SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | ||
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30,December 31, 2011
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 number0-14902
MERIDIAN BIOSCIENCE, 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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding | ||
Common Stock, no par value |
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page(s) | ||||||||
PART I. | ||||||||
Item 1. | 1 | |||||||
2 | ||||||||
3-4 | ||||||||
5 | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | 16 | |||||||
PART II. | ||||||||
Item | ||||||||
Item 6. | 17 | |||||||
18 | ||||||||
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
NET SALES | $ | 40,052 | $ | 33,857 | $ | 118,374 | $ | 107,461 | ||||||||
COST OF SALES | 14,626 | 12,121 | 43,046 | 40,073 | ||||||||||||
GROSS PROFIT | 25,426 | 21,736 | 75,328 | 67,388 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Research and development | 2,710 | 2,128 | 7,383 | 6,521 | ||||||||||||
Selling and marketing | 6,143 | 4,287 | 17,847 | 13,495 | ||||||||||||
General and administrative | 6,442 | 4,872 | 18,675 | 14,042 | ||||||||||||
European and global sales & marketing leadership reorganization | — | — | 1,240 | — | ||||||||||||
Bioline Group transaction costs | — | 673 | — | 673 | ||||||||||||
Total operating expenses | 15,295 | 11,960 | 45,145 | 34,731 | ||||||||||||
OPERATING INCOME | 10,131 | 9,776 | 30,183 | 32,657 | ||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | 26 | 29 | 70 | 90 | ||||||||||||
Other, net | 36 | (9 | ) | 357 | (17 | ) | ||||||||||
Total other income (expense) | 62 | 20 | 427 | 73 | ||||||||||||
EARNINGS BEFORE INCOME TAXES | 10,193 | 9,796 | 30,610 | 32,730 | ||||||||||||
INCOME TAX PROVISION | 3,357 | 3,372 | 10,489 | 11,405 | ||||||||||||
NET EARNINGS | $ | 6,836 | $ | 6,424 | $ | 20,121 | $ | 21,325 | ||||||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.17 | $ | 0.16 | $ | 0.49 | $ | 0.53 | ||||||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.17 | $ | 0.16 | $ | 0.49 | $ | 0.52 | ||||||||
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC | 40,737 | 40,535 | 40,680 | 40,510 | ||||||||||||
EFFECT OF DILUTIVE STOCK OPTIONS | 657 | 616 | 673 | 656 | ||||||||||||
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED | 41,394 | 41,151 | 41,353 | 41,166 | ||||||||||||
ANTI-DILUTIVE SECURITIES: | ||||||||||||||||
Common share options | 160 | 234 | 177 | 207 | ||||||||||||
DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.19 | $ | 0.19 | $ | 0.57 | $ | 0.55 | ||||||||
September 30, | September 30, | |||||||
Three Months Ended December 31, | 2011 | 2010 | ||||||
NET SALES | $ | 40,266 | $ | 37,263 | ||||
COST OF SALES | 15,533 | 13,761 | ||||||
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GROSS PROFIT | 24,733 | 23,502 | ||||||
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OPERATING EXPENSES | ||||||||
Research and development | 2,273 | 2,309 | ||||||
Selling and marketing | 5,568 | 5,475 | ||||||
General and administrative | 6,643 | 6,628 | ||||||
Plant consolidation costs | 444 | — | ||||||
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Total operating expenses | 14,928 | 14,412 | ||||||
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OPERATING INCOME | 9,805 | 9,090 | ||||||
OTHER INCOME | ||||||||
Interest income | 5 | 17 | ||||||
Other, net | 316 | 203 | ||||||
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Total other income | 321 | 220 | ||||||
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EARNINGS BEFORE INCOME TAXES | 10,126 | 9,310 | ||||||
INCOME TAX PROVISION | 3,548 | 3,285 | ||||||
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NET EARNINGS | $ | 6,578 | $ | 6,025 | ||||
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BASIC EARNINGS PER COMMON SHARE | $ | 0.16 | $ | 0.15 | ||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.16 | $ | 0.15 | ||||
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 41,067 | 40,615 | ||||||
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARES AND UNITS | 420 | 679 | ||||||
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 41,487 | 41,294 | ||||||
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ANTI-DILUTIVE SECURITIES: | ||||||||
Common share options and restricted shares and units | 343 | 160 | ||||||
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DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.19 | $ | 0.19 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 1
(dollars in thousands)
Nine Months Ended June 30, | 2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 20,121 | $ | 21,325 | ||||
Non-cash items: | ||||||||
Depreciation of property, plant and equipment | 2,525 | 2,307 | ||||||
Amortization of intangible assets | 1,796 | 1,079 | ||||||
Amortization of deferred illumigene contract costs | 81 | — | ||||||
Stock-based compensation | 1,981 | 1,255 | ||||||
Deferred income taxes | (1,622 | ) | (108 | ) | ||||
Loss on disposition of fixed assets | 7 | 15 | ||||||
Unrealized loss on auction-rate securities and rights, net | — | 10 | ||||||
Change in current assets | (10,176 | ) | 2,151 | |||||
Change in current liabilities | 2,451 | (4,327 | ) | |||||
Other, net | (546 | ) | (6 | ) | ||||
Net cash provided by operating activities | 16,618 | 23,701 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment | (7,666 | ) | (3,681 | ) | ||||
Purchases of intangibles and other assets | (12 | ) | — | |||||
Purchases of short-term investments | — | (1,000 | ) | |||||
Proceeds from sales and calls of short-term investments | — | 8,275 | ||||||
Net cash (used for) provided by investing activities | (7,678 | ) | 3,594 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends paid | (23,192 | ) | (22,282 | ) | ||||
Proceeds and tax benefits from exercises of stock options | 1,481 | 559 | ||||||
Net cash used for financing activities | (21,711 | ) | (21,723 | ) | ||||
Effect of Exchange Rate Changes on Cash and Equivalents | 455 | (1,383 | ) | |||||
Net (Decrease) Increase in Cash and Equivalents | (12,316 | ) | 4,189 | |||||
Cash and Equivalents at Beginning of Period | 37,879 | 54,030 | ||||||
Cash and Equivalents at End of Period | $ | 25,563 | $ | 58,219 | ||||
September 30, | September 30, | |||||||
Three Months Ended December 31, | 2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 6,578 | $ | 6,025 | ||||
Non-cash items included in net earnings: | ||||||||
Depreciation of property, plant and equipment | 903 | 845 | ||||||
Amortization of intangible assets | 520 | 595 | ||||||
Amortization of deferred illumigene contract costs | 149 | — | ||||||
Stock-based compensation | 979 | 967 | ||||||
Deferred income taxes | (679 | ) | (955 | ) | ||||
(Gain) loss on disposition of fixed assets and other assets | (23 | ) | 4 | |||||
Change in current assets | 2,718 | 2,276 | ||||||
Change in current liabilities | 1,452 | 3,177 | ||||||
Other, net | (100 | ) | 665 | |||||
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Net cash provided by operating activities | 12,497 | 13,599 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment | (1,052 | ) | (2,559 | ) | ||||
Proceeds from sale of assets | 400 | — | ||||||
Purchases of intangibles and other assets | (1,290 | ) | (12 | ) | ||||
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Net cash used for investing activities | (1,942 | ) | (2,571 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends paid | (7,803 | ) | (7,720 | ) | ||||
Proceeds and tax benefits from exercises of stock options | 269 | 739 | ||||||
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Net cash used for financing activities | (7,534 | ) | (6,981 | ) | ||||
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Effect of Exchange Rate Changes on Cash and Equivalents | (442 | ) | (447 | ) | ||||
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Net Increase in Cash and Equivalents | 2,579 | 3,600 | ||||||
Cash and Equivalents at Beginning of Period | 23,626 | 37,879 | ||||||
