 7875 senior notes 5 amount includes approximate 232 million loss recorded connection repurchase substantially 7875 senior notes included 232 million 123 million makewhole payment classified within cash flow financing activities consolidated statement cash flows 6 amount includes approximate 356 million loss recorded connection repurchase 9 senior subordinated notes included 356 million 190 million related tender offer consideration call premium classified within cash flow financing activities consolidated statement cash flows following describes debt instruments listed secured credit facility june 30 2011 entered credit agreement secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement december 7 2011 entered amendment secured credit facility provide additional term loan facility “incremental b1” term loans described borrowed date march 28 2012 entered amendment secured credit facility provide additional term loan facility “incremental b2” term loans described borrowed date secured credit facility amended provides credit facilities totaling 255 billion aggregate consisting term loans aggregate principal amount 23 billion consisting “a” term loans including “delayed draw” term loans aggregate principal amount 9250 million “b” term loans aggregate principal amount 9250 million “incremental b1” term loans aggregate principal amount 2500 million “incremental b2” term loans aggregate principal amount 2000 million fully drawn subject continued compliance secured credit facility 2500 million revolving line credit includes 500 million sublimit issuance letters credit must repay “a” term loans excluding “delayed draw” term loans eighteen consecutive quarterly installments began december 31 2011 continue march 31 2016 amount 7812500 final installment june 30 2016 amount 484375000 must repay “delayeddraw” term loans included within “a” term loans fifteen consecutive quarterly installments began september 30 2012 continue march 31 2016 amount 3750000 final installment june 30 2016 amount 243750000 must repay “b” term loans twentytwo consecutive quarterly installments began december 31 2011 continue march 31 2017 amount 2312500 final installment june 30 2017 amount 874125000 must repay “incremental b1” term loans twentyone consecutive quarterly installments began march 31 2012 continue march 31 2017 amount 625000 final installment june 30 2017 amount 236875000 must repay “incremental b2” term loans twenty consecutive quarterly installments began june 30 2012 continue march 31 2017 amount 500000 final installment june 30 2017 amount 190000000 paid full installments term loans due december 31 2013 may repay borrowings revolving line credit time without premium penalty must repay borrowings event later june 30 2016 notwithstanding foregoing subject certain exceptions provided credit alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued agreement event existing 3 convertible senior subordinated notes remain outstanding date six months prior maturity date thereof term loans revolving credit loans secured credit facility shall instead mature full prior date “a” term loans including “delayed draw” term loans borrowings revolving credit facility bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies within range 175 250 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies within range 275 350 depending consolidated secured leverage ratio march 22 2013 entered amendment secured credit facility provided among changes 50 basis point reductions interest rate margins applicable “b” term loans “incremental b1” term loans “incremental b2” term loans secured credit facility amended “b” term loans “incremental b1” term loans “incremental b2” term loans bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies within range 200 275 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies within range 300 375 depending consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans “incremental b2” term loans based eurodollar rate subject 100 floor respect base eurodollar rate required pay fee unused portion revolving credit facility rate per annum 050 december 31 2013 “a” term loans including “delayeddraw” term loans “b” term loans “incremental b1” term loans “incremental b2” term loans revolving line credit loans bore interest rates 317 425 317 respectively per annum must comply various customary financial nonfinancial covenants credit agreement primary financial covenants consist maximum consolidated secured leverage ratio minimum consolidated interest coverage ratio limit capital expenditures compliance financial covenants december 31 2013 primary nonfinancial covenants limit ability pay dividends distributions capital stock repurchase capital stock conduct mergers acquisitions make investments loans incur future indebtedness place liens assets prepay certain indebtedness alter capital structure sell assets covenants subject certain important exceptions qualifications set forth credit agreement lenders credit agreement entitled terminated revolving line credit accelerate repayment loans credit agreement upon occurrence various customary events default december 31 2013 accrued interest related secured credit facility amounted 05 million b former secured credit facility connection entering secured credit facility june 30 2011 repaid full outstanding indebtedness terminated former first lien credit agreement former alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued senior secured credit facility former second lien credit agreement former junior secured credit facility collectively former senior secured credit facility former secured credit facility dated june 26 2007 certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements aggregate outstanding principal amount loans repaid former secured credit facility connection termination thereof approximately 12 billion august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million original maturity date september 28 2010 interest rate swap contracts paid us variable interest threemonth libor rate paid counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans former secured credit facility fixed rate debt connection entering secured credit facility june 30 2011 paid 101 million terminate interest rate swap contracts recorded interest expense including amortization original issue discounts deferred financing costs consolidated statements operations january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts paid us variable interest onemonth libor rate paid counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan former secured credit facility fixed rate debt extend terms interest rate swap contracts january 5 2011 c 725 senior notes december 11 2012 sold total 4500 million aggregate principal amount 725 senior notes due 2018 725 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 725 senior notes initial offering price 100 net proceeds offering amounted 4432 million net underwriters’ commissions offering expenses totaling 68 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act used 2674 million net proceeds purchase 2482 million outstanding principal amount 7875 senior notes described 1700 million pay portion outstanding balance revolving line credit 725 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 725 indenture 725 senior notes accrue interest rate 725 per annum interest 725 senior notes payable semiannually june 15 december 15 beginning june 15 2013 725 senior notes mature july 1 2018 unless earlier redeemed may redeem 725 senior notes whole part time december 15 2015 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 3625 twelve months december 15 2015 1813 six months december 15 2016 zero june 15 2017 time prior december 15 2015 may redeem 35 aggregate principal amount 725 senior notes money raise certain equity offerings long pay 10725 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 725 senior notes remains outstanding afterwards addition time prior december 15 2015 may redeem 725 senior notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 725 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 725 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes would 100 principal amount plus accrued unpaid interest 725 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge person certain affiliates transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 725 indenture time 725 senior notes rated investment grade certain covenants suspended respect 725 indenture contains customary events default entitling trustee holders 725 senior notes declare amounts owed pursuant 725 senior notes immediately payable event default occurs 725 senior notes senior unsecured obligations equal right payment existing future senior debt including borrowings secured credit facility obligations 725 senior notes 725 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 25 guarantor financial information alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued december 31 2013 accrued interest related 725 senior notes amounted 14 million 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 september 28 2009 net proceeds offerings amounted approximately 2400 million net underwriters’ commissions totaling 37 million original issue discount totaling 63 million 7875 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 7875 indenture 7875 senior notes accrued interest dates respective issuances rate 7875 per annum interest notes payable semiannually february 1 august 1 commencing february 1 2010 terms notes provided matured february 1 2016 unless earlier redeemed december 2012 used 2674 million net proceeds sale 725 senior notes purchase 2482 million outstanding principal amount 7875 senior notes purchased 7875 senior notes represented 993 total thenoutstanding principal amount 7875 senior notes february 2013 redeemed remaining 18 million outstanding principal amount 7875 senior notes pursuant optional redemption right 7875 indenture subsequently terminated 7875 indenture e 65 senior subordinated notes may 2013 sold total 4250 million aggregate principal amount 65 senior subordinated notes due 2020 65 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 65 senior subordinated notes initial offering price 100 net proceeds offering amounted 4177 million net underwriters’ commissions offering expenses totaling approximately 73 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act may 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount 9 senior subordinated notes pursuant tender offer notes june 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes pursuant optional redemption right indenture notes subsequently terminated indenture 65 senior subordinated notes issued supplemental indenture dated may 24 2013 65 indenture 65 senior subordinated notes accrue interest rate 65 per annum interest 65 senior subordinated notes payable semiannually june 15 december 15 beginning december 15 2013 65 senior subordinated notes mature june 15 2020 unless earlier redeemed may option redeem 65 senior subordinated notes whole part time may june 15 2016 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued redemption date premium declines 3250 twelve months june 15 2016 1625 twelve months june 15 2017 zero june 15 2018 addition may option time may 24 2015 redeem 10 aggregate principal amount 65 senior subordinated notes two twelvemonth periods preceding may 24 2015 redemption price 103 principal amount thereof plus accrued unpaid interest excluding redemption date addition time may prior june 15 2016 may option redeem 35 aggregate principal amount 65 senior subordinated notes money raise certain equity offerings long pay 1065 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 65 senior subordinated notes within 90 days completing equity offering iii least 65 aggregate principal amount 65 senior subordinated notes remains outstanding afterwards addition time may prior june 15 2016 may option redeem 65 senior subordinated notes paying principal amount 65 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 65 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 65 senior subordinated notes pro rata basis respect 65 senior subordinated notes 8625 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price 65 senior subordinated notes would 100 principal amount plus accrued unpaid interest 65 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge person certain affiliates transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 65 indenture time 65 senior subordinated notes rated investment grade certain covenants suspended respect 65 indenture contains customary events default entitling trustee holders 65 senior subordinated notes declare amounts owed pursuant 65 senior subordinated notes immediately payable event default occurs 65 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued secured credit facility 725 senior notes equal right payment 8625 senior subordinated notes 3 convertible senior subordinated notes obligations 65 senior subordinated notes 65 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information f 8625 senior subordinated notes september 2010 sold 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 8625 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 8625 subordinated notes initial offering price 100 net proceeds offering amounted 3930 million net underwriters’ commissions totaling 70 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act 8625 senior subordinated notes issued supplemental indenture dated september 21 2010 amended supplemented 8625 indenture 8625 senior subordinated notes accrue interest rate 8625 per annum interest 8625 notes payable semiannually april 1 october 1 beginning april 1 2011 8625 subordinated notes mature october 1 2018 unless earlier redeemed may redeem 8625 senior subordinated notes whole part time may october 1 2014 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4313 twelve months october 1 2014 2156 twelve months october 1 2015 zero october 1 2016 prior october 1 2013 may redeem whole part time may 35 aggregate principal amount 8625 senior subordinated notes money raise certain equity offerings long pay 108625 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 8625 senior subordinated notes including 8625 subordinated notes issued september 21 2010 remains outstanding afterwards addition time prior october 1 2014 may redeem 8625 senior subordinated notes paying principal amount notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 8625 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 8625 senior subordinated notes alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued pro rata basis respect 8625 senior subordinated notes 65 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price senior subordinated notes would 100 principal amount plus accrued unpaid interest 8625 indenture provides subsidiaries must comply various customary covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability subsidiaries pay dividends make loans asset transfers payments us subsidiaries issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets aggregate assets us subsidiaries covenants subject certain important exceptions qualifications set forth 8625 indenture time 8625 senior subordinated notes rated investment grade certain covenants suspended respect 8625 indenture contains customary events default entitling trustee holders 8625 senior subordinated notes declare amounts owed pursuant 8625 senior subordinated notes immediately payable event default occurs 8625 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 65 senior subordinated notes 3 convertible senior subordinated notes obligations 8625 senior subordinated notes 8625 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information december 31 2013 accrued interest related 8625 senior subordinated notes amounted 86 million g 9 senior subordinated notes may 12 2009 sold 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 senior subordinated notes public offering initial offering price 96865 net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million 9 senior subordinated notes issued supplemental indenture dated may 12 2009 amended supplemented 9 indenture 9 senior subordinated notes accrued interest date issuance rate 9 per annum interest 9 senior subordinated notes payable semiannually may 15 november 15 commencing november 15 2009 terms 9 senior subordinated notes provided matured may 15 2016 unless earlier redeemed alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued may 24 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount 9 senior subordinated notes pursuant tender offer notes purchased 9 senior subordinated notes represented approximately 477 total thenoutstanding principal amount 9 senior subordinated notes june 24 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes pursuant optional redemption right 9 indenture subsequently terminated 9 indenture h 3 convertible senior subordinated notes may 14 2007 sold 1500 million principal amount 3 convertible senior subordinated notes due 2016 3 convertible senior subordinated notes private placement qualified institutional buyers initial offering price 100 initial conversion price 5230 3 convertible senior subordinated notes convertible aggregate 29 million shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion 3 convertible senior subordinated notes 3 convertible senior subordinated notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount 3 convertible senior subordinated notes payable arrears may 15th november 15th year beginning november 15 2007 paid full installments interest 3 convertible senior subordinated notes due december 31 2013 may redeem 3 convertible senior subordinated notes prior stated maturity event certain fundamental changes defined indenture governing 3 convertible senior subordinated notes termination trading common stock described indenture may required repurchase 3 convertible senior subordinated notes cash price equal 100 unconverted principal amount thereof plus accrued unpaid interest 3 convertible senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility senior notes equal right payment senior subordinated notes indenture governing 3 convertible senior subordinated notes contains customary events default entitling trustee holders thereof declare amounts owed pursuant 3 convertible senior subordinated notes immediately payable event default occurs december 31 2013 accrued interest related 3 convertible senior subordinated notes amounted 06 million lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit approximately 61 million 04 million borrowed outstanding december 31 2013 alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued j debt included debt year ended december 31 2013 borrowings certain subsidiaries various financial institutions borrowed funds primarily used fund capital expenditures working capital requirements interest expense borrowings 25 million year ended december 31 2013 k maturities longterm debt following summary maturities longterm debt outstanding december 31 2013 thousands 7 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued following tables present information assets liabilities measured fair value recurring basis december 31 2013 2012 indicates fair value hierarchy valuation techniques utilized determine fair value thousands 1 determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market significant increases decreases inputs could result significantly higher lower fair value measurement changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations see note 11 additional information valuation contingent consideration obligations changes fair value level 3 contingent consideration obligations year ended december 31 2013 follows thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued december 31 2013 2012 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt 38 billion 39 billion respectively december 31 2013 carrying amount estimated fair value longterm debt 37 billion december 31 2012 estimated fair value longterm debt determined using information derived available market sources level 2 fair value hierarchy may representative actual values could realized future 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2013 thousands december 31 2013 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 94 million 88 million 76 million 2013 2012 2011 respectively b uk pension plans subsidiary england unipath ltd unipath defined benefit pension plan established certain employees changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2013 2012 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown current liabilities 43 million years ended december 31 2013 2012 following represents amounts recognized comprehensive loss year ended december 31 2013 amortization prior service cost expected approximately 04 million 2014 alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued amounts recognized accumulated comprehensive income loss years ending december 31 2013 2012 follows measurement dates used determine plan assets benefit obligations defined benefit plan december 31 2013 2012 following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2013 2012 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning presented year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities calculated using weightedaverage expected returns asset class held plan longterm expected return assets net investment expenses annual net periodic benefit costs defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2013 stocks fixed income securities represented 74 26 respectively market value pension assets expect contribute approximately £06 million 10 million december 31 2013 defined benefit plan 2014 alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued expect benefits paid plan participants range approximately 03 million 04 million per year next five years benefits totaling 05 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds fair values pension plan assets december 31 2013 2012 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath contributed 03 million 2013 04 million 2012 03 million 2011 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments may manage economic transaction exposure certain marketbased risks use derivative instruments objective holding derivative instruments reduce volatility net earnings cash flows associated changes foreign currency exchange rates hold issue derivative financial instruments speculative purposes foreign currency risk connection acquisition axisshield acquired number foreign currency forward contracts specific risk hedged contracts undiscounted foreign currency spot rate risk forecasted foreign currency revenue december 31 2012 acquired foreign currency forward contracts settled report effective portion gain loss cash flow hedge component comprehensive income subsequently reclassified alere inc subsidiaries notes consolidated financial statements continued 10 derivative financial instruments continued net earnings period hedged transaction affected net earnings forecasted transaction longer probable occurring following table summarizes effect derivative instruments accompanying consolidated statements operations thousands 11 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2019 following schedule outlines future minimum annual rental payments leases december 31 2013 thousands rent expense relating operating leases approximately 540 million 512 million 423 million 2013 2012 2011 respectively b contingent consideration obligations determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving certain performance targets including product development milestones financial metrics fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted earnout payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria contractual contingent purchase price consideration obligations related certain acquisitions follows thousands 1 maximum earnout period ends fifteenth anniversary acquisition date 2 fair value maximum remaining earnout accrued december 31 2013 expect pay maximum remaining earnout first half 2014 c legal proceedings • matters relating san diego facility october 9 2012 received warning letter fda referencing inspectional observations set forth fda form 483 received june 2012 observations result inspection san diego facility conducted earlier 2012 relating alere triage products resulted two recalls certain alere triage products revised release specifications alere triage meterbased products submitted evidence completion actions committed response fda form 483 warning letter intend continue work cooperatively fda effort fully address inspectional observation may 2012 also received subpoena office inspector general department health human services oig seeking documents relating primarily quality control testing performance characteristics alere triage products cooperating oig provided documents response oig subpoena unable predict matters resolved action government take connection except increases manufacturing costs alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued decreased profitability alere triage products unable predict impact matters ensuing proceedings financial condition results operations cash flows • matters related theft laptop january 24 2013 class action complaint filed us district court northern district california alere home monitoring ahm asserting claims damages relief california state law including california’s confidentiality medical information act relating inadvertent disclosure personally identifiable information approximately 116000 patients resulting theft laptop computer employee ahm class action stayed pending resolution class actions involving third parties based similar circumstances office civil rights us department health human services ocr notified inadvertent disclosure accordance breach notification rule hitech act certain state agencies ahm responded ocr’s inquiries continues cooperate • claims ordinary course matters nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future lawsuits often seek damages sometimes substantial amounts 12 net loss per common share following tables set forth computation basic diluted net loss per common share thousands except per share amounts alere inc subsidiaries notes consolidated financial statements continued 12 net loss per common share continued following potential dilutive securities included calculation diluted net loss per common share inclusion thereof would antidilutive thousands 13 stockholders’ equity common stock december 31 2013 2000 million shares common stock 0001 par value authorized 77 million shares held treasury 820 million shares outstanding 126 million shares reserved issuance upon grant exercise equity awards current equity compensation plans 15 million shares reserved issuance employee stock purchase plan 4000 shares reserved issuance upon exercise outstanding warrants also shares common stock reserved issuance upon conversion following securities outstanding december 31 2013 1500 million aggregate principal amount 3 convertible senior subordinated notes convertible 4398 per share 34 million shares common stock 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock b preferred stock december 31 2013 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2013 18 million shares series b preferred stock outstanding fair value approximately 5080 million alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2013 would convert 102 million shares common stock reserved conversions december 31 2013 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance years ended december 31 2013 2012 2011 series b preferred stock dividends amounted 213 million 213 million 220 million respectively reduced earnings available common stockholders purposes calculating net loss per common share 2013 2012 2011 note 12 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof series b preferred stock dividends years ended december 31 2013 2012 paid cash holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2013 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued c share repurchases first quarter 2011 repurchased open market privatelynegotiated transactions 183000 shares series b preferred stock convertible approximately 11 million shares common stock cost approximately 494 million paid cash repurchase preferred stock average cost 26984 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 137 million income attributable common stockholders also first quarter 2011 pursuant repurchase program repurchased 16700 shares common stock cost approximately 06 million paid cash second quarter 2011 repurchased open market privatelynegotiated transactions 174788 shares series b preferred stock convertible approximately 10 million shares common stock cost approximately 497 million paid cash repurchase preferred stock average cost 28428 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 102 million income attributable common stockholders also second quarter 2011 pursuant repurchase program repurchased 8300 shares common stock cost approximately 03 million paid cash third quarter 2011 repurchased approximately 76 million shares common stock cost approximately 1839 million paid cash stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows issuance 72 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2010 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2010 plan december 31 2013 2012 11 million 10 million shares respectively available future grant 2010 plan following summarizes stock option activity year ended december 31 2013 thousands except exercise price alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued aggregate intrinsic value options outstanding december 31 2013 508 million aggregate intrinsic value options exercisable december 31 2013 236 million aggregate intrinsic value stock options exercised 2013 2012 2011 45 million 13 million 171 million respectively addition december 30 2012 granted restricted stock unit rsu award one executive employees amount 110000 units rsu award vests threeyear period however executive’s employment involuntarily terminated without cause within three years rsu award accelerate fully vest rsu award also accelerate fully vest executive terminates employment voluntarily one year presence facts circumstances would constitute cause termination us fair value rsu award 1837 per unit calculated based closing market price common stock date grant aggregate fair value rsu award expensed straightline basis recipient’s service requirement completion period one year units underlying rsu award vested 5000 released december 31 2013 based equity awards outstanding december 31 2013 494 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weightedaverage period 148 years e warrants following summary warrant activity three years ended december 31 2013 following table presents additional information related warrants outstanding exercisable december 31 2013 alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued warrants included table issued connection acquisition genecare warrants purchase shares common stock outstanding issued officers directors company entities controlled officers directors december 31 2013 outstanding warrants classified equity f employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every sixmonth offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 40 million shares common stock plan december 31 2013 25 million shares issued plan 14 stockbased compensation recorded stockbased compensation expense consolidated statements operations years ended december 31 2013 2012 2011 respectively follows thousands years ended december 31 2013 2012 2011 presentation cash flows reports excess tax benefits exercise stock options financing cash flows years ended december 31 2013 2012 2011 excess tax benefits generated option exercises amounted 14 million 05 million 34 million respectively following assumptions used estimate fair value options granted years ended december 31 2013 2012 2011 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted employees 2013 2012 2011 1522 737 1095 per share respectively options granted periods granted fair market value date grant alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation continued year ended december 31 2013 recorded compensation expense 26 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 41 40 riskfree interest rate 012 009 expected life 181 days 184 days two respective offering periods 2013 charge included employee’s respective cost classification table year ended december 31 2012 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 44 47 riskfree interest rate 006 015 expected life 182 days 184 days two respective offering periods first half 2012 second offering period accommodate employees recent acquisition fair value option component employee stock purchase plans shares offering estimated grant date march 1 2012 using blackscholes option pricing model assumed expected volatility 40 riskfree rate 010 expected life 122 days 2012 charge included employee’s respective cost classification table year ended december 31 2011 recorded compensation expense 25 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 34 riskfree interest rate 019 010 expected life 181 days 184 days two respective offering periods 2011 charge included employee’s respective cost classification table 15 accumulated comprehensive income loss accumulated comprehensive income loss consisted following thousands 1 represents unrealized gains losses availableforsale securities hedging instruments alere inc subsidiaries notes consolidated financial statements continued 16 income taxes income loss provision benefit income taxes consists following thousands primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences basis tangible intangible assets income tax effects temporary differences follows thousands december 31 2013 approximately 874 million domestic nol domestic capital loss carryforwards approximately 9988 million state nol carryforwards 2547 million foreign nol foreign capital loss carryforwards either expire various dates 2033 carried forward indefinitely december 31 2013 approximately 704 million domestic research development foreign tax alternative minimum tax credits either expire various dates 2033 carried forward indefinitely loss carryforwards tax credits may available reduce future federal state foreign taxable alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued income subject review possible adjustment appropriate tax authorities section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate domestic nols subject various internal revenue service irs code section 382 limitations however forecast fully utilize nols expiration section 383 imposes annual limitation use credits amount equal value company time ownership change multiplied longterm tax exempt rate domestic credits subject various irs code section 383 limitations forecast portion credits expire utilized therefore recorded valuation allowance assets 09 million state nol carryforwards subject various statutory limitations require certain companies realize taxable income order fully utilize nols recorded valuation allowance 836 million december 31 2013 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits increase 150 million valuation allowance 686 million december 31 2012 increase primarily related foreign state nols valuation allowance based estimates taxable income jurisdictions operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision two chinabased manufacturing subsidiaries qualify reduced income tax rate 2013 2012 2011 chinese entities qualify high technology status companies status due expire 2014 anticipated neither chinese entity qualify high technology status 2014 deferred tax rate increased 25 prescribed statutory rate 2013 2012 25 reduced rate high technology status 15 2010 companies qualified china tax reform act income tax rate one subsidiaries 125 11 reduced tax rate produced current tax expense approximately 14 million 2013 absence reduced tax rate 2013 tax rate 25 would applied would resulted current tax expense approximately 24 million 2013 tax benefit rate change approximately 10 million earnings per common share effect reduced tax rate 001 2013 reduced tax rate produced tax expense approximately 10 million 2012 absence reduced tax rate 2012 tax rate 25 would applied would resulted tax expense approximately 17 million 2012 earnings per common share effect reduced tax rate 001 2012 reduced tax rate produced tax expense approximately 05 million 2011 absence reduced tax rate 2011 tax rate 25 would applied would resulted tax expense approximately 08 million 2011 earnings per common share effect reduced tax rate 001 2011 december 2013 swiss subsidiary declared dividend us parent recorded estimated tax liabilities us taxation dividend depends amount available earnings profits swiss subsidiary calculation involves reviewing numerous tax computations intercompany transactions prior years estimates certain portions calculation actual results could differ significantly estimates different assumptions conditions estimated amount undistributed earnings foreign subsidiaries 2447 million december 31 2013 amount us income tax provided undistributed earnings alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings would subject us income tax foreign withholding taxes subject possible offset us foreign tax credits determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation following table presents components benefit income taxes thousands benefit income taxes 2011 includes benefit 70 million correct items related periods 2007 2010 believe corrected items material 2011 previously reported quarterly annual financial statements result restated previously issued annual quarterly financial statements following table presents reconciliation us statutory tax rate effective tax rate alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued 2011 goodwill impairment charge created deferred tax impact due existence goodwill deductible tax purposes deferred tax calculated based methodology allocates goodwill impairment loss proportionally goodwill deductible tax purposes compared total goodwill impairment allocated goodwill deductible tax purposes created deferred tax asset 353 million december 31 2011 change goodwill impairment charge deferred tax asset 2012 2013 rate differential foreign earnings 0 2 42 2013 2012 2011 respectively 2011 rate differential foreign earnings 42 tax benefit arose primarily foreign subsidiary tax resident low tax jurisdiction recognized deferred gain sale joint venture interest 2012 rate differential foreign earnings 2 tax expense resulted primarily tax benefit associated lower jurisdictional tax rates offset tax expense associated foreign earnings taxed us statutory rate state income tax benefit 0 3 8 2013 2012 2011 respectively 8 benefit 2011 versus 3 benefit 2012 primarily related net favorable outofperiod adjustments recorded 2011 related previous years reduction benefit zero 2013 primarily relates reversal deferred tax benefits 2013 associated state net operating loss carryforwards impact rate 2011 2013 relating contingent consideration due fair value accounting used contingent consideration considered tax purposes impact rate changes threeyear period primarily due foreign jurisdictional rate changes result newlyenacted legislation 2013 impact primarily relating legislation enacted 2013 reduced uk tax rate increases valuation allowances primarily relate losses foreign jurisdictions likely losses utilized future periods year ended december 31 2013 increased liability income taxes associated uncertain tax positions 69 million total 259 million december 31 2013 primary reasons increase foreign tax exposures associated certain restructurings 26 million increases certain foreign permanent establishment exposures 24 million increase 08 million audit exposure certain foreign jurisdictions increase 06 million due reclassification unrecognized tax benefits deferred tax accounts increase 13 million certain tax credit carry forwards primary decrease relates prior periods research expenses credits foreign jurisdictions 09 million classify 228 million income tax liabilities noncurrent income tax liabilities 31 million longterm deferred tax liabilities noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2013 anticipate material reductions tax reserve next twelvemonth period alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued reconciliation beginning ending amount liabilities uncertain tax positions follows thousands interest penalties related income tax liabilities included income tax expense gross interest penalties recorded 2013 amounted 13 million gross balance accrued interest penalties recorded consolidated balance sheet december 31 2013 19 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2006 2012 currently income tax examination irs number state foreign tax authorities cannot currently estimate impact remaining audits due uncertainties associated tax examinations management expect material changes tax position result ongoing audits 17 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health information solutions consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2013 2012 2011 follows thousands alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued following tables summarize net revenue professional diagnostics health information solutions reporting segments groups similar products services 2013 2012 2011 thousands professional diagnostics segment health information solutions segment following tables summarize net revenue geographic area 2013 2012 2011 respectively longlived tangible assets geographic area december 31 2013 2012 respectively thousands 1 includes among many others following countries china japan india south korea australia canada brazil 1 includes among many others following countries germany norway sweden south korea brazil alere inc subsidiaries notes consolidated financial statements continued 18 arrangements february 2013 entered agreement bill melinda gates foundation gates foundation whereby awarded grant gates foundation amount 216 million support development commercialization validated lowcost nucleicacid assay clinical tuberculosis tb detection drugresistance test cartridges adaptation analyzer platform capable operation rudimentary laboratories lowresource settings connection agreement also entered loan agreement gates foundation gates loan agreement provides making subordinated term loans gates foundation us time subject achievement certain milestones aggregate principal amount 206 million funding gates loan agreement used connection purchase equipment automated highthroughput manufacturing line uses necessary manufacture tb hivrelated products loans gates loan agreement evidenced promissory notes executed delivered gates foundation bear interest rate 3 per annum except extent earlier repaid us mature required repaid full december 31 2019 december 31 2013 borrowed amounts gates loan agreement december 31 2013 received approximately 79 million grantrelated funding gates foundation recorded restricted cash deferred grant funding deferred grant funding classified within accrued expenses current liabilities accompanying consolidated balance sheet qualified expenditures incurred terms grant use deferred funding recognize reduction related qualified research development expenditures year ended december 31 2013 incurred approximately 66 million qualified expenditures reduced deferred grant funding balance recorded offset research development expenses 19 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following outstanding securities common stock series b preferred stock convertible notes extent make principal interest payments convertible notes accordance terms zwanziger family trust holder convertible notes receive proportionate share may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting december 31 2013 2012 net receivable joint venture 21 million 23 million respectively included 21 million receivable balance december 31 2013 approximately 18 million costs incurred connection 2008 spdrelated restructuring plans included 23 million receivable balance december 31 2012 approximately 16 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 132 million 146 million december 31 2013 december 31 2012 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned alere inc subsidiaries notes consolidated financial statements continued 19 related party transactions continued formation joint venture completed classified receivables within prepaid expenses current assets accompanying consolidated balance sheets amount 124 million 69 million december 31 2013 2012 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 780 million 636 million 712 million years ended december 31 2013 2012 2011 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 13 million 11 million 11 million years ended december 31 2013 2012 2011 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations terms product supply agreement joint venture purchases products manufacturing facilities uk china spd turn sells portion tests back us final assembly packaging packaged tests sold pg distribution thirdparty customers north america result related transactions recorded 94 million 73 million trade receivables included accounts receivable accompanying consolidated balance sheets december 31 2013 2012 respectively 188 million 213 million trade accounts payable included accounts payable accompanying consolidated balance sheets december 31 2013 2012 respectively 2013 2012 received 280 million 112 million respectively cash spd return capital following table summarizes related party balances spd within consolidated balance sheets thousands 20 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 20 valuation qualifying accounts continued established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands 21 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2013 2012 2011 thousands 2013 restructuring plans 2013 management developed cost reduction efforts within professional diagnostics business segment including businesses united states europe asia pacific regions additionally management continuing take steps improve efficiencies within health information solutions business segment including winding small portion business resulted charges associated impairment related fixed intangible assets following table summarizes restructuring activities related 2013 restructuring plans year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 21 restructuring activities continued anticipate incurring approximately 04 million additional severance facility costs plans related health information solutions business segment 2020 well 29 million additional severance facility costs plans related professional diagnostics business segment primarily related consolidating toxicology businesses within united states one manufacturing location 2015 december 31 2013 59 million severance exit costs plans remain unpaid b 2012 restructuring plans 2012 management developed cost reduction plans within professional diagnostics business segment including integration businesses brazil europe united states additionally management developed new plans continue efforts reduce costs within health information solutions business segment including termination certain projects resulted charges impairment related fixed intangible assets following table summarizes restructuring activities related 2012 restructuring plans year ended december 31 2013 2012 since inception thousands anticipate incurring approximately 04 million facility costs plans related primarily health information solutions business segment 2020 december 31 2013 30 million facility exit costs plans remain unpaid c restructuring plans prior 2012 2011 management executed companywide cost reduction plan impacted corporate business segment well health information solutions professional diagnostics business segments management also developed plans within professional diagnostics business segment consolidate operating activities among certain us european asia pacific subsidiaries including transferring manufacturing panbio products australia standard alere inc subsidiaries notes consolidated financial statements continued 21 restructuring activities continued diagnostics facility south korea eliminating redundant costs among newlyacquired axisshield subsidiaries additionally within health information solutions business segment management executed plans reduce costs improve efficiencies well cease operations genecare medical genetics center inc genecare facility chapel hill north carolina transfer majority quality assured services inc operation orlando florida facility livermore california 2010 management developed several plans reduce costs improve efficiencies within health information solutions professional diagnostics business segments additionally 2008 management developed initiated plans close facility located bedford england transition manufacturing operations principally manufacturing facilities shanghai hangzhou china well transition business cholestech san diego california facility following table summarizes restructuring activities related 2011 2010 2008 restructuring plans years ended december 31 2013 2012 2011 since inception thousands alere inc subsidiaries notes consolidated financial statements continued 21 restructuring activities continued anticipate incurring approximately 09 million additional costs plans related professional diagnostics business segment primarily related facility exit costs anticipate incurring minimal additional costs plans related health information solutions business segment primarily related imputed interest facility lease obligations december 31 2013 22 million cash charges remain unpaid primarily related facility lease obligations 2017 addition restructuring charges discussed certain charges associated bedford facility closure borne spd 5050 joint venture pg restructuring charges recorded spd 50 included equity earnings unconsolidated entities net tax consolidated statements operations following table summarizes 50 portion restructuring charges borne spd included equity earnings unconsolidated entities net tax years ended december 31 2011 since inception thousands december 31 2013 cash charges paid anticipate incurring additional restructuring charges plan alere inc subsidiaries notes consolidated financial statements continued 21 restructuring activities continued restructuring reserves following table summarizes restructuring reserves related plans described 79 million included accrued expenses current liabilities 32 million included longterm liabilities consolidated balance sheets thousands 1 amounts represent 100 charges borne spd 22 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following spd 5050 joint venture called spd pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields recorded earnings 150 million 107 million 59 million years ended december 31 2013 2012 2011 respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented 50 share spd’s net income respective periods b techlab 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibioticassociated diarrhea parasitology recorded earnings 20 million 23 million 20 million years ended december 31 2013 2012 2011 respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented minority share techlab’s net income respective periods alere inc subsidiaries notes consolidated financial statements continued 22 equity investments continued summarized financial information spd techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets 23 loss disposition july 2013 sold spinreact operations located spain part professional diagnostics reporting unit business segment approximately 334 million proceeds result transaction recorded loss disposition 51 million 2013 financial results spinreact operations immaterial consolidated financial results 24 supplemental cash flow information cash paid interest income taxes 2013 2012 2011 made cash payments interest totaling 2063 million 2050 million 1647 million respectively 2013 2012 2011 total net cash paid income taxes 491 million 319 million 478 million respectively alere inc subsidiaries notes consolidated financial statements continued 24 supplemental cash flow information continued noncash investing activities 2011 issued shares common stock connection certain acquisitions dollars thousands noncash financing activities 2011 recorded noncash income expense accumulated comprehensive income loss 73 million representing change fair market value interest rate swap agreement 2012 issued shares common stock connection settlement acquisitionrelated contingent consideration obligation dollars thousands 25 guarantor financial information 725 senior notes due 2018 8625 senior subordinated notes due 2018 65 senior subordinated notes due 2020 guaranteed certain consolidated wholly owned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2013 2012 related statements operations statements comprehensive income loss cash flows three years period ended december 31 2013 respectively alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2012 thousands f 75 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2013 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2012 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2011 thousandsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 exhibits agreements filed exhibits report contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • may constituted allocation risk responsibility among parties rather statements fact • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact company agrees furnish supplementally securities exchange commission “commission” copy omitted schedule exhibit agreement upon request commission filed herewith omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive loss income equity cash flows present fairly material respects financial position alere inc subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso material weaknesses internal control financial reporting related insufficient complement resources company’s subsidiaries appropriate knowledge experience training accounting revenue recognition ii ineffective controls information communication relates revenue recognition company’s subsidiaries iii ineffectively designed controls review terms purchase orders customer contracts related revenue recognition iv ineffectively designed controls ensure revenue would recognized title risk loss passed v ineffective control environment company’s south korean subsidiary standard diagnostics certain employees standard diagnostics engaged inappropriate conduct circumvented controls existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weaknesses referred described management’s annual report internal control financial reporting appearing item 9a considered material weaknesses determining nature timing extent audit tests applied audit december 31 2016 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements company restated 2015 2014 financial statements correct misstatements company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts june 5 2017 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements comprehensive loss income thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity restated thousands alere inc subsidiaries consolidated statements equity continued restated thousands alere inc subsidiaries consolidated statements equity continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation financial information alere delivers reliable actionable health information rapid diagnostic tests resulting better clinical economic healthcare outcomes globally highperformance diagnostics infectious disease cardiometabolic disease toxicology designed meet growing global demand accurate easytouse costeffective nearpatient tests goal make alere products accessible people around world even located remote resourcelimited areas making affordable usable setting making critical clinical diagnostic information available doctors patients actionable timeframe alere products help streamline healthcare delivery improve patient outcomes operating segments currently professional diagnostics ii consumer diagnostics iii nonreportable january 2015 sold condition management case management wellbeing wellness women’s children’s health businesses refer collectively health management business result sale health management business largest component former patient selftesting reporting segment well certain transactions 2015 component patient selftesting reporting segment retained alere home monitoring business therefore annual report form 10k fiscal year ended december 31 2015 reported financial information two reportable operating segments professional diagnostics ii consumer diagnostics alere home monitoring reported component professional diagnostics segment due nature operations alere home monitoring manner business conducted annual report form 10k report alere home monitoring business separate segment heading “other nonreportable segment” alere home monitoring distributes ptinr coagulation monitors facilitates distribution equipment supplies power control customers’ implanted ventricular assist devices vads well telemonitoring services allows vad coordinators monitor patients soon discharge receive alerts critical patient values fall outside preestablished ranges consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts presented may recalculate directly due rounding 2 restatement previously issued financial statements april 12 2017 management audit committee board directors concluded financial statements december 31 2015 2014 years ended december 31 2015 2014 2013 quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 relied annual report form 10k year ended december 31 2016 includes restated annual financial statements december 31 2015 years ended december 31 2015 2014 well restated unaudited condensed financial information quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 refer alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued herein restatement consolidated financial statements december 31 2015 years ended december 31 2015 2014 included annual report form 10k restated consolidated financial statements included annual report form 10k year ended december 31 2015 filed securities exchange commission august 8 2016 restatement result failure correctly apply us gaap regarding timing revenue recognition primarily related transactions recognized revenue prior full satisfaction contractual criteria title risk loss passing customer required us gaap principal cause misstatements timing revenue recognition attributable inappropriate conduct standard diagnostics subsidiary misstatements primarily result conduct practices initiated former employee sales organization inappropriate conduct practices involved among things misrepresentation andor fabrication documents used validate revenue recognition intentionally concealed senior leadership team external auditors time transactions global revenue recognition assessment conducted part filing annual report form 10k fiscal year ended december 31 2015 standard diagnostics employees cases subordinates initiating employee local finance management responsible controls standard diagnostics involved inappropriate conduct acted conceal addition restatement reflects corrections certain misstatements identified 2017 relating 2014 2015 2016 adjustments relate misstatements classification certain amounts current assets noncurrent assets current liabilities b misstatements classification certain legalrelated charges nonoperating expenses operating expenses c misstatements general administrative expenses correct timing bad debt expenses fair value adjustments related contingent consideration liabilities acquisitions restatement impact increasing accumulated deficit consolidated statement stockholders’ equity december 31 2013 08 million restatement result change previously reported total amounts net cash flows operating activities investing activities financing activities impact net change cash equivalents previously reported periods certain corrections classifications within operating cash flow section impacted restatement set forth tables alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued following schedules reconcile amounts previously reported applicable financial statement corresponding restatement amounts see note 28 presenting restated quarterly financial statements 2016 2015 alere inc subsidiaries consolidated statements operations thousands except per share amounts alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued 1 adjustments related standard diagnostics revenue recognition matter except 4586 adjustment reclassify certain legalrelated charges income expense net general administrative expenses 1 restatement adjustment total comprehensive income loss attributable alere inc subsidiaries comprised solely restatement adjustment net income loss period alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued alere inc subsidiaries consolidated balance sheets thousands except par value 1 figures presented column represent amounts presented originally annual report form 10k 2015 adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 34050 debt issuance costs noncurrent assets longterm debt net current portion december 31 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities except 37719 classification adjustment current assets noncurrent assets adjustment relates correction classification error related prepaid income tax balance alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued alere inc subsidiaries consolidated statements cash flows thousands 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities except 37719 classification adjustment current assets noncurrent assets adjustment relates correction classification error related prepaid income tax balance alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued alere inc subsidiaries consolidated statements operations thousands except per share amounts 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts revised figures presented earlier annual report form 10ka 2014 due principally 13426 adjustment decrease revenue associated decreases expenses income tax provision overall adjustment 4274 increase net income loss identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued 2 adjustments related standard diagnostics revenue recognition matter except 1186 adjustment reclassify certain legalrelated charges income expense net general administrative expenses 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts revised figures presented earlier annual report form 10ka 2014 due adjustments net income loss identified preparation annual report form 10k 2015 2 restatement adjustment total comprehensive income loss attributable alere inc subsidiaries comprised solely restatement adjustment net income loss period alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued alere inc subsidiaries consolidated statements cash flows thousands alere inc subsidiaries notes consolidated financial statements continued 2 restatement previously issued financial statements continued 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts previously revised figures presented earlier annual report form 10ka 2014 due principally 19236 increase operating cash flow related deferred income taxes 15753 decrease operating cash flow related noncurrent liabilities identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities 3 merger agreement merger agreement abbott laboratories january 30 2016 entered agreement plan merger agreement abbott laboratories abbott merger agreement provides merger wholly owned subsidiary abbott alere merger alere surviving merger wholly owned subsidiary abbott surviving corporation terms merger agreement prior amendment described herein holders shares common stock entitled receive 5600 cash without interest exchange share common stock april 13 2017 abbott alere entered amendment agreement plan merger agreement amendment amends merger agreement amended merger agreement amendment amended merger agreement provides among things holders shares common stock receive 5100 cash without interest exchange share common stock expressly modified pursuant merger agreement amendment merger agreement remains full force effect amended merger agreement approved board directors share series b preferred stock issued outstanding immediately prior effective time merger remain issued outstanding immediately following consummation merger one share series b convertible preferred stock par value 0001 per share surviving corporation completion merger pursuant amended merger agreement subject customary closing conditions including 1 adoption amended merger agreement affirmative vote holders least majority outstanding shares common stock 2 judgment law enjoining otherwise prohibiting consummation merger 3 expiration waiting period applicable merger hartscottrodino antitrust improvements act 1976 amended hsr act receipt required antitrust approvals 4 absence material adverse effect defined amended merger agreement terms amended merger agreement abbott agreed make certain divestitures necessary obtain consent antitrust authorities transaction contemplated amended merger agreement subject certain exceptions set forth amended merger agreement obligation parties consummate merger also conditioned party’s representations warranties true correct subject certain materiality exceptions party performed material respects obligations amended merger agreement amended merger agreement contains certain termination rights allow amended merger agreement terminated certain circumstances addition merger agreement amendment extends date alere abbott would right terminate amended merger agreement september 30 2017 subject terms conditions set forth amended merger agreement merger alere inc subsidiaries notes consolidated financial statements continued 3 merger agreement continued agreement amendment reduces termination fee alere may required pay abbott specified circumstances 161 million 177 million merger agreement amendment also provides neither matter set forth alere’s public filings made securities exchange commission sec january 1 2014 april 13 2017 matter abbott’s representatives made aware prior april 13 2017 could taken account determining whether material adverse effect occurred would reasonably expected occur addition qualifications set forth original merger agreement amendment qualifies representations warranties made amended merger agreement including made original merger agreement matters set forth public filings made sec january 1 2014 april 13 2017 matter known abbott’s representatives prior april 13 2017 addition merger agreement amendment changes abbott’s commitment provide alere’s employees continue abbott specified levels compensation benefits commitment first anniversary closing merger rather december 31 2017 2018 longterm incentive award continuing employee employed abbott subsidiaries time annual longterm awards made generally less favorable longterm incentive award made similarly situated employees abbott generally antitrust clearance may 2 2016 abbott alere received request additional information “second request” united states federal trade commission ftc relating abbott’s potential acquisition alere second request issued hsr act addition abbott agreed voluntarily provide ftc least 60 days advance notice certifying substantial compliance second request extend waiting period imposed hsr act less 60 days abbott alere certified substantial compliance second request unless period extended voluntarily parties terminated sooner ftc june 23 2016 abbott alere received request additional information “supplemental information request” canadian competition bureau relating abbott’s potential acquisition alere supplemental information request issued competition act canada competition act effect supplemental information request extend waiting period imposed competition act 30 days abbott alere complied supplemental information request unless period extended voluntarily parties terminated sooner bureau january 25 2017 european commission approved merger eu merger regulation approval conditional merger may completed abbott entered binding agreements divest epoc triage product lines well alere’s activities relating commercialization bnp assays customers danaher use beckmancoulter laboratory analyzers one purchasers terms