SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14902
MERIDIAN DIAGNOSTICS, INC.
Incorporated under the laws of 31-0888197
- ------------------------------ --------------------
Ohio (I.R.S. Employer
Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X__ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding February 13, 1999
- -------------------------- ---------------------------------
Common Stock, no par value 14,585,588
1
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MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page(s)
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3-4
Consolidated Balance Sheets
December 31, 1999 and September 30, 1999
Consolidated Statements of Earnings 5
Three Months Ended December 31, 1999 and 1998
Consolidated Statement of Shareholders' Equity 6
Three Months Ended December 31, 1999
Consolidated Statements of Cash Flows 7
Three Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of 12-14
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit 27 Financial Data Schedule 17-19
Exhibit 99 Forward Looking Statements 20
2
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
($000)
ASSETS
CURRENT ASSETS: December 31 September 30,
1999 1999
------------ -------------
Cash and cash equivalents $ 9,031 $ 6,229
Investments 1,003 1,002
Accounts receivable and notes
receivable, less allowance of $400
in 2000 and $380 in 1999 for
doubtful accounts 12,850 12,932
Inventories 10,688 10,357
Prepaid expenses and other 803 890
Deferred tax assets 562 562
------- -------
Total current assets 34,937 31,972
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land 969 969
Buildings and improvements 7,277 10,427
Machinery, equipment and furniture 12,276 11,986
Construction in progress 2,108 811
Assets held for sale 3,150 --
------- -------
Total property, plant and equipment 25,780 24,193
Less-accumulated depreciation
and amortization 10,687 9,987
------- -------
Net property, plant and equipment 15,093 14,206
------- -------
OTHER ASSETS:
Long term receivables and other 790 940
Deferred debenture offering costs,
net of accumulated amortization
of $441 in 2000 and $407 in 1999 888 922
Other intangible assets, net of
accumulated amortization of
$9,917 in 2000 and $9,258 in 1999 20,101 20,760
Cost in excess of net assets acquired,
net of accumulated amortization of
$862 in 2000 and $806 in 1999 3,533 3,589
------- -------
Total other assets 25,312 26,211
------- -------
TOTAL ASSETS $75,342 $72,389
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these unaudited balance sheets.
3
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
($000)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, September 30,
1999 1999
---------- -------------
CURRENT LIABILITIES:
Current portion of long-term and
capital lease obligations $ 853 $ 821
Notes payable to bank 3,354 3,354
Notes payable to third party -- 1,000
Accounts payable 3,213 3,495
Accrued payroll and payroll taxes 1,930 2,154
Accrued expenses 2,595 2,693
Income taxes payable 600 --
-------- --------
Total current liabilities 12,545 13,517
-------- --------
LONG-TERM AND CAPITAL LEASE OBLIGATIONS: 25,188 21,366
-------- --------
DEFERRED TAX LIABILITIES 3,430 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; 2,529 2,424
14,585,390 and 14,429,151 shares
issued and outstanding,
respectively, stated at
Additional paid-in capital 20,920 20,855
Retained earnings 12,185 11,444
Accumulated other comprehensive loss (1,455) (819)
-------- --------
Total shareholders' equity 34,179 33,904
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 75,342 $ 72,389
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these unaudited balance sheets.