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Cash and Equivalents at End of Period | $ | 26,205 | $ | 41,479 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 2
(dollars in thousands)
ASSETS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
CURRENT ASSETS | ||||||||
Cash and equivalents | $ | 25,563 | $ | 37,879 | ||||
Accounts receivable, less allowances of $125 and $241 | 23,987 | 22,064 | ||||||
Inventories | 34,066 | 28,420 | ||||||
Prepaid expenses and other current assets | 6,571 | 5,071 | ||||||
Deferred income taxes | 2,335 | 1,871 | ||||||
Total current assets | 92,522 | 95,305 | ||||||
PROPERTY, PLANT AND EQUIPMENT, at Cost | ||||||||
Land | 1,194 | 991 | ||||||
Buildings and improvements | 21,406 | 20,670 | ||||||
Machinery, equipment and furniture | 31,382 | 31,945 | ||||||
Construction in progress | 5,946 | 1,320 | ||||||
Subtotal | 59,928 | 54,926 | ||||||
Less: accumulated depreciation and amortization | 33,472 | 33,689 | ||||||
Net property, plant and equipment | 26,456 | 21,237 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 23,443 | 23,302 | ||||||
Other intangible assets, net | 11,632 | 13,327 | ||||||
Restricted cash | 1,000 | 1,000 | ||||||
Deferred illumigene contract costs | 2,643 | 231 | ||||||
Other assets | 255 | 239 | ||||||
Total other assets | 38,973 | 38,099 | ||||||
�� | ||||||||
TOTAL ASSETS | $ | 157,951 | $ | 154,641 | ||||
September 30, | September 30, | |||||||
December 31, 2011 (Unaudited) | September 30, 2011 | |||||||
CURRENT ASSETS | ||||||||
Cash and equivalents | $ | 26,205 | $ | 23,626 | ||||
Accounts receivable, less allowances of $453 and $310 | 24,023 | 24,844 | ||||||
Inventories | 33,656 | 32,689 | ||||||
Prepaid expenses and other current assets | 2,424 | 6,343 | ||||||
Deferred income taxes | 3,098 | 2,852 | ||||||
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Total current assets | 89,406 | 90,354 | ||||||
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PROPERTY, PLANT AND EQUIPMENT, at Cost | ||||||||
Land | 1,176 | 1,184 | ||||||
Buildings and improvements | 26,188 | 23,033 | ||||||
Machinery, equipment and furniture | 34,121 | 32,408 | ||||||
Construction in progress | 784 | 3,887 | ||||||
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Subtotal | 62,269 | 60,512 | ||||||
Less: accumulated depreciation and amortization | 35,641 | 33,973 | ||||||
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Net property, plant and equipment | 26,628 | 26,539 | ||||||
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OTHER ASSETS | ||||||||
Goodwill | 22,699 | 23,124 | ||||||
Other intangible assets, net | 11,648 | 10,947 | ||||||
Restricted cash | 1,000 | 1,000 | ||||||
Deferred illumigene contract costs, net | 3,577 | 3,304 | ||||||
Other assets | 237 | 225 | ||||||
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Total other assets | 39,161 | 38,600 | ||||||
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TOTAL ASSETS | $ | 155,195 | $ | 155,493 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 6,093 | $ | 4,466 | ||||
Accrued employee compensation costs | 4,100 | 3,451 | ||||||
Other accrued expenses | 5,457 | 5,521 | ||||||
Income taxes payable | 1,532 | 1,086 | ||||||
Total current liabilities | 17,182 | 14,524 | ||||||
DEFERRED INCOME TAXES | 2,649 | 2,756 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock, no par value, 1,000,000 shares authorized, none issued | — | — | ||||||
Common shares, no par value, 71,000,000 shares authorized, 41,048,269 and 40,654,286 shares issued, respectively | — | — | ||||||
Additional paid-in capital | 97,577 | 94,529 | ||||||
Retained earnings | 39,106 | 42,177 | ||||||
Accumulated other comprehensive income | 1,437 | 655 | ||||||
Total shareholders’ equity | 138,120 | 137,361 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 157,951 | $ | 154,641 | ||||
September 30, | September 30, | |||||||
December 31, 2011 (Unaudited) | September 30, 2011 | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 6,207 | $ | 5,548 | ||||
Accrued employee compensation costs | 4,035 | 4,235 | ||||||
Other accrued expenses | 5,252 | 4,692 | ||||||
Income taxes payable | 1,065 | 789 | ||||||
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Total current liabilities | 16,559 | 15,264 | ||||||
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DEFERRED INCOME TAXES | 933 | 1,705 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock, no par value, 1,000,000 shares authorized, none issued | — | — | ||||||
Common shares, no par value, 71,000,000 shares authorized, 41,247,545 and 41,237,120 shares issued, respectively | — | — | ||||||
Additional paid-in capital | 101,095 | 100,010 | ||||||
Retained earnings | 36,840 | 38,065 | ||||||
Accumulated other comprehensive income | (232 | ) | 449 | |||||
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Total shareholders’ equity | 137,703 | 138,524 | ||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 155,195 | $ | 155,493 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4
(dollars and shares in thousands)
Accumulated | ||||||||||||||||||||||||
Common | Additional | Other | Total | |||||||||||||||||||||
Shares | Paid-In | Retained | Comprehensive | Comprehensive | Shareholders’ | |||||||||||||||||||
Issued | Capital | Earnings | Income (Loss) | Income (Loss) | Equity | |||||||||||||||||||
Balance at September 30, 2010 | 40,654 | $ | 94,529 | $ | 42,177 | $ | 655 | — | $ | 137,361 | ||||||||||||||
Cash dividends paid | — | — | (23,192 | ) | — | (23,192 | ) | |||||||||||||||||
Exercise of stock options | 212 | 1,067 | — | — | 1,067 | |||||||||||||||||||
Issuance of restricted shares | 182 | — | — | — | — | |||||||||||||||||||
Stock compensation expense | — | 1,981 | — | — | 1,981 | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | — | — | 20,121 | — | $ | 20,121 | 20,121 | |||||||||||||||||
Foreign currency translation adjustment | — | — | — | 1,203 | 1,203 | 1,203 | ||||||||||||||||||
Other comprehensive income taxes | — | — | — | (421 | ) | (421 | ) | (421 | ) | |||||||||||||||
Comprehensive income | $ | 20,903 | ||||||||||||||||||||||
Balance at June 30, 2011 | 41,048 | $ | 97,577 | $ | 39,106 | $ | 1,437 | $ | 138,120 | |||||||||||||||
00000000 | 00000000 | 00000000 | 00000000 | 00000000 | 00000000 | |||||||||||||||||||
Common Shares Issued | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||
Balance at September 30, 2011 | 41,237 | $ | 100,010 | $ | 38,065 | $ | 449 | $ | 138,524 | |||||||||||||||
Cash dividends paid | — | — | (7,803 | ) | — | (7,803 | ) | |||||||||||||||||
Exercise of stock options | 10 | 106 | — | — | 106 | |||||||||||||||||||
Issuance of restricted shares, net of forfeitures | (1 | ) | — | — | — | — | ||||||||||||||||||
Conversion of restricted stock units | 1 | — | — | — | — | |||||||||||||||||||
Stock compensation expense | — | 979 | — | — | 979 | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | — | — | 6,578 | — | $ | 6,578 | 6,578 | |||||||||||||||||
Other comprehensive income taxes | — | — | — | 363 | 363 | 363 | ||||||||||||||||||
Foreign currency translation adjustment | — | — | — | (1,044 | ) | (1,044 | ) | (1,044 | ) | |||||||||||||||
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Comprehensive income | $ | 5,897 | ||||||||||||||||||||||
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Balance at December 31, 2011 | 41,247 | $ | 101,095 | $ | 36,840 | $ | (232 | ) | $ | 137,703 | ||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
1. |
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The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of June 30,December 31, 2011, the results of its operations for the three and nine month periods ended June 30,December 31, 2011 and 2010, and its cash flows for the ninethree month periods ended June 30,December 31, 2011 and 2010. These statements should be read in conjunction with the financial statements and footnotes thereto included in the Company’s fiscal 20102011 Annual Report on Form 10-K. Financial information as of September 30, 20102011 has been derived from the Company’s audited consolidated financial statements.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the year.
