<PAGE> 1
EXHIBIT 13
Meridian Diagnostics, Inc.'s
2000 Annual Report
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KEY ACCOMPLISHMENTS IN FISCAL 2000
During fiscal 2000, the Company accomplished several key strategic
activities, including the execution of a Research and Development Agreement and
an Exclusive Supply Agreement with OraSure Technologies, Inc. ("OraSure") to
commercialize the Uplink(TM) Technology ("UPT"), the acquisition of Viral
Antigens, Inc. ("VAI") and the restructuring of European operations. Each of
these items is designed to contribute to the Company's future earnings growth.
The VAI transaction signals a further expansion into the bioscience arena, and
prompted our decision to change the Company's name to Meridian Bioscience, Inc.
to better represent our business capabilities.
On September 15, 2000, the Company acquired all of the outstanding
common stock of VAI for $9 million in cash. VAI manufactures infectious disease
antigens that are used in common diagnostic technologies. VAI also manufactures
and distributes a Pseudorabies Virus antibody test kit for the veterinary
market. Additionally, VAI's specialty laboratories for gene expression give
Meridian the opportunity to serve as an enabler to biopharmaceutical companies
in the development of new drugs and vaccines. The purchase agreement provides
for additional consideration, up to $8.25 million, contingent upon VAI's future
earnings through September 30, 2006. The $9 million purchase price was funded
with bank debt from the Company's existing credit facilities. The acquisition
has been accounted for as a purchase, and the results of operations of VAI are
included in the Company's consolidated results of operations from September 15,
2000 forward. See Note 2 to the consolidated financial statements for further
information.
The restructuring of European operations is discussed below.
RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999
NET EARNINGS OVERVIEW
Net earnings for fiscal 2000 were $7,111,000, or $0.49 per diluted
share, compared to $2,073,000, or $0.14 per diluted share, in fiscal 1999. Net
earnings for fiscal 2000 for the core business were $0.32 per diluted share,
compared to $0.40 per diluted share in fiscal 1999. The following table provides
an overview of diluted earnings per share.
===========================================================
FY 2000 MDI MDE TOTAL*
===========================================================
Core business earnings $0.42 $(0.10) $0.32
European restructuring
and tax benefits 0.26 (0.09) 0.18
Trade secrets litigation (0.02) -- (0.02)
Gain on sale of
Salt Lake City facility 0.01 -- 0.01
-----------------------------------------------------------
Reported earnings* $0.68 $(0.19) $0.49
===========================================================
FY 1999 MDI MDE TOTAL*
===========================================================
Core business earnings $0.47 $(0.08) $0.40
Merger integration costs (0.14) (0.01) (0.15)
Purchased IPR&D (0.10) -- (0.10)
-----------------------------------------------------------
Reported earnings* $0.23 $(0.09) $0.14
===========================================================
*Totals may not equal the sum of the individual components due to rounding
Consolidated core business earnings were impacted by the negative
effects of currency, as compared to the prior year, reducing sales by $2,063,000
and diluted net earnings by $0.07 per share. Excluding the effects of currency,
consolidated core business earnings were $0.39 per diluted share, and MDE core
business earnings were a loss of $0.03 per share. Core business earnings for MDI
declined from $0.47 per share in fiscal 1999 to $0.42 per share in fiscal 2000.
This decline is primarily attributable to lower transfer prices on sales to the
German distribution operation, higher scrap in production operations and
inventory variances. The change in transfer prices from US manufacturing
operations to European distribution operations has no effect on consolidated
core business earnings. Fiscal 2000 net earnings were also affected by operating
losses in European operations and related valuation allowance provisions for net
operating loss carryforward benefits, as well as costs related to the Company
obtaining a preliminary injunction for misappropriation of trade secrets and
breach of an employment agreement.
The Company saw improvement in its Italian distribution operations due
to the growth of the Premier Platinum HpSA product in that market, as well as
strong growth in certain other major European markets such as Belgium, Holland
and France.
The German market continues to be depressed because of changes in the
regulatory environment that were implemented in July 1999. Such regulatory
changes, which were designed to reduce healthcare costs, have resulted in
significant reductions in diagnostic tests ordered by physicians. The Company's
German distribution operation has incurred substantial operating losses since
acquisition in November 1998, and as of September 30, 2000, was insolvent.
Germany remains a major market for the Company's products because of its large
population.
During the fourth quarter of fiscal 2000, a plan was implemented to
restructure European distribution operations, improve operating results and
address the insolvency of the German subsidiary. Effective October 1, 2000, the
European export business was transferred from Germany to Belgium, and the German
distribution center was shut down. Barring unforeseen circumstances, by
relocating the European export business to Belgium, the Company expects to
operate at a lower overall cost structure in Europe. Belgium also provides
better proximity to the Company's major European markets and customers. With
respect to the German market, the Company has chosen to move this business to an
independent distributor.
As a result of this restructuring plan, the Company has written off its
investment in its German distribution operation and recorded a reserve for asset
impairment in the amount of $800,000 to cover the estimated amount of intangible
assets and equipment that it does not expect to recover upon liquidation of the
German legal entity. For US tax purposes, these action steps have resulted in a
substantial tax benefit because the Company's tax basis in the German subsidiary
exceeded its book basis.
Despite the impact of the items discussed above, Meridian achieved a
record sales level in fiscal 2000 of $57,096,000, a 6% increase over fiscal
1999. This sales increase was driven by volume growth, which was particularly
strong for the H.pylori product line. Meridian also achieved a record level of
EBITDA (earnings before interest, taxes, depreciation and amortization) in
fiscal 2000 of $13,500,000, an 11% increase over fiscal 1999.
NET SALES
Net sales increased $3,169,000 or 6%, to $57,096,000 in fiscal 2000
compared to fiscal 1999. This increase was comprised of volume growth of 10% or
$5,354,000, currency losses of (4%) or ($2,063,000) and aggregate price
decreases of ($122,000). Adjusted for currency losses, net sales increased 10%
in fiscal
10
<PAGE> 2
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
2000. The following graph illustrates growth in sales from fiscal 1998 to fiscal
2000, adjusted for currency.
NET SALES ADJUSTED FOR CURRENCY
(dollars in thousands)
[BARGRAPH]
$59,159 $53,953 $33,578
2000 1999 1998
Volume growth in core products resulted primarily from increases in the
Rotavirus, Virology, H.pylori and microbiology product lines, offset by slight
decreases in other product lines. The Company's proficiency testing and reagent
sales also contributed to the volume growth for fiscal 2000.
International sales were $17,713,000, or 31% of total sales, in fiscal
2000 compared to $18,308,000, or 34% of total sales, in fiscal 1999. Domestic
exports were $3,409,000 in fiscal 2000 compared to $2,985,000 in fiscal 1999,
with remaining international sales generated by Meridian's European distribution
businesses (MDE). Although MDE's sales include the unfavorable impact of
currency translation losses discussed above, except for Germany, in most other
major European markets, MDE experienced strong volume growth. Sales in Germany,
primarily from the Gull business, were down despite an extra month of activity
in fiscal 2000. The following graph illustrates growth in MDE sales, excluding
the effects of currency.
INTERNATIONAL SALES ADJUSTED FOR CURRENCY
(Dollars in Thousands)
[BARGRAPH]
Domestic exports $3,409 $2,985
MDE sales $16,367 $15,349
2000 1999
GROSS PROFIT
Gross profit increased $1,077,000 or 3%, to $35,446,000 in fiscal 2000.
Gross profit margins declined from 64% in fiscal 1999 to 62% in fiscal 2000.
Gross profit margins were unfavorably impacted by currency translation losses,
coupled with higher scrap in production operations and inventory variances which
are being addressed in fiscal 2001 with various operational efficiency
initiatives.
The Company's manufacturing costs are predominantly incurred in US
dollars whereas a significant portion of international sales are denominated in
foreign currencies. Consequently, a significant portion of the currency
translation losses discussed under "Net Sales" above, adversely affected gross
profit margins. The Company is pursuing several actions to reduce the impact of
currency including price increases in Europe, billing where possible in US
dollars and certain hedging strategies.
Meridian is required to comply with, among other regulations, the FDA's
Quality System Regulation and is subject to periodic audits by the FDA. In
response to audits conducted in fiscal 2000, the Company implemented various
programs to address necessary corrective actions which it identified and
increased its quality assurance and control staffing. The costs attributable to
the additional staff and consulting assistance for fiscal 2000 were
approximately $800,000. The FDA is currently conducting a follow-up audit and is
reviewing certain validation procedures for certain products. The Company is
fully cooperating with the FDA in an effort to complete this process. While the
outcome of the audit is unknown at this time, if the FDA requires that
validation procedures be re-performed, the Company estimates that the lost
revenue impact, while any such products are being re-validated and not available
for sale, could be significant.
OPERATING EXPENSES
Operating expenses, inclusive of merger integration costs and purchased
in-process research and development in fiscal 1999, decreased $1,750,000 or 6%.
Excluding, these non-recurring items, operating expenses increased $3,165,000 or
14%, to $26,092,000 in fiscal 2000, and as a percentage of sales, increased to
46% in fiscal 2000 compared to 43% in fiscal 1999. Fiscal 2000 operating
expenses include the favorable effects of currency ($687,000) as well as the
asset impairment reserve for the German distribution operation ($800,000) and
litigation expenses ($453,000).
