<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO .
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Commission File No. 0-14902
MERIDIAN DIAGNOSTICS, INC.
Incorporated under 3471 River Hills Drive IRS Employer ID
the Laws of Ohio Cincinnati, Ohio 45244 No. 31-0888197
Phone: (513) 271-3700
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by 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, and (2) has been subject to such filing
requirements for the past 90 days.
YES NO
--- --
X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
/ /
The aggregate market value of Common Stock held by non-affiliates is
$72,395,280 based on a closing sale price of $11.25 per share on December 14,
1995. As of December 14, 1995, 14,244,624 shares of no par value Common Stock
were issued and outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for 1995 furnished
to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's
Proxy Statement filed with the Commission for its 1996 Annual Meeting are
incorporated by reference in Parts I, II and III as specified.
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MERIDIAN DIAGNOSTICS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
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Page
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Part I
Item 1 - Business 3
Item 2 - Properties 7
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security
Holders 8
Part II
Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters 9
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8 - Financial Statements and Supplementary Data 10
Item 9 - Disagreements on Accounting and Financial
Disclosure 11
Part III
Item 10 - Directors and Executive Officers of the
Registrant 11
Item 11 - Executive Compensation 11
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 11
Item 13 - Certain Relationships and Related Transactions 11
Part IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
</TABLE>
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PART I.
ITEM 1.
BUSINESS
"What We Do" and "Who We Are" on the inside front cover, "Letter to
Shareholders" beginning on Page 2, "The Value of Medical Diagnostics" beginning
on Page 4, "How We Create Value" beginning on Page 6, and the Consolidated
Financial Statements beginning on Page 15 of the Registrant's Annual Report to
Shareholders for 1995 are incorporated herein by reference. Information
regarding research and development, sales and marketing, competition and
patents, government regulations and employees is described below.
Meridian Diagnostics, Inc. (the "Company" or "Meridian") develops,
manufactures and markets a diverse line of disposable immunodiagnostic test
kits used for the rapid diagnosis of infectious diseases. The Company's
product development strategy is to combine existing technologies with new
product designs both through internal product development and product
acquisitions and licensing. To meet market demands, Meridian's products
provide accuracy, simplicity, and speed, leading to opportunities for
improvements in diagnosis and reductions in health care costs. All of the
Company's products are used in procedures performed outside the body and
require little or no special instrumentation or equipment.
Through domestic and Italian direct sales forces, supplemented by a
network of national and international distributors, the Company markets
approximately 100 products, comprising 10 product lines, to the various market
segments in which it competes. International sales in over 46 countries
comprised approximately 23% of total fiscal 1995 sales.
Research and Development
Meridian focuses its research and development activities on
enhancements to, and new applications for, its technologies where such
developments can simplify, accelerate or increase the accuracy of the diagnosis
of certain infectious diseases for each of the Company's market segments. Over
the past eight years, Meridian has developed internally 32 new products.
The Company seeks to design products that match a particular disease
state to a diagnostic solution that provides a high level of sensitivity and
specificity. The Company utilizes a variety of proprietary and public domain
technologies for the production of highly specific, purified antigen
preparations. These antigens are derived from suspensions of bacteria,
viruses, fungi, rickettsia or certain biochemicals from which specific proteins
or complex carbohydrates are separated.
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<PAGE> 4
The research and development department is comprised of the Vice
President of Research and Development and 15 research scientists. The
disciplines represented in the group include biochemistry, immunology,
mycology, bacteriology, virology and parasitology. In fiscal 1993, 1994, and
1995, the Company spent $1,165,000, $1,433,000, and $1,432,000, respectively,
on its research and development activities.
Sales and Marketing
The principal customers for the Company's products are hospitals,
commercial reference laboratories and alternate sites such as physicians'
offices, outpatient clinics, HMOs and nursing homes. No end-use customer
comprised more than 5% of the Company's sales in fiscal 1995. Two
distributors together accounted for approximately 34% of the Company's fiscal
1995 sales. However, the Company does not believe that the loss of either of
these distributors would have a material adverse effect on the Company because
of its ability to sell to the end-use customers served by these distributors
through alternative means.
The Company markets products through domestic and Italian direct sales
forces and a national and international network of independent distributors.
The Company currently has 46 independent distributors outside the United
States. The Company's direct sales force consists of a Director of Sales, two
regional managers and 16 technical sales representatives in the United States.
Marketing to physicians requires different approaches than selling to
hospitals and clinical and reference laboratories. The Company has formed
relationships with a significant number of independent physicians' office
laboratory distributors. To aid the Company in its efforts to penetrate the
physician market, the Company has entered into a distribution agreement with
Biostar, Inc. for the direct marketing of Filtracheck-UTI, its one minute
urinary tract infection test, to physicians' office laboratories.
The Company's sales and marketing efforts for Europe, North Africa,
the Middle East and select Pacific Rim countries are managed through Meridian
Diagnostics Europe's ("MDE's") headquarters in Milan, Italy. MDE's strategy
has been to appoint one or two distributors in each of the countries in its
targeted markets. MDE currently has distributors in the key markets in Africa,
the Middle East, the Pacific Rim and Europe, including Germany, France, Great
Britain and Spain. During 1993, as part of its strategy to expand sales in
Europe, Africa and the Middle East, the Company replaced its distribution
arrangement in Italy with its own direct marketing force, opened a new
marketing and distribution facility in Milan, Italy, and added new distributors
in several European countries.
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<PAGE> 5
During 1993, Meridian laid the groundwork for developing sales and
marketing efforts in the Pacific Rim, Central and South America, and Southeast
Europe with the addition of new distributors in China, Thailand, Australia,
Singapore, Hong Kong, Chile, Argentina, Venezuela, Mexico and Turkey.
Competition and Patents
The market for diagnostic tests is a multi-billion dollar
international industry which is highly competitive. Many of the Company's
competitors are larger and have greater financial, research, manufacturing, and
marketing resources. Important competitive factors for the Company's products
include product quality, price, ease of use, customer service and reputation.
In a broader sense, industry competition is based upon scientific and
technological capability, proprietary know-how, access to adequate capital, the
ability to develop and market products and processes, the ability to attract
and retain qualified personnel and the availability of patent protection. To
the extent that the Company's product lines do not reflect technological
advances, the Company's ability to compete in those product lines could be
adversely affected.
Companies competing in the diagnostic test industry generally focus on
a limited number of tests or limited segments of the market. As a result, the
diagnostic test industry is highly fragmented and segmented. A few large
corporations produce a wide variety of diagnostic test and other medical
devices and equipment, a larger number of mid-size companies generally compete
only in the diagnostic industry and finally, a vast number of small companies
produce only a few diagnostic products. Among the companies with which
Meridian competes in the marketing of one or more of its products are Abbott
Laboratories Inc., Becton Dickinson & Company, Diagnostic Products Corporation,
Hybritech Incorporated, a subsidiary of Beckman Instruments, BioWhittaker,
Inc., and Microscan, a division of Bain Capital.
The Company markets approximately 100 products, comprising 10 product
lines, to the various market segments in which it competes. At various times,
particular test formats, tests for specific diseases or conditions, or certain
diagnostic processes and products represent an important component of sales and
profits for the Company. Currently, the most important product lines from the
perspective of sales are C. difficile, fungal serology, mononucleosis and
Para-Pak.
In general, the Company does not seek patent protection for its
products and instead strives to maintain the confidentiality of its proprietary
know-how. In the absence of patent protection, the Company may be vulnerable
to competitors who successfully imitate the Company's production and
manufacturing techniques and processes. All of Meridian's personnel are
required to execute
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<PAGE> 6
confidentiality agreements designed to protect the Company's proprietary
products.
Government Regulation
Because the Company's products are deemed to be "medical devices", the
products are subject to regulation by the FDA as well as state agencies and
foreign regulatory authorities.
The Company's diagnostic tests and other clinical products intended
for use as human diagnostics are generally subject to certain clearance
procedures administered by the FDA. In the diagnostic product field, most
approvals are processed through FDA procedures for "substantially equivalent"
applications. This process allows sales to be made after the filing of an
application and upon acknowledgment by the FDA, typically within six months
after submission. If the FDA requests additional information, the product
cannot be sold until the application has been supplemented and upon
acknowledgment by the FDA within 90 to 120 days of the supplemental
application. All of the Company's currently marketed diagnostic tests have been
approved under the "substantially equivalent" application process and the
Company anticipates that future products will be similarly submitted. If there
are no existing FDA-approved products or processes comparable to a diagnostic
product or process, approval by the FDA involves more lengthy procedures.
The 1992 Medical Device Amendments to the Food, Drug and Cosmetics Act
and the regulations promulgated thereunder require the Company to register with
the FDA and to adhere to certain "Good Manufacturing Practices" which mandate
detailed record-keeping procedures and also provide for periodic inspection of
laboratory facilities by the FDA.
The Clinical Laboratory Improvement Act of 1988 ("CLIA 88") prohibits
laboratories from performing tests on human specimens for the purpose of
providing information for the diagnosis, prevention or treatment of any disease
or impairment of, or the assessment of, the health of human beings, unless
there is in effect for such laboratories a certificate issued by the U.S.
Department of Health and Human Services ("HHS") applicable to the category of
examination or procedure performed. Regulations under CLIA 88 require that
these laboratories meet performance requirements based on test complexity and
other risk factors. Laboratories which perform tests that HHS determines to be
simple would be eligible for a waiver from the certification requirements.
Section 6141 of the Omnibus Budget Reconciliation Act of 1989 further provides
that only laboratories in compliance with CLIA 88 will be eligible for
reimbursement in the Medicare and Medicaid programs. The Company believes that
CLIA 88 has not and will not have a significant impact on its business.
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<PAGE> 7
Sales of the Company's products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
To a large extent, the Company relies on its foreign independent distributors
to obtain any foreign approvals necessary to sell the Company's products in the
countries which comprise the distributors' territories.
The Company is an exempt small-quantity generator of hazardous waste
and has a U.S. Environmental Protection Agency identification number. All
hazardous waste is manifested and disposed of properly. The Company is in
compliance with the applicable portions of the Federal and state hazardous
waste regulations and has never been a party to any environmental proceeding.
Employees
As of November 3, 1995, Meridian had 159 full-time employees, 66 of
whom hold scientific degrees. The Company maintains a Savings and Investment
Plan (profit sharing and 401(k)) for its U.S. employees and has established
Stock Option Plans for its officers, directors and employees. None of
Meridian's employees are covered by collective bargaining agreements. The
Company has never experienced any work stoppages and considers its relationship
with its employees to be excellent.
ITEM 2.
PROPERTIES
The Company's corporate offices, manufacturing facility, research and
development facility, and warehouse are located in two buildings totalling
75,000 square feet located on 4.1 acres of land in a suburb of Cincinnati.
This 75,000 square feet includes 19,000 square feet of office and manufacturing
space completed in September 1995 at a cost of $1,400,000. These properties are
owned by the Company, and the Company believes that all of its facilities are
in good condition, well-maintained and suitable for its long-term needs.
The Company believes its manufacturing and laboratory facilities are
in compliance with all applicable rules and regulations and are maintained in a
manner consistent with "Good Manufacturing Practices."
MDE conducts its operations in the Milan, Italy area in a two-story
building consisting of approximately 18,000 square feet. This facility is
owned by MDE and was constructed at a cost of approximately $1,300,000. The
Company believes these facilities are in good condition, well-maintained, and
suitable for MDE's long-term operations.
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<PAGE> 8
ITEM 3.
LEGAL PROCEEDINGS
Meridian is a defendant in a civil action filed by Delta Biologicals,
srl ("Delta") against Inova Diagnostics, Inc. ("Inova") and Meridian in the
Circuit Court of the Eleventh Judicial Circuit, Dade County, Florida, Case No.
95-12955, in June 1995. In July 1995, the case was removed to the United
States District Court for the Southern District of Florida, Miami Division and
assigned Case No. 95-1604-CIV.
The action by Delta, an Italian corporation, alleges that Meridian
deliberately and knowingly interfered with Delta's contractual relations with
Inova with respect to Delta's exclusive right to import, market and sell in
Italy, Spain, France and Portugal products manufactured by Inova.
Specifically, Delta alleges that Inova has breached that contract by entering
into a contract with, and selling products to, Meridian which Meridian, through
MDE, is selling in Italy.
Delta seeks judgment against Meridian for both compensatory and
punitive damages of unspecified amounts in excess of $15,000. Both Meridian
and Inova have filed answers denying liability.
In addition to denying liability, Meridian has demanded that Inova,
pursuant to a written agreement between Meridian and Inova, defend and
indemnify Meridian against Delta's claims. Though the litigation is in its
early stages and management is not able to opine on its merits or possible
outcome, management believes, based upon its knowledge of the facts and upon
the opinion of outside counsel, that Meridian has meritorious defenses and that
Inova is obligated to defend and indemnify Meridian. Accordingly, management
believes that the ultimate resolution of the pending litigation will not have
a material adverse effect on Meridian's financial condition, results of
operations or cash flows.
Management is not aware of any other pending or threatened litigation,
claims or assessments, asserted or unasserted, against Meridian.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
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<PAGE> 9
PART II.
ITEM 5.
MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
"Common Stock Information" on the inside rear cover and "Quarterly
Financial Data" on page 24 of the Registrant's Annual Report to Shareholders
for 1995 are incorporated herein by reference. There are currently no
restrictions on cash dividend payments.
The Board declared and paid a dividend of $0.0200 per share for each
quarter of fiscal 1994. On November 16, 1994, the Board declared a 3% stock
dividend for fiscal 1994, payable December 8, 1994 to shareholders of record on
November 28, 1994. The Company paid cash in lieu of fractional shares based on
the average of the closing sale prices during the ten trading days prior to
November 28, 1994.
