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SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number0-14902
MERIDIAN BIOSCIENCE, INC.
| Incorporated under the laws of Ohio | 31-0888197 | |
| (I.R.S. Employer Identification No.) | ||
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by check 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.
Yesþ Noo
Indicate by check whether the Registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act).
Yeso Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding April 30, 2003 | |
| Common Stock, no par value | 14,666,769 |
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page(s) | |||||||||
| PART I | FINANCIAL INFORMATION | ||||||||
| Item 1. | Financial Statements (Unaudited) | ||||||||
| Consolidated Statements of Operations Three Months Ended March 31, 2003 and 2002 Six Months Ended March 31, 2003 and 2002 | 3 | ||||||||
| Consolidated Statements of Cash Flows Six Months Ended March 31, 2003 and 2002 | 4 | ||||||||
| Consolidated Balance Sheets March 31, 2003 and September 30, 2002 | 5-6 | ||||||||
| Consolidated Statement of Changes in Shareholders’ Equity Six Months Ended March 31, 2003 | 7 | ||||||||
| Notes to Consolidated Financial Statements | 8-11 | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12-21 | |||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 | |||||||
| Item 4. | Controls and Procedures | 22 | |||||||
| PART II. | OTHER INFORMATION | ||||||||
| Item 5. | Other Information | 23 | |||||||
| Item 6. | Exhibits and Reports on Form 8-K | 23 | |||||||
| Signature | 24 | ||||||||
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 a number of internally-developed products, 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 | Six Months | ||||||||||||||||||
| Ended March 31, | Ended March 31, | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
| NET SALES | $ | 16,913 | $ | 15,092 | $ | 33,016 | $ | 28,647 | |||||||||||
| COST OF SALES | 6,852 | 6,433 | 13,793 | 11,977 | |||||||||||||||
| Gross profit | 10,061 | 8,659 | 19,223 | 16,670 | |||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||
| Research and development | 1,064 | 716 | 1,975 | 1,494 | |||||||||||||||
| Sales and marketing | 2,671 | 2,440 | 5,456 | 4,750 | |||||||||||||||
| General and administrative | 2,542 | 2,677 | 5,246 | 5,286 | |||||||||||||||
| Total operating expenses | 6,277 | 5,833 | 12,677 | 11,530 | |||||||||||||||
| Operating income | 3,784 | 2,826 | 6,546 | 5,140 | |||||||||||||||
| OTHER INCOME (EXPENSE): | |||||||||||||||||||
| Interest income | 5 | 13 | 21 | 20 | |||||||||||||||
| Interest expense | (435 | ) | (501 | ) | (883 | ) | (1,042 | ) | |||||||||||
| Other, net | (75 | ) | (52 | ) | (40 | ) | 159 | ||||||||||||
| Total other income (expense) | (505 | ) | (540 | ) | (902 | ) | (863 | ) | |||||||||||
| Earnings before income taxes | 3,279 | 2,286 | 5,644 | 4,277 | |||||||||||||||
| INCOME TAX PROVISION | 1,356 | 861 | 2,297 | 1,665 | |||||||||||||||
| NET EARNINGS | $ | 1,923 | $ | 1,425 | $ | 3,347 | $ | 2,612 | |||||||||||
| BASIC EARNINGS PER COMMON SHARE | $ | 0.13 | $ | 0.10 | $ | 0.23 | $ | 0.18 | |||||||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | 0.13 | $ | 0.10 | $ | 0.23 | $ | 0.18 | |||||||||||
| AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC | 14,650 | 14,617 | 14,643 | 14,608 | |||||||||||||||
| DILUTIVE COMMON STOCK OPTIONS | 226 | 168 | 177 | 148 | |||||||||||||||
| AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED | 14,876 | 14,785 | 14,820 | 14,756 | |||||||||||||||
| ANTI-DILUTIVE SECURITIES: | |||||||||||||||||||
| Common stock options | 375 | 667 | 539 | 775 | |||||||||||||||
| Shares from convertible debentures | 1,243 | 1,243 | 1,243 | 1,243 | |||||||||||||||
| DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.09 | $ | 0.07 | $ | 0.16 | $ | 0.14 | |||||||||||
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)
| Six Months Ended March 31, | 2003 | 2002 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
| Net earnings | $ | 3,347 | $ | 2,612 | ||||||
| Non cash items: | ||||||||||
| Depreciation of property, plant and equipment | 1,142 | 1,107 | ||||||||
| Amortization of intangible assets | 690 | 716 | ||||||||
| Stock based compensation | 6 | 40 | ||||||||
| Deferred income taxes | 718 | 781 | ||||||||
| Gain on sale of common stock received in demutualization | — | (254 | ) | |||||||
| Change in current assets excluding cash and deferred taxes | (581 | ) | 18 | |||||||
| Change in current liabilities, excluding debt obligations | 1,430 | (205 | ) | |||||||
| Other | 398 | (94 | ) | |||||||
| Net cash provided by operating activities | 7,150 | 4,721 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
| Purchase of property, plant and equipment, | (798 | ) | (1,752 | ) | ||||||
| Viral Antigens earnout payments | (1,407 | ) | (905 | ) | ||||||
| Proceeds from sale of common stock received in demutualization | — | 298 | ||||||||
| Net cash used for investing activities | (2,205 | ) | (2,359 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
| Net activity on revolving credit facility | (1,301 | ) | 1,165 | |||||||
| Repayment of debt obligations | (1,345 | ) | (1,667 | ) | ||||||
