SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) |
For the Quarterly Period Ended December 31, 2001
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
For the transition period from to
Commission file number0-14902
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding February 8, 2002 |
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page(s)
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended December 31, 2001 and 2000 3
Consolidated Statements of Cash Flows
Three Months Ended December 31, 2001 and 2000 4
Consolidated Balance Sheets
December 31, 2001 and September 30, 2001 5-6
Consolidated Statement of Shareholders' Equity
Three Months Ended December 31, 2001 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
PART II. OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward looking statements accompanied by meaningful cautionary statements. These statements identify important factors that could cause actual results to differ materially from those that might be projected. Meridian’s continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition. While Meridian has introduced approximately 35 internally-developed products since 1991, there can be no assurance that it will be successful in the future in introducing such products on a timely basis. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Costs and difficulties in complying with laws and regulations administered by the United States Food and Drug Administration can result in unanticipated expenses and delays and interruptions to the sale of new and existing products. One of Meridian’s main growth strategies is acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses successfully integrated into Meridian’s operations.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended December 31 2001 2000
- ------------------------------ -------- --------
NET SALES $ 13,555 $ 15,254
COST OF SALES:
Sale of product 5,544 5,821
Inventory write-off -- 4,000
-------- --------
Total cost of sales 5,544 9,821
-------- --------
Gross profit 8,011 5,433
-------- --------
OPERATING EXPENSES:
Research and development 778 1,039
Sales and marketing 2,310 3,207
General and administrative 2,609 3,073
Asset impairment and FDA related charges -- 9,271
European restructuring -- 758
-------- --------
Total operating expenses 5,697 17,348
-------- --------
Operating income (loss) 2,314 (11,915)
OTHER INCOME (EXPENSE):
Interest income 7 55
Interest expense (541) (728)
Other, net 211 334
-------- --------
Total other income (expense) (323) (339)
-------- --------
Earnings (loss) before income taxes 1,991 (12,254)
INCOME TAX PROVISION (BENEFIT) 804 (4,062)
-------- --------
NET EARNINGS (LOSS) $ 1,187 $ (8,192)
======== ========
BASIC EARNINGS PER COMMON SHARE $ 0.08 $ (0.56)
DILUTED EARNINGS PER COMMON SHARE $ 0.08 $ (0.56)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,599 14,589
DILUTIVE COMMON STOCK OPTIONS 103 -
-------- --------
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 14,702 14,589
======== ========
ANTI-DILUTIVE SECURITIES:
Common stock options 821 970
Shares from convertible debentures 1,243 1,243
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Three Months Ended December 31 2001 2000
- ------------------------------ -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,187 $ (8,192)
Non cash items:
Depreciation of property,
plant and equipment 551 560
Amortization of intangible assets 370 705
Stock based compensation 40 --
Deferred income taxes 134 (4,718)
Asset impairment and other costs
related to FDA matters -- 13,271
European restructuring charges -- 758
Change in current assets excluding
cash and cash equivalents 270 (1,142)
Change in current liabilities,
excluding debt obligations 586 (412)
Other (141) 171
-------- --------
Net cash provided by operating activities 2,997 1,001
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment, net (823) (440)
Proceeds from sale (purchase)
of short term investments -- 9
-------- --------
Net cash used for investing activities (823) (431)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving credit facility 496 400
Repayment of debt obligations (1,406) (456)
Dividends paid (949) (877)
Proceeds from exercise of stock options -- 11
-------- --------
Net cash used for financing activities (1,859) (922)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (85) 181
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 230 (171)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,673 4,766
======== ========
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 4,903 $ 4,595
