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 December 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.
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Incorporated under
the laws of Ohio 31-0888197
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(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 January 24, 1997
- -------------------------- -------------------------------
Common stock, no par value 14,356,744
Page 1 of 14
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements-
Consolidated Balance Sheets -
December 31, 1996 and September 30, 1996 3-4
Consolidated Statements of Earnings -
Three Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows - Three Months
Ended December 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 9-11
PART II.OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signature
Exhibit 11 Computation of Earnings per Common Share 14
Exhibit 27 Financial Data Schedule 15-17
Page 2 of 14
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
December 31, September 30,
1996 1996
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $15,883,872 $ 5,648,225
Short-term investments 6,068,409 14,094,299
Accounts receivable, less allowance of
$124,504 and $128,013 for doubtful
accounts 8,009,535 9,206,498
Inventories 5,164,869 4,251,531
Prepaid expenses and other 730,011 189,433
Deferred tax assets 364,331 402,125
---------- ----------
Total current assets 36,221,027 33,792,111
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 278,529 277,691
Building improvements 5,909,647 5,864,008
Machinery, equipment and furniture 6,400,483 6,322,071
Construction in progress 1,086,886 1,061,002
---------- ----------
13,675,545 13,524,772
Less- Accumulated depreciation and
amortization 5,442,005 5,171,388
---------- ----------
Net property, plant and equipment 8,233,540 8,353,384
---------- ----------
OTHER ASSETS:
Long-term receivable and other 547,999 573,710
Deferred royalties 235,718 278,027
Deferred tax assets 136,803 109,503
Deferred debenture offering costs, net of
accumulated amortization of $35,250
and $1,500 1,293,086 1,260,543
Covenants not to compete, net of
accumulated amortization
of $2,566,510 and $2,381,064 2,954,085 3,139,530
License agreements, net accumulated
amortization of $844,376 and $829,987 290,737 305,125
Patents, tradenames, customer lists and
distributorships, net of accumulated
amortization of $829,876 and $707,474 3,289,124 3,417,517
Other intangible assets, net of accumulated
amortization of $191,819 and $154,469 2,049,181 2,086,531
Costs in excess of net assets acquired, net
of accumulated amortization of $738,002
and $675,553 3,090,991 3,153,441
Total other assets 13,887,724 14,323,927
---------- ----------
Total assets $58,342,291 $56,469,422
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Page 3 of 14
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, September 30,
1996 1996
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CURRENT LIABILITIES:
Current portion of long-term obligations $ 346,000 $ 258,663
Current portion of capital lease
obligation 128,424 139,019
Accounts payable 2,367,834 990,249
Accrued payroll and payroll taxes 467,628 850,722
Other accrued expenses 1,138,159 1,065,417
Income taxes payable 1,630,544 831,723
---------- ----------
Total current liabilities 6,078,589 4,135,793
---------- ----------
LONG-TERM OBLIGATIONS 22,077,774 22,148,012
---------- ----------
CAPITAL LEASE OBLIGATIONS 594,247 617,619
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000
shares authorized; none issued -- --
Common stock, no par value, 50,000,000
shares authorized; 14,284,468 and
14,278,578 shares issued and outstanding,
respectively stated at 2,389,123 2,386,153
Additional paid-in capital 20,548,727 20,526,337
Retained earnings 6,795,772 6,809,830
Cumulative foreign currency translation
adjustment (141,941) (154,322)
---------- ----------
Total shareholders' equity 29,591,681 29,567,998
---------- ----------
Total liabilities and shareholders'
equity $ 58,342,291 $ 56,469,422
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Page 4 of 14
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
December 31,
--------------------------
1996 1995
----------- ----------
NET SALES $ 7,561,793 $ 5,521,529
COST OF SALES 2,710,869 1,747,499
----------- -----------
Gross profit 4,850,924 3,774,030
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OPERATING EXPENSES:
Research and development 398,510 340,387
Selling and marketing 1,794,576 1,363,321
General and administrative 1,050,831 1,018,740
------------ ----------
Total operating expenses 3,243,917 2,722,448
----------- -----------
Operating income 1,607,007 1,051,582
OTHER INCOME (EXPENSE):
Licensing and related fees - 15,900
Interest income 304,438 127,083
Interest expense (490,300) (146,667)
Currency gains (losses) (3,794) 22,288
Other, net (1,526) (7,440)
------------ ----------
Total other income (expense) (191,182) 11,164
------------ ----------
Earnings before income taxes 1,415,825 1,062,746
INCOME TAXES 573,079 433,585
------------ ----------
Net earnings $ 842,746 $ 629,161
============= ============
PRIMARY WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 14,735,225 13,897,766
============= ============
PRIMARY EARNINGS PER COMMON SHARE $ .06 $ .05
============= ============
FULLY DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING N/A 14,375,048
------------ ----------
