Table of Contents
OF THE SECURITIES EXCHANGE ACT OF 1934
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Cincinnati, Ohio 45244
IRS Employer ID No. 31-0888197
Incorporated under the Laws of Ohio
Phone: (513) 271-3700
Title of each class | Name of each exchange of which registered | |
Common Shares, No Par Value | The NASDAQ Stock Market LLC | |
(NASDAQ Global Select Market) |
None
Large accelerated filerþ | Accelerated filero | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page | ||||||||
4 | ||||||||
15 | ||||||||
22 | ||||||||
23 | ||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
43 | ||||||||
44 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
76 | ||||||||
76 | ||||||||
76 | ||||||||
76 | ||||||||
76 | ||||||||
76 | ||||||||
EX-13 | ||||||||
EX-21 | ||||||||
EX-23 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
Table of Contents
- 4 -
Table of Contents
- 5 -
Table of Contents
- 6 -
Table of Contents
- 7 -
Table of Contents
- 8 -
Table of Contents
- 9 -
Table of Contents
Number of | ||||||||||||
Product Family | products | % of consolidated sales | ||||||||||
2011 | 2010 | |||||||||||
C. difficile | 1 | 6 | % | 0 | % | |||||||
H. pylori | 2 | 13 | % | 13 | % | |||||||
Respiratory | 2 | 2 | % | 4 | % | |||||||
Other | 6 | 1 | % | 2 | % | |||||||
Total patented products | 11 | 22 | % | 19 | % | |||||||
- 10 -
Table of Contents
- 11 -
Table of Contents
- 12 -
Table of Contents
- 13 -
Table of Contents
- 14 -
Table of Contents
- 15 -
Table of Contents
- 16 -
Table of Contents
- 17 -
Table of Contents
- 18 -
Table of Contents
- 19 -
Table of Contents
- 20 -
Table of Contents
- 21 -
Table of Contents
- 22 -
Table of Contents
- 23 -
Table of Contents
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
- 24 -
Table of Contents
CONDITION AND RESULTS OF OPERATIONS
- 25 -
Table of Contents
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 consolidating the Maine operations (fiscal 2011) and reorganizing our sales and marketing leadership (fiscal 2011), and the one-time transaction costs related to the acquisition of the Bioline Group (fiscal 2010); and |
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. |
- 26 -
Table of Contents
2011 | 2010 | 2009 | ||||||||||
Net Earnings - | ||||||||||||
U.S. GAAP basis | $ | 26,831 | $ | 26,647 | $ | 32,759 | ||||||
Sales & Marketing Leadership Reorganization (1) | 872 | — | — | |||||||||
Facility consolidation costs (1) | 691 | — | — | |||||||||
Transaction costs for Bioline Group acquisition (2) | — | 1,240 | — | |||||||||
Adjusted earnings | $ | 28,394 | $ | 27,887 | $ | 32,759 | ||||||
Net Earnings per Basic Common Share - | ||||||||||||
U.S. GAAP basis | $ | 0.66 | $ | 0.66 | $ | 0.81 | ||||||
Sales & Marketing Leadership Reorganization (1) | 0.02 | — | — | |||||||||
Facility consolidation costs (1) | 0.02 | — | — | |||||||||
Transaction costs for Bioline Group acquisition (2) | — | 0.03 | — | |||||||||
Adjusted Basic EPS | $ | 0.70 | $ | 0.69 | $ | 0.81 | ||||||
Net Earnings per Diluted Common Share - | ||||||||||||
U.S. GAAP basis | $ | 0.65 | $ | 0.65 | $ | 0.80 | ||||||
Sales & Marketing Leadership Reorganization (1) | 0.02 | — | — | |||||||||
Facility consolidation costs (1) | 0.02 | |||||||||||
Transaction costs for Bioline Group acquisition (2) | — | 0.03 | — | |||||||||
Adjusted Diluted EPS | $ | 0.69 | $ | 0.68 | $ | 0.80 | ||||||
(1) | These amounts are net of income tax effects of $368 and $366 for the leadership reorganization and the facility consolidation costs, respectively, which were calculated using the effective tax rates of the jurisdictions in which the costs were incurred. | |
(2) | Since the Bioline Group transaction costs were not deductible, there are no income tax effects. |
- 27 -
Table of Contents
- 28 -
Table of Contents
- 29 -
Table of Contents
- 30 -
Table of Contents
2011 vs. | 2010 vs. | |||||||||||||||||||
2010 | 2009 | |||||||||||||||||||
2011 | 2010 | 2009 | Inc (Dec) | Inc (Dec) | ||||||||||||||||
U.S. Diagnostics | $ | 97,133 | $ | 92,020 | $ | 98,970 | 6 | % | (7 | )% | ||||||||||
European Diagnostics | 24,187 | 24,041 | 25,870 | 1 | % | (7 | )% | |||||||||||||
Life Science | 38,403 | 26,939 | 23,434 | 43 | % | 15 | % | |||||||||||||
Consolidated | $ | 159,723 | $ | 143,000 | $ | 148,274 | 12 | % | (4 | )% | ||||||||||
International - | ||||||||||||||||||||
U.S. Diagnostics | $ | 6,692 | $ | 6,268 | $ | 5,657 | 7 | % | 11 | % | ||||||||||
European Diagnostics | 24,187 | 24,041 | 25,870 | 1 | % | (7 | )% | |||||||||||||
Life Science | 22,283 | 13,082 | 9,911 | 70 | % | 32 | % | |||||||||||||
Total | $ | 53,162 | $ | 43,391 | $ | 41,438 | 23 | % | 5 | % | ||||||||||
% of total sales | 33 | % | 30 | % | 28 | % |
- 31 -
Table of Contents
2011 vs. | 2010 vs. | |||||||||||||||||||
2010 | 2009 | |||||||||||||||||||
2011 | 2010 | 2009 | Inc (Dec) | Inc (Dec) | ||||||||||||||||
Gross Profit | $ | 99,298 | $ | 88,696 | $ | 92,442 | 12 | % | (4 | )% | ||||||||||
Gross Profit Margin | 62 | % | 62 | % | 62 | % | — | — |
- 32 -
Table of Contents
Total | ||||||||||||||||||||
Research & | Selling & | General & | Operating | |||||||||||||||||
Development | Marketing | Administrative | Other (1) | Expenses | ||||||||||||||||
2009 Expenses | $ | 8,274 | $ | 18,324 | $ | 17,065 | $ | — | $ | 43,663 | ||||||||||
% of Sales | 6 | % | 12 | % | 12 | % | 0 | % | 29 | % | ||||||||||
Fiscal 2010 Increases (Decreases): | ||||||||||||||||||||
U.S. Diagnostics | (655 | ) | (377 | ) | 1,511 | — | 479 | |||||||||||||
European Diagnostics | — | (205 | ) | 277 | — | 72 | ||||||||||||||
Life Science | ||||||||||||||||||||
- Bioline Group | 117 | 493 | 787 | — | 1,397 | |||||||||||||||
- Core | 660 | 15 | 32 | — | 707 | |||||||||||||||
- Transaction Costs | — | — | — | 1,240 | 1,240 | |||||||||||||||
2010 Expenses | $ | 8,396 | $ | 18,250 | $ | 19,672 | $ | 1,240 | $ | 47,558 | ||||||||||
% of Sales | 6 | % | 13 | % | 14 | % | 1 | % | 33 | % | ||||||||||
% Increase (Decrease) | 1 | % | 0 | % | 15 | % | — | 9 | % | |||||||||||
Fiscal 2011 Increases (Decreases): | ||||||||||||||||||||
U.S. Diagnostics | 844 | 1,236 | 183 | 365 | 2,628 | |||||||||||||||
European Diagnostics | — | 143 | 156 | 875 | 1,174 | |||||||||||||||
Life Science | ||||||||||||||||||||
- Bioline Group | 636 | 3,293 | 5,235 | — | 9,164 | |||||||||||||||
- Core | (54 | ) | (150 | ) | (363 | ) | 548 | (19 | ) | |||||||||||
- Transaction Costs | — | — | — | (1,240 | ) | (1,240 | ) | |||||||||||||
2011 Expenses | $ | 9,822 | $ | 22,772 | $ | 24,883 | $ | 1,788 | $ | 59,265 | ||||||||||
% of Sales | 6 | % | 14 | % | 16 | % | 1 | % | 37 | % | ||||||||||
% Increase (Decrease) | 17 | % | 25 | % | 26 | % | 44 | % | 25 | % |
- 33 -
Table of Contents
- 34 -
Table of Contents
- 35 -
Table of Contents
- 36 -
Table of Contents
- 37 -
Table of Contents
Less than 1 | More than | |||||||||||||||||||
Total | Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
Operating leases (1) | $ | 2,877 | $ | 1,119 | $ | 1,521 | $ | 237 | $ | — | ||||||||||
Purchase obligations (2) | 8,524 | 7,911 | 613 | — | — | |||||||||||||||
Uncertain income tax positions liability and interest (3) | 542 | 542 | — | — | — | |||||||||||||||
Total | $ | 11,943 | $ | 9,572 | $ | 2,134 | $ | 237 | $ | — | ||||||||||