| Dividends paid | (2,344 | ) | (1,974 | ) | ||||||
| Proceeds from exercise of stock options | 95 | 117 | ||||||||
| Net cash used for financing activities | (4,895 | ) | (2,359 | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 210 | (128 | ) | |||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 260 | (125 | ) | |||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,060 | 4,673 | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 3,320 | $ | 4,548 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||
| Cash paid during the period for: | ||||||||||
| Income taxes paid | $ | 339 | $ | 283 | ||||||
| Interest | 891 | 1,155 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
ASSETS
| March 31, | September 30, | |||||||||
| CURRENT ASSETS: | 2003 | 2002 | ||||||||
| Cash and cash equivalents | $ | 3,320 | $ | 3,060 | ||||||
| Accounts receivable, less allowance of $668 and $987 for doubtful accounts | 12,892 | 12,616 | ||||||||
| Inventories | 13,167 | 12,735 | ||||||||
| Deferred income taxes | 315 | 998 | ||||||||
| Other current assets | 840 | 966 | ||||||||
| Total current assets | 30,534 | 30,375 | ||||||||
| PROPERTY, PLANT AND EQUIPMENT: | ||||||||||
| Land | 678 | 666 | ||||||||
| Buildings and improvements | 15,047 | 13,986 | ||||||||
| Machinery, equipment and furniture | 17,468 | 15,317 | ||||||||
| Construction in progress | 480 | 2,780 | ||||||||
| Total property, plant and equipment | 33,673 | 32,749 | ||||||||
| Less-accumulated depreciation and amortization | 15,920 | 14,744 | ||||||||
| Net property, plant and equipment | 17,753 | 18,005 | ||||||||
| OTHER ASSETS: | ||||||||||
| Deferred debenture offering costs, net | 449 | 517 | ||||||||
| Goodwill | 4,542 | 4,542 | ||||||||
| Other intangible assets, net | 10,793 | 11,415 | ||||||||
| Other assets | 236 | 241 | ||||||||
| Total other assets | 16,020 | 16,715 | ||||||||
| TOTAL ASSETS | $ | 64,307 | $ | 65,095 | ||||||
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
| March 31, | September 30, | |||||||||
| CURRENT LIABILITIES: | 2003 | 2002 | ||||||||
| Current portion of long-term obligations | $ | 884 | $ | 943 | ||||||
| Borrowings under bank lines of credit | 1,644 | 2,945 | ||||||||
| Accounts payable | 2,031 | 1,914 | ||||||||
| Accrued payroll costs | 2,992 | 2,428 | ||||||||
| Purchase business combination liability | — | 1,407 | ||||||||
| Abandoned acquisition costs | — | 980 | ||||||||
| Other accrued expenses | 3,131 | 2,817 | ||||||||
| Income taxes payable | 3,232 | 1,815 | ||||||||
| Total current liabilities | 13,914 | 15,249 | ||||||||
| LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: | ||||||||||
| Bank debt and capital lease obligations | 2,715 | 3,626 | ||||||||
| Convertible subordinated debentures | 20,000 | 20,000 | ||||||||
| DEFERRED TAX LIABILITIES | 1,874 | 1,839 | ||||||||
| COMMITMENTS AND CONTINGENCIES | — | — | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||
| Preferred stock, no par value, 1,000,000 shares authorized; none issued | — | — | ||||||||
| Common stock, no par value, 50,000,000 shares authorized; 14,654,433 and 14,633,215 shares issued and outstanding, respectively, stated at | 2,535 | 2,535 | ||||||||
| Treasury stock, 8,300 shares | (32 | ) | (32 | ) | ||||||
| Additional paid-in capital | 21,292 | 21,191 | ||||||||
| Retained earnings | 2,904 | 1,901 | ||||||||
| Accumulated other comprehensive loss | (895 | ) | (1,214 | ) | ||||||
| Total shareholders’ equity | 25,804 | 24,381 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 64,307 | $ | 65,095 | ||||||
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 | Total | ||||||||||||||||||||||||||||||||||
| Shares | Held in | Common | Treasury | Paid-in | Retained | Comprehensive | Comprehensive | Shareholders' | ||||||||||||||||||||||||||||||
| Issued | Treasury | Stock | Stock | Capital | Earnings | Income (Loss) | Income (Loss) | Equity | ||||||||||||||||||||||||||||||
Balance at September 30, 2002 | 14,633 | (8 | ) | $ | 2,535 | $ | (32 | ) | $ | 21,191 | $ | 1,901 | $ | (1,214 | ) | $ | 24,381 | |||||||||||||||||||||
| Dividends paid | — | — | — | — | — | (2,344 | ) | — | (2,344 | ) | ||||||||||||||||||||||||||||
| Exercise of stock options | 21 | — | — | — | 95 | — | — | 95 | ||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | 6 | — | — | 6 | ||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 3,347 | — | $ | 3,347 | 3,347 | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | 319 | 319 | 319 | |||||||||||||||||||||||||||||
| Comprehensive income | $ | 3,666 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2003 | 14,654 | (8 | ) | $ | 2,535 | $ | (32 | ) | $ | 21,292 | $ | 2,904 | $ | (895 | ) | $ | 25,804 | |||||||||||||||||||||
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:
The consolidated financial statements included herein have not been audited by independent public accountants, but include all adjustments (consisting of normal recurring entries) which are, in the opinion of management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the requirements of the Securities and Exchange Commission, although Meridian believes that the disclosures included in these financial statements are adequate to make the information not misleading.