2. |
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(a) | Revenue Recognition and Accounts Receivable |
Revenue is generally recognized from sales when product is shipped and title has passed to the buyer. Revenue for the U.S. Diagnostics operating segment is reduced at the date of sale for estimated rebates that will be claimed by customers. Management estimates accruals for rebate agreements based on data provided by these customers, estimates of inventories of our products held by these customers, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Our rebate accruals were $4,311 at December 31, 2011 and $4,176 at September 30, 2011.
Revenue for our Diagnostics operating segments includes bundled product revenue for ourillumigene®molecular test system. The bundled product includes an instrument, instrument accessories and test kits. If not sold outright, amounts invoiced for theillumigene®test kits cover the instrument, accessories and test kits. Revenue is recognized based on kit sales. If not sold outright, costs for the instruments are recognized in cost of sales over the period that we have a pricing agreement in effect with the customer, generally three years.
Life Science revenue for contract services may come from research and development services or manufacturing services, including process development work, or a combination of both. Revenue is recognized based on each of the deliverables in a given arrangement having distinct and separate customer pricing. Pricing is often subject to a competitive bidding process. Contract research and development services may be performed on a “time and materials” basis or “fixed fee” basis. For “time and materials” arrangements, revenue is recognized as services are performed and billed. For “fixed fee” arrangements, revenue is recognized upon completion and acceptance by the customer. For contract manufacturing services, revenue is generally recognized upon delivery of product and acceptance by the customer. In some cases, customers may request that we store on their behalf, clinical grade biologicals that we produce under contract manufacturing agreements. These cases arise when customers do not have clinical grade storage facilities or do not want to risk contamination during transport. For such cases, revenue may be recognized on a bill-and-hold basis. No such bill-and-hold arrangements existed at December 31, 2011 or September 30, 2011.
Page 6
Trade accounts receivable are recorded |
Three Months | Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net earnings | $ | 6,836 | $ | 6,424 | $ | 20,121 | $ | 21,325 | ||||||||
Foreign currency translation adjustment | 335 | (1,287 | ) | 1,203 | (2,429 | ) | ||||||||||
Income taxes | (117 | ) | 451 | (421 | ) | 850 | ||||||||||
Comprehensive income | $ | 7,054 | $ | 5,588 | $ | 20,903 | $ | 19,746 | ||||||||
Page 7
June 30, 2011 | September 30, 2010 | |||||||||||||||
Cash and | Cash and | |||||||||||||||
Equivalents | Other | Equivalents | Other | |||||||||||||
Taxable investments - | ||||||||||||||||
Overnight repurchase agreements | $ | 11,332 | $ | — | $ | 14,862 | $ | — | ||||||||
Money market funds | — | — | 10,249 | — | ||||||||||||
Cash on hand - | ||||||||||||||||
Restricted | — | 1,000 | — | 1,000 | ||||||||||||
Unrestricted | 14,231 | — | 12,768 | — | ||||||||||||
Total | $ | 25,563 | $ | 1,000 | $ | 37,879 | $ | 1,000 | ||||||||
Page 8
Three | Nine | |||||||
Months | Months | |||||||
Ended | Ended | |||||||
June 30, 2011 | June 30, 2011 | |||||||
Net Sales | $ | 3,905 | $ | 10,966 | ||||
Operating Income (Loss) | $ | 83 | $ | (91 | ) | |||
Net (Loss) Earnings | $ | (31 | ) | $ | 28 | |||
July 20, | ||||||||||||
2010 | Measurement | July 20, | ||||||||||
(as initially | Period | 2010 | ||||||||||
reported) | Adjustments | (as adjusted) | ||||||||||
Fair value of assets acquired - | ||||||||||||
Cash and equivalents | $ | 3,445 | $ | 3,445 | ||||||||
Accounts receivable | 1,897 | 1,897 | ||||||||||
Inventories | 2,807 | 2,807 | ||||||||||
Other current assets | 371 | $ | (21 | ) | 350 | |||||||
Property, plant and equipment, net | 816 | 816 | ||||||||||
Goodwill | 13,166 | (174 | ) | 12,992 | ||||||||
Other intangible assets (estimated useful life): | ||||||||||||
Customer relationships (10 years) | 3,898 | 3,898 | ||||||||||
Manufacturing processes (6 years) | 1,467 | 1,467 | ||||||||||
License agreements (approx. 8 year wtd. avg.) | 718 | 718 | ||||||||||
Non-compete agreements (1 year) | 122 | 122 | ||||||||||
Trade names (10 years) | 995 | 995 | ||||||||||
29,702 | (195 | ) | 29,507 | |||||||||
Fair value of liabilities assumed - | ||||||||||||
Accounts payable and accrued expenses | 2,817 | 364 | 3,181 | |||||||||
Deferred income tax liabilities | 3,036 | (559 | ) | 2,477 | ||||||||
Total consideration paid | $ | 23,849 | $ | — | $ | 23,849 | ||||||
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(b) | Comprehensive Income (Loss) – |
Our comprehensive income or loss is comprised of net earnings, foreign currency translation and the related income tax effects.
Assets and liabilities of foreign operations are translated using period-end exchange rates with gains or losses resulting from translation included as a separate component of comprehensive income or loss. Revenues and expenses are translated using exchange rates prevailing during the period. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound and Euro currencies. These gains and losses are included in other income and expense in the accompanying Condensed Consolidated Balance Sheet.
