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, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-14902
MERIDIAN 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 x No ¨
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 x No ¨
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.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding July 31, 2015 |
|
Common Stock, no par value | 41,714,635 |
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
Page(s) | ||||||
PART I. | ||||||
Item 1. | ||||||
Condensed Consolidated Statements of Operations Three and Nine Months Ended June 30, 2015 and 2014 |
1 | |||||
2 | ||||||
Condensed Consolidated Statements of Cash Flows Nine Months Ended June 30, 2015 and 2014 |
3 | |||||
Condensed Consolidated Balance Sheets June 30, 2015 and September 30, 2014 |
4-5 | |||||
Condensed Consolidated Statement of Changes in Shareholders Equity Nine Months Ended June 30, 2015 |
6 | |||||
7-12 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
12-20 | ||||
Item 3. | 21 | |||||
Item 4. | 21 | |||||
PART II. | ||||||
Item 1A. | 21 | |||||
Item 6. | 22 | |||||
Signature | 23 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. 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. All statements that address operating performance or events or developments that Meridian expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings and revenue, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridians forward-looking statements are, and will be, based on managements then-current views and assumptions regarding future events and operating performance. Meridian 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, and its ability to effectively sell such products. 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. Meridian relies on proprietary, patented and licensed technologies, and the Companys ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. 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, including those 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. The international scope of Meridians operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridians 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. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act and any modification or repeal of any of the provisions thereof, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridians information technology systems and natural disasters and other events could have a materially adverse effect on Meridians results of operations and revenues. 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.
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended
June 30, |
Nine Months Ended
June 30, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
NET REVENUES |
$ | 48,204 | $ | 47,212 | $ | 147,762 | $ | 142,140 | ||||||||
COST OF SALES |
17,873 | 17,970 | 55,673 | 53,298 | ||||||||||||
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GROSS PROFIT |
30,331 | 29,242 | 92,089 | 88,842 | ||||||||||||
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OPERATING EXPENSES |
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Research and development |
3,214 | 3,146 | 9,685 | 9,185 | ||||||||||||
Selling and marketing |
6,184 | 6,249 | 18,745 | 18,787 | ||||||||||||
General and administrative |
6,535 | 6,715 | 20,860 | 20,446 | ||||||||||||
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Total operating expenses |
15,933 | 16,110 | 49,290 | 48,418 | ||||||||||||
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OPERATING INCOME |
14,398 | 13,132 | 42,799 | 40,424 | ||||||||||||
OTHER INCOME (EXPENSE) |
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Interest income |
6 | 5 | 18 | 15 | ||||||||||||
Other, net |
(99 | ) | (257 | ) | (892 | ) | (505 | ) | ||||||||
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Total other income (expense) |
(93 | ) | (252 | ) | (874 | ) | (490 | ) | ||||||||
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EARNINGS BEFORE INCOME TAXES |
14,305 | 12,880 | 41,925 | 39,934 | ||||||||||||
INCOME TAX PROVISION |
5,203 | 4,045 | 14,852 | 13,373 | ||||||||||||
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NET EARNINGS |
$ | 9,102 | $ | 8,835 | $ | 27,073 | $ | 26,561 | ||||||||
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BASIC EARNINGS PER COMMON SHARE |
$ | 0.22 | $ | 0.21 | $ | 0.65 | $ | 0.64 | ||||||||
DILUTED EARNINGS PER COMMON SHARE |
$ | 0.22 | $ | 0.21 | $ | 0.64 | $ | 0.63 | ||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC |
41,714 | 41,478 | 41,647 | 41,445 | ||||||||||||
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARES AND UNITS |
379 | 618 | 352 | 669 | ||||||||||||
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED |
42,093 | 42,096 | 41,999 | 42,114 | ||||||||||||
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ANTI-DILUTIVE SECURITIES: |
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Common share options and restricted shares and units |
493 | 337 | 567 | 161 | ||||||||||||
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DIVIDENDS DECLARED PER COMMON SHARE |
$ | 0.20 | $ | 0.20 | $ | 0.60 | $ | 0.59 | ||||||||
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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 Comprehensive Income (Unaudited)
(in thousands)
Three Months Ended
June 30, |
Nine Months Ended
June 30, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
NET EARNINGS |
$ | 9,102 | $ | 8,835 | $ | 27,073 | $ | 26,561 | ||||||||
Foreign currency translation adjustment |
1,357 | 361 | (2,146 | ) | 1,421 | |||||||||||
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COMPREHENSIVE INCOME |
$ | 10,459 | $ | 9,196 | $ | 24,927 | $ | 27,982 | ||||||||
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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 Statements of Cash Flows (Unaudited)
(in thousands)
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
ASSETS
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS EQUITY
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders Equity (Unaudited)
(dollars and shares in thousands)
Common
Shares Issued |
Additional
Paid-In Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
Shareholders Equity |
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Balance at September 30, 2014 |
41,622 | $ | 111,851 | $ | 48,869 | $ | 309 | $ | 161,029 | |||||||||||
Cash dividends paid |
| | (25,014 | ) | | (25,014 | ) | |||||||||||||
Exercise of stock options |
65 | 313 | | | 313 | |||||||||||||||
Conversion of restricted stock units |
27 | | | | | |||||||||||||||
Stock compensation expense |
| 2,676 | | | 2,676 | |||||||||||||||
Net earnings |
| | 27,073 | | 27,073 | |||||||||||||||
Foreign currency translation adjustment |
| | | (2,146 | ) | (2,146 | ) | |||||||||||||
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Balance at June 30, 2015 |
41,714 | $ | 114,840 | $ | 50,928 | $ | (1,837 | ) | $ | 163,931 | ||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
1. | Basis of Presentation |
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, 2015, the results of its operations for the three and nine month periods ended June 30, 2015 and 2014, and its cash flows for the nine month periods ended June 30, 2015 and 2014. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Companys fiscal 2014 Annual Report on Form 10-K. Financial information as of September 30, 2014 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 customer. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments due certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, estimates of inventories of certain of our products held by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals were $4,431 at June 30, 2015 and $4,220 at September 30, 2014, and have been netted against accounts receivable.
Revenue for our Diagnostics segment includes revenue for our illumi gene ® molecular test system. This system includes an instrument, instrument accessories and test kits. In markets where the test system is sold via multiple deliverable arrangements, the cost of the instrument and instrument accessories is deferred upon placement at a customer and amortized on a straight-line basis into cost of sales over the expected utilization period, generally three years.
We evaluate whether each deliverable in the arrangement is a separate unit of accounting. The significant deliverables are an instrument, instrument accessories (e.g., printer) and test kits. An instrument and instrument accessories are delivered to the customer prior to the start of the customer utilization period, in order to accommodate customer set-up and installation. There is de minimis consideration received from the customer at the time of instrument placement. We have determined that the instrument and instrument accessories are not a separate unit of accounting because such equipment can only be used to process and read the results from our illumi gene diagnostic tests (i.e., our instrument and test kits function together to deliver a diagnostic test result), and therefore the instrument and instrument accessories do not have standalone value to the customer. Consequently, there is no revenue allocated to the placement of the instrument and instrument accessories. Test kits are delivered to the customer over the utilization period of the instrument, which we estimate has a useful life of three years. Our average customer contract period, including estimated renewals, is at least equal to the estimated three-year utilization period. Revenue for the sale of test kits is recognized upon shipment and transfer of title to the customers.