It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Meridian’s Annual Report on Form 10-K for the Year Ended September 30, 2002.
The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year.
2. Significant Accounting Policies:
(a) Translation of Foreign Currency -
Assets and liabilities of foreign operations are translated using period-end exchange rates with gains or losses resulting from translation included in a separate component of accumulated other comprehensive income (loss). Revenues and expenses are translated using exchange rates prevailing during the period. Meridian also recognizes foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Euro currency. These gains and losses are included in other income and expense in the accompanying consolidated statements of operations.
(b) Stock-based Compensation -
Meridian accounts for its stock-based compensation plans pursuant to the intrinsic value method provided in APB Opinion No. 25. Had compensation cost for these plans been determined using the fair value method provided in SFAS No. 123, Meridian’s net income and earnings per share would have been reduced to the following pro forma amounts (amounts in thousands, except per share data):
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| Three Months | Six Months | |||||||||||||||
| Ended March 31, | Ended March 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Net income as reported | $ | 1,923 | $ | 1,425 | $ | 3,347 | $ | 2,612 | ||||||||
| Stock-based compensation included in net income as reported, after tax | — | — | 4 | 24 | ||||||||||||
| Pro forma fair value of stock options, after tax | (171 | ) | (110 | ) | (297 | ) | (230 | ) | ||||||||
| Pro forma net income | $ | 1,752 | $ | 1,315 | $ | 3,054 | $ | 2,406 | ||||||||
| Basic EPS as reported | $ | 0.13 | $ | 0.10 | $ | 0.23 | $ | 0.18 | ||||||||
| Stock-based compensation included in net income as reported, after tax | — | — | — | — | ||||||||||||
| Pro forma fair value of stock options, after tax | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | ||||||||
| Pro forma basic EPS | $ | 0.12 | $ | 0.09 | $ | 0.21 | $ | 0.16 | ||||||||
| Diluted EPS as reported | $ | 0.13 | $ | 0.10 | $ | 0.23 | $ | 0.18 | ||||||||
| Stock-based compensation included in net income as reported, after tax | — | — | — | — | ||||||||||||
| Pro forma fair value of stock options, after tax | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | ||||||||
| Pro forma diluted EPS | $ | 0.12 | $ | 0.09 | $ | 0.21 | $ | 0.16 | ||||||||
(c) New Accounting Pronouncements -
During January 2003, the Financial Accounting Standards Board issued Statement No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123. Statement No. 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. Statement No. 148 provides three alternatives for an entity that adopts the fair value based method of accounting: Prospective Method, Modified Prospective Method and Retroactive Restatement Method. Under the Prospective Method, fair value based accounting would be applied to all employee awards granted after the beginning of the fiscal year in which the provisions are first applied. Under the Modified Prospective Method, fair value based accounting would be applied as of the beginning of the fiscal year of adoption for all employee awards granted in fiscal years beginning after December 15, 1994. Under the Retroactive Restatement Method, all periods presented are restated to reflect fair value based accounting for all employee awards granted in fiscal years beginning after December 15, 1994. If an entity elects fair value based accounting in a fiscal year beginning after December 15, 2003, either the Modified Prospective Method or the Retroactive Restatement method must be used. Meridian accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, in which compensation expense is determined based on intrinsic value. Meridian continually evaluates its accounting policies, including those governing stock-based compensation, and at this time believes it is appropriate to continue accounting for employee stock-based compensation under APB No. 25, consistent with historical practice.
During November 2002, the FASB issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others. Interpretation No. 45 clarifies the requirements of FASB Statement No. 5 relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. Meridian believes that it does not have any transactions that are governed by Interpretation No. 45, and thus, there has been no impact to results of operations or financial condition.