Comprehensive income for the interim periods was as follows:
September 30, | September 30, | |||||||
Three Months | ||||||||
Ended December 31, | ||||||||
2011 | 2010 | |||||||
Net earnings | $ | 6,578 | $ | 6,025 | ||||
Foreign currency translation adjustment | (1,044 | ) | (936 | ) | ||||
Income taxes | 363 | 325 | ||||||
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Comprehensive income | $ | 5,897 | $ | 5,414 | ||||
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(c) | Income Taxes – |
The consolidated pro forma resultsprovision 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. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the combined entities of Meridian and the Bioline Group, had the acquisition date been October 1, 2009, are as followscurrent fiscal year for the periods indicated:
Three Months | Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net Sales | $ | 40,052 | $ | 37,361 | $ | 118,374 | $ | 117,208 | ||||||||
Net Earnings | $ | 6,857 | $ | 7,201 | $ | 20,565 | $ | 20,757 | ||||||||
Diluted Earnings Per Common Share | $ | 0.17 | $ | 0.17 | $ | 0.50 | $ | 0.50 | ||||||||
We account for uncertain tax positions using a benefit recognition model with a two-step approach: (i) a more-likely-than-not recognition criterion; and (ii) a measurement attribute that measures the resultsposition as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more likely than not that the Bioline Group to reflect the transaction costs incurred by the Companybenefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest and the additional amortization that would have been charged assuming the previously-discussed fair value adjustments to inventory and identifiable intangible assets had been applied on October 1, 2009, together with the consequential tax effects. Fiscal 2011 pro forma earnings exclude $21 and $444 for the three and nine month periods, respectively,penalties related to amortizationunrecognized tax benefits as a portion of our income tax provision in the Condensed Consolidated Statements of Operations.
(d) | Stock-based Compensation – |
We recognize compensation expense for all share-based awards made to employees, based upon the fair value adjustments to inventoryof the share-based award on the date of the grant. Shares are expensed over their requisite service period.
7
(e) | Cash and Cash Equivalents – |
Cash and identifiable intangible assets andcash equivalents include the related tax effects, as these amountsfollowing components:
September 30, | September 30, | September 30, | September 30, | |||||||||||||
December 31, 2011 | September 30, 2011 | |||||||||||||||
Cash and Equivalents | Other | Cash and Equivalents | Other | |||||||||||||
Overnight repurchase agreements | $ | 14,927 | $ | — | $ | 11,784 | $ | — | ||||||||
Cash on hand— | ||||||||||||||||
Restricted | — | 1,000 | — | 1,000 | ||||||||||||
Unrestricted | 11,278 | — | 11,842 | — | ||||||||||||
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Total | $ | 26,205 | $ | 1,000 | $ | 23,626 | $ | 1,000 | ||||||||
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(f) | Reclassifications – |
Certain reclassifications have been included inmade to the prior period financial statements to conform to the current fiscal 2010 pro forma earnings.
3. |
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Inventories are comprised of the following:
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
Raw materials | $ | 6,821 | $ | 6,221 | ||||
Work-in-process | 7,655 | 6,784 | ||||||
Finished goods — illumigene instruments | 3,556 | 455 | ||||||
Finished goods — kits and other | 17,443 | 16,090 | ||||||
Gross inventory | 35,475 | 29,550 | ||||||
Less: Reserves | (1,409 | ) | (1,130 | ) | ||||
Net inventory | $ | 34,066 | $ | 28,420 | ||||
September 30, | September 30, | |||||||
December 31, 2011 | September 30, 2011 | |||||||
Raw materials | $ | 7,940 | $ | 7,272 | ||||
Work-in-process | 7,593 | 7,016 | ||||||
Finished goods - illumigene instruments | 3,599 | 4,179 | ||||||
Finished goods - kits and other | 14,524 | 14,222 | ||||||
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Total | $ | 33,656 | $ | 32,689 | ||||
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4. |
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Meridian was formed in 1976 and functions as a fully-integrated research, development, manufacturing, marketing and sales organization with primary emphasis in the fieldfields of in vitro diagnostics and life science. Our principal businesses are (i) the development, manufacture and distribution of diagnostic test kits primarily for gastrointestinal, viral, respiratory and parasitic infectious diseases; (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents used by researchers and other diagnostic manufacturers; and (iii) the contract development and manufacture of proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
Our reportable operating segments are U.S. Diagnostics, European Diagnostics and Life Science. Initial segmentation between Diagnostics and Life Science has been determined based upon products and customers, with further segmentation of Diagnostics between U.S. and European being based upon geographic regions served and management responsibility. The U.S. Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the U.S. and countries outside of Australia, Europe, Africa and the Middle East. The European Diagnostics operating segment consists of the sale and distribution of diagnostic test kits in Australia, Europe, Africa and the Middle East. The Life Science operating segment consists of manufacturing operations in Memphis, Tennessee; Saco, Maine; Boca Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents domestically and abroad. During the fourth quarter of fiscal 2011, plans were announced to consolidate the Saco, Maine operations into the Memphis, Tennessee facility, with such consolidation commencing early in the fiscal 2012 first quarter and expected to be completed in the third quarter of fiscal 2012. During the
8
first quarter of fiscal 2012, the Company incurred $444 of costs associated with the facility consolidation, primarily related to employee retention, resulting in $1,501 of total costs incurred since announcement of the consolidation in the fourth quarter of fiscal 2011 ($509 in Cost of Sales and $992 in Operating Expenses). Additional costs related to the consolidation totaling approximately $500 are expected to be incurred during the remainder of fiscal 2012, with the majority of such costs to be incurred in connection with retention bonus and other employee-related costs. The Life Science operating segment also includes the contract development and manufacture of cGMP clinical grade proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
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Segment information for the interim periods is as follows:
U.S. | European | Life | ||||||||||||||||||
Diagnostics | Diagnostics | Science | Eliminations(1) | Total | ||||||||||||||||
Three Months Ended June 30, 2011 | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 23,829 | $ | 6,612 | $ | 9,611 | $ | — | $ | 40,052 | ||||||||||
Inter-segment | 2,875 | 9 | 141 | (3,025 | ) | — | ||||||||||||||
Operating income | 8,399 | 978 | 797 | (43 | ) | 10,131 | ||||||||||||||
Goodwill (June 30, 2011) | 1,381 | — | 22,062 | — | 23,443 | |||||||||||||||
Other intangible assets, net (June 30, 2011) | 1,741 | — | 9,891 | — | 11,632 | |||||||||||||||
Total assets (June 30, 2011) | 71,831 | 20,680 | 94,164 | (28,724 | ) | 157,951 | ||||||||||||||
Three Months Ended June 30, 2010 | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 21,121 | $ | 6,218 | $ | 6,518 | $ | — | $ | 33,857 | ||||||||||
Inter-segment | 2,723 | 8 | 177 | (2,908 | ) | — | ||||||||||||||
Operating income | 8,104 | 726 | 752 | 194 | 9,776 | |||||||||||||||
Goodwill (September 30, 2010) | 1,381 | — | 21,921 | — | 23,302 | |||||||||||||||
Other intangible assets, net (September 30, 2010) | 2,283 | 9 | 11,035 | — | 13,327 | |||||||||||||||
Total assets (September 30, 2010) | 72,030 | 18,044 | 90,388 | (25,821 | ) | 154,641 | ||||||||||||||
Nine Months Ended June 30, 2011 | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 72,007 | $ | 18,926 | $ | 27,441 | $ | — | $ | 118,374 | ||||||||||
Inter-segment | 7,938 | 16 | 459 | (8,413 | ) | — | ||||||||||||||
Operating income | 26,780 | 1,781 | 1,499 | 123 | 30,183 | |||||||||||||||
Nine Months Ended June 30, 2010 | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 70,018 | $ | 19,103 | $ | 18,340 | $ | — | $ | 107,461 | ||||||||||
Inter-segment | 8,200 | 12 | 438 | (8,650 | ) | — | ||||||||||||||
Operating income | 26,805 | 2,789 | 2,976 | 87 | 32,657 | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
U.S. Diagnostics | European Diagnostics | Life Science | Eliminations(1) | Total | ||||||||||||||||
Three Months Ended December 31, 2011 |
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Net sales— | ||||||||||||||||||||
Third-party | $ | 25,200 | $ | 5,505 | $ | 9,561 | $ | — | $ | 40,266 | ||||||||||
Inter-segment | 2,228 | — | 336 | (2,564 | ) | — | ||||||||||||||
Operating income (2) | 8,165 | 951 | 698 | (9 | ) | 9,805 | ||||||||||||||
Goodwill (December 31, 2011) | 1,381 | — | 21,318 | — | 22,699 | |||||||||||||||
Other intangible assets, net (December 31, 2011) | 2,746 | — | 8,902 | — | 11,648 | |||||||||||||||
Total assets (December 31, 2011) | 80,452 | 15,124 | 93,409 | (33,790 | ) | 155,195 | ||||||||||||||
Three Months Ended December 31, 2010 | ||||||||||||||||||||
Net sales— | ||||||||||||||||||||
Third-party | $ | 22,650 | $ | 5,929 | $ | 8,684 | $ | — | $ | 37,263 | ||||||||||
Inter-segment | 2,608 | 4 | 213 | (2,825 | ) | — | ||||||||||||||
Operating income | 8,574 | 753 | (221 | ) | (16 | ) | 9,090 | |||||||||||||
Goodwill (September 30, 2011) | 1,381 | — | 21,743 | — | 23,124 | |||||||||||||||
Other intangible assets, net (September 30, 2011) | 1,604 | — | 9,343 | — | 10,947 | |||||||||||||||
Total assets (September 30, 2011) | 73,850 | 19,390 | 92,467 | (30,214 | ) | 155,493 |
(1) | Eliminations consist of inter-segment transactions. |
(2) | Life Science includes $444 of costs related to consolidation of the Maine operations into the Tennessee facility. |
Transactions between operating segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.
