SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14902
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Incorporated under the laws of Ohio 31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 21, 1998
- --------------------------------------------------------------------------------
Common Stock, no par value 14,382,497
Page 1 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE(S)
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997 3-4
Consolidated Statements of Earnings
Three Months Ended June 30, 1998 and 1997
Nine Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
PART II. OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K
Signature 15
Exhibit 27 Financial Data Schedule 16-18
Exhibit 99 Forward Looking Statements 19-20
Page 2 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
CURRENT ASSETS:
JUNE 30, SEPTEMBER 30,
1998 1997
----------- -------------
Cash and cash equivalents $10,945,168 $10,523,191
Investments 12,008,387 11,213,144
Accounts receivable,
less allowance of $194,407
and $166,742, for doubtful accounts 11,201,714 10,622,759
Inventories 5,155,708 4,651,687
Prepaid expenses and other 397,219 458,732
Deferred tax assets 499,868 382,518
----------- -----------
Total current assets 40,208,064 37,852,031
PROPERTY, PLANT AND EQUIPMENT:
Land 255,780 259,993
Buildings and improvements 7,122,360 6,629,847
Machinery, equipment and furniture 8,380,372 7,822,671
Construction in progress 165,371 96,218
----------- -----------
Total property, plant and equipment 15,923,883 14,808,729
Less-accumulated depreciation
and amortization 7,072,465 6,359,499
----------- -----------
Net property, plant and equipment 8,851,418 8,449,230
OTHER ASSETS:
Long term receivables and other 346,337 298,301
Deferred royalties 161,145 195,355
Deferred tax assets 727,442 645,542
Deferred debenture offering costs,
net of accumulated amortization
of $237,750 and $136,500 1,090,586 1,191,836
Covenants not to compete, net of
accumulated amortization of
$3,672,000 and $3,123,408 1,848,595 2,397,186
License agreements, net of
accumulated amortization of
$930,708 and $887,541 204,405 247,571
Patents, tradenames, customer lists
and distributorships, net of
accumulated amortization of
$1,418,383 and $1,204,686 2,741,485 2,954,764
Other intangible assets, net of
accumulated amortization of $419,586
and $303,869 1,821,414 1,937,131
Cost in excess of net assets acquired,
net of accumulated amortization of
$504,485 and $422,880 1,240,337 1,321,943
----------- -----------
Total other assets 10,181,746 11,189,629
----------- -----------
TOTAL ASSETS $59,241,228 $57,490,890
=========== ===========
Page 3 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, SEPTEMBER 30,
1998 1997
----------- -------------
CURRENT LIABILITIES:
Current portion of long-term obligations $ 9 $ 73,877
Current portion of capital lease obligations 213,524 106,516
Accounts payable 927,305 839,093
Accrued payroll and payroll taxes 753,122 841,603
Other accrued expenses 1,836,037 1,244,078
Income taxes payable 660,905 1,165,636
----------- -----------
Total current liabilities 4,390,902 4,270,803
----------- -----------
LONG-TERM OBLIGATIONS: 20,031,354 20,023,880
----------- -----------
CAPITAL LEASE OBLIGATIONS: 612,661 557,313
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
1,000,000 shares authorized;
none issued - -
Common stock, no par value,
50,000,000 shares authorized;
14,382,266 and 14,365,289 shares
issued and outstanding, respectively,
stated at 2,395,817 2,393,852
Additional paid-in capital 20,588,168 20,571,453
Retained earnings 11,800,519 10,103,837
Cumulative foreign currency
translation adjustment (578,193) (430,248)
----------- -----------
Total shareholders' equity 34,206,311 32,638,894
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $59,241,228 $57,490,890
=========== ===========
Page 4 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
NET SALES $ 8,226,367 $ 9,082,219 $26,216,537 $24,980,724
COST OF SALES 2,366,142 3,033,863 8,406,838 8,616,232
----------- ----------- ----------- -----------
Gross profit 5,860,225 6,048,356 17,809,699 16,364,492
OPERATING EXPENSES:
Research and development 378,252 391,232 1,530,194 1,185,470
Selling and marketing 2,061,578 1,912,359 5,713,396 5,512,540
