Alere (NYSE:ALR) yesterday cut its outlook for the rest of the year and said it plans to filed its delayed annual report for 2015 “as soon as practicable” as it probes accounting snafus in Africa and China.
The Waltham, Mass.-based diagnostics giant said it now expects to post sales of $2.45 billion, down from its prior outlook for revenues of $2.48 billion to $2.50 billion.
Alere, which in February agreed to a $5.8 billion merger with Abbott (NYSE:ABT), said yesterday that its probe of hundreds of contracts and thousands of revenue transactions showed that it “incorrectly recorded the timing of recognition of certain revenue transactions” in 2013, 2014 and the 1st 3 quarter of 2015.
“Specifically, the misstatement in the application of U.S. GAAP rules regarding the timing of revenue recognition that have been identified to date primarily relate to: (i) transactions, principally in Africa, in which we recognized revenue when the product shipped to the distributor, but we contractually retained title in the products until the distributor paid for the products in full or the distributor was not obligated to pay us until the products were sold through to the end-user; (ii) ‘bill and hold’ transactions, principally in China, which did not meet the criteria for revenue recognition under U.S. GAAP; and (iii) other transactions, in which we recognized revenue prior to full satisfaction of all contractual criteria for title and risk of loss passing to the customer,” the company said.
The mis-stated sales numbers are not expected to affect the total amount of revenue, but would change when the sales are recognized, Alere said.
“Management is continuing to assess the company’s disclosure controls and procedures and internal control over financial reporting. Management, in consultation with the audit committee of the board of directors of the company, expects to conclude that one or more material weaknesses exist in the company’s internal control over financial reporting in the areas of revenue recognition and income taxes and that, as a result, internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2015,” it said.
The accounting problems, plus a U.S. Justice Dept. subpoena over its dealings with 3rd-party distributors and healthcare officials in Africa, Asia and Latin America, prompted Abbott to audit Alere’s books ahead of the consummation of their $56-per-share merger.
Alere in April rejected a $50 million breakup offer from Abbott as that company’s CEO, Miles White, appeared to throw some shade on the deal. Shareholders have sued to block the acquisition.
Earlier this week, the company said it’s voluntarily withdrawing its INRatio and INRatio 2 PT/INR devices, which are designed to monitor blood flow and clotting in patients taking blood thinners.
ALR shares gained 3.1% today in pre-market trading, rising to $40.69 apiece.