sale need approved european commission date filing annual report form 10k aware binding definitive final agreements entered divest epoc product line triage product line alere’s activities relating commercialization bnp assays customers danaher use beckmancoulter analyzers april 20 2017 south korean antitrust authority informed abbott would expanding review period 90 days alere inc subsidiaries notes consolidated financial statements continued 3 merger agreement continued filing annual report form 10k antitrust approvals ftc bureau south korean antitrust authorities required pursuant amended merger agreement obtained information relating litigation abbott settlement agreement abbott see note 13c 4 discontinued operations january 9 2015 completed sale health management business optumhealth care solutions purchase price 5999 million used net cash proceeds sale repay 5750 million aggregate principal amount outstanding indebtedness prior credit facility accounted divestiture health management business accordance accounting standards update asu 201408 october 10 2014 completed sale acs subsidiary acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs also agreed sell subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser completed june 2015 acs companies included former patient selftesting segment prior sale purchase price acs companies consisted cash proceeds 200 closing contingent consideration aggregate 70 million consisting payments based gross revenues acs companies ii payments made connection financing transactions purchaser acs companies iii payments made connection sale purchaser acs companies connection sale agreed reimburse purchaser 750000 purchaser’s acs companies’ transitional expenses accounted divestiture acs companies accordance accounting standards codification asc 205 presentation financial statements alere inc subsidiaries notes consolidated financial statements continued 4 discontinued operations continued following summarized financial information related businesses acs companies health management business segregated continuing operations reported discontinued operations consolidated statements operations applicable periods results health management business included 2014 2015 periods presented given january 9 2015 divestiture business results acs companies wellogic included 2014 given october 31 2014 divestiture business neither health management business acs companies reported 2016 results follows thousands 5 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive loss note 17 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued net realized unrealized foreign currency exchange transaction losses 45 million 48 million 22 million 2016 2015 2014 respectively included component income expense net consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2016 2015 restricted cash restricted cash 537 million 489 million december 31 2016 2015 respectively 489 million restricted cash december 31 2015 432 million classified noncurrent consolidated balance sheet secures foreign bank loan arrangement entered third quarter 2015 terms loan agreement required remain deposit two years unless loan terminated prior maturity december 31 2016 432 million previously classified noncurrent 2015 reclassified current consolidated balance sheet e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive loss net related tax effects f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory recorded financial statements represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 115 years buildings 4 50 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 110 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 1051 million 987 million 976 million 2016 2015 2014 respectively fullydepreciated property plant equipment still use remain books disposal retirement property plant equipment retired disposed cost respective accumulated depreciation removed books gain loss disposal recorded income statement expenditures repairs maintenance expensed incurred alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued h goodwill relates amounts arose connection various business combinations represents difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate potential impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing annual goodwill impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market comparable approach market transaction approach income approach based discounted cash flow analysis dcf approach calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf approach require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf approach based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approaches consider comparable transactional market data based multiples revenue earnings interest taxes depreciation amortization ebitda based trading multiples selected guidelines companies deal multiples selected target companies carrying value reporting unit exceeds estimated fair value required perform second step 2 annual goodwill impairment test measure amount impairment loss step 2 goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded write carrying value implied value impairment charges related goodwill impact cash balances compliance financial covenants credit agreement 2016 annual goodwill impairment test conducted 2016 annual impairment test reporting units fourth quarter 2016 key assumptions vary reporting unit used determining fair value dcf alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued approach included discount rates ranging 100 145 projected compound average revenue growth rates 34 56 terminal value growth rates 30 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approaches based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 06 31 times multiples ebitda 83 123 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment test indicated estimated fair value professional diagnostics consumer diagnostics nonreportable reporting units exceeded carrying value reporting unit’s net assets 26 billion 885 million 2196 million respectively 50 36 194 respectively estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable inherently uncertain including estimates future growth rates operating margins assumptions overall economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development patents trademarks trade names customer relationships distribution rights noncompetition agreements majority intangible assets recorded connection various business combinations intangible assets recorded fair value time acquisition amortize intangible assets estimated useful lives estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized amortize majority intangible assets straightline basis methodology closely approximates pattern economic benefits assets evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived assets reduced estimated fair value lower impairment loss charged expense period impairment identified factors generally consider important could trigger impairment review carrying value longlived tangible intangible assets include following 1 significant underperformance relative expected historical projected future operating results 2 significant changes manner use acquired assets strategy overall business 3 underutilization tangible assets 4 discontinuance product lines customers 5 significant negative industry economic trends 6 significant decline stock price sustained period 7 significant decline market capitalization relative net book value 8 goodwill impairment identified impairment review j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire part business combinations completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life utilize discounted probable future cash flow model projectbyproject basis value acquired iprd significant assumptions used model include period material net cash inflows significant projects expected commence anticipated material changes historical pricing margins expense levels appropriate risk adjusted discount rate applied project’s cash flows k business acquisitions business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued 2016 2015 2014 expensed acquisitionrelated costs 10 million 05 million 09 million respectively general administrative expense l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income tax provision period enactment recognize deferred tax assets extent believe assets likely realized making determination consider available positive negative evidence including future reversal existing taxable temporary differences projected future taxable income taxplanning strategies results recent operations including taxable income carryback periods determine would able realize deferred tax assets future excess net recorded amount would make adjustment deferred tax asset valuation allowance would reduce income tax provision account uncertain tax positions using “morelikelythannot” recognition threshold evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position november 2015 fasb issued accounting standards update 201517 asu 201517 balance sheet classification deferred taxes simplifies presentation deferred income taxes asu 201517 requires deferred tax assets liabilities classified noncurrent statement financial position adopted asu 201517 effective december 31 2015 prospective basis prior periods retrospectively adjusted revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon transfer title risk loss products thirdparty customers less reserve estimated product returns incentive arrangements including rebates determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer sales transactions qualify multipleelement arrangements require us identify separate units accounting within arrangement allocate transaction consideration across separate accounting units arrangements include nonsoftware elements transaction’s consideration allocated unit accounting based relative selling price applying relative selling price method selling price deliverable determined based upon following hierarchy evidence vendorspecific objective evidence generally based upon historical prices standalone transactions thirdparty evidence generally based market data sales similar products services available management’s best estimate selling price management’s best estimate selling price generally based upon following considerations standalone sales prices established price lists costs produce profit margins similar products software softwarerelated products use relative fair value method allocate transaction consideration unit accounting whereby evidence used determination fair value estimates based solely vendor specific objective evidence extent vendor specific objective evidence exist delivered elements transaction apply residual method additionally respect health management business included discontinued operations periods presented financial statements included annual report form 10k 2016 generated services revenue connection contracts health plans commercial governmental selfinsured employers whereby provided clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provided portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either two conditions existed recorded amounts current liabilities consolidated balance sheet deferring recognition revenue established meeting performance criteria however revenue recognized fees subject refund end contract period realizable termination provisions contract meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements time obligations license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned n employee stockbased compensation arrangements account sharebased payments accordance asc 718 compensation stock compensation expense associated stock options includes amortization based alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued grantdate fair value estimated accordance provisions asc 718 determining fair value stockbased awards grant date requires judgment including estimating stock price volatility employee stock option exercise behaviors actual results differ significantly estimates stockbased compensation expense results operations could materially impacted addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions realized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future net income loss per common share net income loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 14 p operating expenses expense advertising costs directresponse advertising incurred 2016 2015 2014 advertising costs amounted 56 million 90 million 80 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost net revenue accompanying consolidated statements operations charge customers shipping handling costs recorded along product revenues legal fees incurred us included general administrative expenses expensed period costs incurred payments third parties connection resolution legal disputes investigations contingencies included general administrative expenses expensed unfavorable outcome probable amount loss reasonably estimated accordance asc 450 contingencies q directresponse advertising connection mail order diabetes business incurred directresponse advertising associated costs connection placement advertisements directresponse advertising alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued associated costs payable third parties period presented capitalized amortized selling general administrative expenses accelerated basis month following broadcast month management assesses realizability amounts directresponse advertising costs reported assets balance sheet date comparing net carrying value capitalized advertising net present value estimated future orders expected result directly advertising meet capitalization requirements expensed current period change existing accounting rules business change impacts expected future orders shortens period net future benefits estimated realized could result accelerated charges earnings whether impairment loss determined comparing net carrying value directresponse advertising costs capitalized assets balance sheet date probable remaining future orders expected result directly advertising net carrying value assets exceeds probable remaining future orders expected result directly assets impairment loss recognized amount equal excess future benefits determined calculating net present value estimated future orders per cost pool net present value calculated based upon value order multiplied estimated future orders estimate future orders determined based historical customer reorder rates perform impairment test directresponse advertising asset quarter following advertising broadcast quarter r concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2016 2015 individual customer’s accounts receivable balance 10 aggregate accounts receivable 2016 2015 2014 one customer represented 10 net revenue financial instruments fair value financial instruments primary financial instruments december 31 2016 2015 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt apply fair value measurement accounting either record disclose value financial assets liabilities financial statements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued level 3 unobservable inputs supported little market activity significant fair value assets liabilities software internal use resale may capitalize certain costs associated development internaluse software including direct materials services capitalized software amortized straightline basis estimated useful life included computer software equipment within property plant equipment also develop software resale lease external parties expense costs developing software resale lease incurred establishment technological feasibility underlying software costs incurred establishment technological feasibility general release software capitalized software amortized estimated useful life capitalized software resale lease included computer software equipment within property plant equipment u research development research development programs focus development cardiometabolic infectious disease toxicology products research development costs expensed incurred payments received external parties fund research development activities reduce recorded research development expenses v leases lease certain facilities equipment external parties operating leases rent expense related operating leases recorded income statement incurred straightline basis material escalation clauses also lease machinery laboratory equipment tooling equipment capital leases determining whether lease capital operating lease estimate expected term lease includes certain renewable options required lease accounting guidance rent deferrals landlord incentives rent escalations included calculation minimum lease payments performing capital lease tests calculating rent expense operating leases leased property plant equipment meet capital lease criteria capitalized lower present value minimum lease payments fair value underlying asset inception date lease assets capital leases depreciated straightline basis lease term leasehold improvements capitalized amortized shorter estimated useful lives remainder expected term lease w recent accounting pronouncements recently issued standards march 2017 fasb issued asu 201707 compensation retirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued cost asu 201707 asu 201707 improves presentation net periodic pension cost net periodic postretirement benefit cost requiring employer offers employees defined benefit pension postretirement benefit plans report service cost component line item items compensation costs arising services rendered pertinent employees period components net benefit cost required presented income statement separately service cost component outside subtotal income operations one presented asu 201707 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted within first interim period amendments applied using retrospective transition method presentation service cost component components net periodic pension cost net periodic postretirement benefit cost income statement prospectively effective date capitalization service cost component net periodic pension cost net periodic postretirement benefit assets currently evaluating impact adoption asu 201707 consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying accounting goodwill impairment asu 201704 asu 201704 removes requirement perform hypothetical purchase price allocation measure goodwill impairment goodwill impairment amount reporting unit’s carrying value exceeds fair value exceed carrying amount goodwill asu 201704 effective fiscal years beginning december 15 2019 including interim periods within fiscal years applied prospectively early adoption permitted currently evaluating impact adoption asu 201704 consolidated financial statements january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business asu 201701 asu 201701 clarifies definition business objective adding guidance assist entities evaluating whether transactions accounted acquisitions disposals assets businesses asu 201701 effective fiscal years beginning december 15 2017 including interim periods within fiscal years applied prospectively early adoption permitted certain scenarios currently evaluating impact adoption asu 201701 consolidated financial statements december 2016 fasb issued asu 201620 technical corrections improvements topic 606 revenue contracts customers asu 201620 asu 201620 clarifies specific aspects previously issued guidance asu 201409 revenue contracts customers discussed asu 201620 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201620 consolidated financial statements december 2016 fasb issued asu 201619 technical corrections improvements asu 201619 asu 201619 provides simplification minor improvements topics insurance troubled debt restructuring result editorial changes accounting standards codification asc amendments asu 201619 require transition guidance effective immediately early adoption permitted amendments require transition guidance expect adoption asu 201619 significant impact consolidated financial statements alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash asu 201618 asu 201618 requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents result amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted amendments applied using retrospective transition method period presented currently evaluating impact adoption asu 201618 consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory asu 201616 asu 201616 requires entity recognize income tax consequences intraentity transfer asset inventory transfer occurs eliminates exception intraentity transfer asset inventory asu 201616 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201616 consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 asu 201615 provides cash flow statement classification guidance 1 debt prepayment debt extinguishment costs 2 settlement zerocoupon debt instruments debt instruments coupon interest rates insignificant relation effective interest rate borrowing 3 contingent consideration payments made business combination 4 proceeds settlement insurance claims 5 proceeds settlement corporateowned life insurance policies including bankowned life insurance policies 6 distributions received equity method investees 7 beneficial interests securitization transactions 8 separately identifiable cash flows application predominance principle asu 201615 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201615 consolidated financial statements may 2016 fasb issued asu 201612 revenue contracts customers topic 606 narrowscope improvements practical expedients asu 201612 asu 201612 1 clarifies objective collectability criterion applying accounting standards codification asc paragraph 60610257 2 permits entity exclude amounts collected customers sales similar taxes transaction price 3 specifies measurement date noncash consideration contract inception 4 provides practical expedient permits entity reflect aggregate effect modifications occur beginning earliest period presented identifying satisfied unsatisfied performance obligations determining transaction price allocating transaction price satisfied unsatisfied performance obligations 5 clarifies completed contract purposes transition contract substantially revenue recognized legacy gaap date initial application 6 clarifies entity retrospectively applies guidance topic 606 prior reporting period required disclose effect accounting change period adoption asu 201612 effective fiscal years beginning december 15 2017 including interim periods within fiscal years currently evaluating impact adoption asu 201612 consolidated financial statements alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued april 2016 fasb issued asu 201610 revenue contracts customers topic 606 identifying performance obligations licensing asu 201610 asu 201610 adds guidance identifying performance obligations also improve operability understandability licensing implementation guidance asu 201610 effective fiscal years beginning december 15 2017 including interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201610 consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 asu 201609 simplifies several aspects accounting sharebased payment award transactions including income tax consequences classification awards either equity liabilities classification statement cash flows asu 201609 effective fiscal years beginning december 15 2016 including interim periods within fiscal years early adoption permitted currently evaluating impact adoption asu 201609 consolidated financial statements march 2016 fasb issued asu 201607 investments equity method joint ventures topic 323 simplifying transition equity method accounting asu 201607 asu 201607 eliminates requirement investment qualifies use equity method result increase level ownership interest degree influence investor must adjust investment results operations retained earnings retroactively stepbystep basis equity method effect previous periods investment held asu 201607 requires equity method investor add cost acquiring additional interest investee current basis investor’s previously held interest adopt equity method accounting date investment becomes qualified equity method accounting therefore upon qualifying equity method accounting retroactive adjustment investment required asu 201607 also requires entity availableforsale equity security becomes qualified equity method accounting recognize earnings unrealized holding gain loss accumulated comprehensive income date investment becomes qualified use equity method asu 201607 effective fiscal years beginning december 15 2016 including interim periods within fiscal years applied prospectively early adoption permitted expect adoption asu 201607 significant impact consolidated financial statements february 2016 fasb issued asu 201602 leases topic 842 asu 201602 asu 201602 requires lessees recognize leases exception shortterm leases commencement date lease liability lessee‘s obligation make lease payments arising lease measured discounted basis rightofuse asset represents lessee’s right use control use specified asset lease term asu 201602 effective fiscal years beginning december 15 2018 including interim periods within fiscal years applied modified retrospective transition approach early adoption permitted currently evaluating impact adoption asu 201602 consolidated financial statements july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory asu 201511 asu 201511 requires entity measure inscope inventory lower cost net realizable value asu 201511 effective fiscal years alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued beginning december 15 2016 interim periods within fiscal years reporting entity apply asu 201511 prospectively earlier application permitted beginning interim annual reporting period expect adoption asu 201511 significant impact consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 new topic accounting standards codification topic 606 asu 201409 sets forth new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb finalized oneyear delay effective date standard effective us january 1 2018 however early adoption permitted time original effective date us january 1 2017 yet selected transition method currently evaluating impact asu 201409 consolidated financial statements believe accounting standards recently issued expected material impact consolidated financial statements recently adopted standards september 2015 fasb issued asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments asu 201516 asu 201516 requires acquirer recognize adjustments estimated amounts identified measurement period reporting period adjustment amounts determined asu 201516 effective fiscal years beginning december 15 2015 including interim periods within fiscal years amendments applied prospectively adjustments provisional amounts occur effective date earlier application permitted financial statements issued effective january 1 2016 adopted asu 201516 adoption significant impact consolidated financial statements july 2015 fasb issued asu 201512 plan accounting defined benefit pension plans topic 960 defined contribution pension plans topic 962 health welfare benefit plans topic 965 fully benefitresponsive investment contracts ii plan investment disclosures iii measurement date practical expedient asu 201512 asu 201512 amendments 3 parts among things part amendments designate contract value required measure fully benefitresponsive investment contracts part ii amendments eliminate requirement plans disclose individual investments represent five percent net assets available benefits b net appreciation depreciation investments general type requirements participantdirected investments nonparticipantdirected investments part iii amendments provide practical expedient permit plans measure investments investmentrelated accounts eg liability pending trade broker monthend date closest plan’s fiscal yearend fiscal period coincide monthend asu 201512 parts ii effective retrospective basis part iii effective prospective basis fiscal years beginning december 15 2015 adopted asu 201512 effective january 1 2016 adoption significant impact consolidated financial statements april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs asu 201503 asu 201503 alere inc subsidiaries notes consolidated financial statements continued 5 summary significant accounting policies continued intended simplify presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts asu 201503 effective fiscal years beginning december 15 2015 interim periods within fiscal years early adoption permitted august 2015 fasb issued asu 201515 interest imputation interest subtopic 83530 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements amendments sec paragraphs pursuant staff announcement june 18 2015 eitf meeting asu 201515 asu 201515 adds authoritative guidance presentation subsequent measurement debt issuance costs related lineofcredit arrangements asu 201503 effective january 1 2016 adopted asu 201503 asu 201515 accordingly reclassified 341 million debt issuance costs noncurrent assets longterm debt net current portion balance sheet december 31 2015 august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 disclosure uncertainties entity’s ability continue going concern asu 201415 asu 201415 intended define management’s responsibility evaluate whether substantial doubt organization’s ability continue going concern provide related footnote disclosures asu 201415 effective fiscal years ending december 15 2016 interim periods within fiscal years beginning december 15 2016 early adoption permitted effective december 31 2016 adopted asu 201415 adoption asu 201415 significant impact consolidated financial statements june 2014 fasb issued asu 201412 compensation stock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period asu 201412 asu 201412 requires performance target affects vesting could achieved requisite service period treated performance condition asu 201412 effective fiscal years beginning december 15 2015 interim periods within fiscal years effective january 1 2016 adopted asu 201412 adoption asu 201412 significant impact consolidated financial statements alere inc subsidiaries notes consolidated financial statements continued 6 balance sheet information components selected captions consolidated balance sheets consist thousands alere inc subsidiaries notes consolidated financial statements continued 6 balance sheet information continued 7 business combinations business acquisitions historically made prices fair value assets acquired liabilities assumed resulting goodwill based expectations synergies benefits combining businesses synergies benefits include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales products acquired businesses use commercial infrastructure acquired businesses expand product sales costefficient manner net assets acquired recorded estimated fair value subject adjustment upon finalization fair value analysis estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time intangible assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized acquisition 2016 edts february 11 2016 acquired outstanding shares european drug testing services edts ab edts located lidingo sweden provider services related onsite drug testing aggregate purchase price approximately 65 million paid cash operating results edts included professional diagnostics reporting unit business segment consolidated statements operations 2016 included revenue totaling approximately 52 million related business goodwill recognized acquisition amounted approximately 21 million deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 7 business combinations continued summary fair values net assets acquired edts follows thousands following table provides information regarding intangible assets acquired connection edts acquisition respective fair values weightedaverage useful lives dollars thousands b acquisitions 2015 us diagnostics july 10 2015 acquired substantially assets us diagnostics inc usd located huntsville alabama provider instant onsite drug testing products designed quick accurate drug test results aggregate purchase price approximately 601 million paid cash operating results usd included professional diagnostics reporting unit business segment consolidated statements operations 2016 2015 included revenue totaling approximately 218 million 107 million respectively related business goodwill recognized acquisition amounted approximately 294 million deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 7 business combinations continued summary fair values net assets acquired usd follows thousands following intangible assets acquired connection usd acquisition respective fair values weightedaverage useful lives dollars thousands 8 goodwill intangible assets following summary goodwill intangible assets december 31 2016 dollars thousands alere inc subsidiaries notes consolidated financial statements continued 8 goodwill intangible assets continued 1 primarily includes inprocess research development assets recorded connection certain acquisitions following summary goodwill intangible assets december 31 2015 dollars thousands 1 primarily includes inprocess research development assets recorded connection certain acquisitions 2016 2015 performed annual impairment test inprocess research development assets 2016 annual impairment test indicated fair value inprocess research development assets exceeded respective carrying values assets 2015 however certain inprocess research development assets found impaired due combination suspending certain projects allow resource allocation projects considered management strategically valuable delays completing projects resulted decrease estimated future revenues expected achieved upon completion result 2015 recorded impairment charge 74 million reduce carrying values assets zero estimated fair value asset estimated useful lives individual categories intangible assets based nature applicable intangible assets expected future cash flows derived intangible assets amortization intangible assets finite lives recognized shorter respective lives underlying license agreements applicable period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortize majority intangible assets straightline basis methodology closely approximates pattern economic benefits assets amortization expense intangible assets aggregate amounted alere inc subsidiaries notes consolidated financial statements continued 8 goodwill intangible assets continued 1805 million 2105 million 2372 million 2016 2015 2014 respectively included cost net revenue research development sales marketing general administrative expenses accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2016 thousands fourth quarter perform annual impairment tests carrying value goodwill reporting unit discussion see note 5h goodwill amounts professional diagnostics consumer diagnostics nonreportable reporting segments summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments 2 reflects writeoff related dispositions bbi business alere analytics 2015 3 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2016 2015 approximately 87 million 89 million respectively costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt following longterm debt balances outstanding thousands december 31 2016 2015 respectively 1 incurred secured credit facility entered june 18 2015 2 discussed fully note 9 march 31 2016 default credit agreement governing secured credit facility credit agreement respective indentures governing 725 senior notes due 2018 725 senior notes 65 senior subordinated notes due 2020 65 senior subordinated notes 6375 senior subordinated notes due 2023 6375 senior subordinated notes 3 convertible senior subordinated notes due 2016 3 convertible senior subordinated notes result failure timely furnish holders debt annual financial statements year ended december 31 2015 ii subsequently entered amendment credit agreement solicited consents requisite holders senior notes senior subordinated notes holders 3 convertible senior subordinated notes waive certain defaults extend deadline dates filing delivery applicable annual report form 10k year ended december 31 2015 quarterly report form 10q quarter ended march 31 2016 certain related deliverables order avoid events default credit agreement indentures governing notes discussed fully note 9 august 2016 entered amendment credit agreement respect failure timely file quarterly report form 10q quarter ended june 30 2016 among things extend deadline date filing addition filed quarterly report form 10q quarter ended june 30 2016 prior time set forth indentures governing outstanding notes also default thereunder however filing quarterly report form 10q september 6 2016 cured default prior expiration applicable cure periods indentures governing notes december 31 2016 compliance obligations covenants credit agreement indentures governing outstanding notes 3 see note 30 subsequent events information regarding april 2017 may 2017 amendments credit agreement may 2017 june 2017 consent solicitations holders 725 senior notes 65 senior subordinated notes 6375 senior alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued subordinated notes result among things failure timely furnish holders debt financial statements year ended december 31 2016 quarter ended march 31 2017 4 principal amount 3 convertible senior subordinated notes included shortterm debt current portion longterm debt consolidated balance sheets december 31 2015 notes matured fully paid discharged may 2016 connection significant longterm debt issuances recorded interest expense including amortization writeoffs deferred financing costs original issue discounts accompanying consolidated statements operations 2016 2015 2014 respectively follows thousands 1 includes “a” term loans “b” term loans revolving loans 2 includes following loans prior credit facility “a” term loans including “delayeddraw” term loans “b” term loans including term loans previously referred “incremental b1” term loans “incremental b2” term loans later converted consolidated “b” term loans revolving line credit loans 3 2015 amount includes 35 million loss extinguishment debt associated prior credit facility 4 2016 2015 2014 amounts include 45 million 11 million 15 million respectively related amortization fees paid certain debt modifications following describes debt instruments listed secured credit facility june 18 2015 entered credit agreement secured credit facility certain lenders goldman sachs bank usa b term loan administrative agent general electric capital corporation pro rata administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement secured credit facility provides term loans aggregate initial principal amount 17 billion consisting “a” term loans aggregate initial principal amount 6500 million “b” term loans aggregate initial principal amount 105 billion drawn closing ii subject continued compliance terms secured credit facility 2500 million revolving line credit revolving line credit includes 500 million sublimit issuance letters credit amount drawn revolving credit facility closing alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued used approximately 168 billion proceeds term loans drawn closing repay full indebtedness outstanding prior credit facility whereupon agreement terminated pay various fees expenses associated transactions contemplated secured credit facility subject certain limits restrictions may use remaining proceeds term loans proceeds revolving credit loans proceeds incremental term loans described incremental revolving credit commitments described finance permitted acquisitions finance capital expenditures provide working capital general corporate purposes november 2015 used 1150 million net cash proceeds sale bbi business represented net proceeds closing sale prior giving effect final working capital adjustment repay 1150 million aggregate principal amount outstanding “a” term loans “b” term loans secured credit facility must repay “a” term loans nineteen consecutive quarterly installments repayments began september 30 2015 continue march 31 2020 followed final installment june 18 2020 giving effect prepayment portion “a” term loans connection sale bbi business principal amount remaining installment march 31 2020 approximately 76 million principal amount final installment approximately 4619 million must repay “b” term loans twentyseven consecutive quarterly installments repayments began september 30 2015 continue march 31 2022 followed final installment june 18 2022 giving effect prepayment portion “b” term loans connection sale bbi business principal amount remaining installment march 31 2022 approximately 24 million principal amount final installment approximately 9125 million may repay borrowings secured credit facility revolving line credit time without premium penalty customary libor breakage costs applicable event later june 18 2020 required make mandatory prepayments term loans term loans repaid revolving credit loans various amounts excess cash flow defined credit agreement commencing respect fiscal year ended december 31 2016 issue certain types debt make certain sales assets outside ordinary course business certain thresholds suffer certain property loss events certain thresholds excess cash flow 2016 therefore required make payments connection therewith 2017 may make optional prepayments term loans time without premium penalty subject payment customary libor breakage costs applicable “a” term loans borrowings revolving credit facility bear interest rate per annum option either base rate defined credit agreement plus applicable margin 200 ii eurodollar rate defined credit agreement plus applicable margin 300 “b” term loans bear interest rate per annum option either base rate plus applicable margin 200 225 depending consolidated secured net leverage ratio ii eurodollar rate plus applicable margin 300 325 depending consolidated secured net leverage ratio base eurodollar rate subject 100 floor respect “b” term loans based rate required pay fee unused portion revolving credit facility rate per annum equal 050 december 31 alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued 2016 “a” term loans “b” term loans bore interest 377 425 respectively december 31 2016 1250 million outstanding revolving line credit secured credit facility april august 2016 amendments secured credit facility april 22 2016 requisite lenders credit agreement entered amendment credit agreement april 2016 amendment pursuant april 2016 amendment requisite lenders agreed waive certain defaults events defaults defined credit agreement may occurred occurring occur resulting among things x failure deliver administrative agents defined credit agreement financial statements certain related deliverables year ended december 31 2015 applicable deadline credit agreement restatement certain financial statements result incorrect application revenue recognition principles years ended december 31 2013 2014 2015 z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part audit financial statements year ended december 31 2015 extent breach due incorrect application revenue recognition principles years ended december 31 2013 2014 2015 ii extend deadlines delivery financial statements year ended december 31 2015 financial statements quarter ended march 31 2016 certain related deliverables terms amendment required deliver unaudited financial statements three months ended march 31 2016 certain related deliverables august 18 2016 made required deliveries date connection amendment paid among fees expenses consent fees consenting lenders aggregate amount 45 million amendment deemed debt modification therefore payments capitalized amortized interest expense remaining term debt amendment also increased applicable interest rate margins loans outstanding secured credit facility 025 per annum period july 1 2016 date delivery financial reports related deliverables secured credit facility august 18 2016 requisite lenders credit agreement entered amendment credit agreement pursuant requisite lenders agreed waive certain defaults events defaults defined credit agreement may occurred occurring occur resulting among things failure deliver administrative agents defined credit agreement x financial statements certain related deliverables three months ended march 31 2016 refer q1 financial reports applicable deadline credit agreement financial statements certain related deliverables three months ended june 30 2016 refer q2 financial reports applicable deadline credit agreement ii extend deadline delivery q1 financial reports august 25 2016 deadline delivery q2 financial reports september 13 2016 delivered q1 financial reports q2 financial reports prior deadlines set forth amendment credit agreement connection amendment paid among fees expenses consent fees consenting lenders aggregate amount 22 million amendment deemed debt modification therefore payments capitalized amortized interest expense remaining term debt alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued see note 30 information regarding april 2017 may 2017 amendments credit agreement result failure timely furnish lenders annual financial statements year ended december 31 2016 quarter ended march 31 2017 december 31 2016 accrued interest related secured credit facility amounted 06 million subject pro forma compliance certain financial tests certain terms conditions set forth credit agreement may request time lenders credit agreement andor financial institutions become lenders thereunder make incremental term loans provide incremental revolving credit commitments credit agreement addition committed credit facilities described subject obtaining agreement relevant new existing lenders case may credit agreement also includes certain provisions allow us add one new term loan facilities new revolving credit facilities order refinance portion term loans revolving credit commitments ii certain “amend extend” provisions allow us extend maturity date term loans revolving credit commitments make related changes terms relevant loans subject case obtaining agreement relevant new existing lenders case may must comply various financial nonfinancial covenants terms secured credit facility set forth credit agreement primary financial covenant security credit facility maximum consolidated secured net leverage ratio applicable “a” term loans revolving credit loans nonfinancial covenants subject certain important exceptions qualifications lenders secured credit facility entitled accelerate repayment loans terminate revolving credit commitments thereunder upon occurrence various events default described credit agreement merger amended merger agreement described note 3 consummated constitute event default credit agreement borrowings secured credit facility guaranteed substantially domestic subsidiaries unrestricted subsidiaries domestic subsidiaries certain foreign subsidiaries secured stock substantially domestic subsidiaries unrestricted subsidiaries domestic subsidiaries certain foreign subsidiaries portions stock certain foreign subsidiaries substantially guarantor subsidiaries’ property assets case subject various exceptions december 31 2016 aggregate borrowings secured credit facility amounted 16 billion consisting “a” term loans aggregate outstanding principal amount 5447 million giving effect installment repayment due date amount reflects original issue discounts debt issuance costs related indebtedness “b” term loans aggregate outstanding principal amount 9527 million giving effect installment repayment due date amount reflects original issue discounts debt issuance costs related indebtedness revolving loans aggregate outstanding principal amount 1250 million december 31 2016 compliance maximum consolidated secured net leverage ratio secured credit facility alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued b prior credit facility connection entry secured credit facility june 18 2015 repaid full outstanding indebtedness terminated prior senior credit agreement prior credit facility dated june 30 2011 amended time certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements aggregate outstanding principal amount loans repaid prior credit facility connection termination thereof approximately 165 billion assessed repayment lenderbylender basis order differentiate portion constituting extinguishment portion constituting modification unamortized deferred financing fees relating extinguished portion prior credit facility debt expensed portion relating modifications prior credit facility debt carried forward amortized contractual life new secured credit facility c 6375 senior subordinated notes june 24 2015 sold total 4250 million aggregate principal amount 6375 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 6375 senior subordinated notes initial offering price 100 net proceeds offering amounted 4173 million net initial purchasers’ discount offering expenses totaling approximately 77 million 6375 senior subordinated notes issued supplemental indenture dated june 24 2015 6375 indenture 6375 senior subordinated notes accrue interest rate 6375 per annum interest 6375 senior subordinated notes payable semiannually january 1 july 1 year beginning january 1 2016 6375 senior subordinated notes mature july 1 2023 unless earlier redeemed may option redeem 6375 senior subordinated notes whole part time may july 1 2018 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4781 twelve months july 1 2018 3188 twelve months july 1 2019 1594 twelve months july 1 2020 zero july 1 2021 addition time may prior july 1 2018 may option redeem 35 aggregate principal amount 6375 senior subordinated notes money raise certain qualifying equity offerings long pay 106375 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 6375 senior subordinated notes within 90 days completing equity offering iii least 65 aggregate principal amount 6375 senior subordinated notes remains outstanding afterwards addition time may prior july 1 2018 may option redeem 6375 senior subordinated notes paying principal amount 6375 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 6375 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued purchase merger amended merger agreement described note 3 consummated constitute change control 6375 indenture restricted subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 6375 senior subordinated notes pro rata basis respect 6375 senior subordinated notes 65 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price 6375 senior subordinated notes would 100 principal amount plus accrued unpaid interest 6375 indenture provides restricted subsidiaries must comply various covenants subject certain important exceptions qualifications set forth 6375 indenture time 6375 senior subordinated notes rated investment grade certain covenants suspended respect 6375 indenture contains events default entitling trustee holders requisite percentage aggregate outstanding principal amount 6375 senior subordinated notes declare amounts owed pursuant 6375 senior subordinated notes immediately payable event default occurs 6375 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment existing future senior subordinated debt including 65 senior subordinated notes obligations 6375 senior subordinated notes 6375 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt equal right payment existing future senior subordinated debt see note 29 guarantor financial information may 2016 waivers respect senior notes senior subordinated notes april 29 2016 commenced consent solicitations relating 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes refer collectively notes consent solicitations made holders record notes april 28 2016 solicitations completed may 9 2016 pursuant consent solicitations requisite holders series notes agreed extend deadline delivery certain financial information waive 500 pm new york city time august 31 2016 default event default occurred continuing may occur indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k fiscal year ended december 31 2015 subsequent quarterly reports form 10q failures file connection failures file paid may july 2016 holder notes validly delivered consent aggregate cash payments equal 1500 1000 aggregate principal amount holder’s notes aggregate 192 million waivers deemed debt modification therefore alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued payments capitalized amortized interest expense remaining term debt december 31 2016 accrued interest related 6375 senior subordinated notes amounted 135 million see note 30 information regarding may 2017 june 2017 consent solicitations made holders 6375 senior subordinated notes relating failure timely furnish holders notes annual report form 10k quarterly report form 10q quarter ended march 31 2017 725 senior notes december 11 2012 sold total 4500 million aggregate principal amount 725 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 725 senior notes initial offering price 100 net proceeds offering amounted 4432 million net underwriters’ commissions offering expenses totaling 68 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act used 2674 million net proceeds purchase 2482 million outstanding principal amount former 7875 senior notes due 2016 7875 senior notes 1700 million pay portion outstanding balance revolving line credit prior credit facility 725 senior notes issued supplemental indenture dated august 11 2009 amended supplemented 725 indenture 725 senior notes accrue interest rate 725 per annum interest 725 senior notes payable semiannually june 15 december 15 beginning june 15 2013 725 senior notes mature july 1 2018 unless earlier redeemed upon maturity required pay principal amount 450 million plus accrued unpaid interest management expects acquisition alere abbott pursuant terms amended merger agreement take place prior maturity date july 1 2018 expectation correct holders 725 senior notes rights set forth connection transaction set forth following paragraph event transactions contemplated amended merger agreement close expect would able pay principal accrued interest one combination following refinancing indebtedness done past using available cash resources utilizing amounts available revolving credit facility change control occurs subject specified conditions must give holders 725 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase merger amended merger agreement described note 3 consummated constitute change control 725 indenture may redeem 725 senior notes whole part time paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 1813 six months december 15 2016 zero june 15 2017 subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 725 senior notes equal alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued excess net cash proceeds subject certain exceptions purchase price notes would 100 principal amount plus accrued unpaid interest 725 indenture provides subsidiaries must comply various customary covenants subject certain important exceptions qualifications set forth 725 indenture time 725 senior notes rated investment grade certain covenants suspended respect 725 indenture contains customary events default entitling trustee holders requisite percentage aggregate outstanding principal amount 725 senior notes declare amounts owed pursuant 725 senior notes immediately payable event default occurs 725 senior notes senior unsecured obligations senior right payment existing future subordinated debt including 6375 senior subordinated notes 65 senior subordinated notes equal right payment existing future senior debt including borrowings secured credit facility obligations 725 senior notes 725 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt senior right payment existing future subordinated debt see note 29 guarantor financial information december 31 2016 accrued interest related 725 senior notes amounted 14 million see note 30 information regarding may 2017 june 2017 consent solicitations made holders 725 senior notes relating failure timely furnish holders notes annual report form 10k quarterly report form 10q quarter ended march 31 2017 e 65 senior subordinated notes may 2013 sold total 4250 million aggregate principal amount 65 senior subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states sold 65 senior subordinated notes initial offering price 100 net proceeds offering amounted 4177 million net underwriters’ commissions offering expenses totaling approximately 73 million notes subsequently exchanged new notes substantially terms exchange offer registered securities act may 2013 used 2006 million net proceeds sale 65 senior subordinated notes purchase 1906 million outstanding principal amount former 9 senior subordinated notes 9 senior subordinated notes june 2013 redeemed remaining 2094 million outstanding principal amount 9 senior subordinated notes 65 senior subordinated notes issued supplemental indenture dated may 24 2013 65 indenture 65 senior subordinated notes accrue interest rate 65 per annum interest 65 senior subordinated notes payable semiannually june 15 december 15 beginning december 15 2013 65 senior subordinated notes mature june 15 2020 unless earlier redeemed alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued may option redeem 65 senior subordinated notes whole part time may june 15 2016 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3250 twelve months june 15 2016 1625 twelve months june 15 2017 zero june 15 2018 addition time may prior june 15 2016 may option redeem 35 aggregate principal amount 65 senior subordinated notes money raise certain equity offerings long pay 1065 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem 65 senior subordinated notes within 90 days completing equity offering iii least 65 aggregate principal amount 65 senior subordinated notes remains outstanding afterwards addition time may prior june 15 2016 may option redeem 65 senior subordinated notes paying principal amount 65 senior subordinated notes redeemed plus makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 65 senior subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase merger amended merger agreement described note 3 consummated constitute change control 65 indenture subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior indebtedness make offer purchase principal amount 65 senior subordinated notes pro rata basis respect 65 senior subordinated notes 6375 senior subordinated notes equal excess net cash proceeds subject certain exceptions purchase price 65 senior subordinated notes would 100 principal amount plus accrued unpaid interest 65 indenture provides subsidiaries must comply various customary covenants subject certain important exceptions qualifications set forth 65 indenture time 65 senior subordinated notes rated investment grade certain covenants suspended respect 65 indenture contains customary events default entitling trustee holders requisite percentage aggregate outstanding principal amount 65 senior subordinated notes declare amounts owed pursuant 65 senior subordinated notes immediately payable event default occurs 65 senior subordinated notes senior subordinated unsecured obligations subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 6375 senior subordinated notes obligations 65 senior subordinated notes 65 indenture fully unconditionally guaranteed jointly severally senior subordinated unsecured basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt equal right payment existing future senior subordinated debt see note 29 guarantor financial information december 31 2016 accrued interest related 65 senior subordinated notes amounted 12 million alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued see note 30 information regarding may 2017 june 2017 consent solicitations made holders 65 senior subordinated notes relating failure timely furnish holders notes annual report form 10k quarterly report form 10q quarter ended march 31 2017 f 8625 senior subordinated notes june 24 2015 issued notice optional redemption holders 8625 senior subordinated notes due 2018 8625 senior subordinated notes october 1 2015 redemption date would redeem entire principal amount 8625 senior subordinated notes outstanding redemption price equal 102156 principal amount 8625 senior subordinated notes redeemed plus accrued unpaid interest april 1 2015 excluding redemption date upon terms set forth notice optional redemption transferred amount equal net proceeds received 6375 notes 4173 million plus additional cash 86 million total 4259 million irrevocable trust used fund redemption 8625 senior subordinated notes october 1 2015 redeemed entire 4000 million aggregate principal amount 8625 senior subordinated notes october 1 2015 upon settlement redemption date satisfied discharged obligations respect 8625 senior subordinated notes connection redemption notes incurred extinguishment costs amount 199 million included 199 million 86 million related call premium g 3 convertible senior subordinated notes may 14 2007 sold total 1500 million aggregate principal amount 3 convertible senior subordinated notes 3 convertible senior subordinated notes matured may 15 2016 based price common stock date paid 1520 million cash consisting 1250 million cash drawn revolving credit facility plus 270 million available cash pay outstanding principal accrued interest owing notes thereupon satisfied discharged obligations respect notes repayment maturity interest accrued 3 per annum outstanding principal amount 3 convertible senior subordinated notes payable arrears may 15th november 15th year repayment maturity 3 convertible senior subordinated notes unsecured subordinated right payment existing future senior debt including borrowings secured credit facility 725 senior notes equal right payment 65 senior subordinated notes 6375 senior subordinated notes h lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit december 31 2016 approximately 98 million 11 million borrowed outstanding date debt september 2015 alere switzerland gmbh entered secured credit facility hong kong shanghai banking corporation limited singapore branch hsbc principal amount 400 million facility fully drawn maturity 2 years facility ultimately secured local currency cash deposited subsidiary alere shanghai medical sales co ltd affiliate hsbc china interest rate equal applicable libor rate plus margin 08 included debt december 31 2016 borrowings certain subsidiaries various financial institutions borrowed funds primarily used fund capital expenditures working capital requirements interest expense borrowings 27 million 2016 alere inc subsidiaries notes consolidated financial statements continued 9 longterm debt continued j maturities longterm debt following summary maturities longterm debt including current portions thereof outstanding december 31 2016 thousands 10 fair value measurements fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 3 unobservable inputs supported little market activity significant fair value assets liabilities following tables present information assets liabilities measured fair value recurring basis december 31 2016 2015 indicates fair value hierarchy valuation techniques utilized determine fair value thousands alere inc subsidiaries notes consolidated financial statements continued 10 fair value measurements continued 1 determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market significant increases decreases inputs could result significantly higher lower fair value measurement changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations within general administrative expenses see note 13 additional information valuation contingent consideration obligations changes fair value level 3 contingent consideration obligations years ended december 31 2016 2015 follows thousands december 31 2016 2015 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt including current portion 29 billion december 31 2016 carrying amount estimated fair value longterm debt including current portion 31 billion 30 billion respectively december 31 2015 estimated fair value longterm debt determined using information derived available market sources level 2 fair value hierarchy including openmarket trades market quotes observed near year end may representative actual values could realized future alere inc subsidiaries notes consolidated financial statements continued 11 capital leases following schedule future minimum lease payments capital leases december 31 2016 thousands december 31 2016 2015 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 12 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 58 million 58 million 92 million 2016 2015 2014 respectively b uk pension plans subsidiary england unipath ltd unipath defined benefit pension plan established certain employees frozen december 31 2016 alere inc subsidiaries notes consolidated financial statements continued 12 postretirement benefit plans continued changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2016 2015 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown longterm liabilities 44 million 30 million respectively december 31 2016 2015 included change projected benefit obligation actuarial loss 54 million gain 06 million years ended december 31 2016 2015 respectively december 31 2016 amortization actuarial gainloss expected approximately 05 million 2017 following represents amounts recognized comprehensive loss related unipath defined benefit pension plan years ended december 31 2016 2015 thousands december 31 2016 amortization prior service cost expected approximately 02 million 2017 alere inc subsidiaries notes consolidated financial statements continued 12 postretirement benefit plans continued amounts recognized accumulated comprehensive loss december 31 2016 2015 follows measurement dates used determine plan assets benefit obligations defined benefit plan december 31 2016 2015 following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2016 2015 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning presented year actuarial assumptions reviewed annual basis base discount rate rates return available highquality bonds maturities approximating expected period benefits paid overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities calculated using weightedaverage expected returns asset class held plan longterm expected return assets net investment expenses annual net periodic benefit costs defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2016 stocks fixed income securities represented 72 28 respectively market value pension assets expect contribute alere inc subsidiaries notes consolidated financial statements continued 12 postretirement benefit plans continued approximately £06 million 07 million december 31 2016 defined benefit plan 2017 expect benefits paid plan participants range approximately 02 million 03 million per year next five years benefits totaling 04 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds fair values pension plan assets december 31 2016 2015 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy 13 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2028 following schedule outlines future minimum annual rental payments leases december 31 2016 thousands rent expense relating operating leases approximately 416 million 418 million 484 million 2016 2015 2014 respectively alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued b acquisitionrelated contingent consideration obligations contractual contingent purchase price consideration obligations related certain acquisitions determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving certain performance targets including product development milestones financial metrics fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted earnout payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations within general administrative expenses increases decreases fair values contingent consideration obligations may result among things changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria time entered amendments modify provisions governing contingent consideration obligations amendments resulted changes fair value obligations may future enter additional amendments may also result changes fair values following table summarizes contractual contingent purchase price consideration obligations related certain acquisitions thousands 1 terms acquisition agreement require us pay earnouts upon successfully meeting certain