Inverness Medical Innovations Announces Fourth Quarter 2009 Results

Wednesday, February 17, 2010 General News
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WALTHAM, Mass., Feb. 17 /PRNewswire-FirstCall/ -- Inverness Medical Innovations, Inc. (NYSE: IMA), a global leader in enabling

individuals to take charge of their health at home through the merger of rapid diagnostics and health management, today announced its financial results for the quarter ended December 31, 2009.

Financial results

for the fourth quarter of 2009:

  • Net revenue of $546.2 million for the fourth quarter of 2009, compared to $432.5 million for the fourth quarter of 2008.
  • Reported revenues exclude revenues of $35.9 million for the fourth quarter of 2009 and $26.8 million for the fourth quarter of 2008 related to our Nutritionals business.  As a result of our decision to sell the Nutritionals business, we have classified the business as a discontinued operation for financial reporting purposes.
  • North American influenza sales totaled $39.7 million for the fourth quarter of 2009, compared to $8.4 million for the fourth quarter of 2008.
  • Recent acquisitions contributed $66.1 million of incremental net revenue, compared to the fourth quarter of 2008.
  • GAAP net loss available to common stockholders and loss per share of $3.1 million and $0.04 per common share, compared to GAAP net income available to common stockholders and earnings per share of $10.9 million and $0.14 per diluted common share, for the fourth quarter of 2008.
  • Adjusted cash basis net income available to common stockholders and earnings per share of $64.2 million and $0.71 per diluted common share, compared to $54.7 million and $0.66 per diluted common share, for the fourth quarter of 2008.

The Company's GAAP results for the fourth quarter of 2009 include amortization of $71.9 million, $6.9 million of restructuring charges, $7.9 million of stock-based compensation expense, a $1.4 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Concateno plc, $4.3 million of acquisition-related costs recorded in accordance with our adoption of ASC 805, Business Combinations, $1.8 million of expense incurred in connection with the disposal of our Nutritionals business, $1.8 million of expense recorded for fair value adjustments to acquisition-related contingent consideration obligations and a $3.2 million write-down in the carrying value of a facility.  GAAP results for the fourth quarter of 2008 include amortization of $60.3 million, $5.0 million of restructuring charges and $6.7 million of stock-based compensation expense.  These amounts, net of tax, have been excluded from the adjusted cash basis net income per common share for the respective quarters.

A detailed reconciliation of the Company's adjusted cash basis net income, which is a non-GAAP financial measure, to net income (loss) under GAAP, as well as a discussion regarding this non-GAAP financial measure, is included in the schedules to this press release.  Additionally, we have posted on the Inverness website at www.invmed.com a reconciliation on a GAAP and non-GAAP basis of the impacts of the treatment of our Nutritionals business as a discontinued operation for the quarters and the years ended December 31, 2009 and 2008.

The Company will host a conference call beginning at 10:00 a.m. (Eastern Time) today, February 17, 2010, to discuss these results as well as other corporate matters.  During the conference call, the Company may answer questions concerning business and financial developments and trends and other business and financial matters.  The Company's responses to these questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.

The conference call may be accessed by dialing 706-679-1656 (domestic and international), an access code is not required, or via a link on the Inverness website at www.invmed.com.  It is also available via link at http://event.meetingstream.com/r.htm?e=184461&s=1&k=1A14C774F5FD857C8CEABC667F76C662.  An archive of the call will be available from the same link approximately two hours after the conclusion of the live call and will be accessible for 60 days.  Additionally, reconciliations to non-GAAP financial measures not included in this press release that may be discussed during the call will also be available at the Inverness website (www.invmed.com/News.cfm) shortly before the conference call begins and will continue to be available on this website.

For more information about Inverness Medical Innovations, please visit our website at http://www.invernessmedical.com.

By developing new capabilities in near-patient diagnosis, monitoring and health management, Inverness Medical Innovations enables individuals to take charge of improving their health and quality of life at home.  Inverness' global leading products and services, as well as its new product development efforts, focus on infectious disease, cardiology, oncology, drugs of abuse and women's health.  Inverness is headquartered in Waltham, Massachusetts.