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3. Inventories:
Inventories are comprised of the following (amounts in thousands):
| March 31, | September 30, | |||||||
| 2003 | 2002 | |||||||
| Raw materials | $ | 3,763 | $ | 3,578 | ||||
| Work-in-process | 4,613 | 4,745 | ||||||
| Finished goods | 4,791 | 4,412 | ||||||
| $ | 13,167 | $ | 12,735 | |||||
4. Segment Information:
As a result of changes that occurred in February 2003 in the organization and management of Meridian’s businesses, effective with the quarter beginning January 1, 2003, Meridian changed its reportable operating segments to US Diagnostics (formerly named Meridian Bioscience, Inc.), European Diagnostics (formerly named Meridian Bioscience Europe) and Life Science. The US Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the US and countries outside of Europe, Africa and the Middle East. The European Diagnostics operating segment consists of the sale and distribution of diagnostic test kits in Europe, Africa and the Middle East. Approximately 65% of revenues for the European Diagnostics operating segment are derived from Meridian products manufactured in Cincinnati, Ohio. The Life Science operating segment consists of manufacturing operations in Memphis, Tennessee and Saco, Maine, and the sale and distribution of bulk antigens, antibodies and bioresearch reagents domestically and abroad. The Life Science operating segment consists of the Viral Antigens and BIODESIGN subsidiaries (formerly part of the Meridian Bioscience, Inc. operating segment), including the cGMP protein production laboratory. As required by Financial Accounting Standards Board Statement No. 131,Disclosures About Segments of an Enterprise and Related Information,prior year operating information in the following table has been restated to conform with the current year presentation. Segment information for the three months and six months ended March 31, 2003 and 2002 is as follows (in thousands):
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| US | European | Life | |||||||||||||||||||
| Diagnostics | Diagnostics | Science | ELIM(1) | Total | |||||||||||||||||
Three Months – 2003 | |||||||||||||||||||||
| Net sales - | |||||||||||||||||||||
| Third-party | $ | 9,752 | $ | 3,831 | $ | 3,330 | $ | — | $ | 16,913 | |||||||||||
| Inter-segment | 1,659 | — | 275 | (1,934 | ) | — | |||||||||||||||
| Operating income | 2,228 | 917 | 567 | 72 | 3,784 | ||||||||||||||||
| Total assets | 63,943 | 11,838 | 21,189 | (32,663 | ) | 64,307 | |||||||||||||||
Three Months – 2002 | |||||||||||||||||||||
| Net sales - | |||||||||||||||||||||
| Third-party | $ | 8,548 | $ | 3,039 | $ | 3,505 | $ | — | $ | 15,092 | |||||||||||
| Inter-segment | 1,288 | — | 43 | (1,331 | ) | — | |||||||||||||||
| Operating income | 1,558 | 459 | 660 | 149 | 2,826 | ||||||||||||||||
| Total assets | 67,031 | 10,477 | 18,277 | (30,642 | ) | 65,143 | |||||||||||||||
Six Months - 2003 | |||||||||||||||||||||
| Net sales - | |||||||||||||||||||||
| Third-party | $ | 20,405 | $ | 6,873 | $ | 5,738 | $ | — | $ | 33,016 | |||||||||||
| Inter-segment | 2,868 | — | 520 | (3,388 | ) | — | |||||||||||||||
| Operating income | 4,490 | 1,352 | 679 | 25 | 6,546 | ||||||||||||||||
| Total assets | 63,943 | 11,838 | 21,189 | (32,663 | ) | 64,307 | |||||||||||||||
Six Months – 2002 | |||||||||||||||||||||
| Net sales - | |||||||||||||||||||||
| Third-party | $ | 17,165 | $ | 5,834 | $ | 5,648 | $ | — | $ | 28,647 | |||||||||||
| Inter-segment | 2,479 | — | 313 | (2,792 | ) | — | |||||||||||||||
| Operating income | 3,487 | 848 | 663 | 142 | 5,140 | ||||||||||||||||
| Total assets | 67,031 | 10,477 | 18,277 | (30,642 | ) | 65,143 | |||||||||||||||
| (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. Total assets for US Diagnostics and Life Science include goodwill and other intangible assets of $10,046,000 and $5,289,000, respectively at March 31, 2003, and $11,111,000 and $4,108,000, respectively at March 31, 2002.
5. FDA Matters:
During January 2001, the FDA completed an inspection of Meridian’s compliance with the Quality Systems Regulations that govern the manufacturing of in vitro diagnostics. In response to this inspection, in January 2001, Meridian submitted a comprehensive plan to the FDA outlining specific steps it committed to undertake to improve its quality systems. In June 2001, Meridian received a Warning Letter from the FDA which summarized and reiterated certain of the observations made by the FDA during their inspection completed in January 2001.
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In accordance with the FDA’s directive in the Warning Letter, Meridian is required to undergo three annual independent audits to evaluate Meridian’s progress implementing its comprehensive plan. The first audit was completed in November 2001. Based on an extensive review of documents and an on-site visit during this audit, the auditors substantiated Meridian’s progress in addressing the issues raised in the FDA inspection and Warning Letter.
In August 2002, the FDA completed an on-site follow-up inspection. The FDA issued several observations, primarily aimed at fine-tuning established quality control systems and procedures. Meridian submitted written corrective action plans to address these refinements and continues its periodic communications with the FDA on the progress of its comprehensive plan submitted to the FDA in January 2001 and the observations from the August 2002 inspection.
In January 2003, the second of three annual independent audits commenced. This audit was completed on May 1, 2003. The audit report substantiated Meridian’s progress in addressing issues raised in the prior FDA and independent audits. Meridian has responded to the latest observations and recommendations with corrective actions designed to further improve its established quality control systems and procedures.
At present, it is uncertain whether Meridian’s actions will be sufficient so that no further remedial action or enforcement action by the FDA will occur.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three-Month Period Ended March 31, 2003 Compared to Three-Month Period Ended March 31, 2002
Overview
Net earnings for the second quarter of fiscal 2003 were $1,923,000, an increase of $498,000, or 35%, compared to the second quarter of fiscal 2002. On a diluted per share basis, net earnings were $0.13 for the second quarter of fiscal 2003, an increase of $0.03, or 30%, compared to the second quarter of fiscal 2002.