revenue product development targets 2025 2 terms acquisition agreement require us pay earnouts management incentive payments upon successfully meeting certain product development united states food drug administration regulatory approval milestones date acquisition december 31 2018 3 maximum earnout period ends fifteenth anniversary acquisition date c legal proceedings litigation abbott laboratories entering original merger agreement abbott informed alere serious concerns among things accuracy various representations warranties covenants made alere original merger agreement abbott indicated concerns alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued related delay filing alere’s annual report form 10k fiscal year ended december 31 2015 well governmental investigations previously announced alere abbott requested information alere matters citing contractual rights receive information original merger agreement initial meeting abbott expressed concerns alere part discussion potential paths forward abbott requested alere agree terminate original merger agreement return payment abbott alere range 30 50 million respect alere’s transaction expenses alere’s board directors promptly rejected request discussions abbott affirmed commitment abide obligations original merger agreement august 25 2016 alere filed complaint abbott delaware chancery court filed accompanying motion expedite proceedings asking delaware chancery court require abbott specifically perform obligations respect obtaining antitrust approvals required original merger agreement september 29 2016 delaware chancery court entered order among things adopted detailed schedule setting forth actions required taken specified dates order obtain antitrust clearances required original merger agreement november 3 2016 abbott filed complaint alere delaware chancery court asserting claim alere breach contract alere’s alleged refusal provide abbott certain information original merger agreement february 1 2017 alere filed motion dismiss abbott’s november 3 complaint december 7 2016 abbott filed complaint subsequently amended various actions consolidated delaware chancery court seeking declaration alere experienced material adverse effect term defined original merger agreement abbott could terminate original merger agreement february 1 2017 abbott filed answer complaint alere filed august 25 2016 alere filed answer abbott’s amended complaint well counterclaims abbott alere’s counterclaims requested declaratory judgment among things material adverse effect term defined original merger agreement ii abbott breached parties’ original merger agreement breached implied covenant good faith fair dealing settlement agreement relating amended merger agreement concurrently execution merger agreement amendment alere abbott entered settlement agreement settlement agreement settlement agreement released claims arising related merger resolved parties’ litigation pending delaware chancery court settlement agreement provided reciprocal releases except potential antitrust claims alere extent relate developments august 25 2016 would released parties obtain consents regulatory clearances necessary closing abbott’s potential claims based information excluded definition material adverse effect amended merger agreement also released finally settlement agreement provided dismissal delaware litigation prejudice exception nonreleased antitrust claims dismissed without prejudice alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued arriva medical billing number arriva medical durable medical equipment dme supply business furnishes diabetic testing supplies via mail order including blood glucose monitors test strips lancets lancing devices control solutions well related medical supplies united states products generally covered medicare medicaid thirdparty payers competition medicarereimbursed diabetes testing supplies represents majority arriva medical business changed significantly 2013 result implementation cms competitive bidding process limit number eligible suppliers fees may reimbursed based recent bidding process estimate cms currently reimburses approximately ten suppliers agreed accept contractual reimbursement rate mailorder diabetic testing supplies period july 2016 december 2018 substantially lower established fee schedule products arriva medical one approximately ten suppliers awarded national mailorder contract suppliers awarded contracts unable reimbursed medicare mailorder diabetic testing supplies october 12 2016 arriva medical received notice dated october 5 2016 medicare enrollment would revoked cms based cms’ assertion fiveyear period approximately 57 million medicare claims made one million unique beneficiaries arriva allegedly submitted claims 211 medicare beneficiaries deceased date products shipped even products appropriately ordered advance patient’s death arriva medical’s initial appeal determination denied cms arriva’s medicare enrollment revoked effective november 4 2016 pending outcome appeals arriva medical conducted investigation issue believe received retained medicare reimbursement dme items issue 211 medicare beneficiaries addition cms subsequently provided notice arriva medical’s competitive bidding contract would terminated result revocation enrollment december 27 2016 arriva medical filed appeal administrative law judge alj hearing seeking permanently reinstate arriva’s medicare enrollment status retroactive november 4 2016 revocation date april 25 2017 alj upheld cms’s revocation arriva medical’s medicare enrollment arriva medical intends proceed administrative appeals process appealing alj decision department appeals board december 28 2016 arriva medical also filed complaint federal district court district columbia requesting temporary restraining order tro preliminary injunction pi prohibit cms terminating arriva medical’s competitive bidding contract requesting court require cms reinstate arriva’s medicare billing status due process could provided form completion administrative appeals process prescribed regulation conjunction case january 4 2017 cms agreed counsel would revoke competitive bidding contract administrative appeals process underway mooted request tro march 9 2017 federal district court district columbia denied pi prohibit cms terminating arriva medical’s competitive bidding contract also denied cms’s motion dismiss arriva medical’s complaint april 17 2017 court issued order dismissing arriva medical’s complaint unable time determine outcome pending legal matters related arriva medical’s billing number alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued us securities exchange commission subpoena august 28 2015 received subpoena sec indicated conducting formal investigation alere sec’s subpoena relates among things previously filed restatement revision financial statements including accounting deferred taxes discontinued operations well tax strategies policies ii sales practices dealings third parties including distributors foreign government officials africa relating sales government entities january 14 2016 received second subpoena sec connection formal investigation seeking among things additional information related sales products services endusers africa well revenue recognition relating sales products services endusers africa also received time requests connection investigation voluntarily produce additional information sec including information pertaining certain countries asia latin america well additional information revenue recognition matters revisions financial statements referenced annual report form 10k fiscal year ended december 31 2015 cooperating sec provided documents response subpoenas voluntary requests made witnesses available interviewed sec unable predict matter resolved action sec may take connection department justice grand jury subpoena march 11 2016 received grand jury subpoena united states department justice requiring production documents relating among things sales practices dealings third parties including distributors foreign governmental officials africa asia latin america matters related us foreign corrupt practices act cooperating department justice provided information response subpoena unable predict matter resolved action department justice may take connection securities class actions april 21 2016 may 4 2016 two class action lawsuits captioned godinez v alere inc breton v alere inc respectively filed us united states district court district massachusetts actions purport assert claims us certain current former officers alleged violations section 10b section 20a exchange act rule 10b5 exchange act july 11 2016 court entered order consolidating two actions appointing lead plaintiffs lead counsel lead plaintiffs filed supplemental amended consolidated class action complaint january 4 2017 seeking represent proposed class persons purchased otherwise acquired common stock period may 28 2015 december 7 2016 complaint seeks damages allegedly caused alleged materially misleading statements andor material omissions us officers regarding subsidiaries’ business prospects operations allegedly operated inflate artificially price paid common stock class period complaint seeks unspecified compensatory damages including interest thereon attorneys’ fees costs filed motion dismiss amended complaint february 6 2017 court scheduled oral argument motion june 27 2017 alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued november 14 2016 class action lawsuit captioned khalid v alere inc filed us united states district court southern district florida suit asserts claims us certain current former officers alleged violations section 10b section 20a exchange act rule 10b5 exchange act arising cms’s revocation medicare billing rights arriva medical december 30 2016 securities class action suit transferred united states district court district massachusetts january 9 2017 plaintiff filed notice voluntary dismissal without prejudice unable time determine outcome class action lawsuits potential liability matters relating san diego facility october 9 2012 received warning letter fda referencing inspectional observations set forth form fda 483 received june 2012 observations result inspection san diego facility conducted earlier 2012 relating alere triage products resulted two recalls certain alere triage products revised release specifications alere triage meterbased products september 2014 follow inspection san diego facility fda notified us inspection classified “voluntary action indicated” meaning objectionable conditions practices found inspection meet threshold significance requiring regulatory action formal closeout october 2012 warning letter could occur future inspection may 2012 also received subpoena office inspector general department health human services oig seeking documents relating primarily quality control testing performance characteristics alere triage products cooperating government responding investigation ongoing engaged discussions government matter including resolution potential related false claims act common law liability exposure products review result discussions management accrued december 31 2016 aggregate 350 million potential liability claims related matter amount included general administrative expenses consolidated statements operations year ended december 31 2016 would need obtain certain approvals could agree proposed resolution assurance future discussions government resolve matters successful approvals need obtained potential settlement agreed finalized unable predict matters resolved action government take connection based ongoing uncertainties potentially wide range outcomes associated potential resolution matter investigation oig ultimate amount potential liability may materially exceed 350 million accrual established inratio class actions may 26 2016 class action lawsuit captioned dina andren sidney bludman v alere inc et al filed us united states district court southern district california class action purports assert claims us several legal theories including fraud breach warranty unjust enrichment violation applicable unfair competitionbusiness practice statutes connection manufacturing marketing sale inratio products plaintiffs seek represent proposed class persons purchased rented otherwise paid inratio alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued system period january 1 2009 may 26 2016 united states alternatively california maryland new york colorado florida georgia pennsylvania plaintiffs seek restitution damages allegedly resulting inaccurate ptinr readings purchase devices claimants say would purchased known alleged propensity devices yield inaccurate ptinr results among things plaintiffs seek refund money spent inratio products unspecified compensatory damages injunctive relief attorneys’ fees costs several state classes also seek statutory penalties plaintiffs state seek recovery personal injury unable time determine outcome class action lawsuits potential liability another class action lawsuit captioned je jd others similarly situated v alere inc alere san diego inc alere home monitoring inc filed us united states district court district massachusetts july 22 2016 may 2017 prior class certification proceedings parties agreed dismiss lawsuit agreed pay plaintiffs counsel plaintiffs immaterial amount connection dismissal claims ordinary course matters also party certain legal proceedings governmental investigations requested provide information connection proceedings investigations example december 2014 subsidiary avee laboratories inc avee received subpoenas united states attorney district new jersey seeking marketing materials documents relating primarily billing marketing practices related toxicology testing addition received us department justice criminal subpoena addressed alere toxicology services inc july 1 2016 seeks records related medicare medicaid tricare billings dating back 2010 specific patient samples tested austin texas pain management laboratory payments made physicians cooperating investigations providing documents response subpoenas subsidiary arriva medical llc also process responding civil investigative demands cids united states attorney’s office middle district tennessee us department justice connection investigation possible improper claims submitted medicare medicaid recent cids related matter received may 2017 cids request patient insurance billing medical records related interactions third parties correspondence related communications customers terms sale diabetic products dating back january 2010 unrelated matter january 2017 subsidiary alere home monitoring inc offers home selftesting anticoagulation monitoring vad services products received cid united states attorney’s office district massachusetts january 2017 cid covers similar subject matter letter request department justice civil division dating back june 2015 broad scope understood primarily focused obtaining records information alere home monitoring inc’s billing practices policies relating frequency ptinr selftesting prescribed performed since 2006 addition march 2017 alere home monitoring inc received second letter request department justice civil division seeking additional information regarding billing frequencies ptinr selftesting beyond original scope june 2015 request cooperating various unrelated investigations providing documents information responsive cids letter requests cannot predict effect investigations resulting claims could us subsidiaries alere inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies continued received time additional subpoenas requests information united states department justice federal government agencies state attorneys general cases cooperated applicable governmental entity responding applicable subpoena request information example may 2016 received subpoena us attorney district new jersey seeks various documents related accuracy reliability performance inratio system including documents relating prior interactions fda others regarding system diabetes toxicology patient selftesting businesses subject audit claims reimbursement brought ordinary course private thirdparty payers including health insurers zone program integrity contractors zpics medicare administrative contractors macs monitor compliance coverage reimbursement rules guidelines types audits claims include limited claims relating proper documentation support claims relating medical necessity certain testing billing practices accord applicable rules guidelines lead assertions determinations certain claims longer paid private thirdparty payer medicare medicaid cases payer program may seek recoup offset amounts assert paid error businesses may also subject time commercial disputes product liability claims personal injury claims including claims arising relating product recalls negligence claims thirdparty subpoenas various lawsuits arising ordinary course business including infringement employment investor matters disputes regarding payment contingent consideration obligations expect continue case future example several individuals filed suits us alleging personal injury claims connection use inratio products addition class action suits described addition former shareholders ionian technologies inc filed lawsuit us may 2017 alleging among things owed 30 million earnout payments agreement pursuant acquired ionian technologies lawsuits claims generally seek damages reimbursement sometimes substantial amounts possible unfavorable outcomes related litigation governmental investigations could materially impact business results operations financial condition cash flows alere inc subsidiaries notes consolidated financial statements continued 14 net income loss per common share following tables set forth computation basic diluted net income loss per common share thousands except per share amounts following potential dilutive securities included calculation diluted net income loss per common share continuing operations inclusion thereof would antidilutive thousands alere inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity common stock december 31 2016 2000 million shares common stock 0001 par value authorized 77 million shares held treasury 871 million shares outstanding 115 million shares reserved issuance upon grant exercise vesting equity awards current equity compensation plans 17 million shares reserved issuance employee stock purchase plan december 31 2016 also shares common stock reserved issuance upon conversion 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7097 million convertible certain circumstances 6932 per share 102 million shares common stock b preferred stock december 31 2016 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2016 18 million shares series b preferred stock outstanding fair value approximately 5906 million share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2016 would convert 102 million shares common stock reserved december 31 2016 154 shares series b preferred stock converted 888 shares common stock generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance years ended december 31 2016 2015 2014 series b alere inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued preferred stock dividends amounted 213 million 213 million 213 million respectively reduced earnings available common stockholders purposes calculating net loss per common share 2016 2015 2014 note 14 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2016 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows issuance 161 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards restricted stock units unrestricted stock awards performance share awards dividend equivalent rights awards granted april 23 2015 2010 plan generally provides automatic vesting acceleration options automatic removal conditions restrictions restricted stock awards restricted stock units performance share awards upon change control defined 2010 plan awards granted april 23 2015 2010 plan generally provides acceleration either provision made assumption continuation substitution awards upon change control ii provision made assumption continuation substitution awards upon change control within one year change control terminate award recipient’s employment without cause defined 2010 plan award recipient terminates employment good reason defined 2010 plan case director service director terminated reason december 31 2016 2015 2014 61 million 79 million 28 million shares respectively available future grant 2010 plan 2001 adopted 2001 employee stock purchase plan espp eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every sixmonth offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 50 million shares common stock plan alere inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued merger agreement including amended merger agreement amendment longer espp offering periods following january 2016 offering december 31 2016 33 million shares issued espp following summarizes stock option activity year ended december 31 2016 thousands except exercise price aggregate intrinsic value stock options exercised 2016 2015 2014 50 million 314 million 149 million respectively december 31 2016 352 million unrecognized compensation cost related outstanding stock options costs expected recognized weightedaverage period 117 years following summarizes restricted stock unit activity year ended december 31 2016 thousands except grant date fair value alere inc subsidiaries notes consolidated financial statements continued 15 stockholders’ equity continued fair values restricted stock units rsus based market value stock date grant weightedaverage grant date fair value rsus granted 2016 2015 2014 5203 2804 3599 respectively aggregate intrinsic value rsus december 31 2016 550 million weightedaverage remaining contractual term 104 years aggregate intrinsic value rsus expected vest december 31 2016 510 million weightedaverage remaining vesting period 103 years december 31 2016 497 million unrecognized compensation cost related rsus expected recognized weightedaverage remaining vesting period 103 years following summarizes stock appreciation rights sars activity year ended december 31 2016 thousands total cash paid settlement sars exercised 2016 2015 2014 08 million 11 million 09 million respectively recorded liability accounting december 31 2016 2015 2014 accrual related sars 19 million 20 million 24 million respectively recorded longterm liabilities 16 stockbased compensation recorded stockbased compensation expense consolidated statements operations years ended december 31 2016 2015 2014 respectively follows thousands connection departure three senior executives june 2014 recorded reversal stockbased compensation expense amount 56 million second quarter 2014 relating termination stock option awards following resignations 56 million reversal 22 million recorded research development 34 million general administrative alere inc subsidiaries notes consolidated financial statements continued 16 stockbased compensation continued excess tax benefits exercise stock options vesting rsu’s reported financing cash flows consolidated statements cash flows years ended december 31 2016 2015 excess tax benefits generated year ended 2014 excess tax benefits generated option exercises vesting rsu’s amounted 10 million following assumptions used estimate fair value options granted years ended december 31 2016 2015 2014 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted 2016 2015 2014 1166 1501 1405 per share respectively options granted periods granted fair market value date grant year ended december 31 2016 recorded compensation expense 15 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 36 riskfree interest rate 049 expected life 181 days 2016 charge included employee’s respective cost classification table year ended december 31 2015 recorded compensation expense 19 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 30 29 riskfree interest rate 011 013 expected life 181 days 184 days two respective offering periods 2015 charge included employees’ respective cost classification table year ended december 31 2014 recorded compensation expense 26 million related espp included table fair value option component espp shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 32 riskfree interest rate 009 006 expected life 181 days 184 days two respective offering periods 2014 charge included employees’ respective cost classification table alere inc subsidiaries notes consolidated financial statements continued 17 accumulated comprehensive loss accumulated comprehensive loss consisted following thousands 1 represents unrealized gains losses availableforsale securities hedging instruments 18 income taxes income loss provision benefit income taxes consists following thousands continuing operations excluding equity earnings unconsolidated entities alere inc subsidiaries notes consolidated financial statements continued 18 income taxes continued primary temporary differences give rise deferred tax assets liabilities net operating losses nols capital loss carryforwards tax credit carryforwards nondeductible reserves accruals differences basis tangible intangible assets income tax effects temporary differences follows thousands 1 addition impact restatement also corrected table reported amounts deferred tax assets nol capital loss carryforwards valuation allowance correct error previously reported deferred tax assets nol capital loss carryforwards 221728 total valuation allowance 262223 amounts reduced 13916 correct error adjustment impact consolidated balance sheet results operations period presented november 2015 fasb issued accounting standards update 201517 asu 201517 “balance sheet classification deferred taxes” simplifies presentation deferred income taxes asu requires deferred tax assets liabilities classified noncurrent statement financial position early adopted asu effective december 31 2015 prospective basis adoption asu resulted reclassification net current deferred tax assets liabilities net noncurrent deferred tax assets liabilities consolidated balance sheet december 31 2015 prior periods retrospectively adjusted alere inc subsidiaries notes consolidated financial statements continued 18 income taxes continued december 31 2016 gross tax effected federal state foreign net operating loss carryforwards approximately 1739 million 609 million 10328 million 701 million 5056 million 815 million respectively utilized portion federal state foreign net operating loss carryforwards begin expire 2020 2017 respectively certain foreign net operating loss carryforwards carried forward indefinitely december 31 2016 gross tax effected federal state foreign capital loss carryforwards approximately 2233 million 782 million 2233 million 112 million 51 million 11 million respectively utilized portion federal capital loss carryforwards begin expire 2017 addition substantially foreign capital loss carryforwards carried forward indefinitely december 31 2016 63 million us federal research development credit carryforward 216 million state research development credit carryforward 79 million us federal alternative minimum tax “amt” credit carryforwards 939 million us foreign tax credit carryforwards 11 million foreign tax credit carryforwards utilized portion us federal research development credit us foreign tax credit begin expire 2026 2018 respectively 216 million state research development credit 68 million generated california carried forward indefinitely us federal amt credit also carried forward indefinitely us federal loss carryforwards credits subject limitations imposed section 382 383 internal revenue code may limited event certain cumulative changes ownership interests significant shareholders threeyear period excess 50 sections 382 383 impose annual limitation use loss carryforwards credits amount equal value company time certain ownership changes multiplied longterm tax exempt rate additionally certain state foreign losses credits may subject similar limitations based local provisions loss tax credit carryforwards may available reduce future us federal state foreign taxable income taxes subject review possible adjustment appropriate tax authorities utilized accounting guidance income taxes provides future realization deferred tax assets depends existence sufficient taxable income future periods possible sources taxable income include taxable income carryback periods future reversal existing taxable temporary differences recorded deferred tax liability taxplanning strategies projected future taxable income based upon available evidence positive negative likely 50 percent likely deferred tax assets realized valuation allowance recorded significant weight given positive negative evidence objectively verifiable company’s threeyear cumulative loss position significant negative evidence considering whether deferred tax assets realizable accounting guidance places less weight projected taxable income support recovery deferred tax assets extent establish increase valuation allowance period must include expense within income tax provision december 31 2016 recorded valuation allowance 3233 million due uncertainties related future benefits realization deferred tax assets related primarily us federal state net deferred tax assets well foreign tax attribute carryforwards increase 750 million valuation allowance 2483 million december 31 2015 due us cumulative losses period ended december 31 2016 first quarter us gaap basis threeyear cumulative us book loss specifically alere inc subsidiaries notes consolidated financial statements continued 18 income taxes continued established valuation allowance recorded expense within income tax provision 604 million us federal state net deferred tax assets due cumulative losses remaining 146 million valuation allowance increase relates foreign deferred tax assets particularly foreign attribute carryforwards reaching conclusion reviewed available evidence positive negative determining need valuation allowance event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact income tax provision estimated amount undistributed earnings foreign subsidiaries 5505 million december 31 2016 aside 28 million foreign withholding taxes previously provided certain undistributed earnings amounts us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings would subject us income foreign withholding taxes potentially would offset us foreign tax credits determination amount tax liability would incurred practicable complexities associated hypothetical calculation following table presents components provision benefit income taxes thousands continuing operations addition impact restatement also reclassified 15 million provision 29 million provision 2015 2014 respectively current federal provision current foreign provision correct error classification alere inc subsidiaries notes consolidated financial statements continued 18 income taxes continued following table presents reconciliation us statutory tax rate effective tax rate continuing operations excluding equity earnings unconsolidated subsidiaries provision income taxes increased 890 million 354 million expense 2016 536 million benefit 2015 effective tax rate 2016 23 compared tax rate 62 2015 increase provision income taxes 2015 2016 primarily related changes jurisdictional mix income loss increase valuation allowance particularly related us federal state net deferred tax assets tax impact contingent consideration income primary components 2016 provision income taxes related foreign income taxes increase valuation allowance relating us net deferred tax assets increase reserves uncertain tax positions partially offset us federal state income tax benefits primary components 2015 benefit income taxes related us federal state income tax benefits operating losses tax impact contingent consideration income recognized tax purposes certain returntoprovision adjustments impact rate 2014 2016 relating contingent consideration due fair value accounting used contingent consideration stock acquisitions corresponding inside tax basis tax purposes change valuation allowances primarily relates establishment valuation allowance us federal state net deferred tax assets well foreign attribute carryforwards likely tax attributes realized december 2015 congress signed law protecting americans tax hikes act retroactively extended us federal research development credit january 1 2015 alere inc subsidiaries notes consolidated financial statements continued 18 income taxes continued december 31 2015 permanently extended credit going forward result recognized retroactive benefit 2015 us federal research development credit approximately 21 million discrete item fourth quarter 2015 period legislation enacted year ended december 31 2016 increased gross unrecognized tax benefits uncertain tax positions excluding interest penalties 106 million total 1314 million primary reason increase relates potential taxability certain income certain foreign jurisdictions reconciliation beginning ending amount gross unrecognized tax benefits uncertain tax positions excluding interest penalties follows thousands included balance unrecognized tax benefits december 31 2016 738 million tax benefits recognized would affect effective tax rate believe reasonably possible approximately 97 million net unrecognized tax benefits excluding interest penalties may recognized december 31 2017 result expiration relevant statutes limitations interest penalties related income tax liabilities included income tax expense total net amount interest penalties recorded 2016 2015 2014 29 million 14 million 11 million respectively total net amount accrued interest penalties recorded consolidated balance sheet december 31 2016 2015 2014 66 million 37 million 23 million respectively us federal statute limitations remains open tax years 2013 present us state statute limitations varies state generally remains open tax years 2011 present foreign statute limitations varies 2010 present also us federal state foreign attribute carryforwards prior years may still adjusted upon examination tax authorities used open year currently income tax examination irs number state foreign tax authorities cannot currently estimate impact audits due uncertainties associated tax examinations management expect material changes tax positions result ongoing audits alere inc subsidiaries notes consolidated financial statements continued 19 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management operating segments currently professional diagnostics ii consumer diagnostics iii nonreportable corporate segment consists primarily corporate expenses assets used assessing operating segment performance necessary reconcile operating segments’ performance consolidated results january 2015 sold health management business result sale health management business largest component former patient selftesting reporting segment well certain transactions 2015 component patient selftesting reporting segment retained alere home monitoring business therefore annual report form 10k fiscal year ended december 31 2015 reported financial information two operating segments professional diagnostics ii consumer diagnostics alere home monitoring reported component professional diagnostics segment due nature operations alere home monitoring manner business conducted annual report form 10k report alere home monitoring business separate operating segment heading “other nonreportable segment” alere home monitoring distributes ptinr coagulation monitors facilitates distribution equipment supplies power control customers’ implanted ventricular assist devices vads well telemonitoring services allows vad coordinators monitor patients soon discharge receive alerts critical patient values fall outside preestablished ranges information provided annual report form 10k retroactively adjusted reflect change operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement evaluate performance operating segments based revenue operating income loss segment information 2016 2015 2014 december 31 2016 2015 follows thousands alere inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued following tables summarize net revenue professional diagnostics reporting segment groups similar products services 2016 2015 2014 thousands following tables summarize net revenue segments geographic area 2016 2015 2014 respectively longlived tangible assets geographic area december 31 2016 2015 respectively thousands alere inc subsidiaries notes consolidated financial statements continued 19 financial information segment continued 1 includes among many others following countries china india japan south korea brazil canada uganda nigeria 1 includes among many others following countries south korea germany norway canada brazil 20 arrangements september 2014 entered contract us department health human services’ biomedical advanced research development authority barda develop diagnostic countermeasures pandemic influenza terms contract barda provide 129 million us support development rapid molecular lowcost influenza diagnostic device pcrlike performance point care project designed help support future preparedness medical response influenza pandemic funding barda subject successful completion various interim feasibility development milestones defined agreement december 31 2016 2015 incurred 45 million 34 million respectively qualified expenditures contract received cash reimbursement barda amount 36 million 27 million respectively 09 million 07 million recorded receivable december 31 2016 2015 reimbursements qualified expenditures contract recorded reduction related qualified research development expenditures february 2013 entered agreement bill melinda gates foundation gates foundation whereby awarded grant gates foundation amount 216 million support development commercialization validated lowcost nucleicacid assays cartridges clinical tuberculosis tb detection drugresistance testing adaptation analyzer platform capable operation rudimentary laboratories lowresource settings connection agreement also entered loan agreement gates foundation gates loan agreement provided making subordinated term loans gates foundation us time subject achievement certain milestones aggregate principal amount 206 million april 2016 gates foundation agreed mutually terminate grant loan agreement therefore additional grants advances available loan agreement borrowed amounts gates loan agreement prior mutual termination december 31 2015 received approximately 197 million grantrelated funding gates foundation grant funds recorded upon receipt restricted cash deferred grant funding deferred grant funding classified within accrued expenses current liabilities accompanying consolidated balance sheet qualified expenditures incurred terms grant alere inc subsidiaries notes consolidated financial statements continued 20 arrangements continued used deferred funding recognize reduction related qualified research development expenditures years ended december 31 2015 2014 incurred approximately 39 million 95 million respectively qualified expenditures reduced deferred grant funding balance recorded offset research development expenses amounts remaining restricted cash deferred grant funding december 31 2015 december 31 2016 addition february 2013 grant discussed also awarded several smaller grants gates foundation aggregate amount approximately 35 million support elimination malaria incurred qualifying expenses totaling approximately 13 million 05 million twelve months ended december 31 2016 2015 respectively december 2016 received 08 million funding associated grants december 31 2016 13 million grants recorded restricted cash 12 million recorded deferred grant funding consolidated balance sheet 21 related party transactions divestiture acs companies october 10 2014 completed sale acs acquisition llc “purchaser” pursuant terms membership interest purchase agreement purchaser sumit nagpal connection sale acs june 2015 also sold subsidiary wellogic fz llc “wellogic” together acs “acs companies” purchaser see note 4 mr nagpal director wellogic served chief executive officer director acs resignation september 2 2014 mr nagpal also owner method factory inc company sold business assets acs alere 2011 sold wellogic us 2012 b spd joint venture may 2007 completed formation spd swiss precision diagnostics gmbh spd 5050 joint venture procter gamble pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiometabolic diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting net payable spd 37 million december 31 2016 12 million december 31 2015 37 million net payable balance december 31 2016 net receivable approximately 12 million costs incurred connection 2008 spdrelated restructuring plans 12 million net payable balance december 31 2015 net receivable approximately 15 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 61 million 89 million december 31 2016 2015 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned formation joint venture classified receivables within prepaid current alere inc subsidiaries notes consolidated financial statements continued 21 related party transactions continued assets consolidated balance sheets amounts 75 million 78 million december 31 2016 2015 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 787 million 771 million 832 million years ended december 31 2016 2015 2014 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 10 million 11 million 13 million years ended december 31 2016 2015 2014 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities china spd turn sells portion tests back us final assembly packaging packaged portion tests sold pg distribution thirdparty customers north america defer profit products sold spd products sold customer result related transactions recorded 79 million 99 million trade receivables included accounts receivable consolidated balance sheets december 31 2016 2015 respectively 342 million 236 million trade accounts payable included accounts payable consolidated balance sheets december 31 2016 2015 respectively 2016 2015 received 136 million 234 million respectively cash spd distribution earnings included cash flows investing activities consolidated statements cash flows following table summarizes related party balances spd within consolidated balance sheets thousands previously disclosed spd currently involved civil litigation brought competitor united states respect advertising one spd’s products united states district court issued injunction respect sales advertising product determined spd violated certain laws respect advertising product spd’s appeal decision unsuccessful competitor’s request damages pending district court trial date set june 2017 earliest addition class action lawsuit filed spd pg united states district court central district california alleging violations certain laws connection sales advertising one spd’s products claims based similar grounds described august 19 2016 class action lawsuit dismissed prejudice plaintiffs appealed district court’s decision march 2017 voluntarily dismissed class action suit may additional lawsuits spd us relating matter future ultimate resolution matters including amount damages may required paid known time potential impact pending litigation future litigation may spd us including whether resolution damages imposed court would material adverse impact spd ultimately virtue 50 interest spd financial position results operations alere inc subsidiaries notes consolidated financial statements continued 21 related party transactions continued c entrustment loan arrangement spd shanghai subsidiary alere shanghai diagnostics co ltd alere shanghai spd’s subsidiary spd trading shanghai co ltd spd shanghai entered entrustment loan arrangement maximum cny 230 million approximately 33 million december 31 2016 order finance latter’s shortterm working capital needs royal bank scotland china co ltd shanghai branch rbs agreement governs setting entrustment loan account rbs alere shanghai deposits certain monies restricted cash account provides guarantee rbs amounts borrowed rbs spd shanghai alere shanghai rbs account recorded restricted cash balance sheet amounted 33 million december 31 2016 techlab september 16 2016 sold 49 interest techlab inc company provides diagnostic testing products used physicians health care customers diagnose treat monitor intestinal diseases medical conditions prior sale accounted interest techlab equity method investment alere served distributor techlab products prior september 16 2016 sale remain principal global distributor techlab products pursuant terms distribution agreement techlab trade payables owed techlab 14 million 32 million december 31 2016 2015 respectively made product purchases techlab 299 million 271 million 248 million years ended december 31 2016 2015 2014 respectively result september 16 2016 sale interest techlab recorded gain equity earnings unconsolidated entities 299 million associated tax effect 112 million recorded provision income taxes 22 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 22 valuation qualifying accounts continued established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands established valuation allowance deferred tax assets based weight available positive negative evidence including estimates future income jurisdictions operate period deferred tax assets recoverable following table sets forth activities deferred tax accounts thousands 23 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2016 2015 2014 thousands 2016 restructuring plans 2016 management developed worldwide cost reduction plans reduce costs improve operational efficiencies within professional diagnostics corporate business segments primarily impacting manufacturing supply chain research development groups well closing certain business locations europe united states following alere inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued table summarizes restructuring activities related 2016 restructuring plans year ended december 31 2016 thousands anticipate incurring approximately 17 million additional costs 2016 restructuring plans related professional diagnostics business segment anticipate incurring 27 million additional costs existing 2016 restructuring plans relating corporate business segment december 31 2016 76 million severance transition costs arising 2016 restructuring plans remain unpaid b restructuring plans prior 2016 2014 management developed worldwide cost reduction plans reduce costs improve operational efficiencies within professional diagnostics corporate business segments primarily impacting global sales marketing information technology research development groups well closing certain business locations europe asia 2013 management developed cost reduction plans impacting businesses united states europe asia pacific regions 2011 management developed plans consolidate operating activities among certain united states european asia pacific subsidiaries including transferring manufacturing panbio products australia standard diagnostics facility south korea eliminating redundant costs among axisshield subsidiaries additionally 2008 management developed initiated plans transition cholestech business san diego california facility plans 2008 2013 impacted professional diagnostics business segment alere inc subsidiaries notes consolidated financial statements continued 23 restructuring activities continued following table summarizes restructuring activities related active restructuring plans prior 2016 years ended december 31 2016 2015 2014 since inception restructuring plans thousands anticipate incurring approximately 21 million additional costs plans related professional diagnostics business segment primarily related closure manufacturing facility israel december 31 2016 33 million cash charges remain unpaid primarily related severance costs facility lease obligations c restructuring reserves following table summarizes restructuring reserves related plans described 106 million included accrued expenses current liabilities 03 million included longterm liabilities consolidated balance sheets thousands alere inc subsidiaries notes consolidated financial statements continued 24 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following spd recorded earnings 190 million 143 million 162 million years ended december 31 2016 2015 2014 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented 50 share spd’s net income respective periods elimination intercompany profit inventory related sales alere spd reflected spd’s net income received dividends 136 million 2016 b techlab recorded earnings 18 million 15 million 16 million years ended december 31 2016 2015 2014 respectively equity earnings unconsolidated entities net tax consolidated statements operations represented minority share techlab’s net income respective periods september 16 2016 completed sale 49 interest techlab business connection sale recorded gain equity earnings unconsolidated entities 299 million summarized financial information spd techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets alere inc subsidiaries notes consolidated financial statements continued 24 equity investments continued dividends received cash return capital equity investments included cash flows investing activities consolidated statements cash flows periods presented 25 assets held sale alere esanté january 2016 completed sale alere esanté business component professional diagnostics reporting unit business segment received cash consideration approximately 81 million net final working capital adjustment totaling approximately 02 million eligible receive 15 million contingent cash consideration result transaction recorded 38 million gain year ended december 31 2016 disposition alere esanté business december 31 2015 segregated classified 42 million various assets associated esanté business including 32 million allocated goodwill assets held sale current 04 million various liabilities related assets held sale current consolidated balance sheet b sale techlab equity method investment december 31 2015 continued meet held sale criteria respect 49 investment techlab accordingly classified investment techlab value approximately 133 million assets held sale noncurrent consolidated balance sheet december 31 2015 see note 24b september 16 2016 completed sale 49 interest techlab business connection sale recorded gain equity earnings unconsolidated entities 299 million 26 impairment gain loss dispositions net january 2016 completed sale alere esanté business component professional diagnostics reporting unit business segment received cash consideration approximately 81 million net final working capital adjustment totaling approximately 02 million eligible receive 15 million contingent cash consideration result transaction recorded 38 million gain 2016 disposition alere esanté business november 2015 completed sale bbi business received cash consideration approximately 1064 million net final working capital adjustment eligible receive contingent consideration payments 466 million upon achievement certain milestone net assets disposed connection disposition bbi business valued aggregate 665 million value allocated goodwill 492 million aggregate value net assets goodwill disposed transaction exceeded closing cash consideration recorded 93 million loss 2015 disposition bbi business july 2015 sold certain assets inverness medical innovations australia pty ltd business part professional diagnostics reporting unit business segment aud 02 million approximately 01 million date disposition cash proceeds result transaction recorded loss 12 million 2015 alere inc subsidiaries notes consolidated financial statements continued 26 impairment gain loss dispositions net continued may 2015 sold alere analytics business part professional diagnostics reporting segment terms sale received nominal consideration agreed contribute working capital 27 million alere analytics 24 million contributed cash immediately prior closing sale remaining 03 million deposited escrow pending performance buyers certain contracts result transaction recorded loss 36 million 2015 identifying buyer alere analytics management decided close business connection decision recorded impairment charge 267 million period including writeoff 262 million acquisitionrelated intangible assets 05 million fixed assets march 2015 sold certain assets adnagen gmbh business part professional diagnostics reporting unit business segment approximately 46 million cash proceeds result transaction recorded loss 03 million 2015 march 2015 sold gesellschaft fur patientenhilfe dgp gmbh subsidiary part professional diagnostics reporting unit business segment  76 million approximately 82 million march 31 2015 result transaction recorded loss disposition 75 million 2015 recorded additional charges approximately 08 million connection certain business closures divestitures 2015 december 2014 management decided close alere connect llc subsidiary located scottsdale arizona connection decision recorded impairment charge 108 million 2015 connection decision recorded impairment charges 11 million consisting primarily severance costs inventory writeoffs closurerelated expenses november 2014 sold bionote former owner company also chief executive officer owned us received cash consideration krw 480 billion approximately 432 million date disposition resulting gain disposition 65 million october 2014 sold subsidiary mologic ltd located united kingdom former owners company also members management owned us consideration received nominal resulting loss disposition 28 million financial results businesses immaterial consolidated financial results 27 supplemental cash flow information cash paid interest income taxes 2016 2015 2014 made cash payments interest totaling 1577 million 1676 million 1921 million respectively 2016 2015 2014 total net cash paid income taxes 709 million 552 million 588 million respectively alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited information set forth first three quarters yeartodate periods fiscal year 2016 quarters yeartodate periods fiscal year 2015 restated correct misstatements described note 2 addition also made adjustments related misstatements classification certain amounts current assets noncurrent assets current liabilities b misstatements classification certain legalrelated charges nonoperating expenses operating expenses c misstatements general administrative expenses correct timing bad debt expenses fair value adjustments related contingent consideration liabilities acquisitions operating results given quarter necessarily indicative results future periods amounts computed independently quarter therefore sum quarterly amounts may equal total amount respective year due rounding following tables reconcile amounts previously reported applicable financial statement corresponding restated amounts financial statements unaudited alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter except adjustments increase general administrative expenses comprised 1700 adjustment increase bad debt expense b 4400 adjustment additional expense related correction measurement acquisitionrelated contingent consideration obligation c 13153 reclassification adjustment reclassify certain legalrelated charges income expense net general administrative expenses alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter except adjustments increase general administrative expenses comprised 4400 adjustment additional expense related correction measurement acquisitionrelated contingent consideration obligation b 23353 reclassification adjustment reclassify certain legalrelated charges income expense net general administrative expenses alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter except adjustments increase general administrative expenses comprised 1700 adjustment decrease bad debt expense b 10200 reclassification adjustment reclassify certain legalrelated charges income expense net general administrative expenses alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter except adjustments increase general administrative expenses comprised 1700 adjustment decrease bad debt expense b 10200 reclassification adjustment reclassify certain legalrelated charges income expense net general administrative expenses alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter except adjustment increase general administrative expenses due 4586 reclassification adjustment reclassify certain legalrelated charges income expense net general administrative expenses alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 figures presented column represent amounts recently presented quarterly report form 10q period ended september 30 2016 connection presentation form 10q amounts revised figures presented earlier quarterly report form 10q period ended september 30 2015 due significantly 1724 adjustment increase revenue 1087 adjustment decrease income 8712 adjustment decrease benefit income taxes overall impact 7882 adjustment decrease net income identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 figures presented column represent amounts recently presented quarterly report form 10q period ended september 30 2016 connection presentation form 10q amounts revised figures presented earlier quarterly report form 10q period ended september 30 2015 due 678 adjustment increase revenue 1971 adjustment increase cost revenue operating expenses 3249 adjustment decrease income 7633 adjustment decrease benefit income taxes overall impact 12175 adjustment decrease net income identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 figures presented column represent amounts recently presented quarterly report form 10q period ended june 30 2016 connection presentation form 10q amounts revised figures presented earlier quarterly report form 10q period ended june 30 2015 due 5785 adjustment decrease revenue 545 adjustment decrease cost revenue 1200 adjustment increase operating expenses 1065 adjustment decrease income 2012 adjustment decrease provision income taxes overall impact 5493 adjustment decrease net income identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 figures presented column represent amounts recently presented quarterly report form 10q period ended june 30 2016 connection presentation form 10q amounts revised figures presented earlier quarterly report form 10q period ended june 30 2015 due 1046 adjustment decrease revenue 2164 adjustment increase cost revenue operating expenses 2162 adjustment decrease income 1079 adjustment decrease provision income taxes overall impact 4293 adjustment decrease net income identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated statements operations thousands except per share amounts unaudited 1 figures presented column represent amounts recently presented quarterly report form 10q period ended march 31 2016 connection presentation form 10q amounts revised figures presented earlier quarterly report form 10q period ended march 31 2015 due 4739 adjustment increase revenue 1509 adjustment increase cost revenue 1097 adjustment increase expense 933 adjustment decrease benefit income taxes overall impact 1200 adjustment increase net income identified preparation annual report form 10k 2015 2 adjustments column relate misstatements associated standard diagnostics revenue recognition matter alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities except 39443 classification adjustment noncurrent assets current assets current liabilities 4400 adjustment longterm liabilities adjustments relate correction classification related prepaid income tax balance increase liability related correction measurement acquisitionrelated contingent consideration obligation september 30 2016 respectively alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities except 37983 classification adjustment noncurrent assets current assets current liabilities adjustment relates correction classification related prepaid income tax balance alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities except 37740 classification adjustment noncurrent assets current assets current liabilities adjustment relates correction classification related prepaid income tax balance alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 described note 5w resulted reclassification 43644 debt issuance costs noncurrent assets longterm debt net current portion 2 amounts presented column revised figures presented earlier quarterly report form 10q period ended september 30 2015 due significantly decrease 13116 accounts receivable increase 11553 inventory increase 13095 deferred tax assets increase 10215 accrued expenses increase 19525 deferred tax liabilities decrease 13345 longterm liabilities identified preparation annual report form 10k 2015 3 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 described note 5w resulted reclassification 45889 debt issuance costs noncurrent assets longterm debt net current portion 2 amounts presented column revised figures presented earlier quarterly report form 10q period ended june 30 2015 due significantly decrease 14459 accounts receivable increase 11311 inventory increase 13095 deferred tax assets increase 5828 accrued expenses increase 15807 deferred tax liabilities decrease 14662 longterm liabilities identified preparation annual report form 10k 2015 3 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities alere inc subsidiaries notes consolidated financial statements continued 28 restated quarterly financial information unaudited continued alere inc subsidiaries consolidated balance sheet thousands except par value unaudited 1 adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 described note 5w resulted reclassification 36425 debt issuance costs noncurrent assets longterm debt net current portion 2 amounts presented column revised figures presented earlier quarterly report form 10q period ended march 31 2015 due significantly decrease 10135 accounts receivable increase 10720 inventory increase 13095 deferred tax assets increase 3668 accrued expenses increase 16254 deferred tax liabilities decrease 14662 longterm liabilities identified preparation annual report form 10k 2015 3 adjustments column relate misstatements associated standard diagnostics revenue recognition matter consequential impact inventory accounts receivable accrued liabilities alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information 725 senior notes 65 senior subordinated notes 6375 senior subordinated notes guaranteed redemption october 1 2015 8625 senior subordinated notes guaranteed certain consolidated 100 owned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2016 2015 related statements operations statements comprehensive loss cash flows three years period ended december 31 2016 respectively alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties discussed note 5w effective january 1 2016 adopted asu 201503 asu 201515 accordingly reclassified 341 million debt issuance costs noncurrent assets longterm debt net current portion balance sheet december 31 2015 comparative purposes certain amounts prior periods reclassified conform current period classification prior periods presented basis consistent current period giving retrospective effect impact discontinued operations restating consolidated financial statements december 31 2015 years ended december 31 2015 2014 quarterly yeartodate periods 2015 first three quarterly yeartodate periods 2016 information restatement see note 2 adjustments guarantor consolidating statements cash flows impact previously reported net cash flows operating activities investing activities financing activities result net impact net change cash equivalents previously reported periods certain corrections classifications within operating cash flow section impacted restatement following schedules reconcile amounts previously reported guarantor financial information consolidating financial statements corresponding restated amounts alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 figures presented column represent amounts presented originally 2015 annual report form 10k adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 33866 debt issuance costs noncurrent assets longterm debt net current portion within issuer financial statements december 31 2015 2 figures presented column represent amounts recently presented quarterly report form 10q period ended september 30 2016 connection presentation form 10q amounts revised figures presented earlier annual report form 10k 2015 due 52410 adjustment increase current deferred tax assets 616637 adjustment increase current intercompany receivable 105298 adjustment increase noncurrent deferred tax assets 616637 adjustment increase current liabilities 157708 adjustment increase deferred tax liabilities identified preparation quarterly report form 10q period ended september 30 2016 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts revised figures presented earlier annual report form 10ka 2014 due 8535 adjustment increase benefit income taxes 4261 adjustment decrease equity earnings unconsolidated subsidiaries net tax overall impact 4274 adjustment decrease loss continuing operations within issuer financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 figures presented column represent amounts presented originally annual report form 10k 2015 adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 184 debt issuance costs noncurrent assets alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued longterm debt net current portion within nonguarantor subsidiaries financial statements december 31 2015 2 figures presented column represent amounts recently presented quarterly report form 10q period ended september 30 2016 connection presentation form 10q amounts revised figures presented earlier annual report form 10k 2015 due 23244 adjustment decrease current deferred tax assets 23244 adjustment increase noncurrent deferred tax assets 92350 adjustment decrease current liabilities 92350 adjustment increase current intercompany payable within nonguarantor subsidiaries financial statements identified preparation quarterly report form 10q period ended september 30 2016 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts revised figures presented earlier annual report form 10ka 2014 due significantly 15805 adjustment decrease revenue 7237 adjustment decrease cost revenue 1201 adjustment decrease operating expenses 2729 adjustment decrease provision income taxes overall impact 4638 adjustment decrease income continuing operations within nonguarantor subsidiaries financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 figures presented column represent amounts recently presented quarterly report form 10q period ended september 30 2016 connection presentation form 10q amounts revised figures presented earlier annual report form 10k 2015 due 2120 adjustment increase current deferred tax assets 616637 adjustment decrease current intercompany receivable 128556 adjustment decrease noncurrent deferred tax assets 616637 adjustment decrease current intercompany payable 126436 adjustment decrease deferred tax liabilities within eliminations financial statements identified preparation quarterly report form 10q period ended september 30 2016 1 figures presented column represent amounts recently presented annual report form 10k 2015 connection presentation form 10k amounts revised figures presented earlier annual report form 10ka 2014 due 4261 adjustment increase equity earnings unconsolidated subsidiaries net tax overall impact 4261 adjustment decrease loss continuing operations within eliminations financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued following schedules reconcile amounts previously reported guarantor financial information quarterly consolidating financial statements corresponding revised amounts unaudited alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 amounts presented column revised figures presented quarterly report form 10q period ended september 30 2015 due significantly 15348 adjustment increase current deferred tax assets 472009 adjustment increase current intercompany receivables 25760 adjustment decrease investments subsidiaries 461815 adjustment increase accrued expenses 16257 adjustment increase deferred tax liabilities 13344 adjustment decrease longterm liabilities identified preparation annual report form 10k 2015 figures also adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 43431 debt issuance costs noncurrent assets