General and administrative 892,253 962,810 3,447,623 3,208,824
Total operating expenses 3,332,083 3,266,401 10,691,213 9,906,834
----------- ----------- ----------- -----------
Operating income 2,528,142 2,781,955 7,118,486 6,457,658
OTHER INCOME (EXPENSE):
Licensing and related fees - - - 7,297
Interest income 240,032 252,329 886,723 763,219
Interest expense (406,163) (164,572) (1,209,686) (1,045,729)
Other, net (4,070) (62,788) 4,300 (55,319)
----------- ----------- ----------- -----------
Total other income
(expense) (170,201) 24,969 (318,663) (330,532)
----------- ----------- ----------- -----------
Earnings before income
taxes 2,357,941 2,806,924 6,799,823 6,127,126
INCOME TAXES 928,684 1,109,475 2,695,464 2,454,954
----------- ----------- ----------- -----------
NET EARNINGS $1,429,257 $1,697,449 $4,104,359 $3,672,172
========== ========== ========== ==========
BASIC WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 14,380,343 14,365,077 14,374,293 14,333,881
========== ========== ========== ==========
BASIC EARNINGS PER
COMMON SHARE $ .10 $ .12 $ .29 $ .26
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 14,773,832 14,630,009 14,767,782 14,598,813
========== ========== ========== ==========
DILUTED EARNINGS PER
COMMON SHARE $ .10 $ .12 $ .28 $ .25
========== ========== ========== ==========
Page 5 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
June 30,
----------------------------
1998 1997
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,104,359 $ 3,672,172
Non cash items:
Depreciation of property,
plant and equipment 1,017,667 877,394
Amortization of intangible assets
and deferred royalties 1,162,819 1,364,523
Deferred income taxes (199,250) (81,900)
Change in current assets excluding
cash/cash equivalents and investments (1,021,463) (2,042,480)
Change in current liabilities, excluding
current portion of long-term
obligations 86,959 (276,583)
Long-term receivable and payable (48,036) (130,984)
----------- ----------
Net cash provided by operating activities 5,103,055 3,382,142
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Property, plant and equipment acquired, net (1,326,576) (639,369)
Patents - (40,450)
Sale (purchase) of short term investments (795,243) 7,793,494
Advance Royalty (25,000) -
----------- ----------
Net cash provided by (used for)
investing activities (2,146,819) 7,113,675
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated
debentures, net of offering costs - (66,293)
Proceeds from other long-term obligations 179,733 6,902
Repayment of long-term obligations (218,512) (112,973)
Dividends paid (2,407,675) (2,077,557)
Proceeds from issuance of common stock, net 18,680 52,815
----------- ----------
Net cash (used for) financing activities (2,427,774) (2,197,106)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (106,485) (293,523)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 421,977 8,005,188
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,523,191 5,648,225
----------- ----------
CASH & CASH EQUIVALENTS AT END OF PERIOD $10,945,168 $13,653,413
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 3,054,189 $ 2,150,296
Interest 752,252 638,833
Non-cash activities:
Capital lease obligations - $ 51,001
Page 6 of 20
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation:
1. The consolidated financial statements included herein have not been
examined by independent public accountants, but include all adjustments
(consisting of normal recurring entries) which are, in the opinion of
management, necessary for a fair presentation of the results for such
periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities
and Exchange Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the information
not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
2. Inventories:
Inventories are comprised of the following:
JUNE 30, 1998 SEPTEMBER 30, 1997
------------- ------------------
Raw materials $1,692,053 $1,399,188
Work-in-process 1,768,358 1,652,270
Finished goods 1,695,297 1,600,229
---------- ----------
$5,155,708 $4,651,687
========== ==========
3. Income Taxes:
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect, after giving
effect to research and experimentation credits.