The fiscal 1994 quarterly dividend per share amount was adjusted for
the 3% stock dividend paid December 8, 1994 to holders of record on November
28, 1994.
The Board declared and paid a dividend of $0.0267 per share for each
quarter of fiscal 1995. On September 12, 1995, the Board declared a
three-for-two stock split payable October 2, 1995 to holders of record at the
close of business on September 22, 1995. The Company paid cash in lieu of
fractional shares based on the average of the closing sale prices during the
ten trading days prior to September 22, 1995. On November 14, 1995, the Board
also declared a special fiscal 1995 year-end dividend of $0.025 per share,
payable December 1, 1995 to shareholders of record on November 24, 1995.
The fiscal 1995 quarterly dividend per share amount and the special
fiscal 1995 year-end dividend per share amount were adjusted for the
three-for-two stock split payable October 2, 1995 to shareholders of record on
September 22, 1995.
Also, on November 14, 1995, the Board approved an increase in the
regular quarterly dividend rate from $0.0267 to $0.035 per share.
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ITEM 6.
SELECTED FINANCIAL DATA
"Selected Financial Data" on page 1 of the Registrant's Annual Report
to Shareholders for 1995 is incorporated herein by reference.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 12 of the Registrant's Annual Report
to Shareholders for 1995 is incorporated herein by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Quarterly Financial Data" on page 24 of the Registrant's Annual
Report along with the Consolidated Financial Statements of the Registrant shown
on pages 14 through 24 of its Annual Report to Shareholders for 1995, are
incorporated herein by reference:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of September 30, 1995 and 1994.
Consolidated Statements of Earnings for the years ended September 30,
1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
The following schedules are filed herewith:
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Schedule
No. Description Page
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Report of Independent Public Accountants. 15
</TABLE>
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<TABLE>
<CAPTION>
Schedule
No. Description Page
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<S> <C> <C>
II. Valuation and Qualifying Accounts for the
years ended September 30,1995, 1994 and
1993. 16
</TABLE>
All other supplemental schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the Consolidated Financial Statements or Notes thereto.
ITEM 9.
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference
to the Registrant's Proxy Statement for its 1996 Annual Shareholders' Meeting
to be filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.
All financial statements and schedules required to be filed by Item 8
of this Form and included in this report have been listed previously under Item
8. No additional financial statements or schedules are being filed since the
requirements of paragraph (d) under Item 14 are not applicable to the Company.
(a) (3) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
- -------------- ---------------------- -------------
<S> <C> <C>
3 Articles of Incorporation and a
Code of Regulations
4 Indenture between the Company c
and Star Bank, National
Association, as Trustee,
relating to the Company's
Convertible Subordinated
Debentures
10.1 First Refusal Agreement a
</TABLE>
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<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
- -------------- ---------------------- -------------
<S> <C> <C>
10.2 Amendment to the First d
Refusal Agreement
10.3 License Agreement dated a
October 6, 1983 with Marion
Laboratories, Inc.
10.5 Sublicense Agreement dated f
June 17, 1993 among Johnson &
Johnson, the Scripps Research
Institute and the Company
Concerning Certain Patent
Rights
10.6 Assignment dated June 17, f
1993 from Ortho Diagnostic
Systems Inc. to the Company
concerning certain Patent
Rights
10.7 Agreement dated January 24, g
1994 between Meridian
Diagnostics, Inc. and
Immulok, Inc.
MANAGEMENT COMPENSATORY CONTRACTS:
10.8 1994 Directors' Stock Option h
Plan
10.9 Savings and Investment Plan b
10.10 Savings and Investment Plan b
Trust
10.11 1986 Stock Option Plan e
10.12 Salary Continuation Agreement Filed herewith
for John A. Kraeutler
11 Statement re Computation of Filed herewith
Per Share Earnings
13 1995 Annual Report to Filed herewith
Shareholders
21 Subsidiaries of the b
Registrant
23 Consent of Independent Public Filed herewith
Accountants
27 Financial Data Schedule Filed herewith
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</TABLE>
a. Incorporated by reference to Registration Statement No.
33-6052 filed under the Securities Act of 1933.
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<PAGE> 13
b. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1994.
c. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1993.
d. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1992.
e. Incorporated by reference to Registration Statement No. 33-89214 on
Form S-8 filed with the Securities and Exchange Commission on April
5, 1995.
f. Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on June 17, 1993.
g. Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on February 8, 1994 and April 6,
1994.
h. Incorporated by reference to Registration Statement No. 33-78868 on
Form S-8 filed with the Securities and Exchange Commission on May
12, 1994.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the
fiscal year.
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MERIDIAN DIAGNOSTICS, INC.
William J. Motto
-------------------------------
DATE: December 20, 1995 BY: William J. Motto
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
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<S> <C> <C>
William J. Motto Chairman of the Board of Directors December 20,1995
--------------------- and Chief Executive Officer
William J. Motto (Principal Executive Officer)
Gerard Blain Vice President, Chief Financial December 20,1995
--------------------- Officer and Treasurer (Principal
Gerard Blain Financial Officer and Principal
Accounting Officer)
Jerry L. Ruyan Secretary and Director December 20,1995
----------------------
Jerry L. Ruyan
James A. Buzard Director December 20,1995
---------------------
James A. Buzard
Gary P. Kreider Director December 20,1995
---------------------
Gary P. Kreider
Robert J. Ready Director December 20,1995
---------------------
Robert J. Ready
</TABLE>
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<PAGE> 15
Report of Independent Public Accountants
To Meridian Diagnostics, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Meridian Diagnostics, Inc. and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K and have issued our report thereon dated November 10, 1995. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the accompanying index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 10, 1995
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SCHEDULE II
Meridian Diagnostics, Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Balance
Balance at Charged to Charged at End
Beginning Costs and to Other of
Description of Period Expenses Accounts Deductions Period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1995:
------------------------------
Allowance for Doubtful Accounts $113,183 $122,526 $4,677 $(76,250) $164,136
Year Ended September 30, 1994:
------------------------------
Allowance for Doubtful Accounts $ 41,424 $ 74,824 $1,523 $ (4,588) $113,183
Year Ended September 30, 1993:
------------------------------
Allowance for Doubtful Accounts $ 68,119 $(23,784) $4,635 $ (7,546) $ 41,424
</TABLE>
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<PAGE> 1
EXHIBIT 10.12
SALARY CONTINUATION AGREEMENT
This Agreement, made and entered into this 19th day of January, 1995,
by and between Meridian Diagnostics, Inc., a corporation organized and existing
under the laws of the State of Ohio, hereinafter referred to as "Corporation",
and John A. Kraeutler, a key employee and executive of the Corporation,
hereinafter referred to as "Executive".
The Executive has been in the employ of the Corporation for three (3)
years and has now and for years past faithfully served the Corporation. It is
the consensus of the Board of Directors that Executive's services have been of
exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Corporation in its field of
activity. The Board further believes that Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services so essential to Corporation's future growth and profits that
it would suffer severe financial loss should Executive terminate his services.
Accordingly, it is the desire of the Corporation and the Executive to
enter into this Agreement under which the Corporation will agree to make
certain payments to Executive upon his retirement or disability and,
alternatively, to his beneficiaries in the event of his premature death while
employed by Corporation.
Therefore, in consideration of Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Corporation and the Executive, agree as
follows:
I. ARTICLE ONE - DEFINITIONS
A. Effective Date
The effective date of this Agreement shall be January 19,
1995.
B. Normal Retirement Date
The Normal Retirement Date shall mean retirement from
service with the Corporation which becomes effective on the
first day of the calendar month following the month in which
the Executive reaches his 62nd birthday.
<PAGE> 2
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C. Early Retirement Date
Early Retirement Date shall mean a retirement from service
which is effective prior to the Normal Retirement Date,
stated above, provided the Executive has attained age 60 and
shall have completed 15 years of service.
D. Severance Benefits
Severance Benefits shall mean those benefits to which the
Executive is entitled in the event he is discharged by the
Corporation without due cause. Any dispute as to
determination of "due cause" shall be subject to the terms
of Article VI.B., "Claims Procedure".
E. Termination of Service
Termination of Service shall mean voluntary resignation of
service by the Executive (exclusive of early retirement or
disability) or the Corporation's discharge of the Executive
for due cause.
II. ARTICLE TWO - EMPLOYMENT
A. Employment
Corporation agrees to employ Executive in such capacity as
the Corporation may from time to time determine with such
duties, responsibilities and compensation as determined by
the Board of Directors.
Executive agrees to remain in the Corporation's employment;
to devote his full time and attention exclusively to the
business of the Corporation and to use his best efforts to
provide faithful and satisfactory service to Corporation.
Employment services shall include temporary disability not
to exceed three months and "leaves of absence" specifically
granted Executive by the Board of Directors.
<PAGE> 3
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B. No Employment Agreement Created
No provision of this Agreement shall be deemed to restrict
or limit any existing employment agreement by and between
the Corporation and the Executive nor shall any conditions
herein create specific employment rights to the Executive
nor limit the right of the Employer to discharge the
Executive with or without cause. In a similar fashion, no
provision shall limit the Executive's rights to voluntarily
sever his employment at any time.
III. ARTICLE THREE - BENEFITS
The following benefits provided by the Corporation to the Executive
are in the nature of a fringe benefit and shall in no event be
construed to effect nor limit the Executive's current or prospective
salary increases, cash bonuses or profit-sharing distributions or
credits. All benefits paid pursuant to the terms of this Agreement are
subject to applicable federal, state and local withholding and income
taxes.
A. Retirement Benefits
If Executive shall remain in the employment of the
Corporation until the "Normal Retirement Date" defined at
Article One, Paragraph 2, then, in such event, he shall be
entitled to receive monthly from the Corporation the sum of
$2,701.50, commencing on the first day of the month
following such "Normal Retirement Date" and continuing for a
period of 120 months. In the event the Executive should die
following "Normal Retirement" but before the expiration of
120 months, the unpaid balance of such monthly payments
shall be paid monthly for the remainder of such period to
the beneficiary selected by Executive in the Beneficiary
Designation Form provided by the Corporation. In the absence
of or failure of the Executive to designate a beneficiary,
the unpaid balance shall be commuted at 8% and paid in a
lump sum to the personal representative of Executive's
estate.
B. Early Retirement or Severance Benefit
Executive shall have the additional elective right to
receive "Early Retirement" or "Severance Benefits", as those
terms were earlier defined, provided he shall have attained
the age of 60 and has completed 15 years of
<PAGE> 4
- 4 -
service or, in the alternative, is discharged without
cause.
Upon Executive's election to receive such benefits, he
shall be entitled to receive monthly (beginning on the
first day of the month following written notice to the
Corporation) level retirement benefits determined by:
Multiplying the Normal Retirement Benefit determined in
Paragraph A., above, by a fraction:
The numerator of which is the actual number
of months the Executive has been employed
by the Corporation from the effective date
of this Agreement until his early
retirement or the date of his discharge
without cause, and;
The denominator of which is the total
number of months the Executive would have
worked from the effective date of this
Agreement until his Normal Retirement Date,
as earlier defined.
Such Early Retirement or Severance Benefits, as determined
above, shall be payable for a continuous period of 120
months provided, however, that should the Executive die
prior to the expiration of 120 months, the unpaid balance
shall continue for the remainder of such period to the
beneficiary selected by the Executive and filed with the
Corporation. In the absence of or a failure to designate a
beneficiary, the unpaid balance shall be commuted at 8% and
paid in a lump sum to the personal representative of the
Executive's estate.
C. Termination of Service or Voluntary Resignation
Should Executive voluntarily resign from his employment or
should he be discharged for cause (exclusive of Early
Retirement), all Executive's benefits under this Agreement
shall be forfeited and this Agreement shall become null and
void. If a dispute arises as to discharge "for cause", such
dispute shall be resolved as set forth in Article VI.B.
D. Death Benefit Prior to Retirement
Should the Executive die prior to the Normal Retirement Date
(exclusive of Early Retirement or Severance as
<PAGE> 5
- 5 -
defined elsewhere herein), Corporation agrees to pay to the
Executive's designated beneficiary within 60 days following
the Executive's death the sum of $4,166.67 for a continuous
period of 84 months. If the designated beneficiary should
die prior to the expiration of the 84 months, the remaining,
unpaid installments shall be commuted at 8% and paid in a
lump sum to the personal representative of the designated
beneficiary.
Executive shall declare his designated beneficiary in
writing on a form provided by the Corporation. In the
absence of or a failure to designate a beneficiary, or in
the event the designated beneficiary shall have predeceased
the Executive, the unpaid balance shall be commuted at 8%
and paid in a lump sum to the personal representative of the
Executive's estate.
In the event the Executive's death shall be the result of
suicide within a two-year period following the effective
date of this Agreement, then no death benefits shall be
payable to the Executive or his designated beneficiary.
IV. ARTICLE FOUR - RESTRICTIONS UPON FUNDING
Corporation shall have no obligation to set aside, earmark or entrust
any fund or money with which to pay its obligations under this
Agreement. The Executive, his beneficiaries or any successor in
interest to him shall be and remain simply a general creditor of the
Corporation in the same manner as any other creditor having a general
claim for matured and unpaid compensation.
The Corporation reserves the absolute right at its sole discretion to
either fund the obligations undertaken by this Agreement or to refrain
from funding the same and to determine the extent, nature, and method
of such funding.
Should Corporation elect to fund this Agreement, in whole or in part,
through the purchase of life insurance, mutual funds, disability
policies or annuities, the Corporation reserves the absolute right, in
its sole discretion, to terminate such funding at any time, in whole
or in part. At no time shall Executive be deemed to have any lien nor
right, title or interest in or to any specific funding investment or
to any assets of the Corporation.