4
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MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
($000, except earnings per share)
Three Months Ended
December 31,
--------------------------
1999 1998
-------- ---------
NET SALES $ 14,329 $ 11,720
COST OF SALES 5,207 4,088
-------- --------
Gross profit 9,122 7,632
-------- --------
OPERATING EXPENSES:
Research and development 522 537
Selling and marketing 3,127 2,851
General and administrative 2,772 2,318
Merger integration -- 526
-------- --------
Total operating expenses 6,421 6,232
-------- --------
Operating income 2,701 1,400
OTHER INCOME (EXPENSE):
Interest income 69 189
Interest expense (475) (602)
Other, net 80 50
-------- --------
Total other income (expense) (326) (363)
-------- --------
Earnings before income taxes 2,375 1,037
INCOME TAXES 905 483
-------- --------
NET EARNINGS $ 1,470 $ 554
-------- --------
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,502 14,382
======== ========
BASIC EARNINGS PER COMMON SHARE $ .10 $ .04
======== ========
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,580 14,554
======== ========
DILUTED EARNINGS PER COMMON SHARE $ .10 $ .04
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
5
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the Three Months Ended December 31, 1999
($000)
<TABLE>
<CAPTION>
Number of
Shares Accumulated
Issued and Additional Other
Outstanding Comprehensive Common Paid in Comprehensive Retained
(000) Income (Loss) Stock Capital Loss Earnings Total
----------- ------------- ------- --------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 14,429 --- $2,424 $20,855 $(819) $11,444 $33,904
Exercised Stock Options, Net 156 --- 105 65 --- --- 170
Dividends --- --- --- --- --- (729) (729)
Comprehensive Income (loss)
Net income --- 1,470 --- --- --- 1,470 1,470
Other comprehensive income
(loss)
Foreign currency translation
adjustment --- (636) --- --- (636) --- (636)
-----
Comprehensive Income --- 834 --- --- --- --- ---
--------- ========== ------ ------- ------ ------ --------
Balance at December 31, 1999 14,585 $2,529 $20,920 $(1,455) $12,185 $34,179
====== ====== ======= ======== ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
6
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
($000)
Three Months Ended
December 31,
--------------------------
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,470 $ 554
Non cash items:
Depreciation of property,
plant and equipment 833 673
Amortization of intangible
assets and deferred royalties 763 399
Deferred income taxes (172) 516
Change in current assets and
current liabilities net of
effects of acquisition:
Change in current assets
excluding cash/cash
equivalents and investments (376) 2,683
Change in current liabilities,
excluding current portion of
long-term obligations (1,219) 456
Long-term receivable and payable 133 339
-------- --------
Net cash provided by operating activities 1,432 5,620
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Gull Laboratories,
Inc., net of cash acquired -- (17,140)
Purchase of property, plant and
equipment, net (1,289) (437)
Purchase of short term investments (1) (622)
Purchase of product license -- (200)
-------- --------
Net cash (used for) investing activities (1,290) (18,399)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other long-term obligations 3,478 --
Repayment of long-term obligations (145) (840)
Dividends paid (729) (720)
Proceeds from issuance of common stock 170 2
-------- --------
Net cash provided by (used for)
financing activities 2,774 (1,558)
-------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (114) (6)
-------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 2,802 (14,343)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,229 19,400
-------- --------
CASH & CASH EQUIVALENTS
AT END OF PERIOD $ 9,031 $ 5,057
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 358 $ 4
Interest 113 392
Non-cash items
Capital lease 522 --
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
7
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation:
---------------------
The consolidated financial statements included herein have not been
examined by independent public accountants, but include all adjustments
(consisting of normal recurring entries) which are, in the opinion of
management, necessary for a fair presentation of the results for such
periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities
and Exchange Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the information
not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
2. Acquisition of Gull Laboratories, Inc.:
--------------------------------------
On November 5, 1998, the Company acquired Gull Laboratories, Inc. (Gull)
for $19,700,000 cash, including acquisition costs of $1,700,000. Gull was
engaged in the development, manufacture and marketing of high-quality
diagnostic test kits for the detection of infectious diseases and
autoimmune disorders. The acquisition was accounted for as a purchase. For
accounting purposes, the acquisition was effective on October 31, 1998 and
the results of operations of Gull are included in the consolidated results
of operations of the Company from that date forward.
The following unaudited pro forma combined results of operations for the
quarter ended December 31, 1998, assumes the Gull acquisition occurred as
of October 1, 1998 (dollars in thousands, except per share data). Pro forma
adjustments consist of reductions in interest income due to the use of cash
and investments to fund the acquisition, additional amortization of
intangible assets and goodwill and adjustments to the tax provision
assuming the utilization of a portion of Gull U.S. losses and the
establishment of valuation reserves for potentially unrealizable deferred
tax assets related to pro forma European operating losses.
