SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 0-14902
Meridian Diagnostics, Inc.
_______________________________________________________________
Incorporated under the
laws of Ohio 31-0888197
________________________ ___________________________________
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
______________________________________________________________
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X____ No ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 16, 1996
___________________________ _____________________________
Common stock, no par value 14,257,006
Page 1 of 16
Exhibit Index is on Page 15
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page(s)
_______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements-
Consolidated Balance Sheets -
March 31, 1996 and September 30, 1995 3-4
Consolidated Statements of Earnings -
Three Months Ended March 31, 1996 and 1995
Six Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
Exhibit 11 Computation of Earnings per Common Share 16
Exhibit 27 Financial Data Schedule 17-19
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
March 31, September 30,
1996 1995
___________ ____________
CURRENT ASSETS:
Cash and short-term investments $10,244,476 $ 8,918,637
Accounts receivable, less
allowance of $150,755 and
$164,136 for doubtful accounts 6,534,178 6,482,999
Inventories 3,330,673 3,032,655
Prepaid expenses and other 588,299 165,553
Deferred tax assets 409,605 324,910
__________ _________
Total current assets 21,107,231 18,924,754
__________ _________
PROPERTY, PLANT AND EQUIPMENT:
Land 273,822 269,217
Building improvements 5,968,729 6,162,668
Machinery, equipment and furniture 5,727,552 5,525,455
Construction in progress 77,280 -
__________ _________
12,047,383 11,957,340
Less- Accumulated depreciation
and amortization 4,975,620 4,816,905
__________ _________
Net property, plant and equipment 7,071,763 7,140,435
__________ _________
OTHER ASSETS:
Long-term receivables, including
cash surrender value of insurance
policies 184,804 168,892
Deferred royalties 97,946 74,762
Deferred tax assets 177,879 87,879
Deferred debenture offering costs,
net of accumulated amortization
of $133,357 - 0 - 395,731
Covenants not to compete,
net of accumulated amortization
of $2,072,892 and $1,827,718 2,187,702 2,432,876
License agreements, net of
accumulated amortization
of $801,210 and $772,433 333,903 362,680
Patents, tradenames, customer
lists and distributorships, net
of accumulated amortization of
$579,960 and $475,762 1,733,040 1,837,238
Other intangible assets, net of
accumulated amortization of
$106,603 and $85,570 524,397 545,430
Costs in excess of net assets
acquired, net of accumulated
amortization of $560,630 and
$458,482 2,496,363 2,598,511
__________ ___________
Total other assets 7,736,034 8,503,999
__________ ___________
Total assets $35,915,028 $34,569,188
__________ ___________
__________ ___________
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, September 30,
1996 1995
____________ _____________
CURRENT LIABILITIES:
Current portion of long-term
obligations $ 2,723,000 $ 381,932
Current portion of capital
lease obligation 108,649 63,561
Accounts payable 786,117 689,869
Accrued payroll and payroll taxes 505,387 723,946
Other accrued expenses 1,109,513 937,348
Income taxes payable 1,296,820 458,707
__________ ___________
Total current liabilities 6,529,486 3,255,363
__________ ___________
LONG-TERM OBLIGATIONS 1,907,959 12,285,668
__________ ___________
CAPITAL LEASE OBLIGATIONS 387,438 149,925
__________ ___________
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
1,000,000 shares
authorized; none issued
Common stock, no par value,
50,000,000 shares authorized;
14,257,006 and 12,924,814 shares
issued and outstanding,
respectively, stated at 2,372,646 1,487,159
Additional paid-in capital 20,434,464 13,895,901
Retained earnings 4,500,496 3,747,930
Foreign currency translation
adjustment (217,461) (252,758)
___________ ___________
Total shareholders' equity 27,090,145 18,878,232
___________ ___________
Total liabilities and
shareholders' equity $35,915,028 $34,569,188
____________ ___________
____________ ___________
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
__________________________ ________________________
1996 1995 1996 1995
____________ ___________ ___________ ___________
NET SALES $ 7,254,952 $ 6,468,725 $12,776,481 $11,574,417