Research and development expenses increased $274,000 or 14%, to
$2,260,000 in fiscal 2000, and as a percentage of sales, were flat at 4% in both
fiscal 2000 and fiscal 1999. This increase, in part, reflects costs related to
the outsourcing arrangement with OraSure for product development using UPT. The
first group of UPT products is expected to be ready for commercial sale during
fiscal 2001.
Selling and marketing expenses increased $1,084,000 or 10%, to
$12,256,000 in fiscal 2000, and as a percentage of sales, were flat at 21% in
both fiscal 2000 and fiscal 1999. The dollar increase reflects normal personnel
cost increases, additional freight costs relative to sales volume increases,
business development costs in certain Asian countries and one additional month
of Gull expenses.
General and administrative expenses increased $1,007,000 or 10%, to
$10,776,000 in fiscal 2000, and as a percentage of sales, increased to 19% in
fiscal 2000 compared to 18% in fiscal 1999. This increase reflects a full year
of amortization of Gull intangibles, normal personnel cost increases, and costs
of $453,000 related to obtaining a preliminary injunction for misappropriation
of trade secrets.
OPERATING INCOME
Operating income, inclusive of merger integration costs and purchased in-process
research and development in fiscal 1999, increased $2,827,000 or 43%. Excluding
these non-recurring items, operating income decreased $2,088,000 or 18%, to
$9,354,000 in fiscal 2000. This decrease is attributable to the items discussed
above, namely the negative effects of currency, the asset impairment reserve for
the German subsidiary and litigation costs.
11
<PAGE> 3
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
OTHER INCOME AND EXPENSE
Interest income decreased $123,000 or 24%, to $382,000 in fiscal 2000.
This decrease is due to the use of cash and investments to fund certain VAI
acquisition costs, property, plant and equipment additions and repayment of
certain debt obligations.
Other income, net in fiscal 2000 includes the gain on the sale of the
former Gull headquarters facilities in the amount of $292,000 and currency
losses in the amount of $845,000 related to intercompany debt transactions
involving the German distribution operation.
INCOME TAXES
The effective rate for income taxes is a credit of 2% in fiscal 2000
compared to a provision of 57% in fiscal 1999. The effective tax rate for fiscal
1999 includes 11 percentage points for the effects of purchased in-process
research and development. The effective tax rate for fiscal 2000 includes the
effect of valuation allowance provisions related to certain net operating losses
in Europe ($1,718,000 or 25 percentage points), offset by the tax benefits
related to the write-off of the Company's net investment in its German
distribution business ($4,641,000 or 67 percentage points).
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES
Consolidated net sales increased $20,758,000, or 63%, to $53,927,000 in
fiscal 1999, principally from the impact of the continued strong performance of
the Gull products since the Gull acquisition and growth in the Meridian core
business. This increase of $ 20,758,000 was comprised of volume growth of
$18,938,000, or 57%, pricing of $1,846,000, or 6%, and unfavorable currency of
$26,000.
Core business product sales increased about 6% versus the prior year, a
major turnaround from the first six months, which were down 2% versus the
previous year as a result of distributor order patterns in the U.S. and Europe.
New product sales in total, led by Premier Platinum HpSA, Premier Giardia/
Cryptosporidium and the ImmunoCard STAT! line of products, contributed
approximately $3,692,000 of total net sales or $2,081,000 of incremental
revenues for the year. All other key product groups were performing ahead of the
prior year. OEM sales declined $305,000 compared to last year, reflecting the
anticipated reduction in sales of virology and mononucleosis products.
International sales in total were $18,308,000, up $9,657,000, or 109%
from $8,872,000 in fiscal 1998 and represented 34% of total sales compared to
27% in fiscal 1998. This increase was primarily accounted for by the acquisition
of Gull.
GROSS PROFIT
Gross profits increased $11,850,000, or 53%, to $34,369,000 for the
year compared to the sales increase of 63%. Gross profit decreased as a
percentage of sales to 64% from 68%. The gross profit reflects improved pricing
as noted above, offset primarily by the impact of the lower margins for Gull
product sales compared to the historical Meridian margins, resulting in an
overall decrease of four points as a percent of sales. In addition, the
strengthening of the dollar versus European currencies during the third and
fourth quarter, in particular, contributed to the unfavorable impact on gross
margin.
OPERATING EXPENSES
Total operating expenses increased $13,674,000, or 97%, to $27,842,000
for the fiscal year 1999 compared to fiscal 1998, and increased to 52% of sales
from 43% last year, primarily due to the Gull acquisition. Research and
development costs decreased $8,000, and decreased to 4% of sales, down from 6%
in the prior year. The increase from Gull research and development expenses was
largely offset by clinical study costs associated with Premier Platinum HpSA,
incurred in fiscal 1998 that did not recur in fiscal 1999. As of March 1, 1999,
all research and development activity formerly in Salt Lake City was
consolidated at Meridian's headquarters in Cincinnati. Selling and marketing
expenses increased $3,680,000, or 49%, for fiscal 1999 primarily due to Gull,
but declined approximately 2 points from 23% of sales to 21% for fiscal 1999.
General and administrative costs increased $5,087,000, or 109%, and increased as
a percent of sales to 18% from 14% for the fiscal year. This increase is
attributable to the Gull acquisition, including $1,350,000 of amortization of
Gull-related intangibles and goodwill for the year. In connection with the Gull
acquisition, the Company incurred merger integration costs of approximately
$3,415,000 during the year. These costs consist of payments made to distributors
to terminate contracts in markets with duplicate distributor agreements or in
markets that will now be covered by the Company's sales forces, training,
travel, product validation costs and professional fees incurred in connection
with the integration of the Gull business. Additionally, the Company incurred a
one-time charge for purchased in-process research and development of $1,500,000
in connection with the Gull acquisition.
OPERATING INCOME
Operating income for fiscal 1999 decreased $1,824,000, or 22%, and
declined as a percent of sales to 12% from 25%. Excluding the merger integration
costs of $3,415,000 and purchased in-process research and development of
$1,500,000, operating income increased $3,091,000, or 37%. Other expense
increased $1,418,000 for the fiscal year. This increase is primarily related to
$506,000 in net interest expense for Gull-related obligations coupled with the
effect of an $835,000 reduction in interest income due to the use of cash and
investments to acquire Gull.
INCOME TAXES
The Company's effective tax rate increased to approximately 57%, up
from 38% for fiscal 1998. This increase is due to the effect of purchased
in-process research and development and goodwill amortization, which are not
deductible for tax purposes. These two items had the effect of increasing the
effective tax rate by approximately 11 percentage points. While the tax impact
of purchased in-process research and development is a one-time event, the
goodwill amortization will have an ongoing effect of slightly increasing the
effective tax rate. The remaining increase of 8 percentage points is the result
of higher tax rates in certain European countries, recognition of a valuation
allowance for a portion of the losses in the foreign operations acquired from
Gull and a higher state and local effective tax rate due to an increased
presence in certain states as a result of the Gull acquisition.
NET EARNINGS
Net earnings decreased $2,885,000, or 58%, for fiscal year 1999
compared to fiscal 1998 and decreased to 4% of sales from
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MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
15% last year. Excluding the after tax impact of merger integration costs of
$2,193,000, and the impact of purchased in-process research and development of
$1,500,000 which is not tax deductible, net earnings increased $808,000, or 16%.
Diluted earnings per share, excluding the after tax impact of merger
integration costs and purchased in-process research and development, were $0.40
compared to $0.34 in the prior year, an increase of 18%. Including merger
integration costs and purchased in-process research and development, diluted
earnings per share were $0.14.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash flow and financing requirements are
determined by analysis of operating and capital spending budgets and
consideration of acquisition plans. The Company has historically maintained
significant levels of cash and investments and line of credit availability to
quickly respond to acquisition opportunities.
Net cash provided by operating activities in fiscal 2000 was $5,217,000
compared to $9,014,000 in fiscal 1999. Net cash provided by operating activities
was favorably impacted by higher net earnings in fiscal 2000. However, the
favorable impact of higher net earnings was more than offset by growth in
accounts receivable, inventories and income tax refunds, as well as lower
depreciation and amortization. The higher levels of accounts receivable and
inventories reflect overall growth in the business.
Net cash used in investing activities in fiscal 2000 was $9,736,000
compared to $17,891,000 in fiscal 1999. Net cash flows used in investing
activities in fiscal 2000 primarily related to the acquisition of VAI, capital
expenditures for the Cincinnati production facility to accommodate the Gull
product lines and computer systems in Europe, partially offset by cash proceeds
received from the sale of the Salt Lake City facility and the sale of
investments. Net cash used in investing activities in fiscal 1999 primarily
related to the acquisition of Gull and capital expenditures for the Cincinnati
production facility.
Net cash provided by financing activities in fiscal 2000 was $3,497,000
compared to a net use of ($4,033,000) in fiscal 1999. Proceeds from debt
obligations in fiscal 2000 were used to acquire VAI ($9,000,000) and fund
capital expenditures. Proceeds from debt obligations in fiscal 1999 were used to
refinance certain debt assumed in the Gull acquisition.