Operating Segments
As a result of changes that occurred in February 2003 in the organization and management of Meridian’s businesses, effective with the quarter beginning January 1, 2003, Meridian changed its reportable operating segments to US Diagnostics (formerly named Meridian Bioscience, Inc.), European Diagnostics (formerly named Meridian Bioscience Europe) and Life Science. The US Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the US and countries outside of Europe, Africa and
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the Middle East. The European Diagnostics operating segment consists of the sale and distribution of diagnostic test kits in Europe, Africa and the Middle East. Approximately 65% of revenues for the European Diagnostics operating segment are derived from Meridian products manufactured in Cincinnati, Ohio. The Life Science operating segment consists of manufacturing operations in Memphis, Tennessee and Saco, Maine, and the sale and distribution of bulk antigens, antibodies and bioresearch reagents domestically and abroad. The Life Science operating segment consists of the Viral Antigens and BIODESIGN subsidiaries (formerly part of the Meridian Bioscience, Inc. operating segment), including the cGMP protein production laboratory.
Net Sales
Overall, net sales increased $1,821,000, or 12%, to $16,913,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. Net sales for the US Diagnostics operating segment increased $1,204,000, or 14%, for the European Diagnostics operating segment increased $792,000, or 26%, and for the Life Science operating segment decreased $175,000, or 5%.
For the US Diagnostics operating segment, the increase in sales for the second quarter of fiscal 2003 was primarily due to volume growth in both existing and new products. For existing products, volume growth was strong in C.difficile diagnostic products, led by Meridian’s internally developed Premier Toxins A&B, as well as tests to detect Cryptosporidium, Giardia, Mycoplasma and E.coli. For new products, Meridian began distributing new diagnostic tests for the detection of Flu and RSV during the first quarter of fiscal 2003. These new products are a result of Meridian’s recent collaboration with Binax, Inc.
For the European Diagnostics operating segment, the increase in sales for the second quarter of fiscal 2003 includes currency translation gains of $669,000. Sales for the European Diagnostics operating segment in local currencies increased 8% for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002.
For the Life Science operating segment, the decrease in sales for the second quarter of fiscal 2003 was primarily due to timing of shipments for make-to-order bulk antigen products. For such products, bulk quantities are manufactured pursuant to customer purchase orders. Samples must clear customer quality inspection procedures before the entire product lot is shipped to the customer. Delays can occur in customers’ quality inspection procedures, that in turn, affect timing of shipments from quarter to quarter. Sales are recorded upon shipment.
For all operating segments combined, international sales were $6,696,000, or 40% of total sales, for the second quarter of fiscal 2003, compared to $4,635,000, or 31% of total sales, for the second quarter of fiscal 2002. Domestic exports for the US Diagnostics and Life Science operating segments were $2,865,000 for the second quarter of fiscal 2003, compared to $1,596,000 for the second quarter of fiscal 2002. The remaining international sales were generated by the European Diagnostics operating segment. The increase in domestic exports for the second quarter of fiscal 2003 occurred primarily in the Life Science operating segment and resulted from customer mix for make-to-order bulk products.
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Gross Profit
Gross profit increased $1,402,000, or 16%, to $10,061,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. Gross profit margins increased from 57% for the second quarter of fiscal 2002, to 59% for the second quarter of fiscal 2003. This increase is primarily due to product mix. Meridian’s overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, antigens and proficiency tests. On a quarterly basis, product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.
Operating Expenses
Operating expenses increased $444,000, or 8%, to $6,277,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. The reasons for this increase are discussed below.
Research and development expenses increased $348,000, or 49%, to $1,064,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002, and as a percentage of sales, increased from 5% for the second quarter of fiscal 2002 to 6% for the second quarter of fiscal 2003. Of this increase, $276,000 related to the US Diagnostics operating segment and $72,000 related to the Life Science operating segment. The increase for the US Diagnostics operating segment is primarily attributable to additional product development staff and material costs for new product development activities. The increase for the Life Science operating segment is primarily attributable to activities at the new cGMP protein production laboratory.
Sales and marketing expenses increased $231,000, or 9%, to $2,671,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002, and as a percentage of sales, was 16% for both the second quarter of fiscal 2003 and 2002. Of this increase, $176,000 related to the US Diagnostics operating segment, $50,000 related to the European Diagnostics operating segment and $5,000 related to the Life Science operating segment. The increase for the US Diagnostics operating segment is primarily attributable to costs related to the new Binax products, such as sales person incentive compensation, samples and brochures.
General and administrative expenses decreased $135,000, or 5%,to $2,542,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002, and as a percentage of sales, declined from 18% for the second quarter of fiscal 2002 to 15% for the second quarter of fiscal 2003. Of this net decrease, $2,000 related to the US Diagnostics operating segment and $215,000 related to the European Diagnostics operating segment. The Life Science operating segment increased $82,000. For the US Diagnostics operating segment, costs to support growth in the business were offset by lower spending on trade secrets litigation and a favorable adjustment to the reserve for bad debts based on better than anticipated write-off history. The decrease for the European Diagnostics operating segment is primarily attributable to a contract amendment that adjusted certain minimum purchase commitments to align with current market expectations. The increase for the Life Science operating segment is primarily attributable to support costs for the cGMP protein production facility.
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Operating Income
Operating income increased $958,000, or 34%, to $3,784,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. This increase is attributable to the factors discussed above.
Other Income and Expense
Interest expense declined $66,000, or 13%, to $435,000 for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. This decline is attributable to the favorable effects of a lower interest rate environment and lower overall debt levels outstanding. Borrowings outstanding on Meridian’s revolving credit facility were $1,644,000 at March 31, 2003 compared to $7,050,000 at March 31, 2002.