Page 7 of 20
<PAGE>
4. Earnings Per Common Share:
In the first quarter of fiscal 1998, the Company adopted Financial
Accounting Standards Board Statement No. 128 (SFAS No. 128), "Earnings Per
Share", which replaces the presentation of primary earnings per share with
a presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of both the numerator and denominator of the
basic earnings per share computation for the same components in the diluted
earnings per share computation. The convertible subordinated debentures are
anti-dilutive. The following tables show the amounts used in computing
earnings per share and the effect on income and the weighted average number
of shares for the quarters and nine months ending June 30, 1998 and 1997 of
dilutive potential common stock.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
--------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
In thousands except
per share amounts
BASIC EARNINGS PER SHARE
Net income available
to common stockholders $1,429 14,380 $0.10 $1,697 14,365 $0.12
===== =====
EFFECT OF DILUTIVE
SECURITIES
Stock Options -- 394 -- 265
------- ------ ------ ------
DILUTED EARNINGS
PER SHARE
Net income available
to common stockholders
and assumed conversions $1,429 14,774 $0.10 $1,697 14,630 $0.12
====== ====== ===== ====== ====== =====
</TABLE>
Page 8 of 20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
--------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
In thousands except
per share amounts
BASIC EARNINGS PER SHARE
Net income available
common stockholders $4,104 14,374 $0.29 $3,672 14,334 $0.26
===== =====
EFFECT OF DILUTIVE
SECURITIES
Stock Options -- 394 -- 265
------ ------ ------ -----
DILUTED EARNINGS
PER SHARE
Net income available to
common stockholders
and assumed conversions $4,104 14,768 $0.28 $3,672 14,599 $0.25
====== ====== ===== ====== ====== =====
</TABLE>
The effect of adopting SFAS No. 128 on the prior quarterly periods is
presented below:
PER SHARE AMOUNTS
QUARTER ENDED NINE MONTHS ENDED
6/30/97 6/30/97
------------- -----------------
Per Share Amounts
Primary EPS as reported $0.12 $0.26
Effect of SFAS No. 128 -- --
----- -----
Basic EPS as restated $0.12 $0.26
===== =====
Fully diluted EPS as reported n/a n/a
Effect of SFAS No. 128 -- --
----- -----
Diluted EPS as restated $0.12 $0.25
===== =====
5. Translation of Foreign Currency:
Assets and liabilities of foreign operations are translated using quarter
end exchange rates, and revenues and expenses are translated using exchange
rates prevailing during the year with gains or losses resulting from
translation included in a separate component of shareholders' equity. Gains
and losses resulting from transactions in foreign currencies were
immaterial.
Page 9 of 20
<PAGE>
6. Reclassifications:
Certain reclassifications have been made to the accompanying financial
statements to conform to the June 30, 1998 presentation.
7. Recently Issued Accounting Standards:
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 (Statement 130) on "Reporting Comprehensive Income".
Statement 130 is effective for the fiscal years beginning after December
15, 1997, or for Meridian's fiscal year ended September 30, 1999. The
objective of Statement 130 is to report a measure of all changes in the
equity of an enterprise that result from transactions and other economic
events of the period other than transactions with owners ("comprehensive
income"). Comprehensive income is the total of net income and all other
non-owner changes in equity. For the Company, this reporting will involve
gains and losses resulting from the translation of assets and liabilities
of foreign operations which are currently included in a separate component
of shareholders' equity. In addition, it will include unrealized gains and
losses on investments. Based on current circumstances, the effect of
Statement 130 will not have a material impact on the Company's financial
position or operating results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Company does not currently hold nor invest in any such
derivative instruments.
Page 10 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
- ---------------------
Consolidated net sales decreased $856,000, or 9%, to $8,226,000 for the
third fiscal quarter but were up $1,236,000, or 5%, to $26,217,000 for the
nine months ended June 30, 1998. The decrease for the quarter compared to
the same period last year was more than accounted for by the following:
last year included $1,012,000 of sales of EHEC and O157:H7 (collectively E.
coli) as a result of an outbreak in Japan - a situation which has not
repeated this year; OEM sales were down $129,000, primarily Epstein Barr
Virus; currency, as a result of the stronger dollar versus the lira, had a
negative effect of $87,000. Adjusting for these three unusual items, which
accounted for $1,228,000 in total, the remainder of the business was up
$374,000, or 5%, for the quarter.
Sales for the quarter were well below our expectations due largely to a
significant reduction in sales to distributors compared to previous
quarters, plus the shortfall in OEM sales, a weak rotavirus season and a
somewhat later-than-planned launch of Premier Platinum HpSA(TM) (HpSA). The
shift in distributor purchases appears to reflect a conscious decision to
reduce inventory levels at the distributors' level. Preliminary orders for
OEM products for the fourth fiscal quarter are approximately $225,000
compared to the third quarter of about $50,000. Currency, while still
unfavorable, had approximately $100,000 less impact in the third quarter
than the quarter ended March, 1998.