If Corporation elects to invest in a life insurance, disability or
annuity policy upon the life of Executive, then
<PAGE> 6
- 6 -
Executive shall assist the Corporation by freely submitting to a
physical exam and supplying such additional information necessary to
obtain such insurance or annuities.
V. ARTICLE FIVE - MISCELLANEOUS
A. Alienability and Assignment Prohibition
Except to the extent provided below, neither Executive, his
widow nor any other beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify or otherwise encumber
in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance
owed by the Executive or his beneficiary, nor be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event Executive or any
beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the
Corporation's liabilities shall forthwith cease and
terminate. Notwithstanding the preceding prohibition, in the
event Executive and his spouse divorce, the value of the
benefits payable hereunder may be subject to the division
for the benefit of Executive's spouse pursuant to a divorce
decree or other similar domestic relations order.
B. Binding Obligation of Corporation and Any Successor in
Interest
This Agreement shall be binding upon the parties hereto,
their successors, beneficiaries, heirs and personal
representatives.
C. Amendment and Revocation
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Corporation.
For any benefits not yet accrued pursuant to Article III.
B., the Corporation shall have the sole discretion to amend
or revoke this Agreement at any time or times, in whole or
in part, by a written amendment. For purposes hereof,
benefits shall be considered to have accrued only to the
extent of the Executive's entitlement under Article III. B.
determined
<PAGE> 7
- 7 -
as if the Executive is discharged without cause as of the
date of the amendment.
D. Gender
Whenever in this Agreement words are used in the masculine
or neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should
so apply.
E. Effect on Other Corporation Benefit Plans
Nothing contained in this Agreement shall affect the right
of the Executive to participate in or be covered by any
qualified or non-qualified pension, profit-sharing, group,
bonus or other supplemental compensation or fringe benefit
plan constituting a part of Corporation's existing or future
compensation structure.
F. Non-compete Agreement
In the event the Executive violates any non-competition and
confidentiality agreement (or similar agreement) with the
Corporation, determined in the sole and absolute discretion
of the Plan Administrator, no further benefits shall be
payable pursuant to this Agreement. This provision is in
addition to any remedies the Corporation might otherwise
have for such a violation and does not otherwise modify any
such agreement.
G. Headings
Headings and Subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a
part of this Agreement.
H. Applicable Law
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Ohio.
VI. ERISA PROVISIONS
A. Named Fiduciary and Plan Administrator
The "Named Fiduciary and Plan Administrator" of this plan
shall be the Compensation Committee of the Board of
Directors of the Corporation. The Named Fiduciary and
<PAGE> 8
- 8 -
Plan Administrator shall be responsible for the management,
control and administration of the Salary Continuation
Agreement as established herein. The Named Fiduciary and
Plan Administrator may delegate to others certain aspects of
the management and operation responsibilities of the plan
including the employment of advisors and the delegation of
ministerial duties to qualified individuals. The Named
Fiduciary and Plan Administrator shall have all powers
necessary to discharge its duties under the Agreement,
including the sole and absolute authority to interpret and
construe the terms and provisions of this Agreement and to
determine eligibility for benefits hereunder.
B. Claims Procedure
In the event that benefits under this Agreement are not paid
to the Executive (or to his beneficiary in the case of the
Executive's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made
to the Named Fiduciary and Plan Administrator named above
within 60 days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written
claim and if the claim is denied, in whole or in part, shall
provide in writing within 90 days of receipt of such claim,
the specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based
and any additional material or information necessary to
perfect the claim. Such written notice shall further
indicate the additional steps to be taken by claimants if a
further review of the claim denial is desired. A claim shall
be deemed denied if the Named Fiduciary and Plan
Administrator fails to take any action within the aforesaid
90-day period.
If claimants desire a second review, they shall notify the
Named Fiduciary and Plan Administrator in writing within 60
days of the first claim denial. Claimants may review the
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In
its sole discretion, the Named Fiduciary and Plan
Administrator shall then review the second claim and provide
a written decision within 60 days of receipt of such claim.
This decision shall likewise state the specific reasons
for the decision and shall include reference to specific
provisions of the Agreement upon which the decision is
based. This decision of the Named Fiduciary and Plan
Administrator
<PAGE> 9
- 9 -
shall be binding and conclusive upon all parties; and may be
overturned by a court of competent jurisdiction only upon a
finding that the decision was arbitrary and capricious.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 27th day
of April, 1995 and that, upon execution, each has received a conforming copy.
Leslie H. Pease John A. Kraeutler
- --------------------------- ----------------------------
WITNESS EXECUTIVE
Leslie H. Pease Gerard Blain
- --------------------------- ----------------------------
WITNESS CORPORATION
<PAGE> 1
EXHIBIT 11
Meridian Diagnostics, Inc.
and Subsidiaries
Computation of Earnings Per Common Share
Periods Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Weighted Avg. Earnings
Number of Per
Common Shares Net Common
Outstanding Income Share
------------- ------ --------
<S> <C> <C> <C>
Year Ended September 30, 1995:
Shares Outstanding October 1, 12,292,935 $ -- $ --
1994
Weighted average shares issued
during the period (638,237 shares) 66,237 -- --
Weighted average shares redeemed
for cash as a result of stock
dividend (398 shares) (320) -- --
Treasury shares repurchased (4,100) -- --
(6,291 shares)
Net Income -- 3,524,111 --
------------ ---------- ----------
12,354,752 $3,524,111 $ 0.2852
Effect of outstanding stock
options which is less than 3%
and not required to be disclosed
in the financial statements
(663,553 shares) 318,872 -- --
------------ ---------- ----------
12,673,624 $3,524,111 $ 0.2781
Effect of convertible debentures 1,832,891 489,760 --
------------ ---------- ----------
14,506,515 $4,013,871 $ 0.2767
Additional effect of stock options
at year end stock price 35,088 -- --
------------ ---------- ----------
14,541,603 $4,013,871 $ 0.2760
============ ========== ==========
Year Ended September 30, 1994:
Shares Outstanding October 1, 12,264,060 $ -- $ --
1993
Weighted average shares issued
during fiscal 1994 (28,875 shares) 13,332 -- --
Net Income -- 2,441,121 --
------------ ---------- ----------
12,277,392 $2,441,121 $ 0.1988
Effect of outstanding stock options
which is less than 3% and not required
to be disclosed in financial statements
(339,451 shares) 243,450 -- --
------------ ---------- ----------
12,520,842 $2,441,121 $ 0.1950
============ ========== ==========
Year Ended September 30, 1993:
Shares Outstanding October 1, 12,262,074 $ -- $ --
1992
Weighted average shares issued
during fiscal 1993 (1,987 shares) 1,717 -- --
Net Income -- 1,889,454 --
------------ ---------- ----------
12,263,791 $1,889,454 $ 0.1541
Effect of outstanding stock
options which is less than 3%
and not required to be disclosed
in the financial statements 270,284 -- --
(377,296 shares) ------------ ---------- ----------
12,534,075 $1,889,454 $ 0.1507
============ ========== ==========
</TABLE>
Note: All share and per share amounts have been retroactively adjusted to
reflect the 3 for 2 stock split declared on September 12, 1995.
<PAGE> 1
Exhibit 13
[LOGO] MERIDIAN
DIAGNOSTICS, INC.
1995 ANNUAL REPORT
<PAGE> 2
WHAT WE DO
Meridian Diagnostics, Inc.
develops, produces and markets
reliable, easy-to-use medical
diagnostic tests that allow
physicians, clinical laboratories,
hospitals and, potentially,
consumers to identify infectious
human diseases rapidly and
accurately. Cost-effective
diagnostic results contribute to
better healthcare by holding down
treatment costs and helping people
of all ages achieve a higher quality
of life.
WHO WE ARE
Meridian Diagnostics, Inc. is a fully integrated
medical diagnostic company that develops, manu-
factures and markets a variety of immunodiagnostic
test kits, purified reagents such as antigens,
monoclonal and polyclonal antibodies, and related
diagnostic products. The Company is a leader in
the area of rapid diagnosis of infectious human
diseases, has a leading market position in fungal
serology, and is the leader in parasite and bacterial
collection, preservation and specimen transport
systems. All Meridian products are used outside
of the human body and most require little or no
special instrumentation or equipment. Domestic
and international market segments consist of
hospitals, commercial and reference laboratories,
and physicians' offices.
<PAGE> 3
Meridian Diagnostics, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
(Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
Summary of Operations
- ---------------------------------------------------------------------------------------------------------------
Years Ended September 30, 1995 1994 1993 1992 1991
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $25,110 $21,877 $16,171 $14,003 $11,085
===============================================================================================================
Gross profit 17,101 14,359 11,073 9,421 7,112
Operating expense 10,525 9,545 7,548 6,805 5,756
- ---------------------------------------------------------------------------------------------------------------
Operating income 6,576 4,814 3,525 2,616 1,356
Other income (expense) (616) (831) (424) (11) 162
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 5,960 3,983 3,101 2,605 1,518
Income taxes 2,436 1,542 1,212 952 559
Net earnings $ 3,524 $ 2,441 $ 1,889 $ 1,663 $ 959
===============================================================================================================
Primary earnings per common share* $ .29 $ .20 $ .15 $ .13 $ .08
Cash dividends declared and paid
per common share* $ .10 $ .08 $ .06 $ .05 $ .05
Weighted average number of
shares outstanding* 12,355 12,277 12,264 12,222 12,129
Financial Position at September 30,
Working capital $15,826 $13,000 $13,759 $ 5,164 $ 4,046
Total assets 34,569 32,329 26,247 14,099 10,997
Long-term obligations 12,436 14,683 12,260 1,421 83
Shareholders' equity 18,878 13,232 11,617 10,676 9,519
===============================================================================================================
<FN>
*Adjusted for a three-for-two stock split, October 2, 1995.
</TABLE>
<TABLE>
<CAPTION>
PRIMARY EARNINGS SHAREHOLDERS' TOTAL ASSETS
NET SALES NET EARNINGS PER SHARE EQUITY
(5 Year Compound (5 Year Compound (5 Year Compound
Growth Rate +24%) Growth Rate +39%) Growth Rate +37%)
<S> <C> <C> <C> <C> <C>
1991 $ 11,085 $ 959 $ .08 $ 9,519 $ 10,997
1992 14,003 1,653 .13 10,676 14,099
1993 16,171 1,889 .15 11,617 26,247
1994 21,877 2,441 .20 13,232 32,329
1995 25,110 3,524 .29 18,878 34,569
Net Sales: Record Net Earnings: Earnings Per Shareholders' Total Assets: Total
net sales were driven Record net earnings Share: Earnings per Equity: Shareholders assets increased 7%
by higher unit volume resulted from strong share grew 45% to saw the equity of to $34.6 million, in
sales of Premier, new product sales $0.29 cents. The the Company increase contrast to the 43%
ImmunoCard, (R) and from improved Board of Directors 43% to $18.9 million increase in share-
Merifluor(R) and cost efficiencies in approved a three- in fiscal 1995. holders' equity.
mononucleosis manufacturing and for-two stock split Shareholders' equity
products. Overall net other operations. payable October 2. was increased in
sales rose 15%. Net earnings October when the
International sales increased 44% to Board of Directors
increased to 23% $3.5 million from called for conversion
of total net sales. $2.4 million in of the 7 1/4%
fiscal 1994. Convertible
Subordinated
Debentures due 2001.
</TABLE>
1
<PAGE> 4
TO OUR SHAREHOLDERS
Continued execution of our growth strategies produced record results
for our customers, our employee-owners, our employee-owners and our
shareholders for the seventh consecutive year. In this annual report we are
proud to show how Meridian Diagnostics performed in fiscal 1995, through
technologies that innovate, products that perform, and results that make a
difference.
Fiscal 1995 was another record performance year. Sales and earnings
reached new highs - our seventh consecutive year of surpassing prior records in
annual sales and earnings.
Along the way, we added eight new products, including the medical
diagnostic industry's first rapid test for the life-threatening toxigenic E.
coli bacteria.
Sales grew 15% to a record $25.1 million, while net earnings grew 44%
to a record $3.5 million, or $0.29 per share.
From management's perspective, these solid results were achieved from
the favorable combination of increased volume in sales and improved efficiency
throughout the organization. Operating income - a key measure of our financial
performance - grew substantially, up 37% to $6.6 million in fiscal 1995 from
$4.8 million in fiscal 1994. Gross profit as a percent of sales climbed to
over 68%, a full 2.5 point gain from fiscal 1994. Operating expenses as a
percentage of sales - an important measure of our efficiency - declined 1.7
percentage points to 42%.
GROWTH STRATEGIES
PRODUCE EXCELLENT RESULTS
With our management team and 159 full-time employees, we continue to
execute our five-point, long-term growth plan as follows:
1. DEVELOPING NEW PRODUCT TECHNOLOGIES:
The eight new products brought to market in fiscal 1995 raised to 56
the number of products we have introduced in the past eight years.
Most notable in fiscal 1995 were:
- Premier EHEC, the first innunodiagnostic test for clinical
laboratories to detect toxigenic E. coli. E. coli has caused a number of
deaths nationwide, especially among children who have eaten infected
ground beef and other food products.
- ImmunoCard (R) H. pylori and an improved Premier H. pylori, quicker,
easier-to-use tests for H. pylori, a bacteria linked to stomach ulcers.
- Premier Giardia, to detect the most common parasitic cause of diar-
rhea among infants. Giardia lamblia produces a significant number of
infections in daycare centers throughout the United States.