(1) | Meridian and its subsidiaries are lessees of (i) office and warehouse buildings in Cincinnati, Boston, Florida, Australia, Belgium, France, Holland, Germany and the U.K.; (ii) automobiles for use by the diagnostic direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile machines and copier machines across all business units, under operating lease agreements that expire at various dates. | |
(2) | Meridian’s purchase obligations are primarily outstanding purchase orders for inventory and service items. These contractual commitments are not in excess of expected production requirements over the next twelve months. | |
(3) | As of September 30, 2011, our liabilities for uncertain tax positions and related interest and penalties were $422 and $120, respectively. Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the timing of the effective settlement of these obligations. |
- 38 -
Table of Contents
- 39 -
Table of Contents
- 40 -
Table of Contents
- 41 -
Table of Contents
- 42 -
Table of Contents
- 43 -
Table of Contents
45 | ||||
46 | ||||
48 | ||||
49 | ||||
50 | ||||
52 | ||||
53 | ||||
81 |
- 44 -
Table of Contents
/s/ John A. Kraeutler | /s/ Melissa A. Lueke | |||
Chief Executive Officer | Executive Vice President and | |||
November 29, 2011 | Chief Financial Officer | |||
November 29, 2011 |
- 45 -
Table of Contents
- 46 -
Table of Contents
Cincinnati, Ohio
November 29, 2011
- 47 -
Table of Contents
Meridian Bioscience, Inc. and Subsidiaries
For the Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
Net Sales | $ | 159,723 | $ | 143,000 | $ | 148,274 | ||||||
Cost of Sales | 59,916 | 54,304 | 55,832 | |||||||||
Cost of Sales — Plant consolidation | 509 | — | — | |||||||||
Gross Profit | 99,298 | 88,696 | 92,442 | |||||||||
Operating Expenses: | ||||||||||||
Research and development | 9,822 | 8,396 | 8,274 | |||||||||
Selling and marketing | 22,772 | 18,250 | 18,324 | |||||||||
General and administrative | 24,883 | 19,672 | 17,065 | |||||||||
Sales and marketing leadership reorganization | 1,240 | — | — | |||||||||
Plant consolidation costs | 548 | — | — | |||||||||
Bioline Group transaction costs | — | 1,240 | — | |||||||||
Total operating expenses | 59,265 | 47,558 | 43,663 | |||||||||
Operating Income | 40,033 | 41,138 | 48,779 | |||||||||
Other Income: | ||||||||||||
Interest income | 115 | 124 | 456 | |||||||||
Other, net | 352 | 138 | 88 | |||||||||
Total other income | 467 | 262 | 544 | |||||||||
Earnings Before Income Taxes | 40,500 | 41,400 | 49,323 | |||||||||
Income Tax Provision | 13,669 | 14,753 | 16,564 | |||||||||
Net Earnings | $ | 26,831 | $ | 26,647 | $ | 32,759 | ||||||
Earnings Per Share Data: | ||||||||||||
Basic earnings per common share | $ | 0.66 | $ | 0.66 | $ | 0.81 | ||||||
Diluted earnings per common share | $ | 0.65 | $ | 0.65 | $ | 0.80 | ||||||
Common shares used for basic earnings per common share | 40,715 | 40,515 | 40,390 | |||||||||
Effect of dilutive stock options and restricted shares and units | 643 | 634 | 720 | |||||||||
Common shares used for diluted earnings per common share | 41,358 | 41,149 | 41,110 | |||||||||
Dividends declared per common share | $ | 0.76 | $ | 0.74 | $ | 0.65 | ||||||
Anti-dilutive Securities: | ||||||||||||
Common share options and restricted shares and units | 191 | 217 | 138 |
- 48 -
Table of Contents
Meridian Bioscience, Inc. and Subsidiaries
For the Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
Cash Flows From Operating Activities | ||||||||||||
Net earnings | $ | 26,831 | $ | 26,647 | $ | 32,759 | ||||||
Non-cash items: | ||||||||||||
Depreciation of property, plant and equipment | 3,380 | 3,104 | 2,781 | |||||||||
Amortization of intangible assets | 2,321 | 1,581 | 1,579 | |||||||||
Amortization of deferred illumigene contract costs | 172 | — | — | |||||||||
Stock based compensation | 2,504 | 1,866 | 1,092 | |||||||||
Deferred income taxes | (1,218 | ) | 12 | (500 | ) | |||||||
Loss on disposition and write-down of fixed assets | 446 | 26 | 109 | |||||||||
Change in current assets, net of acquisition | (10,762 | ) | 2,429 | (5,353 | ) | |||||||
Change in current liabilities, net of acquisition | (570 | ) | (5,775 | ) | 269 | |||||||
Other, net | (648 | ) | (157 | ) | (244 | ) | ||||||
Net cash provided by operating activities | 22,456 | 29,733 | 32,492 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Acquisition earnout payments | — | — | (7 | ) | ||||||||
Purchases of property, plant and equipment | (9,139 | ) | (3,083 | ) | (3,643 | ) | ||||||
Proceeds from dispositions of property, plant and equipment | — | — | 5 | |||||||||
Proceeds from sales and calls of short-term investments | — | 7,275 | 475 | |||||||||
Acquisition of Bioline Group, net of cash received | — | (20,404 | ) | — | ||||||||
Purchases of intangibles and other assets | (12 | ) | (120 | ) | (110 | ) | ||||||
Net cash used for investing activities | (9,151 | ) | (16,332 | ) | (3,280 | ) | ||||||
Cash Flows From Financing Activities | ||||||||||||
Dividends paid | (30,943 | ) | (29,985 | ) | (26,260 | ) | ||||||
Proceeds and tax benefits from exercises of stock options | 3,423 | 795 | 1,624 | |||||||||
Net cash used for financing activities | (27,520 | ) | (29,190 | ) | (24,636 | ) | ||||||
Effect of Exchange Rate Changes on Cash and Equivalents | (38 | ) | (362 | ) | 157 | |||||||
Net Increase (Decrease) in Cash and Equivalents | (14,253 | ) | (16,151 | ) | 4,733 | |||||||
Cash and Equivalents at Beginning of Period | 37,879 | 54,030 | 49,297 | |||||||||
Cash and Equivalents at End of Period | $ | 23,626 | $ | 37,879 | $ | 54,030 | ||||||
Supplemental Cash Flow Information | ||||||||||||
Cash paid for income taxes | $ | 17,991 | $ | 16,036 | $ | 17,472 |
- 49 -
Table of Contents
Meridian Bioscience, Inc. and Subsidiaries
As of September 30, | 2011 | 2010 | ||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and equivalents | $ | 23,626 | $ | 37,879 | ||||
Accounts receivable, less allowances of $310 in 2011 and $241 in 2010 | 24,844 | 22,064 | ||||||
Inventories | 32,689 | 28,420 | ||||||
Prepaid expenses and other current assets | 6,343 | 5,071 | ||||||
Deferred income taxes | 2,852 | 1,871 | ||||||
Total current assets | 90,354 | 95,305 | ||||||
Property, Plant and Equipment, at Cost: | ||||||||
Land | 1,184 | 991 | ||||||
Buildings and improvements | 23,033 | 20,670 | ||||||
Machinery, equipment and furniture | 32,408 | 31,945 | ||||||
Construction in progress | 3,887 | 1,320 | ||||||
Subtotal | 60,512 | 54,926 | ||||||
Less: accumulated depreciation and amortization | 33,973 | 33,689 | ||||||
Net property, plant and equipment | 26,539 | 21,237 | ||||||
Other Assets: | ||||||||
Goodwill | 23,124 | 23,302 | ||||||
Other intangible assets, net | 10,947 | 13,327 | ||||||
Restricted cash | 1,000 | 1,000 | ||||||
Deferred illumigene contract costs, net | 3,304 | 231 | ||||||
Other assets | 225 | 239 | ||||||
Total other assets | 38,600 | 38,099 | ||||||
Total assets | $ | 155,493 | $ | 154,641 | ||||
- 50 -
Table of Contents
Meridian Bioscience, Inc. and Subsidiaries
As of September 30, | 2011 | 2010 | ||||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 5,548 | $ | 4,466 | ||||
Accrued employee compensation costs | 4,235 | 3,451 | ||||||
Other accrued expenses | 4,692 | 5,521 | ||||||
Income taxes payable | 789 | 1,086 | ||||||
Total current liabilities | 15,264 | 14,524 | ||||||