Page 7
In markets where the test system is not sold via multiple deliverable arrangements, the cost of the instrument and instrument accessories is charged to cost of sales at the time of shipment and transfer of title to the customer. Revenue for the sales of instruments and instrument accessories and test kits is recognized upon shipment and transfer of title to the customers. In these markets, our illumi gene molecular test system is sold to independent distributors who inventory the instruments, instrument accessories and test kits for resale to end-users.
Our products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was considered to be probable and estimable.
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. Depending on the nature of the arrangement, revenue is recognized as services are performed and billed, upon completion and acceptance by the customer, or upon delivery of product and acceptance by the customer.
Trade accounts receivable are recorded in the accompanying Condensed Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical write-off experience and known conditions that would likely lead to non-payment. 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) |
As reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income, our comprehensive income or loss is comprised of net earnings and foreign currency translation.
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 non-functional currencies of the Company or its subsidiaries. These gains and losses are included in other income and expense in the accompanying Condensed Consolidated Statements of Operations.
(c) | Income Taxes |
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 ultimately realized upon 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.
In September 2013, the Internal Revenue Service issued Treasury Decision 9636, which enacted final tax regulations regarding the capitalization and expensing of amounts paid to acquire, produce or improve tangible property. The regulations also include guidance regarding the retirement of depreciable property. Our adoption of these regulations on October 1, 2014 did not have a significant impact on the Companys consolidated results of operations, cash flows or financial position.
Page 8
(d) | Stock-Based Compensation |
We recognize compensation expense for all share-based awards made to employees, based upon the fair value of the share-based award on the date of the grant. Awards are expensed over their requisite service periods. For awards which vest solely on future service, we begin to expense such awards on the date of grant. For awards with performance conditions, we begin to expense such awards in the period upon which we believe there is sufficient evidence to support that it is probable that the performance condition(s) will be achieved.
(e) | Cash and Cash Equivalents |
Cash and cash equivalents include the following components:
June 30, 2015 | September 30, 2014 | |||||||||||||||
Cash and
Equivalents |
Other
Assets |
Cash and
Equivalents |
Other
Assets |
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Overnight repurchase agreements |
$ | 23,315 | $ | | $ | 26,407 | $ | | ||||||||
Cash on hand - |
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Restricted |
| 1,000 | | 1,000 | ||||||||||||
Unrestricted |
22,660 | | 16,640 | | ||||||||||||
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Total |
$ | 45,975 | $ | 1,000 | $ | 43,047 | $ | 1,000 | ||||||||
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(f) | Recent Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which supersedes and replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. Considering the FASBs recent effective date deferral, this guidance will be effective for the Company beginning October 1, 2018 (fiscal 2019). The Company has not yet completed its assessment of the impact that adoption of this guidance will have on its financial statements.
(g) | Reclassifications |
Certain reclassifications have been made to the prior fiscal period financial statements to conform to the current fiscal period presentation. Such reclassifications had no impact on net earnings or shareholders equity.
3. | Inventories |
Inventories are comprised of the following:
June 30, 2015 |
September 30,
2014 |
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Raw materials |
$ | 6,637 | $ | 5,674 | ||||
Work-in-process |
9,189 | 10,591 | ||||||
Finished goods - illumi gene instruments |
1,277 | 1,710 | ||||||
Finished goods - kits and reagents |
16,489 | 17,520 | ||||||
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Total |
$ | 33,592 | $ | 35,495 | ||||
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4. | Reportable Segment and Major Customers Information |
Meridian was formed in 1976 and functions as a fully-integrated research, development, manufacturing, marketing and sales organization with primary emphasis in the fields of in vitro diagnostics and 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; and (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 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 segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio, which also serves as the Diagnostics segments base of manufacturing operations and research and development. The Diagnostics segment has sales and distribution facilities in the United States, Europe and Australia. The Life Science segment consists of manufacturing operations in Memphis, Tennessee; 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, including sales and business development offices in Singapore and Beijing, China to further pursue growing revenue opportunities in Asia. The Life Science 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.
Amounts due from two Diagnostics distributor customers accounted for 23% and 15% of consolidated accounts receivable at June 30, 2015 and September 30, 2014, respectively. Revenues from these two distributor customers accounted for 35% and 36% of the Diagnostics segments third-party revenues during the three months ended June 30, 2015 and 2014, respectively, and 36% during each of the nine months ended June 30, 2015 and 2014. These distributors represented 27% of consolidated revenues for each of the fiscal 2015 and 2014 third quarters, and 27% and 28% for the fiscal 2015 and 2014 year-to-date nine month periods, respectively. In addition, approximately $2,000 and $2,700 of our consolidated accounts receivable at June 30, 2015 and September 30, 2014, respectively, was due from Italian hospital customers whose funding ultimately comes from the Italian government, representing 7% and 12% of consolidated accounts receivable in each of the respective periods.
Within our Life Science segment, two diagnostic manufacturing customers accounted for 16% of the segments third-party revenues during each of the three months ended June 30, 2015 and 2014, and 16% and 17% during the nine months ended June 30, 2015 and 2014, respectively.
Page 10
Segment information for the interim periods is as follows:
Diagnostics | Life Science | Eliminations(1) | Total | |||||||||||||
Three Months Ended June 30, 2015 |
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Net revenues - |
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Third-party |
$ | 36,049 | $ | 12,155 | $ | | $ | 48,204 | ||||||||
Inter-segment |
46 | 345 | (391 | ) | | |||||||||||
Operating income |
11,203 | 3,240 | (45 | ) | 14,398 | |||||||||||
Goodwill (June 30, 2015) |
1,250 | 21,534 | | 22,784 | ||||||||||||
Other intangible assets, net (June 30, 2015) |
2,436 | 3,938 | | 6,374 | ||||||||||||
Total assets (June 30, 2015) |
117,602 | 61,955 | (241 | ) | 179,316 | |||||||||||
Three Months Ended June 30, 2014 |
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Net revenues - |
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Third-party |
$ | 35,168 | $ | 12,044 | $ | | $ | 47,212 | ||||||||
Inter-segment |
99 | 374 | (473 | ) | | |||||||||||
Operating income |
10,526 | 2,676 | (70 | ) | 13,132 | |||||||||||
Goodwill (September 30, 2014) |
1,250 | 21,943 | | 23,193 | ||||||||||||
Other intangible assets, net (September 30, 2014) |
2,756 | 5,057 | | 7,813 | ||||||||||||
Total assets (September 30, 2014) |
109,350 | 67,834 | (255 | ) | 176,929 | |||||||||||
Nine Months Ended June 30, 2015 |
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Net revenues - |
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Third-party |
$ | 111,297 | $ | 36,465 | $ | | $ | 147,762 | ||||||||
Inter-segment |
235 | 867 | (1,102 | ) | | |||||||||||
Operating income |
33,081 | 9,814 | (96 | ) | 42,799 | |||||||||||
Nine Months Ended June 30, 2014 |
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Net revenues - |
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Third-party |
$ | 107,066 | $ | 35,074 | $ | | $ | 142,140 | ||||||||
Inter-segment |
362 | 858 | (1,220 | ) | | |||||||||||
Operating income |
32,211 | 8,243 | (30 | ) | 40,424 |
(1) | Eliminations consist of inter-segment transactions. |
Transactions between segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.