longterm debt net current portion within issuer financial statements september 30 2015 1 amounts presented column revised figures presented quarterly report form 10q period ended june 30 2015 due significantly 15347 adjustment increase current deferred tax assets 17876 adjustment decrease investments subsidiaries 9944 adjustment decrease accrued expenses 17323 adjustment increase deferred tax liabilities decrease 14662 longterm liabilities alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued within issuer financial statements identified preparation annual report form 10k 2015 figures also adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 45889 debt issuance costs noncurrent assets longterm debt net current portion within issuer financial statements june 30 2015 1 amounts presented column revised figures presented quarterly report form 10q period ended march 31 2015 due significantly 15347 adjustment increase current deferred tax assets 12384 adjustment decrease investments subsidiaries 9944 adjustment decrease accrued expenses 17324 adjustment increase deferred tax liabilities 14662 adjustment decrease longterm liabilities 7994 adjustment increase equity identified preparation annual report form 10k 2015 figures also adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 36425 debt issuance costs noncurrent assets longterm debt net current portion within issuer financial statements march 31 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 amounts presented column revised figures presented quarterly report form 10q period ended september 30 2015 due significantly 10764 adjustment decrease accounts receivable 10866 adjustment increase inventory 25228 adjustment increase current intercompany receivables 43907 adjustment increase accrued expenses 19096 adjustment decrease equity within nonguarantor subsidiaries financial statements identified preparation annual report form 10k 2015 figures also adjusted retrospectively impact adoption asu 201503 asu 201515 first quarter 2016 discussed note 5w resulted reclassification 213 debt issuance costs noncurrent assets longterm debt net current portion within nonguarantor subsidiaries financial statements september 30 2015 1 amounts presented column revised figures presented quarterly report form 10q period ended june 30 2015 due significantly 11082 adjustment decrease accounts receivable 10371 adjustment increase inventory 15130 adjustment increase accrued expenses 16314 adjustment decrease equity within nonguarantor subsidiaries financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 amounts presented column revised figures presented quarterly report form 10q period ended march 31 2015 due significantly 7769 adjustment decrease accounts receivable 9765 adjustment increase inventory 14035 adjustment increase accrued expenses 12463 adjustment decrease equity within nonguarantor subsidiaries financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued 1 amounts presented column revised figures presented quarterly report form 10q period ended september 30 2015 due significantly 497237 adjustment decrease current intercompany receivables 25760 adjustment alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued increase investments subsidiaries 494784 adjustment decrease intercompany payables 25760 adjustment increase equity within eliminations financial statements identified preparation annual report form 10k 2015 1 amounts reported column revised figures presented quarterly report form 10q period ended june 30 2015 due significantly 17876 adjustment increase investments subsidiaries 17876 adjustment increase equity within eliminations financial statements identified preparation 2015 annual report form 10k 1 amounts presented column revised figures presented quarterly report form 10q period ended march 31 2015 due significantly 12384 adjustment increase investments subsidiaries 12384 adjustment increase equity within eliminations financial statements identified preparation annual report form 10k 2015 alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement operations year ended december 31 2016 thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement operations year ended december 31 2015 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement operations year ended december 31 2014 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2016 thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement comprehensive income year ended december 31 2015 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement comprehensive income loss year ended december 31 2014 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating balance sheet december 31 2016 thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating balance sheet december 31 2015 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement cash flows year ended december 31 2016 thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement cash flows year ended december 31 2015 restated thousands alere inc subsidiaries notes consolidated financial statements continued 29 guarantor financial information continued consolidating statement cash flows year ended december 31 2014 restated thousands alere inc subsidiaries notes consolidated financial statements continued 30 subsequent events april 2017 amendment credit facility april 24 2017 entered third amendment credit agreement secured credit facility dated june 18 2015 among company several lenders time party thereto administrative agents defined credit agreement certain agents arrangers pursuant third amendment lenders credit agreement agreed waive certain defaults events defaults defined credit agreement may occurred occurring may hereafter occur resulting among things x failure deliver administrative agents defined credit agreement financial statements related deliverables fiscal year ended december 31 2016 applicable deadline credit agreement restatement revision adjustment certain financial statements result review described current report form 8k filed sec april 17 2017 april 8k result incorrect recognition revenue transactions korean japanese locations certain fiscal periods set forth third amendment z breach representation affirmative covenant result certain deliverables incorrect delivered breach discovered part review described april 8k extent breach due incorrect recognition revenue transactions korean japanese locations certain fiscal periods set forth third amendment ii extend deadlines delivery financial statements fiscal year ended december 31 2016 certain related deliverables financial reports described connection third amendment agreed pay among fees expenses lender approved third amendment consent fee 0125 sum aggregate principal amount lender’s term loans defined credit agreement outstanding effective date third amendment ii lender’s revolving credit commitment defined credit agreement effect effective date third amendment incurred approximately 33 million fees expenses associated third amendment may 2017 consent solicitation notes may 1 2017 commenced consent solicitations relating notes may 4 2017 made certain modifications consent solicitations reflected herein solicited consents holders series notes extend deadline delivery certain financial information waive 500 pm new york city time june 15 2017 default event default occurred continuing may occur indentures notes issued consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures annual report form 10k fiscal year ended december 31 2016 fiscal year 2016 failure file annual report form 10k 2016 failed obtain waivers requested pursuant consent solicitations case may 16 2017 respect 725 senior notes ii may 19 2017 respect 65 senior subordinated notes iii june 2 2017 respect 6375 subordinated notes event default would arisen respective series notes among remedies available noteholders would right accelerate payment obligations upon notice relevant trustees holders 25 applicable notes subject terms conditions consent solicitations set forth consent solicitation statement dated may 1 2017 supplemented offered pay holder notes april 28 2017 cash payment equal 1750 1000 principal amount holder’s notes consent fee respect holder alere inc subsidiaries notes consolidated financial statements continued 30 subsequent events continued validly delivered validly revoke consent prior 500 pm new york city time may 5 2017 time date expiration date provided received accepted requisite consents series notes time prior 930 new york city time may 8 2017 filed sec annual report form 10k terminated consent solicitations would pay holder series notes delivered revoke valid duly executed consent prior expiration date cash payment lieu consent fee equal 1000 principal amount notes holder delivered consent termination fee may 8 2017 successfully completed solicitation connection completion paid consent fee consenting holders aggregate amount approximately 23 million may 2017 amendment credit facility may 30 2017 entered fourth amendment credit agreement pursuant lenders credit agreement agreed waive certain defaults events defaults defined credit agreement may occurred occurring hereafter occur resulting among things x failure deliver administrative agents defined credit agreement financial statements related deliverables fiscal year ended december 31 2016 fiscal quarter ended march 31 2017 case applicable deadlines credit agreement restatement revision adjustment certain financial statements result company’s review described current report form 8k filed sec may 22 2017 may 8k result incorrect recognition revenue transactions certain fiscal periods set forth amendment z breach representation affirmative covenant result certain deliverables incorrect delivered discovered part review described may 8k extent breach due incorrect recognition revenue transactions certain fiscal periods set forth amendment ii extend deadlines delivery financial statements related deliverables fiscal year ended december 31 2016 earlier july 15 2017 b date three business days prior earliest date giving effect applicable cure periods waivers types extensions event default would arise indentures 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes result failure timely deliver financial statements iii extend deadlines delivery financial statements related deliverables fiscal quarter ended march 31 2017 earliest date ten business days delivery financial statements fiscal year ended december 31 2016 b date three business days prior earliest date giving effect applicable cure periods waivers types extensions event default would arise indentures 65 senior subordinated notes 6375 senior subordinated notes 725 senior notes result failure timely deliver financial statements fiscal quarter ended march 31 2017 c july 28 2017 connection amendment agreed pay among fees expenses lenders approved amendment consent fee 025 sum lender’s aggregate principal amount term loans outstanding ii revolving credit commitment defined credit agreement delivered financial statements fiscal year ended december 31 2016 certain related deliverables prior deadline set forth amendment alere inc subsidiaries notes consolidated financial statements continued 30 subsequent events continued june 2017 consent solicitation notes june 1 2017 commenced consent solicitations relating series notes solicited consents holders series notes extend deadline delivery certain financial information waive case 500 pm new york city time august 4 2017 time date “first waiver date” ii 500 pm new york city time september 5 2017 time date “second waiver date” uncured immediately prior first waiver date iii 500 pm new york city time october 4 2017 time date “third waiver date” uncured immediately prior second waiver date default event default occurred continuing may occur indentures consequences connection failure timely file sec timely furnish relevant trustees pursuant indentures 2016 form 10k “fiscal year 2016 failure file” 2017 first quarter form 10q “first quarter 2017 failure file” together fiscal year 2016 failure file “failures file” file annual report form 10k 2016 june 15 2017 event default would arisen respective series notes among remedies available noteholders would right accelerate payment obligations upon notice relevant trustee holders 25 applicable notes subject terms conditions consent solicitations set forth consent solicitation statement dated june 1 2017 provided receive accept requisite consents series notes offering pay holder notes 500 pm new york city time may 31 2017 1 cash payment promptly following expiration date defined equal 2000 1000 principal amount 6375 notes holder delivered consent “6375 notes first consent fee” 1500 1000 principal amount 6500 notes holder delivered consent “6500 notes first consent fee” 1250 1000 principal amount 7250 notes holder delivered consent “7250 notes first consent fee” together 6375 notes first consent fee 6500 notes first consent fee “first consent fees” “first consent fee” 2 default event default remains uncured immediately prior first waiver date connection failures file additional cash payment prior first waiver date respect series notes “second consent fee” equal 500 1000 principal amount notes 3 default event default remains uncured immediately prior second waiver date connection failures file additional cash payment prior second waiver date respect series notes “third consent fee” equal 750 1000 principal amount notes case respect holder validly delivers validly revoke consent prior 500 pm new york city time june 7 2017 time date amended extended otherwise modified “expiration date” provided received accepted requisite consents series notesitem 15 exhibits financial statement schedules reports form 8k a1 financial statements financial statements listed filed part report pages indicated 2financial statement schedules provision made applicable accounting regulation securities exchange commission required related instructions inapplicable omitted 3exhibits 21 sale agreement dated december 20 2001 inverness medical innovations inc company unilever uk holdings limited incorporated reference exhibit 21 companys current report form 8k dated december 20 2001 22 amended restated agreement plan merger made entered december 21 2001 amended restated january 22 2002 among company nutritionals acquisition corporation ivc industries inc ivc incorporated reference exhibit 21 companys current report form 8k dated march 29 2002 23 asset purchase agreement among medpointe inc cpi development corporation medpointe healthcare inc inverness medical innovations inc wl acquisition corp dated august 7 2002 incorporated reference exhibit 21 companys current report form 8k dated september 20 2002 24 agreement plan merger dated september 6 2002 among inverness medical innovations inc geras acquisition corp ostex international inc incorporated reference exhibit 992 companys current report form 8k dated september 9 2002 25 amendment agreement plan merger dated february 18 2003 among inverness medical innovations inc geras acquisition corp ostex international inc incorporated reference exhibit 992 companys current report form 8k dated february 19 2003 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys annual report form 10k amended year ended december 31 2001 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 companys current report form 8k dated december 20 2001 33 amended restated bylaws company incorporated reference exhibit 33 companys annual report form 10k amended year ended december 31 2001 41 specimen certificate shares common stock company incorporated reference exhibit 41 companys registration statement form s4 amended file 33367392 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company incorporated reference exhibit 101 companys annual report form 10k amended year ended december 31 2001 102 tax allocation agreement dated november 21 2001 among johnson imt company incorporated reference exhibit 102 companys annual report form 10k amended year ended december 31 2001 103 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 104 lease dated january 12 1999 among cambridge diagnostics ireland limited industrial development agency ireland incorporated reference exhibit 104 companys registration statement form s4 amended file 33367392 105 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 companys registration statement form s4 amended file 33367392 106 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 companys registration statement form s4 amended file 33367392 107 inverness medical innovations inc 2001 employee stock purchase planfirst amendment incorporated reference exhibit 109 companys annual report form 10k amended year ended december 31 2001 108 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger incorporated reference exhibit 1011 companys annual report form 10k amended year ended december 31 2001 109 promissory note dated august 16 2001 ron zwanziger company incorporated reference exhibit 1012 companys annual report form 10k amended year ended december 31 2001 1010 pledge agreement dated august 16 2001 ron zwanziger company incorporated reference exhibit 1013 companys annual report form 10k amended year ended december 31 2001 1011 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 1012 promissory note dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1015 companys annual report form 10k amended year ended december 31 2001 1013 pledge agreement dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1016 companys annual report form 10k amended year ended december 31 2001 1014 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott incorporated reference exhibit 1017 companys annual report form 10k amended year ended december 31 2001 1015 promissory note dated december 4 2001 david scott company incorporated reference exhibit 1018 companys annual report form 10k amended year ended december 31 2001 1016 pledge agreement dated december 4 2001 david scott company incorporated reference exhibit 1019 companys annual report form 10k amended year ended december 31 2001 1017 stock purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 992 companys current report form 8k dated march 14 2002 1018 note warrant purchase agreement dated december 14 2001 company investors named therein incorporated reference exhibit 993 companys current report form 8k dated december 20 2001 1019 form subordinated promissory note issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 994 companys current report form 8k dated december 20 2001 1020 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 companys current report form 8k dated december 20 2001 1021 warrant agreement dated december 20 2001 company rbs mezzanine limited incorporated reference exhibit 1026 companys annual report form 10k amended year ended december 31 2001 1022 warrant purchase common stock company dated december 20 2001 issued rbs mezzanine limited connection mezzanine loan agreement incorporated reference exhibit 1027 companys annual report form 10k amended year ended december 31 2001 1023 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc incorporated reference exhibit 1028 companys annual report form 10k amended year ended december 31 2001 1024 loan security agreement dated october 16 2000 ivc congress financial corporation incorporated reference exhibit 1029 companys annual report form 10k amended year ended december 31 2001 1025 amendment 1 loan security agreement dated june 13 2001 congress financial corporation ivc incorporated reference exhibit 1030 companys annual report form 10k amended year ended december 31 2001 1026 amendment 2 loan security agreement dated june 14 2001 congress financial corporation ivc incorporated reference exhibit 1031 companys annual report form 10k amended year ended december 31 2001 1027 amendment 3 loan security agreement dated march 19 2002 congress financial corporation ivc incorporated reference exhibit 1032 companys annual report form 10k amended year ended december 31 2001 1028 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp incorporated reference exhibit 1033 companys annual report form 10k amended year ended december 31 2001 1029 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation incorporated reference exhibit 1034 companys annual report form 10k amended year ended december 31 2001 1030 inverness medical innovations inc executive bonus plan incorporated reference exhibit 106 companys registration statement form s4 amended file 33367392 1031 licensing agreement dated march 14 1988 unilever plc behringwerke ag incorporated reference exhibit 1037 companys annual report form 10k amended period ended december 31 2001 1032 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag incorporated reference exhibit 1038 companys annual report form 10k amended period ended december 31 2001 1033 supply goods agreement dated december 19 1994 afc worldwide unipath limited incorporated reference exhibit 101 companys quarterly report form 10q amended period ended march 30 2002 1034 amendment supply goods agreement dated march 14 2002 schleicher schuell gmbh unipath limited incorporated reference exhibit 102 companys quarterly report form 10q amended period ended march 30 2002 1035 inverness medical innovation inc 2001 employee stock purchase plan german subplan incorporated reference exhibit 103 companys quarterly report form 10q amended period ended march 30 2002 1036 amendment 1 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 44 companys registration statement form s8 file 33390530 1037 subordinated note warrant purchase agreement dated september 20 2002 company investors named therein note warrant purchase agreement incorporated reference exhibit 991 companys current report form 8k dated september 20 2002 1038 form subordinated promissory note issued pursuant note warrant purchase agreement incorporated reference exhibit 992 companys current report form 8k dated september 20 2002 1039 form warrant agreement issued pursuant note warrant purchase agreement incorporated reference exhibit 993 companys current report form 8k dated september 20 2002 1040 subordinated note purchase agreement dated september 20 2002 company investors named therein note purchase agreement incorporated reference exhibit 994 companys current report form 8k dated september 20 2002 1041 form subordinated promissory note issued pursuant note purchase agreement incorporated reference exhibit 995 companys current report form 8k dated september 20 2002 1042 form convertible subordinated promissory note issued pursuant note purchase agreement incorporated reference exhibit 996 companys current report form 8k dated september 20 2002 1043 credit agreement dated november 14 2002 among wampole laboratories inc inverness medical uk holdings limited borrowers credit parties signatory hereto credit parties lenders signatory hereto time lenders general electric capital corporation agent lender keybank national association documentation agent lender gecc capital markets group inc lead arranger incorporated reference exhibit 991 companys current report form 8k dated november 14 2002 161 letter arthur andersen llp securities exchange commission dated june 28 2002 incorporated reference exhibit 161 companys current report form 8k dated june 28 2002 211 list subsidiaries company march 26 2003 231 consent ernst young llp filed herewith breports form 8k october 4 2002 filed current report form 8k dated september 20 2002 item 2 connection entry definitive agreement acquire wampole laboratories unit medpointe inc october 8 2002 filed current report form 8ka dated september 20 2002 item 2 connection entry definitive agreement acquire wampole laboratories unit medpointe inc october 24 2002 filed current report form 8k dated october 24 2002 item 9 connection press release conference call relating financial results third quarter 2002 november 6 2002 filed current report form 8ka amendment 2 dated september 20 2002 item 7 order file financial statements pro forma financial information required item 7 form 8k connection acquisition wampole laboratories unit medpointe inc november 14 2002 filed current report form 8k dated november 13 2002 item 9 order furnish certification chief executive officer vice president finance company accompanied quarterly report form 10q period ending september 30 2002 november 19 2002 filed current report form 8k dated november 14 2002 item 5 connection entry credit agreement group banks december 9 2002 filed current report form 8k dated december 9 2002 item 9 connection presentation intended made potential investors signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date march 31 2003 ron zwanziger ron zwanziger chairman president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date ron zwanziger ron zwanziger president chief executive officer director principal executive officer march 31 2003 duane l james duane l james vice president finance treasurer principal financial officer principal accounting officer march 31 2003 ernest carabillo jr ernest carabillo jr director march 31 2003 carol r goldberg carol r goldberg director march 31 2003 robert p khederian robert p khederian director march 31 2003 john f levy john f levy director march 31 2003 david scott david scott director march 31 2003 peter townsend peter townsend director march 31 2003 alfred zeien alfred zeien director march 31 2003 jerry mcaleer jerry mcaleer director march 31 2003 john quelch john quelch director march 31 2003 certifications ron zwanziger certify 1 reviewed annual report form 10k inverness medical innovations inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 31 2003 ron zwanziger ron zwanziger chairman president chief executive officer duane l james certify 1 reviewed annual report form 10k inverness medical innovations inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 31 2003 duane l james duane l james vice president finance treasurer inverness medical innovations inc subsidiaries consolidated financial statements report independent auditors board directors stockholders inverness medical innovations inc subsidiaries audited accompanying consolidated balance sheet inverness medical innovations inc subsidiaries company december 31 2002 related consolidated statements operations stockholders equity cash flows year ended consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audit consolidated financial statements company december 31 2001 two years period ended december 31 2001 audited auditors ceased operations whose report dated march 28 2002 expressed unqualified opinion statements reclassifications adjustments described notes 2o 5 conducted audit accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion 2002 consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2002 consolidated results operations cash flows year ended conformity accounting principles generally accepted united states discussed financial statements company december 31 2001 2000 years ended audited auditors ceased operations described notes 2o 5 2002 company adopted accounting required pursuant emerging issues task force eitf issue 0109 accounting consideration given vendor customer reseller vendors productsand statement financial accounting standards sfas 142 goodwill intangible assets 2001 2000 consolidated financial statements adjusted reclassify certain amounts net product sales marketing expenses statements operations required eitf issue 0109 notes financial statements disclose effect adjusting statements operations exclude goodwill amortization 2001 2000 required sfas 142 audited adjustments disclosed note 2o applied reclassify certain amounts net product sales marketing expenses statements operations procedures included agreeing adjusted amounts net product sales marketing expenses companys underlying accounting records obtained management ii testing mathematical accuracy adjusted amounts net product sales marketing expenses audit procedures respect goodwill disclosures note 5 relating 2001 2000 included agreeing previously reported net income loss adjustments reported net income loss representing amortization expense recognized 2001 2000 related goodwill previously issued financial statements underlying accounting records obtained management ii testing mathematical accuracy reconciliation adjusted net income loss reported net income loss related earnings loss per share amounts opinion adjustments disclosures appropriate properly applied however engaged audit review apply procedures 2001 2000 consolidated financial statements company respect adjustments accordingly express opinion form assurance consolidated financial statements december 31 2001 2000 years ended taken whole ernst young llp boston massachusetts february 20 2003 provided pursuant rule 202e regulation sx copy accountants report issued arthur andersen llp former independent public accountants connection filing annual report form 10k year ended december 31 2001 audit report reissued arthur andersen connection filing annual report form 10k year ended december 31 2002 unable obtain reissued accountants report arthur andersen unable obtain future accountants reports arthur andersen arthur andersen discontinued auditing practice means also unable obtain consents incorporate financial statements audited arthur andersen registration statements may file future accordingly investors able sue arthur andersen pursuant section 11a4 securities act respect registration statements therefore ultimate recovery successful claim may limited ability investors recover arthur andersen may also limited result arthur andersens financial condition matters resulting various civil criminal lawsuits firm report independent public accountants inverness medical innovations inc audited accompanying consolidated balance sheets inverness medical innovations inc delaware corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states arthur andersen llp boston massachusetts march 28 2002 inverness medical innovations inc subsidiaries consolidated statements operations 1stockbased compensation expense statement operations classifications follows accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity accompanying notes integral part combined financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity continued accompanying notes integral part combined financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation inverness medical innovations inc subsidiaries company develop manufacture market consumer healthcare products including selftest diagnostic products primarily womens health market vitamins nutritional supplements company also develops manufactures distributes wide variety professional diagnostic products use medical laboratory professionals november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 merger agreement johnson acquired inverness medical technology inc imt merger transaction simultaneously company subsidiary imt splitoff imt separate publicly traded company pursuant terms merger agreement related agreements immediately prior consummation transaction imt restructured operations imts nondiabetes businesses womens health nutritional supplements professional diagnostics held company subsidiaries closing transaction shares companys common stock held imt splitoff imt pro rata distribution imt stockholders imt consisted primarily diabetes care business merged became whollyowned subsidiary johnson company incorporated may 11 2001 purpose receiving imts contribution womens health nutritional supplements professional diagnostics businesses connection transactions described merger agreement related agreements companys consolidated financial statements include imt subsidiaries businesses contributed company periods presented subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements primary subsidiaries businesses contributed company imt follows •inverness medical inc imi us corporation whollyowned subsidiary canam care corporation canam us corporation •cambridge diagnostics ireland ltd cdil irish corporation •orgenics ltd orgenics israeli corporation •the womens health business inverness medical europe gmbh ime german corporation •inverness medical benelux bvba imb belgian corporation •the womens health assets held imt plus allocations company imt common expenditures company consolidated financial statements individual legal entities newly acquired entities businesses discussed along assets liabilities revenues expenses businesses periods prior splitoff merger financial statements combined manner consistent consolidated financial statements material intercompany transactions balances eliminated amounts due imt affiliates part company reflected amounts due inverness medical technology inc affiliates companys equity accounts periods presented reflect par value companys stock date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split note 2k historical equity accounts legal entities comprise company consolidated subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements pursuant merger agreement related agreements november 21 2001 immediately prior splitoff merger company transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes businesses cdil imb result company presented historical diabetes operations subsidiaries discontinued operations accompanying consolidated financial statements accounting principles board apb opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions discontinuation diabetes businesses one number transactions occurred upon closing transactions set forth merger agreement related agreements significant impact companys financial statements prior splitoff merger imt capitalized company approximately 414 million cash connection restructuring businesses described herein imt also assumed discharged companys thirdparty relatedparty debt except thirdparty debt maintained cdil orgenics closing transactions set forth merger agreement related agreements imt distributed stockholders one share common stock company every five imt shares held order imt company declared stock split effected dividend accordingly earnings per share information periods presented represents actual number shares companys common stock outstanding date incorporation effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 2k 11 companys consolidated financial statements periods prior splitoff merger also reflect allocation imts common expenditures allocations made accordance staff accounting bulletin sab 55 allocation expenses related disclosure financial statements subsidiaries divisions lesser business components another entity accompanying consolidated financial statements reflect substantially costs business including incurred imt companys behalf costs clearly identifiable applicable company subsidiary business allocated company significant costs included category include salary benefits certain employees legal professional fees costs centralized departments corporate operations serve operations allocated allocations would material using relevant allocation measures estimated percentage time worked salary benefits certain executives employees square feet occupied occupancy costs shared facilities corporate costs clearly relate businesses subsidiaries retained imt provide significant direct indirect benefit company allocated company periods prior splitoff merger company accounted income taxes using separate return method pursuant statement financial accounting standard sfas 109 accounting income taxes imt historically charged interest loans made subsidiaries accordingly companys consolidated statements operations periods prior splitoff merger reflect interest expense amounts due entities included companys consolidated financial statements primarily imt note 15b interest expense also reflects amounts recorded thirdparty notes payable notes relate specifically companys operations interest expense include amounts recorded general corporate borrowings imt company believes allocation methods described herein reasonable fairly reflect financial position results operations immediately prior splitoff merger imt option warrant split new imt option warrant company option warrant new imt options warrants subsequently converted johnson options warrants merger option warrant split accomplished manner aggregate intrinsic value two options warrants equals intrinsic value imt option warrant split option warrant split also required ratio intrinsic value market value option warrant accordingly total number shares common stock underlying stock options warrants company issued splitoff 929456 117950 respectively concurrent option split 1 vesting company options accelerated 2 period exercisability imt employees become employees company extended actions deemed award modifications pursuant financial accounting standards board fasb interpretation fin 44 accounting certain transactions involving stock compensation fin 44 company measured compensation date award modifications based intrinsic value option recognized recognize future compensation absent modifications award would forfeited pursuant awards original terms imt employees become employees company recognition charge 644505 immediate recorded stockbased compensation expense accompanying consolidated statements operations 2001 imt employees became company employees company measured potential charge maximum 1172921 date modification record compensation charge unless time company employees terminate employment company time portion award absent modification would forfeited awards original terms would recognized compensation expense 2002 company recognized stockbased compensation expense related certain imt employees became company employees amount 120748 employees terminated employment company since consummation splitoff merger described company completed number acquisitions including acquisition wampole division medpointe inc wampole september 20 2002 ivc industries inc ivc march 19 2002 certain entities businesses intellectual property unilever plc unipath business december 20 2001 note 4 wampole markets distributes pointofcare medical diagnostics products ivc manufactures distributes vitamins nutritional supplements unipath business develops manufactures distributes womens health professional diagnostics products results wampole ivc unipath business included consolidated financial statements company since respective acquisition dates 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states companys management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates company considers following critical accounting policies revenue recognition b use estimates sales returns allowances allowance doubtful accounts c valuation inventory valuation goodwill longlived intangible assets e accounting income taxes f legal contingencies b foreign currencies company follows provisions sfas 52 foreign currency translation assets liabilities companys foreign subsidiaries translated us dollars using exchange rate balance sheet date income expense accounts translated using average rates exchange reporting period foreign currency exchange transaction gains 975228 losses 727357 388832 2002 2001 2000 respectively included component income expense net accompanying consolidated statements operations c cash equivalents company considers highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2002 2001 inventories stated lower cost firstin firstout market e depreciation amortization company records property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 316 years leasehold improvements lesser term lease useful life asset buildings 2039 years furniture fixtures 310 years computer equipment 35 years depreciation amortization expense related property plant equipment amounted 6363709 1863406 1454282 2002 2001 2000 respectively f goodwill intangible assets company historically amortized goodwill generated acquisitions prior june 30 2001 estimated useful life goodwill january 1 2002 company adopted sfas 142 goodwill intangible asset accordingly longer amortizes goodwill intangible assets indefinite lives acquired prior june 30 2001 note 5 goodwill acquired subsequent june 30 2001 provisions sfas 142 effective immediately also sfas 142 company performs annual impairment tests carrying value goodwill reporting unit 2002 company recorded goodwill impairment charge 12148205 result independent appraisal nutritional supplement reporting unit note 5 values assigned trade name acquired part wampole acquisition note 4a trademarks acquired part unipath business acquisition note 4c assigned indefinite lives therefore accordance sfas 142 amortized company amortizes trademarks related acquisition certain nutritional supplement lines using straightline method estimated useful lives 25 years intangible asset pertaining companys acquired core immunoassay technology used womens health business amortized 15 years values assigned patents supplier relationships acquired part acquisition wampole amortized 13 10 years respectively acquired intangible assets representing core technology patents license agreements related purchase unipath business amortized 13 7 years respectively following summary goodwill intangible assets december 31 2002 ithe company allocated 66492879 consumer products segment 42421796 professional diagnostics segment amortization expense intangible assets amounted 3944003 1377355 1279707 2002 2001 2000 respectively included cost sales accompanying consolidated statements operations following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2002 g impairment longlived intangible assets january 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets company examines periodic basis carrying value longlived intangible assets determine whether impairment losses indicators impairment present longlived intangible assets used operations undiscounted future cash flows expected sufficient recover assets carrying amount impairment loss would charged expense period impairment identified based fair value asset accordingly company recorded impairment charge 12681581 2002 related trademarks brand names companys nutritional supplements business note 5 company believes remaining carrying values longlived intangible assets realizable december 31 2002 h income taxes company follows provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse note 13 revenue recognition majority companys revenues derived product sales company follows sab 101 revenue recognition sets forth provisions revenue recognition multipleelement arrangements acceptance delivery criteria among items recognizes revenue title passed customer less reserve estimated product returns allowances lesser extent companys revenues derived license royalty fees arrangements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period arrangements license royalty fees calculated based licensees sales recognized upon receipt license royalty payments fees estimable time j employee stockbased compensation arrangements company adopted employee stock option plan 2001 note 12c periods presented accompanying financial statements company accounted employee stockbased compensation arrangements using intrinsic value method provisions apb opinion 25 accounting stock issued employees fin 44 company elected use disclosureonly provisions sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensationtransition disclosure addition accordance fin 44 company included disclosures imt options held individuals became companys employees time splitoff merger retroactively converted companys options historically granted company note 12c compensation expense stock option grants employees determined based fair value method grant dates awards stock option plans consistent method prescribed sfas 123 companys net loss income would increased decreased pro forma amounts indicated follows astockbased employee compensation expense reported represents amortization deferred compensation certain stock options restricted stock granted fair market value company computed pro forma disclosures stock options granted employees january 1 1995 using blackscholes option pricing model prescribed sfas 123 assumptions used three years ended december 31 2002 follows weighted average fair value blackscholes option pricing model options granted employees 2002 2001 2000 919 1035 839 respectively k net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon actual number common shares issued outstanding upon incorporation company periods presented effected fixed exchange ratio set forth merger agreement related agreements related stock split notes 1 11 following table reconciles number imt weighted average common shares outstanding periods prior splitoff merger giving effect exchange ratio companys weighted average common shares used computation net loss income per common share note 11 iimt weighted average shares november 21 2001 date splitoff merger l operating expenses shipping handling costs amounted 4205747 1216302 939688 2002 2001 2000 respectively included cost sales accompanying consolidated statements operations company expenses advertising costs incurred 2002 2001 2000 advertising costs amounted 14306403 354278 184536 respectively included sales marketing expenses accompanying consolidated statements operations concentration credit risk financial instruments potentially subject company concentration credit risk primarily consist cash equivalents accounts receivable company invests excess cash primarily high quality securities limits amount credit exposure one financial institution company require collateral securities support customer receivables however performs ongoing credit evaluations customers maintains allowances potential credit losses company accounts receivable balance outstanding december 31 2002 one customer represented 14 gross accounts receivable balance date accounts receivable balances outstanding december 31 2001 excess 10 gross accounts receivable balance date significant customers 2002 represented 10 companys net revenues 2001 2000 company another significant customer represented 14 12 net revenues respectively company significant offbalancesheet concentration credit risks foreign exchange contracts option contracts foreign hedging arrangements december 31 2002 2001 january 2003 company obtained irrevocable letter credit senior lender amount 1300000 note 6a see note 14 financial information geographic area business segment n financial instruments fair value financial instruments companys primary financial instruments december 31 2002 2001 consisted cash equivalents accounts receivable debt estimated fair value financial instruments approximates carrying value december 31 2002 2001 estimated fair values determined information obtained market sources february 2002 company entered interest rate swap agreement protects interest rate fluctuations related portion senior longterm debt note 6a additionally companys subsidiary england enters foreign currency exchange forward contracts time minimize exposure foreign currency exchange fluctuations substantial portion business transacted currencies functional currency december 31 2002 company foreign currency exchange forward contracts outstanding company accounts derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments recent accounting pronouncements june 2001 fasb issued sfas 143 accounting asset retirement obligations statement addresses accounting reporting obligations associated retirement tangible longlived assets related asset retirement costs particular legal obligations associated retirement result acquisition construction development normal operation longlived asset except certain obligations lessees company adopted statement january 1 2003 required however adoption statement material impact companys financial position results operations cash flows november 2001 emerging issues task force eitf issued eitf issue 019 accounting consideration given vendor customer reseller vendors products eitf issue 019 establishes accounting reporting standards vendor consideration purchasers vendors products point along distribution chain regardless whether purchaser receiving consideration direct customer company offers certain sales incentives fall within scope eitf issue 019 slotting fees cooperative advertising customers company adopted provisions consensus 2002 effect reductions net product sales amounts 2444359 2483360 2001 2000 respectively reclassifications sales marketing expenses comparative purposes certain reclassifications impacting net product sales cost sales effect loss income continuing operations net loss income respective years april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections addresses reporting gains losses resulting extinguishment debt accounting saleleaseback transactions rescinds amends existing authoritative pronouncements sfas 145 requires gain loss extinguishment debt meet criteria apb opinion 30 classification extraordinary item shall classified extraordinary shall included earnings continuing operations company adopted provisions statement january 1 2003 result gains losses early extinguishment debt future included earnings continuing operations prior periods presented required restated consequently restatement prior period losses upon adoption statement reduce loss continuing operations 190 million 311 per basic diluted share 2002 increase loss continuing operations 248 million 389 per basic diluted share 2001 june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities addresses recognition measurement reporting costs associated exit disposal activities including restructuring activities statement supersedes guidance set forth eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring sfas 146 requires liability cost associated exit disposal activity recognized liability incurred previous guidance eitf issue 943 liability would recognized date entitys commitment exit plan statement also establishes fair value used initial measurement liability however statement apply costs associated exit activities involve entity newly acquired business combination company required apply guidance sfas 146 respect exit disposal activities initiated december 31 2002 current operating plans company expect adoption statement material impact financial position results operations cash flows november 2002 fasb issued fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others significantly change current practice accounting disclosure guarantees fin 45 requires guarantor recognize inception certain types guarantees liability obligation undertaken issuing guarantee fair value interpretation also requires significant new disclosures financial statements guarantor obligations certain guarantees company required apply disclosure provisions fin 45 financial statements december 31 2002 accounting provisions fin 45 applicable guarantees issued modified december 31 2002 disclosure requirements fin 45 material effect companys financial statements company expect accounting provisions interpretation material impact financial position results operations cash flows december 2002 fasb issued sfas 148 statement amends sfas 123 accounting stockbased compensation provide alternative methods transition sfas 123s fair value method accounting stockbased employee compensation sfas 148 also amends disclosure provisions sfas 123 apb opinion 28 interim financial reporting require expanded disclosure effects companys accounting policy stockbased employee compensation statement require companies account employee stock options using fair value method company adopted disclosure provisions sfas 148 december 31 2002 required however company continue account employee stock options using intrinsic value method apb opinion 25 permitted p reclassifications certain prioryear account balances reclassified consistent current years presentation 3 balance sheet information components selected captions consolidated balance sheets consist 4 business combinations acquisition wampole september 20 2002 company acquired wampole distributor professional diagnostic pointofcare medical diagnostic products primarily united states note 1 acquisition allows company expand business pointofcare market united states provides company certain intellectual property aggregate purchase price wampole estimated 71500000 consisted 69921000 cash 1579000 estimated direct acquisition costs acquisition funded issuance 35000000 subordinated debt notes 6b c portion companys existing cash time acquisition aggregate purchase price wampole preliminarily allocated acquired assets assumed liabilities follows allocation aggregate purchase price wampole acquired intangible assets based upon preliminary independent appraisal changes estimated direct acquisition costs could impact aggregate purchase price allocation net assets acquired acquisition wampole accounted purchase sfas 141 business combinations accordingly results wampole included accompanying consolidated financial statements since acquisition date part companys professional diagnostic products reporting unit business segment company assigned indefinite lives acquired goodwill trade name value goodwill fully deductible tax purposes 15 years goodwill longer amortized book purposes tax amortization goodwill gives rise deferred tax liability december 31 2002 values allocated acquired patents supplier relationships amortized straightline basis estimated useful lives 13 10 years respectively weighted average amortization period acquired intangible assets finite lives estimated 108 years b acquisition ivc march 19 2002 company acquired ivc manufacturer distributor vitamins nutritional supplements primarily united states note 1 addition ivc company able consolidate certain vitamin nutritional supplement manufacturing ivc discontinue outsourced manufacturing arrangements aggregate purchase price ivc 27299679 consisted 5619493 cash representing 250 outstanding share ivcs common stock fullyvested stock options purchase aggregate 115744 shares companys common stock options aggregate fair value 1298674 calculated using blackscholes option pricing model 1586657 costs exit certain activities ivc primarily severance costs involuntarily terminated employees accordance eitf issue 953 recognition liabilities connection purchase business combination 17359035 assumed debt 1435820 direct acquisition costs acquisition funded companys existing cash aggregate purchase price ivc allocated acquired assets assumed liabilities follows acquisition ivc accounted purchase sfas 141 therefore results ivc included accompanying consolidated financial statements since acquisition date acquired assets assumed liabilities ivc assigned companys nutritional supplements business reporting unit included companys consumer products business segment immediately close acquisition company reorganized business operations ivc improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined companys existing business operations addition company process relocating one ivcs warehouses closer proximity manufacturing facility improve efficiency warehouse relocation expected commence end march 2003 1586657 total exit costs include severance costs involuntarily terminated employees costs vacate warehouse 532690 paid 1053967 remained unpaid december 31 2002 total number involuntarily terminated employees 47 3 remained terminated december 31 2002 c acquisition unipath business december 20 2001 company acquired unipath business unilever plc unilever note 1 unipath business core operations based england develops manufactures distributes home pregnancy ovulation testing natural family planning products sold worldwide together acquisition unipath business company also acquired rights certain antibody clones intellectual property unipath business provides company leading brand name consumer diagnostic products compliment companys existing value branded private label home pregnancy detection ovulation prediction products aggregate purchase price unipath business 158618966 consisted 146490374 cash 4159458 costs exit certain activities acquired business primarily severance costs accordance eitf issue 953 estimated unfunded pension liability 2633504 upon assumption pension benefits acquired employees based england 5335630 direct acquisition costs acquisition funded issuance 1995000 shares series convertible redeemable preferred stock series preferred stock aggregate proceeds 59850000 note 12b 62500000 loans series credit agreements bank entities related bank note 6f issuance subordinated promissory notes warrants aggregate proceeds 20000000 note 6g companys existing cash aggregate purchase price unipath business allocated acquired assets assumed liabilities follows acquisition unipath business accounted purchase sfas 141 accordingly results unipath business included accompanying consolidated financial statements since acquisition date primarily included companys womens health reporting unit within consumer products business segment much lesser extent results unipath business included companys professional diagnostics business segment allocation purchase price assets acquired based upon results independent appraisal fair value assets company amortizing portion purchase price allocated certain intangible assets finite lives comprised core technology patents license agreements straightline basis estimated useful lives 13 7 years respectively weighted average amortization period assets 112 years acquired goodwill majority deductible tax purposes trademarks assigned indefinite lives time acquisition research development staff unipath business seeking develop digitalbased technology however technology sought specific inprocess research development project iprd project yet reached technological feasibility alternative future use date acquisition therefore portion purchase price allocated iprd project 6980221 charged expense upon acquisition amount purchase price allocated iprd project represents estimated fair value determined using income approach whereby projected future cash flows discounted value technology estimated royalty rate 4 applied projected revenues calculate pretax royalty savings attributed completed technology 30 tax rate used riskadjusted discount rate 24 applied management believes many complex technical issues resolved however technology food drug administration approval therefore risk achieving commercialization developmental risk regulatory risk well work full project includes demonstrating feasibility defining project design development verification clinical testing regulatory submission approval need completed prior launch product based technology hurdles crossed new complexities likely arise company initially anticipated iprd project would take one half years acquisition date complete current estimate completion date remains unchanged initial valuation project company estimated would cost approximately 2700000 additional research development costs complete iprd project since company incurred approximately 903000 research development costs december 31 2002 currently expects estimated costs complete approximately 988000 reduction research development costs original estimate due companys subsequent decision change outsourced prototype tooling design work contractor europe one china based upon time costs incurred iprd project estimated approximately 97 complete december 31 2002 result business combination company reorganized operations unipath business purposes improving efficiencies achieving economies scale companywide basis reorganization affected major cost centers operations england additionally business activities us division merged companys existing us businesses total number involuntarily terminated employees 65 terminated december 31 2002 total exit costs primarily related severance initially estimated 2340544 2002 company finalized restructuring activities recorded additional 1818914 exit costs additional exit costs recorded adjustments unipath purchase price december 31 2002 1217743 exit costs remained unpaid part acquisition unipath business company agreed establish new pension plan acquired employees based england uk employees companys new pension plan cover uk employees remainder three year postacquisition period uk employees may also elect option transfer contributions benefits unilever pension plan companys new plan companys new pension plan less favorable uk employees unilevers plan company maintain benefit period least three years acquisition date accordingly pursuant sfas 87 employers accounting pensions sfas 88 employers accounting settlements curtailments defined benefit pension plans termination benefits company recorded unfunded pension liability 3685000 part purchase price acquisition date unfunded pension liability represented excess projected benefit obligation 20485000 fair value plan assets 16800000 initially allocated unilever pension benefits uk employees uk employees involuntarily terminated companys restructuring plan unfunded pension liability initially recorded company reduced portion severance payout related pension benefits 1051496 reclassified severance costs purposes aggregating purchase price december 31 2002 number identities uk employees may elect transfer companys new pension plan unknown addition unilever company yet fully agreed terms companys new pension plan could affect amount funding required company therefore unfunded pension obligation company uk employees elect participate transfer pension assets unilevers pension plan companys new pension plan estimable result remaining pension liability 2633504 december 31 2002 included liabilities accompanying consolidated balance sheet adjusted upon election uk employees transfer companys new pension plan company record adjustment aggregate purchase price accordingly balance goodwill adjusted pro forma financial information following table presents selected unaudited financial information company including wampole ivc unipath business acquisitions entities occurred january 1 2001 unaudited pro forma results 2001 exclude charge operations 6980221 represents portion purchase price allocated fair value inprocess research development project related acquisition unipath business unaudited pro forma results necessarily indicative results would occurred acquisitions wampole ivc unipath business consummated january 1 2001 respectively future results e pending merger ostex international inc september 6 2002 company entered agreement plan merger ostex international inc ostex pursuant company intends acquire ostex develops commercializes osteoporosis diagnostic products pending acquisition ostex subject several closing conditions including approval merger agreement governing acquisition ostexs shareholders companys receipt necessary consents respect transactions contemplated merger agreement required companys material loan agreements february 18 2003 order increase likelihood company would obtain consent merger companys senior lender required companys material loan agreements note 6a parties amended merger agreement reduce amount consideration paid acquire ostex merger agreement amended aggregate number shares companys common stock issued merger ostexs outstanding shares reserved options warrants assumed company 1900000 shares amended merger agreement effective time merger outstanding share ostex common stock shall converted right receive number shares companys common stock equal conversion ratio calculated dividing 1900000 sum 1 total number shares ostex common stock outstanding immediately prior effective time merger 2 total number shares ostex common stock subject outstanding stock options warrants company assume merger shares ostex common stock subject options warrants assumed company convert ratio merger remains subject approval holders two thirds ostexs outstanding voting stock assurance companys acquisition ostex occur also part merger transaction ostex company entered loan agreement lend ostex 2000000 support operations prior effective time merger december 31 2002 aggregate outstanding loans ostex amounted 1000000 loans bear interest per annum ranging 604 627 loans mature earliest acceleration loans company upon occurrence event default defined merger agreement ii termination merger agreement certain specified circumstances iii december 31 2003 aggregate outstanding balance loans ostex included component prepaid expenses current assets accompanying balance sheet december 31 2002 company incurred 750192 acquisition costs related proposed merger ostex deferred included deferred financing costs assets net accompanying balance sheet 5 goodwill intangible assets january 1 2002 company adopted sfas no142 addresses changes financial accounting reporting acquired goodwill intangible assets indefinite lives result company longer records amortization goodwill 2001 2000 company recorded amortization expense net taxes 398112 related goodwill amortization expense allocated general administrative expenses accompanying consolidated statements operations following table presents loss income continuing operations net loss income company sfas 142 adopted prior periods presented sfas 142 also provides specific guidance determining measuring impairment goodwill based upon results independent impairment review required sfas 142 company recorded impairment charge 12148205 representing remaining goodwill related reporting unit comprises nutritional supplement lines company acquired 1997 amount represented excess carrying value fair value asset fair value determined using combination income approach market approach valuing business income approach valued business discounting projected future cash flows market approach valued security underlying business comparing similar businesses significant facts circumstances led conclusion impairment future cash flows nutritional supplement lines expected reduced b selling general administrative expenses relating nutritional supplement lines forecasted increase percentage sales c nutritional supplements business experiencing larger percentage decline revenues comparable businesses companies impairment charge recorded first quarter 2002 classified accordance sfas 142 cumulative effect change accounting principle accompanying statements operations independent appraisal fair value reporting unit underlying companys nutritional supplements business indicated goodwill impairment reporting unit discussed company proceeded also obtain independent impairment review carrying value assigned related trademarks brand names accordance sfas 144 results impairment review sfas 144 indicated impairment carrying value trademarks brand names full carrying amount intangible assets expected recoverable exceeded fair value carrying amount intangible assets recoverable exceeded sum undiscounted cash flows expected result use eventual disposition assets fair value intangible assets determined using combination discounted cash flow approach relief royalty approach latter valued trademarks licensed third party based results company recorded impairment charge 12681581 first quarter 2002 included operating expenses accompanying statements operations remaining carrying value intangible assets 4070312 december 31 2002 amortized average remaining useful life intangible asset 19 years 6 longterm debt company following longterm debt balances outstanding following describes listed debt instruments senior credit facilities november 14 2002 company certain subsidiaries entered senior credit agreement group banks credit facilities aggregate amount 55000000 senior credit agreement consists us term loan 20000000 european term loan 10000000 european revolving line credit 25000000 aggregate initial borrowings amounted 30000000 term loans 22960000 revolving line credit upon execution senior credit agreement remained outstanding december 31 2002 unused portion revolving line credit 2040000 december 31 2002 availability restricted 160970 due banks guarantee value added tax bond issued behalf unipath business england subsequently january 8 2003 irrevocable letter credit amount 1300000 issued behalf company restricts availability revolving line credit amount letter credit expires june 30 2003 automatically renewable periods one year future expiration date principal repayments us term loan made 11 equal quarterly installments 1250000 commencing april 30 2003 october 31 2005 final installment 6250000 due november 14 2005 principal repayments european term loan made 14 equal quarterly installments 25000 starting january 31 2003 april 30 2006 final installment 9650000 due may 14 2006 company may also choose prepay part term loans provided prepays least 1000000 multiple thereof company may repay borrowings revolving line credit time event later november 