-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PePq8f5T7rPuwhB7MnoEQNPdeDo4kNbpnG/rA6ZHQ/0yiYeAb5VlA+TakUF5OLVZ lCJHQw8QLRHtQtZdNCLiWQ== 0000892251-00-000117.txt : 20000516 0000892251-00-000117.hdr.sgml : 20000516 ACCESSION NUMBER: 0000892251-00-000117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERIDIAN DIAGNOSTICS INC CENTRAL INDEX KEY: 0000794172 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 310888197 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14902 FILM NUMBER: 634037 BUSINESS ADDRESS: STREET 1: 3471 RIVER HILLS DR CITY: CINCINNATI STATE: OH ZIP: 45244 BUSINESS PHONE: 5132713700 MAIL ADDRESS: STREET 1: 3471 RIVER HILLS DRIVE CITY: CINCINNATI STATE: OH ZIP: 45244 10-Q 1 MERIDIAN DIAGNOSTICS, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2000 OR ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14902 MERIDIAN DIAGNOSTICS, INC. - -------------------------------------------------------------------------------- Incorporated under the laws of Ohio 31-0888197 - -------------------------------------------------------------------------------- (I.R.S. Employer Identification No.) 3471 River Hills Drive Cincinnati, Ohio 45244 (513) 271-3700 Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding May 8, 2000 - ------------------------------------------- ---------------------------------- Common Stock, no par value 14,585,588 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q Page(s) ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements 3-4 Consolidated Balance Sheets March 31, 2000 and September 30, 1999 Consolidated Statements of Earnings 5 Three Months Ended March 31, 2000 and 1999 Six Months Ended March 31, 2000 and 1999 Consolidated Statement of Shareholders' Equity 6 Six Months Ended March 31, 2000 Consolidated Statements of Cash Flows 7 Six Months Ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements 8-13 Item 2. Management's Discussion and Analysis of 14-18 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21 Exhibit 27 Financial Data Schedule 22-24 Exhibit 99 Forward Looking Statements 25 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) ($000) ASSETS March 31, September 30, 2000 1999 -------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 6,321 $ 6,229 Investments 1,002 1,002 Accounts receivable and notes receivable, less allowance of $446 in 2000 and $380 in 1999 for doubtful accounts 13,340 12,932 Inventories 10,616 10,357 Prepaid expenses and other 1,306 890 Deferred tax assets 562 562 ------- ------- Total current assets 33,147 31,972 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Land and improvements 989 969 Buildings and improvements 10,467 10,427 Machinery, equipment and furniture 12,400 11,986 Construction in progress 462 811 Assets held for sale 3,150 -- ------- ------- Total property, plant and equipment 27,468 24,193 Less-accumulated depreciation and amortization 10,922 9,987 ------- ------- Net property, plant and equipment 16,546 14,206 ------- ------- OTHER ASSETS: Long term receivables and other 780 940 Deferred debenture offering costs, net of accumulated amortization of $474 in 2000 and $407 in 1999 854 922 Other intangible assets, net of accumulated amortization of $10,374 in 2000 and $9,258 in 1999 19,511 20,760 Cost in excess of net assets acquired, net of accumulated amortization of $848 in 2000 and $806 in 1999 3,491 3,589 ------- ------- Total other assets 24,711 26,211 ------- ------- TOTAL ASSETS $74,329 $72,389 ======= ======= The accompanying notes to consolidated financial statements are an integral part of these unaudited balance sheets. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) ($000) LIABILITIES AND SHAREHOLDERS' EQUITY March 31, September 30, 2000 1999 ------------ ------------- CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 902 $ 821 Notes payable to bank 3,354 3,354 Notes payable to third party -- 1,000 Accounts payable 3,041 3,495 Accrued payroll and payroll taxes 1,644 2,154 Accrued expenses 2,717 2,693 Income taxes payable 446 -- -------- -------- Total current liabilities 12,104 13,517 -------- -------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 24,943 21,366 -------- -------- DEFERRED TAX LIABILITIES 2,999 3,602 -------- -------- SHAREHOLDERS' EQUITY: Preferred stock, no par value 1,000,000 shares authorized; none issued -- -- Common stock, no par value, 50,000,000 shares authorized; 14,585,588 and 14,429,151 shares issued and outstanding, respectively, stated at 2,529 2,424 Additional paid-in capital 20,921 20,855 Retained earnings 13,159 11,444 Accumulated other comprehensive loss (2,326) (819) -------- -------- Total shareholders' equity 34,283 33,904 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 74,329 $ 72,389 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these unaudited balance sheets. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (Unaudited) (000, Except Per Share Amounts) Three Months Ended Six Months Ended March 31 March 31 --------------------- -------------------- 2000 1999 2000 1999 ---------- -------- -------- -------- NET SALES $ 14,577 $ 14,654 $ 28,906 $ 26,373 COST OF SALES 5,609 5,578 10,816 9,665 -------- -------- -------- -------- Gross profit 8,968 9,076 18,090 16,708 -------- -------- -------- -------- OPERATING EXPENSES: Research and development 439 445 961 983 Selling and marketing 2,891 2,810 6,018 5,661 General and administrative 2,238 2,334 5,010 4,657 Merger integration costs -- 686 -- 1,212 -------- -------- -------- -------- Total operating expenses 5,568 6,275 11,989 12,513 -------- -------- -------- -------- Operating income 3,400 2,801 6,101 4,195 OTHER INCOME (EXPENSE): Interest income 201 81 270 270 Interest expense (460) (690) (935) (1,292) Other, net (26) (92) 54 (42) -------- -------- -------- -------- Total other income (expense) (285) (701) (611) (1,064) -------- -------- -------- -------- Earnings before income taxes 3,115 2,100 5,490 3,131 INCOME TAXES 1,266 844 2,171 1,327 -------- -------- -------- -------- NET EARNINGS $ 1,849 $ 1,256 $ 3,319 $ 1,804 -------- -------- -------- -------- BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,586 14,383 14,544 14,383 ======== ======== ======== ======== BASIC EARNINGS PER COMMON SHARE $ 0.13 $ 0.09 $ 0.23 $ 0.13 ======== ======== ======== ======== DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,703 14,584 14,640 14,579 ======== ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE $ 0.13 $ 0.09 $ 0.23 $ 0.12 ======== ======== ======== ======== The accompanying notes to consolidated financial statements are an integral part of these unaudited statements. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Statement of Shareholders' Equity For the Six Months Ended March 31, 2000 (Shares and $ in 000)
Number of Accumulated Shares Additional Other Issued and Comprehensive Common Paid in Comprehensive Retained Outstanding Income (Loss) Stock Capital Loss Earnings Total ------------- -------------- ------------ ------------ --------------- ----------- ---------- Balance at September 30, 1999 14,429 $ --- $ 2,424 $ 20,855 $ (819) $11,444 $33,904 Exercised Stock Options, Net 157 --- 105 66 --- --- 171 Dividends --- --- --- --- --- (1,604) (1,604) Comprehensive Income (loss) Net income --- 3,319 --- --- --- 3,319 3,319 Other comprehensive income (loss) Foreign currency translation adjustment --- (1,507) --- --- (1,507) --- (1,507) ----------- Comprehensive Income $ 1,812 ------- ============ --------- ---------- ----------- ---------- --------- Balance at March 31, 2000 14,586 $ 2,529 $ 20,921 $ (2,326) $13,159 $34,283 ======== =========== =========== ============ =========== =========
The accompanying notes to consolidated financial statements are an integral part of these unaudited statements. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) ($000) Six Months Ended March 31, ------------------------------ 2000 1999 ---------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 3,319 $ 1,804 Non cash items: Depreciation of property, plant and equipment 1,174 971 Amortization of intangible assets and deferred royalties 1,442 970 Deferred income taxes (603) 529 Change in current assets and current liabilities net of effects of acquisition: Change in current assets excluding cash/cash equivalents and investments (1,938) 2,108 Change in current liabilities, excluding current portion of long-term obligations (884) 877 Long-term receivable and other 166 208 -------- -------- Net cash provided by operating activities 2,676 7,467 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Gull Laboratories, Inc., net of cash acquired -- (18,210) Purchase of property, plant and equipment, net (3,514) (1,118) Purchase of short term investments -- 1,646 Purchase of product license and other intangible assets (27) (200) -------- -------- Net cash used in investing activities (3,541) (17,882) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt obligations 3,860 3,354 Repayment of debt obligations (1,208) (4,301) Dividends paid (1,604) (1,433) Proceeds from issuance of common stock 171 5 -------- -------- Net cash provided by (used in) financing activities 1,219 (2,375) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (262) (102) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 92 (12,892) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,229 19,400 -------- -------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 6,321 $ 6,508 -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 1,973 $ 373 Interest 935 820 Non-cash items Capital lease 522 -- The accompanying notes to consolidated financial statements are an integral part of these unaudited statements. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation: --------------------- The consolidated financial statements included herein have not been examined by independent public accountants, but include all adjustments (consisting of normal recurring entries) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the requirements of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. It is suggested that these consolidated financial statements be read in conjunction with consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year. 2. Acquisition of Gull Laboratories, Inc.: On November 5, 1998, the Company acquired Gull Laboratories, Inc. (Gull) for $19,700,000 cash, including acquisition costs of $1,700,000. Gull was engaged in the development, manufacture and marketing of high-quality diagnostic test kits for the detection of infectious diseases and autoimmune disorders. The acquisition was accounted for as a purchase. For accounting purposes, the acquisition was effective on October 31, 1998 and the results of operations of Gull are included in the consolidated results of operations of the Company from that date forward. The following unaudited pro forma combined results of operations for the six months ended March 31, 1999 assumes the Gull acquisition occurred as of October 1, 1998 (dollars in thousands, except per share data). Pro forma adjustments consist of reductions in interest income due to the use of cash and investments to fund the acquisition, additional amortization of intangible assets and goodwill and adjustments to the tax provision assuming the utilization of a portion of Gull U.S. losses and the establishment of valuation reserves for potentially unrealizable deferred tax assets related to pro forma European operating losses. The unaudited pro forma financial information presented is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place on October 1, 1998 or the results of operations of the combined companies (amounts in thousands except per share amounts). Net sales......................... $ 27,864 Net earnings..................... $ 1,883 Earnings per share: Basic..................... $ 0.13 Diluted.................. $ 0.13 During fiscal 1999, research and development activities were consolidated into Meridian's Cincinnati operations and production facilities in Germany were shut down. The renovation of the Cincinnati facilities was completed during the second quarter of fiscal 2000. The manufacture of Gull products is now conducted in Cincinnati. The facility in Salt Lake City is currently being marketed for sale. Purchase liabilities recorded included approximately $1,400,000 for severance and costs related to the shut down and consolidation of the acquired facilities in Salt Lake City and Germany. This entire amount has been paid as of March 31, 2000. In connection with the acquisition, the Company agreed to pay certain amounts owed by Gull to its former parent company. At September 30, 1999, $1,000,000 was recorded as a note payable to third party representing the final amount payable to the former parent. This note was paid on November 16, 1999. The major components of the merger integration costs incurred during fiscal 1999 were as follows (amounts in thousands): Three Months Six Months Ended Ended March 31, 1999 March 31, 1999 -------------- -------------- Product validation costs $ 120 $ 120 Professional fees primarily related to reorganization of European operations 160 160 Travel and training 100 351 Termination payments to distributors 155 430 Other 151 151 ------------ ---------- Total merger integration costs $ 686 $ 1,212 ------------ ---------- Substantially all merger integration costs were paid as of September 30, 1999. Fiscal 2000 merger integration costs to date have been immaterial and are expected to be immaterial for the remainder of fiscal 2000. 3. Inventories: Inventories are comprised of the following (amounts in thousands): March 31, 2000 September 30, 1999 -------------- ------------------ Raw materials 3,283 $ 2,469 $ Work-in-process 3,781 3,211 Finished goods 3,552 4,677 ------------- ------------- $ 10,616 $ 10,357 ------------- ------------- 4. Income Taxes: The provisions for income taxes were computed at the estimated annualized effective tax rates utilizing current tax law in effect, after giving effect to research and experimentation credits and recognizing a benefit for operating losses incurred in certain European operations. 5. Earnings Per Common Share: Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed by adding to the weighted average number of common shares outstanding, the dilutive effect of additional common shares that would have been outstanding if dilutive potential common shares had been issued. The table below shows the amounts used in computing earnings per share and the effect of dilutive potential common stock on income and the weighted average number of shares for the three and six months ended March 31, 2000 and March 31, 1999.