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes paid (received) $ -- $ (102)
Interest 282 167
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 15
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
ASSETS
------
CURRENT ASSETS: December 31, September 30,
2001 2001
------------ -------------
Cash and cash equivalents $ 4,903 $ 4,673
Accounts receivable and
notes receivable, less
allowance of $869 and
$889 for doubtful accounts 11,246 12,526
Inventories 13,417 12,139
Deferred income taxes 1,635 1,635
Other current assets 1,257 1,525
--------- -------
Total current assets 32,458 32,498
--------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land 655 658
Buildings and improvements 13,756 13,970
Machinery, equipment and furniture 14,176 13,756
Construction in progress 1,431 872
--------- -------
Total property, plant and equipment 30,018 29,256
Less-accumulated depreciation
and amortization 13,046 12,530
--------- -------
Net property, plant and equipment 16,972 16,726
--------- -------
OTHER ASSETS:
Deferred debenture offering costs, net 618 652
Goodwill, net 3,179 2,956
Other intangible assets, net 12,351 12,806
Other assets 307 344
--------- -------
Total other assets 16,455 16,758
--------- -------
TOTAL ASSETS $65,885 $65,982
========= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES: December 31, September 30,
2001 2001
------------ -------------
Current portion of long-term obligations $ 997 $ 2,132
Borrowings under bank lines of credit 6,381 5,885
Accounts payable 2,263 2,370
Accrued payroll costs 2,308 2,103
Other accrued expenses 4,470 3,878
-------- --------
Total current liabilities 16,419 16,368
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Bank debt and capital lease obligations 3,931 4,349
Convertible subordinated debentures 20,000 20,000
DEFERRED TAX LIABILITIES 2,455 2,321
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
1,000,000 shares authorized;
none issued -- --
Common stock, no par value,
50,000,000 shares authorized;
14,599,170 and 14,598,970 shares
issued and outstanding,
respectively, stated at 2,535 2,535
Treasury stock, 8,300 shares (32) (32)
Additional paid-in capital 21,002 20,962
Retained earnings 1,130 892
Accumulated other comprehensive loss (1,555) (1,413)
-------- --------
Total shareholders' equity 23,080 22,944
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 65,885 $ 65,982
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
(dollars and shares in thousands)
Accumulated
Common Shares Additional Other Comprehensive Total
Shares Held in Common Treasury Paid-in Retained Comprehensive Income Shareholders'
Issued Treasury Stock Stock Capital Earnings Income(Loss) (Loss) Equity
------ -------- ------- -------- ---------- --------- ------------- ------------- ------------
Balance at September 30, 2001 14,599 (8) $2,535 $(32) $20,962 $ 892 $ (1,413) $ -- $ 22,944
Dividends paid -- -- -- -- -- (949) -- -- (949)
Stock based compensation -- -- -- -- 40 -- -- -- 40
Comprehensive income:
Net income -- -- -- -- -- 1,187 -- 1,187 1,187
Foreign currency translation
adjustment -- -- -- -- -- -- (142) (142) (142)
--------
Comprehensive loss 1,045
========
Balance at December 31, 2001 14,599 (8) $2,535 $(32) $21,002 $1,130 $ (1,555) $ 23,080
====== == ====== ==== ======= ====== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. | Basis of Presentation: |
2. | Translation of Foreign Currency: |
3. | Inventories: |
December 31, September 30,
2001 2001
------------ --------------
Raw materials $ 3,491 $ 3,256
Work-in-process 5,785 4,928
Finished goods 4,141 3,955
-------- --------
$ 13,417 $ 12,139
======== ========
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4. | Segment Information: |
MBI MBE ELIM(1) Total
------------- ------------- ------------ -----------
2001
Net sales $11,957 $2,795 $(1,197) $13,555
Operating income 1,936 389 (11) 2,314
Total assets 72,612 10,553 (17,280) 65,885
2000
Net sales 13,793 3,299 (1,838) 15,254
Operating loss (10,979) (670) (266) (11,915)
Total assets 83,186 12,082 (21,225) 74,043
(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 MBI segment data for total assets includes corporate goodwill and intangibles of $15,530,000 and $15,873,000 for the quarters ended December 31, 2001 and 2000 respectively. |
5. | Recently Issued Accounting Standards: |
For the three months ended December 31 2001 2000
--------------------------------------- -------- --------
Reported net income (loss) $1,187 $(8,192)
Add back: Goodwill amortization - 52
Workforce amortization - 9
------ -------
Adjusted net income (loss) $1,187 $(8,131)
====== =======