Page 11
5. | Intangible Assets |
A summary of our acquired intangible assets subject to amortization, as of June 30, 2015 and September 30, 2014, is as follows:
June 30, 2015 | September 30, 2014 | |||||||||||||||
Gross
Carrying Value |
Accumulated
Amortization |
Gross
Carrying Value |
Accumulated
Amortization |
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Manufacturing technologies, core products and cell lines |
$ | 11,635 | $ | 10,849 | $ | 11,685 | $ | 10,568 | ||||||||
Trademarks, licenses and patents |
6,390 | 3,167 | 6,463 | 2,766 | ||||||||||||
Customer lists and supply agreements |
12,246 | 9,881 | 12,378 | 9,379 | ||||||||||||
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$ | 30,271 | $ | 23,897 | $ | 30,526 | $ | 22,713 | |||||||||
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The actual aggregate amortization expense for these intangible assets was $409 and $507 for the three months ended June 30, 2015 and 2014, respectively, and $1,309 and $1,549 for the nine months ended June 30, 2015 and 2014, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 2020 is as follows: remainder of fiscal 2015 $402, fiscal 2016 $1,369, fiscal 2017 $1,141, fiscal 2018 $1,120, fiscal 2019 $1,079 and fiscal 2020 $903.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to Forward Looking Statements following the Table of Contents in front of this Form 10-Q. In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
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, changes in 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
Quarterly Highlights
As more fully detailed below, the third quarter of fiscal 2015 was highlighted by our Diagnostics segments launch of our newest molecular-based tests for the detection of Herpes Simplex Virus Type 1 (HSV-1) and Type 2 (HSV-2) outside of the U.S. and our Life Science segments continued successful expansion into China, as revenues from sales into China now exceed $1,500 in fiscal 2015 year-to-date. During July 2015, we received FDA clearance for our illumi gene ® HSV 1&2 tests and began selling in the U.S. market.
Three Months Ended June 30, 2015
Net earnings for the third quarter of fiscal 2015 increased 3% to $9,102, or $0.22 per diluted share, from net earnings for the third quarter of fiscal 2014 of $8,835, or $0.21 per diluted share. This increase reflects the combined effects of increased revenues, increased gross profit margins and slightly decreased operating expenses. Also impacting the quarterly results was an increase in the effective tax rate, as discussed below, which had an approximate $0.01 impact on diluted earnings per share. Consolidated revenues increased 2% to $48,204 for the third quarter of fiscal 2015 compared to the same period of the prior year, increasing 5% on a constant-currency basis.
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Included within the third quarter 2015 results were revenues from our illumi gene molecular platform of products totaling $10,500, representing a 10% increase over the fiscal 2014 third quarter. Also contributing to the increase in consolidated revenues were increased revenues in two of our diagnostic focus product families ( H. pylori and respiratory) and our Life Science segments immunoassay components business. Serving to partially offset these increases were decreased revenues in our C. difficile and foodborne focus product families and our Life Science segments molecular components business.
Revenues for the Diagnostics segment for the third quarter of fiscal 2015 increased 3% compared to the third quarter of fiscal 2014 (5% on a constant-currency basis), reflecting the following for each of our focus product families: 8% growth in our H. pylori products, 35% growth in our respiratory products, 2% decline in our foodborne products, and 8% decline in our C. difficile products. As it relates to our respiratory products, the growth was driven by several products in both our molecular and immunoassay categories. Our molecular products ( illumi gene Group A Strep, illumi gene Mycoplasma and illumi gene Pertussis) experienced volume growth from new assay placements. Our immunoassay products (influenza and Mycoplasma) experienced growth in distribution channels. With growth in its immunoassay components business and a decline in its molecular components business, revenues of our Life Science segment increased by 1% during the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014, increasing 5% on a constant-currency basis.
Nine Months Ended June 30, 2015
For the nine month period ended June 30, 2015, net earnings increased 2% to $27,073, or $0.64 per diluted share, from net earnings for the comparable fiscal 2014 period of $26,561, or $0.63 per diluted share. This increase reflects the combined effects of increased revenues, slightly decreased gross profit margins and increased operating expenses. Consolidated revenues increased 4% to $147,762 for the first nine months of fiscal 2015 compared to the same period of the prior fiscal year, increasing 6% on a constant-currency basis.
Included within the nine month year-to-date fiscal 2015 results were revenues from our illumi gene molecular platform of products totaling $30,600, representing a 10% increase over the first nine months of fiscal 2014. Also contributing to the consolidated revenue increase were increased revenues in three of our diagnostic focus product families ( H. pylori , foodborne and respiratory) and our Life Science segments immunoassay components business. Serving to partially offset these increases were decreased revenues in our C. difficile focus product family and our Life Science segments molecular components business.
During the first nine months of fiscal 2015, revenues for the Diagnostics segment increased 4% from the comparable fiscal 2014 period (6% on a constant-currency basis), reflecting the following for each of our focus product families: 10% growth in our H. pylori products, 10% growth in our foodborne products, 23% growth in our respiratory products, and 10% decline in our C. difficile products. During the first nine months of fiscal 2015, revenues for our Life Science segment increased 4%, 7% on a constant-currency basis.
REVENUE OVERVIEW
Below are analyses of the Companys revenue, provided for each of the following:
| By Reportable Segment & Geographic Region |
| By Product Platform/Type |
| By Disease Family (Diagnostics only) |
Revenue Overview- By Reportable Segment & Geographic Region
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the countries comprising North, Central and South America (the Americas); Europe, Middle East and Africa (EMEA); and other countries outside of the Americas and EMEA (rest of the world, or ROW). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; 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, including a sales and business development location in Singapore. Additionally, in order to further pursue growing revenue opportunities in Asia, and China in
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particular, our Life Science segment has opened a business development office in Beijing, China. The Life Science 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.