    
    
    
              Inverness Medical Innovations, Inc. and Subsidiaries          
                      Condensed Consolidated Balance Sheets                 
                                   (in $000s)                               
                                                                            
                                                     December 31, December 31,
                                                         2009         2008
                                                         ----         ----
    ASSETS                                                                  
    ------                                                                  
    CURRENT ASSETS:                                                         
    Cash and cash equivalents                          $492,773     $141,324
    Restricted cash                                       2,424        2,748
    Marketable securities                                   947        1,763
    Accounts receivable, net                            354,453      261,369
    Inventories, net                                    221,539      173,585
    Prepaid expenses and other current assets           140,674      196,768
    Assets held for sale                                 54,148       58,166
                                                         ------       ------
    Total current assets                              1,266,958      835,723
                                                                            
    PROPERTY, PLANT AND EQUIPMENT, NET                  324,388      274,478
    GOODWILL AND OTHER INTANGIBLE ASSETS, NET         5,193,429    4,714,635
    DEFERRED FINANCING COSTS AND OTHER ASSETS, NET      159,217      130,524
                                                        -------      -------
    Total assets                                     $6,943,992   $5,955,360
                                                     ==========   ==========
                                                                            
    LIABILITIES AND STOCKHOLDERS' EQUITY                                    
    ------------------------------------                                    
    CURRENT LIABILITIES:                                                    
    Current portion of notes payable                    $19,869      $19,509
    Liabilities related to assets held for sale          11,558       19,193
    Other current liabilities                           406,587      326,672
                                                        -------      -------
    Total current liabilities                           438,014      365,374
                                                        -------      -------
                                                                            
    LONG-TERM LIABILITIES:                                                  
    Notes payable, net of current portion             2,129,455    1,501,025
    Deferred tax liability                              442,049      462,787
    Other long-term liabilities                         405,585      346,467
                                                        -------      -------
    Total long-term liabilities                       2,977,089    2,310,279
                                                      ---------    ---------
                                                                            
                                                                            
    TOTAL EQUITY                                      3,528,889    3,279,707
                                                      ---------    ---------
    Total liabilities and equity                     $6,943,992   $5,955,360
                                                     ==========   ==========
    
    
    
    
               Inverness Medical Innovations, Inc. and Subsidiaries
               Condensed Consolidated Statements of Operations and
              Reconciliation to Non-GAAP Adjusted Cash Basis Amounts
                       (in $000s, except per share amounts)
    
    
                                      Year Ended December 31, 2009
                                      ----------------------------
                                                                  Non-GAAP
                                                                  Adjusted
                                        Non-GAAP                   Cash
                                GAAP   Adjustments                Basis (a)
                                ----   -----------                ---------
    
    Net product sales 
     and services
     revenue              $1,893,566          $-                 $1,893,566
    License and
     royalty revenue          29,075           -                     29,075
                              ------         ---                     ------ 
     Net revenue           1,922,641           -                  1,922,641
    Cost of net revenue      868,419     (55,605)(b)(c)(d)(e)       812,814
                             -------     -------                    ------- 
      Gross profit         1,054,222      55,605                  1,109,827
      Gross margin                55%                                    58%
    