Deferred Income Taxes | 1,705 | 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, 41,237,120 and 40,654,286 issued | — | — | ||||||
Additional paid-in capital | 100,010 | 94,529 | ||||||
Retained earnings | 38,065 | 42,177 | ||||||
Accumulated other comprehensive income | 449 | 655 | ||||||
Total shareholders’ equity | 138,524 | 137,361 | ||||||
Total liabilities and shareholders’ equity | $ | 155,493 | $ | 154,641 | ||||
- 51 -
Table of Contents
Meridian Bioscience, Inc. and Subsidiaries
Accum. | ||||||||||||||||||||||||
Common | Additional | Other Comp. | Comp. | |||||||||||||||||||||
Shares | Paid-in | Retained | Income | Income | ||||||||||||||||||||
Issued | Capital | Earnings | (Loss) | (Loss) | Total | |||||||||||||||||||
Balance at September 30, 2008 | 40,314 | $ | 89,107 | $ | 39,016 | $ | 366 | $ | 128,489 | |||||||||||||||
Cash dividends paid — $0.65 per share | — | — | (26,260 | ) | — | (26,260 | ) | |||||||||||||||||
Exercise of stock options | 179 | 1,476 | — | — | 1,476 | |||||||||||||||||||
Stock compensation expense | — | 1,092 | — | — | 1,092 | |||||||||||||||||||
Cost of S-8 registration statement | — | (7 | ) | — | — | (7 | ) | |||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | — | — | 32,759 | $ | 32,759 | 32,759 | ||||||||||||||||||
Hedging activity, net | — | — | — | (3 | ) | (3 | ) | (3 | ) | |||||||||||||||
Transfer of investments to trading status | — | — | — | 270 | 270 | 270 | ||||||||||||||||||
Other comprehensive income taxes | — | — | — | (190 | ) | (190 | ) | (190 | ) | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 279 | 279 | 279 | ||||||||||||||||||
Comprehensive income | $ | 33,115 | ||||||||||||||||||||||
Balance at September 30, 2009 | 40,493 | 91,668 | 45,515 | 722 | 137,905 | |||||||||||||||||||
Cash dividends paid — $0.74 per share | — | (29,985 | ) | — | (29,985 | ) | ||||||||||||||||||
Exercise of stock options | 67 | 995 | — | — | 995 | |||||||||||||||||||
Issuance of restricted shares, net of forfeitures | 94 | — | — | — | — | |||||||||||||||||||
Stock compensation expense | — | 1,866 | — | — | 1,866 | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | — | — | 26,647 | $ | 26,647 | 26,647 | ||||||||||||||||||
Other comprehensive income taxes | — | — | — | 36 | 36 | 36 | ||||||||||||||||||
Foreign currency translation adjustment | — | — | — | (103 | ) | (103 | ) | (103 | ) | |||||||||||||||
Comprehensive income | $ | 26,580 | ||||||||||||||||||||||
Balance at September 30, 2010 | 40,654 | 94,529 | 42,177 | 655 | 137,361 | |||||||||||||||||||
Cash dividends paid — $0.76 per share | — | (30,943 | ) | — | (30,943 | ) | ||||||||||||||||||
Exercise of stock options | 485 | 2,977 | — | — | 2,977 | |||||||||||||||||||
Issuance of restricted shares, net of forfeitures | 165 | — | — | — | — | |||||||||||||||||||
Cancellation of restricted shares | (85 | ) | — | — | — | — | ||||||||||||||||||
Conversion of restricted stock units | 18 | — | — | — | — | |||||||||||||||||||
Stock compensation expense | — | 2,504 | — | — | 2,504 | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | — | — | 26,831 | $ | 26,831 | 26,831 | ||||||||||||||||||
Other comprehensive income taxes | — | — | — | 114 | 114 | 114 | ||||||||||||||||||
Foreign currency translation adjustment | — | — | — | (320 | ) | (320 | ) | (320 | ) | |||||||||||||||
Comprehensive income | $ | 26,625 | ||||||||||||||||||||||
Balance at September 30, 2011 | 41,237 | $ | 100,010 | $ | 38,065 | $ | 449 | $ | 138,524 | |||||||||||||||
- 52 -
Table of Contents
(a) | Nature of Business —Meridian is a fully-integrated life science company whose principal businesses are (i) the development, manufacture and distribution of diagnostic test kits primarily for certain 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. |
(b) | Principles of Consolidation —The consolidated financial statements include the accounts of Meridian Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context requires otherwise, references to “Meridian,” “we,” “us, “ “our “ or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. |
(c) | Use of Estimates —The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are discussed in Notes 1 (f), 1 (g), 1 (h), 1 (i), 1 (k), 1 (l), 7 and 8 (b). |
(d) | Foreign Currency Translation- Assets and liabilities of foreign operations are translated using year-end exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues and expenses are translated using exchange rates prevailing during the year. 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 consolidated statements of operations. |
- 53 -
Table of Contents
(e) | Cash, Cash Equivalents and Investments —The primary objectives of our investment activities are to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income securities. This policy, among other things, provides that we may purchase only high credit-quality securities, that have short-term ratings of at least A-1 and P-1 or better, and long-term ratings of at least A-2 and A or better, by Moody’s and Standard & Poor’s, respectively, at the time of purchase. We consider short-term investments with original maturities of 90 days or less to be cash equivalents, including overnight repurchase agreements and institutional money market funds. At times our investments of cash and equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance (FDIC) insurance limit. |
Our investment portfolio includes the following components: |
September 30, 2011 | September 30, 2010 | |||||||||||||||
Cash and | Cash and | |||||||||||||||
Equivalents | Other | Equivalents | Other | |||||||||||||
Repurchase agreements | $ | 11,784 | $ | — | $ | 14,862 | $ | — | ||||||||
Money market funds | — | — | 10,249 | — | ||||||||||||
Cash on hand - | ||||||||||||||||
Restricted | — | 1,000 | — | 1,000 | ||||||||||||
Unrestricted | 11,842 | — | 12,768 | — | ||||||||||||
Total | $ | 23,626 | $ | 1,000 | $ | 37,879 | $ | 1,000 | ||||||||
(f) | Inventories— Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis (FIFO) for substantially all of our inventories.illumigene® instruments are carried in inventory until customer placement, at which time they are transferred to deferred illumigene contract costs, unless sold outright. |
We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may expire before sale to customers, and other identified exposures. Such reserves were $1,635 and $1,130 at September 30, 2011 and 2010, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known. Such adjustments would negatively affect gross profit margin and overall results of operations. |
(g) | Property, Plant and Equipment— Property, plant and equipment are stated at cost. Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method in amounts sufficient to write-off the cost over the estimated useful lives as follows: |
Buildings and improvements — 18 to 40 years | |||
Machinery, equipment and furniture — 3 to 10 years | |||
Computer equipment and software — 3 to 5 years |
- 54 -
Table of Contents
During the fourth quarter of fiscal 2011, we announced the closure of our Saco, Maine facility, and began the consolidation of manufacturing operations from this facility with our Memphis, Tennessee facility. In connection with this consolidation, the carrying value of certain property, plant and equipment, including the building, was determined to be impaired and a write-down of approximately $425 has been recorded as of September 30, 2011. The building and the property on which it sits have been written down to current value, less selling costs, as determined by an independent outside appraisal. |