2. ACQUIRING AND LICENSING PRODUCTS AND TECHNOLOGIES: We completed the
integration of eight viral and bacterial tests acquired in January 1994 from
Ortho Diagnostic Systems, Inc. (ODSI). Meridian's manufacturing team was able
2
<PAGE> 5
to reduce manufacturing costs and our sales and marketing team was able to
increase sales of these products, making this acquisition more successful than
we had forecasted. Altogether, revenues from these products produced over 15%
of our sales in fiscal 1995.
3. GROWING INTERNATIONAL SALES:
We expanded international sales to over 23% of total sales. Fueled by Meridian
Diagnostics Europe's (MDE) 30% gain, international sales grew solidly.
4. EXPANDING SALES TO THE ALTERNATE SITE MARKETS, SUCH AS THE PHYSICIANS'
OFFICE:
With our commitment to achieving results that make a difference, Meridian
seeks the best marketing or production partners. In August 1995, we signed an
exclusive licensing arrangement with BioStar, Inc. of Boulder, Colorado, to
distribute our one-minute urinary tract infection test - FiltraCheck-UTI (R) -
to the physicians' office market. Early sales results from the pediatric and
OB/GYN physician segments are encouraging.
5. ENTERING THE OVER-THE-COUNTER MARKET:
FiltraCheck-UTI also has exciting potential for consumer use. Increased
awareness of the costs of medical care, changing lifestyles and an emphasis on
health and fitness are rapidly expanding demand for diagnostic tests for home
use. This billion-dollar market is growing approximately 15% annually. We have
partnered with Direct Access Diagnostics, a subsidiary of Johnson & Johnson, to
market FiltraCheck-UTI over-the-counter. The application for FDA permission to
market is pending, and is expected during fiscal 1996.
STRONG PERFORMANCE INCREASES SHAREHOLDER VALUE:
In September 1995, the Board of Directors approved a three-for-two stock split.
At its November 1995 meeting, the Board of Directors declared a special
year-end cash dividend of $.025 per share and raised the indicated annual cash
dividend rate to $0.14 per share from $0.1067 cents per share. This change
would represent an increase of 31% over the cash payout in fiscal 1994 and the
fourth consecutive year of increased dividends.
In October 1995, we announced the call of the 7 1/4% Convertible
Debentures due 2001. Conversion of the debentures will reduce interest
expense, reduce long-term debt, improve the debt-equity ratio, and also
increase liquidity of Meridian's common stock.
POSITIVE FUTURE OUTLOOK:
Meridian Diagnostics is well-positioned to deliver significant value-added
benefits - in the healthcare industry - to patients across all age groups. We
contribute to and benefit from the healthcare reform movement, the national
effort to drive down costs while maintaining the quality of healthcare in the
United States. Similar forces are affecting the delivery of healthcare in
other countries, creating growing global markets for our cost-effective,
accurate and easy-to-use diagnostic tests.
Because of these factors and the success of our strategic plan, we
expect fiscal 1996 to be another year of growth - another year of delivering
superior results and measurable value to benefit all our shareholders. We wish
to thank our Board of Directors, shareholders, employee-owners, suppliers and
customers for their support. All contributed to our continuing success.
Sincerely,
William J. Motto John A. Kraeutler
Chairman of the Board, President,
Chief Executive Officer Chief Operating Officer
- - Sales per employee of $161,000 and earnings per employee of $22,600 place
Meridian among the top performing companies in the diagnostic industry.
- - EQUITIES MAGAZINE ranked Meridian as one of America's fastest growing
companies, in the top 1% among 40,000 publicly held companies.
- - New products introduced in the past three years accounted for 36% of net
sales in fiscal 1995.
3
<PAGE> 6
THE VALUE OF
MEDICAL DIAGNOSTICS
<TABLE>
<S> <C> <C>
Diagnostic products CUTTING COSTS,
contribute significantly IMPROVING OUTCOMES
FOOD POISONING to the ability of modern Physicians recognize that with
Meridian products have special medicine to treat patients early and accurate diagnosis,
relevance in assisting in the more effectively. In an era of they can pinpoint therapies and
treatment of infants. increasing concern over the avoid unnecessary medication,
Enterohemorrhagic E. coli, imbalance of global health- resulting in faster patient recovery.
a deadly food-borne bacteria, care costs, diagnostics are These factors contribute to
has caused widespread out- leading-edge tools to contain reducing costs in the healthcare
breaks of food poisoning most costs and to improve the system and to increasing
often from contaminated ground quality of healthcare. Medical demand for high-quality, easy-
beef served in restaurants. diagnostics offer immense to-use diagnostic tests. Immuno-
The bacteria toxin attacks the opportunity for growth. diagnostics offer healthcare
kidneys, sometimes leading to providers a powerful weapon
organ failure and death, A GLOBAL GROWTH INDUSTRY against rising healthcare costs.
especially among the very The medical diagnostic field Approximately 90% of all biomed-
young and the elderly. Meridian consists of both high-tech ical diagnostic tests are these
Diagnostics introduced the equipment and biomedical tests relatively inexpensive, non-
industry's first rapid immunoas- for a wide range of diseases and invasive, and highly specific
say for Enterohemorrhagic medical disorders. Globally, the products.
E. coli in April 1995. Premier market for diagnostic products
EHEC, which provides accurate approaches $20 billion a year Historically, clinical and
microtiter well testing for large- and is growing at approximately hospital laboratories and hospital
scale laboratory test runs, is 9% annually.* Much of this growth networks have been the primary
quickly becoming an important is being generated by demand markets for diagnostic tests. In
diagnostic solution for U.S. and for immunodiagnostic tests. recent years, health maintenance
European market demands. organizations (HMOs), out-patient
clinics, physicians' offices and
*Source: 1995 Medical and nursing homes have developed
Healthcare Guide into important diagnostic market
segments. The on-going
WALKING PNEUMONIA
The low-cost, accurate results of Meridian's diagnostic tests are
of particular benefit to senior citizens. The value added in keeping
down the expense of diagnosis is evident for this growing
segment of the population, many of whom live on fixed incomes
and are experiencing worrisome increases in medical expenses.
As we age, our body's immune system slows down. Quick,
accurate diagnoses enable physicians to treat such illnesses as
"walking" pneumonia sooner and with proper therapies.
Meridian's ImmunoCard (R) Mycoplasma confirms a diagnosis of
"walking" pneumonia within ten minutes -- often while the patient
is still in the doctor's office.
</TABLE>
4
<PAGE> 7
consolidation of the healthcare Meridian Diagnostics concen-
industry, in its drive to improve trates on immunodiagnostic tests
patient care at the lowest for infectious human diseases.
possible cost, has made Meridian began its business in
diagnostic testing an integral 1977 coincident with the birth of
part of the overall process. the enzyme immunoassay
technology used in many test
A COMPETITIVE INDUSTRY procedures to detect infection-
specific reactions. All of Meridian's
Hundreds of companies in tests are noninvasive, i.e., they are
the United States alone are for use outside the body. A typical
supplying immunodiagnostic Meridian test produces a visual
tests. These companies range result, such as a color change,
from multinational healthcare that pinpoints a precise antigen
entities, for which immuno- or antibody reaction.
diagnostics is just one line of
business, to small start-up PROVEN LEADERSHIP
companies striving for a
research breakthrough that With a product array of over 100
will establish them with either diagnostic test products within
medical diagnostic or thera- ten product lines, and a full
peutic products. complement of market-
useful product technologies,
At the heart of the Meridian Diagnostics is at the
industry are mid-sized, proven, forefront of the industry in
technologically-adept medical producing needed diagnostic
diagnostic specialists, like solutions that contribute to
Meridian Diagnostics, that the quality of life for people
feature profitable product of all ages.
lines and the ability to deliver
high-value new products
quickly to a growing marketplace.
MONONUCLEOSIS
Teenagers are particularlly
susceptible to mononucleosis,
an infection of the blood that
drains the patient's energy.
Meridian is a leader in the field
of diagnostic tests involving
infectious mononucleosis.
Meridian markets four tests in
four separate technology
formals, each designed for the
special requirements of the
hospital, laboratory and
physicians' office customers.
Mononucleosis tests are
also in high demand in the
European market, a particu-
larly important segment for
Meridian Diagnostics Europe.
URINARY TRACT INFECTIONS
One of the most common reasons for physician office visits
among women and the elderly is urinary tract infection - or
UTI. Approximately 65 million tests for UTI are performed in the
U.S. annually. FiltraCheck-UTI (R) with its rapid, simple operation,
provides a clear positive or negative test result in one minute.
In August 1995, Meridian licensed BioStar Inc. of Boulder,
Colorado, to market the test nationally to physicians' offices.
Early results appear very promising.
In addition, Meridian has been involved with Direct
Access Diagnostics, a J & J subsidiary, in anticipation of the
distribution of FiltraCheck-UTI for sale over-the-counter to
consumers in the home healthcare market and is currently
awaiting FDA's permission to market.
5
<PAGE> 8
HOW WE CREATE VALUE
Meridian's products must achieve four criteria to be viable: accuracy,
reliability, ease of use and speed of result. This is the value formula we apply
to our technologies.
Success comes from finding innovative ways to assist
healthcare providers in improving outcomes for people
exposed to serious infectious diseases. Swift, accurate diag-
nosis can mean faster recovery, shorter hospital stays, and
less expense, both for the patient and the healthcare system.
The product development process at Meridian
Diagnostics requires continuous customer focus and market
input. Working together in development, our Research &
Development, Production, Marketing and Quality Assurance
teams are responsible for Meridian's expanding complement
of ten product lines and four major technology formats.
While we are always reinventing our products for different
applications, there are some constants: we seek product
improvements that make tests easier to use, require less
technical expertise, and yield faster results -- in minutes or
hours rather than days. This approach requires tailoring
technologies and test formats to meet the special
requirements of clinical laboratories, large and
small hospitals, the physicians' office,
HMOs, nursing homes, and, potentially,
the individual consumer.
By stressing cross functional teamwork, the Meridian product
transfer system successfully introduced a continuous flow of
new products in multiple formats.
PREMIER EHEC PIONEERS
E. COLI DIAGNOSTICS
The world became aware of the dangers
of food bacteria when outbreaks of food
poisoning throughout the U.S. made headlines
in 1994. Enterohemorrhagic E. coli (EHEC)
is a potentially lethal bacteria that infects
undercooked food and can cause kidney
failure. The toxin produced by this bacteria
has resulted in several deaths, especially
among young people who consumed
contaminated, inadequately cooked ground
beef. Within 12 months of the outbreak,
Meridian's Premier EHEC, in its enzyme
immunoassay format, was a hospital lab's
first and only FDA-approved automated
diagnostic test for this pathogen. We recently
received FDA permission to market in early
fiscal 1996 an improved Premier test that
detects these toxins within two hours directly
from patient stool samples.
Preventing contaminated meat from ever
reaching the consumer will be more important
to stopping this deadly bacteria. Meridian's
product development plans for 1996 include
a third test that will detect the E. coli in meat
itself, paving the way for regulated screening
tests within the food industry.
6
<PAGE> 9
TECHNOLOGIES THAT INNOVATE
- - Meridian added eight new products in fiscal 1995, most notably, Premier EHEC,
Premier Giardia, Para-Pak(R) ULTRA, Para-Pak(R) ECOFIX, MONOSPOT(R) Latex and
the highly successful ImmunoCard H. pylori.
- - Fiscal 1995 ImmunoCard sales nearly doubled over 1994, due to the new
ImmunoCard H. pylori test for gastric ulcers and the recently introduced
products for Mycoplasma ("walking" pneumonia), mononucleosis, and Rotavirus
(which causes acute gastroenteritis among infants).
- - The Company continued to invest substantial resources into future product
technologies: a total of $1.4 million in research and development in fiscal
1995.
- - Meridian product lines now consist of nearly 100 medical diagnostic products
in four primary technological formats: enzyme immunoassay, in both membrane
and microtiter, latex agglutination and fluorescent screening.
IMMUNOCARD(R) H. PYLORI: COST-EFFECTIVE SCREENING FOR THE ULCER-CAUSING
BACTERIA H. PYLORI IN THE PHYSICIAN'S OFFICE
U.S. patients make 20 million annual visits to their physicians for gastric
distress. In the past, the physician had to perform an endoscopy, an extremely
uncomfortable and expensive procedure, for a direct look inside the stomach.
Recently, medical research has linked gastric ulcers and other gastric
problems directly to the H. pylori bacteria. Responding to this development,
Meridian product development teams have now successfully introduced two tests
for H. pylori infections. These tests feature accurate, quick diagnosis using
patient blood serum.
ImmunoCard H. pylori is ideal for individual test applications in the
physician's office or such alternate sites as HMOS or nursing homes, and has
generated strong unit sales growth in 1995 throughout the U.S. and Europe. In
March 1995, Meridian added Premier H. pylori, a test for high-volume clinical
laboratories and large hospitals with advanced visual or instrumentation
readings.
In September 1995, the NEW ENGLAND JOURNAL OF MEDICINE published an
article presenting serological tests as the most efficient method of diagnosing
the presence of H. pylori-related infections. Meridian expects an increasing
number of physicians to rely on our rapid, accurate H. pylori products to
diagnose and treat their patients suffering from gastric distress.
PARA-PAK(R) ECOFIX AND PARA-PAK(R) ULTRA: ENVIRONMENTALLY SAFER DURING
HANDLING AND DISPOSAL
One of the longstanding concerns in working with parasite specimens has been
the toxic chemical compounds used to preserve the specimens as they are
transported to the clinical laboratory for testing. As a world leader in
parasitology, Meridian addressed the twin issues of safe handling procedures
for lab technicians and safe disposal of fecal specimen vials. The new
technology in Para-Pak ECOFIX and Para-Pak ULTRA ECOFIX eliminated mercury and
formalin from the preservation media. Eliminating the mercury makes disposal
of the specimen vial safer and less costly. The absence of formalin means
that the tests no longer have to be processed in a hood and monitored for
formaldehyde. Para-Pak ULTRA ECOFIX, marketed in August 1995, offers a closed,
one-vial system to transport and filter stool specimens for intestinal
parasites. The one-vial system results in safer handling in the laboratory
and reduces processing time.