Revenues for the Diagnostics segment, 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 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, and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues due to these factors.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
2015 | 2014 | Inc (Dec) | 2015 | 2014 | Inc (Dec) | |||||||||||||||||||
Diagnostics- |
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Americas |
$ | 30,410 | $ | 28,881 | 5 | % | $ | 93,502 | $ | 87,454 | 7 | % | ||||||||||||
EMEA |
4,651 | 5,485 | (15 | )% | 15,184 | 16,810 | (10 | )% | ||||||||||||||||
ROW |
988 | 802 | 23 | % | 2,611 | 2,802 | (7 | )% | ||||||||||||||||
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Total Diagnostics |
36,049 | 35,168 | 3 | % | 111,297 | 107,066 | 4 | % | ||||||||||||||||
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Life Science- |
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Americas |
5,065 | 4,842 | 5 | % | 16,274 | 14,257 | 14 | % | ||||||||||||||||
EMEA |
4,877 | 5,278 | (8 | )% | 13,637 | 15,287 | (11 | )% | ||||||||||||||||
ROW |
2,213 | 1,924 | 15 | % | 6,554 | 5,530 | 19 | % | ||||||||||||||||
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Total Life Science |
12,155 | 12,044 | 1 | % | 36,465 | 35,074 | 4 | % | ||||||||||||||||
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Consolidated |
$ | 48,204 | $ | 47,212 | 2 | % | $ | 147,762 | $ | 142,140 | 4 | % | ||||||||||||
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% of total revenues- |
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Diagnostics |
75 | % | 74 | % | 75 | % | 75 | % | ||||||||||||||||
Life Science |
25 | % | 26 | % | 25 | % | 25 | % | ||||||||||||||||
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Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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Ex-Americas |
26 | % | 29 | % | 26 | % | 28 | % | ||||||||||||||||
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Revenue Overview- By Product Platform/Type
The revenues generated by each of our reportable segments result primarily from the sale of the following segment-specific categories of products:
Diagnostics
1) | Molecular tests that operate on our illumi gene platform |
2) | Immunoassay tests on multiple technology platforms |
Life Science
1) | Molecular components |
2) | Immunoassay components |
Revenues for each product platform/type, as well as its relative percentage of segment revenue, are shown below.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
2015 | 2014 | Inc (Dec) | 2015 | 2014 | Inc (Dec) | |||||||||||||||||||
Diagnostics- |
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Molecular tests |
$ | 10,550 | $ | 9,578 | 10 | % | $ | 30,650 | $ | 27,865 | 10 | % | ||||||||||||
Immunoassay tests |
25,499 | 25,590 | | % | 80,647 | 79,201 | 2 | % | ||||||||||||||||
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Total Diagnostics |
$ | 36,049 | $ | 35,168 | 3 | % | $ | 111,297 | $ | 107,066 | 4 | % | ||||||||||||
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Life Science- |
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Molecular components |
$ | 5,104 | $ | 5,476 | (7 | )% | $ | 15,009 | $ | 15,369 | (2 | )% | ||||||||||||
Immunoassay components |
7,051 | 6,568 | 7 | % | 21,456 | 19,705 | 9 | % | ||||||||||||||||
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Total Life Science |
$ | 12,155 | $ | 12,044 | 1 | % | $ | 36,465 | $ | 35,074 | 4 | % | ||||||||||||
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% of Diagnostics revenues- |
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Molecular tests |
29 | % | 27 | % | 28 | % | 26 | % | ||||||||||||||||
Immunoassay tests |
71 | % | 73 | % | 72 | % | 74 | % | ||||||||||||||||
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Total Diagnostics |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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% of Life Science revenues- |
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Molecular components |
42 | % | 45 | % | 41 | % | 44 | % | ||||||||||||||||
Immunoassay components |
58 | % | 55 | % | 59 | % | 56 | % | ||||||||||||||||
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Total Life Science |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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Following is a discussion of the revenues generated by each of these product platforms/types:
Diagnostics Products
illumi gene Molecular Platform Products
Following our launch outside the U.S. of illumi gene HSV 1&2 during the third quarter of fiscal 2015 and illumi gene Chlamydia trachomatis and illumi gene Neisseria gonorrhea during the second quarter of fiscal 2015, we now have approximately 1,425 customer account placements. Of these account placements, approximately 1,275 accounts have completed evaluations and validations and are regularly purchasing product, with the balance of our account placements being in some stage of product evaluation and/or validation. Of our account placements, we have approximately 400 accounts that are regularly purchasing, evaluating and/or validating two or more assays.
Page 15
We continue to invest in new product development for our molecular testing platform, illumi gene . This platform now has the following commercialized tests:
1. | illumi gene ® C. difficile commercialized in August 2010 |
2. | illumi gene ® Group B Streptococcus (Group B Strep or GBS) commercialized in December 2011 |
3. | illumi gene ® Group A Streptococcus (Group A Strep) commercialized in September 2012 |
4. | illumi gene ® Mycoplasma ( M. pneumonia ; walking pneumonia) commercialized in June 2013 |
5. | illumi gene ® Bordetella pertussis (whooping cough) commercialized in March 2014 |
6. | illumi gene ® Chlamydia trachomatis commercialized outside of U.S. in February 2015 |
7. | illumi gene ® Neisseria gonorrhea commercialized outside of U.S. in February 2015 |
8. | illumi gene ® HSV 1&2 (Herpes Simplex Virus Type 1 & Type 2) commercialized outside of U.S. in May 2015; commercialized in U.S. in July 2015 |
Additional illumi gene tests in research and development include foodborne pathogens such as Campylobacter jejuni , and bloodborne pathogens such as the causative agents for malaria.
We believe that the diagnostic testing market is continuing to selectively move away from culture and immunoassay testing to molecular testing for diseases where there is a favorable cost/benefit position for the total cost of health care. While this market is competitive, with molecular companies such as Cepheid and Becton Dickinson and others such as Quidel, Great Basin, Nanosphere, and Alere, we believe we are well positioned to capitalize on the migration to molecular testing. Our simple, easy-to-use, illumi gene platform, with its expanding menu, requires no expensive equipment purchase and little to no maintenance cost. We believe these features, along with its small footprint and the performance of the illumi gene assays, make illumi gene an attractive molecular platform to any size hospital or physician office laboratory that runs moderately-complex tests.
Immunoassay Products
Our Diagnostics segments revenues from immunoassay products decreased less than 1% for the quarter and increased 2% on a nine month, year-to-date basis. As described in the product discussions below, the quarterly revenue growth of our H. pylori and respiratory products was slightly more than offset by the decline in revenues from our foodborne and C. difficile products. The year-to-date increase results primarily from the revenue growth of our H. pylori , foodborne and respiratory products, partially offset by the decline in revenues from our C. difficile products.
Life Science Products
During the third quarter of fiscal 2015, revenues from our Life Science segment increased 1%, with revenues from molecular components sales decreasing 7% from the comparable fiscal 2014 quarter and revenues from immunoassay components sales increasing 7%. For the first nine months of fiscal 2015, revenues from our Life Science segment increased 4%, with revenues from molecular components sales decreasing 2% from the comparable prior year period and revenues from immunoassay components sales increasing 9%. Our molecular components business growth was negatively impacted by the movement in currency exchange rates since the 2014 third quarter, with revenues increasing 2% and 4% on a constant-currency basis for the quarterly and year-to-date periods, respectively. Our Life Science segment continued to benefit from increased sales into China, with such sales totaling approximately $1,600 for the first nine months of fiscal 2015 (approximately $400 in the molecular components business and $1,200 in the immunoassay components business).
Diagnostic Revenue Overview- By Disease Family
Revenues from our focus families ( C. difficile , foodborne, H. pylori , and respiratory) comprised 74% of our Diagnostics segments revenue during the third quarter and first nine months of fiscal 2015, and 73% for both of the comparable fiscal 2014 periods. Following is a discussion of the revenues generated by each product family:
C. difficile Products
Revenues for our C. difficile product family decreased 8% to $8,200 for the fiscal 2015 third quarter, and decreased 10% to $24,000 for the nine month, year-to-date period. Our molecular products now represent approximately 80% of this product category, and new customers are being added each quarter. The C. difficile test market continues to be highly competitive, with over 10 suppliers in the United States, certain of which choose to compete solely on
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price. We believe that the following factors will help us respond to these highly competitive market conditions: (i) our marketing programs emphasize that we are the only company that can offer a full range of high performing, FDA cleared, C. difficile testing formats, including toxin, GDH and molecular tests; (ii) our illumi gene molecular platform, with its expanding differentiated menu, affords both an opportunity to grow the platform utilization within the hospital, as well as protect against competitive threats; and (iii) our illumi gene molecular platform requires no expensive equipment purchase or maintenance contract, which we believe makes it an attractive and affordable option for any size hospital.
Foodborne Products
Revenues for our foodborne products (Enterohemorrhagic E. coli (EHEC) and Campylobacter ), all of which are immunoassay products, totaled $5,700 during the fiscal 2015 third quarter, a 2% decrease from the fiscal 2014 third quarter. During the nine months ended June 30, 2015, foodborne revenues totaled $18,500, a 10% increase from the fiscal 2014 year-to-date period. Revenues for our foodborne products on a quarterly basis (up 5% in the first quarter, up 27% in the second quarter and down 2% in the third quarter) have been affected by distributor ordering patterns and our inside and field sales programs designed to protect and expand upon our current customer base through the addition of new customers adopting rapid tests and competitive takeaways. We are continuing to re-emphasize the benefits of increased sensitivity and faster turnaround time versus culture methods in our marketing programs. The primary competition for our foodborne products is laboratory culture methods and an immunoassay shiga toxin test from one of our competitors. We believe that our test offers better workflow, less hands-on time and quicker results, in addition to being fully compliant with CDC-recommended testing methods.
