SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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 Ohio 31-0888197
--------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding May 8, 2000
------------------------------ -----------------------------
Common Stock, no par value 14,585,588
1
<PAGE>
The Company's March 31, 2000 and September 30, 1999 consolidated balance sheets
and the consolidated statement of shareholders' equity for the six months ended
March 31, 2000 have been restated to reflect the correction of a book-keeping
error which occurred in June 1999 related to sales to the Company's German
subsidiary. This restatement amends the following sections of this Form 10-Q:
Part I, Item 1 - Financial Statements;
Part II, Item 6 - Exhibits and Reports on Form 8-K
(Exhibit 27 - Financial Data Schedule)
2
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q/A
Page(s)
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 (Restated)
and September 30, 1999 (Restated) 3-4
Consolidated Statements of Earnings
Three Months Ended March 31, 2000 and 1999
Six Months Ended March 31, 2000 and 1999 5
Consolidated Statement of Shareholders' Equity
Six Months Ended March 31, 2000 (Restated) 6
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Exhibit 27 Financial Data Schedule (Restated) 22-24
Exhibit 99 Forward Looking Statements 25
3
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Restated - Note 1)
(Unaudited)
($000)
ASSETS
March 31, 2000 September 30, 1999
(Restated) (Restated)
-------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,321 $ 6,229
Investments 1,002 1,002
Accounts receivable and notes
receivable, less allowance of
$446 in 2000 and $380 in
1999 for doubtful accounts 12,916 12,508
Inventories 10,616 10,357
Prepaid expenses and other 1,502 1,086
Deferred tax assets 562 562
---------- -----------
Total current assets 32,919 31,744
---------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 989 969
Buildings and improvements 10,467 10,427
Machinery, equipment and furniture 12,400 11,986
Construction in progress 462 811
Assets held for sale 3,150 --
---------- -----------
Total property, plant and equipment 27,468 24,193
Less-accumulated depreciation
and amortization 10,922 9,987
---------- -----------
Net property, plant and equipment 16,546 14,206
---------- -----------
OTHER ASSETS:
Long term receivables and other 780 940
Deferred debenture offering costs,
net of accumulated amortization
of $474 in 2000 and $407 in 1999 854 922
Other intangible assets, net of
accumulated amortization of $10,374
in 2000 and $9,258 in 1999 19,511 20,760
Cost in excess of net assets acquired,
net of accumulated amortization of
$848 in 2000 and $806 in 1999 3,491 3,589
---------- -----------
Total other assets 24,636 26,211
---------- -----------
TOTAL ASSETS $ 74,101 $ 72,161
========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these unaudited balance sheets.
4
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Restated - Note 1)
(Unaudited)
($000)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, September 30,
2000 1999
(Restated) (Restated)
----------- -------------
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 902 $ 821
Notes payable to bank 3,354 3,354
Notes payable to third party - 1,000
Accounts payable 3,041 3,495
Accrued payroll and payroll taxes 1,644 2,154
Accrued expenses 2,802 2,778
Income taxes payable 446 -
---------- ----------
Total current liabilities 12,189 13,602
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 24,943 21,366
---------- ----------
DEFERRED TAX LIABILITIES 2,999 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;
14,585,588 and 14,429,151 shares
issued and outstanding,
respectively, stated at 2,529 2,424
Additional paid-in capital 20,921 20,855
Retained earnings 12,846 11,131
Accumulated other comprehensive loss (2,326) (819)
---------- ----------
Total shareholders' equity 33,970 33,591
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 74,101 $ 72,161
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these unaudited balance sheets.