14 2005 company required make mandatory prepayments loans senior credit agreement meets certain cash flow thresholds collects certain insurance proceeds excess certain thresholds issues equity securities november 14 2003 sells assets ordinary course business borrowings term loans revolving line credit bear interest either london interbank offered rate libor defined plus applicable margins companys option ii floating index rate defined plus applicable margins applicable margins depending type loan range 125 375 subject quarterly adjustments based companys total leverage ratio defined december 31 2002 interest rates us term loan european term loan revolving line credit 625 675 625 respectively company recorded interest expense including amortization deferred financing costs credit facilities aggregate amount 521494 2002 borrowings senior credit facilities secured stock certain companys us european subsidiaries significant portion companys intellectual property rights assets companys business us europe excluding assets ivc orgenics ltd companys israeli subsidiary unipath scandinavia ab companys swedish subsidiary senior credit agreement company must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits payment dividends december 31 2002 company compliance covenants upon receipt proceeds loans senior credit agreement 44110860 used prepay outstanding principal balance accrued unpaid interest term loans line credit series credit agreements note 6f b subordinated promissory notes 10 principal amount 20000000 september 20 2002 company sold units aggregate purchase price 20000000 private investors help finance wampole acquisition note 4a unit consisted 10 subordinated promissory note 10 subordinated note principal amount 50000 ii warrant acquire 400 shares companys common stock exercise price 1354 per share aggregate company issued fully vested warrants purchase 160000 shares common stock may exercised time prior september 20 2012 interest accrues 10 per annum compounded daily outstanding principal amount payable quarterly arrears first day calendar quarter starting october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances company may prepay 10 subordinated notes time subject certain prepayment penalties company may option repay 10 subordinated notes pay prepayment penalty applicable cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 150000000 indebtedness borrowed money incurred guaranteed company plus indebtedness company incurs finance acquisition company allocated 1200000 principal amount 10 subordinated notes warrants original issue discount represented fair value warrants date issuance addition placement agent offering 10 subordinated notes received cash commissions expense allowance totaling 970421 warrant purchase 37700 shares companys common stock terms identical warrants sold part units value warrant issued placement agent 302008 cash commission expense allowance recorded deferred financing costs original issue discount related warrants issued subscribers deferred financing costs amortized interest expense six year term 10 subordinated notes interest expense including amortization original issue discount deferred financing costs related 10 subordinated notes 692764 2002 among purchasers 10 subordinated notes three directors officers company entity controlled companys chief executive officer collectively purchased aggregate 37 units 1850000 aggregate principal amount warrants purchase aggregate 14800 shares companys common stock c subordinated promissory notes 9principal amount 9000000 convertible subordinated promissory notes 3 principal amount 6000000 september 20 2002 also connection financing wampole acquisition note 4a company sold subordinated promissory notes aggregate principal amount 9000000 9 subordinated notes subordinated convertible promissory notes aggregate principal amount 6000000 3 convertible notes private investors 9 subordinated notes 3 convertible notes bear interest 9 3 per annum respectively outstanding principal balance payable quarterly arrears first day calendar quarter starting october 1 2002 company recorded interest expense including amortization deferred financing costs notes 282192 2002 9 subordinated notes 3 convertible notes mature september 20 2008 subject acceleration certain circumstances company may prepay 9 subordinated notes anytime subject certain prepayment penalties upon maturity company option repay notes pay prepayment penalty applicable cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date time prior maturity date holders 3 convertible notes option convert outstanding principal amounts unpaid interest companys common stock conversion price equal 1745 per share 125 average closing price companys common stock ten consecutive trading days ending two days prior september 20 2002 additionally outstanding principal amount unpaid interest 3 convertible notes automatically convert companys common stock conversion price equal 1745 time september 20 2004 average closing price companys common stock consecutive thirtyday period greater 2267 9 subordinated notes 3 convertible notes expressly subordinated 150000000 indebtedness borrowed money incurred guaranteed company plus indebtedness company incurs finance acquisition provided 9 subordinated notes 3 convertible notes rank equally 10 subordinated notes entity controlled companys chief executive officer purchased 3 convertible notes aggregate principal amount 3000000 ivc credit facilities connection acquisition ivc company assumed ivcs borrowings senior credit agreement ivc credit agreement pursuant ivc credit agreement amended ivc borrow 15000000 revolving credit commitment 4200000 term loan commitment subject specified borrowing base limitations december 31 2002 ivc 8532794 outstanding borrowings revolving credit commitment 3208885 outstanding principal amount term loan borrowings ivc credit agreement mature october 16 2003 borrowings revolving credit commitment term loan bear interest either 150 banks prime rate ivcs option 375 adjusted eurodollar rate used bank december 31 2002 interest rates loan facilities ranged 465 575 interest expense including amortization deferred financing costs ivcs credit facilities 660547 2002 notes collateralized substantially ivcs assets ivc credit agreement requires ivc maintain minimum tangible net worth contains various restrictions customary financial arrangements including limitations payment cash dividends december 31 2002 ivc compliance requirements restrictions e bonds payable also connection acquisition ivc company assumed ivcs bonds payable aggregate outstanding balance 2655005 december 31 2002 bonds payable various installments june 30 2007 majority bonds payable balance bear interest 690 interest majority bonds payable balance payable semiannually ivc recorded interest expense including amortization deferred financing costs bonds 214006 2002 bonds collateralized certain property equipment ivc additionally bonds require ivc maintain letters credit bank equal outstanding principal balances bonds fees letters credit range 75 3 per annum f term loans revolving line credit december 20 2001 whollyowned subsidiary company entered series credit agreements credit agreements bank entities related bank credit facilities aggregate amount 65000000 amended credit agreements consisted term loans aggregating 62500000 10000000 denominated japanese yen 2500000 multicurrency revolving line credit amended proceeds term loans used finance portion cash used acquire unipath business note 4c per annum interest rate loans libor plus spread 150 350 additional 200 case default depending type loan senior junior interest period addition interest 400 per annum capitalized junior loan part credit agreements company issued bank warrant acquire 65000 shares companys common stock nominal cost company allocated 1105000 loan proceeds warrant original issue discount represented fair value warrant date issuance interest expense including amortization original issue discount deferred financing costs 2002 2001 2733110 134233 respectively november 14 2002 company prepaid outstanding principal balances unpaid interest term loans line credit agreements proceeds senior credit facilities note 6a company accounted prepayment early extinguishment debt accordingly november 14 2002 remaining unamortized original issue discount deferred financing costs 972380 2237220 respectively recorded component extraordinary item accompanying statements operations g subordinated bridge notes company entered note warrant purchase agreement pursuant december 20 2001 issued subordinated promissory notes subordinated bridge notes aggregate principal amount 20000000 purpose funding acquisition unipath business note 4c original maturity date subordinated notes april 1 2002 extension option interest accrued 12 per annum 18 maturity date extended subordinated bridge notes convertible shares companys series preferred stock option holder due conversion feature notes company recorded discount notes form beneficial conversion feature 3242744 accordance eitf issue 985 accounting convertible securities beneficial conversion features contingently adjustable conversion ratios eitf issue 0027 application eitf issue 985 certain convertible instruments value assigned beneficial conversion feature amortized interest expense life subordinated bridge notes part note warrant purchase agreement addition subordinated bridge notes company also issued 10year warrants purchase total 55189 shares companys common stock exercise price 1812 per share company allocated 672251 aggregate proceeds subordinated bridge notes warrants original issue discount represented relative fair value warrants date issuance amortizing discount interest expense life subordinated bridge notes interest expense 2002 2001 including amortization original issue discount beneficial conversion feature deferred financing costs 2973873 563596 respectively march 6 2002 company prepaid subordinated bridge notes aggregate outstanding balance 20000000 related accrued interest 568383 using proceeds issuance series preferred stock note 12b company accounted prepayment subordinated bridge notes reacquisition related beneficial conversion feature early extinguishment debt recorded extraordinary gain net acceleration unamortized original issue discount initial beneficial conversion feature deferred financing costs 8339589 accordance eitf issue nos 985 0027 extraordinary gain calculated first allocating reacquisition price beneficial conversion feature measured based intrinsic value date extinguishment residual amount allocated subordinated bridge notes entity controlled companys chief executive officer holder 10000000 subordinated bridge note holds warrant issued connection note purchase 27594 shares companys common stock h maturities longterm debt following summary maturities longterm debt outstanding december 31 2002 7 capital leases connection acquisition ivc company assumed ivcs capital lease obligations ivc maintains capital lease warehouse distribution facility expires july 2008 renewable two successive five year periods lease classified capital lease result saleleaseback transaction ivc entered prior acquired company aggregate monthly minimum payments remaining capital lease 3163333 december 31 2002 addition ivc various capital leases certain machinery equipment computer equipment expire various dates fiscal 2005 remaining aggregate monthly minimum payments 408894 following schedule future minimum lease payments capital leases together present value payments december 31 2002 december 31 2002 capitalized amounts building machinery equipment computer equipment capital leases follows amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several us based subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants contributions 401k savings plans company matches contributions designated level prior splitoff imt companys employees option participated imts 401k savings plan similar terms companys current plans companys results periods presented prior splitoff imt include allocations imts matching contribution related 401k savings plan allocations made accordance sab 55 note 1 total matching contributions related employee savings plans 124508 14947 8832 2002 2001 2000 respectively b orgenics severance obligations israeli law provides employers certain severance obligations employees israel orgenics liability severance pay pursuant law provided insurance policies severance pay funds severance expenses 96000 12000 68000 2002 2001 2000 respectively balance unfunded severance liability approximately 10000 141000 december 31 2002 2001 respectively company accrued dates france governmentrun mandatory pension plan contributions made monthly employee employer based employees gross monthly salary orgenics liability employees france fully covered contributions addition pursuant industry employment agreements lumpsum severance payable upon retirement employees still service orgenics french subsidiary date retirement obligations outstanding december 31 2002 2001 9 derivative instrument company entered interest rate swap agreement one lenders effective february 25 2002 protects companys longterm debt interest charged libor fluctuation rate interest rate swap agreement libor set minimum 336 maximum 500 company accounts derivative instrument accordance sfas 133 related amendments 2002 company determined hedge interest rate swap agreement longterm debt ineffective accordingly company recorded charge 1223146 mark market interest rate swap agreement charge recorded income expense net accompanying statement operations 2002 value included liabilities accompanying balance sheet december 31 2002 10 commitments contingencies operating leases company operating lease commitments certain facilities equipment expire various dates 2021 following schedule outlines future minimum annual rental payments leases december 31 2002 rent expense relating operating leases approximately 4311265 1028865 485642 2002 2001 2000 respectively operations unipath business england currently housed 150000 square foot manufacturing research office facility bedford england lease facility unilever third party landlord unipath business england continues use facility pursuant agreement unilever connection acquisition future minimum annual rent payments facility lease range 1460000 british pounds sterling 1560000 british pounds sterling approximately 2350000 2511000 upward adjustments every 5 years extent rent market rate lease expires december 2021 unilever agreed use best efforts obtain landlords consent required lease agreement cannot unreasonably withheld may assign lease company remaining term company required pay amounts owed lease agreed upon acquisition included table future minimum lease payments facility lease b capital expenditure commitments december 31 2002 unipath business england total outstanding noncancelable equipment purchase commitments 1225906 british pounds sterling approximately 1973341 remaining entities businesses company material outstanding noncancelable equipment purchase commitments date c legal proceedings nature business company may subject particular time consumer product claims various lawsuits arising ordinary course business including employment matters expects continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims addition company aggressively defends patent intellectual property rights often involves bringing infringement commercial claims third parties expensive result counterclaims challenging validity companys patents rights april 2001 68 consumers brought action london england claiming defects persona contraceptive device sold unipath business europe well negligence breach contract allegedly leading unwanted pregnancies claimants prior 1998 case expected ready trial judge late 2003 2004 company believes substantial defenses claims intends vigorously defend litigation case insured aggregate unilevers product liability insurance 50000000 british pounds sterling approximately 80500000 december 31 2002 depending events giving rise consumers suit occurred result company believe adverse ruling would material adverse impact sales operations financial performance april 1998 abbott laboratories abbott commenced patent infringement lawsuit imt princeton biomeditech corporation pbm abbott claims certain imts pregnancy detection ovulation prediction products companys products extent still sold infringe patents abbott claims exclusive rights united states abbott seeking order finding imt pbm infringe patents order permanently enjoin imt pbm infringing patents reimbursement certain damages recall imts existing products found infringe patents imt pbm moved summary judgment defense abbott patents invalid september 2000 court granted partial summary judgment holding certain key claims abbotts patents invalid matter law court refused grant summary judgment abbotts claims infringement imts remaining claims invalidity abbotts patents abbott seeking courts reconsideration partial summary judgment court ruled motion trial date set time connection splitoff imt company assumed obligations liabilities imt arising matter company believes strong defenses abbotts claims continue defend case vigorously however final ruling suit imt company could material adverse impact companys sales operations financial performance january 3 2000 becton dickinson company bd filed suit selfcare inc became imt alleging certain pregnancy ovulation products sold imt company infringe certain bd patents connection splitoff imt company assumed obligations liabilities imt arising matter parties settled litigation third quarter 2002 settlement neither party admitted liability company obtained fully paidup royaltyfree license bd amount material orgenics royalty commitment orgenics received participation payments programs sponsored chief scientist ministry industry commerce israel chief scientist support research development projects event development products chief scientist participates successful orgenics obligated pay royalties rate 20 35 sales products developed funds provided chief scientist amount equal 100 chief scientists participation payments projects balance maximum contingent royalty december 31 2002 approximately 200000 orgenics liability state israel amounts received support unsuccessful programs unsaleable products 2001 2000 orgenics paid approximately 169000 206000 respectively royalties chief scientist royalties paid 2002 11 earnings per share following table sets forth computation basic diluted loss income per share company following potential dilutive securities outstanding december 31 2002 options warrants purchase aggregate 3553280 shares companys common stock weighted average exercise price 1465 per share b series preferred stock convertible aggregate 646120 shares companys common stock c 3 convertible notes convertible aggregate 343840 shares companys common stock 1214419 shares unvested restricted common stock issued certain executive officers e 15902 shares common stock held escrow company following potential dilutive securities outstanding december 31 2001 options warrants purchase aggregate 2575807 shares companys common stock weighted average exercise price 1285 per share b series preferred stock convertible aggregate 3990000 shares companys common stock c 1817572 shares unvested restricted common stock issued certain executive officers 31804 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2002 2001 inclusion thereof would antidilutive dilutive securities outstanding 2000 12 stockholders equity note amounts pertaining shares share prices securities issued granted prior companys splitoff imt november 2001 restated assuming stock split described note 1 splitoff imt occurred dates securities issued common stock december 31 2002 company 50000000 shares common stock 0001 par value authorized 14907191 shares issued outstanding 646120 shares reserved issuance upon conversion outstanding series preferred stock 343840 shares reserved issuance upon conversion outstanding 3 convertible notes 3581932 shares reserved issuance upon grant exercise stock options current stock option plans 799627 shares reserved issuance upon exercise outstanding warrants b preferred stock december 31 2002 company 5000000 shares preferred stock 0001 par value authorized 2666667 shares designated series preferred stock 0001 par value march 6 2002 company sold private investors 531913 shares series preferred stock 3901 per share gross proceeds 20749990 purposes prepaying subordinated bridge notes note 6g december 20 2001 company sold private investors 1995000 shares series preferred stock 3000 per share gross proceeds 59850000 help finance acquisition unipath business note 4c private investors december 2001 issuance include certain directors company entities affiliated directors companys chief executive officer aggregate purchased 626666 shares series preferred stock number shares common stock issued upon voluntary conversion one share series preferred stock equal number determined dividing 3000 conversion price effect time conversion december 31 2002 conversion price 1500 subject adjustment accordingly share series preferred stock convertible two shares common stock december 31 2002 starting second anniversary original issue date company may convert remaining series preferred stock common stock event average closing price common stock exceeds 20 consecutive 30 trading day period 2002 2203853 shares series preferred stock converted 4407706 shares companys common stock 323060 shares series preferred stock remained outstanding december 31 2002 conversions 2001 share series preferred stock accrues dividends quarterly basis 210 per annum trading days closing price companys common stock less 1500 result company accrued dividends 325725 2002 reduced earnings available common stockholders computation earnings per share note 11 dividends recorded 2001 companys stock price close 1500 period 2001 series preferred stock outstanding dividends accrued payable declared board directors therefore upon voluntary conversion undeclared dividends converted shares series preferred stock forfeited second anniversary original issue date accrued dividends must paid companys common stock using conversion ratio described connection voluntary conversion series preferred stock thereafter company option pay dividends cash common stock addition companys senior credit agreement currently prohibits paying dividends note 6a effective purchase price shares common stock underlying series preferred stock issued march 6 2002 december 20 2001 represented discount 270 12 2 118 respectively fair value companys common stock issuance date accordance eitf issue 985 eitf issue 0027 company recorded beneficial conversion feature form discount series preferred stock 2867011 7980000 respectively amortized accumulated deficit redemption period discussed amortization discount reduces earnings available common stockholders computation earnings per share 2002 company amortized 9574807 discount 8811624 represented acceleration amortization due conversions series preferred stock total amount discount amortized 2001 material companys consolidated financial statements series preferred stock may redeemed upon vote holders least 6623 outstanding shares june 30 2011 company classified outstanding series preferred stock outside stockholders equity accompanying consolidated balance sheets statements stockholders equity december 31 2002 2001 redemption price per share series preferred stock equal 3000 plus accrued interest calculated 5 per annum date issuance company recorded accrued interest 2047925 2002 reduced earnings available common stockholders computation earnings per share amount accrued interest 2001 material companys consolidated financial statements holders series preferred stock liquidation preferences holders companys common stock classes stock outstanding time liquidation upon liquidation holders outstanding series preferred stock would receive amount equal 30 per share series preferred stock plus undeclared unpaid dividends december 31 2002 liquidation value outstanding series preferred stock 9900836 holder series preferred stock currently two votes every one share series preferred stock equal number common shares converted holders series preferred stock shall vote together holders companys common stock single class c stock options awards 2001 company adopted 2001 stock option incentive plan 2001 plan allows issuance 4824081 shares common stock awards 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan august 15 2001 company sold chief executive officer 1168191 shares restricted common stock price 913 per share twothirds restricted stock 778794 shares vest ratably 36 months remaining onethird 389397 shares vests ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note balance promissory note recorded note receivable classified stockholders equity accompanying consolidated balance sheets note bears interest annual rate 499 interest income recorded note amounted 532212 199580 2002 2001 respectively company accounted arrangement pursuant fin 44 eitf issue 9516 accounting stock compensation arrangements employer loan features apb opinion 25 eitf issue 0023 issues related accounting stock compensation apb opinion 25 fasb interpretation 44 accordingly november 20 2001 date arrangement approved stockholders company measured total compensation expense approximately 10595492 based intrinsic value stock date amount compensation expense deferred amortized ratably vesting periods restricted stock terms original restricted stock agreement company could repurchase unvested shares cost certain circumstances february 2002 terms restricted stock agreement amended pursuant company may repurchase unvested shares fair value certain circumstances also connection amendment chief executive officer surrendered 50000 shares nonqualified stock options company repurchase rights unvested shares fair value company fully amortized remaining portion deferred compensation expense associated restricted stock 2002 amortization deferred compensation related restricted stock arrangement 10144937 450555 2002 2001 respectively recorded stockbased compensation accompanying consolidated statements operations august 2001 company granted two nonqualified stock options purchase aggregate 778794 shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes balance promissory notes recorded note receivable classified stockholders equity accompanying consolidated balance sheets notes bear interest annual rate 397 applicable federal rate fiveyear note effect month exercise interest income recorded notes amounted 159813 12029 2002 2001 respectively shares issued upon exercise vest ratably 36 months certain circumstances company may repurchase unvested shares fair value one executive officers exercised part option portion underlying shares result accordance terms original option agreement company granted replacement option executive officer remaining unexercised shares exercise price equal fair value common stock date grant company accounted arrangements fin 44 eitf issue nos 9516 0023 accordingly november 20 2001 date arrangements approved stockholders company measured total compensation expense 9345528 based intrinsic value stock date repurchase rights unvested shares fair value company recorded full intrinsic value stockbased compensation accompanying consolidated statements operations 2001 company also granted immediately effective date splitoff imt options purchase additional 389397 shares common stock two key executive officers options vest ratably four years expire 10 years date grant exercise price per share equal fair value companys common stock date grant options permit exercise cash companys shares paid least 6 months prior exercise date proceeds promissory note contain terms substantially described connection credit agreements note 6f companys chief executive officer required enter lock agreement bank pursuant restricted trading companys securities various specified periods amounts lock agreement since terminated result prepayments outstanding borrowings credit agreement consideration entry lock agreement company granted chief executive officer option acquire 115000 shares companys common stock 1715 per share fair value companys common stock date grant simultaneously entity controlled companys chief executive officer also received warrant purchase 385000 shares companys common stock upon splitoff merger november 2001 outstanding imt stock option imt options exchanged option purchase shares companys common stock company options exchange ratio 020 option purchase shares johnson common stock exchange ratio 05395 new exercise prices company options johnson options determined based relative fair values johnson common stock companys common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices stock options granted prior splitoff merger date following tables restated reflect exchange imt options company options exchange occurred grant date applicable imt option following summarizes stock option activity years ended december 31 following represents additional information related stock options outstanding exercisable december 31 2002 warrants upon splitoff imt november 2001 outstanding imt warrant imt warrants exchanged warrant purchase shares companys common stock company warrants exchange ratio 020 warrant purchase shares johnson common stock exchange ratio 05935 new exercise prices company warrants johnson warrants determined based relative fair values johnson common stock companys common stock first trading day immediately splitoff merger taking consideration relative exchange ratios per share numbers exercise prices warrants issued prior splitoff merger date following tables restated reflect exchange imt warrants company warrants exchange occurred issuance date applicable imt warrant following summary warrant activity three years ended december 31 2002 following represents additional information related warrants outstanding exercisable december 31 2002 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 428526 shares companys common stock issued officers directors company entities controlled officers directors outstanding december 31 2002 value warrants issued connection debt financings yielded original issue discounts additional interest expense 491694 2002 102567 period splitoff merger date december 31 2001 company believes equity classification appropriate outstanding warrants pursuant provisions eitf issue 0019 determination whether share settlement within control issuer purposes applying eitf issue 9613 accounting derivative financial instruments indexed potentially settled companys stock e employee stock purchase plan 2001 company adopted 2001 employee stock purchase plan eligible employees allowed purchase shares companys common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value companys common stock either beginning end offering period whichever lower company may issue 500000 shares common stock plan december 31 2002 18356 shares issued plan f executive bonus plan 2001 company adopted stockholder approved executive bonus plan executive bonus plan amended february 2002 pursuant executive bonus plan amended certain key executives company entitled receive annual basis option grants awarded fair value date grants shares companys common stock attain certain targeted prices per share performance determinations made end calendar year starting december 31 2002 ending december 31 2005 maximum number shares options may granted executive bonus plan amended 712600 performance targets achieved december 31 2002 13 income taxes companys income tax provision 2002 mainly represents recorded foreign subsidiaries unipath limited england inverness medical switzerland gmbh switzerland us subsidiary wampole 2001 2000 income tax provisions represent mainly recorded inverness medical inc imi loss income continuing operations income taxes consists following federal state income tax filing purposes results imis operations consolidated imts date splitoff merger november 21 2001 imi standalone tax filing responsibilities states prior splitoff imt tax accounts maintained imi companys subsidiaries computed using separate return method imt net loss position accordingly paid virtually income taxes jurisdiction prior splitoff imt imi tax sharing agreement imt agreed pay imis tax liabilities offset liabilities via imts net operating loss carryforwards imis cumulative taxable income beginning january 1 1998 exceeded 15500000 imis cumulative taxable income passed threshold imi required pay dividend imt equal 40 amount exceeds threshold 2000 imi surpassed threshold imi accrued dividend imt 1187000 2000 pursuant agreement imi recorded capital contribution imt taxes paid imt offset via imts net operating loss carryforward upon splitoff imt agreement cancelled companys primary temporary differences give rise deferred tax asset liability nondeductible reserves accruals differences bases tangible intangible assets income tax effects temporary differences follows december 31 2002 company approximately 21119000 19059000 domestic foreign net operating loss carryforwards respectively either expire various dates 2022 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities valuation allowance relates companys us net operating losses deferred tax assets certain foreign deferred tax assets recorded based upon uncertainty surrounding realizability assets realized via profitable operations respective tax jurisdictions amount us income tax provided undistributed earnings companys foreign subsidiaries company considers earnings indefinitely reinvested event distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability following table presents components companys provision income taxes following table presents reconciliation us statutory tax rate companys effective tax rate continuing operations 14 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance companys chief operating decision making group composed chief executive officer members senior management companys reportable operating segments consumer products comprised consumer diagnostic products vitamins nutritional supplements professional diagnostic products corporate accounting policies segments described summary significant accounting policies company evaluates performance based ebitda revenues attributed geographic areas based customer located segment information 2002 2001 2000 follows 15 transactions inverness medical technology inc affiliates management services periods prior splitoff imt results companys subsidiary imi include expenses represent crosscharges imt crosscharges include among things support services financial computer legal sales marketing customer support accounting well rent administrative costs imi recorded crosscharges imt approximately 3033475 2733061 2001 2000 respectively believes approximates armslength costs charges imt imi included respective captions accompanying consolidated statements operations made following ithrough november 21 2002 date splitoff merger b loans imt february 1997 connection imis purchase nutritional supplement product line american home products known wyeth imi borrowed 2000000 imt interest accruing annual rate 65 interest expense note included accompanying statements operations 115397 130356 2001 2000 respectively december 31 2000 companys irish subsidiary cdil note payable balance plus accrued interest totaling approximately 2208274 due imt loan agreement originally dated july 1 1997 amended interest accruing annual rate 9 interest expense note included accompanying statements operations 182844 164665 2001 2000 respectively discussed note 1 upon splitoff merger november 2001 imt affiliates forgave outstanding balances due company companys affiliates forgiveness indebtedness 10368735 recorded component capital contribution imt c transition services agreement imt prior splitoff imt company entered transition services agreements whereby would provide certain transition services imt affiliates agreedupon period time service fee transition services primarily included management services provided imi product packaging services provided cdil related certain diabetes businesses products since splitoff imt imi charged approximately 1910110 180907 2002 2001 respectively transition service fees imt believes approximate armslength costs fees reduced companys general administrative expenses respective periods since splitoff imt cdil generated 5108192 1058908 2002 2001 respectively net product sales packaging service contract affiliate imt transition services provided imi cdil terminated february 2003 july 2002 respectively discontinued operations pursuant merger agreement related agreements connection splitoff imt company transferred imt entities businesses conduct business diabetes segment principally canam subsidiary imi diabetes business imb discussed note 1 accompanying consolidated financial statements reflect transfer diabetes businesses company discontinued operations accompanying consolidated statements operations include income loss discontinued operations follows ithrough november 21 2001 date splitoff merger 16 valuation qualifying accounts company established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component selling general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities companys accounts receivable reserve accounts part item 1 business item 2 description property item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations special statement regarding forwardlooking statements item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes accountants part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 controls procedures part iv item 15 exhibits financial statement schedules reports form 8k signatures certifications inverness medical innovations inc subsidiaries consolidated financial statements table contents report independent auditors report independent public accountants inverness medical innovations inc subsidiaries consolidated statements operations inverness medical innovations inc subsidiaries consolidated balance sheets inverness medical innovations inc subsidiaries consolidated statements stockholders equity inverness medical innovations inc subsidiaries consolidated statements cash flows inverness medical innovations inc subsidiaries notes consolidated financial statementsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulation securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included 3 exhibits 21 sale agreement dated december 20 2001 inverness medical innovations inc company unilever uk holdings limited incorporated reference exhibit 21 companys current report form 8k dated december 20 2001 22 stock purchase agreement dated july 30 2003 among inverness medical innovations inc applied biotech inc erie scientific company incorporated reference exhibit 21 companys current report form 8k dated august 27 2003 23 asset purchase agreement september 30 2003 among abbott laboratories inverness medical innovations inc inverness medical switzerland gmbh morpheus acquisition corp morpheus acquisition llc incorporated reference exhibit 21 companys current report form 8k dated september 30 2003 24 agreement plan merger dated february 8 2005 among inverness medical innovations inc delaware corporation formed whollyowned subsidiary inverness medical innovations inc binax inc roger n piasio myron c hamer roger n piasio stockholder representative incorporated reference exhibit 991 companys current report form 8k dated february 9 2005 25 agreement plan merger dated february 15 2005 among inverness medical innovations inc delaware corporation formed whollyowned subsidiary inverness medical innovations inc ischemia technologies inc incorporated reference exhibit 991 companys current report form 8k dated february 15 2005 26 asset purchase agreement dated may 28 2005 among abbott laboratories abbott cardiovascular inc abbott japan co ltd inverness medical innovations inc inverness medical switzerland gmbh inverness medical japan ltd incorporated reference exhibit 21 companys current report form 8k dated june 30 2005 27 stock purchase agreement dated september 16 2005 inverness medical innovations inc thermo electron corporation thermo bioanalysis corporation 28 acquisition agreement dated february 24 2006 among inverness medical innovations inc acon laboratories inc azure institute inc lbi inc oakville hong kong co ltd acon biotech hangzhou co ltd karsson overseas ltd incorporated reference exhibit 991 companys current report form 8k dated february 24 2006 29 share purchase agreement dated february 28 2006 inverness medical switzerland gmbh inverness medical innovations inc clondiag beteiligungsgesellschaft gmbh eugen ermantraut dr stefan wölfl dr torsten schulz prof dr albert hinnen karl fusseis prof dr michael köhler thomas ellinger 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys annual report form 10k amended year ended december 31 2001 32 certificate designation preferences rights series convertible preferred stock company incorporated reference exhibit 992 companys current report form 8k dated december 20 2001 33 amended restated bylaws company incorporated reference exhibit 33 companys annual report form 10k amended year ended december 31 2001 41 indenture dated february 10 2004 inverness medical innovations inc guarantors named therein us bank trust national association incorporated reference exhibit 43 companys annual report form 10k amended year ended december 31 2004 42 first supplemental indenture dated june 15 2004 among inverness medical innovations inc guarantors advantage diagnostics corporation us bank trust national association trustee incorporated reference exhibit 41 companys quarterly report form 10q period ended june 30 2004 43 second supplemental indenture dated october 20 2004 among inverness medical innovations inc guarantors ivc industries inc us bank trust national association trustee incorporated reference exhibit 41 companys quarterly report form 10q period ended september 30 2004 44 third supplement indenture dated march 16 2005 among inverness medical innovations inc guarantors ischemia technologies inc us bank trust national association trustee incorporated reference exhibit 41 companys quarterly report form 10q period ended march 31 2005 45 fourth supplement indenture dated march 31 2005 among inverness medical innovations inc guarantors binax inc us bank trust national association trustee incorporated reference exhibit 42 companys quarterly report form 10q period ended march 31 2005 46 fifth supplemental indenture dated september 30 2005 among inverness medical innovations inc guarantors thermo biostar inc us bank trust national association trustee incorporated reference exhibit 41 companys quarterly report form 10q period ended september 30 2005 101 postclosing covenants agreement dated november 21 2001 among johnson imt company certain subsidiaries imt certain subsidiaries company incorporated reference exhibit 101 companys annual report form 10k amended year ended december 31 2001 102 supply goods agreement dated july 28 1998 schleicher schuell gmbh unipath limited incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 103 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 101 companys registration statement form s4 amended file 33367392 104 inverness medical innovations inc 2001 employee stock purchase plan incorporated reference exhibit 102 companys registration statement form s4 amended file 33367392 105 inverness medical innovations inc 2001 employee stock purchase planfirst amendment incorporated reference exhibit 109 companys annual report form 10k amended year ended december 31 2001 106 inverness medical innovations inc 2001 employee stock purchase plansecond amendment 107 restricted stock agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company ron zwanziger incorporated reference exhibit 1011 companys annual report form 10k amended year ended december 31 2001 108 promissory note dated august 16 2001 ron zwanziger company incorporated reference exhibit 1012 companys annual report form 10k amended year ended december 31 2001 109 pledge agreement dated august 16 2001 ron zwanziger company incorporated reference exhibit 1013 companys annual report form 10k amended year ended december 31 2001 1010 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company jerry mcaleer incorporated reference exhibit 103 companys annual report form 10k amended year ended december 31 2001 1011 promissory note dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1015 companys annual report form 10k amended year ended december 31 2001 1012 pledge agreement dated december 4 2001 jerry mcaleer company incorporated reference exhibit 1016 companys annual report form 10k amended year ended december 31 2001 1013 nonqualified stock option agreement inverness medical innovations inc 2001 stock option incentive plan dated august 15 2001 company david scott incorporated reference exhibit 1017 companys annual report form 10k amended year ended december 31 2001 1014 promissory note dated december 4 2001 david scott company incorporated reference exhibit 1018 companys annual report form 10k amended year ended december 31 2001 1015 pledge agreement dated december 4 2001 david scott company incorporated reference exhibit 1019 companys annual report form 10k amended year ended december 31 2001 1016 lease 10 southgate llc binax inc dated august 26 2004 incorporated reference exhibit 107 companys quarterly report form 10q period ended june 30 2005 1017 research development agreement dated february 25 2005 among iti scotland limited inverness medical innovations inc stirling medical innovations limited inverness medical switzerland gmbh incorporated reference exhibit 102 companys quarterly report form 10q period ended march 31 2005 1018 form stock purchase agreement dated february 3 2006 company investor named therein 1019 form warrant purchase shares common stock company issued pursuant note warrant purchase agreement dated december 14 2001 incorporated reference exhibit 995 companys current report form 8k dated december 20 2001 1020 warrant purchase shares common stock company dated december 20 2001 issued zwanziger family ventures llc incorporated reference exhibit 1028 companys annual report form 10k amended year ended december 31 2001 1021 agreement dated december 1 1986 bernard levere zelda levere pioneer pharmaceuticals inc essex chemical corp unconditional guarantee essex chemical corp incorporated reference exhibit 1033 companys annual report form 10k amended year ended december 31 2001 1022 option assume extend lease dated february 1995 bernard levere zelda levere international vitamin corporation incorporated reference exhibit 1034 companys annual report form 10k amended year ended december 31 2001 1023 warrant purchase shares common stock company dated march 31 2005 issued roger piasio 1024 licensing agreement dated march 14 1988 unilever plc behringwerke ag incorporated reference exhibit 1037 companys annual report form 10k amended period ended december 31 2001 1025 supplemental agreement dated october 16 1994 unilever plc unilever nv behringwerke ag incorporated reference exhibit 1038 companys annual report form 10k amended period ended december 31 2001 1026 supply goods agreement dated december 19 1994 afc worldwide unipath limited incorporated reference exhibit 101 companys quarterly report form 10q amended period ended march 30 2002 1027 amendment supply goods agreement dated march 14 2002 schleicher schuell gmbh unipath limited incorporated reference exhibit 102 companys quarterly report form 10q amended period ended march 30 2002 1028 amendment 1 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 44 companys registration statement form s8 file 33390530 1029 subordinated note warrant purchase agreement dated september 20 2002 company investors named therein note warrant purchase agreement incorporated reference exhibit 991 companys current report form 8k dated september 20 2002 1030 form subordinated promissory note issued pursuant note warrant purchase agreement incorporated reference exhibit 992 companys current report form 8k dated september 20 2002 1031 form warrant agreement issued pursuant note warrant purchase agreement incorporated reference exhibit 993 companys current report form 8k dated september 20 2002 1032 third amended restated credit agreement dated june 30 2005 among wampole laboratories llc inverness parties signatory thereto credit parties lenders signatory thereto time lenders general electric capital corporation administrative agent merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent colead arranger ubs securities llc cosyndication agent gecc capital markets group inc colead arranger incorporated reference exhibit 101 companys current report form 8k event date june 30 2005 filed july 7 2005 1033 first amendment consent third amended restated credit agreement dated september 29 2005 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 101 companys current report form 8k event date september 29 2005 filed october 4 2005 1034 second amendment third amended restated credit agreement dated november 8 2005 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time incorporated reference exhibit 102 companys quarterly report form 10q amended period ended september 30 2005 1035 third amendment third amended restated credit agreement dated november 22 2005 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time 1036 fourth amendment consent third amended restated credit agreement dated february 27 2006 third amended restated credit agreement dated june 30 2005 among general electric capital corporation agent inverness medical innovations inc wampole laboratories llc inverness medical uk holdings limited borrowers credit parties signatory thereto merrill lynch capital division merrill lynch business financial services inc documentation agent cosyndication agent lender ubs securities llc cosyndication agent lenders signatory thereto time 1037 commercial lease dated june 25 2001 thermo biostar inc park ctc llc 1038 first amendment lease dated november 2002 thermo biostar inc park ctc llc 1039 amendment 2 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 46 companys registration statement form s8 amended file 333106996 1040 amendment 3 inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 103 companys quarterly report form 10q period ended june 30 2005 1041 rules inverness medical innovations inc inland revenue approved option plan adopted subplan inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 102 companys quarterly report form 10q period ended june 30 2005 1042 form nonqualified stock option agreement nonemployee directors inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 104 companys quarterly report form 10q period ended june 30 2005 1043 form nonqualified stock option agreement senior executives inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 105 companys quarterly report form 10q period ended june 30 2005 1044 form incentive stock option agreement senior executives inverness medical innovations inc 2001 stock option incentive plan incorporated reference exhibit 106 companys quarterly report form 10q period ended june 30 2005 1045 manufacturing support services agreement dated june 30 2005 among abbott japan co ltd abbott laboratories inverness medical innovations inc inverness medical switzerland gmbh inverness medical japan ltd incorporated reference exhibit 108 companys quarterly report form 10q period ended june 30 2005 1046 commercial lease dated august 1 1998 chang family trust applied biotech inc incorporated reference exhibit 1043 companys annual report form 10k amended year ended december 31 2004 1047 amendment commercial lease dated april 2003 chang family trust applied biotech inc incorporated reference exhibit 1044 companys annual report form 10k amended year ended december 31 2004 1048 manufacturing packaging supply agreement dated june 6 2003 among inverness medical innovations inc inverness medical switzerland gmbh unipath ltd warnerlambert company llc incorporated reference exhibit 1045 amendment 2 companys annual report form 10k year ended december 31 2004 1049 first amendment subordinated promissory notes dated november 14 2003 incorporated reference exhibit 1046 companys annual report form 10k amended year ended december 31 2004 1050 reagent supply agreement dated june 30 2005 abbott laboratories inverness medical innovations inc inverness medical japan ltd incorporated reference exhibit 109 companys quarterly report form 10q period ended june 30 2005 1450 inverness medical innovations business conduct guidelines incorporated reference exhibit 141 companys annual report form 10k amended year ended december 31 2004 211 list subsidiaries company march 15 2006 231 consent bdo seidman llp 311 certification chief executive officer pursuant section 302 sarbanesoxley act 312 certification chief financial officer pursuant section 302 sarbanesoxley act 321 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act filed herewith omitted portions exhibit granted confidential treatment signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inverness medical innovations inc date march 15 2006 ron zwanziger ron zwanziger chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date ron zwanziger ron zwanziger chief executive officer president director principal executive officer march 15 2006 christopher j lindop christopher j lindop chief financial officer principal financial officer principal accounting officer march 15 2006 carol r goldberg carol r goldberg director march 15 2006 robert p khederian robert p khederian director march 15 2006 john f levy john f levy director march 15 2006 jerry mcaleer jerry mcaleer director march 15 2006 john quelch john quelch director march 15 2006 david scott david scott director march 15 2006 peter townsend peter townsend director march 15 2006 alfred zeien alfred zeien director march 15 2006 inverness medical innovations inc subsidiaries consolidated financial statements page report independent registered public accounting firm consolidated statements operations years ended december 31 2005 2004 restated 2003 restated consolidated balance sheets december 31 2005 2004 restated consolidated statements stockholders equity comprehensive income loss years ended december 31 2005 2004 restated 2003 restated consolidated statements cash flows years ended december 31 2005 2004 restated 2003 restated notes consolidated financial statements report independent registered public accounting firm board directors stockholders inverness medical innovations inc subsidiaries audited accompanying consolidated balance sheets inverness medical innovations inc subsidiaries company december 31 2005 2004 related consolidated statements operations stockholders equity comprehensive income loss cash flows three years period ended december 31 2005 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position inverness medical innovations inc subsidiaries december 31 2005 2004 consolidated results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america discussed note 2p consolidated financial statements company previously restated financial statements years ended december 31 2004 2003 account properly previously unidentified return exchange rights connection sale certain products reliable estimates return exchange made result revenue associated sales recognized upon shipment also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 14 2006 expressed unqualified opinion managements assessment effectiveness internal control financial reporting unqualified opinion effectiveness internal control financial reporting bdo seidman llp boston massachusetts march 14 2006 inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts 1stockbased compensation expense statement operations classifications follows accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss continued thousands except per share amounts accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries consolidated statements cash flows continued thousands accompanying notes integral part consolidated financial statements inverness medical innovations inc subsidiaries notes consolidated financial statements 1 description business basis presentation inverness medical innovations inc subsidiaries develop manufacture market vitro diagnostic products overthecounter pregnancy fertilityovulation test market professional rapid diagnostic test market worldwide addition manufacture variety vitamins nutritional supplements market brands private label retailers consumer market primarily united states business organized three primary operating segments consumer diagnostic products ii vitamins nutritional supplements iii professional diagnostic products consumer diagnostic products segment includes overthecounter pregnancy fertilityovulation tests vitamins nutritional supplements segment includes branded private label vitamins nutritional supplements sold overthecounter professional diagnostic products segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection infectious diseases drugs abuse pregnancy company incorporated may 11 2001 whollyowned subsidiary inverness medical technology inc imt november 21 2001 pursuant agreement plan splitoff merger dated may 23 2001 merger agreement johnson acquired imt merger transaction simultaneously company subsidiary imt splitoff imt separate publicly traded company pursuant terms merger agreement related agreements immediately prior consummation transaction imt restructured operations nondiabetes businesses womens health nutritional supplements professional diagnostics held company subsidiaries closing transaction shares common stock held imt splitoff imt since consummation splitoff merger described completed number acquisitions 2005 acquired thermo biostar inc biostar september 30 2005 innogenetics diagnostica terapeutica sau idt september 30 2005 determinedainascreen assets abbott laboratories rapid diagnostic business determine business june 30 2005 binax inc binax march 31 2005 ischemia technologies inc ischemia march 16 2005 consumer pregnancy test business advanced clinical systems pty ltd acs january 24 2005 note 4 biostar develops manufactures highperformance rapid diagnostic tests including tests detection infectious diseases idt spanish distributor diagnostic products determine business produces diagnostic tests designed provide rapid qualitative results detecting several diseases including hepatitis hiv 12 syphilis binax developer manufacturer distributor rapid diagnostic products infectious disease testing primarily related respiratory system ischemia privately held venturebacked company developed manufactured marketed fdacleared vitro diagnostic test targeted cardiac ischemia acquiring acs obtained rights crystal clear brand leading consumer pregnancy test australia leading position new zealand 2004 acquired advantage diagnostics corporation adc june 16 2004 viva diagnostika viva june 2 2004 note 4b adc closely held lateral flow diagnostic company specializes rapid test development component manufacturing viva closely held distributor professional diagnostic products german marketplace 2003 acquired rapid diagnostics business abbott laboratories abbott september 30 2003 abbott business applied biotech inc subsidiary abi apogent technologies inc august 27 2003 ostex international inc ostex june 30 2003 note 4 c business acquired abbott 2003 relates consumer diagnostic pregnancy tests various professional rapid diagnostic product lines well certain transferred licensed intellectual property related products abi developer manufacturer distributor consumer diagnostic professional diagnostic products areas womens health infectious disease drugs abuse testing ostex develops commercializes osteoporosis diagnostics products holds intellectual property rights field osteoporosis diagnostics addition acquired small research development facility scandinavian micro biodevices aps smb november 18 2003 acquisitions occurred 2002 2001 include acquisition wampole division medpointe inc wampole september 20 2002 ivc industries inc dba inverness medical nutritionals group imn march 19 2002 certain entities businesses intellectual property unilver plc unipath business december 20 2001 wampole markets distributes pointofcare professional medical diagnostic products imn manufactures distributes vitamins nutritional supplements unipath business develops manufactures distributes womens health professional diagnostics products consolidated financial statements include accounts entities contributed us imt subsequently acquired entities businesses since respective acquisition dates along assets liabilities revenues expenses businesses intercompany accounts transactions eliminated consolidation equity accounts periods presented reflect par value stock date incorporation adjusted fixed exchange ratio set forth merger agreement related agreements related stock split historical equity accounts legal entities comprise company consolidated subsidiaries businesses historically organized manner consistent restructuring set forth merger agreement related agreements 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates b foreign currencies follow provisions statement financial accounting standards sfas 52 foreign currency translation general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income within stockholders equity note 13 income expense accounts foreign subsidiaries translated using average rates exchange reporting period net realized unrealized foreign currency exchange transaction losses 03 million 07 million 2005 2004 respectively gain 5000 2003 included component income net accompanying consolidated statements operations c cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2005 2004 inventories stated lower cost firstin firstout market made raw material workinprocess finished goods costs elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory e property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation amortization computed using straightline method based following estimated useful lives related assets machinery laboratory equipment tooling310 years buildings2039 years leasehold improvementslesser remaining term lease estimated useful life asset computer software equipment35 years furniture fixtures310 years land depreciated depreciation amortization expense related property plant equipment amounted 149 million 131 million 101 million 2005 2004 2003 respectively expenditures repairs maintenance expensed incurred f goodwill intangible assets review valuation goodwill accordance sfas 142 goodwill intangible assets provisions sfas 142 goodwill required tested impairment annually lieu amortized using fair value approach reporting unit level furthermore goodwill required tested impairment interim basis event circumstance indicates likely impairment loss incurred impairment loss shall recognized extent carrying amount goodwill exceeds implied fair value impairment losses shall recognized operations valuation methodology assessing impairment requires management make judgments assumptions based historical experience projections future operating performance assumptions differ materially future results may record impairment charges future annual impairment review performed september 30 2005 indicate goodwill related consumer diagnostic products professional diagnostic products reporting units impaired g impairment longlived tangible intangible assets examine accordance sfas 144 accounting impairment disposal longlived assets periodic basis carrying value longlived tangible intangible assets determine whether impairment losses indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets carrying amount impairment loss would charged expense period impairment identified based fair value asset believe carrying values longlived tangible intangible assets realizable december 31 2005 h income taxes follow provisions sfas 109 accounting income taxes deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities deferred tax assets liabilities measured using enacted tax rates laws expected effect differences expected reverse provisions sfas 109 also require recognition future tax benefits net operating loss carryforwards extent realization benefits likely extent likely realize benefits must establish valuation allowance related deferred tax assets note 15 revenue recognition majority revenues derived product sales recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances certain sale arrangements require us accept product returns right return exists record revenue right return longer applicable connection acquisitions rapid diagnostic business september 2003 note 4 c determine business june 2005 note 4a abbott entered transition services agreement abbott whereby abbott would continue distribute certain acquired products sold period 18 months following acquisition transition period recognized revenue sales products title transferred abbott thirdparty customers lesser extent also receive license royalty revenue agreements thirdparty licensees revenue fixed fee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees calculated based licensees sales generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned j employee stockbased compensation arrangements adopted employee stock option plan 2001 note 13c periods presented accompanying consolidated financial statements accounted employee stockbased compensation arrangements using intrinsic value method provisions accounting principles board apb opinion 25 accounting stock issued employees related interpretations elected use disclosureonly provisions sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure compensation expense stock option grants employees determined based fair value method grant date awards stock option plans consistent method prescribed sfas 123 net loss income would increased decreased pro forma amounts indicated follows astockbased employee compensation expense reported represents amortization deferred compensation certain stock options restricted stock granted employees fair market value options granted lieu cash compensation computed pro forma disclosures stock options granted employees january 1 1995 using blackscholes option pricing model prescribed sfas 123 assumptions used three years ended december 31 2005 follows weighted average fair value blackscholes option pricing model options granted employees 2005 2004 2003 1185 986 934 respectively options granted periods granted fair market value date grants required adopt sfas 123 revised 2004 sharebased payment sfas 123r beginning fiscal year begins june 15 2005 consequently adopted sfas 123r january 1 2006 see note 2o discussion k net loss income per common share net loss income per common share computed accordance sfas 128 earnings per share based upon weighted average number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 12 l operating expenses expense advertising costs incurred 2005 2004 2003 advertising costs amounted 217 million 199 million 186 million respectively included sales marketing expenses accompanying consolidated statements operations shipping handling costs included cost sales accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded product revenues concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses individual customer accounts receivable balances outstanding december 31 2005 2004 excess 10 gross accounts receivable balance dates 2005 2004 2003 one customer represented 10 11 respectively net revenues purchases consumer diagnostic products vitamins nutritional supplements rely number third parties manufacture certain products third party manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results n financial instruments fair value financial instruments primary financial instruments december 31 2005 2004 consisted cash equivalents accounts receivable accounts payable debt estimated fair value financial instruments approximates carrying values december 31 2005 2004 estimated fair values determined information obtained market sources additionally subsidiary england enters shortterm foreign currency exchange forward contracts time minimize exposure foreign currency exchange fluctuations substantial portion business transacted currencies functional currency account derivative instruments accordance sfas 133 accounting derivative instruments hedging activities related amendments including sfas 149 amendment statement 