7
<PAGE> 10
HOW WE CREATE VALUE
The quality equation at Meridian Diagnostics requires that diagnostic
test products perform as precisely, accurately and reliably tomorrow as they do
today. Being successful in medical diagnostics requires total commitment to
quality. Customer loyalty is based on this commitment.
Producing medical diagnostic test kits is a highly-specialized
manufacturing process. We start our quality process by developing
manufacturing standards in the Research & Development lab. By moving it in an
integrated process to Production, we improve the quality and efficiency of the
eventual transfer of technology. Using the same quality standards produces a
consistently high-quality product.
R&D works very closely with Production on the technology transfer
process. We ensure that manufacturing is accomplished according to monitored
standards. In-process quality control has been very successful in helping to
eliminate manufacturing problems. Conformance to standards is a competitive
prerequisite. We have made quality and the FDA's Good Manufacturing Practices
(GMP) our benchmark. With a zero-defect program currently in place, our focus
on quality production translates into consistent, accurate product performance.
Customers expect quality from products that have Meridian's name on them. By
giving our customers the best performing products, we are creating value.
NEW PREMIER GIARDIA: ADDRESSING WATER-BORNE PARASITIC DISEASE
The Giardia lamblia parasite is often found in municipal water
supplies, and is the most common parasitic cause of diarrhea among infants.
Giardia inflicts diarrhea, weight loss, abdominal cramps, anemia and potential
liver damage. The Centers for Disease Control and Prevention estimates between
one-half and one million cases of Giardia infections a year in the United
States. Daycare centers, and their ongoing problems in eliminating contact
with contaminated fecal matter in diapers, are responsible for nearly 45% of
diagnosed infections.
Meridian has a strong niche in diagnosing water-borne parasites.
Premier Giardia lamblia enzyme immunoassay kits were introduced in July 1995
specifically for hospitals and labs that perform a high volume of diagnostic
tests. Speed and precision in batch tests are crucial in these situations.
The test requires neither instrumentation nor special specimen preparation and
has an accuracy in sensitivity and specificity exceeding 97%. Meridian's other
reliable, established tests to detect water-borne parasites include
Merifluor(R) Cryptosporidium/Giardia and Premier Cryptosporidium.
8
<PAGE> 11
PRODUCTS THAT PERFORM
- - Meridian generated its seventh consecutive year of record sales, highlighted
by four record quarters in fiscal 1995.
- - Strong unit volume growth in new product sales of Premier, ImmunoCard,
Merifluor and mononucleosis lines produced record annual sales, and
strengthened Meridian's leadership positions in fungal, viral and parasitology
diagnostics.
- - New marketing/sales agreement in 1995 expaned our sales capabilities in the
new markets: FiltraCheck to physicians' office market via BioStar alliance.
- - Meridian President and Chief Operating Officer Jack Kraeutler and Meridian
Quality Assurance Director Deborah Hoffer elected to The GMP Institute Hall of
Fame for outstanding achievement in applying conformance to manufacturing
standards.
IMMUNOCARD(R) MYCOPLASMA: A UNIQUE TEST FOR A MAJOR RESPIRATORY PATHOGEN
Sales of ImmunoCard Mycoplasma, introduced in fiscal 1994, increased
more than tenfold in fiscal 1995 and are representative of Meridian's strength
in respiratory diagnostics. Pneumonia is the fifth leading cause of death
worldwide. Mycoplasma or "walking" pneumonia accounts for 20% of this total.
The product's sales success is due to it being the market's only rapid test
(results in less than ten minutes) for Mycoplasma that detects early or acute
infection and distinguishes it from the disease's convalescent state.
ImmunoCard's accurate enzyme immunoassay technology produces a color change
enabling accurate interpretation of results.
C. DIFFICILE: A FAMILY OF TESTS MEETS CUSTOMERS' DIFFERENT NEEDS
Clostridium difficile bacteria causes severe diarrhea among hospital
patients who are being treated with antibiotics and may be associated with
other hospital-acquired infections. Rapid, accurate diagnosis of the bacteria
is critically important in achieving early teatment, restoring patients to
good health more quickly and reducing time in the hospital. Meridian's
diagnostic products for C. difficile illustrate our ability to produce cost
effective diagnostic solutions for niche disease states in multiple customer
formats.
Premier C. difficile, our original Premier product introduced in 1992,
continues to be one of the most sought-after products for use in hospitals and
labs that generate a large volume of diagnostic tests. Within two hours, and
with a minimum of processing, Premier C. difficile yields results that are
98.2% accurate, resulting in rapid diagnosis and early intervention of therapy.
In 1993, we enhanced our C. difficile expertise with ImmunoCard(R)
technology. ImmunoCard is an individual test, ideal for the small laboratory
market. It yields results in 15 minutes without any special instumentation and
features an easy-to-read color change reaction that takes guesswork out of
deciphering results. Meridian also offers a third C. difficile test for labs
that prefer a latex slide, Meritec(TM) C. difficile, a quick, economical way of
confirming whether the common antigens of the bacteria are present in stool
samples. Meritec produces results in minutes.
9
<PAGE> 12
HOW WE CREATE VALUE
Seven consecutive years of record sales, seven consecutive years of
record earnings: We deliver products that perform for our customers. We
produce results that increase shareholder value.
Working for Meridian Diagnostics is more than a job. It means working
with people who are committed to the success of the Company. The commitment
shows in the cooperation among departments. It works in our cross-functional
teams. R&D, Laboratory Production, Sales, Customer Support, Marketing and
Administration - we all focus on serving the customer. This effort bears fruit
in enthusiastic dedication to quality, continuously seeking ways to make our
tests easier to use, more efficient and more effective. Zero defects is our
quality goal. We apply our resources to meet the needs of the lab technician,
nurse and doctor's assistant.
This spirit of dedication and performance record has combined to
produce an unbroken string of record financial results, greater total
investment return and an emerging global reputation among our customers.
INTERNATIONAL SALES
Meridian's products are sold throughout the world. Fiscal 1995
international sales set records again - in boosting that sales level to $5.8
million, or 23% of total sales.
Meridian Diagnostics Europe (MDE) performed superbly, producing the
largest share of international sales. MDE sales gained 30%, or more than $1.2
million to $5.1 million in fiscal 1995 from $3.9 million in fiscal 1994.
Growth came primarily from increased unit sales, particularly in the
mononucleosis line, Premier products for batch testing for gastroenterological
infections and new ImmunoCard products for individual diagnostic testing.
ImmunoCard sales alone grew more than 200% from fiscal 1994.
From our base in Italy we are planning to increase our presence in the
European community in fiscal 1996. The same desire to contain healthcare costs
that is driving healthcare in the United States is at work in Europe and, in
fact, around the world, affording Meridian great opportunities for further
global growth.
10
<PAGE> 13
RESULTS THAT MAKE A DIFFERENCE
- - The State of Ohio recognized our international achievements with the
Governor's 1995 E Award for success in exporting. International sales,
including exports and the sales or Meridian Diagnostics Europe, hit a record
23% of total sales.
- - For the fourth year in a row, FINANCIAL WORLD magazine placed Meridian
Diagnostics among the top U.S. growth companies. The CLEVELAND PLAIN DEALER
also cited our accomplishments, rating Meridian Diagnostics one of Ohio's 100
best companies for the fifth consecutive year.
- - Operating expenses as a percentage of sales - an important measure of our
efficiency - declined nearly two points to 42%; gross profit improved over two
points to 68% of sales.
TOLL-FREE ON-LINE ASSISTANCE: GREATER CUSTOMER SATISFACTION
Supporting the customer is essential to achieving outstanding results
year-in and year-out. In June 1995, we added a dedicated direct access line
for customer service. Our network of customer service representatives take
customer calls from 8 a.m. to 6 p.m. daily. Customer response to this new
feature has been gratifying. Further enhancements are in the plannning stage
for implementation in fiscal 1996.
Customer service is a requirement that affects us all directly. For
example, if there is a customer question about reagents in our production
process, we train our Laboratory Production representatives to respond
directly. Who better to fulfill a customer requirement than the appropriate
expert? Likewise, when a lab technician customer has a question in the
performance of a test, the appropriate Meridian sales representative with a
technical background will respond directly. Customers see Meridian services
like these as an important added value.
FILTRACHECK-UTI: MAKING NEW MARKET OPPORTUNITIES
To achieve results for the customer and the shareholder, Meridian is
committed to expanding new product sales through new market opportunities. To
fulfill the sales potential of the FiltraCheck-UTI test, we licensed BioStar,
Inc. in August 1995 to distribute the product line to physicians' offices
nationwide. BioStar is an established medical diagnostics company with a sales
force of 120 and an accomplished sales track record to physicians' offices.
Millions of women with symptoms of urinary tract infection (UTI)
annually seek out their physicians for treatment. UTI also afflicts hospital
patients, especially senior citizens. In the United States alone, there are 65
million office visits a year for this disorder.
Meridian's FiltraCheck-UTI is a true diagnostic innovation: it can
halve the expense to the healthcare system of determining whether a patient is
suffering from UTI. The diagnostic benefit to the patient is quicker relief
through earlier treatment.
To bring the benefits of FiltraCheck-UTI directly to the consumer, our
distribution partner, Direct Access Diagnostics, a subsidiary of Johnson &
Johnson, is seeking FDA permission to sell to the over-the-counter market.
EFFICIENCY: NEW CONSOLIDATED SPACE
We consolidated warehousing and manufacturing operations at our
headquarters complex in Cincinnati, Ohio, during fiscal 1995 by adding 39,000
square feet of new administrative and manufacturing space at a cost of $1.4
million. We have now begun renovating our former administrative offices and
laboratory manufacturing space. This project, budgeted at $1.2 million, will
be completed in June 1996.
Bringing our operations together into one corporate campus increases
efficiency and improves management control. As we grow and consolidate,
Meridian strives to maintain interaction among the key functional areas of the
Company. Challenge Teams comprised of representatives for Laboratory
Production, Manufacturing, R&D, Quality Assurance and Administration constantly
examine Meridian's operations to improve efficiency and reduce costs.
11
<PAGE> 14
Meridian Diagnostics, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased $3,233,000, or 15%, to $25,110,000 in fiscal 1995 from
$21,877,000 in fiscal 1994. This increase was primarily from unit volume growth
in the Premier, ImmunoCard, Merifluor and mononucleosis lines plus OEM sales of
Epstein Barr Virus. The major growth areas are in those tests used for
identification of infectious diseases such as C. difficile/Toxin A,
mononucleosis, Mycoplasma and Herpes simplex virus. Of the increase of
$3,233,000, $1,112,000, or 34%, was attributable to the full year sales of the
infectious disease product line acquired in January 1994 from an affiliate of
Ortho Diagnostics Systems, Inc. (ODSI).
The increase in sales of $3,233,000 was more than accounted for by
volume of $3,271,000, or 15%, offset marginally by price decreases of $38,000
with no impact from currency translation. European sales increased $1,175,000 to
$5,102,000, or 30%, from $3,927,000 as a result of continued strong unit growth
in the Premier line, up 45% (Toxin A, H. pylori and EHEC - introduced during the
second quarter); the mononucleosis line, up 21%; ImmunoCard, which almost
tripled largely from new products (Mycoplasma, mononucleosis, Rotavirus and H.
pylori) and Merifluor, up 81%. The increase in net sales was accounted for by
volume, $951,000, or 24%, and price, $223,000, or 6%. The effect of currency
translations was negligible.
Gross profit increased $2,742,000, or 19%, to $17,101,000 for the year,
from $14,359,000 in fiscal 1994. As a percentage of sales, gross profit
increased to 68.1% in fiscal 1995 from 65.6% in fiscal 1994. This improvement
was due primarily to the transfer and in-house manufacture of the product lines
acquired from ODSI in June 1993 and January 1994, which prior to October 1994,
were purchased under a supply agreement with ODSI. Fiscal 1994 costs also
included integration of the ODSI infectious disease product line into Meridian's
manufacturing facilities in Cincinnati. Other factors contributing to the
improvement included continued favorable efficiency and volume variances from
the sales increase, the new warehouse facilities, and the reduction in factory
overhead including decreased rent expense from the new on-site warehouse, lower
insurance and employee benefit expense, plus a reduction in travel.
Operating expenses increased $980,000, or 10%, to $10,525,000 for the
fiscal year from $9,545,000, in fiscal 1994, but declined as a percentage of
sales from 43.6% in fiscal 1994 to 41.9% in fiscal 1995. Research and
development expenses were marginally lower than the prior year, from $1,433,000
in fiscal 1994 to $1,432,000 in fiscal 1995. Selling and marketing expenses
increased $481,000, or 10%, versus fiscal 1994, mainly from higher personnel
costs in the U.S. and Europe, higher convention, meeting, sample and promotion
expenses associated with new product introductions and the full year impact of
the infectious disease product line acquired from ODSI. General and
administrative expenses increased $499,000, or 15%, due to increased personnel
costs in the U.S. and Europe stemming from the higher level of business, an
increase in depreciation from the expanded office facilities plus the full year
impact of depreciation from assets acquired from ODSI and a general increase in
the provision for doubtful accounts to reflect added coverage given the
increasing sales level.