Debt obligations repaid in fiscal 2000 included the final amount due to
Fresenius AG related to the Gull acquisition ($1,000,000), the amount related to
the former Gull headquarters in Salt Lake City ($3,354,000) and capital lease
and other debt obligations. Dividends paid in fiscal 2000 were $3,353,000 or
0.23 per share, compared to $2,877,000 or $0.20 per share in fiscal 1999.
On November 16, 2000, the Board of Directors declared a regular cash
dividend in the amount of $0.06 per share, payable December 5, 2000, to
shareholders of record on November 27, 2000. The Board of Directors also
approved an increase in the annual dividend rate to $0.26 per share.
Net cash flows from operating activities are anticipated to fund
working capital requirements for fiscal 2001. Earnout payments, if any, under
the VAI purchase agreement may require outside financing. The Company has a
$22,500,000 line of credit facility with a commercial bank that expires in
September 2001. Borrowings of $9,000,000 were outstanding on this line of credit
at September 30, 2000. Subsequent to September 30, 2000, the Company refinanced
$6,000,000 of outstanding borrowings on the line of credit into a five-year term
note that bears interest at an annual fixed rate of 7.60%. The Company also
refinanced an existing term loan with an outstanding principal balance of
$3,098,000 at September 30, 2000 with line of credit funds in order to take
advantage of lower borrowing costs. Consequently, the $9,000,000 of borrowings
outstanding on the line of credit at September 30, 2000 and the $3,098,000
existing term loan are reported in the accompanying consolidated financial
statements as follows: short-term line of credit borrowings-$6,098,000; current
portion of long-term debt-$911,000; and long-term debt-$5,089,000. The
availability on the line of credit, after consideration of the refinancing
activity, is $10,402,000. Further information regarding the Company's debt
obligations is included in Notes 5 and 6 to the consolidated financial
statements.
MARKET RISK EXPOSURE
The Company has market risk exposure related to interest rate sensitive
debt and foreign currency transactions.
The Company has bank debt and capital lease obligations in the
approximate amount of $35,035,000 outstanding at September 30, 2000, of which
$6,431,000 bears interest at a variable rate. Information concerning the
maturities and fair values of interest rate sensitive debt is included in Note 6
to the consolidated financial statements. To date, the Company has not employed
a hedging strategy with respect to interest rate risk.
The Company is exposed to foreign currency rate risk related to its
European distribution operations, including foreign currency denominated
intercompany loans. To date, the Company has not employed a hedging strategy
with respect to foreign currency risk. The Company intends to implement a
hedging strategy for foreign currency risk in fiscal 2001.
EURO CONVERSION
On January 1, 1999, the European and Monetary Union took effect and
introduced the Euro as the official single currency for the 11 participating
member countries. On that date, the currency exchange rates of the participating
countries were fixed against the Euro. There will be a three-year transition to
the Euro, and at the end of 2001, the legacy currencies will be eliminated. The
company's systems are being updated to process Euro transactions. Costs required
to prepare for the Euro are not material to Meridian's financial position,
results of operations or cash flows. The future impact, if any, of the Euro on
Meridian's competitive position is unknown.
RECENTLY RELEASED ACCOUNTING PRONOUNCEMENTS
In fiscal 2001, the Company will be required to adopt the provisions of
Statement of Financial Accounting Standards No.133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No.133). Historically, the Company has
not utilized derivative instruments in order to hedge foreign currency or
interest rate risk exposures. In fiscal 2001, the Company intends to implement a
hedging strategy to address foreign currency risk exposures. SFAS No.133 will
require that the derivative instrument used to hedge the exposure be marked to
market in the financial statements. The Company expects that implementation of a
hedging strategy and the accounting prescribed by SFAS No.133 will mitigate the
impact of currency fluctuations related to intercompany transactions. On an
overall basis, adoption of SFAS No.133 is not expected to have a significant
effect on the Company's consolidated financial position but could increase
volatility of future reported earnings.
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<PAGE> 5
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of September 30, 2000 1999
===================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,766 $ 6,229
Investments 13 1,002
Accounts receivable, less allowance of $438 in 2000 and $380 in 1999 13,889 12,508
Inventories 15,808 10,357
Income tax refunds 5,010 407
Prepaid expenses and other current assets 680 679
Deferred tax assets -- 562
-------------------------------------------------------------------------------------------------------------------
Total current assets 40,166 31,744
-------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 494 969
Buildings and improvements 14,236 10,427
Machinery, equipment and furniture 13,853 11,986
Construction in progress 454 811
-------------------------------------------------------------------------------------------------------------------
29,037 24,193
Less-accumulated depreciation and amortization 11,150 9,987
-------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 17,887 14,206
-------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Deferred debenture offering costs, net 787 922
Goodwill, net 5,972 3,589
Other intangible assets, net 18,442 20,760
Other assets 1,515 940
-------------------------------------------------------------------------------------------------------------------
Total other assets 26,716 26,211
-------------------------------------------------------------------------------------------------------------------
Total assets $ 84,769 $ 72,161
-------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 1,700 $ 821
Borrowings under bank lines of credit 6,230 3,354
Note payable to third party -- 1,000
Accounts payable 3,251 3,495
Accrued payroll costs 2,731 2,154
Other accrued expenses 3,374 2,778
Deferred income taxes 17 --
-------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,303 13,602
-------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 27,105 21,366
-------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES -- --
-------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 3,750 3,602
-------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000 shares authorized; none issued -- --
Common stock, no par value, 50,000,000 shares authorized; 14,587,434 and 14,429,151
shares issued and outstanding at September 30, 2000 and 1999 respectively, stated at 2,530 2,424
Additional paid-in capital 20,941 20,855
Retained earnings 14,889 11,131
Accumulated other comprehensive loss (1,749) (819)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 36,611 33,591
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 84,769 $ 72,161
===================================================================================================================
The accompanying notes are an integral part of these balance sheets
</TABLE>
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<PAGE> 6
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts and dollars in thousands except per share data)
<TABLE>
<CAPTION>
For the Years Ended September 30, 2000 1999 1998
====================================================================================================
<S> <C> <C> <C>
NET SALES $ 57,096 $ 53,927 $ 33,169
COST OF SALES 21,650 19,558 10,650
----------------------------------------------------------------------------------------------------
Gross profit 35,446 34,369 22,519
====================================================================================================
OPERATING EXPENSES:
Research and development 2,260 1,986 1,994
Selling and marketing 12,256 11,172 7,492
General and administrative 10,776 9,769 4,682
Asset impairment for German subsidiary 800 -- --
Merger integration -- 3,415 --
Purchased in-process research and development -- 1,500 --
----------------------------------------------------------------------------------------------------
Total operating expenses 26,092 27,842 14,168
----------------------------------------------------------------------------------------------------
Operating income 9,354 6,527 8,351
OTHER INCOME (EXPENSE):
Interest income 382 505 1,340
Interest expense (2,124) (2,143) (1,624)
Other, net (674) (77) (13)
----------------------------------------------------------------------------------------------------
Total other income (expense) (2,416) (1,715) (297)
----------------------------------------------------------------------------------------------------
Earnings before income taxes 6,938 4,812 8,054
INCOME TAXES (173) 2,739 3,096
----------------------------------------------------------------------------------------------------
Net earnings $ 7,111 $ 2,073 $ 4,958
====================================================================================================
BASIC EARNINGS PER COMMON SHARE $ .49 $ .14 $ .34
DILUTED EARNINGS PER COMMON SHARE $ .49 $ .14 $ .34
====================================================================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING USED
FOR BASIC EARNINGS PER COMMON SHARE 14,565 14,385 14,376
DILUTIVE COMMON STOCK OPTIONS 87 195 327
====================================================================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING USED
FOR DILUTIVE EARNINGS PER COMMON SHARE 14,652 14,580 14,703
====================================================================================================
ANTI-DILUTIVE SECURITIES:
Common stock options 407 265 282
Convertible debentures 1,243 1,243 1,243
====================================================================================================
The accompanying notes are an integral part of these statements
</TABLE>
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<PAGE> 7
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts and dollars in thousands except per share data)
<TABLE>
<CAPTION>
Number of
Common
Shares Additional
Issued and Comprehensive Common Paid-In
Outstanding Income Stock Capital
======================================================================================================
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 14,365 -- $ 2,394 $ 20,571
Cash dividends paid-- $.22 per share -- -- -- --
Exercise of stock options, net 18 -- 3 82
Comprehensive income:
Net earnings -- $ 4,958 -- --
Foreign currency translation
adjustment -- 128 -- --
------------------------------------------------------------------------------------------------------
Comprehensive income $ 5,086
======================================================================================================
BALANCE AT SEPTEMBER 30, 1998 14,383 -- 2,397 20,653
Cash dividends paid-- $.20 per share -- -- -- --
Exercise of stock options, net 46 -- 27 202
Comprehensive income:
Net earnings -- 2,073 -- --