COST OF SALES 2,251,595 2,113,491 3,999,094 3,821,956
____________ ___________ ___________ ___________
Gross Profit 5,003,357 4,355,234 8,777,387 7,752,461
____________ ___________ ___________ ___________
OPERATING EXPENSES:
Research and
development 356,252 356,217 696,639 713,223
Selling and
marketing 1,451,465 1,245,707 2,814,787 2,420,944
General and
administrative 977,440 957,819 1,996,180 1,947,312
____________ ___________ ___________ ___________
Total operating
expenses 2,785,157 2,559,743 5,507,606 5,081,479
____________ ___________ ___________ ___________
Operating income 2,218,200 1,795,491 3,269,781 2,670,982
____________ ___________ ___________ ___________
OTHER INCOME (EXPENSE):
Licensing and
commission fees 17,038 30,295 32,938 66,403
Investment income 115,549 113,231 242,632 195,940
Interest expense and
amortization
of debt expenses (89,351) (298,869) (236,018) (561,483)
Other, net 19,517 4,021 12,076 874
Currency gains/
(losses) 1,343 (376) 23,631 3,506
____________ ___________ ___________ ___________
Total other income
(expense) 64,096 (151,698) 75,259 (294,760)
____________ ___________ ___________ ___________
Earnings before
income taxes 2,282,296 1,643,793 3,345,040 2,376,222
INCOME TAXES 927,325 698,887 1,360,910 1,000,886
____________ ___________ ___________ ___________
Net earnings $1,354,971 $ 944,906 $1,984,130 $1,375,336
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 14,248,041 12,306,300 14,071,922 12,299,598
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
EARNINGS PER
COMMON SHARE $.10 $ .08 $.14 $ .11
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31
__________________________
1996 1995
____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,984,130 $ 1,375,336
Noncash items-
Loss on disposal of fixed asset 5,869 -
Amortization of royalties 14,316 -
Depreciation of property,
plant and equipment 495,255 456,464
Amortization of intangible assets 517,214 468,833
Deferred interest expense 82,097 77,475
Deferred income taxes (174,695) (206,530)
Long term receivables (15,912) -
Changes in other current assets
and current liabilities-
Accounts receivable, net (51,179) (600,667)
Inventories (298,018) (114,718)
Prepaid expenses and other (422,746) (188,143)
Accounts payable 96,248 (1,246,015)
Accrued expenses ( 46,394) 377,174
Income taxes payable 838,113 (44,440)
___________ ___________
Net cash provided by
operating activities 3,024,298 354,769
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment
acquired, net (361,858) (1,185,438)
Royalty advanced (37,500) -
___________ ___________
Net cash used for
investing activities (399,358) (1,185,438)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (364,713) (166,417)
Proceeds from long-term obligations 395,576 907,317
Dividends paid (1,231,564) (566,571)
Proceeds from issuance of
common stock, net (63,103) 22,646
Effect of exchange rate changes
on cash (35,297) (36,895)
___________ ___________
Net cash provided by
(used for) financing
activities (1,299,101) 160,080
___________ ___________
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 1,325,839 (670,589)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 8,918,637 8,831,983
___________ ___________
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 10,244,476 $ 8,161,394
___________ ___________
___________ ___________
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 916,625 $ 1,193,950
___________ ___________
___________ ___________
Interest $ 78,515 $ 447,071
___________ ___________
___________ ___________
Non-cash activities-
Common stock issued from
conversion of subordinated
debentures, net of
amortization of deferred
debenture offering
cost of $379,847 and net
conversion costs of $77,649. $7,409,504 $ -
___________ __________
___________ __________
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation-
The consolidated financial statements included herein have
not been examined by independent public accountants, but
include all adjustments (consisting of normal recurring
entries) which are, in the opinion of management, necessary
for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted
pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the
disclosures included in these financial statements are
adequate to make the information not misleading.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's
latest annual report on Form 10-K.