    Operating expenses:
     Research and
      development            112,848     (10,680)(b)(c)(d)          102,168
     Selling, general and                                                   
      administrative         798,679    (258,302)(b)(c)(d)(f)(k)(l) 540,377
     Gain on disposition      (3,355)      3,355 (g) 
                              ------       ----- 
      Operating income 
       from continuing
       operations            146,050     321,232                    467,282
    Interest and other
     income (expense),
     net                    (106,267)        (35)(c)(h)(i)(j)      (106,302)
                            --------                               --------
     Income (loss)
      from continuing
      operations before
      provision
      (benefit) for
      income taxes            39,783     321,197                    360,980
    Provision (benefit)
     for income taxes         15,627     110,398 (n)                126,025
                              ------     -------                    ------- 
     Income (loss)
      from continuing
      operations before
      equity earnings
      of unconsolidated
      entities, net of tax    24,156     210,799                    234,955
    Equity earnings
     of unconsolidated
     entities, net of
     tax                       7,626       6,226 (b)(c)              13,852
                               -----       -----                     ------
     Income (loss)
      from continuing
      operations              31,782     217,025                    248,807
     Income (loss)
      from discontinued
      operations, net of
       tax                     1,934       1,226 (b)(m)               3,160
                               -----       -----                      -----
    Net income (loss)        $33,716    $218,251                   $251,967
                             =======    ========                   ======== 
      Preferred stock
       dividends            $(22,972)                               (22,972)
    
    Net income (loss)
     available to common
     stockholders            $10,744                               $228,995
                             =======                               ========
    Net income (loss)
     from continuing
     operations per
     common share:
     Basic                     $0.11                                  $2.80
                               =====                                  =====
     Diluted                   $0.11(o)                               $2.60(q)
                               =====                                  =====
    
    Net income (loss)
     from discontinued
     operations per
     common share:
     Basic                     $0.02                                  $0.04
                               =====                                  =====
     Diluted                   $0.02(o)                               $0.03(q)
                               =====                                  =====
    
    Net income (loss)
     per common
     share:
     Basic                     $0.13                                  $2.84
                               =====                                  =====
     Diluted                   $0.13(o)                               $2.63(q)
                               =====                                  =====
    
    Weighted average
     common shares -
     basic                    80,572                                 80,572
                              ======                                 ======
    Weighted average
     common shares -
     diluted                  81,967(o)                              96,845(q)
                              ======                                 ======
    
    
    
    
                                       Year Ended December 31, 2008
                                       ----------------------------
                                                                  Non-GAAP
                                                                  Adjusted
                                        Non-GAAP                   Cash
                                GAAP   Adjustments                Basis (a)
                                ----   -----------               ---------
    
    Net product sales 
     and services
     revenue              $1,556,727          $-                $1,556,727
    License and royalty
     revenue                  25,826           -                    25,826
                              ------         ---                    ------
     Net revenue           1,582,553           -                 1,582,553
    Cost of net revenue      729,035     (64,780)(b)(c)(d)(e)      664,255
                             -------     -------                   -------
      Gross profit           853,518      64,780                   918,298
      Gross margin                54%                                   58%
    
    Operating expenses:
     Research and
      development            111,828     (15,586)(b)(c)(d)          96,242
     Selling, general and
      administrative         676,998    (198,652)(b)(c)(d)         478,346
     Gain on disposition           -           -                         -
                                 ---         ---                       ---
      Operating income
       from continuing
       operations             64,692     279,018                   343,710
    Interest and other
     income (expense),
     net                    (103,106)      8,762 (c)(j)            (94,344)
                            --------       -----                   -------
     Income (loss) from
      continuing operations
      before provision
      (benefit) for
      income taxes           (38,414)    287,780                   249,366
    Provision (benefit)
     for income taxes        (16,644)     99,159 (n)                82,515
                             -------      ------                    ------
     Income (loss)
      from continuing
      operations before
      equity earnings
      of unconsolidated
      entities, net of
      tax                    (21,770)    188,621                   166,851
    Equity earnings
     of unconsolidated
     entities, net of tax      1,050       8,183 (b)(c)              9,233
                               -----       -----                     -----
     Income (loss)
      from continuing
      operations             (20,720)    196,804                   176,084
     Income (loss)
      from discontinued
      operations, net of
      tax                     (1,048)        130 (b)                  (918)
                              ------         ---                      ----
    Net income (loss)       $(21,768)   $196,934                  $175,166
                            ========    ========                  ========
    
     Preferred stock
      dividends             $(13,989)                              (13,989)
    
    Net income (loss)
     available to common
     stockholders           $(35,757)                             $161,177
                            ========                              ========
    