Foreign currency translation
adjustment -- (517) -- --
------------------------------------------------------------------------------------------------------
Comprehensive income $ 1,556
======================================================================================================
BALANCE AT SEPTEMBER 30, 1999 14,429 -- 2,424 20,855
Cash dividends paid-- $.23 per share -- -- -- --
Exercise of stock options, net 158 -- 106 75
Issuance of stock options to
non-employees -- -- -- 11
Comprehensive income:
Net earnings -- 7,111 -- --
Foreign currency translation
adjustment -- (930) -- --
------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,181
======================================================================================================
BALANCE AT SEPTEMBER 30, 2000 14,587 $ 2,530 $ 20,941
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
====================================================================================
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 10,104 $ (430) $ 32,639
Cash dividends paid-- $.22 per share (3,127) -- (3,127)
Exercise of stock options, net -- -- 85
Comprehensive income:
Net earnings 4,958 -- 4,958
Foreign currency translation
adjustment -- 128 128
------------------------------------------------------------------------------------
Comprehensive income
====================================================================================
BALANCE AT SEPTEMBER 30, 1998 11,935 (302) 34,683
Cash dividends paid-- $.20 per share (2,877) -- (2,877)
Exercise of stock options, net -- -- 229
Comprehensive income:
Net earnings 2,073 -- 2,073
Foreign currency translation
adjustment -- (517) (517)
------------------------------------------------------------------------------------
Comprehensive income
====================================================================================
BALANCE AT SEPTEMBER 30, 1999 11,131 (819) 33,591
Cash dividends paid-- $.23 per share (3,353) -- (3,353)
Exercise of stock options, net -- -- 181
Issuance of stock options to
non-employees -- -- 11
Comprehensive income:
Net earnings 7,111 -- 7,111
Foreign currency translation
adjustment -- (930) (930)
------------------------------------------------------------------------------------
Comprehensive income
====================================================================================
BALANCE AT SEPTEMBER 30, 2000 14,889 $ (1,749) $ 36,611
====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 8
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years Ended September 30, 2000 1999 1998
=====================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,111 $ 2,073 $ 4,958
Non-cash items--
Purchased in-process research and development -- 1,500 --
Depreciation of property, plant and equipment 2,039 2,674 1,370
Amortization of goodwill, other intangible assets and
deferred debentures offering costs 2,772 2,999 1,514
Deferred income taxes, net of the impact of acquisitions (42) (953) (51)
Stock compensation expense 11 -- --
Gain on sale of Salt Lake City facility (292) -- --
Asset impairment for German subsidiary 800 -- --
Changes in current assets excluding cash and investments,
net of the impact of acquisitions (6,970) 787 259
Changes in current liabilities excluding current portion
of long-term obligations, net of the impact of acquisitions (631) (591) (626)
Other, net of the impact of acquisitions 419 525 (559)
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,217 9,014 6,865
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired (8,985) (19,084) --
Property, plant, and equipment acquired (4,047) (2,153) (1,321)
Proceeds from sale of Salt Lake City facility 2,332 -- --
Proceeds from sale of short-term investments 989 3,367 6,844
Purchase of product license and other intangibles (25) (21) (225)
-----------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (9,736) (17,891) 5,298
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 12,479 3,354 --
Repayment of debt obligations (5,810) (4,739) (270)
Dividends paid (3,353) (2,877) (3,127)
Proceeds from exercise of stock options 181 229 85
-----------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 3,497 (4,033) (3,312)
-----------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (441) (261) 26
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,463) (13,171) 8,877
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,229 19,400 10,523
-----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,766 $ 6,229 $ 19,400
=====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Income taxes $ 4,259 $ 4,583 $ 3,982
Interest 2,318 1,805 1,469
Non-cash items--
Capital lease financing 522 -- --
Note received on sale of Salt Lake City facility 950 -- --
Currency losses on intercompany transactions 845 -- --
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
17
<PAGE> 9
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS -- Meridian's principal business is the development,
manufacture and distribution of a broad range of diagnostic test kits, purified
reagents and related products for the healthcare industry. Meridian also offers
biopharmaceutical enabling capabilities.
(b) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Meridian Diagnostics, Inc. dba Meridian Bioscience, Inc. and its
subsidiaries (collectively, "Meridian" or the "Company"). All significant
intercompany accounts and transactions have been eliminated.
(c) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates include amounts for income taxes, including valuation
allowances for certain deferred tax assets, and accounts receivable and
inventory exposures.
(d) RESTATEMENT OF 1999 FINANCIAL STATEMENTS AND RECLASSIFICATIONS -- The fiscal
1999 financial statements included herein, and certain of the fiscal 1999
quarterly financial data on page 25, have been restated to reflect the
correction of a bookkeeping error which occurred in June 1999 related to sales
to the Company's German subsidiary. Further information regarding this matter
can be found in the Company's Annual Report on Form 10-K/A for the fiscal year
ended September 30, 1999. Certain reclassifications have been made to 1999 and
1998 financial statements to conform with the 2000 presentation.
(e) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS -- Assets and liabilities of
foreign operations are translated using year-end exchange rates with gains or
losses resulting from translation included in a separate component of
accumulated other comprehensive income (loss). Revenues and expenses are
translated using exchange rates prevailing during the year.
(f) SHORT-TERM INVESTMENTS -- Short-term investments at September 30, 1999
consist primarily of Federal Home Loan Bank and Mortgage Corporation securities
and are classified as available for sale. The estimated fair value of these
investments at September 30, 1999, approximates cost, and therefore, there are
no unrealized gains or losses reported as of this date. Substantially all
investments were sold during September 2000.
(g) INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined on a first-in, first-out basis, except for $3,477,000 of inventory
at September 30, 2000 for which cost is determined on a last-in, first-out
basis. Because this inventory was acquired near yearend in connection with the
VAI acquisition, the related LIFO reserve is zero at September 30, 2000.
(h) 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
(i) INTANGIBLE ASSETS -- Intangible assets, including goodwill, are stated at
cost less accumulated amortization and are being amortized on a straight-line
basis over their estimated useful lives, generally 3 to 20 years.
The Company continually evaluates whether subsequent events and
circumstances have occurred that indicate the remaining estimated useful lives
of intangible assets, including goodwill, 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 cash flows over the remaining life of
the asset in measuring whether the asset is recoverable. During fiscal 2000, the
Company recorded a reserve in the amount of $800,000 to cover the estimated
amount of intangible assets and equipment for its German distribution operation
that it does not expect to recover upon liquidation of the legal entity. This
reserve is recorded in accrued expenses in the accompanying consolidated balance
sheet. See Note 7 for further information regarding this matter. For fiscal
years 1999 and 1998 there were no adjustments to the carrying value of
intangible assets resulting from these evaluations.
(j) REVENUE RECOGNITION -- Revenue is recognized from sales when product is
shipped. Income from licensing agreements is recognized as earned and as
stipulated by the respective agreements.
(k) RESEARCH AND DEVELOPMENT COSTS -- Internal research and development costs
are charged to earnings as incurred. Third-party research and development costs
are expensed when the contracted work has been performed and certain milestone
results have been achieved.
(l) ADVERTISING -- Advertising costs are charged to earnings as incurred.
Expenditures for advertising in fiscal 2000, 1999 and 1998 were approximately
$366,000, $327,000, and $205,000 respectively.
(m) 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
(n) NEW ACCOUNTING PRONOUNCEMENTS -- In fiscal 2001, the Company will be
required to adopt the provisions of Statement of Financial Accounting Standards
No.133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No.133). Historically, the Company has not utilized derivative instruments in
order to hedge foreign currency or interest rate risk exposures. In fiscal 2001,
the Company intends to implement a hedging strategy to address foreign currency
risk exposures. SFAS No.133 will require that the derivative instrument used to
hedge the exposure, as well as the hedged exposure itself, be marked to market
in the financial statements. The Company expects that implementation of a
hedging strategy and the accounting prescribed by SFAS No.133 will mitigate the
impact of currency fluctuations related to intercompany transactions. On an
overall basis, adoption of SFAS No.133 is not expected to have a significant
effect on the Company's consolidated financial position but could increase
volatility of future reported earnings.
(2) ACQUISITIONS
(a) VIRAL ANTIGENS, INC. ACQUISITION -- On September 15, 2000, Meridian acquired
all of the outstanding common stock of Viral Antigens, Inc. (VAI) for $9 million
in cash. VAI manufactures infectious disease antigens that are used in common
diagnostic technologies. VAI also manufactures and distributes a Pseudorabies
18
<PAGE> 10
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
Virus antibody test kit for the veterinary market. Additionally, VAI's specialty
laboratories for gene expression give Meridian the opportunity to serve as an
enabler to biopharmaceutical companies in the development of new drugs and
vaccines. The purchase agreement provides for additional consideration, up to a
maximum amount of $8.25 million, contingent upon VAI's future earnings through
September 30, 2006. The $9 million purchase price was funded with bank debt from
the Company's existing line of credit facility.
The acquisition has been accounted for as a purchase, and
the results of operations of VAI are included in the Company's consolidated
results of operations from September 15, 2000 forward.