(h) | Intangible Assets —Goodwill and other intangible assets with indefinite lives are subject to an annual impairment review (or more frequently if impairment indicators arise) by applying a fair-value based test. Fair value is determined via a market approach from three perspectives. These three perspectives are (i) an allocation of our actual enterprise value (defined as market capitalization plus debt less cash and cash equivalents) to each of the reporting units based on revenue and EBITDA contributions to consolidated results; (ii) an allocation of implied enterprise values to each of our reporting units based on average and median EBITDA multiples from a comparable group of companies; and (iii) a review of enterprise value to EBITDA multiples from recent industry merger and acquisition transactions. We perform our annual impairment review as of June 30, the end of our third fiscal quarter. We have no intangible assets with indefinite lives other than goodwill. There have been no impairments from these analyses for fiscal 2011, 2010 or 2009. |
The change in goodwill was a decrease of $178 and an increase of $13,436 in fiscal 2011 and fiscal 2010, respectively. These changes related entirely to the Life Science operating segment’s Bioline Group — fiscal 2010’s increase from the Bioline Group acquisition in July 2010 and fiscal 2011’s decrease from the currency translation adjustments thereon. See Note 2. |
A summary of Meridian’s acquired intangible assets subject to amortization, as of September 30, 2011 and 2010 is as follows. |
2011 | 2010 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accum. | Carrying | Accum. | |||||||||||||
As of September 30, | Value | Amort. | Value | Amort. | ||||||||||||
Manufacturing technologies, core products and cell lines | $ | 11,626 | $ | 8,545 | $ | 11,644 | $ | 7,693 | ||||||||
Trademarks, licenses and patents | 3,538 | 1,337 | 3,547 | 997 | ||||||||||||
Customer lists and supply agreements | 12,222 | 6,557 | 12,537 | 5,816 | ||||||||||||
Non-compete agreements | — | — | 126 | 21 | ||||||||||||
$ | 27,386 | $ | 16,439 | $ | 27,854 | $ | 14,527 | |||||||||
- 55 -
Table of Contents
The actual aggregate amortization expense for these intangible assets for fiscal 2011, 2010 and 2009 was $2,321, $1,581 and $1,579, respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2012 — $2,080, fiscal 2013 — $2,080, fiscal 2014 — $1,642, fiscal 2015 — $1,393 and fiscal 2016 — $1,050. |
Long-lived assets, excluding goodwill and identifiable intangibles with indefinite lives, are reviewed for impairment when events or circumstances indicate that such assets may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If impairment has occurred, it is measured by a fair-value based test. |
Our ability to recover our intangible assets, both identifiable intangibles and goodwill, is dependent upon the future cash flows of the related acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including sales levels, gross profit margins, operating expense levels, working capital levels, and capital expenditures. With respect to identifiable intangibles and fixed assets, we also make judgments and assumptions regarding useful lives. See Note 1 (g) regarding impairment write-downs related to the consolidation of our Maine operations. |
We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance relative to historical or projected operating results; (ii) negative industry trends; (iii) sales levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and (v) other factors. |
If actual cash flows are less favorable than projections, this could trigger impairment of intangible assets and other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. |
(i) | Revenue Recognition —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 $4,176 at September 30, 2011 and $5,273 at September 30, 2010, and have been netted against accounts receivable. |
- 56 -
Table of Contents
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 September 30, 2011 or September 30, 2010. |
Trade accounts receivable are recorded in the accompanying consolidated balance sheets at invoiced amounts less provisions for rebates and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical write-off experience. The allowance for doubtful accounts and related metrics, such as days’ sales outstanding, are reviewed monthly. Accounts with past due balances over 90 days are reviewed individually for collectibility. Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid. |
(j) | Research and Development Costs— Research and development costs are charged to expense as incurred. Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, and costs for facilities and equipment. |
(k) | Income Taxes— The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. 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 current fiscal year for the preceding fiscal year’s estimates. |
- 57 -
Table of Contents
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 position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized tax benefits as a portion of our income tax provision in the consolidated statements of operations. See Note 7. |
(l) | Stock-based Compensation— We recognize compensation expense for all share-based awards made to employees, based upon the fair value of the share-based award on the date of the grant. See Note 8(b). |
(m) | Comprehensive Income (Loss)— Comprehensive income (loss) represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders. Our comprehensive income or loss is comprised of net earnings, foreign currency translation, and the related income tax effects. Components of beginning and ending accumulated other comprehensive income or loss, and related activity, are shown in the following table: |
Foreign | ||||||||||||
Currency | ||||||||||||
Translation | Income | |||||||||||
Adjustment | Taxes | Total | ||||||||||
Balance at September 30, 2010 | $ | 1,007 | $ | (352 | ) | $ | 655 | |||||
Currency translation | (320 | ) | — | (320 | ) | |||||||
Income taxes | — | 114 | 114 | |||||||||
Balance at September 30, 2011 | $ | 687 | $ | (238 | ) | $ | 449 | |||||
(n) | Recent Accounting Pronouncements— In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.FASB ASU No. 2011-04 amends and clarifies the measurement and disclosure requirements of FASB ASC 820, resulting in common requirements for measuring fair value and for disclosing information about fair value measurements, clarification of how to apply existing fair value measurement and disclosure requirements, and changes to certain principles and requirements for measuring fair value and disclosing information about fair value measurements. The new requirements are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate that it will have a material impact on the Company’s consolidated results of operations, cash flows or financial position. |
- 58 -
Table of Contents
