e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2011
OR
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o |
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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 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 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding July 31, 2011 |
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Common Stock, no par value
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41,051,356 |
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil
litigation for forward-looking statements accompanied by meaningful cautionary statements. Except
for historical information, this report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, which may be identified by words such as estimates, anticipates, projects,
plans, seeks, may, will, expects, intends, believes, should and similar expressions
or the negative versions thereof and which also may be identified by their context. Such
statements, whether expressed or implied, are based upon current expectations of the Company and
speak only as of the date made. The Company assumes no obligation to publicly update or revise any
forward-looking statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized. These statements are subject to various
risks, uncertainties and other factors that could cause actual results to differ materially,
including, without limitation, the following: Meridians 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
Meridians 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. Recessionary pressures on the
economy and the markets in which our customers operate, as well as adverse trends in buying
patterns from customers can change expected results. 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.
Changes in the relative strength or weakness of the U.S. dollar can also change expected results.
One of Meridians main growth strategies is the 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 will be successfully integrated into Meridians
operations. There may be risks that acquisitions may disrupt operations and may pose potential
difficulties in employee retention and there may be additional risks with respect to Meridians
ability to recognize the benefits of acquisitions, including potential synergies and cost savings
or the failure of acquisitions to achieve their plans and objectives. The Company cannot predict
the possible impact of recently-enacted United States healthcare legislation and any similar
initiatives in other countries on its results of operations. In addition to the factors described
in this paragraph, Part I, Item 1A Risk Factors of our Form 10-K contains a list and description of
uncertainties, risks and other matters that may affect the Company.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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NET SALES |
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$ |
40,052 |
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$ |
33,857 |
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$ |
118,374 |
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$ |
107,461 |
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COST OF SALES |
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14,626 |
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12,121 |
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43,046 |
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40,073 |
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GROSS PROFIT |
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25,426 |
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21,736 |
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75,328 |
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67,388 |
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OPERATING EXPENSES |
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Research and development |
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2,710 |
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2,128 |
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7,383 |
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6,521 |
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Selling and marketing |
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6,143 |
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4,287 |
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17,847 |
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13,495 |
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General and administrative |
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6,442 |
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4,872 |
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18,675 |
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14,042 |
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European and global sales &
marketing leadership
reorganization |
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1,240 |
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Bioline Group transaction costs |
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673 |
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673 |
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Total operating expenses |
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15,295 |
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11,960 |
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45,145 |
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34,731 |
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OPERATING INCOME |
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10,131 |
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9,776 |
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30,183 |
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32,657 |
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OTHER INCOME (EXPENSE) |
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Interest income |
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26 |
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29 |
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70 |
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90 |
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Other, net |
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36 |
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(9 |
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357 |
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(17 |
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Total other income (expense) |
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62 |
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20 |
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427 |
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73 |
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EARNINGS BEFORE INCOME TAXES |
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10,193 |
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9,796 |
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30,610 |
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32,730 |
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INCOME TAX PROVISION |
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3,357 |
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3,372 |
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10,489 |
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11,405 |
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NET EARNINGS |
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$ |
6,836 |
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$ |
6,424 |
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$ |
20,121 |
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$ |
21,325 |
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BASIC EARNINGS PER COMMON SHARE |
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$ |
0.17 |
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$ |
0.16 |
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$ |
0.49 |
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$ |
0.53 |
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DILUTED EARNINGS PER COMMON SHARE |
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$ |
0.17 |
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$ |
0.16 |
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$ |
0.49 |
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$ |
0.52 |
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AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING BASIC |
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40,737 |
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40,535 |
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40,680 |
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40,510 |
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EFFECT OF DILUTIVE STOCK OPTIONS |
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657 |
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616 |
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673 |
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656 |
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AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DILUTED |
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41,394 |
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41,151 |
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41,353 |
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41,166 |
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ANTI-DILUTIVE SECURITIES: |
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Common share options |
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160 |
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234 |
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177 |
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207 |
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DIVIDENDS DECLARED PER COMMON SHARE |
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$ |
0.19 |
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$ |
0.19 |
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$ |
0.57 |
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$ |
0.55 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 1
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
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Nine Months Ended June 30, |
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2011 |
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2010 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net earnings |
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$ |
20,121 |
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$ |
21,325 |
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Non-cash items: |
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Depreciation of property, plant and equipment |
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2,525 |
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2,307 |
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Amortization of intangible assets |
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1,796 |
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1,079 |
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Amortization of deferred illumigene contract costs |
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81 |
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Stock-based compensation |
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1,981 |
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1,255 |
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Deferred income taxes |
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(1,622 |
) |
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(108 |
) |
Loss on disposition of fixed assets |
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7 |
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15 |
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Unrealized loss on auction-rate securities and rights, net |
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10 |
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Change in current assets |
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(10,176 |
) |
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2,151 |
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Change in current liabilities |
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2,451 |
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(4,327 |
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Other, net |
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(546 |
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(6 |
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Net cash provided by operating activities |
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16,618 |
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23,701 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property, plant and equipment |
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(7,666 |
) |
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(3,681 |
) |
Purchases of intangibles and other assets |
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(12 |
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Purchases of short-term investments |
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(1,000 |
) |
Proceeds from sales and calls of short-term investments |
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8,275 |
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Net cash (used for) provided by investing activities |
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(7,678 |
) |
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3,594 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Dividends paid |
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(23,192 |
) |
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(22,282 |
) |
Proceeds and tax benefits from exercises of stock options |
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1,481 |
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559 |
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Net cash used for financing activities |
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(21,711 |
) |
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(21,723 |
) |
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Effect of Exchange Rate Changes on Cash and Equivalents |
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455 |
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(1,383 |
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Net (Decrease) Increase in Cash and Equivalents |