The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the
year.
(2) Inventories-
Inventories are comprised of the following:
March 31, September 30,
1996 1995
____________ _____________
Raw materials $ 1,086,710 $ 1,165,319
Work-in-process 909,404 626,077
Finished goods 1,334,559 1,241,259
____________ _____________
$ 3,330,673 $ 3,032,655
____________ _____________
____________ _____________
(3) Income Taxes-
The provisions for income taxes were computed at the
estimated annualized effective tax rates utilizing current
tax law in effect, after giving effect to research and
experimentation credits.
(4) Earnings Per Common Share-
Net earnings per share has been computed based upon the
weighted average number of shares outstanding during the
periods which includes the effect of the conversion of the
subordinated debentures into common stock. No material dilution
results from outstanding stock options, the only common stock
equivalent. All share and per share information have been
adjusted to reflect the 3 for 2 stock split in October 1995.
Additionally, all share and per share information have been
adjusted for a 3% stock dividend in November 1994.
(5) Translation of Foreign Currency-
Assets and liabilities of foreign operations are translated
using quarter end exchange rates, and revenues and expenses
are translated using exchange rates prevailing during the
year with gains or losses resulting from translation
included in a separate component of shareholders' equity.
Gains and losses resulting from transactions in foreign
currencies were immaterial.
(6) Reclassifications-
Certain reclassifications have been made to the accompanying
financial statements to conform to the March 31, 1996 presentation.
Item 2. Management's Discussion and Analysis Of Financial
Condition and Results of Operations
Results of Operations
_____________________
Net sales increased $786,000, or 12%, to $7,255,000 for the second
fiscal quarter and $1,202,000, or 10%, to $12,776,000 for the six
months ended March 31, 1996. These increases stem primarily from
strong unit volume growth in the Premier, Para-Pak and ImmunoCard
lines. In the Premier and ImmunoCard formats, this growth was
attributable to those products used for identification of Toxin
A, H pylori, EHEC, Mycoplasma and Rotavirus. In Para-Pak, the
growth was attributable to the core parasitology transport format
plus Para-Pak Ultra, introduced last fall. In addition, the Inova
line of products, licensed for Italy last year, added over
$130,000 and over $170,000 of sales volume for the second fiscal
quarter and six months results, respectively.
Following is a summary of the increase in sales for the two
periods broken down by volume, price and currency:
March 31, 1996
______________________________________________
Quarter Ended Six Months Ended
$ Change % Change $ Change % Change
_________ _________ _________ ___________
Volume $663,000 10.3 $ 957,000 8.3
Price 57,000 0.9 186,000 1.6
Currency 66,000 1.0 59,000 0.5
________ _____ _________ ______
Total $786,000 12.2 $1,202,000 10.4
________ _____ _________ ______
________ _____ _________ ______
European sales for the second fiscal quarter increased from
$1,493,000 to $1,738,000 or 16%, and increased from $2,469,000 to
$2,970,000, or 20%, for the six month period principally from
volume growth in the Premier, ImmunoCard and Para-Pak formats plus
the new volume from the Inova line.
The increase in sales broken down by volume, price and currency
for European sales are summarized below:
Quarter Six Months
$ Change % Change $ Change % Change
_________ _________ _________ ___________
Volume $174,000 11.7 $ 389,000 15.8
Price 5,000 0.3 53,000 2.1
Currency 66,000 4.4 59,000 2.4
________ _____ _________ ______
Total $245,000 16.4 $ 501,000 20.3
________ _____ _________ ______
________ _____ _________ ______
Gross profit as a percentage of net sales improved to almost 69%
for the second fiscal quarter and to 68.7% for the six-month
period, up about 1.6 percentage points in both periods compared
to the prior year. Product mix, driven by growth in excess of 20%
for Premier and Para-Pak and 15% for ImmunoCard for the second
fiscal quarter coupled with the positive effect of volume, price
and currency and favorable inventory variances were the bases for this
improvement in profitability.