In June 2011, FASB issued ASU No. 2011-05,Presentation of Comprehensive Income, which amends the disclosure and presentation requirements of Comprehensive Income. Specifically, FASB ASU No. 2011-05 requires that all nonowner changes in shareholders’ equity be presented either in 1) a single continuous statement of comprehensive income or 2) two separate but consecutive statements, in which the first statement presents total net income and its components, and the second statement presents total other comprehensive income and its components. These new presentation requirements, as currently set forth, are effective for the Company beginning October 1, 2012, with early adoption permitted. The Company will proceed with evaluating the presentation alternatives provided within FASB ASU No. 2011-05, as well as the permitted dates of adoption, and determine the most appropriate changes to be made to the current presentation of comprehensive income within its Statement of Changes in Shareholders’ Equity and when to make such changes. |
In September 2011, FASB issued ASU No. 2011-08,Testing Goodwill for Impairment, which amended goodwill impairment guidance to provide an option for entities to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performance of the two-step impairment test is no longer required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have any impact on the Company’s consolidated results of operations, cash flow or financial position. |
(o) | Shipping and Handling costs— Shipping and handling costs invoiced to customers are included in net sales. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of goods sold. |
(p) | Non-income Government-Assessed Taxes— We classify all non-income, government-assessed taxes (sales, use, and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net sales) in the accompanying consolidated statements of operations. |
(q) | Reclassifications— Certain reclassifications have been made to the prior fiscal year financial statements to conform to the current fiscal year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity. |
- 59 -
Table of Contents
i) | $587 and $230 of Cost of Sales for fiscal 2011 and fiscal 2010, respectively, related to the roll-out of fair value inventory adjustments for sales of products that were in the Bioline Group’s inventory on the date of acquisition and, therefore, were valued at fair value, rather than manufactured cost, in the opening balance sheet; |
ii) | $1,003 and $166 of General and Administrative Expenses for fiscal 2011 and fiscal 2010, respectively, related to the amortization of specific identifiable intangible assets recorded on the opening balance sheet, including customer relationships, license agreements, non-compete agreements, manufacturing processes and trade names; and |
iii) | $1,240 of transaction costs for fiscal 2010 reflected as Operating Expenses. |
2011 | 2010 | |||||||
Net Sales | $ | 14,869 | $ | 2,084 | ||||
Operating Income (Loss) | $ | 26 | $ | (126 | ) | |||
Net Earnings (Loss) | $ | 240 | $ | (1,262 | ) |
- 60 -
Table of Contents
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 (approximate 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 | ||||||
(UNAUDITED) | ||||||||||||
Fiscal Year Ended September 30, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Net Sales | $ | 159,723 | $ | 153,635 | $ | 160,525 | ||||||
Net Earnings | $ | 27,282 | $ | 27,833 | $ | 31,700 | ||||||
Diluted Earnings Per Common Share | $ | 0.66 | $ | 0.68 | $ | 0.77 |
- 61 -
Table of Contents
As of September 30, | 2011 | 2010 | ||||||
Raw materials | $ | 7,598 | $ | 6,221 | ||||
Work-in-process | 7,427 | 6,784 | ||||||
Finished goods — illumigene instruments | 4,179 | 455 | ||||||
Finished goods — kits and other | 15,120 | 16,090 | ||||||
Gross Inventory | $ | 34,324 | $ | 29,550 | ||||
Reserves | (1,635 | ) | (1,130 | ) | ||||
Net Inventory | $ | 32,689 | $ | 28,420 | ||||
- 62 -
Table of Contents
- 63 -
Table of Contents
(a) | Earnings before income taxes, and the related provision for income taxes for the years ended September 30, 2011, 2010 and 2009 were as follows: |
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
Domestic | $ | 37,955 | $ | 38,329 | $ | 46,504 | ||||||
Foreign | 2,545 | 3,071 | 2,819 | |||||||||
Total earnings before income taxes | $ | 40,500 | $ | 41,400 | $ | 49,323 | ||||||
Provision (credit) for income taxes - | ||||||||||||
Federal - | ||||||||||||
Current provision | $ | 13,336 | $ | 13,626 | $ | 15,094 | ||||||
Temporary differences | ||||||||||||
Fixed asset basis differences and depreciation | (155 | ) | 58 | 16 | ||||||||
Intangible asset basis differences and amortization | (312 | ) | (335 | ) | (363 | ) | ||||||
Currently non-deductible expenses and reserves | (627 | ) | (29 | ) | (134 | ) | ||||||
Stock based compensation | (706 | ) | (618 | ) | (373 | ) | ||||||
Other, net | 35 | (75 | ) | 48 | ||||||||
Subtotal | 11,571 | 12,627 | 14,288 | |||||||||
State and local | 1,213 | 1,186 | 1,385 | |||||||||
Foreign | 885 | 940 | 891 | |||||||||
Total income tax provision | $ | 13,669 | $ | 14,753 | $ | 16,564 | ||||||
- 64 -
Table of Contents
(b) | The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by dividing the provision for income taxes by earnings before income taxes: |
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||||||||||||||
Computed income taxes at statutory rate | $ | 14,175 | 35.0 | % | $ | 14,490 | 35.0 | % | $ | 17,263 | 35.0 | % | ||||||||||||
Increase (decrease) in taxes resulting from - | ||||||||||||||||||||||||
State and local income taxes | 834 | 2.1 | 777 | 1.9 | 904 | 1.8 | ||||||||||||||||||
Foreign tax rate differences | 58 | 0.1 | (87 | ) | (0.2 | ) | (43 | ) | (0.1 | ) | ||||||||||||||
Qualified domestic production incentives | (1,025 | ) | (2.5 | ) | (786 | ) | (1.9 | ) | (870 | ) | (1.8 | ) | ||||||||||||
Bioline Group transaction costs | — | — | 434 | 1.0 | — | — | ||||||||||||||||||
U.S. book-to-return and uncertain tax position activity | (422 | ) | (1.0 | ) | 8 | — | (412 | ) | (0.8 | ) | ||||||||||||||
Other, net | 49 | 0.1 | (83 | ) | (0.2 | ) | (278 | ) | (0.5 | ) | ||||||||||||||
$ | 13,669 | 33.8 | % | $ | 14,753 | 35.6 | % | $ | 16,564 | 33.6 | % | |||||||||||||
(c) | The components of net deferred tax assets (liabilities) were as follows: |
As of September 30, | 2011 | 2010 | ||||||
Deferred tax assets - | ||||||||
Valuation reserves and non-deductible expenses | $ | 1,529 | $ | 1,128 | ||||
Stock compensation expense not deductible | 2,562 | 2,313 | ||||||
Net operating loss carryforwards | 767 | 740 | ||||||
Inventory basis differences | 1,322 | 630 | ||||||
Other | — | 125 | ||||||
Subtotal | 6,180 | 4,936 | ||||||
Less valuation allowance | (439 | ) | (439 | ) | ||||
Deferred tax assets | 5,741 | 4,497 | ||||||
Deferred tax liabilities - | ||||||||
Fixed asset basis differences and depreciation | (731 | ) | (721 | ) | ||||
Intangible asset basis differences and amortization | (3,421 | ) | (4,082 | ) | ||||
Other | (442 | ) | (579 | ) | ||||
Deferred tax liabilities | (4,594 | ) | (5,382 | ) | ||||
Net deferred tax assets (liabilities) | $ | 1,147 | $ | (885 | ) | |||
- 65 -
Table of Contents
2011 | 2010 | |||||||
Unrecognized income tax benefits beginning of year | $ | 725 | $ | 572 | ||||
Additions for tax positions related to the current year | — | 67 | ||||||
Additions for tax positions of prior years | 333 | 206 | ||||||
Reductions for tax positions of prior years | (269 | ) | — | |||||
