-----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, HrjW0G8bQ2DBq9o57ZOoODU+ebIqPy/mP+DtiYaSItsFkPlRmettci/eQTxfnjGd hciYBkf68apVeZl1CxHPnQ== 0000892251-98-000259.txt : 19980806 0000892251-98-000259.hdr.sgml : 19980806 ACCESSION NUMBER: 0000892251-98-000259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980805 SROS: NASD 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: 98677391 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 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 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 JUNE 30, 1998 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. AND SUBSIDIARIES 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 at July 21, 1998 - -------------------------------------------------------------------------------- Common Stock, no par value 14,382,497 Page 1 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q PAGE(S) ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 1998 and September 30, 1997 3-4 Consolidated Statements of Earnings Three Months Ended June 30, 1998 and 1997 Nine Months Ended June 30, 1998 and 1997 5 Consolidated Statements of Cash Flows Nine Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 PART II. OTHER INFORMATION Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K Signature 15 Exhibit 27 Financial Data Schedule 16-18 Exhibit 99 Forward Looking Statements 19-20 Page 2 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) CURRENT ASSETS: JUNE 30, SEPTEMBER 30, 1998 1997 ----------- ------------- Cash and cash equivalents $10,945,168 $10,523,191 Investments 12,008,387 11,213,144 Accounts receivable, less allowance of $194,407 and $166,742, for doubtful accounts 11,201,714 10,622,759 Inventories 5,155,708 4,651,687 Prepaid expenses and other 397,219 458,732 Deferred tax assets 499,868 382,518 ----------- ----------- Total current assets 40,208,064 37,852,031 PROPERTY, PLANT AND EQUIPMENT: Land 255,780 259,993 Buildings and improvements 7,122,360 6,629,847 Machinery, equipment and furniture 8,380,372 7,822,671 Construction in progress 165,371 96,218 ----------- ----------- Total property, plant and equipment 15,923,883 14,808,729 Less-accumulated depreciation and amortization 7,072,465 6,359,499 ----------- ----------- Net property, plant and equipment 8,851,418 8,449,230 OTHER ASSETS: Long term receivables and other 346,337 298,301 Deferred royalties 161,145 195,355 Deferred tax assets 727,442 645,542 Deferred debenture offering costs, net of accumulated amortization of $237,750 and $136,500 1,090,586 1,191,836 Covenants not to compete, net of accumulated amortization of $3,672,000 and $3,123,408 1,848,595 2,397,186 License agreements, net of accumulated amortization of $930,708 and $887,541 204,405 247,571 Patents, tradenames, customer lists and distributorships, net of accumulated amortization of $1,418,383 and $1,204,686 2,741,485 2,954,764 Other intangible assets, net of accumulated amortization of $419,586 and $303,869 1,821,414 1,937,131 Cost in excess of net assets acquired, net of accumulated amortization of $504,485 and $422,880 1,240,337 1,321,943 ----------- ----------- Total other assets 10,181,746 11,189,629 ----------- ----------- TOTAL ASSETS $59,241,228 $57,490,890 =========== =========== Page 3 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30, SEPTEMBER 30, 1998 1997 ----------- ------------- CURRENT LIABILITIES: Current portion of long-term obligations $ 9 $ 73,877 Current portion of capital lease obligations 213,524 106,516 Accounts payable 927,305 839,093 Accrued payroll and payroll taxes 753,122 841,603 Other accrued expenses 1,836,037 1,244,078 Income taxes payable 660,905 1,165,636 ----------- ----------- Total current liabilities 4,390,902 4,270,803 ----------- ----------- LONG-TERM OBLIGATIONS: 20,031,354 20,023,880 ----------- ----------- CAPITAL LEASE OBLIGATIONS: 612,661 557,313 ----------- ----------- SHAREHOLDERS' EQUITY: Preferred stock, no par value, 1,000,000 shares authorized; none issued - - Common stock, no par value, 50,000,000 shares authorized; 14,382,266 and 14,365,289 shares issued and outstanding, respectively, stated at 2,395,817 2,393,852 Additional paid-in capital 20,588,168 20,571,453 Retained earnings 11,800,519 10,103,837 Cumulative foreign currency translation adjustment (578,193) (430,248) ----------- ----------- Total shareholders' equity 34,206,311 32,638,894 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $59,241,228 $57,490,890 =========== =========== Page 4 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ------------ NET SALES $ 8,226,367 $ 9,082,219 $26,216,537 $24,980,724 COST OF SALES 2,366,142 3,033,863 8,406,838 8,616,232 ----------- ----------- ----------- ----------- Gross profit 5,860,225 6,048,356 17,809,699 16,364,492 OPERATING