5
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
(000, Except Per Share Amounts)
Three Months Ended Six Months Ended
March 31 March 31
---------------------- ---------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
NET SALES $ 14,577 $ 14,654 $ 28,906 $ 26,373
COST OF SALES 5,609 5,578 10,816 9,665
---------- ---------- --------- ---------
Gross profit 8,968 9,076 18,090 16,708
---------- ---------- --------- ---------
OPERATING EXPENSES:
Research and development 439 445 961 983
Selling and marketing 2,891 2,810 6,018 5,661
General and administrative 2,238 2,334 5,010 4,657
Merger integration costs - 686 - 1,212
---------- ---------- --------- ---------
Total operating expenses 5,568 6,275 11,989 12,513
---------- ---------- --------- ---------
Operating income 3,400 2,801 6,101 4,195
OTHER INCOME (EXPENSE):
Interest income 201 81 270 270
Interest expense (460) (690) (935) (1,292)
Other, net (26) (92) 54 (42)
---------- ---------- --------- ---------
Total other income (expense) (285) (701) (611) (1,064)
---------- ---------- --------- ---------
Earnings before income taxes 3,115 2,100 5,490 3,131
INCOME TAXES 1,266 844 2,171 1,327
========== ========== ========= =========
NET EARNINGS $ 1,849 $ 1,256 $ 3,319 $ 1,804
========== ========== ========= =========
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,586 14,383 14,544 14,383
========== ========== ========= =========
BASIC EARNINGS PER COMMON SHARE $ 0.13 $ 0.09 $ 0.23 $ 0.13
========== ========== ========= =========
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,703 14,584 14,640 $ 14,579
========== ========== ========= =========
DILUTED EARNINGS PER COMMON SHARE $ 0.13 $ 0.09 $ 0.23 $ 0.12
========== ========== ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
6
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity (Restated - Note 1)
For the Six Months Ended March 31, 2000
(Shares and $ in 000)
<TABLE>
<CAPTION>
Number of Accumulated
Shares Additional Other
Issued and Comprehensive Common Paid in Comprehensive Retained
Outstanding 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) $11,131 $33,591
Exercised Stock Options, Net 157 --- 105 66 --- --- 171
Dividends --- --- --- --- --- (1,604) (1,604)
Comprehensive Income (loss)
Net income --- 3,319 --- --- --- 3,319 3,319
Other comprehensive income
(loss)
Foreign currency
translation adjustment --- (1,507) --- --- (1,507) --- (1,507)
-------
Comprehensive Income $ 1,812
----- ========= ------- -------- ---------- -------- -------
Balance at March 31, 2000 14,586 $ 2,529 $ 20,921 $ (2,326) $ 12,846 $33,970
======== ========= ========= ========== ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
7
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
($000)
Six Months Ended
March 31,
-----------------------------
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,319 $ 1,804
Non cash items:
Depreciation of property,
plant and equipment 1,174 971
Amortization of intangible
assets and deferred royalties 1,442 970
Deferred income taxes (603) 529
Change in current assets and current
liabilities net of effects of
acquisition:
Change in current assets excluding
cash/cash equivalents and
investments (1,938) 2,108
Change in current liabilities,
excluding current portion of
long-term obligations (884) 877
Long-term receivable and other 166 208
--------- --------
Net cash provided by operating activities 2,676 7,467
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Gull Laboratories,
Inc., net of cash acquired -- (18,210)
Purchase of property, plant
and equipment, net (3,514) (1,118)
Purchase of short term investments -- 1,646
Purchase of product license and
other intangible assets (27) (200)
--------- --------
Net cash used in investing activities (3,541) (17,882)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 3,860 3,354
Repayment of debt obligations (1,208) (4,301)
Dividends paid (1,604) (1,433)
Proceeds from issuance of common stock 171 5
--------- --------
Net cash provided by (used in)
financing activities 1,219 (2,375)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (262) (102)
--------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 92 (12,892)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,229 19,400
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 6,321 $ 6,508
======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,973 $ 373
Interest 935 820
Non-cash items
Capital lease 522 --
The accompanying notes to consolidated financial statements are an integral part
of these unaudited statements.
8
<PAGE>
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Restated)
(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, as amended.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
The March 31, 2000 and September 30, 1999 consolidated balance sheets and
the consolidated statement of shareholders' equity for the six months ended
March 31, 2000 included herein, 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. The impact of this restatement to
earnings for the year ended September 30, 1999 is as follows (in thousands
except per share amounts):
As Reported Correction As Restated
----------- ---------- -----------
Net sales $54,351 $(424) $53,927
Cost of sales 19,473 85 19,558
---------- ---------- ---------
Gross profit 34,878 (509) 34,369
Earnings before income taxes 5,321 (509) 4,812
Provision for income taxes 2,935 (509) 2,739
Net income 2,386 (313) 2,073
Basic earnings per share 0.17 (0.03) 0.14
Dilutive earnings per share 0.16 (0.02) 0.14
The Company has filed an amended Annual Report on Form 10-K with the
Securities and Exchange Commission that includes fiscal year 1999
consolidated financial statements that have been restated for the matter
described above.