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(12,316 |
) |
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|
4,189 |
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Cash and Equivalents at Beginning of Period |
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37,879 |
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|
54,030 |
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Cash and Equivalents at End of Period |
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$ |
25,563 |
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$ |
58,219 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 2
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
ASSETS
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June 30, |
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September 30, |
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2011 |
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2010 |
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CURRENT ASSETS |
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Cash and equivalents |
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$ |
25,563 |
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$ |
37,879 |
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Accounts receivable, less allowances of $125 and $241 |
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23,987 |
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|
22,064 |
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Inventories |
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34,066 |
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28,420 |
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Prepaid expenses and other current assets |
|
|
6,571 |
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|
5,071 |
|
Deferred income taxes |
|
|
2,335 |
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|
1,871 |
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Total current assets |
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|
92,522 |
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|
95,305 |
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PROPERTY, PLANT AND EQUIPMENT, at Cost |
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Land |
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1,194 |
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|
991 |
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Buildings and improvements |
|
|
21,406 |
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|
20,670 |
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Machinery, equipment and furniture |
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|
31,382 |
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|
31,945 |
|
Construction in progress |
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|
5,946 |
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|
1,320 |
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Subtotal |
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|
59,928 |
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|
54,926 |
|
Less: accumulated depreciation and amortization |
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|
33,472 |
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|
33,689 |
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Net property, plant and equipment |
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|
26,456 |
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|
21,237 |
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OTHER ASSETS |
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Goodwill |
|
|
23,443 |
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|
23,302 |
|
Other intangible assets, net |
|
|
11,632 |
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|
|
13,327 |
|
Restricted cash |
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|
1,000 |
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|
|
1,000 |
|
Deferred illumigene contract costs |
|
|
2,643 |
|
|
|
231 |
|
Other assets |
|
|
255 |
|
|
|
239 |
|
|
|
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Total other assets |
|
|
38,973 |
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|
|
38,099 |
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TOTAL ASSETS |
|
$ |
157,951 |
|
|
$ |
154,641 |
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|
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS EQUITY
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June 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
CURRENT LIABILITIES |
|
|
|
|
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|
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|
Accounts payable |
|
$ |
6,093 |
|
|
$ |
4,466 |
|
Accrued employee compensation costs |
|
|
4,100 |
|
|
|
3,451 |
|
Other accrued expenses |
|
|
5,457 |
|
|
|
5,521 |
|
Income taxes payable |
|
|
1,532 |
|
|
|
1,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,182 |
|
|
|
14,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES |
|
|
2,649 |
|
|
|
2,756 |
|
|
|
|
|
|
|
|
|
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COMMITMENTS AND CONTINGENCIES |
|
|
|
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|
|
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SHAREHOLDERS EQUITY |
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|
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|
Preferred stock, no par value, 1,000,000
shares authorized, none issued |
|
|
|
|
|
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|
|
Common shares, no par value, 71,000,000
shares authorized, 41,048,269 and
40,654,286 shares issued, respectively |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
97,577 |
|
|
|
94,529 |
|
Retained earnings |
|
|
39,106 |
|
|
|
42,177 |
|
Accumulated other comprehensive income |
|
|
1,437 |
|
|
|
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
138,120 |
|
|
|
137,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
157,951 |
|
|
$ |
154,641 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders Equity
(Unaudited)
(dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Shares |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Issued |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Income (Loss) |
|
|
Equity |
|
|
|
|
Balance at September 30, 2010 |
|
|
40,654 |
|
|
$ |
94,529 |
|
|
$ |
42,177 |
|
|
$ |
655 |
|
|
|
|
|
|
$ |
137,361 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
(23,192 |
) |
|
|
|
|
|
|
|
|
|
|
(23,192 |
) |
Exercise of stock options |
|
|
212 |
|
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,067 |
|
Issuance of restricted shares |
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
1,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,981 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
20,121 |
|
|
|
|
|
|
$ |
20,121 |
|
|
|
20,121 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,203 |
|
|
|
1,203 |
|
|
|
1,203 |
|
Other comprehensive income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(421 |
) |
|
|
(421 |
) |
|
|
(421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011 |
|
|
41,048 |
|
|
$ |
97,577 |
|
|
$ |
39,106 |
|
|
$ |
1,437 |
|
|
|
|
|
|
$ |
138,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
The interim condensed consolidated financial statements are unaudited and are prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information, and the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of Management, the interim financial
statements include all normal adjustments and disclosures necessary to present fairly the Companys
financial position as of June 30, 2011, the results of its operations for the three and nine month
periods ended June 30, 2011 and 2010, and its cash flows for the nine month periods ended June 30,
2011 and 2010. These statements should be read in conjunction with the financial statements and
footnotes thereto included in the Companys fiscal 2010 Annual Report on Form 10-K. Financial
information as of September 30, 2010 has been derived from the Companys audited consolidated
financial statements.
The results of operations for interim periods are not necessarily indicative of the results to be
expected for the year.
2. Significant Accounting Policies |
(a) |
|
Revenue Recognition and Accounts Receivable |
|
|
|
Revenue is generally recognized from sales when product is shipped and title has passed to
the buyer. Revenue for the U.S. Diagnostics operating segment is reduced at the date of
sale for estimated rebates that will be claimed by customers. Management estimates accruals
for rebate agreements based on data provided by these customers, estimates of inventories of
our products held by these customers, historical statistics, current trends, and other
factors. Changes to the accruals are recorded in the period that they become known. Our
rebate accruals were $4,272 at June 30, 2011 and $5,273 at September 30, 2010. |
|
|
|
Revenue for our Diagnostics operating segments includes bundled product revenue for our
illumigene® molecular test system. The bundled product includes a reader
instrument, instrument accessories, and test kits. In many instances, amounts invoiced for
the illumigene® test kits cover the reader instrument, accessories, and test
kits. Revenue is recognized based on kit sales. Costs for the reader instruments are
recognized in earnings over the period that we have a pricing agreement in effect with the
customer, generally three years. |
|
|
|
Life Science revenue for contract services may come from research and development services
or manufacturing services, including process development work, or a combination of both.
Revenue is recognized based on each of the deliverables in a given arrangement having
distinct and separate customer pricing. Pricing is often subject to a competitive bidding
process. Contract research and development services may be performed on a time and
materials basis or fixed fee basis. For time and materials arrangements, revenue is
recognized as services are performed and billed. For fixed fee arrangements, revenue is
recognized upon completion and acceptance by the customer. For contract manufacturing
services, revenue is generally recognized upon delivery of product and acceptance by the
customer. In some cases, customers may request that we store on their behalf clinical grade
biologicals that we produce under contract manufacturing agreements. These cases arise when
customers do not have clinical grade storage facilities or do not want to risk contamination
during transport. For such cases, revenue may be recognized on a bill-and-hold basis. |
Page 6
|
|
Trade accounts receivable are recorded in the accompanying Condensed Consolidated Balance
Sheets at invoiced amounts less provisions for rebates and doubtful accounts. The allowance
for doubtful accounts represents our estimate of probable credit losses and is based on
historical write-off experience. The allowance for doubtful accounts and related metrics,
such as days sales outstanding, are reviewed monthly. Accounts with past due balances over
90 days are reviewed individually for collectibility. Customer invoices are charged off
against the allowance when we believe it is probable that the invoices will not be paid. |
|
(b) |
|
Comprehensive Income (Loss) |
|
|
|
Our comprehensive income or loss is comprised of net earnings, foreign currency translation
and the related income tax effects. |
|
|
|
Assets and liabilities of foreign operations are translated using period-end exchange rates
with gains or losses resulting from translation included as a separate component of
comprehensive income or loss. Revenues and expenses are translated using exchange rates
prevailing during the period. We also recognize foreign currency transaction gains and
losses on certain assets and liabilities that are denominated in the Australian dollar,
British pound and Euro currencies. These gains and losses are included in other income and
expense in the accompanying Condensed Consolidated Statements of Operations. |
|
|
|
Comprehensive income for the interim periods was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,836 |
|
|
$ |
6,424 |
|
|
$ |
20,121 |
|
|
$ |
21,325 |
|
Foreign currency translation adjustment |
|
|
335 |
|
|
|
(1,287 |
) |
|
|
1,203 |
|
|
|
(2,429 |
) |
Income taxes |
|
|
(117 |
) |
|
|
451 |
|
|
|
(421 |
) |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
7,054 |
|
|
$ |
5,588 |
|
|
$ |
20,903 |
|
|
$ |
19,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes includes federal, foreign, state and local income taxes
currently payable and those deferred because of temporary differences between income for
financial reporting and income for tax purposes. We prepare estimates of permanent and
temporary differences between income for financial reporting purposes and income for tax
purposes. These differences are adjusted to actual upon filing of our tax returns,
typically occurring in the third and fourth quarters of the current fiscal year for the
preceding fiscal years estimates. |
|
|
|
We account for uncertain tax positions using a benefit recognition model with a two-step
approach: (i) a more-likely-than-not recognition criterion; and (ii) a measurement attribute
that measures the position as the largest amount of tax benefit that is greater than 50%
likely of being realized upon ultimate settlement. If it is not more likely than not that
the benefit will be sustained on its technical merits, no benefit is recorded. We recognize
accrued interest and penalties related to unrecognized tax benefits as a portion of our
income tax provision in the Condensed Consolidated Statements of Operations. |
|
(d) |
|
Stock-based Compensation |
|
|
|
We recognize compensation expense for all stock-based awards made to employees, based upon
the fair value of the stock-based award on the date of the grant. Shares are expensed over
their requisite service period. |
Page 7
(e) |
|
Cash, Cash Equivalents and Investments |
|
|
|
Our investment portfolio includes the following components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
September 30, 2010 |
|
|
|
Cash and |
|
|
|
|
|
|
Cash and |
|
|
|
|
|
|
Equivalents |
|
|
Other |
|
|
Equivalents |
|
|
Other |
|
Taxable investments - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight repurchase agreements |
|
$ |
11,332 |
|
|
$ |
|
|
|
$ |
14,862 |
|
|
$ |
|
|
Money market funds |
|
|
|
|
|
|
|
|
|
|
10,249 |
|
|
|
|
|
Cash on hand - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
1,000 |
|
Unrestricted |
|
|
14,231 |
|
|
|
|
|
|
|
12,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,563 |
|
|
$ |
1,000 |
|
|
$ |
37,879 |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
|
Recent Accounting Pronouncements |
|
|
|
In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.
FASB ASU No. 2011-04 amends and clarifies the measurement and disclosure requirements of
FASB ASC 820, resulting in common requirements for measuring fair value and for disclosing
information about fair value measurements, clarification of how to apply existing fair value
measurement and disclosure requirements, and changes to certain principles and requirements
for measuring fair value and disclosing information about fair value measurements. The new
requirements are effective for fiscal years beginning after December 15, 2011. The Company
plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate
that it will have a material impact on the Companys consolidated results of operations,
cash flows or financial position. |
|
|
|
In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which
amends the disclosure and presentation requirements of Comprehensive Income. Specifically,
FASB ASU No. 2011-05 requires that all nonowner changes in shareholders equity be presented
either in 1) a single continuous statement of comprehensive income or 2) two separate but
consecutive statements, in which the first statement presents total net income and its
components, and the second statement presents total other comprehensive income and its
components. These new presentation requirements are effective for the Company beginning
October 1, 2012, with early adoption permitted. The Company will proceed with evaluating
the presentation alternatives provided within FASB ASU No. 2011-05, as well as the permitted
dates of adoption, and determine the most appropriate changes to be made to the current
presentation of comprehensive income within its Statement of Changes in Shareholders Equity
and when to make such changes.
|
|
|
|
Certain reclassifications have been made to the prior period financial statements to conform
to the current fiscal period presentation. Such reclassifications had no impact on net
earnings or shareholders equity. |
3. Acquisition of Bioline Group |
On July 20, 2010, we acquired all of the outstanding common stock of the Bioline group of companies
(collectively the Bioline Group). We paid $23,849 from cash and equivalents on hand to acquire
the Bioline Group. Headquartered in London, England, the Bioline Group is a leading manufacturer
and distributor of molecular biology reagents with additional operations in Germany, Australia and
the United States. The highly specialized molecular biology reagents it supplies to the life
science research, biotech, pharmaceutical and commercial diagnostics markets are the critical
components used in PCR testing for DNA, RNA and other genomic testing.
Page 8
As a result of the consideration paid exceeding the fair value of the net assets being acquired,
goodwill in the amount of $12,992 was recorded in connection with this acquisition, none of which
will be deductible for tax purposes. This goodwill results largely from the addition of key global
operations and direct sales capabilities, management talent and a research-oriented customer base, to complement our existing Life Science
operations. In addition to the Bioline Groups results of operations, which are included in our
Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2011
and reported as part of the Life Science operating segment, the consolidated results for the three
and nine months ended June 30, 2011 also include:
|
i) |
|
$0 and $587 of Cost of Sales for the three and nine months, respectively, related to
the roll-out of fair value inventory adjustments for sales of products that were in the
Bioline Groups inventory on the date of acquisition and, therefore, were valued at fair
value, rather than manufactured cost, in the opening balance sheet; and |
|
|
ii) |
|
$260 and $767 of General and Administrative Expenses for the three and nine months,
respectively, related to the amortization of specific identifiable intangible assets
recorded on the opening balance sheet, including customer relationships, license
agreements, non-compete agreements, manufacturing processes and trade names. |
The results of the Bioline Group included in the consolidated results of the Company for the three
and nine months ended June 30, 2011 are as follows, reflecting the items noted above and
adjustments to the Groups income tax provision during the three months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
Nine |
|
|
|
Months |
|
|
Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2011 |
|
Net Sales |
|
$ |
3,905 |
|
|
$ |
10,966 |
|
Operating Income (Loss) |
|
$ |
83 |
|
|
$ |
(91 |
) |
Net (Loss) Earnings |
|
$ |
(31 |
) |
|
$ |
28 |
|
|
|
|
|
|
|
|
The recognized amounts of identifiable assets acquired and liabilities assumed in the acquisition
of the Bioline Group are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 20, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
Measurement |
|
|
July 20, |
|
|
|
(as initially |
|
|
Period |
|
|
2010 |
|
|
|
reported) |
|
|
Adjustments |
|
|
(as adjusted) |
|
Fair value of assets acquired - |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
3,445 |
|
|
|
|
|
|
$ |
3,445 |
|
Accounts receivable |
|
|
1,897 |
|
|
|
|
|
|
|
1,897 |
|
Inventories |
|
|
2,807 |
|
|
|
|
|
|
|
2,807 |
|
Other current assets |
|
|
371 |
|
|
$ |
(21 |
) |
|
|
350 |
|
Property, plant and equipment, net |
|
|
816 |
|
|
|
|
|
|
|
816 |
|
Goodwill |
|
|
13,166 |
|
|
|
(174 |
) |
|
|
12,992 |
|
Other intangible assets (estimated useful life): |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (10 years) |
|
|
3,898 |
|
|
|
|
|
|
|
3,898 |
|
Manufacturing processes (6 years) |
|
|
1,467 |
|
|
|
|
|
|
|
1,467 |
|
License agreements (approx. 8 year wtd. avg.) |
|
|
718 |
|
|
|
|
|
|
|
718 |
|
Non-compete agreements (1 year) |
|
|
122 |
|
|
|
|
|
|
|
122 |
|
Trade names (10 years) |
|
|
995 |
|
|
|
|
|
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,702 |
|
|
|
(195 |
) |
|
|
29,507 |
|
Fair value of liabilities assumed - |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
2,817 |
|
|
|
364 |
|
|
|
3,181 |
|
Deferred income tax liabilities |
|
|
3,036 |
|
|
|
(559 |
) |
|
|
2,477 |
|
|
|
|
|
|
|
|
|
|
|
Total consideration paid |
|
$ |
23,849 |
|
|
$ |
|
|
|
$ |
23,849 |
|
|
|
|
|
|
|
|
|
|
|
Page 9
As of June 30, 2011, the purchase price allocation related to the acquisition of the Bioline Group
has been finalized and is reflected in the above fair values of the assets acquired and liabilities
assumed. These fair values are based on the information that was available as of the acquisition
date and the subsequent filing of this Form 10-Q and are reflected in the accompanying Condensed
Consolidated Balance Sheets, including retrospective adjustment of the September 30, 2010 Condensed
Consolidated Balance Sheet.
The consolidated pro forma results of the combined entities of Meridian and the Bioline Group, had
the acquisition date been October 1, 2009, are as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Net Sales |
|
$ |
40,052 |
|
|
$ |
37,361 |
|
|
$ |
118,374 |
|
|
$ |
117,208 |
|
Net Earnings |
|
$ |
6,857 |
|
|
$ |
7,201 |
|
|
$ |
20,565 |
|
|
$ |
20,757 |
|
Diluted Earnings Per Common Share |
|
$ |
0.17 |
|
|
$ |
0.17 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These pro forma amounts have been calculated after adjusting the results of the Bioline Group to
reflect the transaction costs incurred by the Company and the additional amortization that would
have been charged assuming the previously-discussed fair value adjustments to inventory and
identifiable intangible assets had been applied on October 1, 2009, together with the consequential
tax effects. Fiscal 2011 pro forma earnings exclude $21 and $444 for the three and nine month
periods, respectively, related to amortization of the fair value adjustments to inventory and
identifiable intangible assets and the related tax effects, as these amounts have been included in
the fiscal 2010 pro forma earnings.
Inventories are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Raw materials |
|
$ |
6,821 |
|
|
$ |
6,221 |
|
Work-in-process |
|
|
7,655 |
|
|
|
6,784 |
|
Finished goods illumigene instruments |
|
|
3,556 |
|
|
|
455 |
|
Finished goods kits and other |
|
|
17,443 |
|
|
|
16,090 |
|
|
|
|
|
|
|
|
Gross inventory |
|
|
35,475 |
|
|
|
29,550 |
|
Less: Reserves |
|
|
(1,409 |
) |
|
|
(1,130 |
) |
|
|
|
|
|
|
|
Net inventory |
|
$ |
34,066 |
|
|
$ |
28,420 |
|
|
|
|
|
|
|
|
5. Major Customers and Segment Information |
Meridian was formed in 1976 and functions as a fully-integrated research, development,
manufacturing, marketing and sales organization with primary emphasis in the field of life science.
Our principal businesses are (i) the development, manufacture and distribution of diagnostic test
kits primarily for gastrointestinal, viral, respiratory and parasitic infectious diseases; (ii) the
manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides,
competent cells and bioresearch reagents used by researchers and other diagnostic manufacturers;
and (iii) the contract development and manufacture of proteins and other biologicals for use by
biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
Our reportable operating segments are U.S. Diagnostics, European Diagnostics and Life Science. The
U.S. Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and
the sale and distribution of diagnostic test kits in the U.S. 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. The Life Science
operating segment consists of manufacturing operations in Memphis, Tennessee; Saco, Maine; Boca
Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and
distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and
bioresearch reagents domestically and abroad. The Life Science operating segment also includes the
contract development and manufacture of cGMP clinical grade proteins and other biologicals for use
by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
Page 10
Two distributor customers accounted for 47% and 52% of the U.S. Diagnostics operating segment
third-party sales during the three months ended June 30, 2011 and 2010, respectively, and 50% and
58% during the nine months ended June 30, 2011 and 2010, respectively. This lower percentage of
sales reflects the fact that the majority of our illumigene® product sales are direct,
as well as the comparative decline in the distributors inventory stocking of influenza and other
products. Three customers accounted for 17% and 29% of the Life Science operating segment
third-party sales during the three months ended June 30, 2011 and 2010, respectively, and 18% and
33% during the nine months ended June 30, 2011 and 2010, respectively, primarily reflecting the
addition of the Bioline Group.
Segment information for the interim periods is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
European |
|
|
Life |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
|
Diagnostics |
|
|
Science |
|
|
Eliminations(1) |
|
|
Total |
|
Three Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party |
|
$ |
23,829 |
|
|
$ |
6,612 |
|
|
$ |
9,611 |
|
|
$ |
|
|
|
$ |
40,052 |
|
Inter-segment |
|
|
2,875 |
|
|
|
9 |
|
|
|
141 |
|
|
|
(3,025 |
) |
|
|
|
|
Operating income |
|
|
8,399 |
|
|
|
978 |
|
|
|
797 |
|
|
|
(43 |
) |
|
|
10,131 |
|
Goodwill (June 30, 2011) |
|
|
1,381 |
|
|
|
|
|
|
|
22,062 |
|
|
|
|
|
|
|
23,443 |
|
Other intangible assets, net (June 30, 2011) |
|
|
1,741 |
|
|
|
|
|
|
|
9,891 |
|
|
|
|
|
|
|
11,632 |
|
Total assets (June 30, 2011) |
|
|
71,831 |
|
|
|
20,680 |
|
|
|
94,164 |
|
|
|
(28,724 |
) |
|
|
157,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party |
|
$ |
21,121 |
|
|
$ |
6,218 |
|
|
$ |
6,518 |
|
|
$ |
|
|
|
$ |
33,857 |
|
Inter-segment |
|
|
2,723 |
|
|
|
8 |
|
|
|
177 |
|
|
|
(2,908 |
) |
|
|
|
|
Operating income |
|
|
8,104 |
|
|
|
726 |
|
|
|
752 |
|
|
|
194 |
|
|
|
9,776 |
|
Goodwill (September 30, 2010) |
|
|
1,381 |
|
|
|
|
|
|
|
21,921 |
|
|
|
|
|
|
|
23,302 |
|
Other intangible assets, net (September 30, 2010) |
|
|
2,283 |
|
|
|
9 |
|
|
|
11,035 |
|
|
|
|
|
|
|
13,327 |
|
Total assets (September 30, 2010) |
|
|
72,030 |
|
|
|
18,044 |
|
|
|
90,388 |
|
|
|
(25,821 |
) |
|
|
154,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party |
|
$ |
72,007 |
|
|
$ |
18,926 |
|
|
$ |
27,441 |
|
|
$ |
|
|
|
$ |
118,374 |
|
Inter-segment |
|
|
7,938 |
|
|
|
16 |
|
|
|
459 |
|
|
|
(8,413 |
) |
|
|
|
|
Operating income |
|
|
26,780 |
|
|
|
1,781 |
|
|
|
1,499 |
|
|
|
123 |
|
|
|
30,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party |
|
$ |
70,018 |
|
|
$ |
19,103 |
|
|
$ |
18,340 |
|
|
$ |
|
|
|
$ |
107,461 |
|
Inter-segment |
|
|
8,200 |
|
|
|
12 |
|
|
|
438 |
|
|
|
(8,650 |
) |
|
|
|
|
Operating income |
|
|
26,805 |
|
|
|
2,789 |
|
|
|
2,976 |
|
|
|
87 |
|
|
|
32,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Eliminations consist of inter-segment transactions. |
Transactions between operating segments are accounted for at established intercompany prices for
internal and management purposes, with all intercompany amounts eliminated in consolidation.
Page 11
A summary of our acquired intangible assets subject to amortization, as of June 30, 2011 and
September 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
September 30, 2010 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Value |
|
|
Amortization |
|
|
Value |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing technologies, core
products and cell lines |
|
$ |
11,664 |
|
|
$ |
8,360 |
|
|
$ |
11,644 |
|
|
$ |
7,693 |
|
Trademarks, licenses and patents |
|
|
3,654 |
|
|
|
1,329 |
|
|
|
3,547 |
|
|
|
997 |
|
Customer lists and supply agreements |
|
|
12,322 |
|
|
|
6,330 |
|
|
|
12,537 |
|
|
|
5,816 |
|
Non-compete agreements |
|
|
128 |
|
|
|
117 |
|
|
|
126 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,768 |
|
|
$ |
16,136 |
|
|
$ |
27,854 |
|
|
$ |
14,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual aggregate amortization expense for these intangible assets was $570 and $345 for the
three months ended June 30, 2011 and 2010, respectively, and $1,796 and $1,079 for the nine months
ended June 30, 2011 and 2010, respectively. The estimated aggregate amortization expense for these
intangible assets for each of the fiscal years through fiscal 2015 is as follows: fiscal 2011
$2,336, fiscal 2012 $2,079, fiscal 2013 $2,078, fiscal 2014 $1,641 and fiscal 2015
$1,392.
7. Fair Value Measurements |
We use fair value measurements to value our financial assets and liabilities. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value hierarchy prioritizes
inputs to valuation techniques used to measure fair value into three broad levels, which are
described below:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are
accessible at the measurement date for assets and liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets
or liabilities, either directly or indirectly. These include quoted prices for
identical or similar assets or liabilities in markets that are not active, that is, markets in
which there are few transactions for the asset or liability, the prices are not current, or price
quotations vary substantially either over time or among market makers, or in which little
information is released publicly and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Level 3: Unobservable inputs, developed using our estimates and assumptions, which reflect those
that the market participants would use. Such inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Determining where an asset or liability falls within the hierarchy depends on the lowest level
input that is significant to the fair value measurement as a whole. In determining fair value, we
utilize valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible and we consider counterparty credit risk in the
assessment of fair value.
We had no financial assets or liabilities carried at fair value at June 30, 2011 to be classified
as Level 1, 2 or 3. As of September 30, 2010, financial assets and liabilities to be so classified
were comprised solely of money market funds totaling $10,249 classified as Level 1, with no
financial assets or liabilities classified as Level 2 or Level 3.
Page 12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to Forward Looking Statements following the Index in front of this Form 10-Q. In the
discussion that follows, all amounts are in thousands (both tables and text), except per share data
and percentages.
Following is a discussion and analysis of the financial statements and other statistical data that
management believes will enhance the understanding of Meridians financial condition and results of
operations. This discussion should be read in conjunction with the financial statements and notes
thereto beginning on page 1.
Results of Operations
Three Months Ended June 30, 2011
Net earnings for the third quarter of fiscal 2011 increased 6% to $6,836, or $0.17 per diluted
share, from net earnings for the third quarter of fiscal 2010 of $6,424, or $0.16 per diluted
share. This increase reflects the combined effects of both increased sales and increased operating
expenses, resulting primarily from the inclusion of the Bioline Group, which was acquired in July
2010. Consolidated sales increased 18% to $40,052 for the third quarter of fiscal 2011 compared to
the same period of the prior year, reflecting the impact of Bioline Group sales and increases in
sales across all four of our diagnostic focus product families: C. difficile, Foodborne, H. pylori
and Upper Respiratory.
Sales for the U.S. Diagnostics operating segment for the third quarter of fiscal 2011 increased 13%
compared to the third quarter of fiscal 2010, reflecting growth across all four of our focus
product families ranging from 8% growth in our H. pylori products to 26% growth in our foodborne
products. Third quarter 2011 sales for our European Diagnostics operating segment increased 6%
compared to the third quarter of fiscal 2010 due primarily to a positive currency effect. As a
result of the Bioline Group acquisition, our Life Science segment experienced a 47% increase in
sales during this period. Excluding the effect of the Bioline Group, sales of our core Life
Science operating segment decreased by 12% during the third quarter of fiscal 2011 compared to the
third quarter of fiscal 2010, as this business continues to experience both pricing pressure and
reduced order volumes in bulk antigens, antibodies and reagents. We expect core Life Science revenues to be flat to
down single digits for fiscal 2012 as our large diagnostic manufacturing customers exert pricing
pressures throughout their supply chains and certain segments of the diagnostics industry migrate
to molecular technologies.
Nine Months Ended June 30, 2011
For the nine month period ended June 30, 2011, net earnings decreased 6% to $20,121, or $0.49 per
diluted share, from net earnings for the comparable fiscal 2010 period of $21,325, or $0.52 per
diluted share. This decrease reflects the impact of the increase in total sales being more than
offset by the increase in operating expenses that resulted primarily from the inclusion of expenses
from the Bioline Group, acquired in July 2010, as well as costs related to the reorganization of
our European and global sales and marketing leadership during the second quarter of fiscal 2011.
Consolidated sales increased 10% to $118,374 for the first nine months of fiscal 2011 compared to
the same period of the prior fiscal year. This increase primarily results from the impact of
Bioline Group sales and strong growth in foodborne and H. pylori product sales being partially
offset by a 32% decrease in respiratory product sales and a decline in sales of our core Life
Science operating segment.
For the nine month period ended June 30, 2011, the Bioline Group has contributed nearly $11,000 in
sales, with a slight operating loss from the effects of selling through acquisition date inventory.
The Bioline Group has contributed positive operating income for each of the past two fiscal
quarters.
During the first nine months of fiscal 2011, sales for the U.S. Diagnostics operating segment
increased 3% from the comparable fiscal 2010 period. This modest increase reflects sales growth in
our C. difficile, foodborne and H. pylori product families being significantly offset by the
decrease in respiratory product sales, which resulted from the dramatic impact on the fiscal 2010
first quarter of the novel A (H1N1) influenza outbreak and the abrupt halt of the outbreak in
December 2009. Sales of our European Diagnostics operating segment for the first nine months of
fiscal 2011 decreased 1% compared to the first nine months of fiscal 2010 largely due to decreased
sales in the C. difficile and respiratory product families. As a result of the Bioline Group
acquisition, our Life Science segment experienced a 50% increase in sales during this period.
Excluding the effect of the Bioline Group, sales of our core Life Science operating segment decreased by 10% during the first nine months of fiscal 2011
compared to the first nine months of fiscal 2010, as this business continues to experience both
pricing pressure and reduced order volumes in several key product lines.
Page 13
Non-GAAP Information
The tables below provide information on net earnings, basic earnings per share and diluted earnings
per share, excluding the effect of costs associated with reorganizing our European and Global Sales
& Marketing Leadership, each of which is a non-GAAP financial measure, as well as reconciliations
to amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this
information is useful to those who read our financial statements and evaluate our operating results
because:
|
1. |
|
These measures help to appropriately evaluate and compare the results of operations from
period to period by removing the impact of non-routine costs related to reorganizing our
European and Global Sales and Marketing Leadership; and |
|
|
2. |
|
These measures are used by our management for various purposes, including evaluating
performance against incentive bonus achievement targets, comparing performance from period to
period in presentations to our Board of Directors, and as a basis for strategic planning and
forecasting. |
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended June 30, |
|
|
|
2011 |
|
Net Earnings - |
|
|
|
|
U.S. GAAP basis |
|
$ |
20,121 |
|
European and Global Sales & Marketing Leadership Reorganization
costs, inclusive of the income tax effect (1) |
|
|
872 |
|
|
|
|
|
Adjusted earnings |
|
$ |
20,993 |
|
|
|
|
|
|
|
|
|
|
Net Earnings per Basic Common Share - |
|
|
|
|
U.S. GAAP basis |
|
$ |
0.49 |
|
European and Global Sales & Marketing Leadership Reorganization
costs, inclusive of the income tax effect (1) |
|
|
0.02 |
|
|
|
|
|
Adjusted Basic EPS (2) |
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
Net Earnings per Diluted Common Share - |
|
|
|
|
U.S. GAAP basis |
|
$ |
0.49 |
|
European and Global Sales & Marketing Leadership Reorganization
costs, inclusive of the income tax effect (1) |
|
|
0.02 |
|
|
|
|
|
Adjusted Diluted EPS |
|
$ |
0.51 |
|
|
|
|
|
|
|
|
(1) |
|
The income tax effects of the Leadership Reorganization costs totaled $368 and were calculated
using the effective tax rates of the jurisdictions in which the costs were incurred. |
|
(2) |
|
Net Earnings per Basic Common Share for the nine months ended June 30, 2011 does not sum to
the total due to rounding. |
Page 14
Revenue Overview
Our Diagnostics operating segments provide the largest share of our consolidated revenues, 76% and
81% for the third quarters of fiscal 2011 and 2010, respectively, and 77% and 83% for the first
nine months of fiscal 2011 and 2010, respectively. The percentage declines in both the quarterly
and fiscal year-to-date periods result primarily from the addition of the Bioline Group to our Life
Science operating segment and, in the case of year-to-date comparisons, the impact of the novel A
(H1N1) influenza outbreak in 2010. Sales from our four focus families (C. difficile, Foodborne, H.
pylori and Upper Respiratory) comprised 71% and 69% of our Diagnostics operating segments revenues
during the third quarters of fiscal 2011 and 2010, respectively, and 71% and 73% for the nine month
periods ended June 30, 2011 and 2010, respectively.