A summary of the purchase price allocation follows (in thousands):
---------------------------------------------------------------
Purchase price, including estimated transaction costs $ 9,470
===============================================================
Fair value of assets acquired --
Accounts receivable 820
Inventory 3,461
Property, plant and equipment 4,142
Intangible assets, including goodwill 2,698
Other assets, including cash of $485 796
---------------------------------------------------------------
$11,917
---------------------------------------------------------------
Fair value of liabilities assumed --
Debt and capital lease obligations 1,491
Deferred income tax liabilities 790
Other liabilities 166
---------------------------------------------------------------
2,447
---------------------------------------------------------------
Fair value of net assets acquired $ 9,470
===============================================================
The allocation of the purchase price included herein is preliminary and
based on estimates, pending the completion of a closing balance sheet audit and
certain appraisals of assets acquired. These estimates may be revised at a later
date based on completion of the closing balance sheet audit and certain
appraisals of assets acquired. Furthermore, the final allocation of the purchase
price may include an allocation to in-process research and development. No such
allocation has been made herein. Goodwill from this acquisition is being
amortized on a straight-line basis over 20 years.
(b) GULL LABORATORIES, INC. ACQUISITION -- On November 5, 1998, Meridian
acquired all of the outstanding common stock of Gull Laboratories, Inc. (Gull)
for $19 million in cash, financed by cash and cash equivalents on hand. Gull
develops, manufactures and markets diagnostic test kits for the detection of
infectious diseases and autoimmune disorders. Gull also offers a line of
instrumentation for laboratory automation. The acquisition was accounted for as
a purchase. For accounting purposes, the acquisition was effective on October
31, 1998 and the results of operations of Gull are included in the consolidated
results of operations of the Company from that date forward. A summary of the
purchase price allocation follows (in thousands):
----------------------------------------------------------------
Purchase price, including transaction costs $19,725
================================================================
Fair value of assets acquired --
Accounts and notes receivable 3,030
Inventories 5,615
Property, plant and equipment 5,915
Purchased in-process research and development 1,500
Goodwill 2,610
Other intangible assets 16,500
Other assets, including cash of $641 2,065
----------------------------------------------------------------
37,235
----------------------------------------------------------------
Liabilities assumed --
Liabilities and debt 11,065
Additional purchase liabilities 1,420
Deferred income tax liabilities 5,025
----------------------------------------------------------------
17,510
----------------------------------------------------------------
Fair value of net assets acquired $19,725
================================================================
The estimated fair market value of intangibles acquired was based on
projected discounted future cash flows or an estimate of the cost to recreate.
The estimated fair values and lives of the intangibles are as follows (dollars
in thousands):
--------------------------------------------
Value Life
============================================
Manufacturing processes $ 6,400 15
Core products 5,300 15
Customer lists 2,400 15
Contracts 900 15
Covenants not to compete 800 3
Workforce 500 5
Trademarks 200 15
--------------------------------------------
$16,500
============================================
During fiscal 1999, Gull research and development activities were
consolidated into Meridian's Cincinnati operations and production facilities in
Germany were shut down. The renovation of the Cincinnati facilities was
completed during the second quarter of fiscal 2000. The manufacturing of Gull
products is now conducted in Cincinnati. The former Gull headquarters and
production facilities in Salt Lake City were sold during June 2000 for a net
gain of $292,000. The Company received net cash proceeds of $2,332,000 and a
secured note for $950,000. The note bears interest at 8%; is secured by the real
property in Salt Lake City; and matures in June 2002.
Additional purchase liabilities recorded in the amount of $1,420,000
related to severance and the shut down and consolidation of the acquired
facilities in Salt Lake City and Germany. This entire amount was paid as of June
2000. In connection with the acquisition, the Company agreed to pay certain
amounts owed by Gull to its former parent company. At September 30, 1999,
$1,000,000 was recorded as a note payable to third party representing the final
amount payable to the former parent. This note was paid on November 16, 1999.
The major components of Gull merger integration costs incurred during
fiscal 1999 were as follows (in thousands):
--------------------------------------------------------------
Product validation costs $1,175
Travel and training 590
Professional fees primarily related to reorganization
of European operations 410
Termination payments to distributors 440
Other 800
--------------------------------------------------------------
Total merger integration costs $3,415
==============================================================
Substantially all merger integration costs were paid as of September
30, 1999. Merger integration costs in fiscal 2000 were immaterial.
(c) UNAUDITED PRO FORMA FINANCIAL INFORMATION -- The following unaudited pro
forma combined results of operations assume the VAI and Gull acquisitions
occurred October 1, 1998. Pro forma adjustments consist of (i) amortization of
goodwill and
19
<PAGE> 11
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
other intangible assets acquired, (ii) purchased in-process research and
development (Gull only), (iii) reductions in interest income due to cash and
investments used to fund all (Gull) or a portion (VAI) of the purchase price,
(iv) additional interest expense related to bank borrowings used to fund most of
the purchase price (VAI), and (v) adjustments to the tax provision.
(in thousands, except per share data)
--------------------------------------------------
Year Ended September 30, 2000 1999
==================================================
Net sales $62,129 $60,686
Net earnings 6,580 1,757
Earnings per share:
Basic 0.45 0.12
Diluted 0.45 0.12
(3) INVENTORIES
Inventories are comprised of the following
(in thousands):
-----------------------------------
September 30, 2000 1999
===================================
Raw materials $ 3,771 $ 2,469
Work-in-process 6,313 3,211
Finished goods 5,724 4,677
-----------------------------------
$15,808 $10,357
===================================
(4) INTANGIBLE ASSETS
Other intangible assets are comprised of the following at
(in thousands):
-------------------------------------------------------
September 30, 2000 1999
=======================================================
Covenants not to compete $ 2,911 $ 5,831
Core products 5,300 5,300
Manufacturing processes 8,641 8,641
Trademarks, licenses and patents 2,632 3,138
Customer lists and contracts 5,660 5,760
Workforce 500 500
-------------------------------------------------------
25,644 29,170
Less accumulated amortization (7,202) (8,410)
-------------------------------------------------------
$ 18,442 $ 20,760
=======================================================
The amounts for accumulated amortization for goodwill at September 30,
2000 and 1999 were $1,019,000 and $806,000, respectively. The amounts for
accumulated amortization of deferred debenture offering costs at September 30,
2000 and 1999 were $541,000 and $407,000 respectively.
(5) BANK CREDIT ARRANGEMENTS
The Company has a $22,500,000 line of credit which expires in September
2001 and bears interest at prime floating less 1% or a LIBOR based rate, at the
discretion of Meridian. This line of credit is secured by the Company's business
assets. Borrowings of $9,000,000 and $3,354,000 were outstanding on this line of
credit at September 30, 2000 and 1999, respectively, at weighted average
interest rates of 8.5% and 7%, respectively. Available borrowings under this
line of credit were approximately $10,400,000 at September 30, 2000. In
connection with this bank credit arrangement, the Company has agreed, among
other things, to limit additional indebtedness. The Company is in compliance
with all covenants. Subsequent to September 30, 2000, the Company refinanced
$6,000,000 of outstanding borrowings on the line of credit into a five-year term
note that bears annual interest at a fixed rate of 7.60%. The Company also
refinanced an existing term loan with an outstanding principal balance of
$3,098,000 at September 30, 2000 with line of credit funds in order to take
advantage of lower borrowing costs. Consequently, the $9,000,000 of borrowings
outstanding on the line of credit at September 30, 2000 and the $3,098,000
existing term loan are reported in the accompanying consolidated balance sheet
as follows: short-term borrowings under bank lines of credit $6,098,000; current
portion of long-term debt $911,000; and long-term debt $5,089,000.
The Company's VAI subsidiary has a $1,000,000 line of credit that bears
interest at a variable rate (9.5% at September 30, 2000) and expires in February
2001. Borrowings of $80,000 were outstanding on this line of credit at September
30, 2000. This line of credit is secured by VAI's accounts receivable and
inventory.
The Company's Belgian subsidiary has a $130,000 line of credit with a
bank that bears interest at a variable rate (9.50% at September 30, 2000).
Borrowings of $52,000 were outstanding on this line of credit at September 30,
2000.
(6) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(a) Long-term debt obligations are comprised of the following at
(in thousands):
----------------------------------------------------------------
September 30, 2000 1999
================================================================
Convertible Subordinated
Debentures, unsecured,
7% annual interest payable
semi-annually on March 1
and September 1, principal
due September 1, 2006 $ 20,000 $ 20,000
Bank term loan, annual interest
fixed at 7.60%, monthly
payments of $121, matures
October 2005, secured by
certain accounts receivable,
inventory and fixed assets 6,000 --
Bank loan, annual interest fixed
at 7.75%, monthly payments
of $15 based on 15-year
amortization, balloon payment
due at maturity in January 2002,
secured by certain real estate 1,203 --
Bank loan, interest at LIBOR
(8.62% at September 30, 2000),
monthly payments of $7 based
on four-year amortization,
matures in November 2003,
secured by certain equipment 201 --
Other -- 333
----------------------------------------------------------------
27,404 20,333
Less current portion (1,065) --
----------------------------------------------------------------
$ 26,339 $ 20,333
================================================================
Maturities of long-term debt for fiscal 2001 through fiscal 2005 are
$1,065,000, $2,279,000, $1,252,000, $1,277,000, and $1,378,000, respectively.
20
<PAGE> 12
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
The Company's debentures are convertible into common stock at $16.09
per share. These debentures were issued at par and do not have a discount
feature. The fair value of the Company's debentures is estimated to be
approximately $15.2 million at September 30, 2000, based on limited trading.