133 derivative instruments hedging activities december 31 2005 outstanding foreign currency exchange forward contracts totaling 30 million changes 217000 market value contracts 2005 recorded income net consolidated statements operations recent accounting pronouncements may 2005 fasb issued sfas 154 accounting changes error corrections replaces abp opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements changes requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods financial statements changes accounting principle unless impracticable determine either periodspecific effects cumulative effect change sfas 154 shall effective accounting changes corrections errors made fiscal years beginning december 15 2005 early adoption permitted accounting changes corrections errors made fiscal years beginning date sfas 154 issued believe adoption sfas 154 material effect financial position results operations cash flows march 2005 fasb issued fasb interpretation 47 accounting conditional asset retirement obligations interpretation fasb statement 143 accounting asset retirement obligations interpretation requires liability fair value conditional asset retirement obligation recognized fair value liability reasonable estimated interpretation effective years ending december 15 2005 interpretation expected material impact results operations financial position december 2004 fasb issued sfas 153 exchange nonmonetary assetsan amendment apb opinion 29 accounting nonmonetary transactions sfas 153 based principle exchange nonmonetary assets measured based fair market value assets exchanged sfas 153 eliminates exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance sfas 153 effective nonmonetary asset exchanges fiscal periods beginning june 15 2005 currently evaluating provisions sfas 153 believe adoption sfas 153 material impact consolidated financial statements december 2004 fasb issued sfas 123r addresses accounting transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments eliminates ability account sharebased compensation transactions using apb opinion 25 generally requires transactions accounted using fairvaluebased method permitted current sfas 123 accounting stockbasedcompensation accounting sharebased compensation employees using apb opinion 25s intrinsic value method generally recognize compensation cost employee stock options original guidance sfas 123r adopt statements provisions interim period beginning june 15 2005 however april 2005 result action securities exchange commission companies allowed adopt provisions sfas 123r beginning fiscal year begins june 15 2005 consequently adopted sfas 123r january 1 2006 adopted standard 2005 net loss 2005 would 62 million 025 per diluted share higher reported 2005 expect requirement expense stock options equity interests granted pursuant equity incentive program significantly increase operating expenses result lower earnings per share amount increase operating expenses depend level future grants terms fair values grants expected volatilities among factors present grant dates adoption sfas 123r impact cash flows november 2004 financial accounting standards board fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 sfas 151 clarifies abnormal amounts idle facility expense freight handling costs wasted material recognized current period charges circumstances additionally sfas 151 requires facilitys fixed production overhead charged inventory based normal capacity production facility required adopted sfas 151 january 1 2006 expect adoption sfas 151 material impact consolidated financial statements p restatements 2004 2003 financial statements previously restated consolidated financial statements years ended december 31 2004 2003 quarter ended march 31 2005 correct errors gaap relating recognition revenue 2005 determined certain customers one diagnostics divisions provided return exchange rights connection sale products result revenue associated sales recognized upon shipment customers gaap result recorded 45 million net revenue reversal 34 million gross margin corresponding net loss impact spread quarters 2004 2003 increase revenues gross profit 03 million first quarter 2005 restatements result errors relating recognition revenue reflected amounts restated august 26 2005 following lists accounts consolidated financial statements affected aforementioned restatements comparisons restated amounts reported amounts included 2004 annual report form 10k filed sec march 16 2005 reported effect restatements net loss income net loss income per share applicable amounts relating aforementioned restatements reflected consolidated financial statements notes hereto 3 balance sheet information components selected captions consolidated balance sheets consist 4 business combinations acquisitions discussed exception acquisition consumer pregnancy test business acs note 4a biomar diagnostic systems gmbh biomar note 4b resulted recognition goodwill acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses discussed excess fair value net assets acquired resultant goodwill acquisitions 2005 iacquisition biostar september 30 2005 acquired biostar leading developer manufacturer highperformance rapid diagnostic tests including tests detection infectious diseases aggregate purchase price 537 million consisted 531 million cash 05 million estimated direct acquisition costs 01 million estimated exit costs recorded accordance emerging issues task force eitf 953 recognition liabilities connection purchase business combination following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition biostar accounted purchase sfas 141 business combinations accordingly operating results biostar included consolidated financial statements operations acquisition date part professional diagnostic products reporting unit assigned indefinite lives acquired goodwill certain trademarks value goodwill fully deductible tax purposes 15 years values allocated acquired core technology customer relationships oia trade names amortized straightline basis estimated useful lives 10 5 10 years respectively weighted average amortization period acquired intangible assets finite lives 68 years trademarks core technology customer relationships oia trade name allocated respectively intangible assets indefinite lives core technology patents net intangible assets net accompanying consolidated balance sheet december 31 2005 iiacquisition idt september 30 2005 acquired idt spanish distributor diagnostic products aggregate purchase price 203 million consisted 117 million cash 84 million working capital adjustment paid fourth quarter fiscal year 2005 02 million estimated direct acquisition costs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition values assets acquired subsequent amortization liabilities assumed based preliminary management estimates final purchase price allocation may differ management also process determining useful lives customer relationships listed estimated value allocated acquired customer relationships amortized straightline basis estimated useful lives 5 years customer relationships included intangible assets net accompanying consolidated balance sheets acquisition idt accounted purchase sfas 141 accordingly operating results idt included consolidated financial statements operations acquisition date part professional diagnostic products reporting unit goodwill resulting acquisition deductible tax purposes iiiacquisition determine business june 30 2005 acquired determine business produces diagnostic tests designed provide rapid qualitative results detecting several diseases including hepatitis hiv 12 syphilis aggregate purchase price 581 million consisted 565 million cash 16 million estimated direct acquisition costs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition values assets acquired based preliminary management estimates due timing acquisition final purchase price allocation may differ management also process determining useful lives acquired intangibles listed assigned indefinite lives acquired goodwill trademark goodwill resulting acquisition deductible tax purposes lives varying 10 25 years depending tax jurisdiction estimate useful lives manufacturing knowhow ten years customer relationships asset six years included intangible assets net accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 69 years acquisition determine business accounted purchase sfas 141 accordingly operating results determine business included consolidated statements operations acquisition date part professional diagnostic products reporting unit ivacquisition binax march 31 2005 acquired binax privately held developer manufacturer distributor rapid diagnostic products infectious disease testing primarily related respiratory system aggregate purchase price 447 million consisted 90 million cash 14 million shares common stock aggregate fair value 352 million 05 million estimated direct acquisition costs fair value common stock determined based average market price common stock periods prior following date acquisition agreement pursuant eitf 9912 determination measurement date market price acquirer securities issued purchase business combination terms acquisition agreement also provide 110 million contingent cash consideration payable binax shareholders upon successful completion certain new product developments five years following acquisition contingent consideration accounted increase aggregate purchase price contingency occurs following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition assigned indefinite lives acquired goodwill trademarks goodwill generated acquisition deductible tax purposes estimate useful lives product technology customer relationships noncompete agreement 7 13 7 years included core technology patents net intangible assets net respectively accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 107 years acquisition binax accounted purchase sfas 141 accordingly operating results binax included consolidated statement operations since acquisition date part professional diagnostic products reporting unit vacquisition ischemia march 16 2005 acquired ischemia privately held venturebacked company developed manufactures markets fdacleared vitro diagnostic test targeted cardiac ischemia aggregate purchase price 272 million consisted 968000 shares common stock aggregate fair value 228 million estimated exit costs 15 million vacate ischemias manufacturing administrative facilities recorded accordance eitf 953 estimated direct acquisition costs 24 million 05 million assumed debt fair value common stock determined accordance eitf 9912 following summary allocation aggregate purchase price assets acquired liabilities assumed date acquisition assigned indefinite lives acquired goodwill generated acquisition deductible tax purposes estimated useful lives patents 9 15 years customer related intangible asset 11 years included core technology patents net intangible assets net respectively accompanying consolidated balance sheets acquisition ischemia accounted purchase sfas 141 accordingly operating results ischemia included consolidated statements operations acquisition date part professional diagnostic products reporting unit viacquisition acs january 24 2005 acquired consumer pregnancy test business acs acquiring acs obtained rights crystal clear brand crystal clear leading consumer pregnancy test australia leading position new zealand purchase price acs consisted 46 million cash estimated direct acquisition costs 03 million majority purchase price acs allocated intangible asset trademarks average useful life 7 years acquisition acs accounted purchase sfas 141 accordingly operating results business included consolidated statements operations acquisition date part consumer diagnostic product reporting unit b acquisitions 2004 iacquisition biomar december 10 2004 subsidiary inverness medical switzerland gmbh ims settled patent infringement lawsuit germany biomar principal stockholder alleged biomars rapid diagnostic tests infringed several patents advance court decision biomar agreed settle litigation terms agreement biomar agreed transfer rapid diagnostic business us including use biomar trade name exchange release past infringement claims accounted settlement accordance eitf 0401 accounting preexisting relationships parties business combination recorded fair values assets acquired aggregating 05 million gain income net accompanying statement operations 2004 acquisition biomar accounted purchase sfas 141 accordingly operating results biomar included consolidated statements operations acquisition date part professional diagnostic products reporting unit iiacquisition adc june 16 2004 acquired adc closely held lateral flow diagnostic company specializes rapid test development component manufacturing purchase price adc consisted 24 million cash 02 million assumed debt terms merger agreement amended also provide 15 million contingent consideration payable adc shareholders upon successful completion new product development june 30 2006 payment contingent consideration recorded addition purchase price acquisition adc accounted purchase sfas 141 accordingly operating results adc included consolidated statements operations acquisition date part professional diagnostic products reporting unit iiiacquisition viva june 2 2004 acquired viva closely held distributor professional diagnostic products german marketplace purchase price viva consisted 26 million cash 02 million shares common stock aggregate fair value 30 million 03 million assumed debt believe viva established german distribution network provide us expanded distribution channel professional diagnostic products well cardiac products development acquisition viva accounted purchase sfas 141 accordingly operating results viva included consolidated statements operations acquisition date part professional diagnostic products reporting unit c acquisitions 2003 iacquisition smb november 18 2003 acquired smb developer manufacturer customized standard devices analysis biomolecules purchase price smb consisted 30 million cash 01 million shares common stock aggregate fair value 25 million 01 million assumed debt simultaneously acquisition acquired technology license smbs former parent 02 million acquisition smb provided us access smbs intellectual property research development capabilities fair value common stock determined accordance eitf 9912 acquisition smb accounted purchase sfas 141 accordingly operating activities smb consist principally research development activities included consolidated statements operations acquisition date iiacquisition 2003 abbott business september 30 2003 acquired abbott certain assets related abbotts lines consumer diagnostic pregnancy tests professional rapid diagnostics various testing needs including strep throat pregnancy drugs abuse acquired assets also include certain transferred licensed intellectual property related products acquisition complements consumer professional diagnostic product portfolios well helps establish larger global presence facilitate introduction new products aggregate purchase price 951 million consisted 550 million cash 375 million form 16 million shares common stock direct acquisition costs 26 million fair value common stock determined accordance eitf 9912 financed cash portion purchase price obtaining loans amended senior credit facility note 6a aggregate purchase price allocated assets acquired follows acquisition abbott business accounted purchase sfas 141 business combinations accordingly operating results abbott business included consolidated statements operations acquisition date part consumer diagnostic products professional diagnostic products reporting units acquired goodwill deductible tax purposes varying lives 15 25 years depending tax jurisdiction allocated business segment based estimated future revenue acquired assets follows 188 million consumer diagnostic products 507 million professional diagnostic products believe signify testpack trade names represent indefinitelived intangible assets estimate useful life fact plus trade name 5 years signify testpack trade names fact plus trade name included accompanying consolidated balance sheets trademark trade names indefinite lives intangible assets net respectively patents values included core technology patents net accompanying consolidated balance sheets assigned useful lives ranging 1 18 years customer related intangible assets values included intangible assets net accompanying consolidated balance sheets assigned useful lives ranging 15 5 years weighted average amortization period acquired intangible assets finite lives approximately 5 years acquisition resulted significant amount goodwill represents premium paid excess value allocated identifiable assets goodwill arose result acquired going concern value access employees via acquisition agreements synergies unique way acquisition abbott business structured access factors required maintaining continuity business achieved contractual arrangements terms two years facilitate rapid integration abbott business infrastructure minimal restructuring exit costs required reason vast majority goodwill associated acquisition attributable synergies arising application existing infrastructure acknowledged brands acquired business acquisition also attractive similarity mode operation abbott products existing products iiiacquisition abi august 27 2003 acquired abi apogent technologies inc apogent abi developer manufacturer distributor rapid diagnostic products areas womens health infectious disease drugs abuse testing transaction also acquired abis whollyowned subsidiary forefront diagnostics inc forefront develops manufactures distributes rapid diagnostic products drugs abuse testing products broaden professional diagnostic product portfolio abi also provides us additional manufacturing capabilities new distribution channels professional diagnostic products aggregate purchase price abi 288 million consisted 134 million cash 07 million shares common stock aggregate fair value 143 million direct acquisition costs 12 million fair value common stock determined accordance eitf 9912 financed cash portion purchase price obtaining loan amended senior credit facility note 6a following table summarizes fair value assets acquired liabilities assumed date acquisition abi accounted purchase sfas 141 accordingly operating results abi included consolidated statement operations acquisition date part consumer diagnostic products professional diagnostic products reporting units allocated goodwill 22 million 91 million consumer diagnostic products professional diagnostic products business segments respectively based estimated future revenue acquired businesses goodwill generated acquisition deductible tax purposes estimate useful lives intangible assets 15 years included intangible assets net accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 15 years ivacquisition ostex june 30 2003 acquired ostex merger transaction ostex develops commercializes osteoporosis diagnostic products acquisition also provides us intellectual property rights field osteoporosis diagnostics aggregate purchase price ostex 337 million consisted 16 million shares common stock aggregate fair value 235 million assumption fullyvested stock options warrants purchase aggregate 03 million shares common stock options warrants aggregate fair value 18 million estimated exit costs 39 million primarily consists severance costs vacate ostexs manufacturing administrative facilities note 19b accordance eitf 953 direct acquisition costs 16 million 29 million assumed debt fair value common stock issued acquire ostexs outstanding common stock determined based average market price common stock periods prior following date merger agreement amended pursuant eitf issue 9912 fair value assumed fullyvested stock options warrants calculated using blackscholes option pricing model following table summarizes fair value assets acquired liabilities assumed date acquisition ostex accounted purchase sfas 141 accordingly results ostex included consolidated statement operations acquisition date part professional diagnostic products reporting unit goodwill generated acquisition deductible tax purposes estimated useful lives core technology customer relationships 15 years included core technology patents net intangible assets net respectively accompanying consolidated balance sheets weighted average amortization period acquired intangible assets finite lives 15 years recent pending acquisitions february 28 2006 acquired 6745 capital stock clondiag chip technologies gmbh clondiag privately held company located jena germany developed multiplexing technology nucleic acid immunoassay based diagnostics exchange 218502 shares common stock approximately 31 million cash also agreed settle obligations totaling approximately 100 million first quarter 2006 primarily using cash agreement clondiag shareholders acquire remaining 3255 capital stock clondiag august 31 2006 additional 49 million based current exchange rates agreement also calls contingent consideration totaling approximately 89 million consisting 224316 shares common stock approximately 30 million cash stock event four specified products developed clondiags platform technology three years following date initial stock purchase february 24 2006 entered definitive agreement acon laboratories inc acon certain affliliated entities acquire assets acons business researching developing manufacturing marketing selling lateral flow immunoassay products united states canada europe excluding russia former soviet republics part european union turkey israel australia japan new zealand ii capital stock entities owning newlyconstructed manufacturing facility currently undergoing validation hangzhou china aggregate purchase price acquired business including manufacturing facility 1400 million 1750 million based upon multiple revenues pretax profits acquired business though agreed acquire 40 million indebtedness related new manufacturing facility aggregate purchase price expected based completion certain milestones related achievement functional manufacturing operations certain territories purchase price shall paid issuing aggregate 500 million common stock event 2130000 shares remainder purchase price paid cash transaction subject consent lenders ordinary customary closing conditions including certain regulatory approvals acquisition lateral flow business described expected close first second quarter 2006 acquisition manufacturing facility expected close end second quarter 2006 e pro forma financial information following table presents selected unaudited financial information company including adc viva ischemia binax determine business biostar idt acquisitions businesses occurred january 1 2004 pro forma results exclude adjustments acs historical results acquisition materially affect results operations pro forma results derived historical financial results acquired businesses periods presented necessarily indicative results would occurred acquisitions consummated january 1 2004 1net loss per share amounts computed described note 12 5 goodwill intangible assets following summary goodwill intangible assets december 31 2005 following summary goodwill intangible assets december 31 2004 amortize intangible assets finite lives using primarily straightline method estimated useful lives respective intangible asset believe straightline method appropriate approximates pattern economic benefits consumed circumstances patterns reliably determined amortization expense intangible assets aggregate amounted 129 million 104 million 63 million 2005 2004 2003 respectively included cost sales research development sales marketing accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2005 accordance sfas 142 perform annual impairment tests carrying value goodwill reporting unit annual impairment review september 30 2005 indicate goodwill related consumer diagnostic products professional diagnostic products reporting units impaired values assigned trade names acquired part acquisition assigned indefinite lives therefore accordance sfas 142 amortized allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated consumer diagnostic products professional diagnostic products reporting units summarized follows 1these amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internally develop intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2005 approximately 20 million costs capitalized connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon successful registration patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred 6 longterm debt following longterm debt balances outstanding following describes listed debt instruments senior credit facilities november 14 2002 certain subsidiaries entered senior credit agreement group banks credit facilities aggregate amount 550 million 441 million used prepay outstanding principal balances accrued unpaid interest term loans line credit series former credit agreements 2003 finance cash portions acquisitions abi abbott business note 4c amended senior credit agreement whereby borrowing capacity credit facilities increased 1350 million amended senior credit facilities 1350 million borrowings consisted two us term loans term loan 351 million term loan b 400 million european term loan 99 million us revolving line credit 250 million european revolving line credit 250 million february 10 2004 outstanding borrowings accrued unpaid interest amended senior credit agreement aggregating 1250 million prepaid proceeds sale 1500 million 875 senior subordinated notes bonds bond issuance note 6b treated prepayment outstanding borrowings senior credit facilities using proceeds bond offering refinancing accordance sfas 6 classification shortterm obligations expected refinanced retained 500 million availability revolving lines credit subject continued covenant compliance june 30 2005 amended restated existing senior credit facility amendment expanded existing revolving credit facility capacity 500 million 800 million added 200 million term loan facility upon completion amendment borrowed 580 million finance acquisition determine business august 2005 sold 40 million shares common stock three accredited institutional investors private placement net proceeds private placement approximately 928 million amount repaid principal interest outstanding senior credit facility 844 million remainder net proceeds retained general corporate purposes 200 million repayment used permanently reduce outstanding term loan balance senior credit facility repayment term loan balance resulted noncash writeoff deferred financing costs 01 million third quarter 2005 september 29 2005 amended senior credit facility increase total amount credit available us senior credit facility consists two revolving lines credit 800 million 1000 million december 31 2005 890 million borrowings outstanding lines 110 million available future borrowings subject continued covenant compliance borrowings revolving lines credit bear interest either london interbank offered rate libor defined agreement plus applicable margins option ii floating index rate defined agreement plus applicable margins applicable margins choose use libor index rate range 275 375 150 250 respectively depending quarterly adjustments based consolidated financial performance commencing quarter ending march 31 2004 december 31 2005 interest rate revolving lines credit including applicable margin ranged 684 925 recorded interest expense including amortization deferred financing costs senior credit facilities aggregate amount 23 million 20 million 46 million 2005 2004 2003 respectively december 31 2005 accrued interest related senior credit facility amounted 05 million february 10 2004 connection prepayment outstanding balances senior credit agreement also recorded additional interest expense 36 million relating writeoff remaining related unamortized deferred financing costs 31 million financing fee 05 million paid banks borrowings senior credit facilities secured stock certain us european subsidiaries substantially intellectual property rights assets business us europe excluding assets orgenics ltd israeli subsidiary inverness medical shanghai co ltd subsidiary china inverness medical australia pty ltd australian subsidiary unipath scandinavia ab swedish subsidiary stock orgenics ltd certain smaller subsidiaries senior credit agreement amended must comply various financial nonfinancial covenants primary financial covenants pertain among things fixed charge coverage ratio capital expenditure various leverage ratios earnings interest taxes depreciation amortization ebitda minimum cash requirement additionally senior credit agreement currently prohibits us paying dividends december 31 2005 compliance covenants b senior subordinated notes 875 principal amount 1500 million february 10 2004 completed sale 1500 million 875 bonds due 2012 private placement qualified institutional buyers net proceeds offering amounted 1459 million net underwriters commissions 41 million net proceeds used 1253 million repay outstanding indebtedness related financing fees primary senior credit facility note 6a 92 million prepay outstanding 9 subordinated promissory notes related prepayment penalties note 6d remaining 114 million proceeds used bond offering expenses general corporate purposes bonds accrue interest date issuance february 10 2004 rate 875 per year interest bonds payable semiannually arrears february 15 august 15 commenced august 15 2004 addition related registration rights agreement cause registration statement sec respect registered exchange offer exchange notes underlying bonds new notes declared effective securities act 1933 amended within 240 days date bonds issuance consummate exchange offer within 270 days date bonds issuance unable consummate exchange offer march 28 2005 interest bonds increased 025 point per year first 90day period immediately following default november 7 2004 february 4 2005 additional 025 point per year march 28 2005 december 31 2005 accrued interest related bonds amounted 49 million may redeem bonds whole part time february 15 2008 redemption price equal 100 principal amount plus premium declining ratably par plus accrued unpaid interest addition prior february 15 2007 may redeem 35 aggregate principal amount bonds issued proceeds qualified equity offerings redemption price equal 10875 principal amount plus accrued unpaid interest experience change control may required offer purchase bonds purchase price equal 101 principal amount plus accrued unpaid interest might able pay required price bonds presented us time change control primary senior credit facility indebtedness may prohibit payment might enough funds time bonds unsecured subordinated right payment existing future senior debt including guarantee borrowings senior credit facilities bonds effectively subordinated existing future liabilities including trade payables subsidiaries guarantee bonds guaranteed domestic subsidiaries guarantors borrowers primary senior credit facility guarantees general unsecured obligations guarantors subordinated right payment existing future senior debt applicable guarantors includes guarantees borrowings primary senior credit facility see note 20 guarantor financial information indenture governing bonds contains covenants limit ability subsidiaries among things incur additional indebtedness aggregate subject interest coverage ratio pay dividends make distributions repurchase redeem stock make investments sell assets incur liens enter agreements restricting subsidiaries ability pay dividends enter transactions affiliates consolidate merge sell substantially assets covenants subject certain exceptions qualifications c subordinated promissory notes 10 principal amount 200 million september 20 2002 sold units aggregate purchase price 200 million private investors help finance wampole acquisition unit consisted 10 subordinated promissory note 10 subordinated note principal amount 50000 ii warrant acquire 04 shares common stock exercise price 1354 per share aggregate issued fully vested warrants purchase 02 million shares common stock may exercised time prior september 20 2012 interest accrues 10 per annum compounded daily outstanding principal amount payable quarterly arrears first day calendar quarter started october 1 2002 10 subordinated notes mature september 20 2008 subject acceleration certain circumstances may prepay 10 subordinated notes time subject certain prepayment penalties may option repay 10 subordinated notes pay prepayment penalty applicable cash shares common stock valued 95 average closing price stock ten consecutive trading days immediately preceding payment date 10 subordinated notes expressly subordinated 1500 million indebtedness borrowed money incurred guaranteed company plus indebtedness incur finance acquisition december 31 2005 accrued interest related 10 subordinated notes amounted 05 million warrants issued relation debt classified equity pursuant provisions eitf 0019 determination whether share settlement within control issuer purposes applying eitf issue 9613 accounting derivative financial instruments indexed potentially settled companys stock among purchasers 10 subordinated notes three directors officers company entity controlled chief executive officer collectively purchased units aggregated 19 million principal amount warrants purchase aggregate 15000 shares common stock subordinated promissory notes 9 principal amount 9 million convertible subordinated promissory notes 3 principal amount 6 million september 20 2002 also connection financing wampole acquisition sold subordinated promissory notes aggregate principal amount 90 million 9 subordinated notes subordinated convertible promissory notes aggregate principal amount 60 million 3 convertible notes private investors 9 subordinated notes 3 convertible notes bore interest 9 3 per annum respectively outstanding principal balance recorded interest expense including amortization deferred financing costs notes 05 million 10 million 2004 2003 respectively february 10 2004 prepaid 9 subordinated notes proceeds bond issuance note 6b total payment made prepayment date aggregated 93 million represented principal balance outstanding plus accrued unpaid interest well prepayment penalty 02 million equated 2 principal balance repaid prepayment penalty along remaining unamortized deferred financing cost writeoff aggregating 02 million charged interest expense february 2004 3 convertible notes set mature september 20 2008 subject acceleration certain circumstances addition outstanding principal amount unpaid interest 3 convertible notes would automatically convert common stock conversion price equal 1745 time september 20 2004 average closing price common stock consecutive thirty day period greater 2267 event occurred december 8 2004 consequently december 8 2004 3 convertible notes accrued unpaid interest converted 03 million shares common stock entity controlled chief executive officer purchased 3 convertible notes aggregate principal amount 30 million e imn credit facilities connection acquisition imn assumed imns borrowings senior credit agreement imn credit agreement pursuant imn credit agreement amended imn could borrow 150 million revolving credit commitment 42 million term loan commitment subject specified borrowing base limitations october 2004 repaid outstanding borrowings imn credit agreement 142 million using borrowings senior credit facility note 6a terminated imn credit agreement interest expense including amortization deferred financing costs related borrowings imn credit agreement amounted 07 million 08 million 2004 2003 respectively upon repayment borrowings imn credit agreement imn became us credit party senior credit facility note 6a guarantor bonds notes 6b 20 f imn bonds payable also connection acquisition imn assumed imns bonds payable imn bonds payable various installments june 30 2007 bonds payable balance bore interest 690 interest expense including amortization deferred financing costs related imn bonds amounted 01 million 2004 2003 october 2004 prepaid outstanding principal balances unpaid interest imn bonds payable aggregating 16 million borrowings senior credit facilities note 6a g maturities longterm debt following summary maturities longterm debt outstanding december 31 2005 7 capital leases subsidiary imn maintains capital lease warehouse distribution facility expires july 2008 renewable two successive fiveyear periods lease classified capital lease result saleleaseback transaction imn entered prior acquisition imn july 2005 facility related capital lease transferred another subsidiary imi nutritionals aggregate monthly minimum payments remaining capital lease 15 million december 31 2005 addition various capital leases certain machinery equipment computer equipment expire various dates 2009 remaining aggregate monthly minimum payments 02 million following schedule future minimum lease payments capital leases together present value payments december 31 2005 december 31 2005 capitalized amounts building machinery equipment computer equipment capital leases follows amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 8 postretirement benefit plans employee savings plans company several us based subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 05 million 04 million 03 million 2005 2004 2003 respectively b uk pension plans subsidiary england unipath ltd unipath adopted pension plan unipath pension scheme december 2002 unipath pension scheme consists two parts defined benefit section defined benefit plan ii defined contribution section defined contribution plan employees unipath allowed join unipath pension scheme starting december 1 2002 part purchase agreement unipath business december 2001 agreed establish new defined benefit pension plan acquired employees based england former participants unilever pension plan acquired uk employees continue accumulate benefits plan period least three years acquisition date unipath business consequently defined benefit plan established part unipath pension scheme covers acquired uk employees last two years three year postacquisition period starting december 1 2002 first year three year postacquisition period november 2002 acquired uk employees continued accumulate benefits unilever pension plan unipath contributed 19 million period time acquisition pursuant sfas 87 employers accounting pensions sfas 88 employers accounting settlements curtailments defined benefit pension plans termination benefits recorded unfunded pension liability 37 million part purchase price unipath business withdrawal obligation unfunded pension liability represented excess benefit obligation 205 million fair value plan assets 168 million initially allocated unilever plan assets benefit acquired uk employees acquired uk employees terminated restructuring plan upon acquisition unfunded pension liability initially recorded us 37 million reduced portion employees severance payout represented pension benefits 11 million reclassified severance costs purposes aggregating purchase price unipath business net remaining unfunded pension liability 26 million included benefit obligation tables follow november 2004 acquired uk employees could elect option transfer contributions benefits unilever pension plan defined benefit plan required established defined benefit plan believed benefits available plan less favorable acquired uk employees unilevers plan maintained benefits period required acquisition agreement nevertheless engaged dispute unilever equity benefits old new plans may 2004 entered mediation unilever resolve differences relative levels benefits unilevers plan defined benefit plan mediation produced settlement agreement unilever us dated august 17 2004 settlement agreement provided would match certain benefits available unilever plan ensure plan viewed less favorable unilever plan employees considering whether transition november 2004 changes increased benefits available retiree defined benefit plan allow retirees upon retirement receive unreduced benefits age 60 rather age 65 ii calculate final pension benefit payable retirees based retirees salary date pension benefits ceased accruing unipath plan december 2004 plus 1 inflation year service december 2004 retirement november 2004 final number employees elected transfer defined benefit plan unilever plan determined substantially fewer acquired uk employees transferred defined benefit plan previously anticipated transfer unfunded pension liability initially established 2001 result actuarial gain 18 million recorded deferred component comprehensive income 2004 following table sets forth analysis changes benefit obligation plan assets funded status defined benefit plan 2005 2004 net amount recognized accompanying consolidated balance sheet relates defined benefit plan 2005 2004 consists measurement date used determine plan assets benefit obligations defined benefit plan december 31 2005 2004 following table provides weightedaverage actuarial assumptions actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2005 stocks fixed income securities represented 70 30 respectively market value pension assets expect contribute approximately 03 million british pounds sterling 05 million december 31 2005 defined benefit plan 2006 expect benefits paid plan participants approximately 01 million per year next five years benefits totaling 02 million paid annually five years thereafter unipath contributed 11 million 03 million 02 million defined contribution plan recognized expense accompanying consolidated statement operations 2005 2004 2003 respectively 9 derivative instrument entered interest rate swap agreement one lenders effective february 25 2002 intended protect longterm debt interest charged libor fluctuation rate interest rate swap agreement libor set minimum 336 maximum 500 interest rate swap agreement qualify hedge accounting purposes sfas 133 related amendments recorded income 07 million 05 million 2004 2003 respectively mark market interest rate swap agreement adjustment fair value interest rate swap agreement recorded component interest expense accompanying consolidated statements operations interest rate swap agreement expired december 30 2004 2005 entered forward exchange contracts totaling 249 million monthly maturity dates january 18 2005 february 15 2006 maturing forward exchange contracts used lock us dollar british pound sterling gbp us dollar euro exchange rates hedge anticipated intercompany sales change value derivative analyzed quarterly changes spot forward rates based rates given issuing financial institution quarter end date effective portion gain loss derivative reported comprehensive income oci period prior forecasted purchase sale forecasted sales credit amount income ascribed forecasted period reclassified oci income expense date sale income cost ascribed period encompassed within periods recognized foreigncurrencydenominated receivable payable reclassified oci income expense end reporting period changes derivative instruments fair values inception hedge compared cumulative change hedged items fair value attributable risk hedged effectiveness based change spot rates december 31 2005 two forward exchange contracts outstanding 15 million gbp contracts maturing january february 2006 effectively hedge existing receivables therefore considered fair value hedges accordingly december 31 2005 forward contracts remain effective future exchange rate changes 10 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2021 following schedule outlines future minimum annual rental payments leases december 31 2005 rent expense relating operating leases approximately 100 million 74 million 58 million 2005 2004 2003 respectively operations unipath business england currently housed 150000 square foot manufacturing research office facility bedford england lease facility unilever third party landlord unipath business england continues use facility pursuant agreement unilever connection acquisition future minimum annual rent payments facility lease range 15 million british pounds sterling 16 million british pounds sterling approximately 26 million 27 million upward adjustments every 5 years extent rent market rate lease expires december 2021 unilever agreed use best efforts obtain landlords consent required lease agreement cannot unreasonably withheld may assign lease us remaining term required pay amounts owed lease agreed upon acquisition included table future minimum lease payments facility lease unilever unable successfully assign lease us otherwise enable us realize benefit lease bedford facility may forced renegotiate lease facility substantially less favorable terms seek alternative costly means producing products suffer adverse effects business b capital expenditure commitments december 31 2005 total outstanding noncancelable equipment purchase commitments 50 million c legal proceedings currently party material pending legal proceedings nature business may subject particular time consumer product claims various lawsuits arising ordinary course business including employment matters expect continue case future lawsuits generally seek damages sometimes substantial amounts personal injuries commercial employment claims addition aggressively defend patent intellectual property rights often involves bringing infringement commercial claims third parties suits expensive result counterclaims challenging validity patents rights addition december 2005 learned enforcement division securities exchange commission sec issued formal order investigation connection previously disclosed revenue recognition matter one diagnostic divisions subsequently received subpoena documents believe fully responded subpoena continue fully cooperate secs investigation cannot predict whether sec seek additional information outcome investigation february 2 2005 imn subsidiary received 84 million representing pro rata share net funds disbursed connection settlement class action suits several raw material suppliers class action suits alleged certain defendants unlawfully agreed fix prices certain vitamin products sold united states imns recovery represented 73 approved purchases settling parties period price fixing alleged 84 million included income net accompanying consolidated statement operations year ended december 31 2005 april 6 2005 entered binding settlement agreement pending litigation princeton biomeditech corporation pbm pursuant paid 25 million resolution pending litigation pbm also received option permanently settle certain claims abi subsidiary part pending case exchange 18 million collaborative research development funding us connection settlement arrangement recorded 42 million charge included income net accompanying consolidated statement operations year ended december 31 2005 april 27 2005 entered settlement agreement quidel corporation quidel terminating domestic international intellectual property litigation settlement agreement received net payment 170 million net future royalties quidel 85 exchange license current future patents embody lateral flow technology diagnostic products cardiology testing consumeroverthecounter womens health except diagnostics womens infectious diseases within licensed field use quidel affiliates granted net royalty free crosslicense current future patents embody lateral flow technology us affiliates applications payment 170 million included financial results year ended december 31 2005 150 million related periods prior 2005 included income net remainder recorded license revenues june 16 2005 entered license arrangement british biocell international limited british biocell part agreement licensed lateral flow intellectual property use certain defined areas competitive existing businesses return royalties future sales totaling 10 25 net revenues depending amounts revenue earned part arrangement also received option acquire 25 british biocells parent company bbi holdings plc uk public company valued option 26 million using blackscholes option pricing model included value received income net year ended december 31 2005 investment readily convertible cash recorded cost evaluated least annually impairment frequently events circumstances indicate september 23 2005 arbitrator issued final award imn subsidiary favor sunlight distribution inc damages amount 18 million plus interest fees costs arising distribution arrangement dated september 1996 accrued 29 million december 31 2005 provide final award corresponding expenses recorded income net year ended december 31 2005 11 arrangements codevelopment agreement iti scotland limited february 25 2005 entered codevelopment agreement iti scotland limited iti whereby iti agreed provide us approximately 30 million british pounds sterling 518 million december 31 2005 three years partially fund research development programs focused identifying novel biomarkers nearpatient home use tests cardiovascular diseases programs agreed invest 375 million british pounds sterling 647 million december 31 2005 programs next three years subsidiary stirling medical innovations limited stirling established new research center stirling scotland consolidate many existing cardiology programs ultimately commercialize products arising programs iti stirling exclusive rights developed technology respective fields use december 31 2005 received approximately 225 million funding iti qualified expenditures made codevelopment arrangement recognize fee earned period reduction related expenses subject certain limitations fiscal year ended december 31 2005 recognized 181 million reimbursements 172 million offset research development spending 09 million reduced general administrative marketing spending incurred stirling funds received iti excess amounts earned included accrued expenses current liabilities balance 44 million december 31 2005 b joint venture china september 2004 began manufacturing small amount product china third party february 2005 entered joint venture chinese manufacturer acquired controlling ownership manufacturing facility consolidate 100 entity 12 loss income per share following table sets forth computation basic diluted loss income per share following potential dilutive securities outstanding december 31 2005 options warrants purchase aggregate 47 million shares common stock weighted average exercise price 1844 per share b 104000 shares common stock held escrow potential dilutive securities included computation diluted loss per share 2005 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2004 options warrants purchase aggregate 43 million shares common stock weighted average exercise price 1643 per share potential dilutive securities included computation diluted loss per share 2004 inclusion thereof would antidilutive following potential dilutive securities outstanding december 31 2003 options warrants purchase aggregate 08 million shares common stock weighted average exercise price 2287 per share b 3 convertible notes convertible aggregate 03 million shares common stock c series preferred stock convertible aggregate 04 million shares common stock potential dilutive securities included calculation diluted income per share 2003 inclusion thereof together add back related interest dividends would antidilutive 13 stockholders equity common stock december 31 2005 500 million shares common stock 0001 par value authorized approximately 275 million shares issued outstanding 39 million shares reserved issuance upon grant exercise stock options current stock option plans 08 million shares reserved issuance upon exercise outstanding warrants august 1 2005 sold 40 million shares common stock 2376 per share funds affiliated three accredited institutional investors private placement proceeds private placement approximately 928 million net issuance costs 25 million amount repaid principal interest outstanding senior credit facility 844 million remainder net proceeds retained general corporate purposes february 8 9 2006 sold 34 million shares common stock 2441 per share funds affiliated 14 accredited institutional investors private placement proceeds private placement approximately 793 million net issuance costs 37 million amount repaid principal interest outstanding senior credit facility 741 million remainder net proceeds retained general corporate purposes connection february 2006 private placements common stock agreed use commercially reasonable efforts register private placement shares prior june 8 2006 event unable take registration statement effective prior june 8 2006 pay illiquidity discount equal 1 february 2006 offering proceeds per month earlier date registration statement declared effective ii february 8 2008 b preferred stock december 31 2005 50 million shares preferred stock 0001 par value authorized 27 million shares designated series preferred stock 0001 par value march 6 2002 sold private investors 05 million shares series preferred stock 3901 per share gross proceeds 208 million december 20 2001 sold private investors 20 million shares series preferred stock 3000 per share gross proceeds 599 million 2004 2003 2002 02 million 01 million 22 million shares series preferred stock respectively converted 04 million 02 million 44 million shares common stock respectively shares series preferred stock outstanding december 31 2005 share series preferred stock accrued dividends quarterly basis 210 per annum trading days closing price common stock less 1500 result recorded dividends 33000 2003 reduced earnings available common stockholders computation earnings per share note 12 dividends recorded 2004 stock price close 1500 period 2004 shares series preferred stock outstanding dividends accrued payable declared board directors dividends declared board directors prior conversion shares series preferred stock effective purchase price shares common stock underlying series preferred stock issued march 6 2002 december 20 2001 represented discount 270 12 200 118 respectively fair value common stock respective issuance dates accordance eitf issue 985 eitf issue 0027 recorded beneficial conversion feature form discount two issuances series preferred stock 29 million 80 million respectively amortized accumulated deficit redemption period discussed amortization discount reduces earnings available common stockholders computation earnings per share 2005 2004 2003 amortized 0 07 million 05 million respectively discount 0 07 million 04 million respectively represented acceleration amortization due conversions series preferred stock series preferred stock converted common stock redemption price per share series preferred stock would equal 3000 plus accrued redemption interest calculated 5 per annum date issuance recorded accrued redemption interest 0 10000 04 million 2005 2004 2003 respectively reduced earnings available common stockholders computation earnings per share note 12 c stock options awards 2001 adopted 2001 stock option incentive plan 2001 plan allows issuance 61 million shares common stock awards amended 2001 plan administered compensation committee board directors order select individuals eligible receive awards determine modify terms conditions awards granted accelerate vesting schedule award generally administer interpret 2001 plan key terms 2001 plan permit granting incentive nonqualified stock options term ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2001 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2001 plan december 31 2005 04 million shares available future grant 2001 plan august 15 2001 sold chief executive officer 12 million shares restricted common stock price 913 per share twothirds restricted stock 08 million shares vest ratably 36 months remaining onethird 04 million shares vests ratably 48 months except par value common stock paid cash chief executive officer purchased restricted stock fiveyear promissory note accounting purposes treated nonrecourse note total interest promissory note fully recourse chief executive officer balance promissory note recorded note receivable classified stockholders equity accompanying consolidated balance sheets note due payable august 16 2006 bears interest annual rate 499 interest income recorded note amounted 05 million years ended december 31 2005 2004 2003 accounted arrangement pursuant fasb interpretation fin 44 accounting certain transactions involving stock compensation eitf issue 9516 accounting stock compensation arrangements employer loan features apb opinion 25 eitf issue 0023 issues related accounting stock compensation apb opinion 25 fasb interpretation 44 accordingly november 20 2001 date arrangement approved stockholders measured total compensation expense approximately 106 million based intrinsic value stock date amount compensation expense deferred amortized ratably vesting periods restricted stock terms original restricted stock agreement could repurchase unvested shares cost certain circumstances february 2002 terms restricted stock agreement amended pursuant may repurchase unvested shares fair value certain circumstances also connection amendment chief executive officer surrendered 50000 shares nonqualified stock options repurchase rights unvested shares fair value subsequent amendment february 2002 fully amortized remaining portion deferred compensation expense associated restricted stock 2002 additionally amendment resulted new measurement date security event employee ceases employment company prior full vesting security additional compensation expense would recorded august 2001 granted two nonqualified stock options purchase aggregate 08 million shares common stock exercise price 620 per share two key executive officers options set expire january 31 2002 december 2001 executive officers exercised options one fully one partially paying cash amount par value delivering promissory notes difference permitted pursuant terms original grant accounting purposes promissory notes treated nonrecourse notes balance promissory notes recorded note receivable classified stockholders equity accompanying consolidated balance sheets notes due payable december 4 2006 bear interest annual rate 397 applicable federal rate fiveyear note effect month exercise interest income recorded notes amounted 02 million year ended december 31 2005 2004 2003 respectively shares issued upon exercise vest ratably 36 months fully vested december 31 2004 upon splitoff merger november 2001 note 1 outstanding imt stock option imt options exchanged option purchase shares common stock exchange ratio 020 option purchase shares johnson common stock exchange ratio 05395 option split also required ratio intrinsic value market value option consequently new exercise prices options johnson options determined based relative fair values common stock johnson common stock first trading day immediately splitoff merger taking consideration relative exchange ratios accordingly total number shares common stock underlying stock options issued splitoff 09 million concurrent option split 1 vesting options accelerated 2 period exercisability imt employees become employees company extended actions deemed award modifications pursuant fin 44 fin 44 measured compensation date award modifications based intrinsic value option recognized recognize future compensation absent modifications award would forfeited pursuant awards original terms imt employees become employees company recognition charge immediate recorded stockbased compensation 2001 imt employees became employees measured potential charge maximum 12 million date modification record compensation charge unless time employees terminate employment us time portion award absent modification would forfeited awards original terms would recognized compensation expense 2003 recognized stockbased compensation expense related certain imt employees became employees amount 2000 employees terminated employment us stockbased compensation charge recognized 2005 2004 following summarizes stock option activity years ended december 31 following represents additional information related stock options outstanding exercisable december 31 2005 warrants following summary warrant activity three years ended december 31 2005 following represents additional information related warrants outstanding exercisable december 31 2005 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 05 million shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2005 value warrants issued connection debt financings yielded original issue discounts additional interest expense 02 million 2005 2004 outstanding warrants classified equity pursuant provisions eitf 0019 e employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 05 million shares common stock plan december 31 2005 02 million shares issued plan f executive bonus plan 2001 adopted stockholder approved executive bonus plan executive bonus plan amended february 2002 pursuant executive bonus plan amended certain key executives entitled receive annual basis option grants awarded fair value date grants shares common stock attained certain targeted prices per share performance determinations made end calendar year starting december 31 2002 ending december 31 2005 performance targets achieved december 31 2005 date plan expired 14 comprehensive income sfas 130 reporting comprehensive income establishes standards reporting display comprehensive income general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income recorded component stockholders equity following summary components changes accumulated comprehensive income december 31 2005 three years ended ithe 02 million included comprehensive income represents unrealized gains availableforsales securities aggregate fair value securities insignificant included prepaid expenses current assets accompanying consolidated balance sheets securities sold fiscal year 2005 iiall components accumulated comprehensive income relate foreign subsidiaries adjustments income taxes recorded comprehensive income intend permanently invest foreign subsidiaries foreseeable future 15 income taxes income tax provision 2005 2004 2003 mainly represents recorded us certain us subsidiaries foreign subsidiaries unipath limited united kingdom inverness medical eurasia ireland inverness medical japan inverness medical switzerland gmbh switzerland loss income taxes consists following primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets income tax effects temporary differences follows december 31 2005 approximately 1702 million domestic nol carryforwards 26 million foreign nol foreign capital loss carryforwards either expire various dates 2025 carried forward indefinitely loss carryforwards available reduce future federal foreign taxable income loss carryforwards subject review possible adjustment appropriate taxing authorities approximately 147 million foreign nols relate cdil result closure operations cdil nol fully reserved december 31 2005 may never realized domestic nol carryforwards include approximately 712 million preacquisition losses imn ischemia ostex adc preacquisition losses subject internal revenue service code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate valuation allowance relates us nols deferred tax assets certain foreign deferred tax assets recorded based upon uncertainty surrounding realizability assets realized via profitable operations respective tax jurisdictions accordance sfas 109 accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent acquisitions applied first reduce zero goodwill noncurrent intangible assets related acquisitions remaining benefits would recognized reduction income tax expense december 31 2005 171 million deferred tax asset pertains acquired companies future benefits applied first reduce zero goodwill noncurrent intangible assets related acquisitions prior reducing income tax expense included valuation allowance approximately 26 million related certain nol carryforwards resulting exercise employee stock options tax benefit recognized accounted credit additional paidin capital rather reduction income tax estimated amount undistributed earnings foreign subsidiaries 414 million december 31 2005 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability accordance sfas 109 sfas 5 accounting contingencies established reserves tax contingencies reflect best estimate transactions deductions may unable sustain could willing concede part broader tax settlement currently undergoing routine tax examinations various state foreign jurisdictions tax authorities periodically challenge certain transactions deductions reported income tax returns expect outcome examinations either individually aggregate material adverse effect financial position results operations cash flows october 22 2004 american jobs creation act 2004 act signed law act contains onetime foreign dividend repatriation provision provides special deduction respect certain qualifying dividends foreign subsidiaries limited period deduction subject number limitations uncertainty remains interpret numerous provisions act repatriate foreign earnings foreign dividend repatriation provision act also provides deduction income qualified domestic production activities phased 2005 2010 guidance fsp 1091 deduction treated special deduction described sfas 109 therefore special deduction effect deferred tax assets liabilities existing enactment date impact deduction reported period deduction claimed tax return expect effect phase new deduction result benefit effective tax rate us nol carryforwards fully utilized following table presents components provision income taxes following table presents reconciliation us statutory tax rate effective tax rate 16 financial information segment sfas 131 disclosures segments enterprise related information operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision making group composed chief executive officer members senior management reportable operating segments consumer diagnostic products vitamins nutritional supplements professional diagnostic products corporate allocation certain expenditures benefiting multiple segments refined 2005 applied consistent basis period presented included operating results corporate nonallocable corporate expenditures expenses related research development activities area cardiology latter amounted 168 million 194 million 128 million 2005 2004 2003 respectively respect cardiology expenditures 2005 amount included corporate net 172 million reimbursements received iti scotland part codevelopment arrangement entered february 2005 total assets area cardiology included corporate tables amounted 412 million december 31 2005 86 million december 31 2004 accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2005 2004 2003 follows 17 transition services agreement imt prior splitoff imt note 1 entered transition services agreements whereby would provide certain transition services imt affiliates agreedupon period time service fee transition services primarily included management services provided us subsidiary inverness medical inc imi product packaging services provided irish subsidiary cambridge diagnostics ireland ltd cdil related certain diabetes businesses products imi charged approximately 02 million 2003 transition service fees imt believes approximate armslength costs fees reduced general administrative expenses 2003 transition services provided imi cdil terminated february 2003 july 2002 respectively 18 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component costs sales following table sets forth activities inventory reserve accounts 19 restructuring activities connection acquisitions unipath business imn ostex ischemia biostar recorded restructuring costs part respective aggregate purchase prices accordance eitf 953 note 4 2004 completed plan restructuring manufacturing operations unipath 2005 completed plan restructuring operations ischemia committed restructuring plan biostar expected completed third quarter fiscal year 2006 following table sets forth aggregate restructuring costs balances recorded connection restructuring activities acquired businesses 2004 restructuring activities unipath 2005 restructuring activities ischemia biostar irepresents foreign currency translation adjustment following describes restructuring plans remaining obligations december 31 2005 recent restructuring plans may 9 2005 committed plan cease operations facility galway ireland 2005 recorded 51 million restructuring charge 23 million related severance early retirement outplacement services 23 million related impairment fixed assets inventory 05 million related facility closing costs relating primarily