Operating income as a result of the above increased $1,762,000, or 37%,
to $6,576,000 in fiscal 1995 from $4,814,000 in fiscal 1994. As a percent of
sales, operating income improved to 26.2% in fiscal 1995 compared to 22.0% in
fiscal 1994.
Other expenses decreased $214,000, or 26%, to $616,000 compared to
$831,000 in fiscal 1994. This decrease was more than accounted for from higher
investment income stemming from an improvement in interest rates compared to
last year plus commission income related to the sale of certain tissue culture
products acquired from ODSI and sold to VAI Diagnostics, Inc. in March 1994.
Gains/losses in foreign exchange were not material in either fiscal year. The
cumulative foreign currency translation adjustment changed by $32,000 during the
year as a result of strengthening of the U.S. dollar against the Lira during the
period.
The Company's effective tax rate increased for the year as a result of a
higher proportion of income from the Company's European subsidiary in Italy,
which is taxed at a signifcantly higher rate than the U.S. domestic rate. The
effective tax rate was 40.9% in fiscal 1995 compared to 38.7% for the prior
year.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales increased $5,706,000, or 35%, to $21,877,000 in fiscal 1994 from
$16,171,000 in fiscal 1993. This increase resulted primarily from higher unit
volumes resulting from the acquisition of the infectious mononucleosis product
line acquired in June 1993 and the acquisition of the infectious disease product
line acquired in January 1994 from ODSI, plus strong unit growth in the
ImmunoCard and Merifluor product lines.
The increase in sales of $5,706,000 was comprised of volume of
$5,139,000, or 32%, price of $899,000, or
12
<PAGE> 15
Meridian Diagnostics, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
5%, offset by currency of ($332,000) or (2%). European sales increased
$1,447,000, or 58%, to $3,927,000 from $2,480,000 largely due to MONOSPOT (R)
and MONOLERT (R) products acquired from ODSI in June 1993, plus unit growth in
the Para-Pak, Merifluor and Premier product lines. This increase in net sales
was attributed to volume of $1,114,000, or 45%, price of $665,000, or 27%,
offset by currency of ($332,000), or (14%). The increase from pricing stemmed
from the expiration in 1994 of contract supply prices in effect at the time of
the mononucleosis product line aquisition in fiscal 1993.
Gross profit increased $3,286,000, or 30%, to $14,359,000 for the year,
from $11,073,000 in fiscal 1993. As a percentage of sales, gross profit declined
to 65.6% in fiscal 1994 from 68.5% in fiscal 1993. This decline is due to
several factors including the impact of the lower margin ODSI product line
acquisitions - in part provided under a supply agreement - which ended June 30,
1994, except for MONOSPOT which ended in October 1995. Other factors impacting
gross profit were increased manufacturing costs, higher scrap and obsolescence
costs stemming from product development including validation batches, minor
product discontinuations and additional costs associated with packaging
standardization. Also impacting manufacturing cost was the transfer and
integration of the ODSI infectious disease product line into Meridian's
facilities in Cincinnati.
Operating expenses increased $1,997,000, or 26%, to $9,545,000 for the
fiscal year from $7,548,000 in fiscal 1993, but declined as a percentage of
sales from 46.7% in fiscal 1993 to 43.6% in fiscal 1994. Research and
development expense increased $268,000, or 23%, over fiscal 1993 primarily from
higher personnel costs, increased clinical trial activity and laboratory
supplies associated with new product development and depreciation expense
stemming from equipment acquired during the year from ODSI. Selling and
marketing expenses increased $1,031,000, or 28%, during the year, primarily as a
result of the amortization of the purchase price of the ODSI product line
acquisitions, higher personnel costs in the U.S. and Europe from the addition of
sales representatives and higher promotional expenses in the U.S. associated
with new products and, in Europe, from the expansion of the direct sales and
distribution to customers in Italy. General and administrative expenses
increased $698,000, or 26%, due to amortization of the ODSI acquisitions,
increased personnel costs in the U.S. and Europe to support the continued growth
in the business, higher depreciation expense related to equipment acquired from
ODSI plus an increase in the provision for potential doubtful accounts.
Operating income as a result of the above increased $1,289,000, or 37%,
to $4,814,000 in fiscal 1994 from $3,525,000 in fiscal 1993.
Other expense increased in fiscal 1994 $406,000 which was more than
accounted for by higher interest expense and amortization of debt expenses
attributed to the $11,500,000 of 7 1/4% Convertible Subordinated Debentures
issued in September 1993. These increases in debenture-related expenses were
offset by the one-time write-off of $405,000 in fiscal 1993 of expenses
associated with the Company's planned offering of Common Stock, which was
withdrawn on July 29, 1993. The after tax impact on earnings of this withdrawal
cost was $255,000 or $0.02 per share in 1993 as adjusted.
The Company's effective tax rate declined marginally for the year as a
result of a higher proportion of the income in the U.S. which is taxed at a
significantly lower rate than in Italy. The effective tax rate was 38.7% in
fiscal 1994 compared to 39.1% in fiscal 1993. Effective October 1, 1993 the
Company adopted Financial Accounting Standards Statement No. 109, "Accounting
for Income Taxes." Prior period financial statements have not been restated to
reflect the new accounting method since the cumulative effect of this change as
well as the effect of this new standard on income tax expense for Fiscal 1994
was not material.
LIQUIDITY AND CAPITAL RESOURCES
Construction of 19,000 square feet of additional and renovated manufacturing and
administrative space, which began in August 1994, was completed in September
1995 at a total cost of $1,400,000. This construction was funded by a
construction loan to be converted to a long-term mortgage August 1, 1996,
detailed in Note 5 in Notes to Consolidated Financial Statements. Total capital
expenditures for the year, including the above mentioned project, were
$2,500,000. The Company commenced renovation of the former administrative
offices and laboratory manufacturing space in October 1995 at an estimated cost
of $1,200,000 which will complete the Company's expansion project begun in late
1993. Completion of this phase is expected to be June 1996. The Company's
anticipated total capital expenditures for fiscal 1996 are $1,900,000.
At September 30, 1995, the Company had cash and short-term investments
of $8,919,000 and working capital of $15,826,000. Trade accounts receivable
increased $1,313,000, or 25%, while inventories increased $13,000, less than 1%,
compared to September 30, 1994. The increase in receivables stems in part from
the
13
<PAGE> 16
Meridian Diagnostics, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
growth in European receivables which are in line with the significant increase
in European sales. The balance relates to U.S. operations and is attributable to
special dating offers associated with new product stocking orders plus some
shifting in the timing of remittances. The change in inventories reflects
improved turnover and tighter control of stock levels.
Cash flow from operations is expected to continue to fund working
capital requirements for the foreseeable future. Currently the Company has
available $6,000,000 in a line of credit with a commercial bank.
On September 12, 1995 the Company declared a 3-for-2 stock split payable
October 2, 1995 to shareholders of record on September 22, 1995.
The Board of Directors announced on October 10, 1995 that it would call
the outstanding balance of its 7 1/4% Convertible Subordinated Debentures due
2001 for redemption on November 30, 1995. Approximately $7,400,000 principal
amount of the Debentures was outstanding at the time of the announcement. About
$4,100,000 had been converted or tendered for conversion into shares of the
Company's common stock. As of November 30, 1995, $113,000 was outstanding.
Holders of the Debentures had the option of converting their Debentures
into shares of Meridian Diagnostics' common stock prior to the redemption date
of November 30, 1995 at a conversion price of $5.97 per share or, upon delivery
of the Debentures, receiving cash. The Debentures were redeemable at 105% of
their face amount plus accrued interest, or $1,068.08 per each $1,000 principal
amount. The conversion price of $5.97 per share was equivalent to a conversion
rate of 167.5 shares per each $1,000 principal amount of Debentures.
Retirement of the Debentures, through conversion, on a pro forma basis,
would reduce the Company's annual pre-tax interest expense by $834,000, increase
shareholders' equity and reduce long-term debt by $7,980,000 and improve the
debt-to-equity relationship from about 68% to 18%. The pro forma per share
dilution for the fiscal year ended September 30, 1995 was about $0.01. Of the
original $11,500,000 principal amount of Debentures, all but $113,000 had been
converted as of November 30, 1995, with this amount expected to be redeemed.
On November 14, 1995 the Board of Directors declared a special year-end
cash dividend of $0.025 per share for fiscal 1995, payable December 1, 1995 to
shareholders of record on November 24, 1995. The Board of Directors also
announced its intention to increase the regular annual dividend rate from
$0.1067 to $0.14 per share for fiscal 1996. The new annual cash dividend rate
for fiscal 1996 of $0.14 per share would represent a 31% increase over the prior
1995 rate of $0.1067 per share. Total dividends paid during fiscal 1995 were
$1,225,000 compared to $908,000 paid in fiscal 1994.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meridian Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheets of MERIDIAN
DIAGNOSTICS, INC. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of earnings,shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Meridian
Diagnostics, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
November 10, 1995
14
<PAGE> 17
Meridian Diagnostics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
As of September 30, 1995 1994
===================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments (Note 2) $ 8,918,637 $ 8,831,983
Accounts receivable, less allowance of $164,136 in
1995 and $113,183 in 1994 for doubtful accounts 6,482,999 5,169,989
Inventories (Note 3) 3,032,655 3,020,071
Prepaid expenses and other 321,775 108,423
Deferred tax assets 324,910 282,929
- --------------------------------------------------------------------------------------------------------------------
Total current assets 19,080,976 17,413,395
- --------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 269,217 273,688
Buildings and improvements 6,162,668 3,716,649
Machinery, equipment and furniture 5,525,455 4,595,550
Construction in progress - 1,063,702
- --------------------------------------------------------------------------------------------------------------------
11,957,340 9,649,589
Less-accumulated depreciation and amortization 4,816,905 4,248,561
- --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 7,140,435 5,401,028
- --------------------------------------------------------------------------------------------------------------------
OTHER ASSETS (NOTES 1 AND 4):
Long-term receivable 12,670 -
Deferred tax assets 87,879 59,841
Deferred debenture offering costs, net of accumulated amortization of
$133,357 in 1995 and $96,876 in 1994 395,731 665,595
Covenants not to compete, net of accumulated amortization of
$1,827,718 in 1995 and $1,337,375 in 1994 2,432,876 2,923,219
License agreements, net of accumulated amortization of
$772,433 in 1995 and $714,878 in 1994 362,680 420,235
Patent, tradenames and distributorships, net of accumulated
amortization of $475,762 in 1995 and $267,365 in 1994 1,837,238 2,045,635
Other intangible assets, net of accumulated amortization of $85,570
in 1995 and $43,503 in 1994 620,192 685,218
Cost in excess of net assets acquired, net of accumulated
amortization of $458,482 in 1995 and $255,753 in 1994 2,598,511 2,714,964
- --------------------------------------------------------------------------------------------------------------------
Total other assets 8,347,777 9,514,707
- --------------------------------------------------------------------------------------------------------------------
Total assets $34,569,188 $32,329,130
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations (Note 5) $ 381,932 $ 367,969
Current portion of capital lease obligation (Note 5) 63,561 -
Accounts payable 689,869 1,843,489
Accrued payroll and payroll taxes 723,946 650,530
Other accrued expenses 937,348 649,732
Income taxes payable 458,707 902,069
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,255,363 4,413,789
- --------------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS (NOTE 5) 12,285,668 14,683,369
- --------------------------------------------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATIONS (NOTE 5) 149,925 -
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 7):
Preferred stock, no par value, 1,000,000 shares authorized; none issued - -
Common stock, no par value, 25,000,000 shares authorized; 12,924,814
and 12,292,935 shares issued and outstanding, respectively, stated at 1,487,159 1,179,583
Additional paid-in capital 13,895,901 10,824,012
Retained earnings 3,747,930 1,448,736
Cumulative foreign currency translation adjustment (252,758) (220,359)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 18,878,232 13,231,972
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $34,569,188 $32,329,130
====================================================================================================================
<FN>
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</TABLE>
15
<PAGE> 18
Meridian Diagnostics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
For the Years Ended September 30, 1995 1994 1993
=================================================================================================
<S> <C> <C> <C>
NET SALES $25,109,711 $21,876,773 $16,170,990
COST OF SALES 8,008,529 7,518,179 5,097,988
- -------------------------------------------------------------------------------------------------
Gross profit 17,101,182 14,358,594 11,073,002
- -------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 1,432,315 1,432,928 1,165,210
Selling and marketing 5,228,717 4,747,398 3,715,517
General and administrative 3,864,294 3,364,584 2,667,172
- -------------------------------------------------------------------------------------------------
Total operating expenses 10,525,326 9,544,910 7,547,899
- -------------------------------------------------------------------------------------------------
Operating income 6,575,856 4,813,684 3,525,103
- -------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Licensing and related fees 102,698 - 55,000
Interest income 435,686 253,644 56,551
Interest expense (1,134,844) (1,092,345) (178,950)
Cost of withdrawn stock offering - - (404,499)
Other, net (19,470) 8,420 48,153
- -------------------------------------------------------------------------------------------------
Total other income (expense) (615,930) (830,281) (423,745)
- -------------------------------------------------------------------------------------------------
Earnings before income taxes 5,959,926 3,983,403 3,101,358
INCOME TAXES (NOTE 6) 2,435,815 1,542,282 1,211,904
- -------------------------------------------------------------------------------------------------
Net earnings $ 3,524,111 $ 2,441,121 $ 1,889,454