Tax examination settlements | (4 | ) | — | |||||
Expirations of statute of limitations | (243 | ) | (120 | ) | ||||
Unrecognized income tax benefits at end of year | $ | 542 | $ | 725 | ||||
- 66 -
Table of Contents
(a) | Savings and Investment Plan- We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the Board of Directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 50% of an employee’s contributions, up to maximum match of 3% of eligible compensation. Our discretionary and matching contributions to the plan amounted to approximately $1,228, $1,282 and $1,188, during fiscal 2011, 2010 and 2009, respectively. |
(b) | Stock-Based Compensation Plans- We have one active stock-based compensation plan, the 2004 Equity Compensation plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and an Employee Stock Purchase Plan (the “ESP Plan”), which became effective October 1, 1997. Effective October 1, 1997, we began selling shares of stock to our full-time and part-time employees under the ESP Plan up to the number of shares equivalent to a 1% to 15% payroll deduction from an employee’s base salary plus an additional 5% dollar match of this deduction by Meridian. |
We may grant new shares for options, restricted shares or restricted share units for up to 3,000 shares under the 2004 Plan, of which we have granted 1,501 through September 30, 2011. Options may be granted at exercise prices not less than 100% of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years. Vesting schedules are established at the time of grant and may be set based on future service periods, achievement of performance targets, or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We have granted options for 4,479 shares under similar plans that have expired. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant. |
- 67 -
Table of Contents
On November 12, 2008, we granted approximately 94 restricted shares to certain employees subject to attainment of a specified earnings target for fiscal 2009. While the dividends were paid on these restricted shares throughout fiscal 2009, the fiscal 2009 target was not met and these restricted shares were cancelled. On November 12, 2009, we granted approximately 105 restricted shares and restricted share units (with a weighted-average grant date fair value of $22.18 per share) to certain employees, with half of each employee’s grant being time-vested restricted shares or restricted share units vesting in total on November 12, 2013, and the remaining half being subject to attainment of a specified earnings target for fiscal 2010. Dividends were paid on these shares and units throughout fiscal 2010. While the 2010 earnings target was not met, on September 30, 2010, the Compensation Committee of the Board of Directors chose to convert the performance-based restricted shares to time-vested restricted shares vesting in total on November 12, 2013. This conversion impacted approximately fifty employees and resulted in expense totaling $472, which was recorded in fiscal 2010 and is included in the total amount of stock-based compensation set forth below. Similarly, during fiscal 2011, we granted approximately 214 restricted shares and restricted share units (with a weighted-average grant date fair value of $22.93 per share) to certain employees, with half of each employee’s grant being time-vested restricted shares or restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2011. While dividends were paid on these shares and units throughout fiscal 2011, the target for fiscal 2011 was not met and the performance-based portion of the restricted shares and restricted share units granted during fiscal 2011 have been cancelled. Giving effect to this cancellation and certain other activities throughout the year, including conversions to common shares, forfeitures, and new hire and promotee grants, approximately 196 restricted shares and restricted share units remain outstanding as of September 30, 2011, with a weighted-average grant date fair value of $22.63 per share, a weighted-average remaining vesting period of 2.32 years and an aggregate intrinsic value of $3,077. The weighted-average grant date fair value of the approximate 18 restricted share units that vested during fiscal 2011 was $22.83 per share. |
The amount of stock-based compensation expense reported was $2,614, $1,866 and $1,092 in fiscal 2011, 2010 and 2009, respectively. The fiscal 2011 expense is comprised of $495 related to stock options, $2,009 related to restricted shares and units, and $110 related to the granting of unrestricted commons shares to a retiring director, while the fiscal 2010 expense is comprised of $908 related to stock options and $958 related to restricted shares and units. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $865, $665 and $367, for fiscal 2011, 2010 and 2009, respectively. As of September 30, 2011, we expect future stock compensation expense for unvested options and unvested restricted stock and units to total $387 and $1,996, respectively, which will be recognized during fiscal years 2012 through 2015. |
We recognize compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2011, 2010 and 2009, we recorded $39, $17 and $42, respectively, in stock compensation expense to adjust estimated forfeiture rates to actual. |
- 68 -
Table of Contents
We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock. |
Year ended September 30, | 2011 | 2010 | 2009 | |||||||||
Risk-free interest rates | 1.91 | % | 2.93 | % | 3.75 | % | ||||||
Dividend yield | 3.74 | % | 3.12 | % | 2.41 | % | ||||||
Life of option | 5.93 | yrs. | 5.90 | yrs. | 6.30-8.20 | yrs. | ||||||
Share price volatility | 34 | % | 42 | % | 57 | % | ||||||
Forfeitures (by employee group) | 0%-10 | % | 0%-10 | % | 0%-13 | % |
A summary of the status of our stock option plans at September 30, 2011 and changes during the year is presented in the table and narrative below: |
Wtd Avg | Wtd Avg | Aggregate | ||||||||||||||
Exercise | Remaining | Intrinsic | ||||||||||||||
Options | Price | Life (Yrs) | Value | |||||||||||||
Outstanding beginning of period | 1,425 | $ | 11.44 | |||||||||||||
Grants | 73 | 22.55 | ||||||||||||||
Exercises | (485 | ) | 3.54 | |||||||||||||
Forfeitures | (18 | ) | 23.12 | |||||||||||||
Cancellations | (7 | ) | 22.48 | |||||||||||||
Outstanding end of period | 988 | $ | 15.86 | 5.0515 | $ | 3,039 | ||||||||||
Exercisable end of period | 859 | $ | 14.60 | 4.5635 | $ | 3,039 | ||||||||||
A summary of the status of our nonvested options as of September 30, 2011, and changes during the year ended September 30, 2011, is presented below: |
Weighted- | ||||||||
Average | ||||||||
Grant Date | ||||||||
Options | Fair Value | |||||||
Nonvested beginning of period | 639 | $ | 3.75 | |||||
Granted | 73 | 4.97 | ||||||
Vested | (565 | ) | 2.82 | |||||
Forfeited | (18 | ) | 7.92 | |||||
Nonvested end of period | 129 | $ | 7.91 | |||||
The weighted average grant-date fair value of options granted was $4.97, $6.70 and $11.05 for fiscal 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised was $8,038, $813 and $2,560, for fiscal 2011, 2010 and 2009, respectively. The total grant-date fair value of options that vested during fiscal 2011, 2010 and 2009 was $1,594, $1,558 and $2,019, respectively. |
- 69 -
Table of Contents