The unaudited pro forma financial information presented is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place on October 1, 1998 or the results of operations
of the combined companies.
8
<PAGE>
3 Months Ended
December 31, 1998
------------------
Net sales.................................. $ 13,210
Net earnings............................... $ 627
Earnings per share:
Basic................................... $ 0.04
Diluted................................. $ 0.04
During fiscal 1999, research and development activities were consolidated
into Meridian's Cincinnati operations and production facilities in Germany
were shut down. The renovation of the Cincinnati facilities was
substantially complete as of December 31, 1999, and the manufacture of Gull
products is now conducted in Cincinnati. The facility in Salt Lake City is
currently being marketed for sale.
Purchase liabilities recorded included approximately $1,400,000 for
severance and costs related to the shut down and consolidation of the
acquired facilities in Salt Lake City and Germany. Substantially all of
this amount has been paid as of December 31, 1999. In connection with the
acquisition, the Company agreed to pay certain amounts owed by Gull to its
former parent company. At September 30, 1999, $1,000,000 was recorded as a
note payable to third party representing the final amount payable to the
former parent. This note was paid on November 16, 1999.
The major components of the merger integration costs incurred during the
first quarter of fiscal 1999 were as follows:
($ in thousands) Amount
- --------------------------------------------------------------------------------
Travel and training $ 257
Termination payments to distributors 275
- --------------------------------------------------------------------------------
Total merger integration costs $ 526
- --------------------------------------------------------------------------------
Substantially all merger integration costs were paid as of September 30,
1999. First quarter fiscal 2000 merger integration costs were immaterial
and are expected to be immaterial for the remainder of fiscal year 2000.
3. Inventories:
-----------
Inventories are comprised of the following (amounts in thousands):
December 31, 1999 September 30, 1999
----------------- ------------------
Raw materials $ 2,550 $ 2,469
Work-in-process 3,315 3,211
Finished goods 4,823 4,677
--------- ---------
$ 10,688 $ 10,357
--------- ---------
9
<PAGE>
4. Income Taxes:
------------
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect, after giving
effect to research and experimentation credits and recognizing a benefit
for first quarter losses incurred in the Gull European operations.
5. Earnings Per Common Share:
------------------------
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted EPS is computed by adding to the weighted average
number of common shares outstanding, the dilutive effect of additional
common shares that would have been outstanding if dilutive potential common
shares had been issued.
The table below shows the amounts used in computing earnings per share and
the effect of dilutive potential common stock on income and the weighted
average number of shares for the three months ended December 31, 1999 and
December 31, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
------------------------------------------ ------------------------------------------
Income Shares Per Income Shares Per
(Numerator) (Denominator) Share Amount (Numerator) (Denominator) Share Amount
----------- ------------- ------------ ----------- ------------- ------------
In thousands
except per
share amounts
- ------------------------
BASIC EARNINGS PER SHARE
<S> <C> <C> <C> <C> <C> <C>
Net income available to
common shareholders $1,470 14,502 $0.10 $554 14,382 $0.04
- ----------------------------------------------------------------------------------------------------------------
EFFECT OF
DILUTIVE SECURITIES
Stock Options --- 78 --- --- 172 ---
- ----------------------------------------------------------------------------------------------------------------
DILUTED
EARNINGS PER SHARE
Net income
available to common
shareholders and
assumed conversions $1,470 14,580 $0.10 $554 14,554 $0.04
================================================================================================================
</TABLE>
10
<PAGE>
The following table outlines items excluded from diluted EPS, as they are
anti-dilutive (amounts in thousands).
Quarter Ended
December 31,
-------------------
1999 1998
------ -----
Options 406 383
Convertible debentures 1,243 1,243
------ -----
1,649 1,626
------ -----
At both December 31, 1999 and 1998, the impact of assuming the 1996
convertible debentures were converted, net of the impact of pro forma,
after tax interest expense, was anti-dilutive.