=================================================================================================
PRIMARY WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,354,752 12,277,392 12,263,791
=================================================================================================
PRIMARY EARNINGS PER COMMON SHARE $.29 $.20 $.15
=================================================================================================
FULLY DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,541,603 NA NA
=================================================================================================
FULLY DILUTED EARNINGS PER COMMON SHARE $.28 NA NA
=================================================================================================
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
16
<PAGE> 19
Meridian Diagnostics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOIDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative
Number of Foreign
Common Shares Additional Currency
Issued and Common Paid-In Retained Translation
Outstanding Stock Capital Earnings Adjustment Total
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1992 7,705,453 $ 851,975 $ 7,563,763 $2,258,187 $ 2,560 $10,676,485
Net earnings - - - 1,889,454 - 1,889,454
Cash divdends paid -
$.06 per share as adjusted - - - (702,325) - (702,325)
Exercise of stock options 1,249 900 4,839 - 5,739
3% stock dividend 231,201 154,142 1,811,067 (1,965,209) - -
Foreign currency translation
adjustment - - - - (252,341) (252,341)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1993 7,937,903 1,007,017 9,379,669 1,480,107 (249,781) 11,617,012
Net earnings - - - 2,441,121 - 2,441,121
Cash dividends paid -
$.08 per share as adjusted - - - (908,209) - (908,209)
Exercise of stock options 18,689 12,638 39,988 - - 52,626
3% stock dividend 238,698 159,928 1,404,355 (1,564,283) - -
Foreign currency translation
adjustment - - - - 29,422 29,422
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1994 8,195,290 1,179,583 10,824,012 1,448,736 (220,359) 13,231,972
Net earnings - - - 3,524,111 - 3,524,111
Fractional shares (570) (293) (3,049) - - (3,342)
Cash dividends paid -
$.10 per share as adjusted - - - (1,224,917) - (1,224,917)
Exercise of stock options 42,849 14,961 34,131 - - 49,092
3 for 2 stock split 4,097,645 - - - - -
Debenture Conversions (Note 5) 589,600 292,908 3,040,807 - - 3,333,715
Foreign currency translation
adjustment - - - - (32,399) (32,399)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1995 12,924,814 $1,487,159 $13,895,901 $3,747,930 $(252,758) $18,878,232
============================================================================================================================
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
17
<PAGE> 20
Meridian Diagnostics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
For the Years Ended September 30, 1995 1994 1993
=================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,524,111 $ 2,441,121 $ 1,889,454
Non-cash items-
Depreciation and amortization of property,
plant and equipment 863,436 703,190 580,979
Amortization of intangible assets 1,147,987 1,009,950 471,045
Deferred interest expense 154,950 94,978 -
Revenues received in advance recorded in income - - (55,000)
Deferred income taxes (70,019) (263,977) 28,079
Changes in current assets excluding cash and
short-term investments (1,611,612) (1,865,471) (1,328,516)
Changes in current liabilities excluding current portion
of long-term obligations (1,150,277) 2,305,066 516,355
Long-term receivable and payable (2,470) - -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,856,106 4,424,857 2,102,396
- -----------------------------------------------------------------------------------------------------------------
CAAH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquired, net (2,472,177) (1,426,485) (718,135)
Product line acquisition-
Inventory and equipment - (571,446) (262,972)
Covenants not to compete - (1,100,000) (1,500,000)
Patent, tradenames, customer lists and other - (1,375,000) (1,394,000)
Cost in excess of net assets acquired - (346,434) (297,722)
Proceeds from sale of product line - 500,000 -
Acquisition of license agreements - (55,898) (80,000)
Advance royalties paid - (25,000) -
- -----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,472,177) (4,400,263) (4,252,829)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated debentures,
net of offering costs - - 10,737,530
Proceeds from other long-term obligations 1,284,005 634,970 -
Repayment of long-term obligations (388,246) (462,339) (219,145)
Dividends paid (1,224,917) (908,209) (702,325)
Proceeds from issuance of common stock 45,750 52,626 5,739
Effect of exchange rate changes on cash (13,867) 14,749 (6,229)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (297,275) (668,203) 9,815,570
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 86,654 (643,609) 7,665,137
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 8,831,983 9,475,592 1,810,455
- -----------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $8,918,637 $8,831,983 $9,475,592
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Income taxes $2,882,336 $1,034,000 $1,195,000
Interest 883,356 852,265 160,062
Capitalized lease obligations 259,240 - -
Estimated contingent consideration related to
product line acquisitions (Note 5) - 1,972,000 -
Conversion of debentures to common stock,
net of amortization of deferred debenture offering
costs of $186,285 (Note 5) 3,333,715 - -
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
18
<PAGE> 21
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Meridian Diagnostics, Inc. and its subsidiaries, Omega
Technologies, Inc., Meridian Diagnostics Europe s.r.l. ('MDE') and Meridian
Diagnostics International, Inc. (collectively, 'Meridian' or the
'Company'). All significant intercompany accounts and transactions have
been eliminated in consolidation.
(B) SHORT-TERM INVESTMENTS--The Company adopted Statement of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115) in 1995. In accordance with FAS 115, prior
year's financial statements have not been restated to reflect the change in
accounting method. There was no cumulatlve effect as a result of adopting
FAS 115 in 1995.
Debt securities for which the Company does not have the intent or
ability to hold to maturity are classified as available for sale, along
with any equity securities. At September 30, 1995, the Company's
investments in debt and equity securities were classified as cash and
short-term investments due to their short-term nature. These investments
are diversified among high credit quality securities. The estimated fair
value of cash investments approximates cost, and therefore, there are no
unrealized gains or losses as of September 30, 1995.
(C) INVENTORIES--Inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or market.
(D) PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Upon retirement or other disposition of property, plant and
equipment, the cost and related accumulated depreciation and amortization
are removed from the accounts and the resulting gain or loss is reflected
in earnings. Maintenance and repairs are expensed as incurred. Depreciation
and amortization are computed on the straight-line method in amounts
sufficient to write-off the cost over the estimated useful lives as
follows:
Buildings and improvements - 5 to 33 years
Machinery, equipment and furniture - 3 to 10 years
(E) OTHER ASSETS--Other assets are stated at cost less accumuIated amortization
and are being amortized on a straight line basis over their estimated
useful lives:
Covenants not to compete - 7 to 10 years
License agreements -- 3 to 10 years
Patents, tradenames and distributorships - 10 to 15 years
Cost in excess of net assets acquired and other intangible assets -
15 years
Deferred debenture offering costs - 8 years
Subsequent to their acquisition, the Company continually evaluates
whether subsequent events and circumstances have occurred that indicate the
remaining estimated useful lives of intangible assets may warrant revision
or that the remaining balances of these assets may not be recoverable. When
factors indicate that an intangible asset should be evaluated for possible
impairment, the Company uses an estimate of the related product line's cash
flow over the remaining life of the asset in measuring whether the asset is
recoverable.
(F) INCOME TAXES--The provision for income taxes includes federal, foreign,
state and local income taxes, currently payable and those deferred
because of temporary differences between income for financial reporting and
income for tax purposes. Research and experimentation credits are reflected
as a reduction in income taxes when realized.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes'. Prior period
financial statements have not been restated to reflect the new accounting
method. The cumulative effect of this change, as well as the effect of this
new standard on income tax expense for the year ended September 30, 1994,
and for each of the quarters in the period then ended, is not material.
(G) EARNINGS PER COMMON SHARE--Primary earnings per common share are based on
the weighted average number of common shares outstanding during the
year. No material dilution results from outstanding stock options which are
the only common stock equivalent. Fully diluted earnings per share are
dilutive for fiscal 1995 only and include the impact of assuming the
convertible subordinated debentures are converted, net of the impact of pro
forma interest expense.
19
<PAGE> 22
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On September 12, 1995, the Company's Board of Directors declared a
three-for-two stock split to shareholders of record on September 22, 1995.
On November 16, 1994, the Company's Board of Directors declared a 3% stock
dividend. On December 1, 1993, the Company's Board of Directors declared a
3% stock dividend. On November 23, 1992, the Company's Board of Directors
declared a 5% stock dividend, and in March 1992, the Company's Board of
Directors declared a three-for-two stock split. All data with respect to
earnings per share, dividends per share and weighted average number of
shares outstanding has been retroactively adjusted to reflect the stock
splits and stock dividends.
(H) RESEARCH AND DEVELOPMENT COSTS--Research and development costs are charged
to earnings as incurred.
(I) REVENUE RECOGNITION--Revenue is recognized from sales when a product is
shipped. Income from licensing agreements is recognized as earned and as
stipulated by the respective agreements.
(J) TRANSLATION OF FOREIGN CURRENCY--Assets and liabilities of foreign
operations are translated using year-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.
(K) SEGMENT DATA AND MAJOR CUSTOMERS--The Company was formed in June 1976 and
functions as a research, development, manufacturing, marketing and
sales organization with primary emphasis in the field of diagnostic tests
for infectious diseases. The Company grants credit under normal terms to
its customers, primarily to hospitals, commercial laboratories and
distributors in the United States and Europe.
<TABLE>
A summary of the Company's international operations is as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993
==========================================================================================================
<S> <C> <C> <C>
Net sales $5,811,000 $4,609,000 $2,930,000
Operating profit 1,233,000 801,000 462,000
Pre-tax income 979,000 579,000 446,000
Identifiable assets 4,583,000 3,904,000 2,657,000
Accounts receivable 2,538,000 2,052,000 1,313,000
Consolidated sales in thousands of dollars to individual customers constituting 10% or more of net
sales were as follows:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Years Ended September 30, 1995 1994 1993
==========================================================================================================
<S> <C> <C> <C>
Customer A $6,033 (24%) $5,042 (23%) $4,254 (26%)
Customer B 2,569 (10%) 2,073 (9%) 1,823 (11%)
</TABLE>
(2) CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments (with maturities of less than 4 months)
are comprised of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
September 30, 1995 1994
==========================================================================================
<S> <C> <C>
Cash and money market funds $1,562,795 $2,865,966
Commercial paper 3,655,842 3,996,017
Corporate and municipal put bonds 3,700,000 1,970,000
- -------------------------------------------------------------------------------------------
$8,918,637 $8,831,983
- -------------------------------------------------------------------------------------------
<FN>
At September 30, 1995 and 1994, the market value of the Company's investments approximated
cost. The municipal put bonds are putable every seven days and the principal balance is secured by
a bank letter of credit.
</TABLE>
20
<PAGE> 23
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3) INVENTORIES
<TABLE>
<CAPTION>
Inventories are comprised of the following:
- ------------------------------------------------------------------------
September 30, 1995 1994
========================================================================
<S> <C> <C>
Raw materials $1,165,319 $1,354,412
Work-in-process 626,077 649,205
Finished goods 1,241,259 1,016,454
- ------------------------------------------------------------------------
$3,032,655 $3,020,071
========================================================================
</TABLE>
(4) PRODUCT AND LICENSE AGREEMENT ACQUISITIONS
(a) PRODUCT LINES--In January 1994, the Company acquired a product line from an
affiliate of Ortho Diagnostics Systems, Inc. ('ODSI'), a subsidiary of
Johnson & Johnson, comprised of products used primarily for the detection
of certain infectious diseases including Chlamydia, Herpes and various
viral respiratory infections. The Company also acquired inventory,
equipment, certain license rights, a trademark, customer lists, a
noncompetition agreement and technical information for the
manufacture of the products.
The purchase included $3,300,000 in cash paid to ODSI and $82,000 of
expenses. As additional consideration, Meridian will pay ODSI up to 6% of
product sales made during the nine-year period beginning in January 1995.
The Company has recorded the estimated present value of this additional
consideration (Note 5).
In a separate agreement dated March 14, 1994, the Company sold to VAI
Diagnostics, Inc. certain tissue culture products and assets acquired in
January 1994 from the affiliate of ODSI mentioned above. The $650,000
proceeds consisted of cash of $500,000, which was paid upon execution of
the agreement, and $150,000 in an unsecured promissory note due in
mid-1997. No gain or loss was recognized on this transaction.
Also, in June 1993, the Company acquired a product line from ODSI which
consisted of the branded products MONOSPOT and MONOLERT, which are rapid
tests for infectious mononucleosis. The acquisition included certain patent
and trademark rights, customer lists, inventory, technical information for
the manufacture of the products, certain equipment and a noncompetition
agreement.
The purchase included $3,100,000 in cash paid to ODSI at the acquisition
date, inventory purchased at unit prices specified in the agreement which
aggregated approximately $233,000 and $122,000 of expenses. As additional
consideration, Meridian will pay ODSI 6% of product sales made during the
three-year period beginning July 1, 1996. The Company has recorded the
estimated present value of this additional consideration (Note 5). The
Company also assumed ODSI's royalty obligations (equal to 4.25% of MONOLERT
sales) to The Scripps Research Institute ('Scripps'). The obligation to pay
royalties to Scripps expires in 2009.