9
<PAGE>
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
six months ended March 31, 1999 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 (amounts in thousands except per share amounts).
Net sales........................ $ 27,864
Net earnings..................... $ 1,883
Earnings per share:
Basic................... $ 0.13
Diluted................. $ 0.13
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 completed
during the second quarter of fiscal 2000. 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. This entire amount has
been paid as of March 31, 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.
10
<PAGE>
The major components of the merger integration costs incurred during fiscal
1999 were as follows (amounts in thousands):
Three Months Six Months
Ended Ended
March 31, 1999 March 31, 1999
-------------- --------------
Product validation costs $ 120 $ 120
Professional fees primarily related to
reorganization of European operations 160 160
Travel and training 100 351
Termination payments to distributors 155 430
Other 151 151
========== =========
Total merger integration costs $ 686 $ 1,212
========== =========
Substantially all merger integration costs were paid as of September 30,
1999. Fiscal 2000 merger integration costs to date have been immaterial and
are expected to be immaterial for the remainder of fiscal 2000.
3. Inventories:
Inventories are comprised of the following (amounts in thousands):
March 31, 2000 September 30, 1999
-------------- ------------------
Raw materials $ 3,283 $ 2,469
Work-in-process 3,781 3,211
Finished goods 3,552 4,677
========== ==========
$ 10,616 $ 10,357
========== ==========
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 operating losses incurred in certain 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.
11
<PAGE>
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 and six months ended March 31, 2000
and March 31, 1999.
THREE MONTHS ENDED
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
In thousands,
except per share
amounts
---------------------
BASIC
EARNINGS PER
SHARE
Net income
available to common
shareholders
$1,849 14,586 $0.13 $1,256 14,383 $0.09
------------- ------------- --------- ----------- ------------- ----------
EFFECT OF DILUTIVE
SECURITIES
Stock Options
--- 117 --- --- 201 ---
------------- ------------- --------- ----------- ------------- ----------
DILUTED EARNINGS
PER SHARE
Net income
available to common
shareholders and
assumed conversions $1,849 14,703 $0.13 $1,256 14,584 $0.09
============= ============= ========= =========== ============= ==========
</TABLE>
12
<PAGE>
SIX MONTHS ENDED
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
In thousands,
except per share
amounts
---------------------
BASIC
EARNINGS PER
SHARE
Net income
available to common
shareholders $3,319 14,544 $0.23 $1,804 14,383 $0.13
------------- ------------- --------- ----------- ------------- ----------
EFFECT OF DILUTIVE
SECURITIES
Stock Options - 96 - - 196 -
------------- ------------- --------- ----------- ------------- ----------
DILUTED EARNINGS
PER SHARE
Net income
available to common
shareholders and
assumed conversions $3,319 14,640 $0.23 $1,804 14,579 $0.12
============= ============= ========= =========== ============= ==========
</TABLE>
The following table outlines shares excluded from diluted EPS, as they are
anti-dilutive (amounts in thousands).
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- --------------------
2000 1999 2000 1999
--------- -------- -------- -------
Options 279 406 403 404
Convertible debentures 1,243 1,243 1,243 1,243
------- ----- -----
1,522 1,649 1,646 1,647
======= ======= ======= ======
At both March 31, 2000 and 1999, the impact of assuming the 1996
convertible debentures were converted, net of the impact of pro forma,
after tax interest expense, was anti-dilutive.
13
<PAGE>
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
six months of fiscal 2000 was $1,812,000.
8. Segment Information:
Meridian operates in two geographic segments: Meridian Diagnostics, Inc.