    Net income (loss)
     from continuing
     operations per
     common share:
     Basic                    $(0.45)                                $2.08
                              ======                                 =====
     Diluted                  $(0.45)(p)                             $1.98 (r)
                              ======                                 =====
    
    Net income (loss)
     from discontinued
     operations per
     common share:
     Basic                   $(0.01)                                $(0.01)
                             ======                                 ======
      Diluted                $(0.01)(p)                             $(0.01)(r)
                              ======                                ======
    
    Net income (loss)
     per common share:
     Basic                   $(0.46)                                 $2.07
                             ======                                  =====
     Diluted                 $(0.46)(p)                              $1.97 (r)
                             ======                                  =====
    
    Weighted average
     common shares -
     basic                   77,778                                 77,778
                             ======                                 ======
    Weighted average
     common shares -
     diluted                 77,778 (p)                             83,376 (r)
                             ======                                 ======

(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or loss (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP.  In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Amortization expense of $257.2 million and $215.3 million for the year 2009 and 2008 GAAP results, respectively, including $42.1 million and $43.4 million charged to cost of sales, $4.4 million and $3.7 million charged to research and development, $209.6 million and $167.1 million charged to selling, general and administrative expense, in the respective periods, with $0.2 million charged through income (loss) from discontinued operations, net of tax, and $0.9 charged through equity earnings of unconsolidated entities, net of tax, during each of the respective periods.

(c) Restructuring charge associated with the decision to close facilities of $23.4 million and $50.7 million for the year 2009 and 2008 GAAP results, respectively.  The $23.4 million charge for the year ended December 31, 2009 included $9.5 million charged to cost of sales, $1.1 million charged to research and development, $6.8 million charged to selling, general and administrative expense, $0.7 million charged to interest expense and $5.3 million charged through equity earnings of unconsolidated entities, net of tax.  The $50.7 million charge for the year ended December 31, 2008 included $17.9 million charged to cost of sales, $7.2 million charged to research and development, $11.3 million charged to selling, general and administrative expense, $7.1 million charged to interest expense and $7.2 million charged through equity earnings of unconsolidated entities, net of tax.  

(d) Compensation costs of $28.2 million and $26.4 million associated with stock-based compensation expense for the year 2009 and 2008 GAAP results, respectively, including $2.0 million and $1.5 million charged to cost of sales, $5.2 million and $4.6 million charged to research and development and $21.0 million and $20.3 million charged to selling, general and administrative.  

(e) A write-off in the amount of $2.0 million during the each of the years ended December 31, 2009 and 2008, respectively, relating to inventory write-ups recorded in connection with the acquisitions of Concateno plc during the third quarter of 2009 and Panbio Limited and BBI Holdings Plc. during the first quarter of 2008, respectively.

(f) Acquisition-related costs in the amount of $15.9 million recorded in connection with the adoption of ASC 805, Business Combinations, on January 1, 2009.  

(g) A $3.4 million gain associated with management's decision to dispose of our Diamics, Inc. operations.

(h) A $1.9 million compensation-related charge recorded in connection with the acquisition of Concateno plc.

(i) A $0.3 million loss recorded in connection with the deferred payment of a portion of the ACON Second Territory Business purchase price consideration to be paid with our common stock.

(j)  A $2.9 million net realized foreign currency gain and a $1.7 million net realized foreign currency loss during the year ended December 31, 2009 and 2008, respectively, associated with restricted cash established in connection with the acquisitions of Concateno plc during the third quarter of 2009 and BBI Holdings Plc during the first quarter of 2008, respectively.

(k) $1.8 million of expense recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(l) A $3.2 million fair value write-down recorded in connection with an idle facility.

(m) Expenses of $1.8 million ($1.1 million, net of tax) incurred in connection with the sale of our vitamins and nutritional supplements business.

(n) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f), (g), (h), (i), (j), (k) and (l).