H. pylori sales were $1,325,000 for the quarter compared to $426,000 for
the same period last year. The new test, (HpSA) launched May 26 in the
United States, achieved sales of almost $600,000 during the period. Through
nine months, total H. pylori sales in the three existing formats, were
$2,653,000, up 155%, versus last year. HpSA sales represented $840,000 of
this amount. The enzyme immunoassay and ImmunoCard formats increased 53%
and 99% respectively.
Through nine months, the increase in consolidated net sales of $1,236,000
was comprised of volume of $2,618,000, or 11%, offset by lower pricing of
($925,000), or (4%) and currency of ($457,000), or (2%).
European sales for the quarter and nine months were $1,821,000 and
$5,156,000 compared to $1,784,000 and $5,184,000 for the same period last
year. The impact of currency for the respective periods was ($87,000) and
($457,000).
Gross profit decreased 3% for the quarter compared to the decrease in sales
of 9%, but improved 4.6 points as a percentage of sales to 71.2%. This
improvement relates to the integration of the June, 1996 Cambridge
acquisition and improved product mix, each contributing about 2 points
improvement. For the nine months, gross profit increased 9% compared to the
increase in sales of 5% and improved 2.4 points as a percentage of sales to
67.9%. The improvement as noted, continues to reflect the higher margin on
the Cambridge line of enteric products, which are now manufactured in the
Company's facility versus the previous higher cost associated with the one
year inventory purchase agreement when the products were acquired in June,
1996. In addition, the reduction in amortization of certain acquisition
costs related to the Cambridge supply agreement and inventory purchase
agreement, coupled with favorable inventory variances and an improved
product mix, specifically from higher margins in the ImmunoCard and Premier
formats, were the principal factors responsible for the margin improvement.
The improvement in ImmunoCard and Premier reflect on-going cost reduction
efforts, and in addition, the favorable effect of the recently launched
HpSA product, in the Premier format. Higher scrap/obsolescence costs and
the impact of pricing noted above partially offset the cost improvements.
Page 11 of 20
<PAGE>
Total operating expense increased $66,000, or 2%, for the quarter versus
the prior year, compared to the decrease in sales of 9%. As a result,
operating expenses increased about 5 points as a percentage of sales to
40.5% from 36.0%. Through nine months, operating expenses increased
$784,000, or 8%, compared to the increase in sales of 5%, resulting in a
slight increase in the ratio to sales to 40.8% versus 39.7%. Research and
development expenses decreased about 3% for the quarter, but were up 29%
through nine months compared to the prior year. The cost of clinical
studies associated with HpSA is the principal factor for the above increase
and is expected to remain high through September 1998 in support of
additional product claims. Reductions in personnel-related costs and
supplies were responsible for the nominal decline in the quarter versus the
prior year.
Selling and marketing expenses increased about 8% for the quarter and about
4% for the nine months compared to the same periods in the prior year.
These increases are largely related to HpSA advertising and promotional
expenses including scientific conferences, symposiums and trade shows plus
increases in the U.S. sales force and higher depreciation expenses.
Reductions in recruiting expenses, variable compensation, samples and
European expenses stemming from the strengthening dollar versus the lira
partially offset the above increases. European selling and marketing
expenses compared to the same periods last year, excluding the effect of
currency, decreased approximately 21% and 8% for the quarter and nine
months periods respectively versus the prior year. The decrease in the
quarter is largely due to the timing of advertising expenses.
General and administrative expenses decreased $71,000, or about 7%, for the
quarter and remained relatively constant at 11% of net sales. Through nine
months, administrative expenses were up $239,000, or 7%, and also remained
relatively constant at 13% of net sales. The reduction in the quarter
results versus the prior year stem from lower personnel-related costs and
consulting/legal/professional fees. Through nine months, the increases were
primarily related to depreciation, a computer maintenance contract, an
increase in the allowance for doubtful accounts, increased travel and
higher outside directors' fees. European expenses adjusted for currency,
were up 24% and 15% for the quarter and nine months respectively, primarily
from higher personnel cost, consulting and travel.