(MDI) and Meridian Diagnostics Europe (MDE). MDI operations consist of the
manufacture and sale of diagnostic test kits in the U.S. and countries
outside of Europe, Africa and the Middle East. It also includes sales of
bioresearch reagents and sales of proficiency tests, which combined,
represent approximately 10% of total Company revenues. MDE distributes
diagnostic test kits in Europe, Africa and the Middle East. Sales are
attributed to the geographic area based on the location from which the
product is shipped to the customer.
Segment information for the three and six months ended March 31, 2000 and
1999 is as follows:
----------------------------------- -------- ------- --------- ---------
($ in thousands) MDI MDE ELIM(1) Total
----------------------------------- -------- ------- --------- ---------
Three months ended March 31, 2000
Net sales $ 12,914 $ 3,694 $ (2,031) $14,577
Operating income (loss) 3,782 (244) (138) 3,400
Income tax provision (benefit) 1,404 (78) (60) 1,266
Net earnings (loss) 2,119 (257) (13) 1,849
Total assets 100,870 13,041 (39,810) 74,101
Three months ended March 31, 1999
Net sales 10,836 4,862 (1,044) 14,654
Operating income (loss) 2,254 503 44 2,801
Income tax provision (benefit) 836 (60) 68 844
Net earnings (loss) 890 268 98 1,256
Total assets 85,602 9,350 (24,780) 70,172
14
<PAGE>
($ in thousands) MDI MDE ELIM(1) Total
-------------------------------- -------- --------- --------- --------
Six months ended March 31, 2000
Net sales $ 25,037 $ 7,284 $ (3,415) $ 28,906
Operating income (loss) 6,334 (234) 1 6,101
Income tax provision (benefit) 2,303 (120) (12) 2,171
Net earnings (loss) 3,412 (171) 78 3,319
Total assets 100,870 13,041 (39,810) 74,101
Six months ended March 31, 1999
Net sales 20,450 8,148 (2,225) 26,373
Operating income (loss) 3,592 305 298 4,195
Income tax provision (benefit) 1,376 (108) 59 1,327
Net earnings (loss) 1,473 (30) 361 1,804
Total assets 85,602 9,350 (24,780) 70,172
(1) Eliminations consist of intersegment transactions.
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 include corporate goodwill and intangibles of
$23,077,000, and $24,349,000 as of March 31, 2000 and September 30, 1999,
respectively.
9. 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 established 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
it 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.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Second Quarter Fiscal 2000 Compared to
Second Quarter Fiscal 1999
Net Sales
Net sales decreased $77,000 or 1%, to $14,577,000 for the second quarter of
fiscal 2000 compared to fiscal 1999. This decrease was comprised of volume
growth of 3% or $512,000 and currency losses of (4%) or $(652,000). Changes in
price for the quarter were essentially flat at a positive 0.4% or $63,000.
Adjusted for currency, fiscal 2000 second quarter net sales increased 4%.
Volume growth in core product sales for the quarter resulted primarily from
increases in the Rotavirus, H. pylori and Microbiology product lines, offset by
slight decreases in certain other product lines. The Company's proficiency
testing and reagent sales also contributed to volume growth for the second
quarter of fiscal 2000.
International sales were $4,426,000 or 30% of total net sales for the quarter
compared to $5,117,000 or 35% of total net sales in fiscal 1999. Domestic
exports were $732,000, or 5% of total net sales while the remaining
international sales were generated by Meridian Diagnostics Europe (MDE). MDE
sales for the second quarter decreased 24% from $4,862,000 to $3,694,000
compared to fiscal 1999. In fiscal 1999, second quarter MDE sales were unusually
strong and represented 32% of the MDE sales total for the year. Other factors
contributing to the decrease were the negative currency effect of $652,000, or
13%, caused by the strengthening dollar, and a decrease in sales in Germany due
to regulatory changes enacted in the Company's fourth quarter of fiscal 1999
designed to reduce health care costs. These regulations, which resulted in a
significant reduction in diagnostic tests ordered by physicians, are and have
been challenged since their inception by both the health care industry and the
patient population.