6. Translation of Foreign Currency:
-------------------------------
Assets and liabilities of foreign operations are translated using
period-end exchange rates with gains or losses resulting from translation
included in a separate component of accumulated other comprehensive loss.
Revenues and expenses are translated using exchange rates prevailing during
the period. Gains and losses resulting from transactions in foreign
currencies were immaterial.
7. Comprehensive Income:
--------------------
Comprehensive income is the total of net income and all other non-owner
changes in equity. For the Company, this reporting involves gains and
losses resulting from the translation of assets and liabilities of foreign
operations which are currently included in a separate component of
accumulated other comprehensive loss. Comprehensive income for the first
quarter of fiscal 1999 was $490,000.
8. Segment Information:
-------------------
Meridian operates in two geographic segments: Meridian Diagnostics, Inc.
(MDI) and Meridian Diagnostics Europe (MDE). MDI operations consist of the
manufacture and sale of diagnostic test kits in the U.S. and countries
outside of Europe, Africa and the Middle East. It also includes sales of
bioresearch reagents and sales of proficiency tests, which combined,
represent approximately 10% of total Company revenues. MDE distributes
diagnostic test kits in Europe, Africa and the Middle East. Sales are
attributed to the geographic area based on the location from which the
product is shipped to the customer.
Segment information for the quarters ended December 31, 1999 and 1998 is as
follows:
-------------------------------------------------------------------------
($ in thousands) MDI MDE ELIM(1) Total
-------------------------------------------------------------------------
1999
Net sales $12,123 $3,590 ($1,384) $14,329
Operating income 2,552 10 139 2,701
Income tax provision/(benefit) 899 (42) 48 905
Net earnings 1,293 86 91 1,470
Total assets 100,066 11,943 (36,667) 75,342
1998
Net sales 9,614 3,286 (1,180) 11,720
Operating income 1,338 (198) 260 1,400
Income tax provision/(benefit) 540 (48) (9) 483
Net earnings 583 (298) 269 554
Total assets $100,974 $12,070 $(40,950) $72,094
(1) Eliminations consist of intersegment transactions.
11
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Transactions between geographic segments are accounted for as intercompany
sales at established intercompany prices for internal and management
purposes with all intercompany amounts eliminated in consolidation. The MDI
segment data for total assets includes corporate goodwill and intangibles
of $23,634,000, and $24,349,000 for the quarters ended December 31, 1999
and 1998 respectively.
9. Recently Issued Accounting Standards:
------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Company is required to adopt this statement in fiscal
year 2001. The Company does not currently hold nor invest in any type of
derivative instruments.
In March 1998, the AICPA issued SOP 98-1- "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" which requires
capitalization of external direct costs of materials and services consumed
in developing or obtaining internal-use computer software; payroll and
payroll-related costs for employees who are directly associated with and
who devote time to the internal-use computer software project (to the
extent of the time spent directly on the project); and interest costs
incurred when developing computer software for internal use. Training
costs, data conversion costs, costs incurred in the preliminary project
stage and maintenance fees should be expensed as incurred. Additionally,
significant updates and enhancements are capitalized if it is probable that
the result will be significant additional functionality or an increase in
the life of the software. The capitalization of computer software developed
or obtained for internal use should be amortized on a straight-line basis
unless another systematic and rational manner is more representative of the
use of the software. The Company adopted this accounting pronouncement
effective October 1, 1999. The pronouncement has not and is not expected to
have a material impact on the Company's financial position or operating
results.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
- ---------------------
Net sales increased $2,609,000 or 22%, to $14,329,000 for the first fiscal
quarter compared to the prior year. This increase reflects a full quarter of
combined Meridian and Gull sales, continued growth from core products and up to
an estimated $500,000 of additional customer orders, related to Year 2000
concerns. This increase of $2,609,000 was comprised of volume growth of
$3,022,000, or 26%, and currency of $($404,000), or (3%) and price of ($9,000).
Core business product sales were up approximately 19%, while Gull products were
up 30%, versus the prior year. These increases were largely a result of a 25%
increase in the ParaPak line, an 86% increase in the H. pylori line driven by a
128% increase in Premier Platinum HpSA, and a 29% increase in the Gull
immunology line. All other focus products experienced growth as well.