(b) CAPITAL LEASE OBLIGATIONS -- At September 30, 2000, Company has equipment
with cost and related accumulated depreciation of $2,040,000 and $1,277,000,
respectively, under capital leases expiring in various years through 2007.
The future minimum annual rentals under the capital leases at September
30, 2000 are as follows (in thousands):
---------------------------------------------------------
2001 $ 733
2002 377
2003 163
2004 145
Thereafter 210
---------------------------------------------------------
Subtotal 1,628
Less: portion of payments representing interest (227)
---------------------------------------------------------
Present value of lease payments 1,401
Less: current portion (635)
---------------------------------------------------------
$ 766
=========================================================
(7) INCOME TAXES
Earnings before income taxes, and the related provision for income taxes for the
years ended September 30, 2000, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Earnings before income taxes 2000 1999 1998
==================================================================================
<S> <C> <C> <C>
Domestic $ 8,766 $ 6,137 $ 7,377
Foreign (1,828) (1,325) 677
----------------------------------------------------------------------------------
Total $ 6,938 $ 4,812 $ 8,054
==================================================================================
----------------------------------------------------------------------------------
Provision (credit) for income taxes 2000 1999 1998
==================================================================================
Federal:
Currently payable $ 77 $ 2,479 $ 2,497
Temporary differences--
Fixed asset basis differences and depreciation (620) (98) (54)
Currently nondeductible expenses 421 323 (14)
Intangible asset amortization (626) (534) (125)
Currency losses (148) -- --
Utilization of net operating loss carryforwards -- 226 --
Other, net 94 (16) 36
----------------------------------------------------------------------------------
Federal (802) 2,380 2,340
State and local (454) 496 445
Foreign 1,083 (137) 311
----------------------------------------------------------------------------------
Total provision (credit) for income taxes $ (173) $ 2,739 $ 3,096
==================================================================================
</TABLE>
The following is reconciliation between the statutory US income tax
rate and the effective rate derived by dividing the provision for income taxes
by earnings before income taxes (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
2000 1999 1998
Years Ended September 30, AMOUNT RATE Amount Rate Amount Rate
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Computed provision for income
taxes at statutory rate $ 2,428 35.0% $ 1,636 34.0% $ 2,738 34.0%
Increase/(decrease) in taxes resulting from:
Goodwill amortization 96 1.4 38 0.8 -- --
Purchased in-process research and development -- -- 510 10.6 -- --
State and local income taxes,
net of federal income tax effect (134) (1.9) 327 6.8 293 3.6
Foreign taxes 94 1.4 313 6.5 81 1.0
Foreign Sales Corporation benefit (91) (1.3) (135) (2.8) (92) (1.1)
Liquidation of German subsidiary (4,176) (60.2) -- -- -- --
Valuation allowance provisions 1,718 24.8 -- -- -- --
Other, net (108) (1.7) 50 1.0 76 0.9
----------------------------------------------------------------------------------------------------------------
Actual provision (credit) for income taxes $ (173) (2.5%) $ 2,739 56.9% $ 3,096 38.4%
================================================================================================================
</TABLE>
21
<PAGE> 13
The components of net deferred tax assets (liabilities) were as follows
at (in thousands):
---------------------------------------------------------
Years Ended September 30, 2000 1999
=========================================================
Deferred tax assets:
Valuation reserves and
non-deductible expenses $ 590 $ 864
Currency losses 165 --
Net operating loss carryforwards
in foreign jurisdictions 5,581 5,381
Other 77 25
---------------------------------------------------------
Total deferred tax assets 6,413 6,270
Valuation allowance (4,733) (3,491)
---------------------------------------------------------
1,680 2,779
Deferred tax liabilities:
Fixed assets (561) (684)
Intangible assets (4,439) (4,881)
Inventory basis difference (447) --
Other -- (254)
---------------------------------------------------------
Total deferred tax liabilities (5,447) (5,819)
---------------------------------------------------------
Net deferred tax liability $(3,767) $(3,040)
=========================================================
For income tax purposes, the Company has tax benefits related to
operating loss carryforwards of $2,100,000, $550,000, $25,000 and $2,900,000 in
Belgium, France, the Netherlands and Germany, respectively. The operating loss
carryforward in France expires between 2000 and 2005. The operating loss
carryforwards in Belgium and Germany have no expiration. The Company has
recorded deferred tax assets for these carryforwards, inclusive of a valuation
allowance in the amount of $4,733,000 at September 30, 2000. Valuation
allowances for pre-acquisition net operating loss carryforwards amount to $
2,995,000 at September 30, 2000, while valuation allowances for post acquisition
net operating loss carryforwards are $1,738,000. If tax benefits are recognized
in future years for pre-acquisition operating losses, such benefits will be
allocated to reduce goodwill and acquired intangible assets. The valuation
allowance recorded against deferred tax assets at September 30, 1999 was
$3,491,000, and related solely to operating loss carryforwards in foreign
jurisdictions.
The realization of deferred tax assets in foreign jurisdictions is
dependent upon the generation of future taxable income in certain European
countries. Management has considered the levels of currently anticipated pre-tax
income in foreign jurisdictions in assessing the required level of the deferred
tax asset valuation allowance. Taking into consideration historical pre-tax loss
levels, tax planning strategies and other factors, management believes that it
is more likely than not that the net deferred tax asset for foreign
jurisdictions, after consideration of the valuation allowance which has been
established, will be realized. The amount of the net deferred tax asset
considered realizable in foreign jurisdictions, however, could be reduced in
future years if estimates of future taxable income during the carryforward
period are reduced. Tax planning strategies include restructuring European
distribution operations and changes in operating cost structure.
The Company's German distribution operation, a former Gull company, has
incurred substantial operating losses since acquisition, and as of September 30,
2000, was insolvent. During the fourth quarter of fiscal 2000, a plan was
implemented to restructure European distribution operations, improve operating
results and address the insolvency of the German subsidiary. Effective October
1, 2000, the European export business was transferred from Germany to Belgium,
and the German distribution center was shut down. The Company intends to
liquidate the German subsidiary in fiscal 2001. With respect to the German
market, the Company has chosen to move this business to an independent
distributor. As a result of the restructuring plan and the insolvency of the
German subsidiary, the Company has written off its investment in its German
distribution operation and recorded a reserve for asset impairment in the amount
of $800,000. For US tax purposes, these action steps have resulted in a tax
benefit because the Company's tax basis in the German subsidiary exceeded its
book basis. Upon liquidation of the German legal entity, all German net
operating loss carryforwards will be lost. Valuation allowances have been
established for all German net operating loss carryforwards at September 30,
2000.
Undistributed earnings re-invested indefinitely in the Italian
operation were $3,475,000 at September 30,2000. Deferred income taxes not
provided on these earnings would be approximately $1,352,000.
(8) 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 an employee's contributions. Discretionary and matching contributions by
the Company to the plan amounted to approximately $455,000, $386,000, and
$311,000, during fiscal 2000, 1999 and 1998, respectively.
(b) STOCK-BASED COMPENSATION PLANS -- The Company has two active stock based
compensation plans, the 1996 Stock Option Plan Amended and Restated effective
January 22, 1999 ("The 1996 Plan"), the 1999 Directors' Stock Option Plan ("The
1999 Plan"), and an Employee Stock Purchase Plan ("The ESP Plan") which became
effective October 1, 1997.
The Company may grant options for up to 700,000 shares under the 1996
Plan and 50,000 shares under the 1999 Plan. The Company has granted 515,617
options under the 1996 Plan and 6,951 shares under the 1999 Plan through
September 30, 2000. Options may be granted at exercise prices varying 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. The Company has granted options for 1,020,612 shares
under similar plans that have expired.
Effective October 1, 1997, the Company may sell shares of stock to its
full-time and part-time employees under the ESP Plan up to the number of shares
equivalent to a 1% to 15% payroll deduction from an employee's base salary plus
an additional 5% dollar match of this deduction by the Company. On a cumulative
basis 5,886 shares have been sold under the ESP Plan as of September 30, 2000.
22
<PAGE> 14
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
A summary of the status of the Company's stock option plans at
September 30, 2000, 1999 and 1998 and changes during the years then ended is
presented in the tables and narrative below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
WTD AVG Wtd Avg Wtd Avg
SHARES EX PRICE Shares Ex Price Shares Ex Price
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 836,774 $6.84 838,615 $6.84 717,388 $ 5.77
Granted 166,751 7.88 140,368 6.67 164,918 11.54
Exercised* (157,785) 1.13 (58,864) 5.68 (37,712) 6.49
Expired (17,962) 8.76 (83,345) 7.34 (5,979) 10.83
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period 827,778 8.09 836,774 6.84 838,615 6.84
Exercisable at end of period 486,138 7.73 547,520 5.42 571,112 4.89
Wtd avg fair value of options granted $3.23 $3.89 $ 5.76
</TABLE>
*Includes zero, 13,026, and 20,658 shares surrendered in conjunction with the
exercise of stock options in 2000, 1999 and 1998 respectively.