Income Taxes
The effective rate for income taxes is 41% for the second quarter of fiscal 2003 compared to 38% for the second quarter of fiscal 2002. The increase in the effective tax rate during the second quarter of fiscal 2003 is in part due to a higher percentage of income from foreign operations. Additionally, the effective rate for the second quarter of fiscal 2002 included the favorable effects of reversing valuation allowance provisions in Belgium as net operating loss carryforwards in this jurisdiction were utilized.
Six-Month Period Ended March 31, 2003 Compared to Six-Month Period Ended March 31, 2002
Overview
Net earnings for the first six months of fiscal 2003 were $3,347,000, an increase of $735,000, or 28% compared to the first six months of fiscal 2002. On a diluted per share basis, net earnings were $0.23 for the first six months of fiscal 2003, an increase of $0.05, or 28% compared to the first six months of fiscal 2002.
Net Sales
Overall, net sales increased $4,369,000, or 15% to $33,016,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. Net sales for the US Diagnostics operating segment increased $3,240,000, or 19%, for the European Diagnostics operating segment increased $1,039,000, or 18% and for the Life Science operating segment increased $90,000, or 2%.
For the US Diagnostics operating segment, the increase in sales for the first six months of fiscal 2003 was primarily due to volume growth in both existing and new products. For existing products, volume growth was strong in C.difficilediagnostic products, led by Meridian’s internally
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developed Premier Toxins A&B, as well as tests to detect Cryptosporidium, Giardia, Mycoplasma, H.pyloriand E.coli. For new products, Meridian began distributing new diagnostic tests for the detection of Flu and RSV during the first quarter of fiscal 2003. These new products are a result of Meridian’s recent collaboration with Binax, Inc.
For the European Diagnostics operating segment, the increase in sales for the first six months of fiscal 2003 includes currency translation gains of $988,000. Sales for the European Diagnostics operating segment in local currencies increased 1% for the first six months of fiscal 2003 compared to the first six months of fiscal 2002.
For all operating segments combined, international sales were $11,056,000, or 33% of total sales, for the first six months of fiscal 2003, compared to $9,048,000, or 32% of total sales, for the first six months of fiscal 2002. Domestic exports for the US Diagnostics and Life Science operating segments were $4,183,000 for the first six months of fiscal 2003, compared to $3,214,000 for the first six months of fiscal 2002. The remaining international sales were generated by the European Diagnostics operating segment.
Gross Profit
Gross profit increased $2,553,000 or 15%, to $19,223,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. Gross profit margins were 58% for both the first six months of fiscal 2003 and 2002. Meridian’s overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, antigens and proficiency tests. On a quarterly basis, product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.
Operating Expenses
Operating expenses increased $1,147,000, or 10%, to $12,677,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. The reasons for this increase are discussed below.
Research and development expenses increased $481,000, or 32% to $1,975,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002, and as a percentage of sales, increased from 5% for the first six months of fiscal 2002 to 6% for the first six months of fiscal 2003. Of this increase, $338,000 related to the US Diagnostics operating segment and $143,000 related to the Life Science operating segment. The increase for the US Diagnostics operating segment is primarily attributable to additional product development staff and material costs for new product development activities. The increase for the Life Science operating segment is primarily attributable to activities at the cGMP protein production laboratory.
Sales and marketing expenses increased $706,000, or 15%, to $5,456,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002, and as a percentage of sales, was 17% for both the first six months of fiscal 2003 and 2002. Of this increase, $588,000 related to the US
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Diagnostics operating segment, $112,000 related to the European Diagnostics operating segment and $6,000 related to the Life Science operating segment. The increase for the US Diagnostics operating segment is primarily attributable to spending on strategic sales initiatives, including preparation and training of field sales personnel, and costs related to the new Binax products, such as sales person incentive compensation, samples and brochures. The increase for the European Diagnostics operating segment is, in part, due to currency.
General and administrative expenses decreased $40,000, or 1%, to $5,246,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002, and as a percentage of sales, declined from 18% for the first six months of fiscal 2002 to 16% for the first six months of fiscal 2003. Of this net decrease, $26,000 related to the US Diagnostics operating segment and $210,000 related to the European Diagnostics operating segment. The Life Science operating segment increased $196,000. The decrease for the US Diagnostics operating segment is primarily attributable to support costs for growth in the business, somewhat offset by lower spending on legal and professional fees and a favorable adjustment to the reserve for bad debts based on better than anticipated write-off history. The decrease for the European Diagnostics operating segment is primarily attributable to a contract amendment that adjusted certain minimum purchase commitments to align with current market expectations. The increase for the Life Science operating segment is primarily attributable to support costs for the cGMP protein production facility.
Operating Income
Operating income increased $1,406,000, or 27%, to $6,546,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. This increase is attributable to the factors discussed above.
Other Income and Expense
Other income and expense, net for the first six months of fiscal 2002 included a net gain of $254,000 related to the sale of shares of common stock received in the demutualization of two insurance companies during the second quarter of fiscal 2002. Interest expense declined $159,000, or 15%, to $883,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. This decline is attributable to the favorable effects of a lower interest rate environment and lower overall debt levels outstanding. Borrowings outstanding on Meridian’s revolving credit facility were $1,644,000 at March 31, 2003 compared to $7,050,000 at March 31, 2002.