THREE MONTHS ENDED ------------------------------------------------------------------------------------------------ March 31, 2000 March 31, 1999 ---------------------------------------------- --------------------------------------------- Income Shares Per Income Shares Per (Numerator) (Denominator) Share Amount (Numerator) (Denominator) Share Amount ----------- ------------- ------------ ----------- ------------- ------------ In thousands, except per share amounts ------------- BASIC EARNINGS PER SHARE Net income available to common shareholders $1,849 14,586 $0.13 $1,256 14,383 $0.09 ------------------------------------------------------------------------------------------------------------------------- EFFECT OF DILUTIVE SECURITIES Stock Options --- 117 --- --- 201 --- ------------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE Net income available to common shareholders and assumed conversions $1,849 14,703 $0.13 $1,256 14,584 $0.09 ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED ------------------------------------------------------------------------------------------------ March 31, 2000 March 31, 1999 ---------------------------------------------- --------------------------------------------- Income Shares Per Income Shares Per (Numerator) (Denominator) Share Amount (Numerator) (Denominator) Share Amount ----------- ------------- ------------ ----------- ------------- ------------ In thousands, except per share amounts ----------- BASIC EARNINGS PER SHARE Net income available to common shareholders $3,319 14,544 $0.23 $1,804 14,383 $0.13 ------------------------------------------------------------------------------------------------------------------------ EFFECT OF DILUTIVE SECURITIES Stock Options -- 96 -- -- 196 -- ------------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE Net income available to common shareholders and assumed conversions $3,319 14,640 $0.23 $1,804 14,579 $0.12 -------------------------------------------------------------------------------------------------------------------------
The following table outlines shares excluded from diluted EPS, as they are anti-dilutive (amounts in thousands). Three Months Ended Six Months Ended March 31, March 31, ---------------------- ------------------------ 2000 1999 2000 1999 -------- -------- ------- -------- Options 279 406 403 404 Convertible debentures 1,243 1,243 1,243 1,243 ----- ----- ----- ----- 1,522 1,649 1,646 1,647 ===== ===== ===== ===== At both March 31, 2000 and 1999, the impact of assuming the 1996 convertible debentures were converted, net of the impact of pro forma, after tax interest expense, was anti-dilutive. 6. Translation of Foreign Currency: Assets and liabilities of foreign operations are translated using period-end exchange rates with gains or losses resulting from translation included in a separate component of accumulated other comprehensive loss. Revenues and expenses are translated using exchange rates prevailing during the period. Gains and losses resulting from transactions in foreign currencies were immaterial. 7. Comprehensive Income: Comprehensive income is the total of net income and all other non-owner changes in equity. For the Company, this reporting involves gains and losses resulting from the translation of assets and liabilities of foreign operations which are currently included in a separate component of accumulated other comprehensive loss. Comprehensive income for the first six months of fiscal 2000 was $1,812,000. 8. Segment Information: Meridian operates in two geographic segments: Meridian Diagnostics, Inc. (MDI) and Meridian Diagnostics Europe (MDE). MDI operations consist of the manufacture and sale of diagnostic test kits in the U.S. and countries outside of Europe, Africa and the Middle East. It also includes sales of bioresearch reagents and sales of proficiency tests, which combined, represent approximately 10% of total Company revenues. MDE distributes diagnostic test kits in Europe, Africa and the Middle East. Sales are attributed to the geographic area based on the location from which the product is shipped to the customer. Segment information for the three and six months ended March 31, 2000 and 1999 is as follows: - -------------------------------------------------------------------------------- ($ in thousands) MDI MDE ELIM(1) Total - -------------------------------------------------------------------------------- Three months ended March 31, 2000 Net sales $12,914 $3,694 $(2,031) $14,577 Operating income (loss) 3,782 (244) (138) 3,400 Income tax provision (benefit) 1,404 (78) (60) 1,266 Net earnings (loss) 2,119 (257) (13) 1,849 Total assets 13,041 101,098 (39,810) 74,329 Three months ended March 31, 1999 Net sales 10,836 4,862 (1,044) 14,654 Operating income (loss) 2,254 503 44 2,801 Income tax provision (benefit) 836 (60) 68 844 Net earnings (loss) 890 268 98 1,256 Total assets 85,602 9,350 (24,780) 70,172 - -------------------------------------------------------------------------------- ($ in thousands) MDI MDE ELIM(1) Total - -------------------------------------------------------------------------------- Six months ended March 31, 2000 Net sales $25,037 $ 7,284 $(3,415) $28,906 Operating income (loss) 6,334 (234) 1 6,101 Income tax provision (benefit) 2,303 (120) (12) 2,171 Net earnings (loss) 3,412 (171) 78 3,319 Total assets 13,041 101,098 (39,810) 74,329 Six months ended March 31, 1999 Net sales 8,148 (2,225) 20,450 26,373 Operating income (loss) 3,592 305 298 4,195 Income tax provision (benefit) 1,376 (108) 59 1,327 Net earnings (loss) (30) 361 1,804 1,473 Total assets 9,350 85,602 (24,780) 70,172 (1)Eliminations consist of intersegment transactions. Transactions between geographic segments are accounted for as intercompany sales at established intercompany prices for internal and management purposes with all intercompany amounts eliminated in consolidation. The MDI segment data for total assets include corporate goodwill and intangibles of $23,077,000, and $24,349,000 as of March 31, 2000 and September 30, 1999, respectively. 9. In June 1998, the Financial Accounting Standards Board issued Statemen t of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at it fair value. The Company is required to adopt this statement in fiscal year 2001. The Company does not currently hold nor invest in any type of derivative instruments. 9. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Second Quarter Fiscal 2000 Compared to Second Quarter Fiscal 1999 - ----------------------------------------------------------------- Net Sales Net sales decreased $77,000 or 1%, to $14,577,000 for the second quarter of fiscal 2000 compared to fiscal 1999. This decrease was comprised of volume growth of 3% or $512,000 and currency losses of (4%) or $(652,000). Changes in price for the quarter were essentially flat at a positive 0.4% or $63,000. Adjusted for currency, fiscal 2000 second quarter net sales increased 4%. Volume growth in core product sales for the quarter resulted primarily from increases in the Rotavirus, H. pylori and Microbiology product lines, offset by slight decreases in certain other product lines. The Company's proficiency testing and reagent sales also contributed to volume growth for the second quarter of fiscal 2000. International sales were $4,426,000 or 30% of total net sales for the quarter compared to $5,117,000 or 35% of total net sales in fiscal 1999. Domestic exports were $732,000, or 5% of total net sales while the remaining international sales were generated by Meridian Diagnostics Europe (MDE). MDE sales for the second quarter decreased 24% from $4,862,000 to $3,694,000 compared to fiscal 1999. In fiscal 1999, second quarter MDE sales were unusually strong and represented 32% of the MDE sales total for the year. Other factors contributing to the decrease were the negative currency effect of $652,000, or 13%, caused by the strengthening dollar, and a decrease in sales in Germany due to regulatory changes enacted in the Company's fourth quarter of fiscal 1999 designed to reduce health care costs. These regulations, which resulted in a significant reduction in diagnostic tests ordered by physicians, are and have been challenged since their inception by both the health care industry and the patient population. Gross Profit Gross profit decreased $108,000 or 1%, to $8,968,000 for the second quarter of fiscal 2000 compared to fiscal 1999. Gross profit margins remained constant at 62% for the second quarter of fiscal 2000 compared to fiscal 1999. Margins were favorably impacted by product mix; however, this was offset by the strengthening of the dollar in Europe as well as higher scrap costs. As of March 31, 2000, the Company has sold substantially all inventory manufactured in Gull's Salt Lake City facility. Going forward, gross profit will reflect the efficiencies of producing Gull products in Cincinnati. Operating Expenses Operating expenses, inclusive of merger integration costs in fiscal 1999, decreased $707,000 or 11%, to $5,568,000 during the second quarter of fiscal 2000 compared to fiscal 1999. Excluding merger integration costs in fiscal 1999, operating expenses were essentially flat at 38% of sales during the second quarter of fiscal 2000 compared to fiscal 1999. Overall, operating expenses were favorably impacted by currency. Research and development expenses remained flat at 3% of sales. Sales and marketing expenses increased 3% during the second quarter of fiscal 2000, and as a percentage of sales, increased to 20% from 19% in fiscal 1999. General and administrative expenses decreased 4% during the second quarter of fiscal 2000, and as a percentage of sales, decreased to 15% from 16% in fiscal 1999. General and administrative expenses were unfavorably impacted by higher amortization