Operating income as a result of the above decreased $254,000, or 9%, but
remained constant at 31% of sales for the quarter compared to the prior
year. For the nine months period, operating income increased $661,000, or
10%, and improved 1.3 points to 27.2% of sales.
Other expense increased $195,000 for the quarter but is down $12,000
through nine months compared to the prior year periods. The increase for
the quarter is related to prior year reclassifications between interest
expense, royalty expense and amortization expenses. Excluding these prior
year reclassifications, the quarter-to-quarter comparisons were comparable.
Through nine months, the nominal decrease in other expense was a result of
higher investment income and a reduction in currency losses. The cumulative
foreign currency translation adjustment decreased by $63,000 during the
quarter as a result of the U.S. dollar weakening versus the lira at June 30
compared to March 31, 1998.
The Company's effective tax rate remained relatively constant at about 39%
for the quarter compared to the prior year period, and about 40% through
nine months. Net earnings decreased $268,000, or 16%, for the third fiscal
quarter to $1,429,000 from $1,697,000, resulting in quarterly diluted
earnings per share of $0.10 versus $0.12 last year. Through nine months,
net earnings increased $432,000, or 12%, to $4,104,000 from $3,672,000,
resulting in diluted earnings per share of $0.28 versus $0.25.
Page 12 of 20
<PAGE>
Liquidity and Capital Resources:
- -------------------------------
Net cash flow provided by operations was $5,103,000 an increase of
$1,721,000 or 51% over the prior nine months ended June 30, 1997. Increases
in net earnings, depreciation, and current liabilities were offset by lower
Cambridge-related amortization expenses and increases in deferred taxes.
The change in current assets decreased $1,021,000 over the prior nine
months. This change is due primarily to a decrease in accounts receivable
of $272,000 reflecting lower sales in the quarter, a reduction in the
purchased Cambridge inventory of $467,000 and a decrease in prepaid
expenses of $219,000.
Net cash used for investing activities increased $9,260,000 mainly as a
result of the sale of $7,793,000 short-term investments in the prior year.
Property, plant and equipment additions largely represented the balance of
cash used for investing. Net cash used for financing activities increased
primarily due to higher dividend payouts.
Net cash flow from operations is expected to continue to fund working
capital requirements. Recently, the Company increased its line of credit
with a commercial bank from $12,500,000 to $15,000,000. This line of credit
is currently unused. The company also has cash/cash equivalents and
short-term investments of $22,954,000.
Page 13 of 20
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
The form of Proxy for the Company's Annual meeting of Shareholders grants
authority to the designated proxies to vote in their discretion on any
matters that come before the meeting other than those set forth in the
Company's Proxy Statement or matters as to which adequate notice is not
received. In order for a notice to be deemed adequate for the 1999 Annual
Shareholders' Meeting, it must be received prior to November 3, 1998.
The Company's Savings and Investment Plan is no longer obligated to file
reports under the Securities Exchange Act of 1934 because there are fewer
than three hundred holders of Plan interest. The Commission has advised
counsel to the Plan that even though EDGAR technical deficiencies prevent
the filing of appropriate forms, the notice of the termination of this
obligation in this report is sufficient to end the Plan's obligation to
file future reports.
On May 18, 1998 the Company received clearance from the United States Food
and Drug Administration to market an advanced diagnostic test for
Helicobacter pylori (H. pylori), a major cause of peptic ulcer disease.
Named Premier Platinum HpSA(TM), the new test is a breakthrough in H.
pylori diagnosis compared to currently available methods, because it is
non-invasive, faster, more cost-effective, and specifically identifies
active infection. The net result should be increased utilization of H.
pylori testing by physicians, which would lead to faster, more effective
treatment for millions of ulcer patients.
Page 14 of 20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description Page(s)
----------- -------------------------- -------
27 Financial Data Schedule 16-18
99 Forward Looking Statements 19-20
(b) Reports on Form 8-K:
None
Signature:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there-unto duly authorized.
MERIDIAN DIAGNOSTICS, INC.