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5. |
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A summary of our acquired intangible assets subject to amortization, as of June 30,December 31, 2011 and September 30, 20102011 is as follows:
June 30, 2011 | September 30, 2010 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Value | Amortization | Value | Amortization | |||||||||||||
Manufacturing technologies, core products and cell lines | $ | 11,664 | $ | 8,360 | $ | 11,644 | $ | 7,693 | ||||||||
Trademarks, licenses and patents | 3,654 | 1,329 | 3,547 | 997 | ||||||||||||
Customer lists and supply agreements | 12,322 | 6,330 | 12,537 | 5,816 | ||||||||||||
Non-compete agreements | 128 | 117 | 126 | 21 | ||||||||||||
$ | 27,768 | $ | 16,136 | $ | 27,854 | $ | 14,527 | |||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
December 31, 2011 | September 30, 2011 | |||||||||||||||
Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | |||||||||||||
Manufacturing technologies, core products and cell lines | $ | 11,610 | $ | 8,732 | $ | 11,626 | $ | 8,545 | ||||||||
Trademarks, licenses and patents | 4,809 | 1,429 | 3,538 | 1,337 | ||||||||||||
Customer lists and supply agreements | 12,178 | 6,788 | 12,222 | 6,557 | ||||||||||||
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$ | 28,597 | $ | 16,949 | $ | 27,386 | $ | 16,439 | |||||||||
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The actual aggregate amortization expense for these intangible assets was $570$520 and $345$595 for the three months ended June 30, 2011 and 2010, respectively, and $1,796 and $1,079 for the nine months ended June 30,December 31, 2011 and 2010, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 20152016 is as follows: fiscal 2011 — $2,336, fiscal 2012 — $2,079,– $2,154, fiscal 2013 — $2,078,– $2,175, fiscal 2014 — $1,641– $1,739, fiscal 2015 – $1,492 and fiscal 2015 — $1,392.
Page 12
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Refer to “Forward Looking Statements” following the Index in front of this Form 10-Q. In the discussion that follows, all amounts are in thousands (both tables and text), except per share data and percentages.
Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of Meridian’s financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes thereto beginning on page 1.
Results of Operations
Net earnings for the thirdfirst quarter of fiscal 20112012 increased 6%9% to $6,836,$6,578, or $0.17$0.16 per diluted share, from net earnings for the thirdfirst quarter of fiscal 20102011 of $6,424,$6,025, or $0.16$0.15 per diluted share. This increase reflects the combined effects of both increased sales and slightly increased operating expenses, resulting primarily fromexpenses.Additionally, fiscal 2012 includes $444 of costs associated with the inclusionconsolidation of the Bioline Group, which was acquired in July 2010.Saco, Maine operations into the Memphis, Tennessee facility (impact on earnings $289, or $0.01 per diluted share). Consolidated sales increased 18%8% to $40,052$40,266 for the thirdfirst quarter of fiscal 20112012 compared to the same period of the prior year, reflecting the impact of Bioline Group sales and increases in sales across all four of our diagnostic focus product families:C. difficile, Foodborne andH. pylori, and Upper Respiratory.
Sales for the U.S. Diagnostics operating segment for the thirdfirst quarter of fiscal 2012 increased 11% compared to the first quarter of fiscal 2011, increased 13% compared to the third quarter of fiscal 2010, reflecting growth across all four of our focus product families — ranging from 8%– 6% growth in ourH. pyloriproducts, to 26%25% growth in our foodborne products and 37% growth in ourC. difficileproducts. ThirdFirst quarter 20112012 sales for our European Diagnostics operating segment increased 6%decreased 7% compared to the third quarter of fiscal 2010 due primarily to a positive currency effect. As a result of the Bioline Group acquisition, our Life Science segment experienced a 47% increase in sales during this period. Excluding the effect of the Bioline Group, sales of our core Life Science operating segment decreased by 12% during the third quarter of fiscal 2011 compared to the third quarter of fiscal 2010, as this business continues to experience both pricing pressure and reduced order volumes in bulk antigens, antibodies and reagents. We expect core Life Science revenues to be flat to down single digits for fiscal 2012 as our large diagnostic manufacturing customers exert pricing pressures throughout their supply chains and certain segments of the diagnostics industry migrate to molecular technologies.