costs associated with intangibles from the Gull acquisition based on final appraisals, as well as normal salary and wage increases. However, such increases were more than offset by the elimination of certain administrative costs in Salt Lake City upon closure of that facility in January 2000 and the impact of currency. Operating Income As a result of the above items, operating income, inclusive of merger integration costs in fiscal 1999 increased $599,000 or 21%, to $3,400,000 during the second quarter of fiscal 2000 compared to fiscal 1999. Excluding merger integration costs in fiscal 1999, operating income decreased slightly. Other Income and Expense Interest income increased $120,000 or 148%, to $201,000 during the second quarter of fiscal 2000 compared to fiscal 1999. This increase resulted from a higher average cash and investment balance held during the second quarter of fiscal 2000, stemming from the cash build since the November 5, 1998 acquisition of Gull and bank borrowings that occurred in December of 1999 but were not utilized until the second quarter. Interest expense decreased $230,000 or 33%, to $460,000 during the second quarter of fiscal 2000 compared to fiscal 1999. This decrease resulted primarily from the refinancing of debt assumed in the Gull acquisition during January 1999. Income Taxes The provision for income taxes is at an effective rate of 41% for the second quarter of fiscal 2000 compared to 40% for fiscal 1999. Based on tax-planning strategies, the Company has recorded a future benefit for operating losses incurred in certain European operations during the second quarter of fiscal 2000, consistent with fiscal 1999. Results of Operations - Six Months ended March 31, 2000 Compared to Six Months Ended March 31, 1999 - ------------------------------------------------------- Net Sales Net sales increased $2,533,000 or 10%, to $28,906,000 for the first six months of fiscal 2000 compared to fiscal 1999. This increase was comprised of volume growth of 13% or $3,535,000 and currency losses of (4%) or $(1,056,000). Changes in price for the first six months of fiscal 2000 were essentially flat at a positive 0.2% or $54,000. Adjusted for currency, net sales for the first six months of fiscal 2000 increased 14%. Growth in core product sales for the first six months of fiscal 2000 has been strong in the Rotavirus, H. pylori and Microbiology product lines, which reflect sales increases of 32%, 64% and 113%, respectively, compared to fiscal 1999. Such sales increases have been complemented by smaller sales increases in certain other product lines and have also been offset by slight sales decreases in certain other product lines. The Company's proficiency testing and reagent sales also contributed to volume growth for the first six months of fiscal 2000. International sales were $8,933,000 or 31% of total net sales for the first six months of fiscal 2000 compared to $8,922,000 or 34% of total net sales in fiscal 1999. Domestic exports were $1,650,000 for the six-month period, or 6%, of total net sales while the remaining international sales were generated by MDE. MDE sales for the six months ended March 31, 2000 decreased 11% from $8,148,000 to $7,283,000 compared to fiscal 1999. Strong sales in the second quarter of fiscal 1999, the negative effect of currency of approximately $1,056,000, or 12%, and the reduction of sales in Germany due to regulatory changes enacted in the Company's fourth quarter of fiscal 1999 contributed to the decline. Gross Profit Gross profit increased $1,382,000 or 8%, to $18,090,000 for the first six months of fiscal 2000 compared to fiscal 1999. Gross profit margins remained constant at 63% for the first six months of fiscal 2000 compared to fiscal 1999. Margins were favorably impacted by product mix; however, this was offset by the impact of the strengthening of the dollar in Europe as well as higher scrap costs. As of March 31, 2000, the Company has sold substantially all inventory manufactured in Gull's Salt Lake City facility. Going forward, gross profit will reflect the efficiencies of producing Gull products in Cincinnati. Operating Expenses Operating expenses, inclusive of merger integration costs in fiscal 1999, decreased $524,000 or 4%, to $11,989,000 during the first six months of fiscal 2000 compared to fiscal 1999. Excluding merger integration costs in fiscal 1999, operating expenses increased $688,000 or 6%, during the first six months of fiscal 2000 compared to fiscal 1999, and as a percentage of sales, decreased to 41% from 43% in fiscal 1999. Overall, exclusive of merger integration costs in fiscal 1999, operating expenses increased as they reflect six months of Gull activity in fiscal 2000 and only five months in fiscal 1999. Operating expenses were also favorably impacted by currency. Research and development expenses decreased 2% during the first six months