Income Taxes
The effective rate for income taxes is 41% for the first six months of fiscal 2003 compared to 39% for the first six months of fiscal 2002. The increase in the effective tax rate during the first six months of fiscal 2003 is in part due to a higher percentage of income from foreign operations. Additionally, the effective rate for the first six months of fiscal 2002 included the favorable effects of reversing valuation allowance provisions in Belgium as net operating loss carryforwards in this jurisdiction were utilized.
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Liquidity and Capital Resources:
Comparative Cash Flow Analysis
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 line of credit availability to respond to acquisition opportunities quickly.
Net cash provided by operating activities increased $2,429,000, or 51%, to $7,150,000 for the first six months of fiscal 2003 compared to the first six months of fiscal 2002. This increase is primarily attributable to higher earnings levels and relief from income tax payments in certain jurisdictions as tax operating loss carryforwards are utilized.
Net cash used for investing activities was $2,205,000 for the first six months of fiscal 2003, compared to $2,359,000 for the first six months of fiscal 2002, and primarily related to capital expenditures and Viral Antigens earnout payments during both periods. The level of capital expenditures during the first six months of fiscal 2002 reflects the construction of the cGMP protein production laboratory.
Net cash used for financing activities was $4,895,000 for the first six months of fiscal 2003, compared to $2,359,000 for the first six months of fiscal 2002. Activity of $1,301,000 on the revolving credit facility and accelerated payments of $532,000 on term borrowings during the first six months of fiscal 2003 reflect planned efforts to pay down debt. Activity on the revolving credit facility during the first six months of fiscal 2002 includes approximately $1,000,000 related to payment of the mortgage loan for the Viral Antigens facilities that matured in January 2002.
Net cash flows from operating activities are anticipated to fund working capital requirements, debt service and dividends during fiscal 2003.
Capital Resources
The following table presents Meridian’s financing obligations as of March 31, 2003 (amounts in thousands):
| Payments Due for 12-Month Periods Beginning April 1 | ||||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2006 | 2007 | Total | |||||||||||||||||||
| Bank term debt | $ | 765 | $ | 806 | $ | 741 | $ | 1,143 | $ | — | $ | 3,455 | ||||||||||||
| Capital lease obligations | 119 | 25 | — | — | — | 144 | ||||||||||||||||||
| Subordinated debentures | — | — | — | 20,000 | — | 20,000 | ||||||||||||||||||
Meridian has a $25,000,000 credit facility with a commercial bank that 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 April 30, 2003, borrowings of $184,000 were outstanding on the line of credit portion of this facility, and the availability was $19,816,000.
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A substantial portion of the bank term debt, $3,368,000, is denominated in the Euro currency and bears interest at a variable rate tied to Euro LIBOR. This debt serves as a natural currency hedge against certain Euro denominated intercompany receivables. The subordinated convertible debentures in the amount of $20,000,000 bear interest at a fixed rate of 7% and have a conversion rate of $16.09. The Company expects that these debentures will be converted or refinanced at maturity.
The Viral Antigens acquisition, completed in fiscal 2000, provides for additional purchase consideration up to a maximum remaining amount of $5,938,000, contingent upon Viral Antigen’s future earnings through September 30, 2006. Earnout consideration is payable each year, following the period earned. Earnout payments, if any, may require financing under the line of credit or other bank credit facility. Earnout consideration in the amount of $1,407,000 related to fiscal 2002 was paid in January 2003, primarily from operating cash flows.
Meridian’s capital expenditures are estimated to be $2,000,000 for fiscal 2003, and may be funded with operating cash flows or availability under the $25,000,000 credit facility discussed above. Capital expenditures for the fiscal year to date have been funded primarily from operating cash flows. Capital expenditures primarily relate to manufacturing and other equipment of a normal and recurring nature.
Commitments and Contingencies:
Royalties
Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products (1% to 8%). Meridian expects that payments under these agreements will amount to as much as $700,000 in fiscal 2003.
Unconditional Purchase Commitments
Meridian has entered into agreements to distribute diagnostic test kits that are manufactured by other diagnostic manufacturing companies. Certain of these agreements require Meridian to purchase minimum quantities of diagnostic kits during 12-month measurement periods. Aggregate minimum purchase commitments under these agreements amount to $353,000 for fiscal 2003.
For one of these agreements, Meridian did not meet the minimum purchase provisions contained therein due to the actual size of the market for this specific product being smaller than anticipated prior to execution of the agreement. Meridian and the other party to this agreement have subsequently adjusted the minimum purchase provisions to align with current market expectations. The amendment to this agreement did not result in any further financial obligation for Meridian.
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Contract Research and Development
During fiscal 2000, Meridian executed a Research and Development Agreement and an Exclusive Supply Agreement with OraSure Technologies, Inc. to commercialize the UpLinktechnology. These agreements, assuming certain milestones were met, would require Meridian to make future payments to OraSure to fund research and development activities for specific diagnostic products and to obtain an exclusive license to market and sell such products on a global basis. In February 2003, Meridian informed OraSure that it was terminating these agreements. Currently, Meridian and OraSure are working together to wind down activities related to these agreements. Costs to wind down these agreements are not expected to be material.
FDA Matters
During January 2001, the FDA completed an inspection of Meridian’s compliance with the Quality Systems Regulations that govern the manufacturing of in vitro diagnostics. In response to this inspection, in January 2001, Meridian submitted a comprehensive plan to the FDA outlining specific steps it committed to undertake to improve its quality systems. In June 2001, Meridian received a Warning Letter from the FDA which summarized and reiterated certain of the observations made by the FDA during their inspection completed in January 2001.