EXPENSES: Research and development 378,252 391,232 1,530,194 1,185,470 Selling and marketing 2,061,578 1,912,359 5,713,396 5,512,540 General and administrative 892,253 962,810 3,447,623 3,208,824 Total operating expenses 3,332,083 3,266,401 10,691,213 9,906,834 ----------- ----------- ----------- ----------- Operating income 2,528,142 2,781,955 7,118,486 6,457,658 OTHER INCOME (EXPENSE): Licensing and related fees - - - 7,297 Interest income 240,032 252,329 886,723 763,219 Interest expense (406,163) (164,572) (1,209,686) (1,045,729) Other, net (4,070) (62,788) 4,300 (55,319) ----------- ----------- ----------- ----------- Total other income (expense) (170,201) 24,969 (318,663) (330,532) ----------- ----------- ----------- ----------- Earnings before income taxes 2,357,941 2,806,924 6,799,823 6,127,126 INCOME TAXES 928,684 1,109,475 2,695,464 2,454,954 ----------- ----------- ----------- ----------- NET EARNINGS $1,429,257 $1,697,449 $4,104,359 $3,672,172 ========== ========== ========== ========== BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,380,343 14,365,077 14,374,293 14,333,881 ========== ========== ========== ========== BASIC EARNINGS PER COMMON SHARE $ .10 $ .12 $ .29 $ .26 ========== ========== ========== ========== DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,773,832 14,630,009 14,767,782 14,598,813 ========== ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE $ .10 $ .12 $ .28 $ .25 ========== ========== ========== ========== Page 5 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED June 30, ---------------------------- 1998 1997 ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 4,104,359 $ 3,672,172 Non cash items: Depreciation of property, plant and equipment 1,017,667 877,394 Amortization of intangible assets and deferred royalties 1,162,819 1,364,523 Deferred income taxes (199,250) (81,900) Change in current assets excluding cash/cash equivalents and investments (1,021,463) (2,042,480) Change in current liabilities, excluding current portion of long-term obligations 86,959 (276,583) Long-term receivable and payable (48,036) (130,984) ----------- ---------- Net cash provided by operating activities 5,103,055 3,382,142 ----------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Property, plant and equipment acquired, net (1,326,576) (639,369) Patents - (40,450) Sale (purchase) of short term investments (795,243) 7,793,494 Advance Royalty (25,000) - ----------- ---------- Net cash provided by (used for) investing activities (2,146,819) 7,113,675 CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of subordinated debentures, net of offering costs - (66,293) Proceeds from other long-term obligations 179,733 6,902 Repayment of long-term obligations (218,512) (112,973) Dividends paid (2,407,675) (2,077,557) Proceeds from issuance of common stock, net 18,680 52,815 ----------- ---------- Net cash (used for) financing activities (2,427,774) (2,197,106) ----------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (106,485) (293,523) ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 421,977 8,005,188 CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,523,191 5,648,225 ----------- ---------- CASH & CASH EQUIVALENTS AT END OF PERIOD $10,945,168 $13,653,413 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 3,054,189 $ 2,150,296 Interest 752,252 638,833 Non-cash activities: Capital lease obligations - $ 51,001 Page 6 of 20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Basis of Presentation: 1. 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 disclosures 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 the 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. Inventories: Inventories are comprised of the following: JUNE 30, 1998 SEPTEMBER 30, 1997 ------------- ------------------ Raw materials $1,692,053 $1,399,188 Work-in-process 1,768,358 1,652,270 Finished goods 1,695,297 1,600,229 ---------- ---------- $5,155,708 $4,651,687 ========== ========== 3. 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. Page 7 of 20 4. Earnings Per Common Share: In the first quarter of fiscal 1998, the Company adopted Financial Accounting Standards Board Statement No. 128 (SFAS No. 128), "Earnings Per Share", which replaces the presentation of primary earnings per share with a presentation of basic earnings per share. It also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of both the numerator and denominator of the basic earnings per share computation for the same components in the diluted earnings per share computation. The convertible subordinated debentures are anti-dilutive. The following tables show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares for the quarters and nine months ending June 30, 1998 and 1997 of dilutive potential common stock.