The range of exercise prices, the weighted average exercise price and
the weighted average remaining contractual life is summarized below for options
which are outstanding and those that are exercisable.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- --------------------------------
Number Weighted Average Weighted Number Weighted
Outstanding Remaining Average Outstanding Average
Range of Exercise Prices at 9/30/00 Contractual Life Exercise Price at 9/30/00 Exercise Price
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
$1.00--5.00 38,786 1.2 years $ 3.82 38,786 $ 3.82
$5.01--10.00 587,840 5.9 years $ 6.90 333,315 $ 6.44
$10.01--16.00 201,152 6.5 years $ 12.40 114,037 $12.82
----------------------------------------------------------------------------------------------------------------------------------
Total 827,778 5.8 years $ 8.09 486,138 $ 7.73
==================================================================================================================================
</TABLE>
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, under which no compensation cost has been recognized for options
granted to employees. Had compensation cost for these plans been determined
using the fair-value method, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts
(amounts in thousands, except per share data):
--------------------------------------------------------
2000 1999 1998
========================================================
Net Income:
As Reported $7,111 $2,073 $4,958
Pro Forma 6,609 1,762 4,817
Basic EPS:
As Reported $ .49 $ .14 $ .34
Pro Forma .45 .12 .34
Diluted EPS:
As Reported $ .49 .14 .34
Pro Forma .45 .12 .33
Because the fair value method of accounting has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
---------------------------------------------------------
2000 1999
=========================================================
Risk-free interest rates 5.7% - 6.7% 4.7% - 6.2%
Dividend yield 2.2% 1.8%
Life of option 3-8 YEARS 3-8 years
Share price volatility 46% 52%
Subsequent to year-end, 152,600 stock options were granted which would
have had no impact on the diluted EPS, if granted prior to year-end.
(9) MAJOR CUSTOMERS AND SEGMENT DATA
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, research centers and distributors in the United States
and the rest of the world.
Sales to individual customers constituting 10% or more of net
consolidated sales were as follows:
---------------------------------------------------------------------------
Years Ended September 30,
($ in thousands) 2000 1999 1998
===========================================================================
Customer A $8,482 (15%) $6,849 (13%) $4,512 (14%)
Customer B 6,713 (12%) 6,780 (13%) 5,839 (18%)
Meridian operates in two geographic segments, Meridian Diagnostics,
Inc. (MDI) and Meridian Diagnostics Europe (MDE). MDI operations consist of the
manufacture and sale of diagnostic test kits in the U.S. and countries outside
of Europe, Africa and the Middle East. It also includes sales of bioresearch
reagents and sales of proficiency tests, which combined, represent approximately
10% of total Company revenues. MDI export sales were as follows:
------------------------------------------
($ in thousands) 2000 1999 1998
==========================================
Export sales $3,409 $2,985 $3,614
23
<PAGE> 15
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
MDE distributes diagnostic test kits in Europe, Africa and the Middle
East. Accounts receivables of MDE, which are largely dependent upon funds from
the Italian government, represent approximately 21% of the consolidated accounts
receivable balance at September 30, 2000. Significant country information for
MDE is as follows:
-------------------------------------------------------
($ in thousands) 2000 1999 1998
=======================================================
Italy
Sales $4,839 $6,013 $5,267
Identifiable Assets 5,968 5,872 5,560
Germany
Sales $9,465 $9,310 --
Identifiable Assets 5,253 6,406 --
Sales are attributed to the geographic area based on the location from
which the product is shipped to the customer. Segment information for
the years ended September 30, 2000, 1999, and 1998 is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
($ in Thousands) MDI MDE ELIM(1) TOTAL
==================================================================================================================================
<S> <C> <C> <C> <C>
2000 Net sales $49,188 $14,257 $(6,349) $57,096
Depreciation and amortization 4,613 198 -- 4,811
Operating income (loss) 9,461 (566) 459 9,354
Total assets 94,516 10,839 (20,586) 84,769
Capital expenditures 3,552 495 -- 4,047
1999 Net sales $44,682 $15,323 $(6,078) $53,927
Depreciation and amortization 5,138 535 -- 5,673
Operating income (loss) 7,826 (849) (450) 6,527
Total assets 97,515 12,867 (38,221) 72,161
Capital expenditures 2,003 150 -- 2,153
1998 Net sales $30,208 $ 5,267 $ (2,306) $33,169
Depreciation and amortization 2,770 114 -- 2,884
Operating income (loss) 7,726 830 (205) 8,351
Total assets 56,155 5,560 (2,568) 59,147
Capital expenditures 1,203 118 -- 1,321
</TABLE>
(1) Eliminations consist of intersegment transactions.
-----------------------------------------------------------------
($ in thousands) 2000 1999 1998
=================================================================
Segment operating income $ 9,354 $ 6,527 $ 8,351
Interest income 382 505 1,340
Interest expense (2,124) (2,143) (1,624)
Other, net (674) (77) (13)
-----------------------------------------------------------------
Consolidated earnings
before income taxes $ 6,938 $ 4,812 $ 8,054
=================================================================
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in Note 1. Transactions
between geographic segments are accounted for at established intercompany prices
for internal and management purposes with all intercompany amounts eliminated in
consolidation. The MDI segment data for total assets includes corporate net
goodwill and intangibles of $24,414,000, $24,349,000, and $7,743,000 for the
years ended September 30, 2000, 1999, and 1998 respectively.
(10) COMMITMENTS AND CONTINGENCIES
(a) COMMITMENTS -- The Company has entered into various license agreements that
require payment of royalties based on a specified percentage of the sales of
licensed products (1% to 8%). These royalty expenses are recognized on an
as-earned basis and recorded in the year earned as a component of cost of sales.
Annual royalty expenses associated with these agreements were approximately
$942,000, $907,000, and, $859,000 respectively, for the years ended September
30, 2000, 1999 and 1998.
(b) CONTINGENCIES -- In June 2000, the Company filed suit against a former
Company employee and certain other defendants for breach of an employment
agreement and misappropriation of trade secrets. The lawsuit seeks injunctive
relief as well as compensatory and punitive damages against the defendants. The
Company successfully obtained a temporary restraining order and a preliminary
injunction against its former employee. The Company also intends to seek
recovery from the defendants for its damages, costs and expenses, including its
legal fees which amounted to approximately $450,000 as of September 30, 2000.
There are no assurances, however, that the Company will be able to recover all
or some of those amounts. The legal fees, costs and expenses incurred by the
Company in connection with the litigation as of September 30, 2000 are included
in the accompanying consolidated statement of earnings as a component of general
and administrative expenses.
The Company is party to other litigation that it believes is in the
normal course of business. The ultimate resolution of these items is not
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
(c) CONTRACT RESEARCH AND DEVELOPMENT COSTS -- During fiscal 2000, the Company
executed a Research and Development Agreement and an Exclusive Supply Agreement
with OraSure Technologies, Inc. ("OraSure") to commercialize the UpLink
technology. These agreements require Meridian to make future payments to OraSure
to fund research and development costs and to obtain an exclusive license to
market and sell related products on a global basis. The Company expects that
payments under these agreements will amount to as much as $1,500,000 in fiscal
2001.
(d) FOOD & DRUG ADMINISTRATION QUALITY SYSTEM REGULATION -- Meridian is required
to comply with, among other regulations, the FDA's Quality System Regulation and
is subject to periodic audits by the FDA. In response to audits conducted in
fiscal 2000, the Company implemented various programs to address necessary
corrective actions which it identified and increased its quality assurance and
control staffing. The costs attributable to the additional staff and consulting
assistance for fiscal 2000 were approximately $800,000. The FDA is currently
conducting a follow-up audit and is reviewing certain validation procedures for
certain products. The Company is fully cooperating with the FDA in an effort to
complete this process. While the outcome of the audit is unknown at this time,
if the FDA requires that validation procedures be re-performed, the Company
estimates that the lost revenue impact, while any such products are being
re-validated and not available for sale, could be significant.
24
<PAGE> 16
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meridian Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheets of MERIDIAN
DIAGNOSTICS, INC. dba MERIDIAN BIOSCIENCE, INC. and subsidiaries as of September
30, 2000 and 1999, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended September 30, 2000. 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 auditing standards generally
accepted in the United States. 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.
dba Meridian Bioscience, Inc. and subsidiaries as of September 30, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 16, 2000
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
========================================================================================
Unaudited (in thousands, except for per share data)
----------------------------------------------------------------------------------------
FOR THE QUARTER ENDED IN FISCAL 2000 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
========================================================================================
<S> <C> <C> <C> <C>
NET SALES $ 14,329 $ 14,577 $ 14,340 $ 13,850
GROSS PROFIT 9,122 8,968 9,140 8,216
NET EARNINGS 1,470 1,849 1,884 1,908
BASIC EARNINGS PER COMMON SHARE(1) 0.10 0.13 0.13 0.13
DILUTED EARNINGS PER COMMON SHARE(1) 0.10 0.13 0.13 0.13
CASH DIVIDENDS PER COMMON SHARE(1) 0.05 0.06 0.06 0.06
----------------------------------------------------------------------------------------
For the Quarter Ended in Fiscal 1999 December 31 March 31 June 30 September 30
========================================================================================
Net sales $ 11,720 $ 14,654 $ 13,562 $ 13,991
Gross profit 7,632 9,076 8,761 8,900
Net earnings 554 1,256 1,096 (833)
Basic earnings per common share(1) 0.04 0.09 0.08 (0.06)
Diluted earnings per common share(1) 0.04 0.09 0.08 (0.06)
Cash dividends per common share(1) 0.05 0.05 0.05 0.05
</TABLE>
(1) The sum of the earnings per common share and the cash dividends per share
may not equal the annual earnings and cash dividends per share due to interim
quarter rounding.