Page 13
The tables below provide information on net earnings, basic earnings per share and diluted earnings per share, excluding the effect of costs associated with reorganizingconsolidation of our European and Global Sales & Marketing Leadership, each ofSaco, Maine operations into our Memphis, Tennessee facility, which is a non-GAAP financial measure, as well as reconciliations to amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because:
1. | These measures help to appropriately evaluate and compare the results of operations from period to period by removing the impact of non-routine costs related to | ||
2. | These measures are used by our management for various purposes, including evaluating performance against incentive bonus achievement targets, comparing performance from period to period in presentations to our Board of Directors, and as a basis for strategic planning and forecasting. |
Nine Months | ||||
Ended June 30, | ||||
2011 | ||||
Net Earnings - | ||||
U.S. GAAP basis | $ | 20,121 | ||
European and Global Sales & Marketing Leadership Reorganization costs, inclusive of the income tax effect (1) | 872 | |||
Adjusted earnings | $ | 20,993 | ||
Net Earnings per Basic Common Share - | ||||
U.S. GAAP basis | $ | 0.49 | ||
European and Global Sales & Marketing Leadership Reorganization costs, inclusive of the income tax effect (1) | 0.02 | |||
Adjusted Basic EPS (2) | $ | 0.52 | ||
Net Earnings per Diluted Common Share - | ||||
U.S. GAAP basis | $ | 0.49 | ||
European and Global Sales & Marketing Leadership Reorganization costs, inclusive of the income tax effect (1) | 0.02 | |||
Adjusted Diluted EPS | $ | 0.51 | ||
September 30, | ||||
Three Months Ended December 31, 2011 | ||||
Net Earnings - | ||||
U.S. GAAP basis | $ | 6,578 | ||
Facility consolidation costs (1) | 289 | |||
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Adjusted earnings | $ | 6,867 | ||
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Net Earnings per Basic Common Share - | ||||
U.S. GAAP basis | $ | 0.16 | ||
Facility consolidation costs (1) | 0.01 | |||
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Adjusted Basic EPS | $ | 0.17 | ||
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| |||
Net Earnings per Diluted Common Share - | ||||
U.S. GAAP basis | $ | 0.16 | ||
Facility consolidation costs (1) | 0.01 | |||
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Adjusted Diluted EPS | $ | 0.17 | ||
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(1) | The income tax effects of the | |
Page 14
Our Diagnostics operating segments provide the largest share of our consolidated revenues, 76% and 81%77% for the thirdfirst quarters of fiscal 2012 and 2011, and 2010, respectively, and 77% and 83% for the first nine months of fiscal 2011 and 2010, respectively. The percentage declines in both the quarterly and fiscal year-to-date periods result primarily from the addition of the Bioline Group to our Life Science operating segment and, in the case of year-to-date comparisons, the impact of the novel A (H1N1) influenza outbreak in 2010. Sales from our four focus families (C. difficile, Foodborne andH. pylori) comprised 62% and Upper Respiratory) comprised 71% and 69%56% of our Diagnostics operating segments’ revenues during the thirdfirst quarters of fiscal 2012 and 2011, and 2010, respectively, and 71% and 73% for the nine month periods ended June 30, 2011 and 2010, respectively.
Overall revenue change for the fiscal 2011 third2012 first quarter for both of our Diagnostics operating segments combined was an increase of 11%increased 7%, reflecting growth across all four of our focus product families. The levels offamilies – 2% growth in the focus products ranged from 7% in ourH. pyloriproducts, to 28%24% growth in our foodborne products.products and 27% growth in ourC. difficile products, which have experienced steady quarter-over-quarter increases since declining 3% in the first quarter of 2011. Respiratory product sales, including influenza respiratory products, decreased 2%. On an organic basis, which excludes the effects of currency translation, sales for our European Diagnostics operating segment decreased by 6% during the thirdfirst quarter, reflecting the combined effects of decreases in ourC. difficile,upper respiratory andH. pyloriproduct families, partially offset by growth in our foodborne product sales.
11
C. difficile H. pyloriProducts
Ourillumigene® molecularC. difficile product has now been available in markets around the world for over 15 months. Sales of this product were approximately $4,500 and foodborne product families being significantly offset by the effects on our respiratory product sales of a relatively mild worldwide flu season$775 in the first quarter of fiscal 2012 and 2011, compared to the fiscal 2010 first quarter, including the dramatic effects on the prior year of the world-wide outbreak of novel A (H1N1) influenza. Excluding the effects of currency translation, our European Diagnostics operating segment’s sales during the nine months ended June 30, 2011 decreased 2% relative to the comparable fiscal 2010 period, reflecting the combined effects of decreases in ourC. difficile,upper respiratory andH. pyloriproduct families, partially offset by growth in our foodborne product sales.
Our major competitors in this regard.
Page 15
Increased demand for our foodborne illness testing products throughout the first nine months of fiscal 2011has resulted in our U.S. Diagnostics operating segment experiencing sales increases for these products totaling 26% and 40%25% for the three and nine month periods ended June 30, 2011, respectively.first quarter of fiscal 2012. During thesethis same periods,period, our European Diagnostics operating segment experienced a 9% increase in sales increases of approximately 60% and 43%, respectively,these products on an organic basis, reflecting the effects of theEnterohemorrhagic E. coli(EHEC) infection outbreak in Europe during the quarter.
H. pylori Products
During the thirdfirst quarter of fiscal 2011,2012, sales of ourH. pyloriproducts grew 8%6% for our U.S. Diagnostics operating segment; 14% duringsegment. We have seen healthy customer orders in January, confirming our growth in the nine month fiscal year-to-date period. Thisfirst quarter was impacted by order patterns from one regional reference laboratory. The increase in our U.S. Diagnostics operating segment continues to reflect the benefits of our partnerships with managed care companies in promoting the health and economic benefits of a test and treat strategy, and the ongoing effects of such strategy moving physician behavior away from serology-based testing toward direct antigen testing. Due to significant competitive pressures related to these products on the international front, sales ofH. pyloriproducts for our European Diagnostics operating segment declined 7%6% on an organic basis for the fiscal 2011 third2012 first quarter, compared to the thirdfirst quarter of fiscal 2010, and declined 2% during the year-over-year nine month periods ended June 30.
Upper Respiratory Products
During the three and nine month periods ended June 30, 2011, upperfirst quarter of fiscal 2012, respiratory product sales, including influenza related products, for our Diagnostics operating segments increased 8%decreased 2%. This decline reflects a 1% decline domestically and decreased 32%, respectively, relative to the comparable fiscal 2010 periods. The sales decrease in the comparable year-to-date periods is a direct result of influenza test kit sales; in particular the abrupt halt, in December 2009, of the outbreak of the novel A (H1N1) influenza virus that began to spread across the northern hemisphere during the second half of fiscal 2009. The outbreak also created an increased interest in influenza testing in European markets where rapid testing has not been traditionally performed and resulted in significant sales activity for these products during the fiscal 2010 first quarter. However, similar to U.S. markets, these sales levels were not repeated in fiscal 2011, as evidenced by the approximate 13%12% decline in thisour European Diagnostic operating segment’s upper respiratory product salessegment on an organic basis (excluding effects of currency translation) compared to the first nine months of fiscal 2010.
Group Purchasing Organizations and Integrated Delivery Networks
In our U.S. Diagnostics operating segment, consolidation of the U.S. healthcare industry over the last several years has led to the creation of group purchasing organizations (GPOs) and integrated delivery networks (IDNs) that aggregate buying power for hospital groups and put pressure on our selling prices. We have multi-year supply agreements with several GPOs. During the third quarterGPOs and first nine months of fiscal 2011, we have experienced approximately $200 and $1,000, respectively,IDNs. These agreements, which resulted in an approximate $115 unfavorable price variance as a resultduring the first quarter of these agreements. However, these agreementsfiscal 2012, help secure our products with these customers and have ledlead to new business. While in the near term this has negatively impacted gross profit, further increases in volumes are expected from these contracts.
12
Life Science Operating Segment
Sales for our Life Science operating segment increased 47%10% for the thirdfirst quarter of fiscal 20112012, reflecting increases in both our viral antigen and 50%molecular reagent businesses of 8% and 13%, respectively. The increase in the viral antigen business largely results from increased orders for Rubella and Hepatitis A proteins, while the nine month fiscal year-to-date period, due primarily to the revenue contribution of themolecular reagent business, operated through our Bioline Group, acquired in July 2010. Excludinghas benefitted from its new product launches and advancements during recent months – most notably its new SensiFAST™ and MyTaq™ PCR components.
Foreign Currency
During the first quarter of fiscal 2012, currency exchange rates had an approximate $50 unfavorable impact ofon revenue; $35 within the Bioline Group, sales for theEuropean Diagnostic operating segment declined 12% and 10% during$15 in the three and nine month periods, respectively, as this business continues to experience both pricing pressure and reduced order volumes in several key product lines. For fiscal 2011, we expect revenues for our core Life Science businessoperating segment. This compares to decline 6%-8%, whilecurrency exchange having an approximate $435 unfavorable impact on revenue in the Bioline Group is expected to contribute approximately $15,000.
first quarter of fiscal 2011.
Page 16
Two national distributors in our U.S. Diagnostics operating segment accounted for 47%50% and 52% of total sales for this operating segment for the thirdfirst quarters of fiscal 2012 and 2011, and 2010, respectively, and 50% and 58% during the nine months ended June 30, 2011 and 2010, respectively. The lower percentage of sales reflects the fact that the majority of ourillumigene® product sales are direct, as well as the comparative decline in these distributors’ inventory stocking of influenza and other products.
Two diagnostic manufacturing customers in our Life Science operating segment accounted for 17%27% and 29%16% of total sales for this operating segment for the thirdfirst quarters of fiscal 20112012 and 2010, respectively, and 18% and 33% during the nine months ended June 30, 2011, and 2010, respectively. The lowerhigher percentage of sales during both periods results primarily from the additionbuying pattern of one of the Bioline Group.
Operating Segment Revenues
Our reportable operating segments are U.S. Diagnostics, European Diagnostics and Life Science. Initial segmentation between Diagnostics and Life Science has been determined based upon products and customers, with further segmentation of Diagnostics between U.S. and European being based upon geographic regions served and management responsibility. The U.S. Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the U.S. and countries outside of Australia, Europe, Africa and the Middle East. The European Diagnostics operating segment consists of the sale and distribution of diagnostic test kits in Australia, Europe, Africa and the Middle East. The Life Science operating segment consists of manufacturing operations in Memphis, Tennessee; Saco, Maine; Boca Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents domestically and abroad. During the fourth quarter of fiscal 2011, plans were announced to consolidate the Saco, Maine operations into the Memphis, Tennessee facility, with such consolidation commencing early in the fiscal 2012 first quarter and expected to be completed in the third quarter of fiscal 2012. The Life Science operating segment also includes the contract development and manufacture of cGMP clinical grade proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
Revenues for the Diagnostics operating segments, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and strength of certain diseases, and foreign currency exchange rates. Revenues for the Life Science operating segment, in the normal course of business, may be affected from quarter to quarter by the timing and nature of arrangements for contract services work, which may have longer production cycles than bioresearch reagents and bulk antigens and antibodies, as well as buying patterns of major customers.customers, and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues.
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Revenues for each of our operating segments are shown below.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Inc (Dec) | 2011 | 2010 | Inc (Dec) | |||||||||||||||||||
U.S. Diagnostics | $ | 23,829 | $ | 21,121 | 13 | % | $ | 72,007 | $ | 70,018 | 3 | % | ||||||||||||
European Diagnostics | 6,612 | 6,218 | 6 | % | 18,926 | 19,103 | (1 | )% | ||||||||||||||||
Life Science | 9,611 | 6,518 | 47 | % | 27,441 | 18,340 | 50 | % | ||||||||||||||||
Consolidated | $ | 40,052 | $ | 33,857 | 18 | % | $ | 118,374 | $ | 107,461 | 10 | % | ||||||||||||
International - | ||||||||||||||||||||||||
U.S. Diagnostics | $ | 1,845 | $ | 1,401 | 32 | % | $ | 5,058 | $ | 4,378 | 16 | % | ||||||||||||
European Diagnostics | 6,612 | 6,218 | 6 | % | 18,926 | 19,103 | (1 | )% | ||||||||||||||||
Life Science | 5,365 | 3,085 | 74 | % | 15,238 | 8,337 | 83 | % | ||||||||||||||||
Total | $ | 13,822 | $ | 10,704 | 29 | % | $ | 39,222 | $ | 31,818 | 23 | % | ||||||||||||
% of total sales | 35 | % | 32 | % | 33 | % | 30 | % | ||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||
Three Months Ended December 31, | ||||||||||||
2011 | 2010 | Inc (Dec) | ||||||||||
U.S. Diagnostics | $ | 25,200 | $ | 22,650 | 11 | % | ||||||
European Diagnostics | 5,505 | 5,929 | (7 | )% | ||||||||
Life Science | 9,561 | 8,684 | 10 | % | ||||||||
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Consolidated | $ | 40,266 | $ | 37,263 | 8 | % | ||||||
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U.S. Diagnostics | $ | 1,485 | $ | 1,596 | (7 | )% | ||||||
European Diagnostics | 5,505 | 5,929 | (7 | )% | ||||||||
Life Science | 5,720 | 4,589 | 25 | % | ||||||||
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Total | $ | 12,710 | $ | 12,114 | 5 | % | ||||||
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% of total sales | 32 | % | 33 | % | ||||||||
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Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
Gross Profit | $ | 25,426 | $ | 21,736 | 17 | % | $ | 75,328 | $ | 67,388 | 12 | % | ||||||||||||
Gross Profit Margin | 63 | % | 64 | % | -1 point | 64 | % | 63 | % | +1 point | ||||||||||||||
September 30, | September 30, | September 30, | ||||||||||
Three Months Ended December 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Gross Profit | $ | 24,733 | $ | 23,502 | 5 | % | ||||||
Gross Profit Margin | 61 | % | 63 | % | -2 points | |||||||
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The overall gross profit margin improvementdecline for the first ninethree months of fiscal 20112012 results primarily from the combined effects of 1) the margin contributionmix of Bioline Group products in fiscal 2011; 2) continued operating efficiencies in our Cincinnati, Ohio diagnostic test manufacturing facility; and 3)sold, as well as the year-over-year decline in upper respiratory product sales. Our upper respiratory product family generally has a lower gross profit margin than our other focus product families (C. difficile,H. pyloriand foodborne). Salesmix of upper respiratory products during the first nine months of fiscal 2011 were approximately 11% of our consolidated sales compared to 18% of consolidated sales for the comparable fiscal 2010 period. Specifically, sales offrom the Company’s influenza products represented approximately 2% of consolidated sales during the nine months ended June 30, 2011, compared to approximately 8% in the first nine months of fiscal 2010.
Our overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, proficiency panels, contract research and development, and contract manufacturing services. Product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.
Operating Expenses
Three Months Ended June 30, 2011 | ||||||||||||||||||||
Research & | Selling & | General & | Total Operating | |||||||||||||||||
Development | Marketing | Administrative | Other (1) | Expenses | ||||||||||||||||
2010 Expenses | $ | 2,128 | $ | 4,287 | $ | 4,872 | $ | 673 | $ | 11,960 | ||||||||||
% of Sales | 6 | % | 13 | % | 14 | % | 2 | % | 35 | % | ||||||||||
Fiscal 2011 Increases (Decreases): | ||||||||||||||||||||
U.S. Diagnostics | 521 | 754 | (15 | ) | — | 1,260 | ||||||||||||||
European Diagnostics | — | 87 | (27 | ) | — | 60 | ||||||||||||||
Life Science | ||||||||||||||||||||
- Bioline Group | 173 | 1,037 | 1,817 | — | 3,027 | |||||||||||||||
- Core | (112 | ) | (22 | ) | (205 | ) | — | (339 | ) | |||||||||||
- Transaction Costs | — | — | — | (673 | ) | (673 | ) | |||||||||||||
2011 Expenses | $ | 2,710 | $ | 6,143 | $ | 6,442 | $ | — | $ | 15,295 | ||||||||||
% of Sales | 7 | % | 15 | % | 16 | % | — | % | 38 | % | ||||||||||
% Increase (Decrease) | 27 | % | 43 | % | 32 | % | (100 | )% | 28 | % | ||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
Research & Development | Selling & Marketing | General & Administrative | Plant Consolidation | Total Operating Expenses | ||||||||||||||||
Q1 2011 Expenses | $ | 2,309 | $ | 5,475 | $ | 6,628 | $ | — | $ | 14,412 | ||||||||||
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% of Sales | 6 | % | 15 | % | 18 | % | — | % | 39 | % | ||||||||||
Fiscal 2012 Increases (Decreases): | ||||||||||||||||||||
U.S. Diagnostics | 109 | (144 | ) | 119 | — | 84 | ||||||||||||||
European Diagnostics | — | (31 | ) | 204 | — | 173 | ||||||||||||||
Life Science | (145 | ) | 268 | (308 | ) | 444 | 259 | |||||||||||||
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Q1 2012 Expenses | $ | 2,273 | $ | 5,568 | $ | 6,643 | $ | 444 | $ | 14,928 | ||||||||||
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% of Sales | 6 | % | 14 | % | 16 | % | 1 | % | 37 | % | ||||||||||
% Increase (Decrease) | (2 | )% | 2 | % | — | % | NMF | 4 | % |
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Nine Months Ended June 30, 2011 | ||||||||||||||||||||
Research & | Selling & | General & | Total Operating | |||||||||||||||||
Development | Marketing | Administrative | Other (1) | Expenses | ||||||||||||||||
2010 Expenses | $ | 6,521 | $ | 13,495 | $ | 14,042 | $ | 673 | $ | 34,731 | ||||||||||
% of Sales | 6 | % | 13 | % | 13 | % | 1 | % | 32 | % | ||||||||||
Fiscal 2011 Increases (Decreases): | ||||||||||||||||||||
U.S. Diagnostics | 343 | 1,612 | 326 | 365 | 2,646 | |||||||||||||||
European Diagnostics | — | 20 | (115 | ) | 875 | 780 | ||||||||||||||
Life Science | ||||||||||||||||||||
- Bioline Group | 527 | 2,772 | 4,484 | — | 7,783 | |||||||||||||||
- Core | (8 | ) | (52 | ) | (62 | ) | — | (122 | ) | |||||||||||
- Transaction Costs | — | — | — | (673 | ) | (673 | ) | |||||||||||||
2011 Expenses | $ | 7,383 | $ | 17,847 | $ | 18,675 | $ | 1,240 | $ | 45,145 | ||||||||||
% of Sales | 6 | % | 15 | % | 16 | % | 1 | % | 38 | % | ||||||||||
% Increase | 13 | % | 32 | % | 33 | % | 84 | % | 30 | % | ||||||||||
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Operating Income
Operating income increased 4%8% to $10,131$9,805 for the thirdfirst quarter of fiscal 2011, and decreased 8% to $30,183 for the first nine months of fiscal 2011,2012, as a result of the factors discussed above.
Other Income and Expense
The increase in other income, net, during the nine month year-to-date periodfirst three months of fiscal 2012 can primarily be attributed to the additionnet effects of the Bioline Group, as it contributed to an improvement in net currency exchange gains/losses of approximately $100$250 and a decrease in grant income from a foreign governmental agency of approximately $200.
Income Taxes
The effective rate for income taxes was 33% for the third quarter and 34%35% for the first nine monthsquarters of both fiscal 2011, each of which is one percentage point lower than the corresponding periods of fiscal 2010. This decrease in rates primarily results from the fiscal 2011 third quarter release of reserves for certain uncertain tax positions due to the passage of the relevant statute of limitations.2012 and 2011. For the fiscal year ending September 30, 2011,2012, we expect the effective tax rate to also approximate 35%.
Liquidity and Capital Resources
Comparative Cash Flow Analysis
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, consideration of acquisition plans, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities. Our investment portfolio presently contains overnight repurchase agreements. We used $23,849 from our investment portfolio to complete the acquisition of the Bioline Group during July 2010.
We have an investment policy that guides the holdings of our investment portfolio. Our objectives in managing the investment portfolio are to (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.
At the present time, we do not expect current conditions in the financial markets, or overall economic conditions to have a significant impact on our liquidity needs, financial condition, or results of operations.operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. We also have an additional source of liquidity through our $30,000 bank credit facility, if needed.
Net cash provided by operating activities decreased 30%8% for the first nine monthsquarter of fiscal 20112012 to $16,618,$12,497, reflecting the 6% decrease9% increase in net earnings and the effects of net working capital changes related to our investments inillumigene® inventory including readers, fluctuations in sales levels, and the timing of payments with suppliers. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements and dividends during the next 12 months. During the last sixeight fiscal quarters, the per share amount of our cash dividend has exceeded the per share amount of our diluted earnings. As we enterDuring the second half of fiscal 2012, management expects that this relationship will change; meaning
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we believe that the per share amount of our diluted earnings will exceed the per share amount of our current cash dividend, although no assurances can be made in this regard.
During the first quarter of fiscal 2012, cash generated from the Company’s operating activities exceeded the quarterly dividend.
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We have a $30,000 credit facility with a commercial bank which expires on September 15, 2012. As of JulyJanuary 31, 2011,2012, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this facility during the first ninethree months of fiscal 2011,2012, or during the full year of fiscal 2010.
Our capital expenditures for the balance of fiscal 2011 are estimated to berange between approximately $1,700.$3,000 to $5,000 for fiscal 2012, with the actual amount depending upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows, and/or availability under the $30,000 credit facility discussed above. Capital expenditures relate to manufacturing and other equipment of a normal and recurring nature, as well as costs associated with production line automation in Cincinnati, facilities expansions in Cincinnati and Memphis, and computer system and software purchases for the Bioline Group. We also expect to have approximately $1,700 in expenditures for readers to support the ongoingillumigene® product launch.
We do not utilize any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements.
There have been no material changes in the Company’s exposure to market risk since September 30, 2010.
As of June 30,December 31, 2011, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30,December 31, 2011. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the thirdfirst fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, or in other factors that could materially affect internal control subsequent to June 30,December 31, 2011.
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There have been no material changes from risk factors as previously disclosed in the Registrant’s Form 10-K in response to Item 1A to Part I of Form 10-K.
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form 10-Q.
10.6* | 2004 Equity Compensation Plan, Amended and Restated through January 25, 2012 | ||
31.1 | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | ||
31.2 | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
The following financial information from Meridian Bioscience, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011 filed with the SEC on February 9, 2012, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010, (ii) Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and 2010, (iii) Condensed Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011, (iv) Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three months ended December 31, 2011, and (v) the Notes to Condensed Consolidated Financial Statements |
* | Management Compensatory Arrangement |
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MERIDIAN BIOSCIENCE, INC. | ||||||
Date:February 9, 2012 | ||||||
/s/ Melissa A. Lueke | ||||||
Melissa A. Lueke | ||||||
Executive Vice President and | ||||||
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