Gross Profit
Gross profit decreased $108,000 or 1%, to $8,968,000 for the second quarter of
fiscal 2000 compared to fiscal 1999. Gross profit margins remained constant at
62% for the second quarter of fiscal 2000 compared to fiscal 1999. Margins were
favorably impacted by product mix; however, this was offset by the strengthening
of the dollar in Europe as well as higher scrap costs. As of March 31, 2000, the
Company has sold substantially all inventory manufactured in Gull's Salt Lake
City facility. Going forward, gross profit will reflect the efficiencies of
producing Gull products in Cincinnati.
Operating Expenses
Operating expenses, inclusive of merger integration costs in fiscal 1999,
decreased $707,000 or 11%, to $5,568,000 during the second quarter of fiscal
2000 compared to fiscal 1999. Excluding merger integration costs in fiscal 1999,
operating expenses were essentially flat at 38% of sales during the second
quarter of fiscal 2000 compared to fiscal 1999. Overall, operating expenses were
favorably impacted by currency.
Research and development expenses remained flat at 3% of sales. Sales and
marketing expenses increased 3% during the second quarter of fiscal 2000, and as
a percentage of sales, increased to 20% from 19% in fiscal 1999. General and
administrative expenses decreased 4% during the second quarter of fiscal 2000,
and as a percentage of sales, decreased to 15% from 16% in fiscal 1999. General
and administrative expenses were unfavorably impacted by higher amortization
costs associated with intangibles from the Gull acquisition based on final
appraisals, as well as normal salary and wage increases. However, such increases
were more than offset by the elimination of certain administrative costs in Salt
Lake City upon closure of that facility in January 2000 and the impact of
currency.
16
<PAGE>
Operating Income
As a result of the above items, operating income, inclusive of merger
integration costs in fiscal 1999 increased $599,000 or 21%, to $3,400,000 during
the second quarter of fiscal 2000 compared to fiscal 1999. Excluding merger
integration costs in fiscal 1999, operating income decreased slightly.
Other Income and Expense
Interest income increased $120,000 or 148%, to $201,000 during the second
quarter of fiscal 2000 compared to fiscal 1999. This increase resulted from a
higher average cash and investment balance held during the second quarter of
fiscal 2000, stemming from the cash build since the November 5, 1998 acquisition
of Gull and bank borrowings that occurred in December of 1999 but were not
utilized until the second quarter.
Interest expense decreased $230,000 or 33%, to $460,000 during the second
quarter of fiscal 2000 compared to fiscal 1999. This decrease resulted primarily
from the refinancing of debt assumed in the Gull acquisition during January
1999.
Income Taxes
The provision for income taxes is at an effective rate of 41% for the second
quarter of fiscal 2000 compared to 40% for fiscal 1999. Based on tax-planning
strategies, the Company has recorded a future benefit for operating losses
incurred in certain European operations during the second quarter of fiscal
2000, consistent with fiscal 1999.
Results of Operations - Six Months ended March 31, 2000
Compared to Six Months Ended March 31, 1999
Net Sales
Net sales increased $2,533,000 or 10%, to $28,906,000 for the first six months
of fiscal 2000 compared to fiscal 1999. This increase was comprised of volume
growth of 13% or $3,535,000 and currency losses of (4%) or $(1,056,000). Changes
in price for the first six months of fiscal 2000 were essentially flat at a
positive 0.2% or $54,000. Adjusted for currency, net sales for the first six
months of fiscal 2000 increased 14%.
Growth in core product sales for the first six months of fiscal 2000 has been
strong in the Rotavirus, H. pylori and Microbiology product lines, which reflect
sales increases of 32%, 64% and 113%, respectively, compared to fiscal 1999.
Such sales increases have been complemented by smaller sales increases in
certain other product lines and have also been offset by slight sales decreases
in certain other product lines. The Company's proficiency testing and reagent
sales also contributed to volume growth for the first six months of fiscal 2000.
International sales were $8,933,000 or 31% of total net sales for the first six
months of fiscal 2000 compared to $8,922,000 or 34% of total net sales in fiscal
1999. Domestic exports were $1,650,000 for the six-month period, or 6%, of total
net sales while the remaining international sales were generated by MDE. MDE
sales for the six months ended March 31, 2000 decreased 11% from $8,148,000 to
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$7,283,000 compared to fiscal 1999. Strong sales in the second quarter of fiscal
1999, the negative effect of currency of approximately $1,056,000, or 12%, and
the reduction of sales in Germany due to regulatory changes enacted in the
Company's fourth quarter of fiscal 1999 contributed to the decline.