plan termination total restructuring charge year ended december 31 2005 consisted 41 million charged cost goods sold 05 million charged research development 03 million charged general administrative 02 million charged expense total restructuring charge 48 million 03 million included consumer diagnostic products professional diagnostic products business segments respectively total number employees involuntarily terminated 113 98 terminated 2005 remaining 15 terminated first quarter 2006 december 31 2005 23 million related severance early retirement outplacement services 06 million remained unpaid 05 million facility closing cost 04 million remained unpaid december 31 2005 including charges recorded year expect total restructuring charge primarily related closure cdil approximately 52 million additional charges relating principally severance facility closing costs 01 million expected recorded first quarter 2006 within consumer diagnostic products segment upon liquidation cdils remaining net assets anticipated occur first quarter 2006 expect record gain approximately 36 million based foreign currency exchange rates december 31 2005 result reclassification cumulative translation adjustment income net third quarter 2004 completed plan restructuring operations unipath manufacturing facility bedford england reduce operating expenses organizational complexities increase overall accountability unipath result recorded 17 million restructuring charge third quarter 2004 included cost sales accompanying statements operations cover costs severance early retirement outplacement services total number involuntarily terminated employees 18 terminated december 31 2005 december 31 2005 restructuring costs paid b restructuring plans related business combinations fourth quarter 2005 established restructuring plan connection acquisition biostar recorded 05 million charge 04 million related impairment fixed assets 01 million related severance costs associated headcount reduction total number employees involuntarily terminated 12 none terminated december 31 2005 none costs recorded 2005 paid december 31 2005 although believe plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs might impact final aggregate purchase price connection acquisition ischemia first quarter 2005 established restructuring plan whereby exited current facilities ischemia denver colorado combined activities existing manufacturing distribution facilities total severance costs associated involuntarily terminated employees estimated 16 million 15 million paid december 31 2005 estimated costs vacate ischemia facilities approximately 01 million none paid december 31 2005 expect pay remaining costs first quarter 2006 total number involuntarily terminated employees 17 terminated december 31 2005 although believe plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs might impact final aggregate purchase price result merger ostex note 4c established restructuring plan whereby exited facilities ostex seattle washington combined activities ostex existing manufacturing distribution facilities total number employees terminated involuntarily restructuring plan 38 terminated december 31 2005 total severance costs associated employees terminated involuntarily 16 million substantially paid december 31 2005 costs vacate ostex facilities 05 million 01 million paid december 31 2005 additionally remaining costs exit operations primarily facilities lease commitments 19 million 16 million paid december 31 2005 total unpaid exit costs amounted 08 million december 31 2005 immediately close acquisition reorganized business operations imn improve efficiencies eliminate redundant activities companywide basis restructuring affected cost centers within organization significantly responsibilities sales executive levels activities combined existing business operations also part restructuring plan relocated one imns warehouses closer proximity manufacturing facility improve efficiency 16 million total exit costs include severance costs involuntarily terminated employees costs vacate warehouse 01 million restructuring costs remain unpaid december 31 2005 total number involuntarily terminated employees 47 terminated december 31 2003 result acquisition unipath business unilever plc 2001 reorganized operations unipath business purposes improving efficiencies achieving economies scale companywide basis reorganization affected major cost centers operations england additionally business activities us division merged existing us businesses total number involuntarily terminated employees 65 terminated december 31 2002 total exit costs primarily related severance initially estimated 23 million 2002 company finalized restructuring activities recorded additional 18 million exit costs additional exit costs recorded adjustments unipath business purchase price december 31 2005 13 million adjusted foreign exchange effect exit costs remained unpaid 20 guarantor financial information issued 1500 million bonds qualified institutional buyers reliance rule 144a securities act 1933 amended securities act outside united states compliance regulation securities act note 6b payment obligations bonds guaranteed domestic subsidiaries guarantor subsidiaries december 31 2005 guarantee full unconditional separate financial statements guarantor subsidiaries presented determined would material investors bonds following supplemental financial information sets forth consolidating basis statements operations cash flows three years period ended december 31 2005 balance sheets december 31 2005 2004 company issuer guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments guarantor subsidiaries investments guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development cost sharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties october 20 2004 subsidiary imn became guarantor subsidiary bonds prior change imn nonguarantor subsidiary result included financial results imn results guarantor subsidiaries following supplemental financial information periods presented inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2004 restated thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2004 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2003 restated thousands part item 1 business item 1a risk factors item 1b unresolved staff comments item 2 description property item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity item 6 selected consolidated financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures report independent registered public accounting firm item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures inverness medical innovations inc subsidiaries consolidated financial statements table contents report independent registered public accounting firm inverness medical innovations inc subsidiaries consolidated statements operations thousands except per share amounts inverness medical innovations inc subsidiaries consolidated balance sheets thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements stockholders equity comprehensive income loss thousands except per share amounts inverness medical innovations inc subsidiaries consolidated statements cash flows thousands inverness medical innovations inc subsidiaries notes consolidated financial statements inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2004 restated thousands inverness medical innovations inc subsidiaries consolidating statement operations year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating balance sheet december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2005 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2004 thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2004 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows year ended december 31 2003 restated thousands inverness medical innovations inc subsidiaries consolidating statement cash flows continued year ended december 31 2003 restated thousandsitem 15 exhibits financial statement schedules 1 financial statements financial statements listed filed part report pages indicated 2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required information shown consolidated financial statements notes thereto included herein 3 exhibits agreements filed exhibits annual report form 10k contain representations warranties made solely benefit parties agreement representations warranties • may qualified disclosures made party parties connection negotiation agreements disclosures necessarily reflected agreements • may apply standards materiality differ investors • made specified dates contained agreements subject subsequent developments changed circumstances accordingly representations warranties may describe actual state affairs date representations warranties made time investors rely statements fact filed herewith company agrees furnish supplementally securities exchange commission “the commission” copy omitted schedule exhibit agreement upon request commission omitted portions exhibit granted confidential treatment  management contract compensatory plan arrangement amendment thereto signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alere inc subsidiaries consolidated financial statements report independent registered public accounting firm board directors stockholders alere inc opinion accompanying consolidated balance sheets december 31 2011 december 31 2010 related consolidated statements operations equity comprehensive income loss cash flows years ended present fairly material respects financial position alere inc subsidiaries december 31 2011 december 31 2010 results operations cash flows two years period ended december 31 2011 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s annual report internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described management’s annual report internal control financial reporting management excluded 17 entities assessment internal control financial reporting december 31 2011 acquired company purchase business combinations 2011 also excluded entities audit internal control financial reporting total assets net revenue entities represented 4 respectively related consolidated financial statement amounts year ended december 31 2011 pricewaterhousecoopers llp boston massachusetts february 29 2012 report independent registered public accounting firm board directors stockholders alere inc audited accompanying consolidated statements operations equity comprehensive income loss cash flows year ended december 31 2009 alere inc formerly known inverness medical innovations inc “company” consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated results operations cash flows alere inc year ended december 31 2009 conformity accounting principles generally accepted united states america described note 2 financial statements company adopted accounting standards related business combinations effective business combinations entered january 1 2009 bdo usa llp bdo usa llp boston massachusetts february 26 2010 alere inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated balance sheets thousands except par value amounts accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements equity comprehensive income loss continued thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements alere inc subsidiaries notes consolidated financial statements 1 description business basis presentation developing new capabilities nearpatient diagnosis monitoring health management alere inc subsidiaries enable individuals take charge improving health quality life home medical supervision global leading products services well new product development efforts focus cardiology infectious disease toxicology diabetes oncology women’s health business organized three operating segments professional diagnostics ii health management iii consumer diagnostics professional diagnostics segment includes array innovative rapid diagnostic test products vitro diagnostic tests marketed medical professionals laboratories detection diseases conditions within areas focus identified health management segment provides comprehensive integrated programs services focused wellness disease condition management productivity enhancement informatics designed reduce healthrelated costs enhance health quality life individuals serve consumer diagnostics segment consists primarily manufacturing operations related role exclusive manufacturer products spd swiss precision diagnostics spd 5050 joint venture procter gamble company pg spd significant operations worldwide overthecounter pregnancy fertilityovulation test market acquisitions important part growth strategy acquire businesses seek complement existing products services enhance expand product lines andor expand customer base determine willing pay acquisition partially based upon expectation cost effectively integrate products services acquired companies existing infrastructure addition utilize existing infrastructure acquired companies cost effectively introduce products new geographic areas factors contributed acquisition prices acquired businesses excess fair value net assets acquired resultant goodwill note 4 consolidated financial statements include accounts alere inc subsidiaries intercompany transactions balances eliminated net earnings reduced portion net earnings subsidiaries applicable noncontrolling interests equity investments exercise significant influence control primary beneficiary accounted using equity method investments able exercise significant influence investee readily determinable fair values accounted cost method certain amounts prior periods reclassified conform current period classification 2 summary significant accounting policies use estimates prepare financial statements conformity accounting principles generally accepted united states america management must make estimates judgments assumptions may affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results could differ significantly estimates different assumptions conditions alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued b foreign currencies general functional currencies foreign subsidiaries local currencies purpose consolidating financial statements foreign subsidiaries assets liabilities foreign subsidiaries translated us dollars using exchange rate balance sheet date stockholders’ equity accounts translated historical exchange rates translation gains losses result conversion balance sheets foreign subsidiaries us dollars recorded cumulative translation adjustment component accumulated comprehensive income note 15 within stockholders’ equity revenue expenses foreign subsidiaries translated using average rates exchange effect fiscal month year net realized unrealized foreign currency exchange transaction losses 229 million 2011 gains 98 million 2010 gains 13 million 2009 included component income expense net accompanying consolidated statements operations c cash equivalents consider highlyliquid investments purchased original maturities three months less date acquisition cash equivalents cash equivalents consisted money market funds december 31 2011 2010 restricted cash restricted cash 90 million 26 million december 31 2011 2010 respectively 90 million december 31 2011 approximately 53 million purchase remaining outstanding shares axisshield plc axisshield acquired prior december 31 2011 settled first quarter 2012 e marketable securities classified availableforsale trading carried fair value determined quoted market prices balance sheet date realized gains losses securities included income expense net specific identification basis unrealized holding gains losses except temporary impairments securities classified availableforsale reported accumulated comprehensive income net related tax effects marketable securities held indefinitely classified accompanying consolidated balance sheets longterm marketable securities f inventories stated lower cost firstin firstout market made raw material workinprocess finished goods cost elements workinprocess finished goods inventory consist raw material direct labor manufacturing overhead finished goods inventory purchased thirdparty manufacturers costs finished goods inventory represent costs acquire inventory g property plant equipment record property plant equipment historical cost case business combination fair value date business combination depreciation computed using alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued straightline method based following estimated useful lives related assets machinery laboratory equipment tooling 315 years buildings 761 years leasehold improvements lesser remaining term lease estimated useful life asset computer software equipment 17 years furniture fixtures 216 years land depreciated depreciation expense related property plant equipment amounted 837 million 677 million 543 million 2011 2010 2009 respectively expenditures repairs maintenance expensed incurred h goodwill intangible assets indefinite lives goodwill relates amounts arose connection various business combinations represent difference purchase price fair value identifiable tangible intangible net assets accounted using acquisition method accounting goodwill amortized subject periodic review impairment test goodwill intangible assets indefinite lives reporting unit level impairment annual basis annual tests events circumstances indicate likely fair value reporting unit less carrying value events would indicate impairment trigger interim impairment assessment include limited current economic market conditions including decline market capitalization significant adverse change legal factors business climate operational performance business adverse action assessment regulator performing impairment test utilize twostep approach first step 1 requires comparison carrying value reporting unit estimated fair value estimate fair value reporting units step 1 use combination income approach market approach income approach based discounted cash flow analysis dcf calculates fair value estimating aftertax cash flows attributable reporting unit discounting aftertax cash flows present value using riskadjusted discount rate assumptions used dcf require exercise significant judgment including judgment appropriate discount rates terminal values growth rates amount timing expected future cash flows forecasted cash flows based recent budget years beyond budget estimates based assumed growth rates believe assumptions consistent plans estimates used manage underlying businesses discount rates intended reflect risks inherent future cash flow projections used dcf based estimates weightedaverage cost capital wacc market participants relative respective reporting unit market approach considers comparable market data based multiples revenue earnings interest taxes depreciation amortization ebitda carrying value reporting unit exceeds estimated fair value required perform second step 2 goodwill impairment test measure amount impairment loss second step goodwill impairment test compares implied fair value reporting unit’s goodwill carrying value implied fair value goodwill calculated difference fair value reporting unit estimated fair value assets liabilities extent amount carrying value goodwill impairment charge recorded estimate fair value requires significant judgment based fair value estimates assumptions believe reasonable unpredictable inherently uncertain including estimates future growth rates operating margins assumptions overall alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued economic climate competitive environment business units assurance estimates assumptions made purposes goodwill identifiable intangible asset testing time testing prove accurate predictions future assumptions regarding business plans competitive environments anticipated growth rates correct may required record goodwill andor intangible asset impairment charges future periods whether connection next annual impairment testing earlier indicator impairment present next annual evaluation impairment charges related goodwill impact cash balances compliance financial covenants amended restated credit agreement 2011 annual goodwill impairment test conducted annual impairment test reporting units fourth quarter 2011 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 110 145 projected compound average revenue growth rates 49 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 08 26 times multiples ebitda 56 93 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 3836 million required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations 2010 annual goodwill impairment test conducted annual impairment test reporting units fourth quarter 2010 key assumptions vary reporting unit used determining fair value discounted cash flow approach included discount rates ranging 125 130 projected compound average revenue growth rates 60 100 terminal value growth rates 40 determining appropriate discount rate considered wacc reporting unit among factors considers cost common equity capital marginal cost debt market participants key assumptions vary reporting unit used determining fair value market approach based observed market multiples enterprise value revenue ebitda comparable publiclytraded companies recent merger alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued acquisition transactions involving similar companies estimate appropriate controlling basis multiples apply reporting units based multiples implied market data selected multiples revenue 10 28 times multiples ebitda 75 100 times assessing reasonableness estimated fair values reporting units management compared results valuation analyses thencurrent market capitalization imply control premium based analysis implied control premium within range comparable industry transactions step 1 impairment analysis indicated carrying value net assets health management reporting unit exceeded estimated fair value reporting unit result required perform step 2 goodwill impairment test determine amount goodwill impairment charges health management reporting unit completed step 2 consistent procedures described determined goodwill impairment charge amount approximately 10 billion required resulting goodwill impairment charge reflected operating income loss accompanying consolidated statements operations impairment longlived tangible intangible assets intangible assets consist primarily core technology inprocess research development acquired january 1 2009 patents trademarks trade names customer relationships distribution rights noncompete agreements majority intangibles recorded connection various business combinations intangibles recorded fair value time acquisition amortize intangibles estimated useful lives determination estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives agreement period time assets expected contribute future cash flows amortize finitelived intangible assets based patterns respective economic benefits expected realized evaluate longlived tangible intangible assets whenever events changes circumstances indicate carrying amount asset may recoverable indicators impairment present respect longlived tangible intangible assets used operations undiscounted future cash flows expected sufficient recover assets’ carrying amount additional analysis performed appropriate carrying value longlived asset reduced estimated fair value lower impairment loss would charged expense period impairment identified conduct annual goodwill impairment test reporting units fourth quarter year impairment tests conducted 2011 2010 indicated impairment goodwill associated health management reporting unit thus potential impairment longlived tangible intangible assets associated reporting unit conducted analysis utilizing undiscounted cash flow model analysis conducted 2011 2010 indicated impairment longlived tangible intangible assets associated health management reporting unit although believe carrying value longlived tangible intangible assets realizable december 31 2011 2010 future events could cause us conclude otherwise alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued j acquired inprocess research development iprd acquired iprd represents fair value assigned research development assets acquire completed date acquisition acquired iprd capitalized intangible asset tested impairment least annually commercialization time iprd amortized estimated useful life k business acquisitions january 1 2009 adopted new accounting standard issued financial accounting standards board fasb related accounting business combinations using acquisition method accounting previously referred purchase method among significant changes standard requires redefining measurement date business combination expensing direct transaction costs incurred capitalizing iprd costs intangible asset recording liability contingent consideration measurement date subsequent remeasurements recorded general administrative expense standard also requires costs business restructuring exit activities related acquired company included postcombination financial results operations also provides new guidance recognition measurement contingent assets liabilities business combination acquisitions consummated prior january 1 2009 accounted accordance previously applicable guidance 2011 2010 2009 incurred 115 million 82 million 159 million acquisitionrelated costs included 159 million expense incurred 2009 38 million costs associated acquisitionrelated activity transactions consummated prior january 1 2009 business acquisitions historically made prices fair value acquired net assets resulting goodwill based expectations synergies combining businesses synergies include elimination redundant facilities functions staffing use existing commercial infrastructure expand sales acquired businesses’ products use commercial infrastructure acquired businesses costeffectively expand product sales significant judgment required estimating fair value intangible assets assigning respective useful lives fair value estimates based available historical information future expectations assumptions deemed reasonable management inherently uncertain generally employ income method estimate fair value intangible assets based forecasts expected future cash flows attributable respective assets significant estimates assumptions inherent valuations reflect consideration marketplace participants include amount timing future cash flows including expected growth rates profitability underlying product life cycles economic barriers entry brand’s relative market position discount rate applied cash flows unanticipated market macroeconomic events circumstances may occur could affect accuracy validity estimates assumptions net assets acquired recorded fair value subject adjustment upon finalization fair value analysis aware information indicates final fair value analysis differ materially preliminary estimates alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued l income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases deferred tax assets liabilities measured using enacted tax rates expected apply taxable income year temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date valuation allowances established necessary reduce deferred tax assets amounts likely realized future note 16 account uncertain tax positions using “morelikelythannot” threshold recognizing resolving uncertain tax positions evaluate uncertain tax positions quarterly basis consider various factors including limited changes tax law measurement tax positions taken expected taken tax returns effective settlement matters subject audit new audit activity changes facts circumstances related tax position revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services rendered 3 fee fixed determinable 4 collection reasonably assured majority revenue derived product sales recognize revenue upon title transfer products thirdparty customers less reserve estimated product returns allowances determination reserve estimated product returns allowances based management’s analyses judgments regarding certain conditions future changes conditions prove management’s conclusions judgments previous analyses incorrect revenue recognized reporting period could adversely affected products include installation meets criteria considered separate element product revenue recognized upon delivery installation revenue recognized installation complete sales include customerspecified acceptance criteria revenue recognized acceptance criteria met certain products require specialized installation revenue products deferred installation completed revenue services deferred recognized contractual period services rendered accepted customer arrangements include multiple elements use objective evidence fair value allocate revenue elements recognize revenue criteria revenue recognition met element accordance authoritative guidance multipleelement arrangements additionally generate services revenue connection contracts health plans commercial governmental selfinsured employers whereby provide clinical expertise feebased arrangements revenue feebased arrangements recognized period services provided contracts provide portion fees risk customers achieve certain financial cost savings achieve certain clinical operational metrics period time typically one year revenue subject refund recognized sufficient information available calculate performance measurements ii interim performance measurements indicate meeting performance targets either alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued two conditions exists record amounts current liabilities consolidated balance sheet deferring recognition revenue establish met performance criteria meet performance targets end contractual period obligated contract refund atrisk fees also receive license royalty revenue agreements thirdparty licensees revenue fixedfee license royalty agreements recognized straightline basis obligation period related license agreements license royalty fees licensees calculate based sales right audit agreements generally recognized upon receipt license royalty payments unless able reasonably estimate fees earned license royalty fees determinable prior receipt thereof recognized period earned n employee stockbased compensation arrangements account sharebased payments accordance accounting standards codification asc 718 compensation stock compensation expense associated stock options includes amortization based grantdate fair value estimated accordance provisions asc 718 addition record expense offering period connection shares issued employee stock purchase plan compensation expense stockbased compensation awards includes estimate forfeitures recognized vesting period options using straightline method policy recognize additional paid capital excess windfall tax benefits stock option deductions recognized tax returns stock option plans provide grants options employees purchase common stock fair market value shares grant date award options generally vest fouryear period beginning date grant graded vesting schedule 25 end four years fair value option grant estimated date grant primarily using blackscholes optionpricing method use historical data estimate expected price volatility expected forfeiture rate contractual term stock option awards ten years riskfree rate based us treasury yield curve effect time grant remaining term equal expected term option made dividend payments common shareholders plans pay dividends foreseeable future net income loss per common share net income loss per common share based upon weightedaverage number outstanding common shares dilutive effect common share equivalents options warrants purchase common stock convertible preferred stock convertible notes applicable outstanding year note 12 p operating expenses expense advertising costs incurred 2011 2010 2009 advertising costs amounted 99 million 144 million 154 million respectively included sales marketing expenses accompanying consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued shipping handling costs included cost net revenue accompanying consolidated statements operations additionally extent charge customers shipping handling costs recorded along product revenues q concentration credit risk offbalance sheet risks uncertainties financial instruments potentially subject us concentration credit risk primarily consist cash equivalents accounts receivable invest excess cash primarily high quality securities limit amount credit exposure one financial institution require collateral securities support customer receivables however perform ongoing credit evaluations customers maintain allowances potential credit losses december 31 2011 2010 individual customer’s accounts receivable balance excess 10 aggregate accounts receivable 2011 2010 one customer represented greater 10 net revenue 2009 one customer represented 15 net revenue purchased professional diagnostics products rely number third parties manufacture certain products thirdparty manufacturers cannot manufacture products required volumes costeffective basis timely manner secure additional manufacturing capacity interruption delay manufacturing could material adverse effect business operating results r financial instruments fair value financial instruments primary financial instruments december 31 2011 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt primary financial instruments december 31 2010 consisted cash equivalents restricted cash marketable securities accounts receivable accounts payable debt interest rate swap contract apply fair value measurement accounting value financial assets liabilities fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value estimated fair value financial instruments approximates carrying values december 31 2011 2010 recent accounting pronouncements recently issued standards september 2011 fasb issued accounting standards update asu 201108 intangibles goodwill topic 350 testing goodwill impairment asu 201108 asu 201108 allows entity option first assess qualitative factors determine whether necessary perform current twostep impairment test entity believes result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative twostep impairment test required otherwise testing required asu 201108 change current guidance testing indefinitelived intangible assets impairment asu 201108 effective annual interim goodwill impairment alere inc subsidiaries notes consolidated financial statements continued 2 summary significant accounting policies continued tests performed fiscal years beginning december 15 2011 early adoption permitted adoption standard expected material impact financial position results operations cash flows june 2011 fasb issued asu 201105 comprehensive income topic 220 presentation comprehensive income asu 201105 asu 201105 1 eliminates option present components comprehensive income part statement changes stockholders’ equity 2 requires consecutive presentation statement net income comprehensive income 3 requires entity present reclassification adjustments face financial statements comprehensive income net income asu 201105 change items must reported comprehensive income item comprehensive income must reclassified net income amendments affect earnings per share calculated presented december 2011 fasb issued asu 201112 comprehensive income topic 220 deferral effective date amendments presentation reclassifications items accumulated comprehensive income accounting standards update 201105 asu 201112 asu’s applied retrospectively effective fiscal years interim periods within years beginning december 15 2011 accounting standards requires enhanced disclosure adoption standards impact financial position results operations cash flows recently adopted standards effective january 1 2011 adopted asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb eitf asu 200913 asu 200913 separate multipledeliverable revenue arrangements update establishes selling price hierarchy determining selling price deliverable amendments update replaced term “fair value” revenue allocation guidance “selling price” clarify allocation revenue based entityspecific assumptions rather assumptions marketplace participant amendments update eliminates residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments update requires vendor determine best estimated selling price manner consistent used determine price sell deliverable standalone basis adoption standard material impact financial position results operations cash flows alere inc subsidiaries notes consolidated financial statements continued 3 balance sheet information components selected captions consolidated balance sheets consist thousands 4 business combinations acquisitions 2011 arriva november 23 2011 acquired arriva medical llc arriva located coral springs florida privatelyowned mailorder provider homediabetes testing products supplies preliminary aggregate purchase price 795 million consisted cash payment totaling 644 million 806452 shares common stock aggregate fair value 152 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 53 million related acquired business operating results arriva included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii axisshield november 1 2011 acquired axisshield located dundee scotland uk publicly traded company focused development manufacture vitro diagnostic tests use alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued clinical laboratories point care preliminary aggregate purchase price 3888 million consisted cash payment totaling 2744 million fair value previouslyheld investment totaling 1092 million outstanding obligation settle remaining outstanding shares 53 million included consolidated statement operations year ended december 31 2011 revenue totaling approximately 367 million including 18 million license royalty revenue related acquired business operating results axisshield included professional diagnostics reporting unit business segment expect amount allocated goodwill deductible tax purposes iii avee october 3 2011 acquired avee laboratories inc related companies refer collectively avee located tampa florida privatelyowned provider drug testing services field pain management aggregate purchase price 1205 million paid cash included consolidated statement operations year ended december 31 2011 revenue totaling approximately 272 million related acquired business operating results avee included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv acquisitions 2011 acquired following businesses preliminary aggregate purchase price 1984 million included cash payments totaling 1392 million 25463 shares common stock acquisition date fair value 10 million contingent consideration obligations aggregate acquisition date fair value 487 million deferred purchase price consideration 42 million • 90 interest bionote inc bionote headquartered south korea manufacturer diagnostic products veterinary industry acquired january 2011 previously owned 10 interest bionote • assets including domain name pregnancyorg llc pregnancyorg usbased company providing website preconception pregnancy newborn care content tools sharing acquired january 2011 • home telehealth limited subsequently renamed alere connected health limited alere connected health located cardiff wales company focuses delivering integrated comprehensive services programs health social care providers insurers acquired february 2011 • bioeasy diagnostica ltda bioeasy located belo horizonte brazil company markets sells rapid diagnostic tests systems laboratory diagnosis prevention monitoring immunological diseases fertility acquired march 2011 • 8092 interest standing stone inc standing stone located westport connecticut company focuses disease state management enhancing quality care provided patients require longterm therapy chronic disease management acquired may 2011 • certain assets rights liabilities properties drug detection devices inc 3dl located alpharetta georgia distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired july 2011 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • colibri medical ab colibri located helsingborg sweden distributor pointofcare drugs abuse diagnostic products primarily scandinavian marketplace acquired july 2011 • laboratory data systems inc lds located tampa florida provider healthcare software products services consulting solutions acquired august 2011 • certain assets liabilities properties abatek medical llc abatek located dover new hampshire distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired september 2011 • forensics limited roar located worcestershire england company provides forensic quality toxicology services across united kingdom acquired september 2011 • mahsan diagnostika vertriebsgesellschaft mbh mahsan located reinbek germany distributor vitro diagnostic drugs abuse products primarily german marketplace acquired october 2011 • medical automation systems inc mas located charlottesville virginia provider networkbased software solutions pointofcare testing acquired october 2011 • certain assets properties 1 medical distribution inc 1 medical located worthington ohio distributor promotes markets distributes sells drugs abuse diagnostic products including consumables pointofcare diagnostic kits related products services acquired november 2011 • method factory inc dba wellogic headquartered waltham massachusetts provider software solutions designed connect healthcare community acquired december 2011 operating results bionote bioeasy 3dl colibri lds abatek roar mahsan mas 1 medical included professional diagnostics reporting unit business segment operating results pregnancyorg alere connected health standing stone wellogic included health management reporting unit business segment consolidated statement operations year ended december 31 2011 included revenue totaling approximately 211 million related businesses goodwill recognized acquisitions exception 1 medical amounted approximately 1358 million goodwill related acquisitions pregnancyorg 3dl abatek lds wellogic totaled 324 million expected deductible tax purposes goodwill related remaining 2011 acquisitions expected deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary preliminary aggregate purchase price allocation acquisitions consummated 2011 follows thousands 1 includes cash acquired approximately 232 million following intangible assets acquired respective amortizable lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued b acquisitions 2010 immunalysis august 16 2010 acquired diagnostixx california corp dba immunalysis corporation immunalysis located pomona california privatelyowned manufacturer marketer abused prescription drug screening solutions used clinical reference forensiccrime laboratories aggregate purchase price 562 million consisted initial cash payment totaling 550 million contingent consideration obligation 50 million acquisition date fair value 12 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 79 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii twist march 11 2010 acquired twistdx inc twist headquartered cambridge massachusetts privatelyowned research development company research development operation united kingdom aggregate purchase price 708 million consisted initial cash payment totaling 352 million contingent consideration obligation 1250 million acquisition date fair value 356 million included consolidated statement operations year ended december 31 2010 revenue totaling approximately 02 million related acquired business operating results acquired operation included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iii alere toxicology february 17 2010 acquired kroll laboratory specialists inc subsequently renamed alere toxicology services alere toxicology headquartered gretna louisiana provides forensic quality substance abuse testing products services across united states aggregate purchase price 1095 million paid cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 313 million related acquired business operating results alere toxicology included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv standard diagnostics february 8 2010 acquired 6192 ownership interest standard diagnostics via tender offer approximately 1621 million march 22 2010 acquired incremental 1337 ownership interest standard diagnostics via followon tender offer approximately 362 million june 2010 acquired incremental 284 ownership interest approximately 73 million bringing acquisitionrelated aggregate ownership interest standard diagnostics approximately 7813 standard diagnostics specializes medical diagnostics industry main product lines relate diagnostic reagents devices hepatitis infectious diseases tumor markers fertility drugs abuse urine strips protein strips aggregate purchase price 2056 million cash included consolidated statement operations year ended december 31 2010 revenue totaling approximately 789 million related standard diagnostics operating results alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued standard diagnostics included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes fourth quarter 2010 acquired remaining outstanding minority interests standard diagnostics bringing aggregate ownership interest approximately 100 december 31 2010 connection purchase shares certain minority shareholder incurred compensation charge 601 million result transition daytoday management control business us v acquisitions 2010 acquired following businesses aggregate purchase price 1619 million consisted initial cash payments totaling 1083 million contingent consideration obligations acquisition date fair value 529 million deferred purchase price consideration acquisition date present value 07 million • rmd networks inc rmd located denver colorado provider clinical groupware software services designed improve communication coordination care among providers patients payers healthcare environment acquired january 2010 • certain assets streck inc streck located nebraska manufacturer hematology chemistry immunology products clinical laboratory acquired january 2010 • assets diagnostics division micropharm ltd micropharm located wales united kingdom expert high quality antibody production sheep diagnostic therapeutic purposes providing antisera contract basis uk overseas companies academic institutions mainly research therapeutic diagnostic uses acquired march 2010 • quantum diagnostics group limited quantum headquartered essex england independent provider drug testing products services healthcare professionals across uk europe acquired april 2010 • assets workplace health division good health solutions pty ltd subsequently renamed alere health pty ltd located east sydney australia important player australian health wellness market focusing health screenings health related consulting services health coaching fitness instruction acquired april 2010 • certain assets unotech diagnostics inc unotech located california privatelyowned company engaged development formulation manufacture packaging supply distribution bladdercheck nmp22 lateral flow test related lateral flow products acquired june 2010 • scipac holdings limited scipac headquartered kent england diagnostic reagent company extensive product portfolio supplying purified human antigens recombinant proteins disease state plasma global customer base acquired june 2010 • ionian technologies inc ionian located san diego california acquired july 2010 • adnagen ag known adnagen gmbh adnagen located langenhagen germany company focuses development innovative tumor diagnostics detection rare cells acquired november 2010 alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued • medlab produtos medicos hospitalares ltda known alere sa located san paulo brazil distributor medical instruments reagents public private laboratories throughout brazil uruguay acquired december 2010 • capital toxicology llc capital toxicology located austin texas privatelyheld toxicology business specializing pain management services acquired december 2010 operating results acquired businesses mentioned except rmd alere health pty ltd included professional diagnostics reporting unit business segment operating results rmd alere health pty ltd included health management reporting unit business segment consolidated statement operations year ended december 31 2010 included revenue totaling approximately 126 million related businesses goodwill recognized acquisitions exception unotech micropharm amounted approximately 1162 million goodwill related acquisition capital toxicology totaled 116 million deductible tax purposes goodwill related acquisitions deductible tax purposes summary aggregate purchase price allocation acquisitions consummated 2010 follows thousands 1 includes cash acquired approximately 229 million alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued following intangible assets acquired respective amortizable lives dollars thousands c acquisitions 2009 acquisition tapestry medical november 6 2009 acquired tapestry medical inc known alere home monitoring inc alere home monitoring located livermore california privatelyowned company provider products related services designed support anticoagulation disease management patients risk stroke clotting disorders aggregate purchase price 587 million consisted cash payments totaling 427 million contingent consideration obligation fair value 160 million payable shares common stock except case 2010 earnout paid cash included consolidated statements operations year ended december 31 2009 revenue totaling approximately 18 million related alere home monitoring operating results alere home monitoring included health management reporting unit business segment amount allocated goodwill acquisition deductible tax purposes ii acquisition free clear september 28 2009 acquired free clear inc known alere wellbeing inc alere wellbeing located seattle washington privatelyowned company specializes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued behavioral coaching help employers health plans government agencies improve overall health productivity covered populations aggregate purchase price 1215 million consisted initial cash payment totaling 1073 million contingent consideration obligation fair value 142 million included consolidated statements operations year ended december 31 2009 revenue totaling approximately 143 million related alere wellbeing operating results alere wellbeing included health management reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iii acquisition concateno august 11 2009 acquired concateno plc concateno publiclytraded company headquartered united kingdom specializes manufacture distribution rapid drugs abuse diagnostic products used health care criminal justice workplace testing markets aggregate purchase price 2519 million consisted 1788 million cash including 05 million cash paid shares concateno common stock acquired prior acquisition date 2091080 shares common stock aggregate fair value 702 million 29 million fair value associated concateno employee stock options exchanged part transaction consolidated statements operations year ended december 31 2009 included revenue totaling approximately 333 million related concateno operating results concateno included professional diagnostics reporting unit business segment amount allocated goodwill acquisition deductible tax purposes iv acquisition acon’s second territory business april 30 2009 completed acquisition assets acon laboratories inc’s certain related entities’ collectively “acon” business researching developing manufacturing distributing marketing selling lateral flow immunoassay directlyrelated products “business” remainder world outside first territory defined including china asia pacific latin america south america middle east africa india pakistan russia eastern europe “second territory business” acquired acon’s business united states canada western europe excluding russia former soviet republics part european union turkey israel australia japan new zealand “first territory” march 2006 aggregate purchase price second territory business approximately 1910 million 1889 million present value consisted cash payments totaling 1047 million 1202691 shares common stock aggregate fair value 421 million deferred purchase price consideration payable cash common stock aggregate fair value 421 million consolidated statements operations year ended december 31 2009 included revenue totaling approximately 380 million related second territory business operating results second territory business included professional diagnostics reporting unit business segment goodwill resulting acquisition generally expected deductible tax purposes depending tax jurisdiction v acquisitions 2009 acquired following assets businesses aggregate purchase price 858 million 839 million present value consisted 454 million cash 128513 shares common stock aggregate fair value 51 million notes payable totaling 79 million alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued deferred purchase price consideration payable cash aggregate fair value 158 million warrants fair value 01 million contingent consideration obligations aggregate fair value 96 million recorded liability 54 million payable shares common stock • genecare medical genetics center inc genecare located chapel hill north carolina medical genetics testing counseling business acquired july 2009 • certain assets cvs caremark’s accordant common disease management programs accordant whereby chronicallyill patients served accordant common disease management programs managed access expanded offerings provided alere acquired august 2009 • zycare inc zycare located chapel hill north carolina provider technology services used help manage many chronic illnesses acquired august 2009 • medim schweiz gmbh known alere gmbh located zug switzerland distributor pointofcare diagnostics testing products primarily swiss marketplace acquired september 2009 • biosyn diagnostics limited known alere health limited located belfast ireland distributor pointofcare diagnostics testing products primarily irish marketplace acquired october 2009 • mologic limited mologic located sharnbrook united kingdom research development entity extensive experience applied immunoassay technology well broad understanding medical diagnostic devices antibody development acquired october 2009 • jinsung meditech inc known alere healthcare inc alere healthcare located seoul south korea distributor pointofcare diagnostics testing products primarily south korean marketplace acquired december 2009 • biolinker sa biolinker located buenos aires argentina distributor pointofcare diagnostics testing products primarily argentinean marketplace acquired december 2009 • 510 share long chain international corp located taipei taiwan distributor pointofcare diagnostics testing products primarily taiwanese marketplace acquired december 2009 january 2010 acquired remaining 490 interest long chain international corp known alere health corporation operating results alere gmbh alere health limited mologic alere healthcare biolinker alere health corporation included professional diagnostics reporting unit business segment operating results genecare accordant zycare included health management reporting unit business segment consolidated statements operations year ended december 31 2009 included revenue totaling approximately 196 million related businesses goodwill recognized transactions amounted approximately 356 million goodwill related acquisitions genecare accordant totaled 128 million deductible tax purposes goodwill related acquisitions deductible tax purposes alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued summary aggregate purchase price allocation acquisitions consummated 2009 follows thousands 1 includes cash acquired approximately 184 million following intangible assets acquired respective amortizable lives dollars thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued restructuring plans related business combinations connection several acquisitions consummated 2008 prior initiated integration plans consolidate restructure certain functions operations including relocation termination certain personnel acquired entities closure certain acquired entities’ leased facilities costs recognized liabilities assumed connection acquisition entities subject potential adjustments certain exit activities confirmed refined total 18 million liability outstanding december 31 2011 06 million included accrued expenses current liabilities 12 million included longterm liabilities matria acquisition connection acquisition matria 2008 implemented integration plan improve operating efficiencies eliminate redundant costs resulting acquisition restructuring plan impacted cost centers within matria organization activities combined existing business operations following table summarizes liabilities established exit activities related acquisition thousands although believe plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs ii cholestech acquisition 2007 formulated restructuring plans connection acquisition cholestech corporation cholestech consistent acquisition strategy realize operating efficiencies cost savings additionally march 2008 announced plans close cholestech facility hayward california transitioned manufacturing related products facility san diego california transitioned sales distribution products shared alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued services center orlando florida following table summarizes liabilities established exit activities related acquisition thousands although believe plan estimated exit costs reasonable actual spending exit activities may differ current estimated exit costs see note 20 additional restructuring charges related cholestech facility closures integrations iii acquisitions conjunction acquisitions panbio limited panbio biosite incorporated biosite hemosense inc hemosense alere medical inc alere medical paradigmhealth inc paradigmhealth matritech inc matritech ostex implemented integration plans improve efficiencies eliminate redundant costs resulting acquisitions following table summarizes liabilities established exit activities related acquisitions thousands alere inc subsidiaries notes consolidated financial statements continued 4 business combinations continued e pro forma financial information following table presents selected unaudited financial information including standard diagnostics acquisition entity occurred january 1 2010 pro forma results exclude adjustments various less significant acquisitions completed 2010 2011 acquisitions materially affect results operations pro forma results derived historical financial results acquired business period presented necessarily indicative results would occurred acquisition consummated january 1 2010 pro forma impact results operations 2011 acquisition standard diagnostics closed prior january 1 2011 thousands except per share amount 1 net loss per common share amounts computed described note 12 alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets following summary goodwill intangible assets december 31 2011 thousands except useful life 1 primarily includes inprocess research development recorded connection certain acquisitions completed since 2009 alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued following summary goodwill intangible assets december 31 2010 thousands except useful life 1 primarily includes inprocess research development recorded connection certain acquisitions completed 2009 2010 2011 estimated useful lives individual categories intangible assets based nature applicable intangible asset expected future cash flows derived intangible asset amortization intangible assets finite lives recognized shorter respective lives underlying license agreement period time assets expected contribute future cash flows amortize finitelived intangible assets patterns economic benefits expected realized amortization expense intangible assets aggregate amounted 3077 million 2981 million 2554 million 2011 2010 2009 respectively included cost net revenue research development sales marketing general administrative accompanying consolidated statements operations allocation amortization expense categories based intended usage expected benefits intangible assets relation expense categories following summary estimated aggregate amortization expense intangible assets five succeeding fiscal years december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 5 goodwill intangible assets continued fourth quarter perform annual impairment tests carrying value goodwill reporting unit annual impairment review conducted fourth quarters 2011 2010 indicated goodwill impairment charge required health management business segment reporting unit discussion see note 2h allocate goodwill reporting unit based relative percentage estimated future revenues generated respective reporting unit acquisition date goodwill amounts allocated professional diagnostics health management consumer diagnostics reporting units summarized follows thousands 1 includes initial purchase price allocation purchase accounting adjustments recorded acquired entities’ opening balance sheet additional payments made earnouts milestones achieved 2 recorded goodwill impairment charge approximately 3836 million 10 billion 2011 2010 respectively related health management business segment reporting unit reduction impairment value goodwill intangible assets result additional charges earnings could materially reduce reported results operations future periods 3 amounts relate primarily adjustments resulting fluctuations foreign currency exchange rates generally expense costs incurred internal development intangible assets except costs incurred establish patents trademarks legal fees initiating filing obtaining patents trademarks december 31 2011 approximately 92 million costs capitalized net amortization connection establishing patents trademarks included intangible assets net accompanying consolidated balance sheets upon initial filing patents trademarks commence amortization intangible assets estimated useful lives costs incurred maintain patents trademarks expensed incurred alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt following longterm debt balances outstanding thousands following describes debt instruments listed credit agreement june 30 2011 entered credit agreement secured credit facility certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers along certain subsidiaries related guaranty security agreement december 7 2011 entered amendment secured credit facility provide additional term loan facility “incremental b1” term loans described secured credit facility amended provides credit facilities totaling 235 billion aggregate consisting term loans aggregate principal amount 21 billion consisting “a” term loans aggregate principal amount 6250 million “b” term loans aggregate principal amount 9250 million “incremental b1” term loans aggregate principal amount 2500 million “delayeddraw” term loans aggregate principal amount 3000 million fully drawn subject continued compliance secured credit facility 2500 million revolving line credit revolving line credit includes 500 million sublimit issuance letters credit must repay “a” term loans eighteen consecutive quarterly installments beginning december 31 2011 first installment paid continuing march 31 2016 amount 7812500 final installment june 30 2016 amount 484375000 must repay “b” term loans twentytwo consecutive quarterly installments beginning december 31 2011 first installment paid continuing march 31 2017 amount 2312500 final installment june 30 2017 amount 874125000 must repay “incremental b1” term loans twentyone consecutive quarterly installments beginning march 31 2012 continuing march 31 2017 amount 625000 final installment june 30 2017 amount 236875000 must repay “delayeddraw” term loans fifteen consecutive quarterly installments beginning september 30 2012 continuing march 31 2016 amount 3750000 final installment june 30 2016 amount 243750000 may repay future borrowings revolving line credit time without premium penalty event later june 30 2016 notwithstanding foregoing subject certain alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued exceptions provided credit agreement event existing 30 senior subordinated convertible notes 90 senior subordinated notes 7875 senior notes remain outstanding date six months prior relevant maturity date thereof respectively term loans revolving credit loan secured credit facility shall instead mature full relevant prior date “a” term loans “delayed draw” term loans borrowings revolving credit facility bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies 175 250 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies 275 350 depending consolidated secured leverage ratio “b” term loans “incremental b1” term loans bear interest rate per annum option either base rate defined credit agreement plus applicable margin varies 250 325 depending consolidated secured leverage ratio ii eurodollar rate defined credit agreement plus applicable margin varies 350 425 depending consolidated secured leverage ratio interest “b” term loans “incremental b1” term loans based eurodollar rate subject 100 floor respect base eurodollar rate required pay fee unused portion revolving credit facility rate per annum equal 050 december 31 2011 “a” term loans “b” term loans “incremental b1” term loans “delayeddraw” term loans bore interest 303 450 304 respectively december 31 2011 aggregate outstanding borrowings secured credit facility amounted approximately 21 billion consisting “a” term loans aggregate principal amount 6172 million “b” term loans aggregate principal amount 9227 million “incremental b1” term loans aggregate principal amount 2500 million “incremental b1” term loans borrowed upon entry amendment secured credit facility december 7 2011 “delayeddraw” term loans aggregate principal amount 3000 million december 31 2011 compliance financial covenants related debt consisted principally maximum consolidated secured leverage ratio minimum consolidated interest coverage ratio limit capital expenditures interest expense related secured credit facility former secured credit facility year ended december 31 2011 including amortized deferred costs termination fees paid certain debt modifications termination former secured credit facility related interest rate swap agreement 953 million december 31 2011 accrued interest related secured credit facility amounted 45 million b first lien credit agreement second lien credit agreement connection entering secured credit facility june 30 2011 repaid full outstanding indebtedness terminated first lien credit agreement senior secured credit facility second lien credit agreement junior secured credit facility collectively senior secured credit facility former secured credit facility dated june 26 2007 certain lenders general electric capital corporation administrative agent collateral agent certain agents arrangers certain related guaranty security agreements aggregate outstanding principal amount loans repaid former secured credit facility connection termination thereof approximately 12 billion august 2007 entered interest rate swap contracts effective date september 28 2007 total notional value 3500 million original maturity date september 28 alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 2010 interest rate swap contracts paid us variable interest threemonth libor rate paid counterparties fixed rate 485 march 2009 extended august 2007 interest rate hedge additional twoyear period commencing september 2010 onemonth libor rate 254 interest rate swap contracts entered convert 3500 million 12 billion variable rate term loans former secured credit facility fixed rate debt connection entering secured credit facility june 30 2011 paid 101 million terminate interest rate swap contracts recorded interest expense including amortization original issue discounts deferred financing costs consolidated statements operations january 2009 entered interest rate swap contracts effective date january 14 2009 total notional value 5000 million maturity date january 5 2011 interest rate swap contracts paid us variable interest onemonth libor rate paid counterparties fixed rate 1195 interest rate swap contracts entered convert 5000 million 12 billion variable rate term loan former secured credit facility fixed rate debt extend terms interest rate swap contracts january 5 2011 b 3 senior subordinated convertible notes principal amount 1500 million may 14 2007 sold 1500 million principal amount 3 senior subordinated