QUARTER ENDED ---------------------------------------------------------------------------------- June 30, 1998 June 30, 1997 --------------------------------------- --------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- In thousands except per share amounts BASIC EARNINGS PER SHARE Net income available to common stockholders $1,429 14,380 $0.10 $1,697 14,365 $0.12 ===== ===== EFFECT OF DILUTIVE SECURITIES Stock Options -- 394 -- 265 ------- ------ ------ ------ DILUTED EARNINGS PER SHARE Net income available to common stockholders and assumed conversions $1,429 14,774 $0.10 $1,697 14,630 $0.12 ====== ====== ===== ====== ====== =====
Page 8 of 20
NINE MONTHS ENDED ---------------------------------------------------------------------------------- June 30, 1998 June 30, 1997 --------------------------------------- --------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- In thousands except per share amounts BASIC EARNINGS PER SHARE Net income available common stockholders $4,104 14,374 $0.29 $3,672 14,334 $0.26 ===== ===== EFFECT OF DILUTIVE SECURITIES Stock Options -- 394 -- 265 ------ ------ ------ ----- DILUTED EARNINGS PER SHARE Net income available to common stockholders and assumed conversions $4,104 14,768 $0.28 $3,672 14,599 $0.25 ====== ====== ===== ====== ====== =====
The effect of adopting SFAS No. 128 on the prior quarterly periods is presented below: PER SHARE AMOUNTS QUARTER ENDED NINE MONTHS ENDED 6/30/97 6/30/97 ------------- ----------------- Per Share Amounts Primary EPS as reported $0.12 $0.26 Effect of SFAS No. 128 -- -- ----- ----- Basic EPS as restated $0.12 $0.26 ===== ===== Fully diluted EPS as reported n/a n/a Effect of SFAS No. 128 -- -- ----- ----- Diluted EPS as restated $0.12 $0.25 ===== ===== 5. Translation of Foreign Currency: Assets and liabilities of foreign operations are translated using quarter end exchange rates, and revenues and expenses are translated using exchange rates prevailing during the year with gains or losses resulting from translation included in a separate component of shareholders' equity. Gains and losses resulting from transactions in foreign currencies were immaterial. Page 9 of 20 6. Reclassifications: Certain reclassifications have been made to the accompanying financial statements to conform to the June 30, 1998 presentation. 7. Recently Issued Accounting Standards: During 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130 (Statement 130) on "Reporting Comprehensive Income". Statement 130 is effective for the fiscal years beginning after December 15, 1997, or for Meridian's fiscal year ended September 30, 1999. The objective of Statement 130 is to report a measure of all changes in the equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners ("comprehensive income"). Comprehensive income is the total of net income and all other non-owner changes in equity. For the Company, this reporting will involve gains and losses resulting from the translation of assets and liabilities of foreign operations which are currently included in a separate component of shareholders' equity. In addition, it will include unrealized gains and losses on investments. Based on current circumstances, the effect of Statement 130 will not have a material impact on the Company's financial position or operating results. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes 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 its fair value. The Company does not currently hold nor invest in any such derivative instruments. Page 10 of 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations: - --------------------- Consolidated net sales decreased $856,000, or 9%, to $8,226,000 for the third fiscal quarter but were up $1,236,000, or 5%, to $26,217,000 for the nine months ended June 30, 1998. The decrease for the quarter compared to the same period last year was more than accounted for by the following: last year included $1,012,000 of sales of EHEC and O157:H7 (collectively E. coli) as a result of an outbreak in Japan - a situation which has not repeated this year; OEM sales were down $129,000, primarily Epstein Barr Virus; currency, as a result of the stronger dollar versus the lira, had a negative effect of $87,000. Adjusting for these three unusual items, which accounted for $1,228,000 in total, the remainder of the business was up $374,000, or 5%, for the quarter. Sales for the quarter were well below our expectations due largely to a significant reduction in sales to distributors compared to previous quarters, plus the shortfall in OEM sales, a weak rotavirus season and a somewhat later-than-planned launch of Premier Platinum HpSA(TM) (HpSA). The shift in distributor purchases appears to reflect a conscious