25
<PAGE> 17
MERIDIAN DIAGNOSTICS, INC.,
DBA MERIDIAN BIOSCIENCE, INC, AND SUBSIDIARIES
Ten-Year Summary
(Dollars in thousands except per share data and number of employees)
Selected Financial And Operating Data For the Years Ended September 30,
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 1995
======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 57,096 $ 53,927 $ 33,169 $ 35,229 $ 29,391 $ 25,110
Cost of Sales 21,650 19,558 10,650 12,298 8,967 8,009
------------------------------------------------------------------------------------------------------
Gross Margin 35,446 34,369 22,519 22,931 20,424 17,101
Percent of Sales 62.1% 63.7% 67.9% 65.1% 69.5% 68.1%
------------------------------------------------------------------------------------------------------
Operating Expenses
Research & Development 2,260 1,986 1,994 1,502 1,499 1,432
Sales & Marketing 12,256 11,172 7,492 7,223 5,991 5,229
General & Administrative 10,776 9,769 4,682 4,296 4,420 3,864
Asset impairment for
German subsidiary 800 -- -- -- -- --
Merger Integration -- 3,415 -- -- -- --
Purchased research and
development -- 1,500 -- -- -- --
------------------------------------------------------------------------------------------------------
Total Operating
Expenses 26,092 27,842 14,168 13,021 11,910 10,525
------------------------------------------------------------------------------------------------------
Operating Income 9,354 6,527 8,351 9,910 8,514 6,576
Percent of Sales 16.4% 12.1% 25.2% 28.1% 29.0% 26.2%
------------------------------------------------------------------------------------------------------
Other Income and Expense
Interest Income 382 505 1,340 1,037 379 436
Interest Expense (2,124) (2,143) (1,624) (1,196) (390) (1,135)
Other, Net (674) (77) (13) (40) 390 83
------------------------------------------------------------------------------------------------------
Total Other
Income (Expense) (2,416) (1,715) (297) (199) 379 (616)
------------------------------------------------------------------------------------------------------
Earnings Before
Income Taxes 6,938 4,812 8,054 9,711 8,893 5,960
Income Taxes (173) 2,739 3,096 3,729 3,601 2,436
------------------------------------------------------------------------------------------------------
Net Earnings $ 7,111 $ 2,073 $ 4,958 $ 5,982 $ 5,292 $ 3,524
======================================================================================================
Percent of Sales 12.5% 3.8% 15.0% 17.0% 18.0% 14.0%
Cash Dividends
Declared & Paid per
Common Share* $ 0.23 $ 0.20 $ 0.22 $ 0.19 $ 0.16 $ 0.10
Basic Weighted
Average Number of
Common Shares
Outstanding* 14,565 14,385 14,376 14,342 14,172 12,355
Basic Earnings Per
Common Share* $ 0.49 $ 0.14 $ 0.34 $ 0.42 $ 0.37 $ 0.29
------------------------------------------------------------------------------------------------------
Diluted Weighted
Average Number of
Common Shares
Outstanding* 14,652 14,580 14,703 14,661 14,758 14,507
Diluted Earnings
Per Common Share* $ 0.49 $ 0.14 $ 0.34 $ 0.41 $ 0.36 $ 0.28
------------------------------------------------------------------------------------------------------
Total Assets $ 84,769 $ 72,161 $ 59,147 $ 57,491 $ 54,751 $ 34,569
Cash and Investments 4,779 7,231 23,769 21,736 19,743 8,919
Capital Expenditures 4,047 2,153 1,321 1,579 1,245 2,472
Net Working Capital 22,863 18,142 35,895 33,570 29,332 15,670
Long-term Obligations 28,805 22,187 20,808 20,762 20,862 12,881
Shareholders' Equity 36,611 33,591 34,683 32,639 29,568 18,878
Return on Beginning
Shareholders' Equity 21.2% 6.0% 15.2% 20.2% 28.0% 26.6%
Year-End Stock Price 7.88 8.00 7.63 11.88 13.38 8.08
Number of Employees 369 324 192 178 173 156
Sales per Employee 155 166 173 198 170 161
Net Earnings per Employee 19 6 26 34 31 23
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992 1991
===========================================================================
<S> <C> <C> <C> <C>
Net Sales $ 21,877 $ 16,171 $ 14,003 $ 11,085
Cost of Sales 7,518 5,098 4,582 3,973
---------------------------------------------------------------------------
Gross Margin 14,359 11,073 9,421 7,112
Percent of Sales 65.6% 68.5% 67.3% 64.2%
---------------------------------------------------------------------------
Operating Expenses
Research & Development 1,433 1,165 1,157 1,102
Sales & Marketing 4,747 3,716 3,166 2,564
General & Administrative 3,365 2,667 2,482 2,090
Asset impairment for
German subsidiary -- -- -- --
Merger Integration -- -- -- --
Purchased research and
development -- -- -- --
---------------------------------------------------------------------------
Total Operating
Expenses 9,545 7,548 6,805 5,756
---------------------------------------------------------------------------
Operating Income 4,814 3,525 2,616 1,356
Percent of Sales 22.0% 21.8% 18.7% 12.2%
---------------------------------------------------------------------------
Other Income and Expense
Interest Income 254 57 50 144
Interest Expense (1,092) (179) (89) (10)
Other, Net 8 (302) 28 27
---------------------------------------------------------------------------
Total Other
Income (Expense) (830) (424) (11) 161
---------------------------------------------------------------------------
Earnings Before
Income Taxes 3,984 3,101 2,605 1,517
Income Taxes 1,543 1,212 952 559
---------------------------------------------------------------------------
Net Earnings $ 2,441 $ 1,889 $ 1,653 $ 958
===========================================================================
Percent of Sales 11.2% 11.7% 11.8% 8.6%
Cash Dividends
Declared & Paid per
Common Share* $ 0.08 $ 0.06 $ 0.05 $ 0.05
Basic Weighted
Average Number of
Common Shares
Outstanding* 12,277 12,264 11,866 11,775
Basic Earnings Per
Common Share* $ 0.20 $ 0.15 $ 0.14 $ 0.08
---------------------------------------------------------------------------
Diluted Weighted
Average Number of
Common Shares
Outstanding* 12,521 12,534 12,141 11,965
Diluted Earnings
Per Common Share* $ 0.19 $ 0.15 $ 0.14 $ 0.08
---------------------------------------------------------------------------
Total Assets $ 32,329 $ 26,247 $ 14,099 $ 10,997
Cash and Investments 8,832 9,476 1,810 1,590
Capital Expenditures 1,426 718 1,999 934
Net Working Capital 13,000 13,759 5,164 4,046
Long-term Obligations 15,051 12,812 1,808 99
Shareholders' Equity 13,232 11,617 10,676 9,519
Return on Beginning
Shareholders' Equity 21.0% 17.7% 17.4% 10.7%
Year-End Stock Price 5.18 5.50 6.13 2.49
Number of Employees 138 125 115 105
Sales per Employee 159 129 122 106
Net Earnings per Employee 18 15 14 9
</TABLE>
*As adjusted for stock splits and stock dividends.
26
<PAGE> 18
CORPORATE DATA Meridian Diagnostics, Inc.,
dba Meridian Bioscience, Inc, and Subsidiaries
CORPORATE HEADQUARTERS
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
--------------------------------------------------------------------------------
LEGAL COUNSEL
Keating, Muething & Klekamp, P.L.L.
Cincinnati, Ohio
--------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Cincinnati, Ohio
--------------------------------------------------------------------------------
TRANSFER AGENT, REGISTRAR AND DIVIDEND REINVESTMENT ADMINISTRATION
Fifth Third Bank
Corporate Trust Services
Mail Drop 10AT66
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(800) 837-2755
(In Cincinnati) (513) 579-5320
--------------------------------------------------------------------------------
ANNUAL MEETING
The annual meeting of the shareholders will be held on Tuesday, January 23, 2001
at 3:00 p.m. Eastern Time at The Phoenix, 812 Race Street, Cincinnati, Ohio.
--------------------------------------------------------------------------------
SEC FORM 10-K
A copy of the Company's annual report filed with the Securities and Exchange
Commission on Form 10-K is available without charge upon written request to:
Melissa Lueke
Corporate Controller
Meridian Diagnostics, Inc.
3471 River Hills Drive
Cincinnati, Ohio 45244
--------------------------------------------------------------------------------
COMMON STOCK INFORMATION
NASDAQ National Market System Symbol: "KITS." The Company plans to change its
trading symbol to "VIVO" in the near future. Approximate number of record
holders: 1,100
The following table sets forth by calendar quarter the high and low sales prices
of the Common Stock on the NASDAQ National Market System.
Years Ended September 30, 2000 1999
Quarter ended: High Low High Low
--------------------------------------------------------------------------------
December 31 8 1/16 6 7 1/2 4 7/16
March 31 10 15/16 6 3/8 7 1/4 6
June 30 9 1/8 6 3/4 8 1/8 6
September 30 8 1/4 6 7/16 8 3/4 7 1/16
27