(o)  Included in the weighted average diluted common shares for the calculation of net income per common share on a GAAP basis for the year ended December 31, 2009, are dilutive shares consisting of 1,395,000 common stock equivalent shares from the potential exercise of stock options and warrants. Potential dilutive shares consisting of 3,426,000 common stock equivalent shares from the potential conversion of convertible debt securities, 386,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business and potential dilutive shares consisting of 11,066,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share on a GAAP basis for the year ended December 31, 2009 because inclusion thereof would be antidilutive.

(p) For the year ended December 31, 2008, potential dilutive shares were not used in the calculation of diluted net loss per common share under GAAP because inclusion thereof would be antidilutive.

(q) Included in the weighted average diluted common shares for the calculation of net income per common share for the year ended December 31, 2009, on an adjusted cash basis, are dilutive shares consisting of 1,395,000 common stock equivalent shares from the potential exercise of stock options and warrants.  Also included were potential dilutive shares consisting of 3,426,000 common stock equivalent shares from the potential conversion of convertible debt securities, 11,066,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock and 386,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. The diluted net income per common share calculation for the year ended December 31, 2009, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $2.8 million, the add back of $23.0 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $0.4 million resulting in net income available to common stockholders of $255.1 million for the year ended December 31, 2009.      

(r) Included in the weighted average diluted common shares for the calculation of net income per common share for the year ended December 31, 2008, on an adjusted cash basis, are dilutive shares consisting of 2,188,000 common stock equivalent shares from the potential exercise of stock options and warrants and potential dilutive shares consisting of 3,411,000 common stock equivalent shares from the potential conversion of convertible debt securities. The diluted net income per common share calculation for the year ended December 31, 2008, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $2.8 million resulting in net income available to common stockholders of $164.0 million. Potential dilutive shares consisting of 6,681,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock for the year ended December 31, 2008 were not used in the calculation of diluted net income per common share, on an adjusted cash basis, because inclusion thereof would be antidilutive.

    
    
    
    
              Inverness Medical Innovations, Inc. and Subsidiaries
              Condensed Consolidated Statements of Operations and
             Reconciliation to Non-GAAP Adjusted Cash Basis Amounts
                     (in $000s, except per share amounts)
    
    
                                       Three Months Ended December 31, 2009
                                       ------------------------------------
                                                                   Non-GAAP
                                                                   Adjusted
                                               Non-GAAP             Cash
                                       GAAP    Adjustments        Basis (a)
                                       ----    -----------        ---------
    Net product sales and services
     revenue                         $537,684        $-            $537,684
    License and royalty revenue         8,487         -               8,487
                                        -----       ---               -----
     Net revenue                      546,171         -             546,171
    Cost of net revenue               244,592   (16,876)(b)(c)(d)(e)227,716
                                      -------   -------             -------
      Gross profit                    301,579    16,876             318,455
                                      -------    ------             -------
      Gross margin                         55%                           58%
    
    Operating expenses:
     Research and development          32,037    (2,887)(b)(c)(d)    29,150
     Selling, general and 
      administrative                  234,422   (75,845)(b)(c)(d)   158,577
                                                        (f)(g)(h)
                                      -------   -------             -------
      Total operating expenses        266,459   (78,732)            187,727
       Operating income from 
        continuing operations          35,120    95,608             130,728
    Interest and other income 
     (expense), net                   (34,728)      196(c)          (34,532)
                                      -------       ---             -------
     Income from continuing 
      operations before provision
      (benefit) for income taxes          392    95,804              96,196
    Provision (benefit) for income 
     taxes                              2,726    31,271(j)           33,997
                                        -----    ------              ------
     (Loss) income from continuing
      operations before equity 
      earnings of unconsolidated
      entities, net of tax             (2,334)   64,533              62,199
    Equity earnings of unconsolidated
     entities, net of tax               2,087     1,629(b)(c)         3,716
                                        -----     -----               -----
     (Loss) income from continuing
      operations                         (247)   66,162              65,915
     Income (loss) from discontinued
      operations, net of tax            3,034     1,129(b)(i)         4,163
                                        -----     -----               -----
    Net income                         $2,787   $67,291             $70,078
                                       ======   =======             =======
      Preferred stock dividends       $(5,916)                      $(5,916)
    