International sales in total were $4,507,000, up $702,000, or 18%, from
$3,805,000 compared to the prior year first fiscal quarter. International sales
represent 32% of total sales in both the first fiscal quarter of 1999 and 1998.
Gross profit increased $1,490,000, or 20% compared to the sales increase of 22%
and decreased to 64% of sales from 65% in the prior year fiscal quarter. This
nominal reduction is primarily a result of a higher percentage of lower margin
Gull sales during the fiscal 2000 first quarter. The Company expects this drag
on the overall gross profit to continue as the Company sells-out Gull's Salt
Lake City inventory over the next two quarters, after which margins are expected
to rebound.
12
<PAGE>
Total operating expenses increased $189,000, or 3%, for the first fiscal quarter
of 2000 versus the prior year, and decreased to 45% of sales from 53% versus the
same period last year, primarily due to Gull merger integration costs incurred
in the prior year. Excluding merger integration costs, operating expenses
increased $715,000, or 13%. Specifically, research and development costs
decreased 3% to approximately $522,000 and decreased to 4% of sales from 5%
compared to the same period last year. The slight decrease reflects the
consolidation of research and development activities in the Cincinnati facility
in March of 1999. Selling and marketing expenses increased $276,000, or 10%, for
the first fiscal quarter and decreased as a percent of sales to 22% from 24%
versus the same period last year. This dollar increase is primarily related to
increases in personnel costs and expenditures on advertising and marketing
brochures which typically occur in the first quarter. The decrease in selling
and marketing expenses as a percent of sales reflects the efficiencies derived
from the integration of the Gull line of products into the existing sales and
marketing organization. General and administrative costs increased $454,000, or
20%, for the first quarter and decreased to 19% of sales from 20% compared to
the same period last year. This dollar increase is attributable to higher
amortization costs (approximately $200,000) based on the final valuation of
Gull-related intangibles and goodwill and having a full quarter of such
amortization costs versus only two months in the prior year. The remaining
increase is due to increased personnel costs, depreciation expense for Gull
related assets (three months this quarter versus two months in the same quarter
last year) and increases in the reserve for doubtful accounts. The Company
incurred merger integration costs of approximately $526,000 during the first
fiscal quarter of 1999 in connection with the Gull acquisition. These costs
consisted mainly of payments of $275,000 made to distributors to terminate
contracts in markets with duplicate distributor agreements or in markets that
are now covered by the Company sales force, and approximately $250,000 related
to training and travel in connection with the integration of the Gull business.
Merger integration costs were immaterial for the first fiscal quarter of 2000
and are expected to remain so for the balance of the fiscal year.
Operating income as a result of the above increased $1,301,000, or 93% for the
first fiscal quarter and increased as a percent of sales to 19% from 12%. Even
excluding first quarter of fiscal 1999 merger integration costs of $526,000,
operating income for the first fiscal quarter increased $775,000, or 40%,
compared to the same quarter in the prior year. Other expense decreased $37,000
for the first fiscal quarter. Lower investment income as a result of the cash
used to acquire Gull was offset by lower interest expenses due to the
refinancing and reductions in Gull-related debt that occurred in the second
quarter of fiscal year 1999. The Company's effective tax rate decreased from 47%
to 38%. The Company has recorded a benefit for the full amount of first quarter
fiscal 2000 losses incurred in Gull's foreign operations based on tax planning
strategies developed to utilize such losses. In the first quarter of fiscal
1999, losses from the Gull European operations were not fully benefited as tax
planning strategies were being developed.
Liquidity and Capital Resources
- -------------------------------
The Company prepares annual operating and capital spending budgets. These two
items, along with acquisition plans, are analyzed to determined operating cash
flow and potential financing needs. The Company historically maintains a
significant level of cash and cash equivalents and availability on its credit
facility so that it can quickly respond to acquisition opportunities.
In the first quarter of fiscal 2000, net cash flows of $1,432,000 were provided
by operations compared to $5,620,000 for the first quarter of the prior year.