Gross Profit
Gross profit increased $1,382,000 or 8%, to $18,090,000 for the first six months
of fiscal 2000 compared to fiscal 1999. Gross profit margins remained constant
at 63% for the first six months of fiscal 2000 compared to fiscal 1999. Margins
were favorably impacted by product mix; however, this was offset by the impact
of the strengthening of the dollar in Europe as well as higher scrap costs. As
of March 31, 2000, the Company has sold substantially all inventory manufactured
in Gull's Salt Lake City facility. Going forward, gross profit will reflect the
efficiencies of producing Gull products in Cincinnati.
Operating Expenses
Operating expenses, inclusive of merger integration costs in fiscal 1999,
decreased $524,000 or 4%, to $11,989,000 during the first six months of fiscal
2000 compared to fiscal 1999. Excluding merger integration costs in fiscal 1999,
operating expenses increased $688,000 or 6%, during the first six months of
fiscal 2000 compared to fiscal 1999, and as a percentage of sales, decreased to
41% from 43% in fiscal 1999. Overall, exclusive of merger integration costs in
fiscal 1999, operating expenses increased as they reflect six months of Gull
activity in fiscal 2000 and only five months in fiscal 1999. Operating expenses
were also favorably impacted by currency.
Research and development expenses decreased 2% during the first six months of
fiscal 2000, and as a percentage of sales, decreased to 3% from 4% in fiscal
1999. The slight decrease reflects the consolidation of research and development
activities in the Cincinnati facility in March 1999. Sales and marketing
expenses increased $357,000 or 6% during the first six months of fiscal 2000
compared to fiscal 1999, reflecting one additional month of Gull operations in
fiscal 2000. As a percentage of sales, sales and marketing expenses were flat at
21% of sales during the first six months of fiscal 2000 compared to fiscal 1999.
General and administrative expenses increased $353,000 or 8% during the first
six months of fiscal 2000 compared to fiscal 1999, reflecting one additional
month of Gull operations during fiscal 2000. As a percentage of sales, general
and administrative expenses decreased to 17% from 18% in fiscal 1999. General
and administrative expenses for the first six months of fiscal 2000 include
higher amortization costs associated with intangibles from the Gull acquisition
based on final appraisals, as well as normal salary and wage increases. However,
such increases were offset by the elimination of certain administrative costs in
Salt Lake City upon closure of that facility and the impact of currency.
Operating Income
As a result of the above items, operating income, inclusive of merger
integration costs in fiscal 1999 increased $1,906,000 or 45%, to $6,101,000
during the first six months of fiscal 2000 compared to fiscal 1999. Exclusive of
merger integration costs in fiscal 1999, operating income increased $694,000 or
13%.
Other Income and Expense
Interest expense decreased $357,000 or 28%, to $935,000 during the first six
months of fiscal 2000 compared to fiscal 1999. This decrease resulted primarily
from the refinancing of debt assumed in the Gull acquisition during January
1999.
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Income Taxes
The provision for income taxes is at an effective rate of 40% for the first six
months of fiscal 2000 compared to 42% for fiscal 1999. Based on tax-planning
strategies, the Company has recorded a future benefit for operating losses
incurred in certain European operations during the first six months of fiscal
2000, consistent with fiscal 1999. The effective tax rate in fiscal 2000 is
lower than in fiscal 1999 because of the tax effects of the final allocation of
the purchase price for the Gull acquisition and the resulting amount of
non-deductible goodwill.
Liquidity and Capital Resources
The Company's operating cash flow and potential financing requirements are
determined by analysis of annual operating and capital spending budgets and
consideration of acquisition plans. The Company has historically maintained a
significant level of cash and cash equivalents in order to quickly respond to
acquisition opportunities.