    Net (loss) income available to
     common stockholders              $(3,129)                      $64,162
                                      =======                       =======
    
    Net (loss) income from 
     continuing operations per
     common share: 
      Basic                            $(0.08)                        $0.72
                                       ======                         =====
      Diluted                          $(0.08)(k)                     $0.67(m)
                                        ======                        =====
    
    Net income (loss) from 
     discontinued operations per
     common share:
      Basic                             $0.04                         $0.05
                                        =====                         =====
      Diluted                           $0.04 (k)                     $0.04(m)
                                        =====                         =====
    
    Net (loss) income per common 
     share:
      Basic                            $(0.04)                        $0.77
                                       ======                         =====
      Diluted                          $(0.04)(k)                     $0.71(m)
                                       ======                         =====
    
    Weighted average common shares -
     basic                             83,211                        83,211
                                       ======                        ======
    Weighted average common shares -
     diluted                           83,211 (k)                   100,431(m)
                                       ======                       =======
    
    
    
    
                                      Three Months Ended December 31, 2008
                                      ------------------------------------
                                                                 Non-GAAP
                                                                 Adjusted
                                                 Non-GAAP          Cash
                                       GAAP    Adjustments       Basis (a)
                                       ----    -----------       ---------
    
    Net product sales and services 
     revenue                         $428,110        $-           $428,110
    License and royalty revenue         4,350         -              4,350
                                        -----       ---              -----
     Net revenue                      432,460         -            432,460
    Cost of net revenue               187,077   (11,220)(b)(c)(d)  175,857
                                      -------   -------            -------
      Gross profit                    245,383    11,220            256,603
      Gross margin                         57%                          59%
    
    Operating expenses:
     Research and development          25,402    (2,506)(b)(c)(d)   22,896
     Selling, general and 
      administrative                  186,303   (56,525)(b)(c)(d)  129,778
                                      -------   -------            -------
      Total operating expenses        211,705   (59,031)            52,674
       Operating income from 
        Continuing operations          33,678    70,251            103,929
    Interest and other income 
     (expense), net                   (18,754)      147 (c)        (18,607)
                                      -------       ---            -------
     Income from continuing 
      operations before provision 
       (benefit) for income taxes      14,924    70,398             85,322
    Provision (benefit) for income 
     taxes                             (2,924)   28,171 (j)         25,247
                                       ------    ------             ------
     (Loss) income from continuing
      operations before equity 
       earnings of unconsolidated
        entities, net of tax           17,848    42,227             60,075
    Equity earnings of unconsolidated
     entities, net of tax                (119)    1,505 (b)(c)       1,386
                                         ----     -----              -----
     (Loss) income from continuing
      operations                       17,729    43,732             61,461
     Income (loss) from discontinued
      operations, net of tax           (1,316)       33 (b)         (1,283)
                                       ------       ---             ------
    Net income                        $16,413   $43,765            $60,178
                                      =======   =======            =======
     Preferred stock dividends        $(5,490)                     $(5,490)
    
    Net (loss) income available to 
     common stockholders              $10,923                      $54,688
                                      =======                      =======
    
    Net (loss) income from continuing
     operations per common share:
      Basic                             $0.16                        $0.72
                                        =====                        =====
      Diluted                           $0.16 (l)                    $0.67 (n)
                                        =====                        =====
    
    Net income (loss) from discontinued
     operations per common share:
      Basic                            $(0.02)                      $(0.02)
                                       ======                       ======
      Diluted                          $(0.02)(l)                   $(0.02)(n)
                                       ======                       ======
    
    Net (loss) income per 
     common share:
      Basic                             $0.14                        $0.70
                                        =====                        =====
      Diluted                           $0.14 (l)                    $0.66 (n)
                                        =====                        =====
    
    Weighted average common shares -
     basic                             78,217                       78,217
                                       ======                       ======
    Weighted average common shares -
     diluted                           78,941 (l)                   92,853 (n)
                                       ======                       ======
    

(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or loss (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP.  In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Amortization expense of $71.9 million and $60.3 million in the fourth quarter of 2009 and 2008 GAAP results, respectively, including $11.6 million and $9.2 million charged to cost of sales, $1.2 million and $1.0 million charged to research and development, $58.8 million and $49.9 million charged to selling, general and administrative expense, in the respective quarters, with $0.3 million and $0.2 million charged through equity earnings of unconsolidated entities, net of tax, during the respective quarters.  Amortization associated with discontinued operations amounted to $54,000 during the fourth quarter of 2009 and 2008.