FULLY DILUTED EARNINGS PER COMMON SHARE N/A $ .04
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Page 5 of 14
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31,
--------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 842,746 $ 629,161
Noncash items-
Depreciation of property, plant
and equipment 273,319 254,964
Amortization of intangible assets
and deferred royalties 498,101 272,991
Deferred interest expense 41,646 39,294
Deferred income taxes 10,494 (52,553)
Change in current assets excluding
cash and short-term investments (256,953) 685,882
Change in current liabilities, excluding
current portion of long term obligations 1,866,054 682,392
Long term receivable and payable 27,966 (7,602)
----------- -----------
Net cash provided by operating activities 3,303,373 2,504,529
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment acquired, net (142,765) (122,988)
Sale of short-term investments 8,025,890 --
----------- -----------
Net cash provided by (used for) investing
activities 7,883,125 (122,988)
CASH FLOWS FROM FINANCING ACTIVITIES:
Subordinated debentures offering costs (66,293) --
Proceeds from other long-term obligations -- 339,538
Repayment of long-term obligations (60,769) (225,123)
Dividends paid (856,804) (732,975)
Proceeds from issuance of common stock, net 25,359 (68,665)
----------- -----------
Net cash provided by (used for) financing
activities (958,507) (687,225)
----------- -----------
Effect of exchange rate changes on cash 7,656 (15,676)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10,235,647 1,678,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,648,225 8,918,637
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,883,872 $ 10,597,277
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 119,050 $ 14,500
Interest 18,247 46,550
============ ============
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 cost of $77,649 $ -- $ 7,409,504
============ ============
Page 6 of 14
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:
December 31, September 30,
1996 1996
------------ -------------
Raw materials $1,529,334 $1,223,438
Work-in-process 1,277,200 966,437
Finished goods 2,358,335 2,061,656
---------- ----------
$5,164,869 $4,251,531
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Page 7 of 14
(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. No material dilution
results from outstanding stock options, the only common stock
equivalents, nor from the assumed conversion of the 7% Convertible
Subordinated Debentures issued September 27, 1996, due in 2006. These
debentures assuming their conversion, net of the pro forma after tax
interest expense, are anti-dilutive. All share and per share information
have been adjusted to reflect the conversion of the 7 1/4% Convertible
Subordinated Debentures due in 2001, called for redemption on October 10,
1995 into common stock, as well as the 3 for 2 stock split in October
1995.
(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 reclassificatons have been made to the accompanying financial
statements to conform to the December 31, 1996 presentation.
Page 8 of 14
Item 2. Management's Discussion and Analysis Of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $2,040,000, or 37%, to $7,562,000 for the first fiscal
quarter compared to the prior year. This increase is attributable to the strong
unit growth in the Premier product line, primarily from the Cambridge products
plus Toxin A, EHEC, Giardia and H. pylori; growth in the ImmunoCardR line, up
over 80% compared to the prior year, principally in Toxin A, mycoplasma, H.
pylori and rotavirus; ParaPakR, up over 25%; and the Inova line of autoimmune
products in Italy, which more than tripled.
The increase in sales of $2,040,000 was comprised of volume of $2,118,000, or
38%, currency of $68,000, or 1%, offset by pricing of $146,000, or 2%.
European sales for the quarter increased $261,000, or 21%. The increase was
attributable to continued strong unit growth across the ImmunoCard line, which
more than doubled; growth in the Premier line, up 31%, primarily EHEC; plus the
growth in the Inova line mentioned above. This increase of $261,000 is comprised
of volume of $287,000, or 24%, currency of $68,000 or 5%, offset by price of
$94,000, or 8%. This reduction in price is largely a result of very competitive
pricing in the German market for the EHEC product.
Gross profit increased 29% compared to the sales increase of 37% and declined as
a percentage of net sales to 64.2% for the first fiscal quarter compared to
68.4% for the three-month period ended December 31, 1995. The reduction in the
gross profit rate is largely related to the higher costs associated with the
enteric product line acquisition from Cambridge in June 1996. The acquisition
included, in addition to the amortization of certain acquisition costs, a
one-year inventory purchase agreement at a negotiated cost expected to be higher
than the Company's cost of manufacturing when the purchased product line is
fully integrated into the Company's manufacturing facilities in Cincinnati
during the third fiscal quarter of 1997. The impact of lower pricing mentioned
above accounts for the majority of the balance of the decline.
Total operating expenses increased $521,000, or 19%, for the first fiscal
quarter versus the three months ended December 31, 1995, however, declined over
six points as a percent of sales to 42.9% from 49.3% versus the prior year.