Total operating expenses increased $225,000, or 9%, for the
second fiscal quarter and $426,000 or 8% for the six months ended
March 31, 1996, compared to the prior year. Total operating
expenses were 38.4% of net sales for the second quarter, down 1.2
percentage points from the prior year, and were 43.1% of net sales
for the six months, down 0.8 percentage points.
Research and development expenses for the second fiscal quarter
were flat compared to the prior year and down 2% for the six-
month period. Increases in personnel costs and licensing fees
were largely offset by reductions in outside contract research
and casual labor, used more heavily last year, plus reductions in
indirect expenses such as repairs, laboratory supplies, travel,
etc. Clinical trial expense did not vary materially from the prior
year periods.
Selling and marketing expenses increased 16% for the second
quarter and the six months. The increases are attributable to
personnel costs in the U.S. associated with the addition of a third
sales region and in Europe from added personnel in the sales
support and product management functions. Other increases
included higher travel, promotion/advertising associated with new
products (Premier Cryptosporidium, Premier EHEC, Premier
HSV Plus, Para-Pak and the Inova line) plus depreciation expense
associated with the new U.S. headquarters facility.
General and administrative expenses increased about 2% for the
second fiscal quarter and six-month period. Personnel costs,
primarily in Europe, and a one-time state filing fee associated
with the increase in the number of authorized shares of common
stock are the primary reasons for the increase. The overall
increase between the periods was offset, in part, by a provision
for doubtful accounts recorded in the second fiscal quarter of
last year.
Operating income as a result of the above increased $423,000, or
24%, for the second fiscal quarter and $599,000, or 22% for the
six months, respectively, compared to the same periods last year.
As a percent of sales, operating income improved about 3.0
percentage points for the quarter and 2.5 percentage points for
the six months.
Other income (net) increased $216,000 for the quarter and
$370,000 for the six month periods ended March 31, 1996.
Interest income (net) improved $212,000 for the quarter and
$372,000 for the six month period primarily from the reduction in
interest expense as a result of the conversion of the convertible
debentures as of November 30, 1995.
Gains/losses in foreign exchange were not material during the
periods. The cumulative foreign currency translation adjustment
changed by $35,000 during the quarter as a result of the U.S.
dollar softening against the Lira.
The Company's effective tax rate is down about two percentage
points for the quarter and about one and one-half percentage
points for the six-month period compared to the prior year
as a result of a higher proportion of income being generated in
the U.S. compared to the Company's European subsidiary, plus
increased benefits from the Company's foreign sales corporation.
Net earning increased 43% for the second fiscal quarter to
$1,355,000 from $945,000 and increased 44% to $1,984,000 from
$1,375,000 for the six months ended March 31, 1996 compared to
the prior year. The corresponding increases in primary earnings
per share for the comparable periods were approximately 24% and
26% respectively. The lower growth rates in earnings per share
results from the increase in outstanding shares associated with
the conversion of the convertible debentures.
Liquidity and Capital Resources
Net cash flow provided by operating activities was $3,024,000 for
the six month period ended March 31, 1996, up $2,669,000 from
the prior year period. This increase resulted from accounts payable
reflecting the December 1994 payment for goods purchased from
Ortho Diagnostic Systems, Inc. during fiscal 1994, the timing of
estimated income tax payments and the increase in net earnings.
On October 10, 1995, the Company called for the redemption of the
outstanding balance of its 7-1/4% Convertible Subordinated Debentures
due in 2001. At that time, approximately $7,400,000 of the principal
amount of the Debentures was outstanding. Of the originally issued
$11,500,000 principal amount, $113,000 was redeemed for cash on
November 30, 1995. The balance was converted into Common Stock at
$5.97 per share.
Capital expenditures for the six-months ended March 31, 1996 were
$362,000, a decrease of $823,000 from the prior year period. The
lower expenditures reflect the completion of construction of
additional manufacturing and administrative space in
September 1995. In October 1995, renovation of the former
administrative offices and laboratory manufacturing space commenced.