AND SUBSIDIARIES
Date:July 21, 1998 /S/ GERARD BLAIN
-----------------------------
Gerard Blain, Vice President,
Chief Financial Officer
(Principal Financial Officer)
Page 15 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 10,945,168
<SECURITIES> 12,008,387
<RECEIVABLES> 11,396,121
<ALLOWANCES> 194,407
<INVENTORY> 5,155,708
<CURRENT-ASSETS> 40,208,064
<PP&E> 15,923,883
<DEPRECIATION> 7,072,465
<TOTAL-ASSETS> 59,241,228
<CURRENT-LIABILITIES> 4,390,902
<BONDS> 20,644,015
0
0
<COMMON> 2,395,817
<OTHER-SE> 20,588,168
<TOTAL-LIABILITY-AND-EQUITY> 59,241,228
<SALES> 26,216,537
<TOTAL-REVENUES> 26,216,537
<CGS> 8,406,838
<TOTAL-COSTS> 8,406,838
<OTHER-EXPENSES> 10,691,213
<LOSS-PROVISION> 31,167
<INTEREST-EXPENSE> 1,209,686
<INCOME-PRETAX> 6,799,823
<INCOME-TAX> 2,695,464
<INCOME-CONTINUING> 4,104,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,104,359
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
EXHIBIT 99
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from
civil litigation in many instances for forward-looking statements. In order to
take advantage of the Act, such statements must be accompanied by meaningful
cautionary statements that identify important factors that could cause actual
results to differ materially from these that might be projected. This Exhibit is
being filed in order to allow the Company to take advantage of this Act by
providing the following cautionary statements.
RISK FACTORS AFFECTING THE COMPANY
The Company's business operations and strategy are subject to a number of
uncertainties and risks, which could adversely affect its performance in the
future. Among these are the following:
One of the Company's main growth strategies is the acquisition of other
companies and/or product lines in the disposable diagnostic test kits business.
Although previous acquisitions have been successful to date, there can be no
assurance that additional acquisitions will be consummated or that, if
acquisitions are consummated, they will be successful. Acquisitions require a
significant commitment of corporate resources, management attention and capital,
which, in certain cases, could exceed that available to the Company. In
addition, the benefits expected from such acquisitions will not be achieved
fully unless the operations of the acquired entities are successfully integrated
with those of the Company.
The diagnostic test industry is characterized by ongoing technological
developments and changing customer requirements. The Company's success and
continued growth depend, in part, on its ability to develop or acquire rights
to, and successfully introduce into the marketplace, enhancements of existing
products or new products that incorporate technological advances, meet customer
requirements that incorporate technological advances, meet customer requirements
and respond to products developed by the Company's competitions. While the
company has consistently introduced a number of new products there can be no
assurance that it will be successful in developing or acquiring such rights to
products on a timely basis or that such products will adequately address the
changing needs of the marketplace.
Approximately 29% of the Company's net sales for fiscal 1997 were attributable
to international sales, primarily in Western Europe. Although the majority of
the Company's international sales have been made in U.S. dollars, the Company is
subject to the risks associated with fluctuations in currency exchange rates, in
particular, the recent strengthening in the dollar. The Company cannot assure
that sales of certain products made under endemic conditions in specific
geographic areas during fiscal 1997 will continue in fiscal 1998. The company is
also subject to other risks associated with international operations, including
tariff regulations, requirements for export licenses and medical licensing and
approval requirements.
Page 19 of 20
The healthcare industry is in transition with a number of changes that affect
the market for diagnostic test products. Changes in the healthcare delivery
system have resulted in major consolidation among reference laboratories and in
the formation of multi-hospital alliances, reducing the number of institutional
customers for diagnostic test products and increasing the pressure on healthcare
costs. There can be no assurance that the company will be able to enter into
and/or sustain contractual or other marketing or distribution arrangements on a
satisfactory commercial basis with these institutional customers.
Many of the Company's competitors have greater financial and other resources
than the Company. These resources could give them an advantage in price, service
and development of competing products.
In recent years, the federal government has been examining the nations'
healthcare system from numerous standpoints, including the cost of and access to
healthcare and health insurance. Proposals impacting the healthcare system are
constantly under consideration and could be adopted at any time. It is unclear
what effect the enactment of such proposals would have on the Company.
Page 20 of 20