(c) Restructuring charge associated with the decision to close facilities of $6.9 million and $5.0 million in the fourth quarter of 2009 and 2008 GAAP results, respectively.  The $6.8 million charge for the three months ended December 31, 2009 included $3.3 million charged to cost of sales, $0.2 million charged to research and development, $1.8 million charged to selling, general and administrative expense, $0.2 million charged to interest expense and $1.3 million charged through equity earnings of unconsolidated entities, net of tax.  The $5.0 million charge for the three months ended December 31, 2008 included $1.5 million charged to cost of sales, $0.4 million charged to research and development, $1.7 million charged to selling, general and administrative expense, $0.1 million charged to interest expense and $1.3 million charged through equity earnings of unconsolidated entities, net of tax.  

(d) Compensation costs of $7.9 million and $6.7 million associated with stock-based compensation expense in the fourth quarter of 2009 and 2008 GAAP results, respectively, including $0.5 million and $0.5 million charged to cost of sales, $1.5 million and $1.2 million charged to research and development and $5.9 million and $5.0 million charged to selling, general and administrative, in the respective quarters.  

(e) A write-off in the amount of $1.4 million during the fourth quarter of 2009, relating to inventory write-ups recorded in connection with the acquisition of Concateno plc during the third quarter of 2009.

(f) Acquisition-related costs in the amount of $4.3 million recorded in connection with the adoption of ASC 805, Business Combinations, on January 1, 2009.

(g) $1.8 million of expense recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(h) A $3.2 million fair value write-down recorded in connection with an idle facility.

(i) Expenses of $1.8 million ($1.1 million, net of tax) incurred in connection with the sale of our vitamins and nutritional supplements business.

(j) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f), (g) and (h).

(k) For the three months ended December 31, 2009, potential dilutive shares were not used in the calculation of diluted net loss per common share under GAAP because inclusion thereof would be antidilutive.

(l) Included in the weighted average diluted common shares for the calculation of net income per common share on a GAAP basis for the three months ended December 31, 2008, are dilutive shares consisting of 724,000 common stock equivalent shares from the potential exercise of stock options and warrants. Potential dilutive shares consisting of 3,411,000 common stock equivalent shares from the potential conversion of convertible debt securities and potential dilutive shares consisting of 10,502,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share on a GAAP basis for the three months ended December 31, 2008 because inclusion thereof would be antidilutive.

(m)  Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended December 31, 2009, on an adjusted cash basis, are dilutive shares consisting of 1,922,000 common stock equivalent shares from the potential exercise of stock options and warrants.  Also included were potential dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities, 11,286,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock and 573,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. The diluted net income per common share calculation for the three months ended December 31, 2009, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $0.7 million, the add back of $5.9 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $0.1 million resulting in net income available to common stockholders of $70.9 million for the three months ended December 31, 2009.

(n) Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended December 31, 2008, on an adjusted cash basis, are dilutive shares consisting of 724,000 common stock equivalent shares from the potential exercise of stock options and warrants.  Also included were potential dilutive shares consisting of 3,411,000 common stock equivalent shares from the potential conversion of convertible debt securities and 10,502,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock.  The diluted net income per common share calculation for the three months ended December 31, 2008, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $0.7 million and the add back of preferred stock dividends related to the Series B convertible preferred stock resulting in net income available to common stockholders of $60.9 million for the three months ended December 31, 2008.

SOURCE Inverness Medical Innovations, Inc.



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