Cash received from options exercised was $1,721, $592 and $1,243 for fiscal 2011, 2010 and 2009, respectively. Tax benefits realized and recorded to additional paid-in capital from option exercises totaled $1,256, $403 and $233 for fiscal 2011, 2010 and 2009, respectively. |
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||||||||||||||
Customer A | $ | 29,632 | (19 | )% | $ | 33,821 | (24 | )% | $ | 37,876 | (26 | )% | ||||||||||||
Customer B | $ | 18,308 | (11 | )% | $ | 18,204 | (13 | )% | $ | 19,063 | (13 | )% |
- 70 -
Table of Contents
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
Italy | $ | 8,544 | $ | 8,183 | $ | 8,289 | ||||||
France | 2,537 | 2,590 | 2,939 | |||||||||
United Kingdom | 2,373 | 2,646 | 2,373 | |||||||||
Holland | 2,142 | 2,045 | 1,828 | |||||||||
Belgium | 1,289 | 1,291 | 1,875 | |||||||||
Other countries | 7,302 | 7,286 | 8,566 | |||||||||
Total European Diagnostics | $ | 24,187 | $ | 24,041 | $ | 25,870 | ||||||
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
United States | $ | 15,711 | $ | 13,907 | $ | 13,387 | ||||||
Germany | 4,922 | 3,376 | 2,816 | |||||||||
United Kingdom | 4,890 | 2,575 | 474 | |||||||||
Australia | 3,105 | 1,289 | 845 | |||||||||
France | 1,111 | 1,318 | 745 | |||||||||
Other countries | 8,664 | 4,474 | 5,167 | |||||||||
Total Life Science | $ | 38,403 | $ | 26,939 | $ | 23,434 | ||||||
- 71 -
Table of Contents
U.S. | European | |||||||||||||||||||
Diagnostics | Diagnostics | Life Science | Elim (1) | Total | ||||||||||||||||
Fiscal Year 2011 - | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 97,133 | $ | 24,187 | $ | 38,403 | $ | — | $ | 159,723 | ||||||||||
Inter-segment | 10,322 | 27 | 756 | (11,105 | ) | — | ||||||||||||||
Operating income (2) | 35,191 | 2,199 | 2,595 | 48 | 40,033 | |||||||||||||||
Depreciation and amortization | 2,854 | 116 | 2,903 | — | 5,873 | |||||||||||||||
Capital expenditures | 4,964 | 77 | 4,098 | — | 9,139 | |||||||||||||||
Goodwill | 1,381 | — | 21,743 | — | 23,124 | |||||||||||||||
Other intangible assets | 1,604 | — | 9,343 | — | 10,947 | |||||||||||||||
Total assets | 73,850 | 19,390 | 92,467 | (30,214 | ) | 155,493 | ||||||||||||||
Fiscal Year 2010 - | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 92,020 | $ | 24,041 | $ | 26,939 | $ | — | $ | 143,000 | ||||||||||
Inter-segment | 10,285 | 20 | 561 | (10,866 | ) | — | ||||||||||||||
Operating income (3) | 33,432 | 3,367 | 3,615 | 724 | 41,138 | |||||||||||||||
Depreciation and amortization | 2,722 | 86 | 1,877 | — | 4,685 | |||||||||||||||
Capital expenditures | 1,869 | 213 | 1,001 | — | 3,083 | |||||||||||||||
Goodwill | 1,381 | — | 21,921 | — | 23,302 | |||||||||||||||
Other intangible assets | 2,283 | 9 | 11,035 | — | 13,327 | |||||||||||||||
Total assets | 72,030 | 18,044 | 90,388 | (25,821 | ) | 154,641 | ||||||||||||||
Fiscal Year 2009 - | ||||||||||||||||||||
Net sales - | ||||||||||||||||||||
Third-party | $ | 98,970 | $ | 25,870 | $ | 23,434 | $ | — | $ | 148,274 | ||||||||||
Inter-segment | 10,700 | 6 | 715 | (11,421 | ) | — | ||||||||||||||
Operating income | 39,490 | 4,459 | 4,728 | 102 | 48,779 | |||||||||||||||
Depreciation and amortization | 2,680 | 92 | 1,588 | — | 4,360 | |||||||||||||||
Capital expenditures | 2,082 | 81 | 1,480 | — | 3,643 | |||||||||||||||
Goodwill | 1,381 | — | 8,485 | — | 9,866 | |||||||||||||||
Other intangible assets | 2,909 | 24 | 4,384 | — | 7,317 | |||||||||||||||
Total assets | 102,506 | 18,221 | 55,592 | (20,322 | ) | 155,997 |
(1) | Eliminations consist of intersegment transactions. | |
(2) | U.S. Diagnostics and European Diagnostics include $365 and $875, respectively, related to sales and marketing leadership reorganization costs; and Life Science includes $1,057 related to consolidation of the Maine operations into the Tennessee facility. | |
(3) | Life Science includes $1,240 of Bioline transaction costs. |
Year Ended September 30, | 2011 | 2010 | 2009 | |||||||||
Segment operating income | $ | 40,033 | $ | 41,138 | $ | 48,779 | ||||||
Interest income | 115 | 124 | 456 | |||||||||
Other, net | 352 | 138 | 88 | |||||||||
Consolidated earnings before income taxes | $ | 40,500 | $ | 41,400 | $ | 49,323 | ||||||
- 72 -
Table of Contents
(a) | Royalty Commitments —We have entered into various license agreements that require payment of royalties based on a specified percentage of the sales of licensed products (1% to 14%). These royalty expenses are recognized on an as-earned basis and recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements were approximately $1,853, $734 and $572, respectively, for the fiscal years ended September 30, 2011, 2010 and 2009. |
Meridian entered into a license agreement in October 2006 with a third party that provides rights to a molecular technology for infectious disease testing in the United States, Europe and other geographic markets. The agreement, as amended, calls for remaining payments of up to approximately $3,500, based on the achievement of certain product development milestones and on-going royalties once products are available for commercial sale. |
(b) | Purchase Commitments —Excluding the operating lease commitments reflected in Note 10 (c) below, we have purchase commitments primarily for inventory and service items as part of the normal course of business. Commitments made under these obligations are $7,911, $103 and $510 for fiscal 2012, 2013 and 2014, respectively. No purchase commitments have been made beyond fiscal 2014. |
(c) | Operating Lease Commitments —Meridian and its subsidiaries are lessees of (i) certain office and warehouse buildings in the U.S., Europe and Australia; (ii) automobiles for use by the direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile and copier machines across all business units, under operating lease agreements that expire at various dates. Amounts charged to expense under operating leases were $1,391, $759 and $775 for fiscal 2011, 2010 and 2009, respectively. Operating lease commitments for each of the five succeeding fiscal years are as follows: fiscal 2012 — $1,119, fiscal 2013 — $779, fiscal 2014 — $412, fiscal 2015 — $330, and fiscal 2016 — $237. |
(d) | Litigation —We are a party to various litigation matters from time to time that we believe are in the normal course of business. The ultimate resolution of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. |
- 73 -
Table of Contents
(e) | Indemnifications —In conjunction with certain contracts and agreements, we provide routine indemnifications whose terms range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated and, as a result, cannot be reasonably estimated. We have not made any payments for these indemnifications and no liability is recorded at September 30, 2011 or September 30, 2010. We believe that if we were to incur a loss on any of these matters, the loss would not have a material effect on our financial condition. |
For the Quarter Ended in Fiscal 2011 | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Net sales | $ | 37,263 | $ | 41,059 | $ | 40,052 | $ | 41,349 | ||||||||
Gross profit | 23,502 | 25,957 | 25,351 | 24,488 | ||||||||||||
Net earnings | 6,025 | 7,260 | 6,836 | 6,710 | ||||||||||||
Basic earnings per common share | 0.15 | 0.18 | 0.17 | 0.16 | ||||||||||||
Diluted earnings per common share | 0.15 | 0.18 | 0.17 | 0.16 | ||||||||||||