(b) LICENSE AGREEMENTS--The Company has entered various license agreements as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Date Acquired Licensor/Product Term Cost
=================================================================================================================
<S> <C> <C> <C>
October 1993 New England Medical Center Hospital/ fifteen years $81,000 of which $25,000
E. coli Test to be offset against future royalties
January 1993 Tacoma Trading Company/parasitology ten years $80,000
concentration and transport system
July 1991 Texas BioResource Corp./ five years, option $100,000 to be offset against future
bacterial urinary tract infection to extend for two royalties, option to purchase 25,062
test additional five-year shares of common stock which
terms vests at the end of the agreement
April 1991 Disease Detection International, Inc./ ten years,option to $442,000
rapid tests for the detection of strep extend for two
throat, pregnancy, Toxoplasma, additional ten-year
Rubella, Cytomegalovirus and Herpes terms
</TABLE>
21
<PAGE> 24
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) LONG-TERM OBLIGATIONS, BANK CREDIT ARRANGEMENTS AND COMMITMENTS
(A) LONG-TERM OBLIGATIONS-Long-term obligations is comprised of the following
at:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
September 30, 1995 1994
======================================================================================================================
<S> <C> <C>
Convertible Subordinated Debentures, unsecured,
7 1/4% annual interest payable semi-annually on March 1
and September 1, principal due September 1, 2001 $7,980,000 $11,500,000
Domestic bank notes payable, secured by real estate and
accounts receivable:
Interest at 5.5%, payable in monthly installments of $16,276
with a balloon payment of $32,552 in March 1996 113,932 292,969
Interest at prime +1/2% (9.25% at September 30, 1995),
payable in monthly installments of $6,250 with a balloon
payment of $375,000 in March 1997 481,250 556,250
Construction loan, interest at 7% to be converted to a 7%,
twenty-year amortization mortgage note, payable in monthly
installments of $14,878 beginning August 1996 and a balloon
payment of $1,478,357 due July 2003 1,918,975 634,970
Estimated contingent consideration payable to ODSI, discounted
at 7.25%, payable in quarterly variable installments, based on
a percent of certain product sales, from 1995 to 2004 (Note 4) 2,163,244 2,067,149
Other 10,199 -
- ----------------------------------------------------------------------------------------------------------------------
12,667,600 15,051,338
Less-Current portion 381,932 367,969
- ----------------------------------------------------------------------------------------------------------------------
$12,285,668 $14,683,369
======================================================================================================================
</TABLE>
The Convertible Debentures were called for redemption on October 10, 1995.
Holders of the Debentures have the option of converting their Debentures into
shares of Meridian Diagnostics' common stock prior to the redemption date of
November 30, 1995, at a conversion price of $5.97 per share or, upon delivery of
the Debentures, receiving cash. The Debentures will be redeemed at 105% of their
face amount plus accrued interest. The conversion price of $5.97 per share is
equivalent to a conversion rate of 167.5 shares per each $1,000 principal
amount of Debentures. Through September 30, 1995, $3,520,000 of Debentures were
converted to common stock net of $186,000 of deferred debenture offering costs,
which were charged to additional paid-in capital. As of November 10, 1995,
$1,074,000 of Debentures were outstanding.
On a pro forma basis, assuming full conversion of the Debentures as of
October 1, 1994, primary earnings per share for the year ended September 30,
1995 would have been reduced by $0.01 per share from $0.29 per share to $0.28
per share.
The domestic bank notes payable are part of a bank credit arrangement
which also includes a $6,000,000 line of credit which calls for interest at the
prime rate and is part of the same security agreement. There were no borrowings
outstanding on the line of credit at September 30, 1995. In connection with the
bank credit arrangement, the Company has agreed, among other things, to meet
certain financial ratio requirements and to limit additional indebtedness.
Maturities on the above long-term obligations are as follows:
<TABLE>
<S> <C>
--------------------------------------------
1996 $ 381,932
1997 771,672
1998 379,451
1999 372,479
2000 285,985
Thereafter 10,476,081
--------------------------------------------
$12,667,600
============================================
</TABLE>
(B) CAPITAL LEASE OBLIGATIONS--The Company leases equipment with cost and
related accumulated depreciation of $259,240 and $56,953, respectively, under
capital leases expiring in various years through 2002. Amortization of assets
under capital leases is included in depreciation expense.
22
<PAGE> 25
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The future minimum annual rentals under the capital leases at September
30, 1995 are as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------
1996 $ 73,623
1997 75,325
1998 22,851
1999 22,851
2000 21,791
Thereafter 34,148
- -----------------------------------------------------------------
Subtotal $250,589
Less portion of payments representing interest (37,103)
- -----------------------------------------------------------------
Present value of lease payments $213,486
=================================================================
</TABLE>
(C) COMMITMENTS--The Company has royalty agreements with various parties which
require the Company to pay a specified percentage of the sales of certain
products (1% to 10%). Royalty expenses for the years ended September 30,
1995, 1994 and 1993 were approximately $408,000, $357,000 and $280,000
respectively.
(6) INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Years Ended September 30, 1995 1994 1993
==========================================================================================
<S> <C> <C> <C>
Federal:
Currently payable $1,866,090 $1,337,356 $884,296
Temporary differences-
Revenue received in advance - - 18,700
Tax depreciation (less) than
book depreciation (26,842) (6,800) (6,561)
State franchise taxes (14,335) (26,520) 2,959
Currently nondeductible expenses (13,720) (42,745) 8,809
Intangible asset amortization (155,693) (134,627) -
Other, net 117,224 (5,100) 598
- ------------------------------------------------------------------------------------------
1,772,724 1,121,564 908,801
State and local 240,662 201,000 104,116
Foreign 422,429 219,718 198,987
- ------------------------------------------------------------------------------------------
Total provision for income taxes $2,435,815 $1,542,282 $1,211,904
==========================================================================================
</TABLE>
The following is a reconciliation between the statutory federal income tax rate
and the effective rate derived by dividing the provision for income taxes by
earnings before income taxes:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended September 30, 1995 1994 1993
=================================================================================================================
AMOUNT RATE Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Computed provision for income
taxes at statutory rate $2,026,375 34.0% $1,354,357 34.0% $1,054,462 34.0%
Increase/(decrease) in taxes
resulting from-
State and local income taxes,
net of federal income tax effect 158,837 2.7 132,660 3.3 68,684 2.2
Foreign taxes 154,399 2.6 64,703 1.6 69,453 2.2
Research and experimentation
tax credits - - - - (4,000) (.1)
Amortization of cost in excess of net
assets acquired 8,033 .1 8,033 .2 8,033 .3
Tax exempt income (38,003) (.6) (14,022) (.4) (2,608) (.1)
Foreign Sales Corporation benefit (34,250) (.6) (18,333) (.4) (2,000) (.1)
Officers Life lnsurance 22,384 .4 - - - -
Other, net 138,040 2.3 14,884 .4 19,880 .7
- -----------------------------------------------------------------------------------------------------------------
Actual provision for income taxes $2,435,815 40.9% $1,542,282 38.7% $1,211,904 39.1%
=================================================================================================================
</TABLE>
23
<PAGE> 26
Meridian Diagnostics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of the net deferred tax assets were as follows at:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
September 30, 1995 1994
=======================================================================
<S> <C> <C>
Deferred tax assets:
State income taxes $ 67,966 $ 60,573
Currently nondeductible expenses 126,663 104,073
Intangible asset amortization 321,843 173,686
Other 135,455 118,283
- -----------------------------------------------------------------------
Total $ 651,927 $ 456,615
- -----------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (27,295) (113,845)
Other (211,843) --
- -----------------------------------------------------------------------
Total $(239,138) (113,845)
- -----------------------------------------------------------------------
Net deferred tax assets $ 412,789 $ 342,770
=======================================================================
No valuation allowances are recorded against deferred tax assets or deferred tax
liabilities at September 30, 1995 or 1994.
</TABLE>
(7) EMPLOYEE BENEFITS
(a) SAVINGS AND INVESTMENT PLAN-The Company has a profit sharing and retirement
savings plan covering substantially all full-time employees. Profit sharing
contributions to the plan, which are discretionary, are determined by the
Board of Directors. The plan permits participants to contribute to the plan
through salary reduction. Under terms of the plan, the Company will match
up to 3% of the employee contributions. Discretionary and matching
contributions by the Company to the Plan amounted to approximately
$273,000, $270,000, and $219,000, during 1995, 1994 and 1993,
respectively.
(b) STOCK OPTIONS--At September 30, 1995, 1,431,235 of the authorized but
unissued common shares of the Company were reserved for issuance to
directors, executives, key employees and consultants for stock options. Of
the reserved shares, 773,663 were subject to options outstanding at
September 30, 1995. Options may be granted at exercise prices from 95% to
110% of the market value of the underlying common stock on the date of
grant and become exercisable on vesting schedules established at the time
of grant. All options contain provisions restricting their transferability
and limiting their exercise in the event of termination of employment or
the disability or death of the optionee. Options may be granted both as
Incentive Stock Options designed to provide certain tax benefits under the
Internal Revenue Code and as Nonqualified Options without such tax
benefits.
Transactions involving the stock options are shown in the table below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Years Ended Septernber 30, 1995 1994 1993
================================================================================================
<S> <C> <C> <C>
Outstanding at beginning of period
(from $1.05 to $7.57 per share) 659,715 518,580 395,671
Granted (from $4.69 to $6.42 per share) 189,188 185,422 125,413
Expired or canceled (17,817) (8,950) (517)
Exercised* (57,423) (35,337) (1,987)
- ------------------------------------------------------------------------------------------------
Outstanding at end of period
(from $1.05 to $7.57 per share) 773,663 659,715 518,580
================================================================================================
Exercisable at end of period
(from $1.05 to $7.57 per share) 353,541 227,136 135,477
================================================================================================
*Includes 14,574 shares surrendered in conjunction with the exercise of stock
options.
</TABLE>
(C) OTHER BENEFITS--The Company does not provide postretirement or
postemployment benefits to its employees.
(8) QUARTERLY FINANCIAL DATA-UNAUDITED (Amounts in thousands, except for per
share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED IN FISCAL 1995 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
======================================================================================================
<S> <C> <C> <C> <C>
Net sales $5,106 $6,469 $6,782 $6,753
Gross profit 3,397 4,355 4,525 4,824
Net earnings 430 945 985 1,164
Primary earnings per common share .04 .08 .08 .09
Cash dividends per common share .02 .02 .03 .03
- ------------------------------------------------------------------------------------------------------
For the Quarter Ended in Fiscal 1994 Dec. 31 March 31 June 30 Sept. 30
======================================================================================================
Net sales $3,625 $5,891 $5,717 $6,644
Gross profit 2,486 3,557 3,685 4,631
Net earnings 200 610 603 1,028
Primary earnings per common share .01 .05 .05 .09
Cash dividends per common share .02 .02 .02 .02
</TABLE>
24
<PAGE> 27
DIRECTORS
WILLIAM J. MOTTO OFFICERS
Chairman of the Board
WILLIAM J. MOTTO
JERRY L. RUYAN Chairman and
Secretary Chief Executive Officer
JAMES A. BUZARD, PH.D. JERRY L. RUYAN
Retired Executive Vice Secretary
President,
Merrell Dow JOHN A. KRAEUTLER
Pharmaceuticals, Inc. President,
Chief Operating Officer
GARY P. KREIDER
Senior Partner GERARD BLAIN
Keating, Muething & Vice President,
Klekamp Chief Financial Officer
and Treasurer
ROBERT J. READY
Chairman of the Board ANTONIO A. INTERNO
and President, Vice President
LSI Industries, Inc.
CHING SUI ARTHUR YI, PH.D.
Vice President,
Research and Development
CHRISTINA A. MEDA
Vice President,
Marketing
Meridian Diagnostics, Inc. and Subsidiaries
CORPORATE DATA
CORPORATE HEADQUARTERS ANNUAL MEETING
3471 River Hills Drive The annual meeting of the
Cincinnati, Ohio 45244 shareholders will be held on
(513) 271-3700 Thursday, January 25, 1996 at
3:00 p.m. Eastern Time at The
LEGAL COUNSEL Phoenix, 812 Race Street,
Keating, Muething & Klekamp Cincinnati, Ohio.
Cincinnati, Ohio
SEC FORM 10-K
INDEPENDENT PUBLIC A copy of the Company's
ACCOUNTANTS annual report filed with the
Arthur Andersen LLP Securities and Exchange
Cincinnati, Ohio Commission on Form 10-K is
available without charge upon
TRANSFER AGENT, REGISTRAR written request to:
AND DIVIDEND REINVESTMENT Gerard Blain
ADMINISTRATION Chief Financial Officer
The Fifth Third Bank Meridian Diagnostics, Inc.
38 Fountain Square Plaza 3471 River Hills Drive
Cincinnati, Ohio 45263 Cincinnati, Ohio 45244
(800) 837-2755
COMMON STOCK INFORMATION
NASDAQ National Market Systems Symbol: "KITS"
Approximate number of record holders: 800
The following table sets forth by calendar quarter the high and low sales prices
of the Common Stock on the NASDAQ National Market System, as adjusted for stock
dividends and stock splits.
<TABLE>
<CAPTION>
- --------------------------------------------------------
Years Ended September 30, 1995 1994
Quarter ended: HIGH LOW High Low
========================================================
<S> <C> <C> <C> <C>
December 31 5 1/8 4 3/8 6 1/2 5 1/8
March 31 6 1/2 4 5/8 7 1/8 5 3/8
June 30 7 3/8 5 5/8 6 1/8 5
September30 9 1/2 6 5 1/2 4 3/8
</TABLE>
25
<PAGE> 1
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included in and incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements File No.'s 33-38488, 33-78868
and 33-89214.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
December 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,562,795
<SECURITIES> 7,355,842
<RECEIVABLES> 6,769,135
<ALLOWANCES> 286,136
<INVENTORY> 3,032,655
<CURRENT-ASSETS> 19,080,976
<PP&E> 11,957,340
<DEPRECIATION> 4,816,905
<TOTAL-ASSETS> 34,569,188
<CURRENT-LIABILITIES> 3,255,363
<BONDS> 12,435,593
<COMMON> 1,487,159
0
0
<OTHER-SE> 17,391,073
<TOTAL-LIABILITY-AND-EQUITY> 34,569,188
<SALES> 25,109,711
<TOTAL-REVENUES> 25,109,711
<CGS> 8,008,529
<TOTAL-COSTS> 8,008,529
<OTHER-EXPENSES> 10,525,326
<LOSS-PROVISION> 286,136
<INTEREST-EXPENSE> 1,134,844
<INCOME-PRETAX> 5,959,926
<INCOME-TAX> 2,435,815
<INCOME-CONTINUING> 3,524,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,524,111
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