H. pylori Products
During the third quarter of fiscal 2015, revenues from our H. pylori products, all of which are immunoassay products, grew 8% to $8,000. These revenues grew 10% to $23,000 during the first nine months of fiscal 2015. These increases continue to reflect the benefits of our partnerships with managed care companies in promoting (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. A significant amount of the H. pylori product revenues are to reference labs, whose buying patterns may not be consistent period to period.
The patents for our H. pylori products are owned by us and expire in 2016 in the U.S. and in 2017 in countries outside the U.S. We expect competition with respect to our H. pylori products to increase upon the expiration of these patents in 2016 and 2017 as we currently market the only FDA-cleared test to detect H. pylori antigen in stool samples. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. In order to mitigate any loss in revenues upon patent expiration, among other things, we are researching and experimenting with new products (e.g., detection of H. pylori in samples other than stool and detection of H. pylori on molecular platforms). We are unable to provide any assurances that we will be successful with any mitigation strategy or that any mitigation strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit.
Respiratory Products
Total respiratory revenues from our Diagnostics segment increased 35% to $5,000 during the fiscal 2015 third quarter; and increased 23% to $17,000 for the nine month year-to-date period. Growth was driven by several products in both our molecular and immunoassay categories. Our molecular products ( illumi gene Group A Strep, illumi gene Mycoplasma and illumi gene Pertussis) experienced volume growth from new assay placements. Our immunoassay products (influenza and Mycoplasma) experienced growth as a result of increases in Japanese orders of our Mycoplasma product and a large purchase by a distributor of influenza product in advance of the influenza season.
Page 17
Foreign Currency
During the third quarter of fiscal 2015, currency exchange rates had a $1,500 unfavorable impact on revenue; $1,000 unfavorable within the Diagnostics segment and $500 unfavorable within the Life Science segment. On a nine month year-to-date basis, currency exchange rates had a $3,500 unfavorable impact on revenue; $2,500 unfavorable within the Diagnostics segment and $1,000 unfavorable within the Life Science segment.
Significant Customers
Two U.S. distributors accounted for 35% and 36% of our Diagnostics segments total revenues for the third quarter of fiscal 2015 and 2014, respectively, and 36% during each of the nine months ended June 30, 2015 and 2014. These distributors represented 27% of consolidated revenues for each of the fiscal 2015 and 2014 third quarters, and 27% and 28% for the fiscal 2015 and 2014 year-to-date nine month periods, respectively.
Within our Life Science segment, two diagnostic manufacturing customers accounted for 16% of the segments total revenues for each of the third quarters of fiscal 2015 and 2014, and 16% and 17% during the nine months ended June 30, 2015 and 2014, respectively.
Gross Profit
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||||||||||
Gross Profit |
$ | 30,331 | $ | 29,242 | 4 | % | $ | 92,089 | $ | 88,842 | 4 | % | ||||||||||||
Gross Profit Margin |
63 | % | 62 | % | +1 point | 62 | % | 63 | % | -1 point |
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 and antibodies, PCR/qPCR reagents, nucleotides, competent cells, proficiency panels, and contract research and development, and contract manufacturing services. Product revenue mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.
Due to our growing illumi gene platform, we have invested approximately $4,000 in new molecular manufacturing facilities, which will provide additional manufacturing capacity, as well as improved manufacturing efficiency and quality. We believe that we will begin to realize these efficiencies late in fiscal 2015.
Operating Expenses
Three Months Ended June 30, 2015 | ||||||||||||||||
Research &
Development |
Selling &
Marketing |
General &
Administrative |
Total Operating
Expenses |
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2014 Expenses |
$ | 3,146 | $ | 6,249 | $ | 6,715 | $ | 16,110 | ||||||||
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% of Revenues |
7 | % | 13 | % | 14 | % | 34 | % | ||||||||
Fiscal 2015 Increases (Decreases): |
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Diagnostics |
20 | (55 | ) | (136 | ) | (171 | ) | |||||||||
Life Science |
48 | (10 | ) | (44 | ) | (6 | ) | |||||||||
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2015 Expenses |
$ | 3,214 | $ | 6,184 | $ | 6,535 | $ | 15,933 | ||||||||
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% of Revenues |
7 | % | 13 | % | 14 | % | 33 | % | ||||||||
% Increase (Decrease) |
2 | % | (1 | )% | (3 | )% | (1 | )% |
Page 18
Nine Months Ended June 30, 2015 | ||||||||||||||||
Research &
Development |
Selling &
Marketing |
General &
Administrative |
Total Operating
Expenses |
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2014 Expenses |
$ | 9,185 | $ | 18,787 | $ | 20,446 | $ | 48,418 | ||||||||
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% of Revenues |
6 | % | 13 | % | 14 | % | 34 | % | ||||||||
Fiscal 2015 Increases (Decreases): |
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Diagnostics |
205 | 243 | 753 | 1,201 | ||||||||||||
Life Science |
295 | (285 | ) | (339 | ) | (329 | ) | |||||||||
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2015 Expenses |
$ | 9,685 | $ | 18,745 | $ | 20,860 | $ | 49,290 | ||||||||
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% of Revenues |
7 | % | 13 | % | 14 | % | 33 | % | ||||||||
% Increase (Decrease) |
5 | % | | % | 2 | % | 2 | % |
Overall, total operating expenses decreased during the third quarter of fiscal 2015 and increased during the first nine months of fiscal 2015 relative to the comparable prior fiscal year periods, decreasing slightly as a percentage of both quarterly and year-to-date consolidated revenues. These levels of operating expenses result in large part from the combined effects of our (i) ongoing efforts to control spending in each of our segments while investing the necessary resources in our strategic areas of growth, including increased investment in new product development in both of our segments, and increased investment in Sales and Marketing personnel and programs, particularly in our Diagnostics segment; and (ii) favorable effects of currency rates.
Operating expenses for the Diagnostics segment decreased $171 for the third quarter of fiscal 2015 compared to the fiscal 2014 third quarter, and in the first nine months of fiscal 2015, increased $1,201 over the comparable prior year period. These overall Diagnostics segment increases result largely from the combined effects of the following:
Research & Development
Overall increase in spending on new product development activities related primarily to the previously noted products for our illumi gene molecular platform, as well as immunoassay products in development.
Selling & Marketing
Increase in year-to-date personnel costs resulting from increased Sales and Marketing headcount.
General & Administrative
Increase in profit sharing expense resulting from the previously noted increases in operating profits, along with an increase in legal spending over the prior year related largely to a foreign distributor matter.
Operating Income
Operating income increased 10% to $14,398 for the third quarter of fiscal 2015, and increased 6% to $42,799 for the first nine months of fiscal 2015, as a result of the factors discussed above.
Income Taxes
The effective rate for income taxes was 36% and 31% for the third quarters of fiscal 2015 and 2014, respectively, and 35% and 33% for the nine month year-to-date periods ended June 30, 2015 and 2014, respectively. The higher current year rates relative to fiscal 2014 primarily result from the effects of increased tax apportionments in certain state taxing jurisdictions, as well as the prior year period reflecting the positive effects of a net U.S. foreign tax credit resulting from a restructuring of our legal entities during the fiscal 2014 third quarter. For the fiscal year ending September 30, 2015, we expect the effective tax rate to approximate 35%.