of fiscal 2000, and as a percentage of sales, decreased to 3% from 4% in fiscal 1999. The slight decrease reflects the consolidation of research and development activities in the Cincinnati facility in March 1999. Sales and marketing expenses increased $357,000 or 6% during the first six months of fiscal 2000 compared to fiscal 1999, reflecting one additional month of Gull operations in fiscal 2000. As a percentage of sales, sales and marketing expenses were flat at 21% of sales during the first six months of fiscal 2000 compared to fiscal 1999. General and administrative expenses increased $353,000 or 8% during the first six months of fiscal 2000 compared to fiscal 1999, reflecting one additional month of Gull operations during fiscal 2000. As a percentage of sales, general and administrative expenses decreased to 17% from 18% in fiscal 1999. General and administrative expenses for the first six months of fiscal 2000 include higher amortization costs associated with intangibles from the Gull acquisition based on final appraisals, as well as normal salary and wage increases. However, such increases were offset by the elimination of certain administrative costs in Salt Lake City upon closure of that facility and the impact of currency. Operating Income As a result of the above items, operating income, inclusive of merger integration costs in fiscal 1999 increased $1,906,000 or 45%, to $6,101,000 during the first six months of fiscal 2000 compared to fiscal 1999. Exclusive of merger integration costs in fiscal 1999, operating income increased $694,000 or 13%. Other Income and Expense Interest expense decreased $357,000 or 28%, to $935,000 during the first six months of fiscal 2000 compared to fiscal 1999. This decrease resulted primarily from the refinancing of debt assumed in the Gull acquisition during January 1999. Income Taxes The provision for income taxes is at an effective rate of 40% for the first six months of fiscal 2000 compared to 42% for fiscal 1999. Based on tax-planning strategies, the Company has recorded a future benefit for operating losses incurred in certain European operations during the first six months of fiscal 2000, consistent with fiscal 1999. The effective tax rate in fiscal 2000 is lower than in fiscal 1999 because of the tax effects of the final allocation of the purchase price for the Gull acquisition and the resulting amount of non-deductible goodwill. Liquidity and Capital Resources The Company's operating cash flow and potential financing requirements are determined by analysis of annual operating and capital spending budgets and consideration of acquisition plans. The Company has historically maintained a significant level of cash and cash equivalents in order to quickly respond to acquisition opportunities. During the first six months of fiscal 2000, net cash flows provided by operations were $2,676,000, compared to $7,467,000 in fiscal 1999. Net cash flows provided by operations in fiscal 2000 were favorably impacted by higher net income and non-cash expenses for depreciation and amortization, reflecting a full six months of Gull operations compared to only five months in fiscal 1999. Net cash flows from operations in fiscal 2000 were negatively impacted by growth in accounts receivable, inventories and prepaids, and decreases in accounts payable and accrued expenses. These changes in current assets and liabilities reflect overall growth in the business and payments to construction contractors related to the renovation of the Cincinnati production facility. Net cash flows from operations in fiscal 2000 were also negatively impacted by currency translation because of the strengthening of the dollar in Europe. During the first six months of fiscal 2000, net cash flows used in investing activities were $3,541,000 in fiscal 2000 compared to $17,882,000 in fiscal 1999. Net cash flows used in investing activities in fiscal 2000 primarily relate to capital expenditures for the Cincinnati production facility to accommodate the Gull product lines. Net cash flows used in investing activities during fiscal 1999 include $18,210,000 related to the acquisition of Gull. During the first six months of fiscal 2000, net cash flows provided by financing activities were $1,219,000 compared to net cash flows used in financing activities of $2,375,000 in fiscal 1999. This change is largely due to reductions in debt payments assumed in the Gull acquisition that were subsequently refinanced in the second quarter of fiscal 1999. In December 1999, the Company financed the renovation of the Cincinnati production facility through a $3,478,000 five-year term loan bearing interest at 8% and a $522,000 seven-year capital lease. Net cash flows from operations are anticipated to fund working capital requirements for the balance of fiscal 2000. The Company has a $20,000,000 credit facility with a commercial bank under