The amount of cash provided by operating activities decreased $4,188,000
compared to the first quarter of the prior year due to the reduction in accounts
receivables in the first quarter of fiscal 1999 as a result of changes in
distributor order patterns that occurred in the second half of fiscal 1998.
Additionally, amounts related to merger activities were accrued in the first
quarter of the prior year, while such amounts were paid in succeeding quarters,
including the first quarter of fiscal 2000.
13
<PAGE>
Net cash used for investing activities of $1,290,000 decreased as a result of
the purchase of Gull in the first quarter of fiscal 1999. Capital expenditures
increased over the same period in the prior year due to the renovations to the
Cincinnati facility to accommodate the Gull product line.
Net cash flows provided by financing activities were $2,774,000 compared to net
cash used in financing activities of $1,558,000 in the prior year. This
fluctuation is largely due to reductions in Gull-related debt payments
subsequent to the refinancing of Gull debt that occurred in the second quarter
of fiscal 1999. Additionally, in December 1999, the Company financed the
renovations of the Cincinnati facilities through a $3,478,000 five-year term
loan bearing interest at an 8 % rate, and a $522,000 seven-year capital lease.
Net cash flows from operations are anticipated to fund working capital
requirements for the balance of the fiscal year. The Company has a $20,000,000
credit facility with a commercial bank under which $12,646,000 is available and
cash and cash equivalent and short-term investments of $10,034,000 at December
31, 1999.
Impact of Year 2000
- -------------------
Prior to December 31, 1999, the Company implemented plans to ready all critical
information technology systems, including hardware and software, and
non-information technology systems, such as computer chips embedded in
communication, security, manufacturing, laboratory and instrumentation
equipment. As of the date of this filing, the Company has had no significant
interruptions to its business as a result of the Year 2000 date change. The
Company plans to monitor its information technology systems and non-information
technology systems throughout fiscal 2000 to identify and address any issues
related to the Year 2000 date change.
The Company is also in the process of assessing the impact of the conversion to
the Euro on its systems and business operations. The Company's primary business
locations in Europe are currently able to process Euro transactions. The Company
does not believe this conversion will have a material impact on the business and
operations, however, there can be no assurances that this will be the case.
14
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
The Company announced on October 22, 1999, that the United States Health Care
Financing Administration (HCFA) announced their national coverage policy
decision relating to our Premier Platinum HpSA (HpSA) test. HpSA has a separate
CPT code of 87338 that became active in January, 2000. After HCFA's analysis of
the medical evidence submitted by Meridian Diagnostics, including recent
peer-reviewed publications, HCFA indicated that the new non-invasive HpSA test
has a potential and vital role in the daily management of patients with Peptic
Ulcer Disease (PUD) and those with suspected and/or documented H. pylori
infection.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description Page(s)
----------- -------------------------- -------
27 Financial Data Schedule 17-19
99 Forward Looking Statements 20
(b) Reports on Form 8-K:
None.
15
<PAGE>
Signature:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there-unto duly authorized.
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Date: February 15, 1999 /S/ GERARD BLAIN
--------------------------------------------
Gerard Blain,
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
16
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EXHIBIT 99
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from
civil litigation for forward-looking statements accompanied by meaningful
cautionary statements. These statements identify important factors that could
cause actual results to differ materially from those that might be projected.
Meridian's continued growth depends, in part, on its ability to introduce into
the marketplace enhancements of existing products or new products that
incorporate technological advances, meet customer requirements and respond to
products developed by the Company's competition. While the Company has
introduced over 35 internally-developed products since 1991, there can be no
assurance that it will be successful in the future in introducing such products
on a timely basis. Ongoing consolidations of reference laboratories and
formation of multi-hospital alliances may cause adverse changes to pricing and
distribution. One of Meridian's main growth strategies is acquisition of
companies and product lines. There can be no assurance that additional
acquisitions will be consummated or that, if consummated, will be successful and
the acquired businesses successfully integrated into Meridian's operations.