Page 19
In September 2013, the Internal Revenue Service issued Treasury Decision 9636, which enacted final tax regulations regarding the capitalization and expensing of amounts paid to acquire, produce or improve tangible property. The regulations also include guidance regarding the retirement of depreciable property. Our adoption of these regulations on October 1, 2014 did not have a significant impact on the Companys consolidated results of operations, cash flows or financial position.
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 consists of overnight repurchase agreements.
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.
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, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our $30,000 bank credit facility, which has been renewed through April 21, 2018. Approximately $2,000 of our consolidated accounts receivable at June 30, 2015 is due from Italian hospital customers whose funding ultimately comes from the Italian government, which is down from approximately $2,700 at September 30, 2014. The amount of our annual revenues in the country of Greece and the corresponding amount of customer receivables outstanding at any point in time is not significant, and therefore, we do not expect any meaningful impact from the current financial crisis in the country of Greece. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectibility of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.
Net cash provided by operating activities totaled $31,196 for the first nine months of fiscal 2015, a 32% increase over the $23,611 provided during the first nine months of fiscal 2014. While reflecting the effects of the timing of federal income tax payments, and the timing of payments from and to customers and suppliers, respectively, this $7,585 increase results in large part from approximately $5,500 of incentive bonus payments related to fiscal 2013 being made in the first quarter of fiscal 2014, with no such payments having been made during the fiscal 2015 year-to-date period. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and dividends during the next 12 months.
Capital Resources
We have a $30,000 credit facility with a commercial bank that expires on April 21, 2018. As of July 31, 2015, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We had no borrowings outstanding under this facility during the first nine months of fiscal 2015 or during the full year of fiscal 2014.
Our capital expenditures are estimated to be approximately $4,000 for fiscal 2015, with the actual amount depending upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and equivalents on hand, operating cash flows, and/or availability under the $30,000 credit facility discussed above.
During June 2015, we sold the land and building related to our former Life Science facility in Saco, Maine. Net proceeds from the sale were approximately $1,138.
We do not utilize any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements.
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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, 2014.
ITEM 4. | CONTROLS AND PROCEDURES |
As of June 30, 2015, 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, 2015. 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 have materially affected, or are 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, 2015.
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 as updated by the Registrants Form 10-Q for the Quarterly Period ended March 31, 2015 in Item 1A to Part II of Form 10-Q.
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ITEM 6. | EXHIBITS |
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form 10-Q.
10.1 | Amended and Restated Revolving Note with Fifth Third Bank dated April 21, 2015 | |
10.2 | Fifth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc., and Fifth Third Bank dated April 21, 2015 | |
31.1 | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | |
32 | 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 | |
101 | The following financial information from Meridian Bioscience Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 10, 2015, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2015 and 2014; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2015 and 2014; (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2015 and 2014; (iv) Condensed Consolidated Balance Sheets as of June 30, 2015 and September 30, 2014; (v) Condensed Consolidated Statement of Shareholders Equity for the nine months ended June 30, 2015; and (vi) the Notes to Condensed Consolidated Financial Statements |
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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. | ||||||||
Date: |
August 10, 2015 |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke | ||||||||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 10.1
AMENDED AND RESTATED
REVOLVING NOTE
Cincinnati, Ohio | ||
$30,000,000 | Dated: August 1, 2007 | |
Restated: April 21, 2015 |
Meridian Bioscience, Inc. , an Ohio corporation, Meridian Bioscience Corporation an Ohio corporation (Corp.), Omega Technologies, Inc., an Ohio corporation (Omega), Meridian Life Science, Inc., a Maine corporation and Bioline USA, Inc . , a Massachusetts corporation (Bio) (collectively and jointly and severally the Borrowers and individually a Borrower), for value received, hereby promises to pay to the order of FIFTH THIRD BANK , an Ohio banking corporation (the Bank), at its offices, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, in lawful money of the United States of America and in immediately available funds, the principal sum of $30,000,000 or such lesser unpaid principal amount as may be advanced by the Bank pursuant to the terms of the Loan and Security Agreement dated August 1, 2007 by and among the Borrowers and the Bank, as same may be amended from time to time (the Agreement). This Note shall mature and be payable in full on April 21, 2018, or such later date as may be determined and agreed upon between Bank and Borrowers pursuant to the Agreement.
The principal balance hereof outstanding from time to time shall bear interest as set forth in the Agreement. Interest will be calculated based on a 360-day year and charged for the actual number of days elapsed, and will be payable as set forth in the Agreement. After the occurrence of an Event of Default, this Note shall bear interest (computed and adjusted in the same manner, and with the same effect, as interest hereon prior to maturity), payable on demand, at a rate per annum equal to six percent (6%) above the rate that would otherwise be in effect, until paid, and whether before or after the entry of judgment hereon.
The principal amount of each loan made by the Bank and the amount of each prepayment made by the Borrowers shall be recorded by the Bank on the schedule attached hereto or in the regularly maintained data processing records of the Bank. The aggregate unpaid principal amount of all loans set forth in such schedule or in such records shall be presumptive evidence of the principal amount owing and unpaid on this Note. However, failure by Bank to make any such entry shall not limit or otherwise affect Borrowers obligations under this Note or the Agreement.
This Note is the Revolving Note referred to in the Agreement, and is entitled to the benefits, and is subject to the terms, of the Agreement. The principal of this Note is prepayable in the amounts and under the circumstances, and its maturity is subject to acceleration upon the terms, set forth in the Agreement. Except as otherwise expressly provided in the Agreement, if any payment on this Note becomes due and payable on a day other than one on which Bank is open for business (a Business Day), the maturity thereof shall be extended to the next Business Day, and interest shall be payable at the rate specified herein during such extension period.
Borrower shall pay to the Bank a note processing fee of $750 on the Restated Date of this Note.
This Note is issued, not as a payment toward, but as a continuation of, the obligations of Borrowers to Bank pursuant to that certain Revolving Note dated August 1, 2007, in the principal amount of $30,000,000 (together with all prior amendments thereto or restatements thereof the Prior Note). Accordingly, this Note shall not be construed as a novation or extinguishment of, the obligations arising under the Prior Note, and its issuance shall not affect the priority of any security interest granted in connection with the Prior Note.
In no event shall the interest rate on this Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that a court determines that Bank has received interest and other charges under this Note in excess of the highest permissible rate applicable hereto, such excess shall be deemed received on account of, and shall automatically be applied to reduce the amounts due to Bank from the Borrowers under this Note, other than interest, and the provisions hereof shall be deemed amended to provide for the highest permissible rate. If there are no such amounts outstanding, Bank shall refund to Borrowers such excess.
Borrowers and all endorsers, sureties, guarantors and other persons liable on this Note hereby waive presentment for payment, demand, notice of dishonor, protest, notice of protest and all other demands and notices in connection with the delivery, performance and enforcement of this Note, and consent to one or more renewals or extensions of this Note.
This Note may not be changed orally, but only by an instrument in writing.
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This Note is being delivered in, is intended to be performed in, shall be construed and enforceable in accordance with, and be governed by the internal laws of, the State of Ohio without regard to principles of conflict of laws. Borrowers agree that the State and federal courts in Hamilton County, Ohio or any other court in which Bank initiates proceedings have exclusive jurisdiction over all matters arising out of this Note, and that service of process in any such proceeding shall be effective if mailed to Borrowers at their address described in the Notices section of the Agreement. BORROWERS HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE.