which $12,786,000 is available at March 31, 2000. Also, the Company has cash, cash equivalents and investments in the aggregate amount of $7,323,000 at March 31, 2000. Impact of Year 2000 Prior to December 31, 1999, the Company implemented plans to ready all critical information technology systems, including hardware and software, and non-information technology systems, such as computer chips embedded in communication, security, manufacturing, laboratory and instrumentation equipment. As of the date of this filing, the Company has had no significant interruptions to its business as a result of the Year 2000 date change. The Company plans to monitor its information technology systems and non-information technology systems throughout fiscal 2000 to identify and address any issues related to the Year 2000 date change. The Company is in the process of assessing the impact of the conversion to the Euro on its systems and business operations. The Company's primary business locations in Europe are currently able to process Euro transactions. The Company does not believe this conversion will have a material impact on the business and operations, however, there can be no assurances that this will be the case. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on January 20, 2000. Each of the following matters was voted upon and approved by the Company's shareholders as indicated below: 1. Election of the following six directors: (a) James A. Buzard, 12,835,838 votes for, 141,930 withheld and 0 abstentions. (b) John A. Kraeutler, 12,803,108 votes for, 174,660 withheld and 0 abstentions. (c) Gary P. Kreider, 12,830,139 votes for, 147,629 withheld and 0 abstentions. (d) William J. Motto, 12,811,749 votes for, 166,019 withheld and 0 abstentions. (e) Robert J. Ready, 12,876,899 votes for, 100,869 withheld and 0 abstentions. 2. Ratification of the appointment of Arthur Andersen LLP as the Company's independent public accountants for fiscal year 2000, 12,924,352 votes for, 19,057 against and 34,359 abstentions. Item 5. Other Information On February 22, 2000, Meridian Diagnostics announced that it has received clearance from the United States Food and Drug Administration (FDA) to market Premier C. difficile Toxins A&B, the sixth member of the company's C. difficile product family. Toxigenic C. difficile is the major cause of Antibiotic Associated Diarrhea (AAD) and Antibiotic Associated Pseudo-membranous colitis (PMC), two serious conditions that can have fatal consequences. Meridian developed the first commercially available test that can detect both toxins in as little as 20 minutes. Any clinical laboratory can easily perform this test producing both an accurate and quick turnaround of patient results. On March 21, 2000, Meridian Diagnostics and La Jolla Diagnostics (LAJD) announced an agreement for an undisclosed cash payment and future royalties for a unique rapid blood test for active tuberculosis from the DiagnosTech subsidiary of La Jolla Diagnostics, Inc. The test utilizes a combination of three highly specialized Mycobacterium tuberculosis antigens that will react with blood serum from persons having TB, in just three minutes. The ability of this test to distinguish TB infection from "active" disease makes it ideal for helping medical professionals select the appropriate therapy. Item 6. Exhibits and Reports on Form 8-K Exhibits: Exhibit No. Description Page(s) ----------- ----------- ------- 27 Financial Data Schedule 22-24 99 Forward Looking Statements 25 (a) Reports on Form 8-K: None. Signature: Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there-unto duly authorized. MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Date: May 12, 2000 /s/ Melissa Lueke -------------------------------------------- Melissa Lueke, Corporate Controller (Acting Principal Accounting Officer) EX-27 2 FDS -- MERIDIAN DIAGNOSTICS, INC.
5 1,000 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 6,321 1,002 13,786 446 10,616 33,147 27,468 10,922 74,329 12,104 24,943 0 0 2,529 36,406 74,329 28,906 28,906 10,816 10,816 11,989 0 935 5,490 2,171 3,319 0 0 0 3,319 0.23 0.23
EX-99 3 FORWARD-LOOKING STATEMENTS EXHIBIT 99 FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. These statements identify important factors that could cause actual results to differ materially from those that might be projected. Meridian's continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by the Company's competition. While the Company has introduced over 35 internally-developed products since 1991, there can be no assurance that it will be successful in the future in introducing such products on a timely basis. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. One of Meridian's main growth strategies is acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses successfully integrated into Meridian's operations. -----END PRIVACY-ENHANCED MESSAGE-----