During the first six months of fiscal 2000, net cash flows provided by
operations were $2,676,000, compared to $7,467,000 in fiscal 1999. Net cash
flows provided by operations in fiscal 2000 were favorably impacted by higher
net income and non-cash expenses for depreciation and amortization, reflecting a
full six months of Gull operations compared to only five months in fiscal 1999.
Net cash flows from operations in fiscal 2000 were negatively impacted by growth
in accounts receivable, inventories and prepaids, and decreases in accounts
payable and accrued expenses. These changes in current assets and liabilities
reflect overall growth in the business and payments to construction contractors
related to the renovation of the Cincinnati production facility. Net cash flows
from operations in fiscal 2000 were also negatively impacted by currency
translation because of the strengthening of the dollar in Europe.
During the first six months of fiscal 2000, net cash flows used in investing
activities were $3,541,000 in fiscal 2000 compared to $17,882,000 in fiscal
1999. Net cash flows used in investing activities in fiscal 2000 primarily
relate to capital expenditures for the Cincinnati production facility to
accommodate the Gull product lines. Net cash flows used in investing activities
during fiscal 1999 include $18,210,000 related to the acquisition of Gull.
During the first six months of fiscal 2000, net cash flows provided by financing
activities were $1,219,000 compared to net cash flows used in financing
activities of $2,375,000 in fiscal 1999. This change is largely due to
reductions in debt payments assumed in the Gull acquisition that were
subsequently refinanced in the second quarter of fiscal 1999. In December 1999,
the Company financed the renovation of the Cincinnati production facility
through a $3,478,000 five-year term loan bearing interest at 8% and a $522,000
seven-year capital lease.
Net cash flows from operations are anticipated to fund working capital
requirements for the balance of fiscal 2000. The Company has a $20,000,000
credit facility with a commercial bank under which $12,786,000 is available at
March 31, 2000. Also, the Company has cash, cash equivalents and investments in
the aggregate amount of $7,323,000 at March 31, 2000.
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
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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 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on January 20, 2000. Each
of the following matters was voted upon and approved by the Company's
shareholders as indicated below:
(1) Election of the following six directors:
(a) James A. Buzard, 12,835,838 votes for, 141,930 withheld and 0
abstentions.
(b) John A. Kraeutler, 12,803,108 votes for, 174,660 withheld and 0
abstentions.
(c) Gary P. Kreider, 12,830,139 votes for, 147,629 withheld and 0
abstentions.
(d) William J. Motto, 12,811,749 votes for, 166,019 withheld and 0
abstentions.
(e) Robert J. Ready, 12,876,899 votes for, 100,869 withheld and 0
abstentions.
(2) Ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for fiscal year 2000, 12,924,352 votes for,
19,057 against and 34,359 abstentions.
Item 5. Other Information
On February 22, 2000, Meridian Diagnostics announced that it has received
clearance from the United States Food and Drug Administration (FDA) to market
Premier C. difficile Toxins A&B, the sixth member of the company's C. difficile
product family. Toxigenic C. difficile is the major cause of Antibiotic
Associated Diarrhea (AAD) and Antibiotic Associated Pseudo-membranous colitis
(PMC), two serious conditions that can have fatal consequences. Meridian
developed the first commercially available test that can detect both toxins in
as little as 20 minutes. Any clinical laboratory can easily perform this test
producing both an accurate and quick turnaround of patient results.
On March 21, 2000, Meridian Diagnostics and La Jolla Diagnostics (LAJD)
announced an agreement for an undisclosed cash payment and future royalties for
a unique rapid blood test for active tuberculosis from the DiagnosTech
subsidiary of La Jolla Diagnostics, Inc. The test utilizes a combination of
three highly specialized Mycobacterium tuberculosis antigens that will react
with blood serum from persons having TB, in just three minutes. The ability of
this test to distinguish TB infection from "active" disease makes it ideal for
helping medical professionals select the appropriate therapy.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description Page(s)
----------- --------------------------------- -------
27 Financial Data Schedule (Restated) 22-24
99 Forward Looking Statements 25
(b) Reports on Form 8-K:
None.
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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: August 4, 2000 /s/ Melissa Lueke
-------------------------------------------
Melissa Lueke
Corporate Controller
(Acting Principal Accounting Officer)