convertible notes due 2016 convertible notes private placement qualified institutional buyers initial conversion price 5230 convertible notes convertible aggregate 2868120 shares common stock conversion price subject adjustment one year date sale based upon daily volumeweighted price per share common stock thirty consecutive trading days ending may 9 2008 conversion price decreased 5230 4398 may 2008 decrease conversion price resulted additional shares common stock becoming issuable upon conversion convertible notes convertible notes convertible 34 million shares common stock conversion price 4398 interest accrues 3 per annum compounded daily outstanding principal amount payable arrears may 15th november 15th started november 15 2007 interest expense including amortization deferred financing costs 50 million years ended december 31 2011 2010 c 9 senior subordinated notes may 12 2009 completed sale 4000 million aggregate principal amount 9 senior subordinated notes due 2016 9 subordinated notes public offering net proceeds offering amounted 3795 million net underwriters’ commissions totaling 80 million original issue discount totaling 125 million december 31 2011 3912 million indebtedness 9 subordinated notes 9 subordinated notes issued indenture dated may 12 2009 amended supplemented 9 indenture accrue interest date issuance may 12 2009 rate 9 per year interest notes payable semiannually may 15 november 15 commencing november 15 2009 notes mature may 15 2016 unless earlier redeemed may redeem 9 subordinated notes whole part time may 15 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 450 twelve months may 15 2013 225 twelve months may 15 2014 alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued zero may 15 2015 time prior may 15 2012 may redeem 35 aggregate principal amount 9 subordinated notes money raise certain equity offerings long pay 109 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 9 subordinated notes remains outstanding afterwards addition time prior may 15 2013 may redeem 9 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 9 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay senior debt make offer purchase principal amount 9 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 9 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 9 subordinated notes 9 indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information 9 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 9 subordinated notes years ended december 31 2011 2010 including amortization deferred financing costs original issue discounts 402 million 383 million respectively december 31 2011 accrued interest related senior subordinated notes amounted 45 million 7875 senior notes third quarter 2009 sold total 2500 million aggregate principal amount 7875 senior notes due 2016 7875 senior notes two separate transactions august 11 2009 sold 1500 million aggregate principal amount 7875 senior notes public offering net proceeds offering amounted approximately 1450 million net underwriters’ commissions totaling 22 million original issue discount totaling 28 million net alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued proceeds used fund acquisition concateno december 31 2011 1481 million indebtedness issuance 7875 senior notes september 28 2009 sold 1000 million aggregate principal amount 7875 senior notes private placement initial purchasers agreed resell notes qualified institutional buyers also agreed file registration statement sec holders notes could exchange notes registered notes substantially identical terms original notes filed registration statement sec february 12 2010 exchange offer completed june 11 2010 net proceeds offering amounted approximately 950 million net initial purchasers’ original issue discount totaling 35 million offering expenses totaling approximately 15 million net proceeds used partially fund acquisition free clear december 31 2011 975 million indebtedness issuance 7875 senior notes 7875 senior notes issued indenture dated august 11 2009 amended supplemented 7875 indenture 7875 senior notes accrue interest dates respective issuances rate 7875 per year interest notes payable semiannually february 1 august 1 commencing february 1 2010 notes mature february 1 2016 unless earlier redeemed may redeem 7875 senior notes whole part time february 1 2013 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 3938 twelve months february 1 2013 1969 twelve months february 1 2014 zero february 1 2015 time prior august 1 2012 may redeem 35 aggregate principal amount 7875 senior notes money raise certain equity offerings long pay 107875 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 7875 senior notes remains outstanding afterwards addition time prior february 1 2013 may redeem 7875 senior notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 7875 senior notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time prepay certain indebtedness make offer purchase principal amount 7875 senior notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 7875 senior notes unsecured equal right payment existing future senior debt including borrowing secured credit facilities obligations 7875 senior notes 7875 indenture fully unconditionally guaranteed jointly severally unsecured senior basis certain domestic subsidiaries obligations domestic subsidiaries guarantees equal right payment existing future senior debt see note 25 guarantor financial information alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued 7875 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 7875 senior notes years ended december 31 2011 2010 including amortization deferred financing costs original issue discounts 223 million 213 million respectively december 31 2011 accrued interest related senior notes amounted 82 million e 8625 senior subordinated notes september 21 2010 completed sale 4000 million aggregate principal amount 8625 senior subordinated notes due 2018 8625 subordinated notes private placement initial purchasers agreed resell notes qualified institutional buyers persons outside united states december 31 2011 4000 million indebtedness 8625 subordinated notes 8625 subordinated notes issued supplemental indenture dated september 21 2010 amended supplemented 8625 indenture accrue interest date issuance rate 8625 per year interest notes payable semiannually april 1 october 1 commencing april 1 2011 notes mature october 1 2018 unless earlier redeemed may redeem 8625 subordinated notes whole part time may october 1 2014 paying principal amount notes redeemed plus declining premium plus accrued unpaid interest excluding redemption date premium declines 4313 twelve months october 1 2014 2156 twelve months october 1 2015 zero october 1 2016 prior october 1 2013 may redeem whole part time may 35 aggregate principal amount 8625 subordinated notes money raise certain equity offerings long pay 108625 principal amount notes redeemed plus accrued unpaid interest excluding redemption date ii redeem notes within 90 days completing equity offering iii least 65 aggregate principal amount 8625 subordinated notes including 8625 subordinated notes issued september 21 2010 remains outstanding afterwards addition time prior october 1 2014 may redeem 8625 subordinated notes paying principal amount notes redeemed plus payment makewhole premium plus accrued unpaid interest excluding redemption date change control occurs subject specified conditions must give holders 8625 subordinated notes opportunity sell notes us purchase price 101 principal amount notes plus accrued unpaid interest excluding date purchase subsidiaries engage asset sales generally must either invest net cash proceeds sales businesses within specified period time repay senior alere inc subsidiaries notes consolidated financial statements continued 6 longterm debt continued indebtedness make offer purchase principal amount 8625 subordinated notes equal excess net cash proceeds subject certain exceptions purchase price notes 100 principal amount plus accrued unpaid interest 8625 subordinated notes unsecured subordinated right payment existing future senior debt including borrowing secured credit facilities obligations 8625 subordinated notes 8625 indenture fully unconditionally guaranteed jointly severally unsecured senior subordinated basis certain domestic subsidiaries obligations domestic subsidiaries guarantees subordinated right payment existing future senior debt see note 25 guarantor financial information 8625 indenture contains covenants limit ability subsidiaries among things incur additional debt pay dividends capital stock redeem repurchase retire capital stock subordinated debt make certain investments create liens assets transfer sell assets engage transactions affiliates create restrictions ability pay dividends make loans asset transfers payments us issue capital stock subsidiaries engage business existing businesses related businesses enter sale leaseback transactions incur layered indebtedness consolidate merge transfer substantially assets taken whole covenants subject certain exceptions qualifications interest expense related 8625 subordinated notes years ended december 31 2011 2010 including amortization deferred financing costs 364 million 99 million respectively december 31 2011 accrued interest related subordinated notes amounted 86 million f lines credit subsidiaries maintain local lines credit shortterm advances total available credit local lines credit approximately 237 million 175 million borrowed outstanding december 31 2011 g debt included debt year ended december 31 2011 borrowings certain subsidiaries various financial institutions borrowed funds used fund capital expenditure working capital requirements interest expense borrowings 25 million year ended december 31 2011 maturities longterm debt following summary maturities longterm debt outstanding december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements apply fair value measurement accounting value financial assets liabilities fair value measurement accounting provides framework measuring fair value us gaap requires expanded disclosures regarding fair value measurements fair value defined exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value described three levels inputs may used measure fair value level 1 quoted prices active markets identical assets liabilities level 1 assets liabilities include investments marketable securities level 2 observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data substantially full term assets liabilities level 2 assets liabilities include foreign exchange forward contract interest rate swap contracts level 3 unobservable inputs supported little market activity significant fair value assets liabilities fair value contingent consideration obligations related acquisitions completed january 1 2009 valued using level 3 inputs following tables present information assets liabilities measured fair value recurring basis december 31 2011 2010 indicates fair value hierarchy valuation techniques utilized determine fair value thousands alere inc subsidiaries notes consolidated financial statements continued 7 fair value measurements continued 1 fair value foreign exchange forward contracts measured using readily observable market inputs quotations forward foreign exchange points foreign interest rates 2 fair value measurements contingent consideration obligations relate acquisitions completed january 1 2009 valued using level 3 inputs determine fair value contingent consideration obligations based probabilityweighted approach derived earnout criteria estimates probability assessment respect likelihood achieving various earnout criteria measurement based upon significant inputs observable market changes fair value contingent consideration obligations recorded income expense within operating income consolidated statements operations see note 11 additional information valuation contingent consideration obligations 3 fair value interest rate swaps based application standard discounted cash flow models using market interest rate data changes fair value level 3 contingent consideration obligations year ended december 31 2011 follows thousands december 31 2011 2010 carrying amounts cash equivalents restricted cash receivables accounts payable current liabilities approximated estimated fair values carrying amount estimated fair value longterm debt 33 billion december 31 2011 carrying amount estimated fair value longterm debt 24 billion december 31 2010 estimated fair value longterm debt determined using market sources derived available market information may representative actual values could realized future alere inc subsidiaries notes consolidated financial statements continued 8 capital leases following schedule future minimum lease payments capital leases together present value payments december 31 2011 thousands december 31 2011 capitalized amounts building machinery equipment computer equipment capital leases follows thousands amortization expense assets recorded capital leases included depreciation amortization expense property plant equipment 9 postretirement benefit plans employee savings plans company several usbased subsidiaries sponsor various 401k savings plans eligible domestic employees may voluntarily contribute portion income subject statutory limitations addition participants’ contributions 401k savings plans match contributions designated level total matching contributions related employee savings plans 76 million 69 million 64 million 2011 2010 2009 respectively alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued b uk pension plans changes benefit obligations plan assets funded status amounts recognized accompanying balance sheet years ended december 31 2011 2010 defined benefit plan follows thousands net amounts recognized accompanying consolidated balance sheets shown current liabilities 37 million 35 million years ended december 31 2011 2010 respectively amounts recognized accumulated comprehensive income loss years ending december 31 2011 2010 follows measurement date used determine plan assets benefit obligations defined benefit plan december 31 2011 2010 alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued following table provides weightedaverage actuarial assumptions 1 actuarial assumptions used compute unfunded status plan based upon information available december 31 2011 2010 2 actuarial assumptions used compute net periodic pension benefit cost based upon information available beginning year actuarial assumptions reviewed annual basis overall expected longterm rate return plan assets assumption determined based historical investment return rates portfolios high proportion equity securities annual cost defined benefit plan follows thousands plan assets defined benefit plan comprise mix stocks fixed income securities investments december 31 2011 stocks fixed income securities represented 67 31 respectively market value pension assets expect contribute approximately 06 million british pounds sterling 09 million december 31 2011 defined benefit plan 2012 expect benefits paid plan participants range approximately 02 million 04 million per year next five years benefits totaling 04 million paid annually five years thereafter overall investment strategy ensure investments spread across range investments varying investment class geographical location achieved investing largely equity fixed income funds spreading investments manner reduces risk decline particular market substantial impact whole fund target allocation plan assets 70 holding equities uk overseas remaining assets invested investment grade corporate bonds alere inc subsidiaries notes consolidated financial statements continued 9 postretirement benefit plans continued fair values pension plan assets december 31 2011 2010 asset category presented following table level 2 fair value hierarchy table presents fair value plan’s assets accordance fair value hierarchy pension plan assets measured using net asset value per share equivalent reported level 2 investment due ability redeem investment either balance sheet date within limited time restrictions unipath limited unipath contributed 03 million 2011 04 million 2010 08 million 2009 defined contribution plan recognized expense accompanying consolidated statement operations 10 derivative financial instruments manage economic transaction exposure certain marketbased risks use derivative instruments objective holding derivative instruments reduce volatility net earnings cash flows associated changes interest rates foreign currency exchange rates hold issue derivative financial instruments speculative purposes interest rate risk historically used interest rate swap contracts management interest rate exposure related former secured credit facility june 30 2011 entered new secured credit facility connection therewith repaid full outstanding indebtedness terminated former secured credit facility related interest rate swaps b foreign currency risk connection acquisition axisshield acquired number foreign currency forward contracts specific risk hedged contracts undiscounted foreign currency spot rate risk forecasted foreign currency revenue december 31 2011 notional value contracts approximately 166 million chf 54 million report effective portion gain loss cash flow hedge component comprehensive income subsequently reclassified net earnings period hedged transaction affects net earnings forecasted transaction longer probable occurring alere inc subsidiaries notes consolidated financial statements continued 10 derivative financial instruments continued following tables summarize fair value derivative instruments effect derivative instruments onin accompanying consolidated balance sheets consolidated statements operations thousands 1 see note 6b regarding interest rate swaps qualify cash flow hedges 2 connection entering secured credit facility june 30 2011 paid 101 million terminate interest rate swap contracts recorded interest expense including amortization original issue discounts deferred financing costs consolidated statements operations alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies operating leases operating lease commitments certain facilities equipment expire various dates 2020 following schedule outlines future minimum annual rental payments leases december 31 2011 thousands rent expense relating operating leases approximately 423 million 390 million 373 million 2011 2010 2009 respectively b contingent consideration obligations effective january 1 2009 adopted changes issued fasb accounting business combinations changes apply assets acquired liabilities assumed business combination arise certain contingencies require acquirer recognize fair value acquisition date asset acquired liability assumed business combination arises contingency acquisitiondate fair value asset liability determined measurement period otherwise asset liability recognized acquisition date certain defined criteria met ii contingent consideration arrangements acquiree assumed acquirer business combination recognized initially fair value determine acquisition date fair value contingent consideration obligations based probabilityweighted approach derived overall likelihood achieving targets corresponding delivery dates fair value measurement based significant inputs observable market thus represents level 3 measurement defined fair value measurement accounting resultant probabilityweighted milestone payments discounted using discount rate based upon weightedaverage cost capital reporting date revalue contingent consideration obligations reporting date fair values record increases decreases fair values income expense consolidated statements operations increases decreases fair values contingent consideration obligations may result changes discount periods rates changes timing amount earnout criteria changes probability assumptions respect likelihood achieving various earnout criteria adoption guidance done prospective basis acquisitions completed prior january 1 2009 contingent consideration accounted increase aggregate purchase price goodwill contingencies occur contractual contingent consideration obligations related acquisitions accordant adnagen alere connected health arriva bioeasy colibri capital toxicology alere wellbeing immunalysis alere healthcare alere sa lds mologic alere home monitoring standing stone ionian twist roar wellogic certain small businesses alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued acquisitions completed prior january 1 2009 • privatelyowned health management business respect privatelyowned health management business acquired 2008 terms acquisition agreement provided contingent consideration payable upon successfully meeting certain revenue ebitda targets final earnout achieved fourth quarter 2010 resulting accrual approximately 239 million 318 million cash payment totaling 241 million 340 million made first quarter 2011 ii acquisitions completed january 1 2009 • accordant respect accordant terms acquisition agreement require us pay earnout upon successfully meeting certain revenue cash collection targets starting second anniversary acquisition date completed prior third anniversary date acquisition maximum amount earnout payment 60 million earned payment expected made 2012 2013 • adnagen respect adnagen terms acquisition agreement require us pay earnouts upon successfully meeting certain financial performance targets two years following acquisition ii achieving multiple product development milestones three years following acquisition iii creating pharmaceutical alliances six years following acquisition maximum amount earnout payments approximately 630 million • alere connected health respect alere connected health terms acquisition agreement require us pay earnouts upon successfully meeting certain ebit targets calendar years 2011 2013 maximum amount earnout payments £90 million approximately 139 million december 31 2011 • arriva respect arriva acquired existing contingent consideration obligation requires us pay earnouts upon successfully meeting certain operational targets june 30 2012 maximum amount earnout payments 34 million • bioeasy respect bioeasy terms acquisition agreement require us pay earnouts upon successfully meeting certain revenue ebitda targets calendar years 2011 2013 2011 earnout achieved maximum amount remaining earnout payments approximately 50 million • colibri respect colibri terms acquisition agreement require us pay earnout upon successfully meeting certain operational ebitda targets calendar years 2011 alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued 2012 conditions 2011 earnout achieved result 2012 earnout achieved contingent consideration obligations related acquisition exist december 31 2011 • capital toxicology respect capital toxicology terms acquisition agreement require us pay earnout upon successfully meeting certain ebitda targets calendar years 2011 2012 2011 portion earnout totaling approximately 21 million earned accrued december 31 2011 payment 2011 earnout expected made second quarter 2012 maximum remaining amount earnout payments approximately 80 million • alere healthcare respect alere healthcare terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets calendar years 2010 2012 2010 portion earnout totaling approximately 06 million earned accrued december 31 2010 payment 2010 earnout made third quarter 2011 maximum remaining amount earnout payments approximately 24 million • alere wellbeing respect alere wellbeing terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets fiscal year 2010 payment approximately 115 million made second quarter 2011 previously accrued • immunalysis respect immunalysis terms acquisition agreement require us pay earnouts upon successfully meeting certain gross profit targets calendar years 2010 2012 2011 portion earnout totaling approximately 09 million earned accrued december 31 2011 payment 2011 earnout expected made first quarter 2012 maximum remaining amount earnout payments approximately 28 million additionally contractual contingent obligation pay total 30 million compensation certain executives immunalysis accordance acquisition agreement earned paid connection contingent consideration payable former shareholders immunalysis calendar years 2010 2011 2012 2010 portion earnout totaling approximately 03 million earned accrued december 31 2010 payment 2010 earnout made first quarter 2011 december 31 2011 approximately 10 million compensation earned accrued payment 2011 compensation expected made first quarter 2012 maximum amount remaining compensation paid approximately 10 million • alere sa respect alere sa terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets calendar years 2011 2016 conditions 2011 earnout achieved maximum amount remaining earnout payments approximately 78 million alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued • lds respect lds terms acquisition agreement require us pay earnout upon successfully meeting certain revenue operating income targets twelvemonth periods ending june 30 2012 2013 maximum amount earnout payments 200 million • mologic respect mologic terms acquisition agreement require us pay earnouts shares common stock cash election upon successfully meeting nine research development project milestones five years following acquisition portion earnout determined achieved paid 2011 maximum remaining amount earnout payments 160 million • alere home monitoring respect alere home monitoring terms acquisition agreement require us pay earnout upon successfully meeting certain revenue ebitda targets calendar years 2010 2011 2010 portion earnout totaling 127 million paid first quarter 2011 conditions 2011 earnout achieved contingent consideration obligations related acquisition exist december 31 2011 • standing stone respect standing stone terms acquisition agreement require us pay earnouts employee bonuses upon successfully meeting certain operational product development revenue targets period date acquisition calendar year 2013 maximum amount earnout payments approximately 109 million maximum amount employee bonuses 06 million • ionian respect acquisition ionian terms acquisition agreement require us pay earnouts upon successfully meeting multiple product development milestones five years following acquisition maximum amount earnout payments 575 million • twist respect acquisition twist terms acquisition agreement require us pay earnout upon successfully meeting certain revenue product development targets maximum amount earnout payments 1250 million earned payments expected made eightyear period following acquisition date could extend thereafter • roar respect roar terms acquisition agreement require us pay earnout upon successfully meeting certain ebitda targets 2012 2014 maximum amount earnout payments £105 million approximately 162 million december 31 2011 alere inc subsidiaries notes consolidated financial statements continued 11 commitments contingencies continued • wellogic respect wellogic terms acquisition agreement require us pay earnout upon successfully meeting certain operational profit targets 2012 2019 maximum amount earnout payments based upon operational targets approximately 500 million earnout based financial targets maximum c contingent obligations • agreements epocal november 2009 entered distribution agreement epocal inc epocal distribute epoc® blood analysis system blood gas electrolyte testing 200 million recorded accompanying consolidated balance sheet intangible assets net also entered definitive agreement acquire issued outstanding equity securities epocal total potential purchase price 2550 million including base purchase price 1725 million epocal achieves certain gross margin financial milestones prior october 31 2014 plus additional payments 825 million epocal achieves certain milestones relating gross margin product development efforts prior date agreement contains working capital adjustment whereby purchase price increased decreased extent epocal’s working capital closing less specified amount also agreed acquisition consummated provide 125 million management incentive arrangements 25 vest three years 75 payable upon achievement certain milestones acquisition also subject closing conditions including receipt required antitrust approvals april 2011 entered license agreement epocal amended terms definitive agreement acquire epocal license agreement provides us royaltyfree access certain epocal intellectual property use homeuse products provided upfront license payment 180 million paid 2011 amendment definitive agreement increased working capital target 180 million may effect reducing purchase price acquisition amendment agreement also added additional potential milestone payment 80 million result maximum purchase price acquisition agreement increased 2630 million • standing stone terms acquisition agreement require us purchase remaining 1908 issued outstanding capital stock standing stone holders officers employees standing stone may 2012 aggregate purchase price approximately 26 million redeemable noncontrolling interest recorded fair value 25 million consummation transaction may 16 2011 fair value redeemable noncontrolling interest determined using market approach income approach utilizes discounted cash flow model including assumptions projected revenue expenses capital expenditures costs discount rate appropriate risk achieving projected cash flows legal proceedings party pending legal proceedings currently believe could material adverse impact sales operations financial performance however nature business may subject particular time lawsuits claims arising ordinary course business expect continue case future alere inc subsidiaries notes consolidated financial statements continued 12 net income loss per common share following tables set forth computation basic diluted income loss per common share thousands except per share amounts alere inc subsidiaries notes consolidated financial statements continued 12 net income loss per common share continued following potential dilutive securities outstanding december 31 2011 options purchase aggregate 945 million shares common stock weightedaverage exercise price 3684 per share b warrants purchase 016 million shares weightedaverage exercise price 1444 per share c 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes convertible 4398 per share 17 million subordinated convertible promissory notes convertible 6149 per share e 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock year ended december 31 2011 01 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business potential dilutive securities included computation diluted net loss per common share 2011 inclusion thereof would antidilutive alere inc subsidiaries notes consolidated financial statements continued 12 net income loss per common share continued following potential dilutive securities outstanding december 31 2010 options purchase aggregate 10148 million shares common stock weightedaverage exercise price 3561 per share b warrants purchase 024 million shares weightedaverage exercise price 1600 per share c 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes convertible 4398 per share 17 million subordinated convertible promissory notes convertible 6149 per share e 21 million shares series b convertible preferred stock aggregate liquidation preference approximately 8362 million convertible certain circumstances 6932 per share 121 million shares common stock addition december 31 2010 03 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business 003 million common stock equivalents potential settlement contingent consideration obligation potential dilutive securities included computation diluted net loss per common share 2010 inclusion thereof would antidilutive dilutive securities outstanding december 31 2009 consisting options warrants purchase aggregate 103 million shares common stock weightedaverage exercise price 3411 per share following potential dilutive securities outstanding december 31 2009 34 million shares issuable upon conversion 1500 million 3 senior subordinated convertible notes convertible 4398 per share b 17 million subordinated convertible promissory notes convertible 6149 per share c 20 million shares series b convertible preferred stock aggregate liquidation preference approximately 7937 million convertible certain circumstances 6932 per share 114 million shares common stock addition december 31 2009 04 million common stock equivalents potential settlement portion deferred purchase price consideration related acon second territory business potential dilutive securities included computation diluted net earnings per common share 2009 inclusion thereof would antidilutive 13 stockholders’ equity common stock december 31 2011 2000 million shares common stock 0001 par value authorized approximately 77 million shares issued treasury 800 million shares outstanding 106 million shares reserved issuance upon grant exercise equity awards current equity compensation plans 15 million shares reserved issuance employee stock purchase plan 02 million shares reserved issuance upon exercise outstanding warrants also following potential dilutive securities outstanding december 31 2011 1500 million 3 senior subordinated convertible notes convertible 4398 per share 34 million shares common stock reserved 17 million subordinated convertible promissory notes convertible 6149 per share 27647 shares common stock reserved 18 million shares series b convertible preferred stock aggregate liquidation preference approximately 7098 million convertible certain circumstances 6932 per share 102 million shares common stock reserved b preferred stock december 31 2011 50 million shares preferred stock 0001 par value authorized 23 million shares designated series b convertible perpetual preferred alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued stock series b preferred stock connection acquisition matria issued shares series b preferred stock june 30 2011 paid dividends outstanding shares series b preferred stock additional shares series b preferred stock subsequent june 30 2011 dividends outstanding shares series b preferred stock paid cash december 31 2011 18 million shares series b preferred stock outstanding fair value approximately 3788 million share series b preferred stock liquidation preference 40000 per share convertible option holder upon certain circumstances 57703 shares common stock plus cash lieu fractional shares initial conversion price 6932 per share subject adjustment upon occurrence certain events adjusted accumulated unpaid dividends upon conversion shares series b preferred stock may option satisfy entire conversion obligation cash combination cash common stock series b preferred stock outstanding december 31 2011 would convert 102 million shares common stock reserved conversions december 31 2011 generally shares series b preferred stock convertible option holder calendar quarter beginning second calendar quarter issuance date series b preferred stock closing sale price common stock 20 trading days within period 30 consecutive trading days ending last trading day immediately preceding calendar quarter exceeds 130 conversion price per share common stock effect last trading day immediately preceding calendar quarter addition shares series b preferred stock convertible option holder certain circumstances including relating trading price series b preferred stock upon occurrence certain fundamental changes major corporate transactions also right certain circumstances relating trading price common stock force conversion series b preferred stock depending timing forced conversion may make certain payments relating foregone dividends payments make option form cash shares common stock combination cash shares common stock share series b preferred stock accrues dividends 1200 3 per annum payable quarterly january 15 april 15 july 15 october 15 year commencing following first full calendar quarter issuance date dividends series b preferred stock cumulative date issuance year ended december 31 2011 series b preferred stock dividends amounted 220 million reduced earnings available common stockholders purposes calculating net loss per common share 2011 note 12 accrued dividends payable declared board directors upon conversion series b preferred stockholder holders receive cash payment representing accumulated dividends board directors declares dividend payable right pay dividends cash shares common stock additional shares series b preferred stock similar convertible preferred stock combination thereof holders series b preferred stock liquidation preferences holders common stock classes stock outstanding time liquidation upon liquidation holders outstanding series b preferred stock would receive amount equal 40000 per share series b preferred stock plus accumulated unpaid dividends december 31 2011 liquidation preference outstanding series b preferred stock 7098 million holders series b preferred stock voting rights except respect matters affecting series b preferred stock including creation senior preferred stock alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued evaluated terms provisions series b preferred stock determine qualified derivative accounting treatment based evaluation securities qualify derivative accounting c share repurchases december 2010 board directors authorized repurchase 500 million common preferred stock first quarter 2011 authorization repurchased open market privately negotiated transactions 183000 shares series b preferred stock convertible approximately 11 million shares common stock cost approximately 494 million paid cash also first quarter 2011 authorization completed repurchase program repurchasing 16700 shares common stock cost approximately 06 million paid cash repurchase preferred stock average cost 26984 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 137 million income attributable common shareholders march 2011 board directors authorized additional repurchase 500 million preferred common stock second quarter 2011 authorization repurchased open market privately negotiated transactions 174788 shares series b preferred stock convertible approximately 10 million shares common stock cost approximately 497 million paid cash also second quarter 2011 authorization completed repurchase program repurchasing 8300 shares common stock cost approximately 03 million paid cash repurchase preferred stock average cost 28428 per preferred share amount less weightedaverage fair value preferred shares issuance resulted allocation 102 million income attributable common shareholders may 31 2011 announced board directors authorized repurchase 2000 million common stock preferred stock subject completion consent solicitation announced day receipt necessary authorizations senior secured lenders satisfied conditions june 30 2011 third quarter 2011 authorization repurchased approximately 76 million shares common stock cost approximately 1839 million paid cash stock options awards 2010 adopted alere inc 2010 stock option incentive plan 2010 plan replaced 2001 stock option incentive plan 2001 plan 2010 plan currently allows issuance 17 million shares common stock awards 2010 plan administered compensation committee board directors selects individuals eligible receive awards determines modifies terms conditions awards granted accelerates vesting schedule award generally administers interprets 2010 plan 2010 plan permits granting incentive nonqualified stock options terms ten years granting stock appreciation rights restricted stock awards unrestricted stock awards performance share awards dividend equivalent rights 2010 plan also provides option grants nonemployee directors automatic vesting acceleration options stock appreciation rights upon change control defined 2010 plan december 31 2011 11 million shares available future grant 2010 plan december 31 2010 09 million shares available future grant 2010 plan alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued following summarizes stock option activity year ended december 31 2011 thousands except exercise price aggregate intrinsic value options outstanding december 31 2011 43 million aggregate intrinsic value options exercisable december 31 2011 40 million aggregate intrinsic value stock options exercised 2011 2010 2009 171 million 69 million 257 million respectively based equity awards outstanding december 31 2011 319 million unrecognized compensation costs related unvested sharebased compensation arrangements expected vest costs expected recognized weightedaverage period 161 years e warrants following summary warrant activity three years ended december 31 alere inc subsidiaries notes consolidated financial statements continued 13 stockholders’ equity continued following table presents additional information related warrants outstanding exercisable december 31 2011 majority warrants included table issued connection debt equity financings amendments thereto warrants purchase aggregate 4000 shares common stock issued officers directors company entities controlled officers directors outstanding december 31 2011 outstanding warrants classified equity f employee stock purchase plan 2001 adopted 2001 employee stock purchase plan eligible employees allowed purchase shares common stock discount periodic payroll deductions purchases may occur end every six month offering period purchase price equal 85 market value common stock either beginning end offering period whichever lower may issue 30 million shares common stock plan december 31 2011 15 million shares issued plan 14 stockbased compensation recorded stockbased compensation expense consolidated statements operations year ended december 31 2011 2010 2009 respectively follows thousands included amount general administrative expense year ended december 31 2009 10 million related assumption certain concateno options expense relates acceleration certain unvested concateno employee options see note 4ciii regarding acquisition concateno years ended december 31 2011 2010 2009 presentation cash flows reports excess tax benefits exercise stock options financing cash flows years ended december 31 2011 2010 2009 excess tax benefits generated option exercises amounted 34 million 17 million 93 million respectively alere inc subsidiaries notes consolidated financial statements continued 14 stockbased compensation continued following assumptions used estimate fair value options granted years ended december 31 2011 2010 2009 using blackscholes optionpricing model weightedaverage fair value blackscholes option pricing model options granted employees 2011 2010 2009 1095 1354 1511 per share respectively options granted periods granted fair market value date grant year ended december 31 2011 recorded compensation expense 25 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 35 34 riskfree interest rate 019 010 expected life 181 days 184 days two respective offering periods charge included employee’s respective cost classification table year ended december 31 2010 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 39 45 riskfree interest rate 018 022 expected life 181 days 184 days two respective offering periods charge included general administrative expense table year ended december 31 2009 recorded compensation expense 27 million related employee stock purchase plan fair value option component employee stock purchase plan shares estimated date grant using blackscholes option pricing model assumed expected volatility 72 43 riskfree interest rate 028 033 expected life 181 days 184 days two respective offering periods charge included general administrative expense table alere inc subsidiaries notes consolidated financial statements continued 15 comprehensive income loss general comprehensive income combines net income changes equity year nonowner sources accumulated comprehensive income loss recorded component stockholders’ equity following summary components changes accumulated comprehensive income loss december 31 2011 three years ended thousands 1 represents realization unrealized gains losses availableforsale securities hedging instruments 16 income taxes income tax provision benefit 2011 2010 2009 mainly represents recorded us certain us subsidiaries foreign subsidiaries located australia united kingdom germany france italy israel japan china spain switzerland income loss provision benefit income taxes consists following thousands continuing operations discontinued operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued primary temporary differences give rise deferred tax asset liability net operating loss nol carryforwards nondeductible reserves accruals differences bases tangible intangible assets gain joint venture transaction income tax effects temporary differences follows thousands december 31 2011 approximately 2164 million domestic nol domestic capital loss carryforwards 2095 million foreign nol foreign capital loss carryforwards either expire various dates 2031 carried forward indefinitely december 31 2011 approximately 428 million domestic rd foreign tax amt credits either expire various dates 2031 carried forward indefinitely loss carryforwards tax credits available reduce future federal state foreign taxable income loss carryforwards tax credits subject review possible adjustment appropriate tax authorities domestic nol carryforwards include approximately 971 million preacquisition losses domestic nols tax credits subject internal revenue service alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued irs code section 382 limitation section 382 imposes annual limitation use losses amount equal value company time ownership change multiplied longterm tax exempt rate acquired section 382 limited amount 2011 approximately 770 million addition total nol available use 2011 approximately 1161 million recorded valuation allowance 516 million december 31 2011 due uncertainties related future benefits deferred tax assets related primarily foreign businesses certain us net operating losses tax credits increase 91 million valuation allowance 425 million december 31 2010 increase primarily related foreign nols valuation allowance based estimates taxable income jurisdiction operate period deferred tax assets recoverable event actual results differ estimates adjust estimates future periods may need establish additional valuation allowance reduce current valuation allowance could materially impact tax provision accounting tax benefits acquired deductible temporary differences nol carryforwards recognized acquisition date valuation allowance established recognized subsequent relevant acquisition applied reduce income tax expense required new accounting standard business combinations adopted january 1 2009 december 31 2011 148 million deferred tax assets valuation allowance pertains acquired companies two chinabased manufacturing subsidiaries qualify reduced income tax rate 2011 2010 2009 general income tax rate 25 income tax rate one subsidiaries 125 2009 2010 10 2009 11 2010 reduced rates 2009 2010 grandfathered china tax reform act tax rate 15 25 apply 2011 future years tax rate 15 applies companies high technology status subsidiaries approved high technology status therefore 15 tax rate applies companies 2011 reduced tax rate produced tax expense approximately 05 million 2011 absence reduced tax rate 2011 tax rate 25 would applied would resulted tax expense approximately 08 million 2011 earnings per common share effect reduced tax rate 001 2011 reduced tax rate produced tax expense approximately 13 million 2010 absence reduced tax rate 2010 tax rate 25 would applied would resulted tax expense approximately 29 million 2010 earnings per common share effect reduced tax rate 002 2010 reduced tax rate produced tax expense approximately 16 million 2009 absence reduced tax rate 2009 tax rate 25 would applied would resulted tax expense approximately 34 million 2009 earnings per common share effect reduced tax rate 002 2009 estimated amount undistributed earnings foreign subsidiaries 5589 million december 31 2011 amount us income tax provided undistributed earnings foreign subsidiaries consider earnings indefinitely reinvested event distribution earnings form dividends otherwise would subject us income taxes subject adjustment foreign tax credits foreign withholding taxes payable certain foreign tax authorities determination amount us income tax liability would incurred practicable complexities associated hypothetical calculation however unrecognized foreign tax credit carryforwards may available reduce portion us tax liability alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued following table presents components provision benefit income taxes thousands continuing operations benefit income taxes 2011 includes benefit 70 million correct items related periods 2007 2010 believe corrected items material 2011 previously reported quarterly annual financial statements result restated previously issued annual quarterly financial statements following table presents components provision benefit income taxes thousands discontinued operations alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued following table presents reconciliation us statutory tax rate effective tax rate goodwill impairment charge created deferred tax impact due existence goodwill deductible tax purposes deferred tax calculated based methodology allocates goodwill impairment loss proportionally goodwill deductible tax purposes compared total goodwill impairment allocated goodwill deductible tax purposes created deferred tax asset 353 million december 31 2011 year ended december 31 2011 increased liability income taxes associated uncertain tax positions 34 million total 95 million december 31 2011 primary reasons increase state transfer pricing exposures increased liability income taxes associated uncertain tax positions 45 million decreased 19m removal item related acquisition german company classify 95 million income tax liabilities noncurrent income tax liabilities payment cash anticipated within one year balance sheet date noncurrent income tax liabilities recorded longterm liabilities consolidated balance sheet december 31 2011 anticipate increase every quarter total amount unrecognized tax benefits anticipate significant increase decrease total amount unrecognized tax benefits within twelve months reporting date alere inc subsidiaries notes consolidated financial statements continued 16 income taxes continued reconciliation beginning ending amount unrecognized tax benefits follows thousands interest penalties related income tax liabilities included income tax expense interest penalties recorded 2011 amounted 03 million balance accrued interest penalties recorded consolidated balance sheet december 31 2011 10 million limited exceptions subject us federal state local nonus income tax audits tax authorities 2006 2010 currently income tax examination irs number state foreign tax authorities anticipate audits completed end 2012 cannot currently estimate impact audits due uncertainties associated tax examinations 17 financial information segment operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decisionmaking group deciding allocate resources assessing performance chief operating decisionmaking group composed chief executive officer members senior management reportable operating segments professional diagnostics health management consumer diagnostics corporate operating results include license royalty revenue allocated professional diagnostics consumer diagnostics basis original license royalty agreement january 15 2010 completed sale vitamins nutritional supplements business note 23 sale included entire private label branded nutritionals businesses represents complete divestiture entire vitamins nutritional supplements business segment results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income discontinued operations net tax consolidated financial statements alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued accounting policies segments described summary significant accounting policies evaluate performance operating segments based revenue operating income loss revenues attributed geographic areas based customer located segment information 2011 2010 2009 follows thousands alere inc subsidiaries notes consolidated financial statements continued 17 financial information segment continued following tables summarize net revenue professional diagnostics health management reporting segments groups similar products services 2011 2010 2009 thousands professional diagnostics segment health management segment alere inc subsidiaries notes consolidated financial statements continued 18 related party transactions november 2008 zwanziger family trust established benefit children ron zwanziger chairman chief executive officer president trustee mr zwanziger’s sister purchased certain securities third parties market transactions purchase consisted approximately 10 million following outstanding securities common stock series b preferred stock convertible notes extent make principal interest payments convertible notes accordance terms zwanziger family trust holder convertible notes receive proportionate share may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement form joint venture ceased consolidate operating results consumer diagnostic products business related joint venture instead account 50 interest results joint venture equity method accounting december 31 2011 2010 net receivable joint venture 25 million net payable joint venture 28 million respectively included 25 million receivable balance december 31 2011 approximately 15 million costs incurred connection 2008 spdrelated restructuring plans also recorded longterm receivable totaling approximately 155 million 239 million december 31 2011 december 31 2010 respectively related 2008 spdrelated restructuring plans additionally customer receivables associated revenue earned joint venture completed classified receivables within prepaid current assets accompanying consolidated balance sheets amount 73 million 78 million december 31 2011 2010 respectively connection joint venture arrangement joint venture bears collection risk associated receivables sales joint venture manufacturing agreement totaled 712 million 681 million 1031 million years ended december 31 2011 2010 2009 respectively additionally services revenue generated pursuant longterm services agreement joint venture totaled 11 million 12 million 18 million years ended december 31 2011 2010 2009 respectively sales manufacturing agreement longterm services agreement included net product sales services revenue respectively accompanying consolidated statements operations terms product supply agreement spd purchases products manufacturing facilities uk china spd turn sells portion tests back us final assembly packaging packaged tests sold pg distribution thirdparty customers north america result related transactions recorded 89 million 70 million trade receivables included accounts receivable accompanying consolidated balance sheets december 31 2011 2010 respectively 193 million 205 million trade accounts payable included accounts payable accompanying consolidated balance sheets december 31 2011 2010 respectively 2010 received 88 million cash spd return capital connection formation spd may 2007 entered option agreement pg pursuant pg right period 60 days commencing may 17 2011 require us acquire pg’s interest spd fair market value pg right upon certain material breaches us obligations spd acquire interest spd fair market value gain proceeds received pg formation spd recognized financial statements pg’s option require us purchase interest spd alere inc subsidiaries notes consolidated financial statements continued 18 related party transactions expired december 31 2010 deferred gain 2884 million presented current liability accompanying consolidated balance sheet july 16 2011 pg’s option require us acquire interest spd fair market value expired connection expiration option gain totaling approximately 2889 million recognized third quarter 2011 july 2009 sold one consumerrelated australian subsidiaries spd approximately 02 million connection original terms joint venture agreement transition distribution responsibilities certain consumer diagnostic products spd sale subsidiary completed net book value resulting gain loss transaction 19 valuation qualifying accounts established reserves accounts receivable doubtful accounts product returns discounts allowances activity table includes accounts receivable reserves provisions doubtful accounts recorded component general administrative expenses provisions returns discounts allowances charged net product sales following table sets forth activities accounts receivable reserve accounts thousands established reserves obsolete slowmoving inventories activity table includes inventory reserves provisions obsolete slowmoving inventories recorded component cost net product sales following table sets forth activities inventory reserve accounts thousands alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities following table sets forth aggregate restructuring charges recorded consolidated statements operations years ended december 31 2011 2010 2009 thousands 2011 restructuring plans 2011 management executed companywide cost reduction plan impacted corporate business segment well health management professional diagnostics business segments management also developed plans within professional diagnostics business segment consolidate operating activities among certain us european asia pacific subsidiaries including transferring manufacturing panbio products australia standard diagnostics facility south korea eliminating redundant costs among newly acquired axisshield subsidiaries additionally within health management business segment management executed plans reduce costs improve efficiencies well cease operations genecare medical genetics center inc genecare facility chapel hill north carolina transfer majority quality assured services inc operation orlando florida facility livermore california following table summarizes restructuring activities related 2011 restructuring plans year ended december 31 2011 thousands anticipate incurring approximately 36 million additional costs plans related professional diagnostics business segment primarily related severance facility exit costs may also incur impairment charges assets plans finalized anticipate incurring alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued approximately 04 million additional costs plans related health management business segment primarily related transition costs imputed interest facility lease obligations december 31 2011 77 million cash charges remain unpaid b 2010 restructuring plans 2010 management developed several plans reduce costs improve efficiencies within health management professional diagnostics business segments following table summarizes restructuring activities related 2010 restructuring plans years ended december 31 2011 2010 since inception thousands anticipate incurring significant additional charges plans december 31 2011 10 million facilityrelated costs remain unpaid alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued c 2008 restructuring plans may 2008 management decided close facility located bedford england initiated steps cease operations facility transition manufacturing operations principally manufacturing facilities shanghai hangzhou china following table summarizes restructuring activities plan years ended december 31 2011 2010 2009 since inception thousands year ended december 31 2010 recorded net recoveries 34 million exit costs result settlement facility restoration lease costs landlord bedford facility costs incurred years ended december 31 2011 2010 primarily included professional diagnostics business segment 51 million included operating income year ended december 31 2009 06 million 45 million charged consumer diagnostics professional diagnostics business segments respectively addition restructuring charges discussed certain charges associated bedford facility closure borne spd 5050 joint venture pg restructuring charges recorded spd 50 included equity earnings unconsolidated entities net tax consolidated statements operations following table summarizes 50 portion restructuring charges borne spd included equity earnings unconsolidated entities net tax years ended december 31 2011 2010 2009 since inception thousands december 31 2011 01 million cash charges remain unpaid anticipate incurring significant additional restructuring charges plan additionally 2008 management developed initiated plans transition businesses cholestech hemosense inc hemosense san diego california facility panbio business orlando florida facility close respective facilities furthermore biostar alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued manufacturing ceased end june 2008 biostar oia products available purchase end first quarter 2009 restructuring charges plans related professional diagnostics business segment following table summarizes restructuring activities plans years ended december 31 2011 2010 2009 since inception thousands charges incurred years ended december 31 2011 2010 relate primarily cholestech plan facility lease obligation continuing march 2017 anticipate incurring additional 18 million facility lease obligation charges related cholestech plan anticipate incurring additional charges plans december 31 2011 04 million facility related costs remain unpaid 2007 2009 restructuring plans 2007 committed several plans restructure integrate worldwide sales marketing order management fulfillment operations well evaluate certain research development projects objectives plans eliminate redundant costs improve customer responsiveness improve operational efficiencies 2009 management developed plans reduce costs improve efficiencies health management business segment well reduce costs consolidate operating activities among several professional diagnosticsrelated german subsidiaries charges year end december 31 2010 included professional diagnostics business segment 42 million included operating income year end december 31 2009 23 million 19 million included health management professional diagnostics business segments respectively following table summarizes restructuring activities restructuring plans years ended december 31 2010 2009 since inception thousands costs paid plans expect incur additional costs alere inc subsidiaries notes consolidated financial statements continued 20 restructuring activities continued e restructuring reserves following table summarizes restructuring reserves related plans described 64 million included accrued expenses current liabilities 28 million included longterm liabilities consolidated balance sheets thousands 1 amounts represent 100 charges borne spd 21 equity investments account results equity investments equity method accounting accordance asc 323 investments equity method joint ventures based percentage ownership interest business equity investments primarily include following axisshield third quarter 2011 acquired various transactions approximately 150 million shares axisshield represented 299 ownership interest axisshield september 30 2011 fourth quarter 2011 completed acquisition axisshield note 4 equity earnings attributable investment 2011 immaterial ii spd may 2007 completed formation spd 5050 joint venture pg development manufacturing marketing sale existing tobedeveloped consumer diagnostic products outside cardiology diabetes oral care fields upon completion arrangement alere inc subsidiaries notes consolidated financial statements continued 21 equity investments continued form spd ceased consolidate operating results consumer diagnostics business related spd years ended december 31 2011 2010 2009 recorded earnings 59 million 85 million 57 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented 50 share spd’s net income respective periods iii techlab may 2006 acquired 49 techlab inc techlab privatelyheld developer manufacturer distributor rapid noninvasive intestinal diagnostics tests areas intestinal inflammation antibioticassociated diarrhea parasitology years ended december 31 2011 2010 2009 recorded earnings 20 million 19 million 17 million respectively equity earnings unconsolidated entities net tax accompanying consolidated statements operations represented minority share techlab’s net income respective period summarized financial information pg joint venture techlab combined basis follows thousands combined condensed results operations combined condensed balance sheets 22 gain disposition september 2009 disposed majority ownership interest diamics operation part professional diagnostics reporting unit business segment since date acquisition july 2007 principles consolidation consolidated 100 operating results diamics operations consolidated statement operations result disposition recorded gain 34 million year ended december 31 2009 alere inc subsidiaries notes consolidated financial statements continued 23 discontinued operations january 15 2010 completed sale vitamins nutritional supplements business purchase price approximately 626 million cash net final working capital adjustment sale included entire private label branded nutritional businesses represents complete divestiture entire vitamins nutritional supplements business segment recognized gain approximately 187 million 116 million net tax 2010 results vitamins nutritional supplements business represents entire vitamins nutritional supplements business segment included income discontinued operations net tax consolidated financial statements following summarized financial information related vitamins nutritional supplements businesses segregated continuing operations reported discontinued operations date disposition thousands 24 supplemental cash flow information cash paid interest income taxes 2011 2010 2009 made cash payments interest totaling 1647 million 1171 million 873 million respectively 2011 2010 2009 total net cash paid income taxes 478 million 311 million 492 million respectively noncash investing activities 2011 2010 2009 issued shares common stock exchanged employee stock options connection several acquisitions dollars thousands 1 includes 1210842 shares common stock fair value 424 million issued 2009 includes 470412 shares common stock fair value approximately 163 million issued second quarter 2010 settlement deferred purchase price consideration alere inc subsidiaries notes consolidated financial statements continued 24 supplemental cash flow information continued noncash financing activities 2011 2010 2009 recorded noncash income expense accumulated comprehensive income loss 73 million 24 million 114 million respectively representing change fair market value interest rate swap agreement 25 guarantor financial information 9 senior subordinated notes due 2016 7875 senior notes due 2016 8625 senior subordinated notes due 2018 guaranteed certain consolidated wholly owned subsidiaries guarantor subsidiaries guarantees full unconditional joint several following supplemental financial information sets forth consolidating basis audited balance sheets december 31 2011 2010 related statements operations cash flows three years period ended december 31 2011 alere inc guarantor subsidiaries nonguarantor subsidiaries supplemental financial information reflects investments alere inc guarantor subsidiaries guarantor nonguarantor subsidiaries using equity method accounting extensive transactions relationships various members consolidated group transactions relationships include intercompany pricing agreements intellectual property royalty agreements general administrative research development costsharing agreements relationships possible terms transactions would result transactions among wholly unrelated parties comparative purposes certain amounts prior periods reclassified conform current period classification alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2011 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2010 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement operations year ended december 31 2009 alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating balance sheet december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2011 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2010 thousands alere inc subsidiaries notes consolidated financial statements continued 25 guarantor financial information continued consolidating statement cash flows year ended december 31 2009 thousands