decision to reduce inventory levels at the distributors' level. Preliminary orders for OEM products for the fourth fiscal quarter are approximately $225,000 compared to the third quarter of about $50,000. Currency, while still unfavorable, had approximately $100,000 less impact in the third quarter than the quarter ended March, 1998. H. pylori sales were $1,325,000 for the quarter compared to $426,000 for the same period last year. The new test, (HpSA) launched May 26 in the United States, achieved sales of almost $600,000 during the period. Through nine months, total H. pylori sales in the three existing formats, were $2,653,000, up 155%, versus last year. HpSA sales represented $840,000 of this amount. The enzyme immunoassay and ImmunoCard formats increased 53% and 99% respectively. Through nine months, the increase in consolidated net sales of $1,236,000 was comprised of volume of $2,618,000, or 11%, offset by lower pricing of ($925,000), or (4%) and currency of ($457,000), or (2%). European sales for the quarter and nine months were $1,821,000 and $5,156,000 compared to $1,784,000 and $5,184,000 for the same period last year. The impact of currency for the respective periods was ($87,000) and ($457,000). Gross profit decreased 3% for the quarter compared to the decrease in sales of 9%, but improved 4.6 points as a percentage of sales to 71.2%. This improvement relates to the integration of the June, 1996 Cambridge acquisition and improved product mix, each contributing about 2 points improvement. For the nine months, gross profit increased 9% compared to the increase in sales of 5% and improved 2.4 points as a percentage of sales to 67.9%. The improvement as noted, continues to reflect the higher margin on the Cambridge line of enteric products, which are now manufactured in the Company's facility versus the previous higher cost associated with the one year inventory purchase agreement when the products were acquired in June, 1996. In addition, the reduction in amortization of certain acquisition costs related to the Cambridge supply agreement and inventory purchase agreement, coupled with favorable inventory variances and an improved product mix, specifically from higher margins in the ImmunoCard and Premier formats, were the principal factors responsible for the margin improvement. The improvement in ImmunoCard and Premier reflect on-going cost reduction efforts, and in addition, the favorable effect of the recently launched HpSA product, in the Premier format. Higher scrap/obsolescence costs and the impact of pricing noted above partially offset the cost improvements. Page 11 of 20 Total operating expense increased $66,000, or 2%, for the quarter versus the prior year, compared to the decrease in sales of 9%. As a result, operating expenses increased about 5 points as a percentage of sales to 40.5% from 36.0%. Through nine months, operating expenses increased $784,000, or 8%, compared to the increase in sales of 5%, resulting in a slight increase in the ratio to sales to 40.8% versus 39.7%. Research and development expenses decreased about 3% for the quarter, but were up 29% through nine months compared to the prior year. The cost of clinical studies associated with HpSA is the principal factor for the above increase and is expected to remain high through September 1998 in support of additional product claims. Reductions in personnel-related costs and supplies were responsible for the nominal decline in the quarter versus the prior year. Selling and marketing expenses increased about 8% for the quarter and about 4% for the nine months compared to the same periods in the prior year. These increases are largely related to HpSA advertising and promotional expenses including scientific conferences, symposiums and trade shows plus increases in the U.S. sales force and higher depreciation expenses. Reductions in recruiting expenses, variable compensation, samples and European expenses stemming from the strengthening dollar versus the lira partially offset the above increases. European selling and marketing expenses compared to the same periods last year, excluding the effect of currency, decreased approximately 21% and 8% for the quarter and nine months periods respectively versus the prior year. The decrease in the quarter is largely due to the timing of advertising expenses. General and administrative expenses decreased $71,000, or about 7%, for the quarter and remained relatively constant at 11% of net sales. Through nine months, administrative expenses were up $239,000, or 7%, and also remained relatively constant at 13% of net sales. The reduction in the quarter results versus the prior year stem from lower personnel-related costs and consulting/legal/professional