Cash dividends per common share | 0.19 | 0.19 | 0.19 | 0.19 |
For the Quarter Ended in Fiscal 2010 | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Net sales | $ | 42,457 | $ | 31,147 | $ | 33,857 | $ | 35,539 | ||||||||
Gross profit | 25,404 | 20,222 | 21,803 | 21,267 | ||||||||||||
Net earnings | 8,921 | 5,980 | 6,424 | 5,322 | ||||||||||||
Basic earnings per common share | 0.22 | 0.15 | 0.16 | 0.13 | ||||||||||||
Diluted earnings per common share | 0.22 | 0.15 | 0.16 | 0.13 | ||||||||||||
Cash dividends per common share | 0.17 | 0.19 | 0.19 | 0.19 |
- 74 -
Table of Contents
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- 75 -
Table of Contents
Exhibit Number | Description of Exhibit | |||
3.1 | Articles of Incorporation, including amendments not related to Company name change (Incorporated by reference to Registration Statement No. 333-02613 on Form S-3 filed with the Securities and Exchange Commission on April 18, 1996 and Meridian’s Form 8-K filed with the Securities and Exchange Commission on May 16, 2007) | |||
3.2 | Amended Code of Regulations (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on July 23, 2008) | |||
10.1 | * | Savings and Investment Plan Prototype Adoption Agreement (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003) | ||
10.2 | * | Salary Continuation Agreement between Meridian Bioscience, Inc. and John A. Kraeutler, as amended April 24, 2001, December 29, 2008 and August 3, 2011 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2011) | ||
10.3 | Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1999) | |||
10.4 | * | Employment Agreement Dated February 15, 2001, as amended December 29, 2008 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2009) | ||
10.5 | * | Agreement Concerning Disability and Death dated September 10, 2003, between Meridian and William J. Motto (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003) | ||
10.6 | * | 2004 Equity Compensation Plan, Amended and Restated through January 22, 2008 (Incorporated by reference to Meridian’s Proxy Statement filed with the Securities and Exchange Commission on December 19, 2007 and Form 8-K filed January 28, 2008) |
- 76 -
Table of Contents
Exhibit Number | Description of Exhibit | |||
10.7 | * | Fiscal 2006 Officers’ Compensation Plan, Amended and Restated through January 19, 2006 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on January 19, 2006) | ||
10.8 | * | Sample Option Agreement dated November 14, 2007 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2007) | ||
10.9 | * | Fiscal 2007 Officers’ Performance Compensation Plan (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on November 21, 2006) | ||
10.10 | Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc. Meridian Life Science, Inc. and Fifth Third Bank dated August 1, 2007 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2007) | |||
10.10.1 | Amended and Restated Revolving Note with Fifth Third Bank dated August 1, 2007 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2007) | |||
10.10.2 | First Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc. and Fifth Third Bank dated September 2, 2010 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2010) | |||
10.10.3 | Second Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc. and Fifth Third Bank dated December 1, 2010 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2010) | |||
10.11 | * | Sample Time-Based Restricted Stock Agreement dated November 12, 2009 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2009) | ||
10.12 | * | Sample Performance Award Restricted Stock Agreement dated November 12, 2009 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2009) | ||
10.13 | Stock Purchase Agreement dated as of July 20, 2010 among Meridian Bioscience, Inc., Meridian Bioscience Europe, S.A. and Marco Giuseppe Calzavara and Vittorio Giovanni Calzavara (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on July 23, 2010) | |||
10.14 | * | Meridian Bioscience, Inc. Change in Control Severance Compensation Policy dated March 18, 2011 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on March 24, 2011) | ||
10.15 | * | Antonio Interno Retirement-Related Agreements related to retirement as of March 31, 2011 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2011) | ||
13 | 2011 Annual Report to Shareholders (1) | |||
14 | Code of Ethics (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003) |
- 77 -
Table of Contents
Exhibit Number | Description of Exhibit | |||
21 | Subsidiaries of the Registrant (Filed herewith) | |||
23 | Consent of Independent Registered Public Accounting Firm (Filed herewith) | |||
31.1 | Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith) | |||
31.2 | Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith) | |||
32 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (Filed herewith) |
* | Management Compensatory Contracts | |
(1) | Only specific portions of the 2011 Annual Report to Shareholders are incorporated by reference in this Form 10-K as filed herewith. A supplemental paper copy of the 2011 Annual Report to Shareholders has been furnished to the Securities and Exchange Commission for informational purposes only. | |
Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit. |
- 78 -
Table of Contents
MERIDIAN BIOSCIENCE, INC. | ||||
By: | /s/ John A. Kraeutler | |||
Date: November 29, 2011 | ||||
John A. Kraeutler Chief Executive Officer |
- 79 -
Table of Contents
Signature | Capacity | Date | ||
/s/ William J. Motto | Executive Chairman of the Board of Directors | November 29, 2011 | ||
/s/ John A. Kraeutler | Chief Executive Officer, Director | November 29, 2011 | ||
/s/ Melissa A. Lueke | Executive Vice President, Chief Financial Officer, and Secretary | November 29, 2011 | ||
/s/ James M. Anderson | Director | November 29, 2011 | ||
/s/ Gary P. Kreider | Director | November 29, 2011 | ||
/s/ David C. Phillips | Director | November 29, 2011 | ||
/s/ Robert J. Ready | Director | November 29, 2011 |
- 80 -
Table of Contents
Meridian Bioscience, Inc.
and Subsidiaries
(Dollars in thousands)
Years Ended September 30, 2011, 2010 and 2009
Balance at | Charged to | Balance at | ||||||||||||||||||
Beginning | Costs and | End of | ||||||||||||||||||
Description | of Period | Expenses | Deductions | Other (a) | Period | |||||||||||||||
Year Ended September 30, 2011: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 241 | $ | 68 | $ | — | $ | 1 | $ | 310 | ||||||||||
Inventory realizability reserves | 1,130 | 1,056 | (550 | ) | (1 | ) | 1,635 | |||||||||||||
Valuation allowances — deferred taxes | 439 | — | — | — | 439 | |||||||||||||||
Year Ended September 30, 2010: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 247 | $ | 82 | $ | (56 | ) | $ | (32 | ) | $ | 241 | ||||||||
Inventory realizability reserves | 1,025 | 717 | (610 | ) | (2 | ) | 1,130 | |||||||||||||
Valuation allowances — deferred taxes | 470 | — | — | (31 | ) | 439 | ||||||||||||||
Year Ended September 30, 2009: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 230 | $ | 33 | $ | (26 | ) | $ | 10 | $ | 247 | |||||||||
Inventory realizability reserves | 1,103 | 613 | (691 | ) | — | 1,025 | ||||||||||||||
Valuation allowances — deferred taxes | 466 | — | — | 4 | 470 |
(a) | Balances reflect the effects of currency translation |
- 81 -