MERIDIAN BIOSCIENCE CORPORATION | MERIDIAN BIOSCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO and Secretary | Melissa A. Lueke, Executive Vice President, CFO and Secretary | |||||||
OMEGA TECHNOLOGIES, INC. | MERIDIAN LIFE SCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO and Secretary | Melissa A. Lueke, CFO and Secretary | |||||||
BIOLINE USA, INC. | ||||||||
By: |
/s/ Melissa A. Lueke |
|||||||
Melissa A. Lueke, CFO and Secretary |
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Exhibit 10.2
FIFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Fifth Amendment to Loan and Security Agreement (the Amendment) is entered into as of April 21, 2015, by and among Fifth Third Bank , an Ohio banking corporation (the Bank) and Meridian Bioscience, Inc. , an Ohio corporation (Parent or Agent), Meridian Bioscience Corporation , an Ohio corporation (Corp.), Omega Technologies, Inc. , an Ohio corporation (Omega), Meridian Life Science, Inc. , a Maine corporation (MLS) and Bioline USA, Inc. , a Massachusetts corporation (Bio) (collectively, the Borrowers and individually a Borrower).
WHEREAS, Bank and Borrowers (except Bio) entered into that certain Loan and Security Agreement, dated as of August 1, 2007, as amended from time to time (the Agreement);
WHEREAS, Bank and Borrowers wish to amend the Agreement to modify certain provisions of the Agreement.
NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows:
1. The following terms contained in Section 1.1 of the Agreement are hereby amended and restated to read as follows:
LIBOR Rate means the rate of interest (rounded upwards, if necessary, to the next 1/16th of 1% and adjusted for reserves if Bank is required to maintain reserves with respect to relevant advances) fixed by the ICE Benchmark Administration Limited (or any successor thereto, or replacement thereof, as approved by Bank, each an Alternate LIBOR Source) at approximately 11:00 a.m., London time (or at the relevant time established by an Alternate LIBOR Source or by Bank), two London Banking Days preceding the effective date of such LIBOR Rate, relating to quotations for one-month London InterBank Offered Rates on U.S. Dollar deposits as published on Bloomberg LP (or any successor thereto, or replacement thereof, as approved by Bank, each an Approved Bloomberg Successor ), all as determined by Bank in accordance with this Agreement and the Revolving Note. If the LIBOR Rate is no longer displayed on Bloomberg LP (or any Approved Bloomberg Successor), the LIBOR Rate shall be determined in good faith by Bank from such other sources as it shall determine to be comparable to Bloomberg LP (or any Approved Bloomberg Successor). Each determination by Bank of the LIBOR Rate shall be final, binding and conclusive in the absence of manifest error. The Interest Rate shall initially be determined as of the date of the initial advance of funds to Borrower and shall be adjusted automatically on the first business day of each month thereafter.
Obligation(s) means all loans, advances, indebtedness, liabilities and obligations of Borrowers owed to Bank or any affiliates of Fifth Third Bancorp of every kind and description whether now existing or hereafter arising including without limitation, those owed by any Borrower to others and acquired by Bank or any affiliate of Fifth Third Bancorp, by purchase, assignment or otherwise, and whether direct or indirect, primary or as guarantor or surety, absolute or contingent, liquidated or unliquidated, matured or unmatured, whether or not secured by additional collateral, and including without limitation
all liabilities, obligations and indebtedness arising under this Agreement, the Note and the other Loan Documents, any and all Rate Management Obligations, all obligations to perform or forbear from performing acts, all amounts represented by letters of credit now or hereafter issued or other sums disbursed by Bank for the benefit of or at the request of any Borrower, and all expenses and attorneys fees incurred by Bank and any affiliate of Fifth Third Bancorp under this Agreement or any other document or instrument related to any of the foregoing; provided, however, that any Excluded Swap Obligations are specifically excluded from the Obligations.
Rate Management Agreement means any agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates, forward rates, or equity prices, including, without limitation, any transaction, device, agreement or arrangement (i) that is or is the functional equivalent of a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause (i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which payments or deliveries are to be made, or any combination of these transactions, which transactions may be evidenced by an ISDA Master Agreement between any Borrower and Bank or any affiliate of Fifth Third Bancorp, and any schedules, confirmations and documents and other confirming evidence between the parties confirming transactions thereunder, all whether now existing or hereafter arising, and in each case as amended, modified or supplemented from time to time.
2. The following definitions are hereby added to Section 1.1 of the Agreement to read as follows:
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
Excluded Swap Obligation means, with respect to any guarantor of a Swap Obligation, including the grant of a security interest to secure the guaranty of such Swap Obligation, any Swap Obligation if, and to the extent that, such Swap Obligation is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such guarantors failure for any reason to constitute an eligible contract
2
participant as defined in the Commodity Exchange Act and the regulations thereunder at the time the guaranty or grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Swap Obligation or security interest is or becomes illegal.
Swap Obligation means any Rate Management Obligation that constitutes a swap within the meaning of Section 1a(47) of the Commodity Exchange Act, as amended from time to time.
3. The term Obligations as used in any document between a Borrower and Bank securing or guaranteeing the Agreement or the Note shall specifically exclude Excluded Swap Obligations.
4. Section 2.1(d) of the Agreement is hereby amended and restated in its entirety to read as follows:
(d) The Facility shall expire on April 21, 2018, and the entire outstanding principal balance of the Revolving Note, and all accrued interest, shall become due and payable not later than that date. Borrowers may prepay the principal balance of the Revolving Note in whole or part at any time. Until all Obligations have been fully repaid and this Agreement has terminated, Bank shall retain its security interest in all Collateral then existing or arising thereafter.
5. Section 2.3(a) of the Agreement is hereby amended to add clarity to the Level III pricing reference. Accordingly, Section 2.3(a) is hereby amended and restates in its entirety to read as follows:
Applicable Margin |
Level I Status
Funded Debt/EBITDA £ 0.50:1.00 |
Level II Status
Funded Debt/EBITDA >0.50:1.00 £ 0.75:1.00 |
Level III Status
Funded Debt/EBITDA >0.75:1.00 £ 3.00:1.00 |
|||||||||
Unused Fee |
0.125 | % | 0.125 | % | 0.125 | % | ||||||
Libor Margin |
+0.75 | % | +0.90 | % | +1.15 | % |
6. Section 5.16 of the Agreement is hereby amended and restated in its entirety to read as follows:
5.16 Tangible Net Worth . Borrowers shall maintain a Tangible Net Worth as of the end of each fiscal quarter, commencing with the quarter ending April 15, 2015, of at least $115,000,000 on a consolidated basis.