Research and development expenses for the first fiscal quarter increased
$58,000, or 17%, from the prior year. These increases are attributable to higher
personnel costs and timing of purchases of supplies. The labor increase is
related to EHEC development for use in food, development of novel detection
assays for H. pylori and for antibody purification for Toxin B associated with
the transition of Cytoclone from Cambridge. Selling and marketing expenses are
up 32%, primarily from U.S. sales personnel added during fiscal 1996 to provide
improved geographic coverage and penetration of national accounts, higher
national sales meeting expenses and amortization of certain Cambridge
acquisition costs. European selling and marketing expenses were relatively flat
excluding the effect of currency. General and administrative expenses increased
3% for the first quarter. The majority of this increase is amortization expenses
associated with Cambridge. The balance of the increase stems from the currency
effect of the stronger lira versus the dollar.
Page 9 of 14
Operating income as a result of the above increased $555,000, or 53%, for the
first fiscal quarter and improved over 2 points as a percent of sales.
Other income/(expense) increased $202,000 for the quarter. This increase in
expense is directly attributable to the interest expense of $350,000 associated
with the 7% Convertible Subordinated Debentures due 2006, issued in September
1996. For the same quarter last year, debenture interest expense was $43,000.
The increase in interest income reflects the increased amount of cash (from the
debentures) invested during the period. Gains/losses in foreign exchange were
not material during the periods. The cumulative foreign currency translation
adjustment changed by $12,000 during the quarter as a result of the U.S. dollar
softening against the lira during the period.
The Company's effective tax rate declined marginally to 40% from 41% in the
prior year.
Liquidity and Capital Resources
Net cash flow provided by operations increased $799,000, or 32%, to $3,303,000
for the three month period ended December 31, 1996. This increase is primarily
from the growth in accounts payable as a result of the purchase of inventories
associated with the Cambridge acquisition, up $1,378,000, the reduction in trade
accounts receivable, down $1,197,000 and the timing of income tax payments
offset by increases in inventories and prepaid expenses.
Net cash provided by investing activities increased $8,006,000 as a result of
the sale of short term investment with maturities greater than 90 days which
have been reinvested into maturities of less than 90 days and reflected in Cash
and Cash Equivalents of $15,884,000. Net cash used for financing activities
increased $271,000, the major items being higher dividend payments including the
year end special cash dividend of $0.025 per share plus expenses associated with
the issuance of the 7% debentures due in 2006.
Net cash flow from operations is expected to continue to fund working capital
requirements. Currently, the Company has an unused $10,000,000 line of credit
with a commercial bank and cash and short-term investments of $21,952,000.
Page 10 of 14
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121 (Statement 121) on "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of." Statement 121 is required to be
applied prospectively for assets to be held and used. Statement 121 also
establishes accounting standards for long-lived assets that are to be disposed.
The initial application of Statement 121 to assets held for disposal is required
to be reported as the cumulative effect of a change in accounting principle. The
Company is required to adopt Statement 121 in 1997 and, based on current
circumstances, the effect of the adoption will not have a material effect on its
financial position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 (Statement 123) "Accounting for Stock Based Compensation" establishing
financial accounting and reporting standards for stock-based employee
compensation plans. Statement 123 encourages the use of the fair value based
method to measure compensation cost for stock-based employee compensation plans;
however, it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion No. 25, which is currently used by the
Company. If the intrinsic value based method continues to be used, Statement 123
requires pro forma disclosures of net income and earnings per share, as if the
fair value based method of accounting had been applied. The fair value based
method requires that compensation cost be measured at the grant date based upon
the value of the award and recognized over the service period, which is normally
the vesting period. The Company adopted Statement 123 in fiscal 1997 and will
make the required footnote disclosures only. Therefore, the adoption of this
Statement will not have a material effect on the Company's financial position or
results of operations.
Page 11 of 14
PART II. OTHER INFORMATION
Item 5. Other Information
On November 1, 1996, the Paul-Ehrlich Institute in Germany approved Premier
EHEC, the diagnostic test for E. coli bacterial toxins. While often linked to
under-cooked meat, E. coli toxins have been found in fruit juice, drinking
water, produce and raw milk. Premier EHEC and a companion product, Premier 0157,
have played a key role in ensuring the safety of Germany's milk products.
Page 12 of 14
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits-
Exhibit No. Description Page(s)
----------- ---------------------------------------- -------
11 Computation of earnings per common share 14
27 Financial Data Schedule 15-17
(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: January 27, 1997 /S/ GERARD BLAIN
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GERARD BLAIN, Vice President,
Chief Financial Officer (Principal
financial officer)
Page 13 of 14