fees. Through nine months, the increases were primarily related to depreciation, a computer maintenance contract, an increase in the allowance for doubtful accounts, increased travel and higher outside directors' fees. European expenses adjusted for currency, were up 24% and 15% for the quarter and nine months respectively, primarily from higher personnel cost, consulting and travel. Operating income as a result of the above decreased $254,000, or 9%, but remained constant at 31% of sales for the quarter compared to the prior year. For the nine months period, operating income increased $661,000, or 10%, and improved 1.3 points to 27.2% of sales. Other expense increased $195,000 for the quarter but is down $12,000 through nine months compared to the prior year periods. The increase for the quarter is related to prior year reclassifications between interest expense, royalty expense and amortization expenses. Excluding these prior year reclassifications, the quarter-to-quarter comparisons were comparable. Through nine months, the nominal decrease in other expense was a result of higher investment income and a reduction in currency losses. The cumulative foreign currency translation adjustment decreased by $63,000 during the quarter as a result of the U.S. dollar weakening versus the lira at June 30 compared to March 31, 1998. The Company's effective tax rate remained relatively constant at about 39% for the quarter compared to the prior year period, and about 40% through nine months. Net earnings decreased $268,000, or 16%, for the third fiscal quarter to $1,429,000 from $1,697,000, resulting in quarterly diluted earnings per share of $0.10 versus $0.12 last year. Through nine months, net earnings increased $432,000, or 12%, to $4,104,000 from $3,672,000, resulting in diluted earnings per share of $0.28 versus $0.25. Page 12 of 20 Liquidity and Capital Resources: - ------------------------------- Net cash flow provided by operations was $5,103,000 an increase of $1,721,000 or 51% over the prior nine months ended June 30, 1997. Increases in net earnings, depreciation, and current liabilities were offset by lower Cambridge-related amortization expenses and increases in deferred taxes. The change in current assets decreased $1,021,000 over the prior nine months. This change is due primarily to a decrease in accounts receivable of $272,000 reflecting lower sales in the quarter, a reduction in the purchased Cambridge inventory of $467,000 and a decrease in prepaid expenses of $219,000. Net cash used for investing activities increased $9,260,000 mainly as a result of the sale of $7,793,000 short-term investments in the prior year. Property, plant and equipment additions largely represented the balance of cash used for investing. Net cash used for financing activities increased primarily due to higher dividend payouts. Net cash flow from operations is expected to continue to fund working capital requirements. Recently, the Company increased its line of credit with a commercial bank from $12,500,000 to $15,000,000. This line of credit is currently unused. The company also has cash/cash equivalents and short-term investments of $22,954,000. Page 13 of 20 PART II. OTHER INFORMATION Item 5. Other Information The form of Proxy for the Company's Annual meeting of Shareholders grants authority to the designated proxies to vote in their discretion on any matters that come before the meeting other than those set forth in the Company's Proxy Statement or matters as to which adequate notice is not received. In order for a notice to be deemed adequate for the 1999 Annual Shareholders' Meeting, it must be received prior to November 3, 1998. The Company's Savings and Investment Plan is no longer obligated to file reports under the Securities Exchange Act of 1934 because there are fewer than three hundred holders of Plan interest. The Commission has advised counsel to the Plan that even though EDGAR technical deficiencies prevent the filing of appropriate forms, the notice of the termination of this obligation in this report is sufficient to end the Plan's obligation to file future reports. On May 18, 1998 the Company received clearance from the United States Food and Drug Administration to market an advanced diagnostic test for Helicobacter pylori (H. pylori), a major cause of peptic ulcer disease. Named Premier Platinum HpSA(TM), the new test is a breakthrough in H. pylori diagnosis compared to currently available methods, because it is non-invasive, faster, more cost-effective, and specifically identifies active infection. The net result should be increased utilization of H. pylori testing by physicians, which would lead to faster, more effective treatment for millions of ulcer patients. Page 14 of 20 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No. Description Page(s) ----------- -------------------------- ------- 27 Financial Data Schedule 16-18 99 Forward Looking Statements 19-20 (b) 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:July 21, 1998 /S/ GERARD BLAIN ----------------------------- Gerard Blain, Vice President, Chief Financial Officer (Principal Financial Officer) Page 15 of 20 EX-27 2 FDS -- 5
5 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 10,945,168 12,008,387 11,396,121 194,407 5,155,708 40,208,064 15,923,883 7,072,465 59,241,228 4,390,902 20,644,015 0 0 2,395,817 20,588,168 59,241,228 26,216,537 26,216,537 8,406,838 8,406,838 10,691,213 31,167 1,209,686 6,799,823 2,695,464 4,104,359 0 0 0 4,104,359 .29 .28
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 in many instances for forward-looking statements. In order to take advantage of the Act, such statements must be accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from these that might be projected. This Exhibit is being filed in order to allow the Company to take advantage of this Act by providing the following cautionary statements. RISK FACTORS AFFECTING THE COMPANY The Company's business operations and strategy are subject to a number of uncertainties and risks, which could adversely affect its performance in the future. Among these are the following: One of the Company's main growth strategies is the acquisition of other companies and/or product lines in the disposable diagnostic test kits business. Although previous acquisitions have been successful to date, there can be no assurance that additional acquisitions will be consummated or that, if acquisitions are consummated, they will be successful. Acquisitions require a significant commitment of corporate resources, management attention and capital, which, in certain cases, could exceed that available to the Company. In addition, the benefits expected from such acquisitions will not be achieved fully unless the operations of the acquired entities are successfully integrated with those of the Company. The diagnostic test industry is characterized by ongoing technological developments and changing customer requirements. The Company's success and continued growth depend, in part, on its ability to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products or new products that incorporate technological advances, meet customer requirements that incorporate technological advances, meet customer requirements and respond to products developed by the Company's competitions. While the company has consistently introduced a number of new products there can be no assurance that it will be successful in developing or acquiring such rights to products on a timely basis or that such products will adequately address the changing needs of the marketplace. Approximately 29% of the Company's net sales for fiscal 1997 were attributable to international sales, primarily in Western Europe. Although the majority of the Company's international sales have been made in U.S. dollars, the Company is subject to the risks associated with fluctuations in currency exchange rates, in particular, the recent strengthening in the dollar. The Company cannot assure that sales of certain products made under endemic conditions in specific geographic areas during fiscal 1997 will continue in fiscal 1998. The company is also subject to other risks associated with international operations, including tariff regulations, requirements for export licenses and medical licensing and approval requirements. Page 19 of 20 The healthcare industry is in transition with a number of changes that affect the market for diagnostic test products. Changes in the healthcare delivery system have resulted in major consolidation among reference laboratories and in the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products and increasing the pressure on healthcare costs. There can be no assurance that the company will be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with these institutional customers. Many of the Company's competitors have greater financial and other resources than the Company. These resources could give them an advantage in price, service and development of competing products. In recent years, the federal government has been examining the nations' healthcare system from numerous standpoints, including the cost of and access to healthcare and health insurance. Proposals impacting the healthcare system are constantly under consideration and could be adopted at any time. It is unclear what effect the enactment of such proposals would have on the Company. Page 20 of 20 -----END PRIVACY-ENHANCED MESSAGE-----