7. Exhibit 2.1(c) to the Agreement is hereby amended and restated as set forth on attached Exhibit 2.1(c).
3
8. Representations, Warranties and Covenants of Borrowers. To induce Bank to enter into this Amendment, Borrowers represent and warrant as follows:
(a) | No Event of Default (as such term is defined in Section 8 of the Agreement) or event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default exists on the date hereof. |
(b) | The person executing this Amendment is a duly elected and acting officer of each Borrower and is duly authorized by the Board of Directors of such Borrower to execute and deliver this Amendment on behalf of such Borrower. |
9. Conditions. Banks obligations under this Amendment are subject to the following conditions:
(a) | Borrowers shall execute and deliver to Bank this Amendment, the Amended and Restated Revolving Note attached to this Amendment as Exhibit 2.1(c) and all other documents listed on the Banks List of Documents for this Amendment. |
(b) | The representations and warranties of Borrowers in Section 3 hereof shall be true and correct on the date of execution of this Amendment. |
(c) | Borrowers shall pay to the Bank all expenses and attorneys fees incurred by Bank in connection with the preparation, execution and delivery of this Amendment and related documents. |
10. General.
(a) | Except as expressly modified hereby, the Agreement remains unaltered and in full force and effect. Borrowers acknowledge that Bank has made no oral representations to Borrowers with respect to the Agreement and this Amendment thereto and that all prior understandings between the parties are merged into the Agreement as amended by this writing. All Loans outstanding on the date of execution of this Amendment shall be considered for all purposes to be Loans outstanding under the Agreement as amended by this Amendment. |
(b) | Capitalized terms used and not otherwise defined herein will have the meanings set forth in the Agreement. |
(c) | Nothing contained herein will be construed as waiving any default or Event of Default under the Agreement or will affect or impair any right, power or remedy of the Bank under or with respect to the Loans, the Agreement, or any other agreement or instrument guaranteeing, securing or otherwise relating to the Loans. |
(d) |
This Amendment shall be considered an integral part of the Agreement, and all references to the Agreement in the Agreement itself or any document referring |
4
thereto shall, on and after the date of execution of this Amendment, be deemed to be references to the Agreement as amended by this Amendment. |
(e) | This Amendment will be binding upon and inure to the benefit of Borrowers and Bank and their respective successors and assigns. |
(f) | All representations, warranties and covenants made by Borrowers herein will survive the execution and delivery of this Amendment. |
(g) | This Amendment will, in all respects, be governed and construed in accordance with the laws of the State of Ohio. |
(h) | This Amendment may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. |
IN WITNESS WHEREOF, Borrowers and Bank have executed this Agreement by their duly authorized officers as of the date first above written.
MERIDIAN BIOSCIENCE CORPORATION | MERIDIAN BIOSCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO & Secretary | Melissa A. Lueke, Executive Vice President, CFO & Secretary | |||||||
OMEGA TECHNOLOGIES, INC. | MERIDIAN LIFE SCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO & Secretary | Melissa A. Lueke, CFO & Secretary | |||||||
FIFTH THIRD BANK | BIOLINE USA, INC. | |||||||
By: |
/s/ Drew Hollenkamp |
By: |
/s/ Melissa A. Lueke |
|||||
Drew Hollenkamp, Vice President | Melissa A. Lueke, CFO & Secretary |
5
EXHIBIT 2.1(c)
AMENDED AND RESTATED
REVOLVING NOTE
Cincinnati, Ohio | ||
$30,000,000 | Dated: August 1, 2007 | |
Restated: April 21, 2015 |
Meridian Bioscience, Inc. , an Ohio corporation, Meridian Bioscience Corporation an Ohio corporation (Corp.), Omega Technologies, Inc., an Ohio corporation (Omega), Meridian Life Science, Inc., a Maine corporation and Bioline USA, Inc . , a Massachusetts corporation (Bio) (collectively and jointly and severally the Borrowers and individually a Borrower), for value received, hereby promises to pay to the order of FIFTH THIRD BANK , an Ohio banking corporation (the Bank) at its offices, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, in lawful money of the United States of America and in immediately available funds, the principal sum of $30,000,000 or such lesser unpaid principal amount as may be advanced by the Bank pursuant to the terms of the Loan and Security Agreement dated August 1, 2007 by and among the Borrowers and the Bank, as same may be amended from time to time (the Agreement). This Note shall mature and be payable in full on April 21, 2018, or such later date as may be determined and agreed upon between Bank and Borrowers pursuant to the Agreement.
The principal balance hereof outstanding from time to time shall bear interest as set forth in the Agreement. Interest will be calculated based on a 360-day year and charged for the actual number of days elapsed, and will be payable as set forth in the Agreement. After the occurrence of an Event of Default, this Note shall bear interest (computed and adjusted in the same manner, and with the same effect, as interest hereon prior to maturity), payable on demand, at a rate per annum equal to six percent (6%) above the rate that would otherwise be in effect, until paid, and whether before or after the entry of judgment hereon.
The principal amount of each loan made by the Bank and the amount of each prepayment made by the Borrowers shall be recorded by the Bank on the schedule attached hereto or in the regularly maintained data processing records of the Bank. The aggregate unpaid principal amount of all loans set forth in such schedule or in such records shall be presumptive evidence of the principal amount owing and unpaid on this Note. However, failure by Bank to make any such entry shall not limit or otherwise affect Borrowers obligations under this Note or the Agreement.
This Note is the Revolving Note referred to in the Agreement, and is entitled to the benefits, and is subject to the terms, of the Agreement. The principal of this Note is prepayable in the amounts and under the circumstances, and its maturity is subject to acceleration upon the terms, set forth in the Agreement. Except as otherwise expressly provided in the Agreement, if any payment on this Note becomes due and payable on a day other than one on which Bank is open for business (a Business Day), the maturity thereof shall be extended to the next Business Day, and interest shall be payable at the rate specified herein during such extension period.
This Note is issued, not as a payment toward, but as a continuation of, the obligations of Borrowers to Bank pursuant to that certain Revolving Note dated August 1, 2007, in the principal amount of $30,000,000 (together with all prior amendments thereto or restatements thereof the Prior Note). Accordingly, this Note shall not be construed as a novation or extinguishment of, the obligations arising under the Prior Note, and its issuance shall not affect the priority of any security interest granted in connection with the Prior Note.
In no event shall the interest rate on this Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that a court determines that Bank has received interest and other charges under this Note in excess of the highest permissible rate applicable hereto, such excess shall be deemed received on account of, and shall automatically be applied to reduce the amounts due to Bank from the Borrowers under this Note, other than interest, and the provisions hereof shall be deemed amended to provide for the highest permissible rate. If there are no such amounts outstanding, Bank shall refund to Borrowers such excess.
Borrowers and all endorsers, sureties, guarantors and other persons liable on this Note hereby waive presentment for payment, demand, notice of dishonor, protest, notice of protest and all other demands and notices in connection with the delivery, performance and enforcement of this Note, and consent to one or more renewals or extensions of this Note.
This Note may not be changed orally, but only by an instrument in writing.
2
This Note is being delivered in, is intended to be performed in, shall be construed and enforceable in accordance with, and be governed by the internal laws of, the State of Ohio without regard to principles of conflict of laws. Borrowers agree that the State and federal courts in Hamilton County, Ohio or any other court in which Bank initiates proceedings have exclusive jurisdiction over all matters arising out of this Note, and that service of process in any such proceeding shall be effective if mailed to Borrowers at their address described in the Notices section of the Agreement. BORROWERS HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE.
MERIDIAN BIOSCIENCE CORPORATION | MERIDIAN BIOSCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO & Secretary | Melissa A. Lueke, Executive Vice President, CFO & Secretary | |||||||
OMEGA TECHNOLOGIES, INC. | MERIDIAN LIFE SCIENCE, INC. | |||||||
By: |
/s/ Melissa A. Lueke |
By: |
/s/ Melissa A. Lueke |
|||||
Melissa A. Lueke, CFO & Secretary | Melissa A. Lueke, CFO & Secretary | |||||||
BIOLINE USA, INC. | ||||||||
By: |
/s/ Melissa A. Lueke |
|||||||
Melissa A. Lueke, CFO & Secretary |
3
Exhibit 31.1
Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)
I, John A. Kraeutler, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Meridian Bioscience, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 10, 2015
/s/ John A. Kraeutler |
John A. