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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 JUNE 30, 2003
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14902
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MERIDIAN BIOSCIENCE, INC.
- --------------------------------------------------------------------------------
Incorporated under the laws of Ohio 31-0888197
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
--- ---
Indicate by check whether the Registrant is an accelerated filer (as defined in
Rule 12-b2 of the Exchange Act).
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 July 31, 2003
- ---------------------------------- -------------------------------------------
Common Stock, no par value 14,708,928
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Page 1 of 30
MERIDIAN BIOSCIENCE, 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 (Unaudited)
Consolidated Statements of Operations
Three Months Ended June 30, 2003 and 2002
Nine Months Ended June 30, 2003 and 2002 3
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2003 and 2002 4
Consolidated Balance Sheets
June 30, 2003 and September 30, 2002 5-6
Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended June 30, 2003 7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II. OTHER INFORMATION
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
from civil litigation for forward looking statements accompanied by meaningful
cautionary statements. Except for historical information, this report contains
forward-looking statements which may be identified by words such as "estimates",
"anticipates", "projects", "plans", "expects", "intends", "believes", "should"
and similar expressions and which also may be identified by their context. Such
statements are based upon current expectations of the Company and speak only as
of the date made. These statements are subject to various risks, uncertainties
and other factors that could cause actual results to differ, including, without
limitation, the following: Meridian's continued growth depends, in part, on its
ability to introduce into the marketplace enhancements of existing products or
new products that incorporate technological advances, meet customer requirements
and respond to products developed by Meridian's competition. While Meridian has
introduced a number of internally-developed products, there can be no assurance
that it will be successful in the future in introducing such products on a
timely basis. Ongoing consolidations of reference laboratories and formation of
multi-hospital alliances may cause adverse changes to pricing and distribution.
Costs and difficulties in complying with laws and regulations administered by
the United States Food and Drug Administration can result in unanticipated
expenses and delays and interruptions to the sale of new and existing products.
Changes in the relative strength or weakness of the U.S. dollar can change
expected results. One of Meridian's 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 successfully integrated into Meridian's operations.
Page 2 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
NET SALES $ 15,693 $ 14,898 $ 48,709 $ 43,545
COST OF SALES 6,563 6,326 20,356 18,303
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 9,130 8,572 28,353 25,242
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 985 653 2,960 2,147
Sales and marketing 2,654 2,477 8,110 7,227
General and administrative 2,423 2,501 7,669 7,787
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 6,062 5,631 18,739 17,161
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 3,068 2,941 9,614 8,081
OTHER INCOME (EXPENSE):
Interest income 11 5 32 26
Interest expense (425) (495) (1,308) (1,538)
Other, net 195 30 155 189
- -----------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (219) (460) (1,121) (1,323)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 2,849 2,481 8,493 6,758
INCOME TAX PROVISION 1,027 925 3,324 2,590
=============================================================================================================================
NET EARNINGS $ 1,822 $ 1,556 $ 5,169 $ 4,168
=============================================================================================================================
BASIC EARNINGS PER COMMON SHARE $ 0.12 $ 0.11 $ 0.35 $ 0.29
DILUTED EARNINGS PER COMMON SHARE $ 0.12 $ 0.11 $ 0.35 $ 0.28
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 14,664 14,631 14,650 14,615
DILUTIVE COMMON STOCK OPTIONS 348 187 232 149
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 15,012 14,818 14,882 14,764
=============================================================================================================================
ANTI-DILUTIVE SECURITIES:
Common stock options 201 558 374 746
Shares from convertible debentures 1,243 1,243 1,243 1,243
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ 0.09 $ 0.07 $ 0.25 $ 0.21
============================================================================================================================-
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,169 $ 4,168
Non cash items:
Depreciation of property, plant and equipment 1,765 1,680
Amortization of intangible assets 1,047 1,062
Stock based compensation 14 48
Deferred income taxes 731 981
Loss on disposition of fixed assets 26 -
Gain on sale of common stock received in demutualization - (254)
Change in current assets excluding cash and deferred taxes (2,214) (702)
Change in current liabilities, excluding debt obligations 3,078 968
Other 650 251
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,266 8,202
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,255) (2,627)
Viral Antigens earnout payments (1,407) (905)
Proceeds from sale of common stock received in demutualization - 254
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,662) (3,278)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving credit facility (2,774) (384)
Repayment of debt obligations (1,827) (1,933)
Dividends paid (3,662) (2,997)
Proceeds from exercise of stock options 153 135
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (8,110) (5,179)
- -------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 370 191
- -------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (136) (64)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,060 4,673
=========================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,924 $ 4,609
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes paid $ 391 $ 329
Interest 968 1,272
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS: JUNE 30, SEPTEMBER 30,
2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 2,924 $ 3,060
Accounts receivable, less allowance of $667 and $987
for doubtful accounts 12,941 12,616
Inventories 14,105 12,735
Deferred income taxes 354 998
Other current assets 1,485 966
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 31,809 30,375
- -----------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 686 666
Buildings and improvements 15,165 13,986
Machinery, equipment and furniture 17,878 15,317
Construction in progress 443 2,780
- -----------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 34,172 32,749
Less-accumulated depreciation and amortization 16,568 14,744
- -----------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 17,604 18,005
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Deferred debenture offering costs, net 416 517
Goodwill 4,528 4,542
Other intangible assets, net 10,483 11,415
Other assets 233 241
- -----------------------------------------------------------------------------------------------------------------------------
Total other assets 15,660 16,715
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 65,073 $ 65,095
=============================================================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 5 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES: JUNE 30, SEPTEMBER 30,
2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Current portion of long-term obligations $ 891 $ 943
Borrowings under bank lines of credit 171 2,945
Accounts payable 2,060 1,914
Accrued payroll costs 3,298 2,428
Purchase business combination liability - 1,407
Abandoned acquisition costs - 980
Other accrued expenses 3,589 2,817
Income taxes payable 4,085 1,815
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,094 15,249
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Bank debt and capital lease obligations 2,436 3,626
Convertible subordinated debentures 20,000 20,000
DEFERRED TAX LIABILITIES 1,925 1,839
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000 shares authorized; none issued - -
Common stock, no par value, 50,000,000 shares authorized;
14,669,540 and 14,633,215 shares issued and outstanding,
respectively, stated at 2,535 2,535
Treasury stock, 8,300 shares (32) (32)
Additional paid-in capital 21,358 21,191
Retained earnings 3,408 1,901
Accumulated other comprehensive loss (651) (1,214)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 26,618 24,381
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 65,073 $ 65,095
========================================================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 6 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
Accumulated
Common Shares Additional Other
Shares Held in Common Treasury Paid-in Retained Comprehensive
Issued Treasury Stock Stock Capital Earnings Income (Loss)
--------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 14,633 (8) $2,535 $(32) $21,191 $1,901 $(1,214)
Dividends paid - - - - - (3,662) -
Exercise of stock options 35 - - - 153 - -
Stock based compensation 2 - - - 14 - -
Comprehensive income:
Net income - - - - - 5,169 -
Foreign currency translation - - - - - - 563
Comprehensive income
==============================================================================================================
BALANCE AT JUNE 30, 2003 14,670 (8) $2,535 $(32) $21,358 3,408 $(651)
==============================================================================================================
- ---------------------------------------------------------------
Total
Comprehensive Shareholders'
Income (Loss) Equity
- ---------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $24,381
Dividends paid (3,662)
Exercise of stock options 153
Stock based compensation 14
Comprehensive income:
Net income $ 5,169 5,169
Foreign currency translation 563 563
----------
Comprehensive income $ 5,732
==========
===============================================================
BALANCE AT JUNE 30, 2003 $26,618
===============================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7 of 30
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have not been audited by
independent public accountants, but include all adjustments (consisting of
normal recurring entries) which are, in the opinion of management, necessary for
a fair presentation of the results for such periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although Meridian believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Meridian's Annual Report on Form 10-K for the Year Ended September
30, 2002.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the year.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Translation of Foreign Currency -
Assets and liabilities of foreign operations are translated using period-end
exchange rates with gains or losses resulting from translation included in a
separate component of accumulated other comprehensive income (loss). Revenues
and expenses are translated using exchange rates prevailing during the period.
Meridian also recognizes foreign currency transaction gains and losses on
certain assets and liabilities that are denominated in the Euro currency. These
gains and losses are included in other income and expense in the accompanying
consolidated statements of operations.
(b) Stock-based Compensation -
Meridian accounts for its stock-based compensation plans pursuant to the
intrinsic value method provided in APB Opinion No. 25. Had compensation cost for
these plans been determined using the fair value method provided in SFAS No.
123, Meridian's net income and earnings per share would have been reduced to the
following pro forma amounts (amounts in thousands, except per share data):
Page 8 of 30
=================================================================================================================
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net income as reported $ 1,822 $ 1,556 $ 5,169 $ 4,168
Stock-based compensation included in net income
as reported, after tax 5 5 9 30
Pro forma fair value of stock options, after tax (134) (92) (443) (331)
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,693 $ 1,469 $ 4,735 $ 3,867
- -----------------------------------------------------------------------------------------------------------------
Basic EPS as reported $0.12 $0.11 $0.35 $0.29
Stock-based compensation included in net income
as reported, after tax - - - -
Pro forma fair value of stock options, after tax - (0.01) (0.03) (0.03)
- -----------------------------------------------------------------------------------------------------------------
Pro forma basic EPS $0.12 $0.10 $0.32 $0.26
- -----------------------------------------------------------------------------------------------------------------
Diluted EPS as reported $0.12 $0.11 $0.35 $0.28
Stock-based compensation included in net income
as reported, after tax - - - -
Pro forma fair value of stock options, after tax (0.01) (0.01) (0.03) (0.02)
- -----------------------------------------------------------------------------------------------------------------
Pro forma diluted EPS $0.11 $0.10 $0.32 $0.26
=================================================================================================================
(c) New Accounting Pronouncements -
During December 2002, the Financial Accounting Standards Board issued Statement
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123. Statement No. 148 provides alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based compensation. Statement No. 148
provides three alternatives for an entity that adopts the fair value based
method of accounting: Prospective Method, Modified Prospective Method and
Retroactive Restatement Method. Under the Prospective Method, fair value based
accounting would be applied to all employee awards granted after the beginning
of the fiscal year in which the provisions are first applied. Under the Modified
Prospective Method, fair value based accounting would be applied as of the
beginning of the fiscal year of adoption for all employee awards granted in
fiscal years beginning after December 15, 1994. Under the Retroactive
Restatement Method, all periods presented are restated to reflect fair value
based accounting for all employee awards granted in fiscal years beginning after
December 15, 1994. If an entity elects fair value based accounting in a fiscal
year beginning after December 15, 2003, either the Modified Prospective Method
or the Retroactive Restatement method must be used. Meridian accounts for its
stock-based compensation plans under Accounting Principles Board Opinion No. 25,
in which compensation expense is determined based on intrinsic value. Meridian
continually evaluates its accounting policies, including those governing
stock-based compensation, and at this time believes it is appropriate to
continue accounting for employee stock-based compensation under APB No. 25,
consistent with historical practice.
During November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and
Page 9 of 30
Disclosure Requirements for Guarantees, Including Direct Guarantees of
Indebtedness of Others. Interpretation No. 45 clarifies the requirements of FASB
Statement No. 5 relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. Meridian's adoption of Interpretation
No. 45 has had no impact on results of operations or financial condition.
3. INVENTORIES:
Inventories are comprised of the following (amounts in thousands):
=========================================================================
June 30, September 30,
2003 2002
- -------------------------------------------------------------------------
Raw materials $ 3,955 $ 3,578
Work-in-process 5,313 4,745
Finished goods 4,837 4,412
- -------------------------------------------------------------------------
$ 14,105 $ 12,735
=========================================================================
4. SEGMENT INFORMATION:
As a result of changes that occurred in February 2003 in the organization and
management of Meridian's businesses, effective with the quarter beginning
January 1, 2003, Meridian changed its reportable operating segments to US
Diagnostics (formerly referred to as Meridian Bioscience, Inc.), European
Diagnostics (formerly referred to as Meridian Bioscience Europe) and Life
Science. The US Diagnostics operating segment consists of manufacturing
operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test
kits in the US and countries outside of Europe, Africa and the Middle East. The
European Diagnostics operating segment consists of the sale and distribution of
diagnostic test kits in Europe, Africa and the Middle East. The Life Science
operating segment consists of manufacturing operations in Memphis, Tennessee and
Saco, Maine, and the sale and distribution of bulk antigens, antibodies and
bioresearch reagents domestically and abroad. The Life Science operating segment
consists of the Viral Antigens and BIODESIGN subsidiaries (formerly part of the
Meridian Bioscience, Inc. operating segment), including the protein production
laboratory. As required by Financial Accounting Standards Board Statement No.
131, Disclosures About Segments of an Enterprise and Related Information, prior
year operating information in the following table has been restated to conform
with the current year presentation. Segment information for the three months and
nine months ended June 30, 2003 and 2002 is as follows (in thousands):
Page 10 of 30
=====================================================================================================================
US European Life
Diagnostics Diagnostics Science ELIM(1) Total
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS - 2003
Net sales -
Third-party $ 8,793 $ 3,627 $ 3,273 $ - $15,693
Inter-segment 1,281 - 210 (1,491) -
Operating income 1,695 669 811 (107) 3,068
Total assets 62,712 11,936 21,745 (31,320) 65,073
THREE MONTHS - 2002
Net sales -
Third-party $ 8,127 $ 3,129 $3,642 $ - $14,898
Inter-segment 1,554 - 176 (1,730) -
Operating income 1,548 294 1,233 (134) 2,941
Total assets 66,528 11,551 19,447 (32,160) 65,366
NINE MONTHS - 2003
Net sales -
Third-party $29,198 $10,500 $ 9,011 $ - $48,709
Inter-segment 4,149 - 730 (4,879) -
Operating income 6,185 2,021 1,490 (82) 9,614
Total assets 62,712 11,936 21,745 (31,320) 65,073
NINE MONTHS - 2002
Net sales -
Third-party $25,292 $ 8,963 $ 9,290 $ - $43,545
Inter-segment 4,033 - 489 (4,522) -
Operating income 5,035 1,142 1,896 8 8,081
Total assets 66,528 11,551 19,447 (32,160) 65,366
======================================================================================================================
(1) Eliminations consist of intersegment transactions.
Transactions between geographic segments are accounted for as intercompany sales
at established intercompany prices for internal and management purposes with all
intercompany amounts eliminated in consolidation. Total assets for US
Diagnostics and Life Science include goodwill and other intangible assets of
$9,779,000 and $5,232,000, respectively at June 30, 2003, and $10,855,000 and
$4,051,000, respectively at June 30, 2002.
5. FDA MATTERS:
During January 2001, the FDA completed an inspection of Meridian's compliance
with the Quality Systems Regulations that govern the manufacturing of in vitro
diagnostics. In response to this inspection, in January 2001, Meridian submitted
a comprehensive plan to the FDA outlining specific steps it committed to
undertake to improve its quality systems. In June 2001, Meridian received a
Warning Letter from the FDA which summarized and reiterated certain of the
observations made by the FDA during their inspection completed in January 2001.
Page 11 of 30
In accordance with the FDA's directive in the Warning Letter, Meridian is
required to undergo three annual independent audits to evaluate Meridian's
progress implementing its comprehensive plan. The first audit was completed in
November 2001. Based on an extensive review of documents and an on-site visit
during this audit, the auditors substantiated Meridian's progress in addressing
the issues raised in the FDA inspection and Warning Letter.
In August 2002, the FDA completed an on-site follow-up inspection. The FDA
issued several observations, primarily aimed at fine-tuning established quality
control systems and procedures. Meridian submitted written corrective action
plans to address these refinements and continues its periodic communications
with the FDA on the progress of its comprehensive plan submitted to the FDA in
January 2001 and the observations from the August 2002 inspection.
In January 2003, the second of three annual independent audits commenced. This
audit was completed on May 1, 2003. The audit report substantiated Meridian's
progress in addressing issues raised in the prior FDA and independent audits.
Meridian has responded to the latest observations and recommendations with
corrective actions designed to further improve its established quality control
systems and procedures.
At present, it is uncertain whether Meridian's actions will be sufficient so
that no further remedial action or enforcement action by the FDA will occur.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO THREE-MONTH PERIOD ENDED
JUNE 30, 2002
Overview
Net earnings for the third quarter of fiscal 2003 were $1,822,000, an increase
of $266,000, or 17%, compared to the third quarter of fiscal 2002. On a diluted
per share basis, net earnings were $0.12 for the third quarter of fiscal 2003,
an increase of $0.01, or 9%, compared to the third quarter of fiscal 2002.
Operating Segments
As a result of changes that occurred in February 2003 in the organization and
management of Meridian's businesses, effective with the quarter beginning
January 1, 2003 (Meridian's second quarter), Meridian changed its reportable
operating segments to US Diagnostics (formerly referred to as Meridian
Bioscience, Inc.), European Diagnostics (formerly referred to as Meridian
Bioscience Europe) and Life Science. The US Diagnostics operating segment
consists of manufacturing operations in Cincinnati, Ohio, and the sale and
distribution of diagnostic test kits in the US and countries outside of Europe,
Africa and the Middle East. The European Diagnostics
Page 12 of 30
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 and Saco, Maine, and
the sale and distribution of bulk antigens, antibodies and bioresearch reagents
domestically and abroad. The Life Science operating segment consists of the
Viral Antigens and BIODESIGN subsidiaries (formerly part of the Meridian
Bioscience, Inc. operating segment), including the protein production
laboratory.
Net Sales
Overall, net sales increased $795,000, or 5%, to $15,693,000 for the third
quarter of fiscal 2003 compared to the third quarter of fiscal 2002. Net sales
for the US Diagnostics operating segment increased $666,000, or 8%, for the
European Diagnostics operating segment increased $498,000, or 16%, and for the
Life Science operating segment decreased $369,000, or 10%.
For the US Diagnostics operating segment, the increase in sales for the third
quarter of fiscal 2003 was primarily due to volume growth in both existing and
new products. For existing products, volume growth was strong in Rotavirus and
Mycoplasma. A substantial portion of this growth occurred in export markets,
including Japan. Certain of the sales into Japan related to the SARS outbreak.
Meridian's products were used to exclude the diagnosis of certain respiratory
ailments having similar symptoms, such as Mycoplasma, during the diagnosis of
patients potentially infected with SARS. For new products, Meridian began
distributing new diagnostic tests for the detection of Flu and RSV during the
first quarter of fiscal 2003. Sales of these products continued during the third
quarter, although at a lower level than the first six months due to the seasonal
nature of Flu and RSV.
For the European Diagnostics operating segment, the increase in sales for the
third quarter of fiscal 2003 includes currency translation gains of $568,000.
Sales for the European Diagnostics operating segment, excluding the effects of
currency, decreased 4% for the third quarter of fiscal 2003 compared to the
third quarter of fiscal 2002.
For the Life Science operating segment, the decrease in sales for the third
quarter of fiscal 2003 was primarily due to timing of orders for make-to-order
bulk antigen products. For such products, bulk quantities are manufactured
pursuant to customer purchase orders. Sales are recorded upon shipment. Although
there is currently one project underway in the protein production laboratory, no
revenues have been recognized to date. Revenue for the protein production
laboratory is recognized either upon shipment of product or final lot acceptance
depending on contract terms.
For all operating segments combined, international sales were $5,795,000, or 37%
of total sales, for the third quarter of fiscal 2003, compared to $4,260,000, or
29% of total sales, for the third quarter of fiscal 2002. Domestic exports for
the US Diagnostics and Life Science operating segments were $2,168,000 for the
third quarter of fiscal 2003, compared to $1,131,000 for the third quarter of
fiscal 2002. The remaining international sales were generated by the European
Diagnostics operating segment. Increases in domestic exports for the third
quarter of fiscal 2003 occurred both in the US Diagnostics and Life Science
operating segments. For the US Diagnostics operating segment, a large portion of
its increase was attributable to Japan. For the
Page 13 of 30
Life Science operating segment, its increase resulted from customer mix for
make-to-order bulk products.
Gross Profit
Gross profit increased $558,000, or 7%, to $9,130,000 for the third quarter of
fiscal 2003 compared to the third quarter of fiscal 2002. Gross profit margins
were 58% for both the third quarter of fiscal 2003 and the third quarter of
fiscal 2002. Meridian's overall operations consist of the sale of diagnostic
test kits for various disease states and in alternative test formats, as well as
bioresearch reagents, antigens and proficiency tests. On a quarterly basis,
product sales mix shifts, in the normal course of business, can cause the
consolidated gross profit margin to fluctuate by several points.
Operating Expenses
Operating expenses increased $431,000, or 8%, to $6,062,000 for the third
quarter of fiscal 2003 compared to the third quarter of fiscal 2002. The reasons
for this increase are discussed below.
Research and development expenses increased $332,000, or 51%, to $985,000 for
the third quarter of fiscal 2003 compared to the third quarter of fiscal 2002,
and as a percentage of sales, increased from 4% for the third quarter of fiscal
2002 to 6% for the third quarter of fiscal 2003. Of this increase, $271,000
related to the US Diagnostics operating segment and $61,000 related to the Life
Science operating segment. The increase for the US Diagnostics operating segment
is primarily attributable to additional product development staff and material
costs for new product development activities.
Sales and marketing expenses increased $177,000, or 7%, to $2,654,000 for the
third quarter of fiscal 2003 compared to the third quarter of fiscal 2002, and
as a percentage of sales, was 17% for both the third quarter of fiscal 2003 and
2002. Of this increase, $130,000 related to the US Diagnostics operating
segment, $25,000 related to the European Diagnostics operating segment and
$22,000 related to the Life Science operating segment. The increase for the US
Diagnostics operating segment is primarily attributable to costs related to
sales person incentive compensation.
General and administrative expenses decreased $78,000, or 3%, to $2,423,000 for
the third quarter of fiscal 2003 compared to the third quarter of fiscal 2002,
and as a percentage of sales, declined from 17% for the third quarter of fiscal
2002 to 15% for the third quarter of fiscal 2003. The US Diagnostics operating
segment increased $40,000 and the European Diagnostics operating segment
increased $37,000. The Life Science operating segment decreased $155,000. For
the US Diagnostics operating segment, costs to support growth in the business
and costs for incentive compensation were somewhat offset by an insurance
reimbursement for legal fees ($168,000) related to trade secrets litigation. The
decrease for the Life Science operating segment is primarily attributable to a
change in the classification of benefits costs for production employees to cost
of sales ($90,000).
Page 14 of 30
Operating Income
Operating income increased $127,000, or 4%, to $3,068,000 for the third quarter
of fiscal 2003 compared to the third quarter of fiscal 2002. This increase is
attributable to the factors discussed above.
Other Income and Expense
Interest expense declined $70,000, or 14%, to $425,000 for the third quarter of
fiscal 2003 compared to the third quarter of fiscal 2002. This decline is
attributable to the favorable effects of a lower interest rate environment and
lower overall debt levels outstanding. Borrowings outstanding on Meridian's
revolving credit facility were $171,000 at June 30, 2003 compared to $5,501,000
at June 30, 2002.
Other, net for the third quarter of fiscal 2003 includes a gain on the sale of
certain distributor relationships for the European Diagnostics operating segment
in the amount of $226,000. These distributor relationships related to
blood-grouping products that no longer fit into Meridian's long-range product
plans. Annual sales of these products were approximately 400,000 Euro.
Income Taxes
The effective rate for income taxes was 36% for the third quarter of fiscal 2003
compared to 37% for the third quarter of fiscal 2002. The decrease in the
effective tax rate during the third quarter of fiscal 2003 is primarily due to a
decline in the effective tax rate in Italy and favorable adjustments related to
non-US sales activities.
NINE-MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO NINE-MONTH PERIOD ENDED
JUNE 30, 2002
Overview
Net earnings for the first nine months of fiscal 2003 were $5,169,000, an
increase of $1,001,000, or 24% compared to the first nine months of fiscal 2002.
On a diluted per share basis, net earnings were $0.35 for the first nine months
of fiscal 2003, an increase of $0.07, or 25% compared to the first nine months
of fiscal 2002.
Net Sales
Overall, net sales increased $5,164,000, or 12% to $48,709,000 for the first
nine months of fiscal 2003 compared to the first nine months of fiscal 2002. Net
sales for the US Diagnostics operating segment increased $3,906,000, or 15%, for
the European Diagnostics operating segment increased $1,537,000, or 17%, and for
the Life Science operating segment decreased $279,000, or 3%.
For the US Diagnostics operating segment, the increase in sales for the first
nine months of fiscal 2003 was primarily due to volume growth in both existing
and new products. For existing products, volume growth was strong in C.
difficile diagnostic products, led by Meridian's internally developed Premier
Toxins A&B, as well as tests to detect Cryptosporidium, Giardia, Rotavirus,
Mycoplasma, H. pylori and E. coli. For new products, Meridian began distributing
new diagnostic
Page 15 of 30
tests for the detection of Flu and RSV during the first quarter of fiscal 2003.
These new products are a result of Meridian's recent collaboration with Binax,
Inc.
For the European Diagnostics operating segment, the increase in sales for the
first nine months of fiscal 2003 includes currency translation gains of
$1,373,000. Sales for the European Diagnostics operating segment, excluding the
effects of currency, increased 2% for the first nine months of fiscal 2003
compared to the first nine months of fiscal 2002.
For the Life Science operating segment, the decrease in sales for the first nine
months of fiscal 2003 was primarily due to timing of orders for make-to-order
bulk antigen products. For such products, bulk quantities are manufactured
pursuant to customer purchase orders. Sales are recorded upon shipment. Although
there is currently one project underway in the protein production laboratory, no
revenues have been recognized to date. Revenue for the protein production
laboratory is recognized either upon shipment of product or final lot acceptance
depending on contract terms.
For all operating segments combined, international sales were $16,857,000, or
35% of total sales, for the first nine months of fiscal 2003, compared to
$13,385,000, or 31% of total sales, for the first nine months of fiscal 2002.
Domestic exports for the US Diagnostics and Life Science operating segments were
$6,357,000 for the first nine months of fiscal 2003, compared to $4,422,000 for
the first nine months of fiscal 2002. The remaining international sales were
generated by the European Diagnostics operating segment.
Gross Profit
Gross profit increased $3,111,000 or 12%, to $28,353,000 for the first nine
months of fiscal 2003 compared to the first nine months of fiscal 2002. Gross
profit margins were 58% for both the first nine months of fiscal 2003 and 2002.
Meridian's overall operations consist of the sale of diagnostic test kits for
various disease states and in alternative test formats, as well as bioresearch
reagents, antigens and proficiency tests. On a quarterly basis, product sales
mix shifts, in the normal course of business, can cause the consolidated gross
profit margin to fluctuate by several points.
Operating Expenses
Operating expenses increased $1,578,000, or 9%, to $18,739,000 for the first
nine months of fiscal 2003 compared to the first nine months of fiscal 2002. The
reasons for this increase are discussed below.
Research and development expenses increased $813,000, or 38% to $2,960,000 for
the first nine months of fiscal 2003 compared to the first nine months of fiscal
2002, and as a percentage of sales, increased from 5% for the first nine months
of fiscal 2002 to 6% for the first nine months of fiscal 2003. Of this increase,
$609,000 related to the US Diagnostics operating segment and $204,000 related to
the Life Science operating segment. The increase for the US Diagnostics
operating segment is primarily attributable to additional product development
staff and material costs for new product development activities. The increase
for the Life Science operating segment is primarily attributable to activities
at the protein production laboratory prior to opening in March 2003.
Page 16 of 30
Sales and marketing expenses increased $883,000, or 12%, to $8,110,000 for the
first nine months of fiscal 2003 compared to the first nine months of fiscal
2002, and as a percentage of sales, was 17% for both the first nine months of
fiscal 2003 and 2002. Of this increase, $718,000 related to the US Diagnostics
operating segment, $137,000 related to the European Diagnostics operating
segment and $28,000 related to the Life Science operating segment. The increase
for the US Diagnostics operating segment is primarily attributable to spending
on strategic sales initiatives, including preparation and training of field
sales personnel, costs related to the new Binax products, such as samples and
brochures, and sales person incentive compensation. The increase for the
European Diagnostics operating segment is, in part, due to currency.
General and administrative expenses decreased $118,000, or 2%, to $7,669,000 for
the first nine months of fiscal 2003 compared to the first nine months of fiscal
2002, and as a percentage of sales, declined from 18% for the first nine months
of fiscal 2002 to 16% for the first nine months of fiscal 2003. The US
Diagnostics operating segment increased $14,000 and the Life Science operating
segment increased $41,000. The European Diagnostics operating segment decreased
$173,000. The increase for the US Diagnostics operating segment is primarily
attributable to support costs for growth in the business, somewhat offset by a
favorable adjustment to the reserve for bad debts based on better than
anticipated write-off history and an insurance reimbursement for legal fees
related to trade secrets litigation. The increase for the Life Science operating
segment is primarily attributable to support costs for the protein production
facility somewhat offset by a change in the classification of benefits costs for
production employees. The decrease for the European Diagnostics operating
segment is primarily attributable to a favorable adjustment related to a
contract amendment that reduced certain minimum purchase commitments to align
with current market expectations.
Operating Income
Operating income increased $1,533,000, or 19%, to $9,614,000 for the first nine
months of fiscal 2003 compared to the first nine months of fiscal 2002. This
increase is attributable to the factors discussed above.
Other Income and Expense
Other income and expense, net for the first nine months of fiscal 2003 includes
a gain on the sale of certain distributor relationships for the European
Diagnostics operating segment in the amount of $226,000. These distributor
relationships related to blood-grouping products that no longer fit into
Meridian's long-range product plans. Other income and expense, net for the first
nine months of fiscal 2002 included a net gain of $254,000 related to the sale
of shares of common stock received in the demutualization of two insurance
companies during the third quarter of fiscal 2002.
Interest expense declined $230,000, or 15%, to $1,308,000 for the first nine
months of fiscal 2003 compared to the first nine months of fiscal 2002. This
decline is attributable to the favorable effects of a lower interest rate
environment and lower overall debt levels outstanding. Borrowings outstanding on
Meridian's revolving credit facility were $171,000 at June 30, 2003 compared to
$5,501,000 at June 30, 2002.
Page 17 of 30
Income Taxes
The effective rate for income taxes is 39% for the first nine months of fiscal
2003 compared to 38% for the first nine months of fiscal 2002. The increase in
the effective tax rate during the first nine months of fiscal 2003 is in part
due to a higher percentage of income from foreign operations. This was somewhat
offset by a decline in the effective tax rate in Italy and favorable adjustments
related to non-US sales activities. Additionally, the effective rate for the
first nine months of fiscal 2002 included the favorable effects of reversing
valuation allowance provisions in Belgium as net operating loss carryforwards in
this jurisdiction were utilized.
LIQUIDITY AND CAPITAL RESOURCES:
COMPARATIVE CASH FLOW ANALYSIS
Meridian's operating cash flow and financing requirements are determined by
analyses of operating and capital spending budgets and consideration of
acquisition plans. Meridian has historically maintained line of credit
availability to respond to acquisition opportunities quickly.
Net cash provided by operating activities increased $2,064,000, or 25%, to
$10,266,000 for the first nine months of fiscal 2003 compared to the first nine
months of fiscal 2002. This increase is primarily attributable to higher
earnings levels and relief from income tax payments in certain jurisdictions as
tax operating loss carryforwards have been utilized.
Net cash used for investing activities was $2,662,000 for the first nine months
of fiscal 2003, compared to $3,278,000 for the first nine months of fiscal 2002,
and primarily related to capital expenditures and Viral Antigens earnout
payments during both periods. The level of capital expenditures during the first
nine months of fiscal 2002 reflects the construction of the protein production
laboratory.
Net cash used for financing activities was $8,110,000 for the first nine months
of fiscal 2003, compared to $5,179,000 for the first nine months of fiscal 2002.
Activity of $2,774,000 on the revolving credit facility and accelerated payments
of $763,000 on term borrowings during the first nine months of fiscal 2003
reflect planned efforts to pay down debt. Activity on the revolving credit
facility during the first nine months of fiscal 2002 included approximately
$1,000,000 related to payment of the mortgage loan for the Viral Antigens
facilities that matured in January 2002.
Net cash flows from operating activities are anticipated to fund working capital
requirements, debt service and dividends during fiscal 2003.
CAPITAL RESOURCES
The following table presents Meridian's financing obligations as of
June 30, 2003 (amounts in thousands):
Page 18 of 30
Payments Due for 12-Month Periods Beginning July 1
----------------------------------------------------------------------------
2003 2004 2005 2006 2007 Total
----------------------------------------------------------------------------
Bank term debt $ 790 $ 853 $ 786 $ 785 $ - $3,214
Capital lease obligations 100 13 - - - 113
Subordinated debentures - - - 20,000 - 20,000
Meridian has a $25,000,000 credit facility with a commercial bank that includes
$5,000,000 of term debt and capital lease capacity and a $20,000,000 line of
credit that expires in September 2004. As of July 31, 2003, there were no
borrowings outstanding on the line of credit portion of this facility, and the
availability was $20,000,000.
A substantial portion of the bank term debt, $3,143,000, is denominated in the
Euro currency and bears interest at a variable rate tied to Euro LIBOR. This
debt serves as a natural currency hedge against certain Euro denominated
intercompany receivables. The subordinated convertible debentures in the amount
of $20,000,000 bear interest at a fixed rate of 7% and have a conversion rate of
$16.09. The Company expects that these debentures will be converted or
refinanced at maturity.
The Viral Antigens acquisition, completed in fiscal 2000, provides for
additional purchase consideration up to a maximum remaining amount of
$5,938,000, contingent upon Viral Antigens' future earnings through September
30, 2006. Earnout consideration is payable each year, following the period
earned. Earnout payments, if any, may require financing under the line of credit
or other bank credit facility. Earnout consideration in the amount of $1,407,000
related to fiscal 2002 was paid in January 2003, primarily from operating cash
flows.
Meridian's capital expenditures are estimated to be $2,000,000 for fiscal 2003,
and may be funded with operating cash flows or availability under the
$25,000,000 credit facility discussed above. Capital expenditures for the fiscal
year to date of $1,225,000 have been funded primarily from operating cash flows.
Capital expenditures primarily relate to manufacturing and other equipment of a
normal and recurring nature.
COMMITMENTS AND CONTINGENCIES:
ROYALTIES
Meridian has entered into various license agreements that require
payment of royalties based on a specified percentage of sales of related
products (1% to 8%). Meridian expects that payments under these agreements will
amount to as much as $700,000 in fiscal 2003.
For one of these license agreements, Meridian is engaged in a dispute with the
licensor regarding the payment of royalties. The licensor has claimed additional
royalties due from Meridian in the amount of approximately $700,000. Meridian
believes that it has satisfactorily complied with all provisions of this license
agreement and therefore, disputes this claim. In addition, Meridian believes it
has valid claims against the licensor under this agreement. This matter is not
expected to have a material effect on results of operations or financial
condition.
Page 19 of 30
UNCONDITIONAL PURCHASE COMMITMENTS
Meridian has entered into agreements to distribute diagnostic test kits that are
manufactured by other diagnostic manufacturing companies. Certain of these
agreements require Meridian to purchase minimum quantities of diagnostic kits
during 12-month measurement periods. Aggregate minimum purchase commitments
under these agreements amount to $353,000 for fiscal 2003.
For one of these agreements, Meridian did not meet the minimum purchase
provisions contained therein due to the actual size of the market for this
specific product being smaller than anticipated prior to execution of the
agreement. Meridian and the other party to this agreement have subsequently
adjusted the minimum purchase provisions to align with current market
expectations. The amendment to this agreement did not result in any further
financial obligation for Meridian.
CONTRACT RESEARCH AND DEVELOPMENT
During fiscal 2000, Meridian executed a Research and Development Agreement and
an Exclusive Supply Agreement with OraSure Technologies, Inc. to commercialize
the UpLink technology. These agreements, assuming certain milestones were met,
would require Meridian to make future payments to OraSure to fund research and
development activities for specific diagnostic products and to obtain an
exclusive license to market and sell such products on a global basis. In
February 2003, Meridian informed OraSure that it was terminating these
agreements. Currently, Meridian and OraSure are working together to wind down
activities related to these agreements. Costs to wind down these agreements are
not expected to be material.
FDA MATTERS
During January 2001, the FDA completed an inspection of Meridian's compliance
with the Quality Systems Regulations that govern the manufacturing of in vitro
diagnostics. In response to this inspection, in January 2001, Meridian submitted
a comprehensive plan to the FDA outlining specific steps it committed to
undertake to improve its quality systems. In June 2001, Meridian received a
Warning Letter from the FDA which summarized and reiterated certain of the
observations made by the FDA during their inspection completed in January 2001.
In accordance with the FDA's directive in the Warning Letter, Meridian is
required to undergo three annual independent audits to evaluate Meridian's
progress implementing its comprehensive plan. The first audit was completed in
November 2001. Based on an extensive review of documents and an on-site visit
during this audit, the auditors substantiated Meridian's progress in addressing
the issues raised in the FDA inspection and Warning Letter.
In August 2002, the FDA completed an on-site follow-up inspection. The FDA
issued several observations, primarily aimed at fine-tuning established quality
control systems and procedures. Meridian submitted written corrective action
plans to address these refinements and continues its
Page 20 of 30
periodic communications with the FDA on the progress of its comprehensive plan
submitted to the FDA in January 2001 and the observations from the August 2002
inspection.
In January 2003, the second of three annual independent audits commenced. This
audit was completed on May 1, 2003. The audit report substantiated Meridian's
progress in addressing issues raised in the prior FDA and independent audits.
Meridian has responded to the latest observations and recommendations with
corrective actions designed to further improve its established quality control
systems and procedures.
At present, it is uncertain whether Meridian's actions will be sufficient so
that no further remedial action or enforcement action by the FDA will occur.
NEW ACCOUNTING PRONOUNCEMENTS:
During January 2003, the Financial Accounting Standards Board issued Statement
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123. Statement No. 148 provides alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based compensation. Statement No. 148
provides three alternatives for an entity that adopts the fair value based
method of accounting: Prospective Method, Modified Prospective Method and
Retroactive Restatement Method. Under the Prospective Method, fair value based
accounting would be applied to all employee awards granted after the beginning
of the fiscal year in which the provisions are first applied. Under the Modified
Prospective Method, fair value based accounting would be applied as of the
beginning of the fiscal year of adoption for all employee awards granted in
fiscal years beginning after December 15, 1994. Under the Retroactive
Restatement Method, all periods presented are restated to reflect fair value
based accounting for all employee awards granted in fiscal years beginning after
December 15, 1994. If an entity elects fair value based accounting in a fiscal
year beginning after December 15, 2003, either the Modified Prospective Method
or the Retroactive Restatement method must be used. Meridian accounts for its
stock-based compensation plans under Accounting Principles Board Opinion No. 25,
in which compensation expense is determined based on intrinsic value. Meridian
continually evaluates its accounting policies, including those governing
stock-based compensation, and at this time believes it is appropriate to
continue accounting for employee stock-based compensation under APB No. 25,
consistent with historical practice.
During November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Direct
Guarantees of Indebtedness of Others. Interpretation No. 45 clarifies the
requirements of FASB Statement No. 5 relating to a guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees. Meridian's
adoption of Interpretation No. 45 has had no impact on results of operations or
financial condition.
Page 21 of 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Meridian has market risk exposure related to interest rate sensitive debt and
foreign currency transactions.
Meridian has debt obligations, excluding the line of credit, in the aggregate
amount of $23,327,000 outstanding at June 30, 2003, of which $3,147,000 bears
interest at variable rates. Information concerning the maturities of interest
rate sensitive debt is included in the discussion of Capital Resources above. To
date, Meridian has not employed a hedging strategy with respect to interest rate
risk.
Meridian is exposed to foreign currency rate risk related to its European
distribution operations, including foreign currency denominated intercompany
receivables, as well as Euro denominated term debt. The Euro denominated term
debt serves as a natural hedge against a portion of the Euro denominated
intercompany receivables.
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2003, an evaluation was completed under the supervision and with
the participation of Meridian's management, including Meridian's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of Meridian's disclosure controls and procedures. Based on that
evaluation, Meridian's management, including the CEO and CFO, concluded that
Meridian's disclosure controls and procedures were effective as of June 30,
2003. There have been no changes in Meridian's internal controls over financial
reporting identified in connection with the evaluation of internal controls that
occurred during the last fiscal quarter that has materially affected, or is
reasonably likely to affect, Meridian's internal controls over financial
reporting, or in other factors that could significantly affect internal controls
subsequent to June 30, 2003.
Page 22 of 30
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 - Certification of Principal Executive Officer pursuant to ss.302
of the Sarbanes-Oxley Act of 2002
31.2 - Certification of Principal Financial Officer pursuant to ss.302
of the Sarbanes-Oxley Act of 2002
32.1 - Certification of Principal Executive Officer pursuant to ss.906
of the Sarbanes-Oxley Act of 2002
32.2 - Certification of Principal Financial Officer pursuant to ss.906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
Form 8-K dated April 24, 2003 containing Press Release dated
April 24, 2003 announcing results for the quarter ended
March 31, 2003.
Page 23 of 30
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.
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Date: August 14, 2003 /s/ Melissa Lueke
---------------------- ------------------
Melissa Lueke
Vice President and
Chief Financial Officer
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