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For the three months ended December 31 2001 2000
--------------------------------------- -------- --------
Reported basic earnings (loss) per share $0.08 $(0.56)
Goodwill and workforce amortization - -
------ -------
Adjusted basic earnings (loss) per share $0.08 $(0.56)
====== =======
Reported diluted earnings (loss) per share $0.08 $(0.56)
Goodwill and workforce amortization - -
------ -------
Adjusted diluted earnings (loss) per share $0.08 $(0.56)
====== =======
6. | FDA Matters: |
Product inventory write-off $ 4,000
Product recall costs 700
Write-off of sales-type lease receivables 336
Impaired instrumentation equipment 666
Impaired intangible assets 7,569
-------
$13,271
=======
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Impaired intangible assets include portions of manufacturing technologies, core products, customer lists and goodwill related to these products. Impairment amounts for long-lived assets were measured by comparing discounted future cash flow projections to the net book value of the assets. During the fourth quarter of fiscal 2001, product recall activities were completed for a total cost of approximately $181,000, which reduced this aggregate pre-tax charge to $12,752,000. |
7. | European Restructuring: |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Net Sales
Net sales decreased $1,699,000 or 11%, to $13,555,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. This decrease was caused primarily by discontinuing the manufacturing and distribution of approximately 30 products during the second quarter of fiscal 2001.
International sales were $3,946,000, or 29% of total sales, for the first quarter of fiscal 2002, compared to $4,156,000, or 27% of total sales for the first quarter of fiscal 2001. Domestic exports were $1,151,000 for the first quarter of fiscal 2002, compared to $857,000 for the first quarter of fiscal 2001. The remaining international sales were generated by MBE, Meridian’s European distribution businesses. MBE’s sales reflect the move to a distribution arrangement in Germany effective January 1, 2001, rather than utilization of a direct sales force.
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Gross Profit
Gross profit increased $2,578,000 or 47%, to $8,011,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. Gross profit margins increased from 36% for the first quarter of fiscal 2001, to 59% for the first quarter of fiscal 2002. Gross profit for the first quarter of fiscal 2001 includes the negative effects of the inventory impairment in the amount of $4,000,000 related to the discontinuation of manufacturing and distribution of approximately 30 products referred to above. Excluding the negative effects of this charge, gross profit margin for the first quarter of fiscal 2001 was 62%. The three-point decline in gross profit margin for the first quarter of fiscal 2002 was primarily caused by the mix of sales contributions by US business units and the effects of scrap for certain products that became short-dated during the quarter.
Operating Expenses
Operating expenses declined $11,651,000, to $5,697,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. Operating expenses for the first quarter of fiscal 2001 include costs of $9,271,000 and $758,000 related to impairment charges for FDA matters and European restructuring, respectively. Excluding these charges, operating expenses for the first quarter of fiscal 2002 declined $1,622,000 or 22%. This decline is primarily attributable to closure of the German distribution operation and general cost-cutting measures implemented across all Meridian business units during the last three quarters of fiscal 2001.
Research and development expenses declined $261,000 or 25%, to $778,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001, and as a percentage of sales, declined from 7% for the first quarter of fiscal 2001 to 6% for the first quarter of fiscal 2002. This decline is primarily attributable to lower outside contract research and clinical trial costs based on timing of projects, as well as the favorable effects of certain cost-cutting measures.
Sales and marketing expenses declined $897,000 or 28%, to $2,310,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001, and as a percentage of sales, declined from 21% for the first quarter of fiscal 2001 to 17% for the first quarter of fiscal 2002. This decline is primarily attributable to closure of the German distribution operation and other cost-cutting measures, including reduced spending in advertising and promotional materials and lower headcount in Cincinnati.
General and administrative expenses declined $464,000 or 15%, to $2,609,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001, and as a percentage of sales, declined from 20% for the first quarter of fiscal 2001 to 19% for the first quarter of fiscal 2002. This decline is primarily attributable to (i) closure of the German distribution operation, (ii) no longer amortizing goodwill due to the adoption of SFAS No. 142, (iii) lower headcount in Cincinnati operations and (iv) other cost-cutting measures.
Operating Income
Excluding the effects of impairment charges for FDA matters and costs for European restructuring during the first quarter of fiscal 2001, operating income increased $200,000 or 9%, to $2,314,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. This increase occurred despite the decline in sales for the quarter, primarily due to the reduction in operating expenses described above.
Other Income and Expense
Interest expense declined $187,000 or 26%, to $541,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. This decrease is primarily attributable to the favorable effects of a lower interest rate environment and lower overall debt levels.
Other income, net for the first quarter of fiscal 2002 includes a net gain of $241,000 related to common stock received in demutualization transactions of two insurance companies that provide insurance policies to Meridian. Meridian intends to sell this common stock during the second quarter of fiscal 2002. Other income, net for the first quarter of fiscal 2001 included net currency gains of $326,000, a substantial portion related to intercompany debt obligations that were denominated in foreign currencies.
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Income Taxes
The effective rate for income taxes is a provision of 40% for the first quarter of fiscal 2002, compared to a credit of 33% for the first quarter of fiscal 2001. The effective rate for the first quarter of fiscal 2001 includes the unfavorable effects of the goodwill portion of the impairment charges related to FDA matters and a substantial portion of the European restructuring charge, which could not be utilized for tax purposes.
Liquidity and Capital Resources
Meridian’s operating cash flow and financing requirements are determined by analyses of operating and capital spending budgets and consideration of acquisition plans. Meridian has historically maintained significant levels of cash, investments and line of credit availability to quickly respond to acquisition opportunities.
Net cash provided by operating activities increased $1,996,000 or 199%, to $2,997,000 for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. This increase is primarily attributable to improved working capital management. Although the first quarter of fiscal 2001 reflects a significant loss caused by asset impairment related to FDA matters and European restructuring, a substantial portion of theses charges were non-cash in nature.
Net cash used for investing activities was $823,000 for the first quarter of fiscal 2002, compared to $431,000 for the first quarter of fiscal 2001, and primarily related to capital expenditures during both periods. The increase during fiscal 2002 reflects the continued expansion of Viral Antigens protein development facilities that are expected to be operational in the summer of 2002.
Net cash used for financing activities was $1,859,000 for the first quarter of fiscal 2002, compared to $922,000 for the first quarter of fiscal 2001. The increase during fiscal 2002 is primarily attributable to repayment of the mortgage loan for the Viral Antigens facilities that matured in January 2002.
Contingent upon the FDA’s acceptance of Meridian’s comprehensive plan to improve its quality systems, net cash flows from operating activities are anticipated to fund working capital requirements, debt service and dividends during the remainder of fiscal 2002. Earnout payments, if any, under the Viral Antigens purchase agreement may require financing under the line of credit. Meridian has a $25,000,000 credit facility with a commercial bank. This facility includes $5,000,000 of term debt and capital lease capacity and a $20,000,000 line of credit that expires in September 2004. As of February 11, 2002, borrowings of $6,181,000 were outstanding on the line of credit portion of this facility, and the availability was $13,819,000.
Euro Conversion
Effective January 1, 2002, the Euro was introduced as the official single currency for the 11 participating countries in the European Monetary Union. Meridian’s systems have been updated to process Euro transactions and no significant problems have been experienced to date. The future impact, if any, of the Euro on Meridian’s competitive position is unknown.
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PART II. OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) | Exhibits: |
(b) | Reports on Form 8-K: |
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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 BIOSCIENCE, INC. AND SUBSIDIARIES
Date: February 11, 2001 | /s/ Melissa Lueke |