Overall revenue change for the fiscal 2011 third quarter for both of our Diagnostics operating
segments combined was an increase of 11%, reflecting growth across all four of our focus product
families. The levels of growth in the focus products ranged from 7% in our H. pylori products, to
28% growth in our foodborne products. On an organic basis, which excludes the effects of currency
translation, sales for our European Diagnostics operating segment decreased by 6% during the third
quarter, reflecting the combined effects of decreases in our C. difficile, upper respiratory and H.
pylori product families, partially offset by growth in our foodborne product sales.
For the first nine months of fiscal 2011, revenue for both of our Diagnostics operating segments
combined increased 2% from the comparable fiscal 2010 period. This slight increase primarily
results from sales growth in our C. difficile, H. pylori and foodborne product families being
significantly offset by the effects on our respiratory product sales of a relatively mild worldwide
flu season in the first quarter of fiscal 2011 compared to the fiscal 2010 first quarter, including
the dramatic effects on the prior year of the world-wide outbreak of novel A (H1N1) influenza.
Excluding the effects of currency translation, our European Diagnostics operating segments sales
during the nine months ended June 30, 2011 decreased 2% relative to the comparable fiscal 2010
period, reflecting the combined effects of decreases in our C. difficile, upper respiratory and H.
pylori product families, partially offset by growth in our foodborne product sales.
C. difficile Products
During the third quarter of fiscal 2010, we launched our illumigene® molecular C.
difficile product in non-U.S. markets, with launch of the product into U.S. markets following in
the fourth quarter of fiscal 2010, upon receiving FDA clearance. As a result, we have nearly 500
placements of illumigene® units worldwide to date, with approximately 90% installed in
the U.S. Of the total units placed worldwide, we estimate that more than 450 will be used for
reporting of clinical results, with the balance being used for evaluations and third party studies.
At the present time, it takes a customer 90 days, on average, from
purchase order placement to begin routine test usage. We are working to reduce that time frame.
We expect sales of the product, which totaled approximately $2,800 and $5,600 in the three and nine
months ended June 30, 2011, respectively, to continue to grow significantly throughout the balance
of fiscal 2011 and during fiscal 2012, although no assurances can be made in this regard.
As a result of competitive pressures in this disease family over the last several years from new
competitive products, including molecular assays, in recent previous periods we have experienced
extremely slow growth in the sales of our C. difficile products. However, due to the introduction
of our illumigene® molecular C. difficile product and its growing market acceptance, we
have begun to see a marked improvement over the recent periods. Sales of our C. difficile product
grew 13% for all of our Diagnostics operating segments during the third quarter of fiscal 2011 and
5% for the first nine months of fiscal 2011.
With the launch of our molecular product and recent FDA clearance and submission activities related
to our common antigen C. difficile products Premier C. difficile GDH received FDA clearance in
May, and ImmuoCard C. difficile GDH was submitted to the FDA in mid-July we believe we are in a
unique position to offer a full line of testing solutions to our clinical laboratory customers
around the world to counter the competitive pressures surrounding this market. Additionally, we
hold the only FDA-approved claim for C. difficile testing in the pediatric population. During
July, we submitted to the FDA our second molecular test for the illumigene® molecular
platform, illumigene® Group B Streptococcus (GBS), and over the next 12 months, we
expect two additional tests for the platform tests for Group A Streptococcus and Mycoplasma
pneumoniae to clear formal clinical trials and be submitted to the FDA for marketing clearance.
Page 15
Foodborne Products
Increased demand for our foodborne illness testing products throughout the first nine months of
fiscal 2011 resulted in our U.S. Diagnostics operating segment experiencing sales increases for
these products totaling 26% and 40% for the three and nine month periods ended June 30, 2011,
respectively. During these same periods, our European Diagnostics operating segment experienced
sales increases of approximately 60% and 43%, respectively, on an organic basis, reflecting the
effects of the Enterohemorrhagic E. coli (EHEC) infection outbreak in Europe during the quarter.
H. pylori Products
During the third quarter of fiscal 2011, sales of our H. pylori products grew 8% for our U.S.
Diagnostics operating segment; 14% during the nine month fiscal year-to-date period. This increase
continues to reflect the benefits of our partnerships with managed care companies in promoting the
health and economic benefits of a test and treat strategy, and the ongoing effects of such strategy
moving physician behavior away from serology-based testing toward direct antigen testing. Due to
significant competitive pressures related to these products on the international front, sales of H.
pylori products for our European Diagnostics operating segment declined 7% on an organic basis for
the fiscal 2011 third quarter, compared to the third quarter of fiscal 2010, and declined 2% during
the year-over-year nine month periods ended June 30.
Upper Respiratory Products
During the three and nine month periods ended June 30, 2011, upper respiratory product sales for
our Diagnostics operating segments increased 8% and decreased 32%, respectively, relative to the
comparable fiscal 2010 periods. The sales decrease in the comparable year-to-date periods is a
direct result of influenza test kit sales; in particular the abrupt halt, in December 2009, of the
outbreak of the novel A (H1N1) influenza virus that began to spread across the northern hemisphere
during the second half of fiscal 2009. The outbreak also created an increased interest in
influenza testing in European markets where rapid testing has not been traditionally performed and
resulted in significant sales activity for these products during the fiscal 2010 first quarter.
However, similar to U.S. markets, these sales levels were not repeated in fiscal 2011, as evidenced
by the approximate 13% decline in this operating segments upper respiratory product sales on an
organic basis (excluding effects of currency translation) compared to the first nine months of
fiscal 2010.
Group Purchasing Organizations
In our U.S. Diagnostics operating segment, consolidation of the U.S. healthcare industry over the
last several years has led to the creation of group purchasing organizations (GPOs) that aggregate
buying power for hospital groups and put pressure on our selling prices. We have multi-year supply
agreements with several GPOs. During the third quarter and first nine months of fiscal 2011, we
have experienced approximately $200 and $1,000, respectively, in unfavorable price variance, as a
result of these agreements. However, these agreements help secure our products with these
customers and have led to new business. While in the near term this has negatively impacted gross
profit, further increases in volumes are expected from these contracts.
Foreign Currency
Sales for our European Diagnostics operating segment included the effect of more favorable currency
rates, which led to currency translation gains in the amount of approximately $650 for the third
quarter of fiscal 2011, compared to $350 of currency translation losses in the fiscal 2010 third
quarter. During the first nine months of fiscal 2011, translation gains of approximately $165 were
experienced, compared to $550 of currency translation gains during the comparable prior year
period.
Life Science Operating Segment
Sales for our Life Science operating segment increased 47% for the third quarter of fiscal 2011 and
50% for the nine month fiscal year-to-date period, due primarily to the revenue contribution of the
Bioline Group acquired in July 2010. Excluding the impact of the Bioline Group, sales for the
operating segment declined 12% and 10% during the three and nine month periods, respectively, as
this business continues to experience both pricing pressure and reduced order volumes in several
key product lines. For fiscal 2011, we expect revenues for our core Life Science business to decline 6%-8%,
while the Bioline Group is expected to contribute approximately $15,000.
Page 16
Significant Customers
Two national distributors in our U.S. Diagnostics operating segment accounted for 47% and 52% of
total sales for this operating segment for the third quarters of fiscal 2011 and 2010,
respectively, and 50% and 58% during the nine months ended June 30, 2011 and 2010, respectively.
The lower percentage of sales reflects the fact that the majority of our illumigene®
product sales are direct, as well as the comparative decline in these distributors inventory
stocking of influenza and other products.
Three diagnostic manufacturing customers in our Life Science operating segment accounted for 17%
and 29% of total sales for this operating segment for the third quarters of fiscal 2011 and 2010,
respectively, and 18% and 33% during the nine months ended June 30, 2011 and 2010, respectively.
The lower percentage of sales during both periods results primarily from the addition of the
Bioline Group.
Operating Segment Revenues
Our reportable operating segments are U.S. Diagnostics, European Diagnostics and Life Science. The
U.S. Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and
the sale and distribution of diagnostic test kits in the U.S. 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. The Life Science
operating segment consists of manufacturing operations in Memphis, Tennessee; Saco, Maine; Boca
Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia and the sale and
distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and
bioresearch reagents domestically and abroad. The Life Science operating segment also includes the
contract development and manufacture of proteins and other biologicals for use by biopharmaceutical
and biotechnology companies engaged in research for new drugs and vaccines.
Revenues for the Diagnostics operating segments, in the normal course of business, may be affected
from quarter to quarter by buying patterns of major distributors, seasonality and strength of
certain diseases and foreign currency exchange rates. Revenues for the Life Science operating
segment, in the normal course of business, may be affected from quarter to quarter by the timing
and nature of arrangements for contract services work, which may have longer production cycles than
bioresearch reagents and bulk antigens and antibodies, as well as buying patterns of major
customers. We believe that the overall breadth of our product lines serves to reduce the
variability in consolidated revenues.
The Company has experienced no material adverse impact on revenue as a result of the disaster in
Japan earlier this year, nor is any material adverse impact anticipated at this time, although no
assurances can be given with regard to material adverse impacts that may arise in the future
despite being unanticipated as of the date of this report. In addition, the Companys supply of
product and product components has not been and is not expected to be adversely impacted by the
disaster.
Revenues for each of our operating segments are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Inc (Dec) |
|
|
2011 |
|
|
2010 |
|
|
Inc (Dec) |
|
U.S. Diagnostics |
|
$ |
23,829 |
|
|
$ |
21,121 |
|
|
|
13 |
% |
|
$ |
72,007 |
|
|
$ |
70,018 |
|
|
|
3 |
% |
European Diagnostics |
|
|
6,612 |
|
|
|
6,218 |
|
|
|
6 |
% |
|
|
18,926 |
|
|
|
19,103 |
|
|
|
(1 |
)% |
Life Science |
|
|
9,611 |
|
|
|
6,518 |
|
|
|
47 |
% |
|
|
27,441 |
|
|
|
18,340 |
|
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
40,052 |
|
|
$ |
33,857 |
|
|
|
18 |
% |
|
$ |
118,374 |
|
|
$ |
107,461 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Diagnostics |
|
$ |
1,845 |
|
|
$ |
1,401 |
|
|
|
32 |
% |
|
$ |
5,058 |
|
|
$ |
4,378 |
|
|
|
16 |
% |
European Diagnostics |
|
|
6,612 |
|
|
|
6,218 |
|
|
|
6 |
% |
|
|
18,926 |
|
|
|
19,103 |
|
|
|
(1 |
)% |
Life Science |
|
|
5,365 |
|
|
|
3,085 |
|
|
|
74 |
% |
|
|
15,238 |
|
|
|
8,337 |
|
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,822 |
|
|
$ |
10,704 |
|
|
|
29 |
% |
|
$ |
39,222 |
|
|
$ |
31,818 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total sales |
|
|
35 |
% |
|
|
32 |
% |
|
|
|
|
|
|
33 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 17
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
|
Change |
|
Gross Profit |
|
$ |
25,426 |
|
|
$ |
21,736 |
|
|
|
17 |
% |
|
$ |
75,328 |
|
|
$ |
67,388 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin |
|
|
63 |
% |
|
|
64 |
% |
|
-1 point |
|
|
64 |
% |
|
|
63 |
% |
|
+1 point |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin improvement for the first nine months of fiscal 2011 results primarily from the
combined effects of 1) the margin contribution of Bioline Group products in fiscal 2011; 2)
continued operating efficiencies in our Cincinnati, Ohio diagnostic test manufacturing facility;
and 3) the year-over-year decline in upper respiratory product sales. Our upper respiratory
product family generally has a lower gross profit margin than our other focus product families (C.
difficile, H. pylori and foodborne). Sales of upper respiratory products during the first nine
months of fiscal 2011 were approximately 11% of our consolidated sales, compared to 18% of
consolidated sales for the comparable fiscal 2010 period. Specifically, sales of the Companys
influenza products represented approximately 2% of consolidated sales during the nine months ended
June 30, 2011, compared to approximately 8% in the first nine months of fiscal 2010.
Our overall operations consist of the sale of diagnostic test kits for various disease states and
in alternative test formats, as well as bioresearch reagents, bulk antigens, antibodies, PCR/qPCR
reagents, nucleotides, competent cells, proficiency panels, contract research and development, and
contract manufacturing services. Product sales mix shifts, in the normal course of business, can
cause the consolidated gross profit margin to fluctuate by several points.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
Research & |
|
|
Selling & |
|
|
General & |
|
|
|
|
|
|
Total Operating |
|
|
|
Development |
|
|
Marketing |
|
|
Administrative |
|
|
Other (1) |
|
|
Expenses |
|
2010 Expenses |
|
$ |
2,128 |
|
|
$ |
4,287 |
|
|
$ |
4,872 |
|
|
$ |
673 |
|
|
$ |
11,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Sales |
|
|
6 |
% |
|
|
13 |
% |
|
|
14 |
% |
|
|
2 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 Increases
(Decreases): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Diagnostics |
|
|
521 |
|
|
|
754 |
|
|
|
(15 |
) |
|
|
|
|
|
|
1,260 |
|
European Diagnostics |
|
|
|
|
|
|
87 |
|
|
|
(27 |
) |
|
|
|
|
|
|
60 |
|
Life Science |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Bioline Group |
|
|
173 |
|
|
|
1,037 |
|
|
|
1,817 |
|
|
|
|
|
|
|
3,027 |
|
- Core |
|
|
(112 |
) |
|
|
(22 |
) |
|
|
(205 |
) |
|
|
|
|
|
|
(339 |
) |
- Transaction Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(673 |
) |
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Expenses |
|
$ |
2,710 |
|
|
$ |
6,143 |
|
|
$ |
6,442 |
|
|
$ |
|
|
|
$ |
15,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Sales |
|
|
7 |
% |
|
|
15 |
% |
|
|
16 |
% |
|
|
|
% |
|
|
38 |
% |
% Increase (Decrease) |
|
|
27 |
% |
|
|
43 |
% |
|
|
32 |
% |
|
|
(100 |
)% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 18
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2011 |
|
|
|
Research & |
|
|
Selling & |
|
|
General & |
|
|
|
|
|
|
Total Operating |
|
|
|
Development |
|
|
Marketing |
|
|
Administrative |
|
|
Other (1) |
|
|
Expenses |
|
2010 Expenses |
|
$ |
6,521 |
|
|
$ |
13,495 |
|
|
$ |
14,042 |
|
|
$ |
673 |
|
|
$ |
34,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Sales |
|
|
6 |
% |
|
|
13 |
% |
|
|
13 |
% |
|
|
1 |
% |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 Increases
(Decreases): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Diagnostics |
|
|
343 |
|
|
|
1,612 |
|
|
|
326 |
|
|
|
365 |
|
|
|
2,646 |
|
European Diagnostics |
|
|
|
|
|
|
20 |
|
|
|
(115 |
) |
|
|
875 |
|
|
|
780 |
|
Life Science |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Bioline Group |
|
|
527 |
|
|
|
2,772 |
|
|
|
4,484 |
|
|
|
|
|
|
|
7,783 |
|
- Core |
|
|
(8 |
) |
|
|
(52 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
(122 |
) |
- Transaction Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(673 |
) |
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Expenses |
|
$ |
7,383 |
|
|
$ |
17,847 |
|
|
$ |
18,675 |
|
|
$ |
1,240 |
|
|
$ |
45,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Sales |
|
|
6 |
% |
|
|
15 |
% |
|
|
16 |
% |
|
|
1 |
% |
|
|
38 |
% |
% Increase |
|
|
13 |
% |
|
|
32 |
% |
|
|
33 |
% |
|
|
84 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Comprised of transaction costs for our acquisition of the Bioline Group (2010) and costs
related to reorganizing our European and Global Sales & Marketing Leadership (2011). |
We continue to closely control spending for each of our operating segments.
The quarterly and year-to-date increases in all three ongoing operating expense categories (i.e.,
Research & Development, Selling & Marketing, and General & Administrative) of approximately $4,000 and $9,800,
respectively, result in large part from the addition of the Bioline Groups operating expenses.
Additionally, operating expenses for the U.S. Diagnostics operating segment reflect the effects of
the following:
|
|
|
Research & Development |
|
|
|
|
Increased personnel-related costs of approximately $200 and $300 for the quarterly and nine
month year-to-date periods, respectively, in line with the overall increase in spending on
new product development. |
|
|
|
|
Selling & Marketing |
|
1) |
|
Increased sales bonus and commissions expense of approximately $300 and $600
for the quarterly and nine month year-to-date periods, respectively, due to the
illumigene® launch and sales growth; |
|
|
2) |
|
Increased samples and promotional expense of approximately $300 for the nine
month year-to-date period, resulting in large part from efforts during the second
quarter to move flu inventory manufactured by third parties prior to its expiration;
and |
|
|
3) |
|
Increased travel and trade show expenses during the quarterly and nine month
year-to-date periods of approximately $345 and $640, respectively, due in large part to
the illumigene® launch costs. |
|
|
|
General & Administrative |
|
|
|
|
The positive effects of overall cost containment and reduction efforts being dramatically
impacted by approximately $850 of stock-based compensation expense during the nine month
year-to-date period approximately $400 of which related to restricted stock grants during
the fiscal 2011 first quarter, and an approximate $450 impact on the fiscal 2011
third quarter related to retirement eligible employees. |
Page 19
During the second quarter of fiscal 2011, the Company incurred approximately $1,240 of costs in
connection with the reorganization of our European and Global Sales and Marketing Leadership.
Approximately 75% of these costs related to severance benefits for the former President and
Managing Director of our European diagnostics business, with no further such costs anticipated at
this time.
Operating Income
Operating income increased 4% to $10,131 for the third quarter of fiscal 2011, and decreased 8% to
$30,183 for the first nine months of fiscal 2011, as a result of the factors discussed above.
Other Income and Expense
The increase in other income, net, during the nine month year-to-date period can primarily be
attributed to the addition of the Bioline Group, as it contributed to an improvement in net
currency exchange gains/losses of approximately $100 and grant income from a foreign governmental
agency of approximately $200.
Income Taxes
The effective rate for income taxes was 33% for the third quarter and 34% for the first nine months
of fiscal 2011, each of which is one percentage point lower than the corresponding periods of
fiscal 2010. This decrease in rates primarily results from the fiscal 2011 third quarter release
of reserves for certain uncertain tax positions due to the passage of the relevant statute of
limitations. For the fiscal year ending September 30, 2011, we expect the effective tax rate to
approximate 35%.
Liquidity and Capital Resources
Comparative Cash Flow Analysis
Our cash flow and financing requirements are determined by analyses of operating and capital
spending budgets, consideration of acquisition plans, and consideration of common share dividends.
We have historically maintained a credit facility to augment working capital requirements and to
respond quickly to acquisition opportunities. Our investment portfolio presently contains
overnight repurchase agreements. We used $23,849 from our investment portfolio to complete the
acquisition of the Bioline Group during July 2010.
We have an investment policy that guides the holdings of our investment portfolio. Our objectives
in managing the investment portfolio are to (i) preserve capital; (ii) provide sufficient liquidity
to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii)
capture a market rate of return commensurate with market conditions and our policys investment
eligibility criteria. As we look forward, we will continue to manage the holdings of our
investment portfolio with preservation of capital being the primary objective.
Except as otherwise described herein, we do not expect current conditions in the financial markets,
or overall economic conditions to have a significant impact on our liquidity needs, financial
condition, or results of operations. We intend to continue to fund our working capital
requirements and dividends from current cash flows from operating activities and cash on hand. We
also have an additional source of liquidity through our $30,000 bank credit facility, if needed.
Net cash provided by operating activities decreased 30% for the first nine months of fiscal 2011 to
$16,618, reflecting the 6% decrease in net earnings and the effects of net working capital changes
related to our investments in illumigene® inventory, including readers, fluctuations in
sales levels, and the timing of payments with suppliers. Net cash flows from operating activities
and cash on hand are anticipated to be adequate to fund working capital requirements and dividends
during the next 12 months. During the last six fiscal quarters, the per share amount of our cash
dividend has exceeded the per share amount of our diluted earnings. As we enter fiscal 2012,
management expects that this relationship will change; meaning the per share amount of our diluted
earnings will exceed the per share amount of our current cash dividend, although no assurances can
be made in this regard.
Page 20
Capital Resources
We have a $30,000 credit facility with a commercial bank which expires on September 15, 2012. As
of July 31, 2011, there were no borrowings outstanding on this facility and we had 100% borrowing
capacity available to us. We have had no borrowings outstanding under this facility during the
first nine months of fiscal 2011, or during the full year of fiscal 2010.
Our capital expenditures for the balance of fiscal 2011 are estimated to be approximately $1,700.
Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows,
and/or availability under the $30,000 credit facility discussed above. Capital expenditures relate
to manufacturing and other equipment of a normal and recurring nature, as well as costs associated
with production line automation in Cincinnati, facilities expansions in Cincinnati and Memphis, and
computer system and software purchases for the Bioline Group. We also expect to have approximately
$1,700 in expenditures for readers to support the ongoing illumigene® product launch.
We do not utilize any special-purpose financing vehicles or have any undisclosed off-balance sheet
arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Companys exposure to market risk since September 30,
2010.
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2011, an evaluation was completed under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended.
Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure
controls and procedures were effective as of June 30, 2011. There have been no changes in our
internal control over financial reporting identified in connection with the evaluation of internal
control that occurred during the third fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting, or in other
factors that could materially affect internal control subsequent to June 30, 2011.
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors as previously disclosed in the Registrants
Form 10-K in response to Item 1A to Part I of Form 10-K.
ITEM 6. EXHIBITS
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10.4*
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Salary Continuation Agreement between Meridian Bioscience, Inc. and John A. Kraeutler, as
amended April 24, 2001, December 29, 2008 and August 3, 2011 (Filed herewith) |
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31.1
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Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a) (Filed herewith) |
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31.2
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Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a) (Filed herewith) |
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32
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed
herewith) |
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* |
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Management Compensatory Arrangement |
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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 thereunto duly authorized.
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MERIDIAN BIOSCIENCE, INC.
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Date: August 9, 2011 |
/s/ Melissa A. Lueke
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Melissa A. Lueke |
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Executive Vice President and
Chief Financial Officer |
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