In accordance with the FDA’s directive in the Warning Letter, Meridian is required to undergo three annual independent audits to evaluate Meridian’s progress implementing its comprehensive plan. The first audit was completed in November 2001. Based on an extensive review of documents and an on-site visit during this audit, the auditors substantiated Meridian’s progress in addressing the issues raised in the FDA inspection and Warning Letter.
In August 2002, the FDA completed an on-site follow-up inspection. The FDA issued several observations, primarily aimed at fine-tuning established quality control systems and procedures. Meridian submitted written corrective action plans to address these refinements and continues its periodic communications with the FDA on the progress of its comprehensive plan submitted to the FDA in January 2001 and the observations from the August 2002 inspection.
In January 2003, the second of three annual independent audits commenced. This audit was completed on May 1, 2003. The audit report substantiated Meridian’s progress in addressing issues raised in the prior FDA and independent audits. Meridian has responded to the latest observations and recommendations with corrective actions designed to further improve its established quality control systems and procedures.
At present, it is uncertain whether Meridian’s actions will be sufficient so that no further remedial action or enforcement action by the FDA will occur.
New Accounting Pronouncements:
During January 2003, the Financial Accounting Standards Board issued Statement No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123. Statement No. 148 provides alternative methods of transition for an entity that
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voluntarily changes to the fair value based method of accounting for stock-based compensation. Statement No. 148 provides three alternatives for an entity that adopts the fair value based method of accounting: Prospective Method, Modified Prospective Method and Retroactive Restatement Method. Under the Prospective Method, fair value based accounting would be applied to all employee awards granted after the beginning of the fiscal year in which the provisions are first applied. Under the Modified Prospective Method, fair value based accounting would be applied as of the beginning of the fiscal year of adoption for all employee awards granted in fiscal years beginning after December 15, 1994. Under the Retroactive Restatement Method, all periods presented are restated to reflect fair value based accounting for all employee awards granted in fiscal years beginning after December 15, 1994. If an entity elects fair value based accounting in a fiscal year beginning after December 15, 2003, either the Modified Prospective Method or the Retroactive Restatement method must be used. Meridian accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, in which compensation expense is determined based on intrinsic value. Meridian continually evaluates its accounting policies, including those governing stock-based compensation, and at this time believes it is appropriate to continue accounting for employee stock-based compensation under APB No. 25, consistent with historical practice.
During November 2002, the FASB issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others. Interpretation No. 45 clarifies the requirements of FASB Statement No. 5 relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. Meridian believes that it does not have any transactions that are governed by Interpretation No. 45, and thus, there has been no impact to results of operations or financial condition.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Meridian has market risk exposure related to interest rate sensitive debt and foreign currency transactions.
Meridian has debt obligations, excluding the line of credit, in the aggregate amount of $23,599,000 outstanding at March 31, 2003, of which $3,392,000 bears interest at variable rates. Information concerning the maturities of interest rate sensitive debt is included in the discussion of Capital Resources above. To date, Meridian has not employed a hedging strategy with respect to interest rate risk.
Meridian is exposed to foreign currency rate risk related to its European distribution operations, including foreign currency denominated intercompany receivables, as well as Euro denominated term debt. The Euro denominated term debt serves as a natural hedge against a portion of the Euro denominated intercompany receivables.
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2003, an evaluation was completed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2003.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Meridian’s Annual Meeting of Shareholders was held on January 21, 2003. Each of the following matters was voted upon and approved by Meridian’s shareholders as indicated below:
| (1) | Election of the following six directors: | |
| James A. Buzard, 13,798,833 votes for, 268,320 votes against and zero abstentions. | ||
| John A. Kraeutler, 13,651,011 votes for, 416,142 votes against and zero abstentions. | ||
| Gary P. Kreider, 13,824,530 votes for, 242,623 votes against and zero abstentions. | ||
| William J. Motto, 13,647,553 votes for, 419,600 votes against and zero abstentions. | ||
| David C. Phillips, 13,798,782 votes for, 268,371 votes against and zero abstentions. | ||
| Robert J. Ready, 13,826,820 votes for, 240,333 votes against and zero abstentions. | ||
| (2) | Ratification of appointment of PricewaterhouseCoopers as Meridian’s independent public accountants for fiscal year 2003: 13,809,881 votes for, 215,370 votes against and 41,902 abstentions. |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| (a) | Exhibits: |
| 99.1 - | Certification of William J. Motto pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 | ||
| 99.2 - | Certification of Melissa Lueke pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 |
| (b) | Reports on Form 8-K: | |
| None. |
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Signature:
| Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there-unto duly authorized. |
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
| Date: May 9, 2003 | /S/ Melissa Lueke | ||
| Melissa Lueke | |||
| Vice President and Chief Financial Officer | |||
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Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427
I, William J. Motto the principal executive officer of Meridian Bioscience, Inc. certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Meridian Bioscience, Inc. | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: May 9, 2003 | /s/ William J. Motto | |
| William J. Motto, Principal Executive Officer |
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Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427
I, Melissa Lueke, the principal financial officer of Meridian Bioscience, Inc. certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Meridian Bioscience, Inc. | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: May 9, 2003 | /s/ Melissa Lueke | |
| Melissa Lueke, Principal Financial Officer |
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