Acquiring six companies and starting a joint venture in a year and a half can do weird things to your financial statements. For Inverness Medical Innovations (AMEX:IMA), the extrinsic growth has raised the top line, but lowered the GAAP earnings thanks to all the restructuring charges. Looking at the numbers for a while has given this Fool a bit of a headache.

Adjusted net revenue for the second quarter was up 10.9% over the same quarter last year. Because of charges from the acquisitions, the company lost $54.7 million, or $1.17 per share, in the most recent quarter. But backing out the restructuring charges for both quarters, Inverness made $0.24 per share for the quarter compared with $0.09 per share last year, although much of that growth was thanks to the additions of the new companies.

Biosite acquisition
Inverness may have overpaid when it outbid Beckman-Coulter (NYSE:BEC) last May for the purchase of Biosite. Since the two businesses are fairly similar, the company expects to reap about $70 million in cost savings from combining its recent acquisitions into one company; that should help it pay some of the more than $1.5 billion it had to cough up to pay for Biosite.

Revenue from the professional diagnostics segment -- of which Biosite is now a part -- was $93.1 million for the quarter, compared to $70.2 million in the second quarter of 2006. While the 33% increase sounds great, the growth was almost exclusively extrinsic; excluding acquisitions, revenue growth year over year for the quarter was only 6.7%.

The major charges for the quarter, which lowered the GAAP earnings, came from the completion of the Biosite acquisition. Inverness had to take a $45.2 million charge for Biosite's employees' stock options and another $15.4 million in interest expenses because of redemption of credit that was refinanced in connection with the Biosite acquisition. Obviously these are one-time expenses, and, while they do lower the GAAP bottom line, they won't be a problem in future quarters.

Joint venture with Procter & Gamble
In the most recent quarter, Inverness established a joint venture with Procter & Gamble (NYSE:PG). Inverness receives a 5% margin on the products sold through the joint venture and splits the profits from the venture equally with P&G.

Inverness has moved its consumer diagnostics business into the joint venture and will leverage Procter & Gamble's large sales force to increase sales outside the United States. The joint venture has already moved into Germany and Italy, taking market share from established European players.

In the second quarter, the consumer diagnostics business saw 13% year-over-year growth on a pro forma basis (as if Inverness owned the business for the entire quarter). That's the second consecutive quarter of double-digit growth, mostly thanks to the sales of its Clearblue Easy digital pregnancy test. The test is competing well against other tests from Church & Dwight (NYSE:CHD) and Pfizer (NYSE:PFE).

But wait, there's more
The company's acquisition of Quality Assured Services (QAS) should help it move into the area of health management. The move also helps Inverness get its foot in the door of the coagulation monitoring business. The sales department responsible for selling the three QAS coagulation instruments should help it launch its own new device.

Inverness also has a nutrition division that saw revenue plummet this quarter, down 31.4% year over year. The decreased demand during the quarter seems to be picking up in the month since the quarter ended, so next quarter may see a return to historic levels.

The division is also branching into generic drug sales and recently launched a generic version of Forest Laboratories' (NYSE:FRX) prescription cough suppressant, Tessalon, in softgel form. The generic drug business is a tough place to compete, and without launching a whole series of generic drugs, I'm not sure if it's wise for Inverness to be competing in the low-margin game.

Of mergers and margins
One of the main purposes of a merger of two companies is to share selling and general administrative costs. By lowering costs -- and thus increasing operating margins -- the combined company can bring in more profits than the two separately.

Inverness has yet to see that goal come to fruition. Adjusted selling, general and administrative (SG&A) costs were 27.5% of revenue for the quarter, compared with 26.5% of revenue in the second quarter of 2006. The restructuring of personnel has yet to be completed, although management expects that its impact on the bottom line will decrease in the second half of the year.

In coming quarters, SG&A costs will see a sharp decrease as the company completes the restructuring with Procter & Gamble. All of the costs associated with the consumer diagnostic business will be moved into the joint venture, thus giving the appearance of lowered costs. Investors should avoid jumping for joy when it happens; it's just an accounting issue that will reset the baseline.

Having seen Biosite in action for the last month since the merger closed, Inverness also believes that it can improve gross margin with manufacturing efficiencies. That's certainly a positive sign, but we'll have to wait and see if it can actually increase productivity at the manufacturing level.

There's no doubt that the acquisitions that Inverness has made over the last year and a half will increase its growth potential. The biggest question is whether it overpaid for that privilege. Investors will need a few more quarters to figure out the full potential of the new, larger Inverness, and I'm inclined to stay away from the stock until the books no longer give me a headache.

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Fool contributor Brian Orelli, Ph.D., just took two ibuprofens, but doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.