This phase, which is expected to cost $1,200,000, is expected to be
completed by June 1996. The Company's anticipated total capital
expenditures for fiscal 1996 are $1,900,000.
Net cash flow from operations is expected to continue to fund
working capital requirements for the foreseeable future.
Currently, the Company has an unused $6,000,000 line of credit
with a commercial bank.
On November 14, 1995 the Board of Directors declared a special
year-end cash dividend of $0.025 per share for fiscal 1995,
payable December 1, 1995 to shareholders. On April 15, 1996
the Board of Directors declared the regular quarterly cash
dividend of $0.0325 per share payable May 3, 1996. Total
dividends paid for the six month period were $1,232,000, up
from $567,000 in the prior six month period.
On April 16, 1996 the Company paid off the outstanding
balance of its mortgage loans reducing long term debt by
$2,418,000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1995, Meridian and Inova Diagnostics, Inc. were sued by
Delta Biologicals srl in the 11th Judicial circuit for Dade
County, Florida. The case was removed to the United States
District Court for the Southern District of Florida and
transferred on March 18, 1996 to the United States District Court
for the Southern District of California. The action relates to a
February 1995 agreement between Meridian's European subsidiary,
Meridian Diagnostics Europe, srl, and Inova for the marketing and
distribution of a line of autoimmune disease tests manufactured
by Inova. The plaintiff alleges that the agreement violates its
distribution agreement with Inova and seeks unspecified
compensatory and punitive damages from Inova and Meridian. In
the February 1995 agreement, Inova represented to Meridian that
Inova had the right to enter into the agreement with Meridian
without violating the rights of any other third party, and that
Inova would indemnify and hold Meridian harmless for all costs,
damages and expenses arising from any such claims. Meridian and
Inova are currently negotiating the terms of a new agreement
which will grant exclusive distribution rights to Meridian in
return for limiting Inova's obligation on the indemnity to
$250,000, plus all of Meridian's costs and expenses. Management
does not believe the ultimate outcome of this matter will have a
material impact on the Company's financial position, results of
operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on January
25, 1996. Each of the following matters was voted upon and
approved by the Company's shareholders as indicated below:
(1) Establishment of the number of directors to be elected
at five, 11,806,618 votes for, 7,501 votes against,
7,255 abstentions.
(2) Election of the following directors:
(a) William J. Motto, 11,818,763 votes for and 2,612
abstentions
(b) Jerry Ruyan, 11,818,764 votes for and 2,611
abstentions
(c) James A. Buzard, 11,818,764 votes for and 2,611
abstentions
(d) Robert J. Ready, 11,818,764 votes for and 2,611
abstentions
(e) Gary P. Kreider, 11,818,764 votes for and 2,611
abstentions.
(3) Approval of an Amendment to the Articles of
Incorporation to increase the authorized Common Shares
from 25,000,000 to 50,000,000 shares, 11,643,969 votes
for, 73,600 votes against, 24,824 abstentions, 78,981
broker non-votes.
(4) Approval to adopt the Company's 1996 Stock Option Plan
to provide 200,000 Common Shares as available for grant
under such plan, 11,389,688 votes for, 324,875 votes
against, 28,222 abstentions, 78,589 broker non-votes.
(5) Ratification of the appointment of Arthur Andersen LLP
as the Company's independent public accountants for
fiscal year 1996, 11,802,988 votes for, 4,529 votes
against, 13,858 abstentions.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits-
Exhibit No. Description Page(s)
_______________ _______________________________ _______
11 Computation of earnings per
common share 16
27 Financial Data Schedule 17-19
(b) Reports on Form 8-K - None
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned there-unto duly
authorized.
MERIDIAN DIAGNOSTICS, INC.
Date: April 18, 1996 /S/ GERARD BLAIN
__________________________
GERARD BLAIN, Vice President,
Chief Financial Officer
(Principal Financial Officer)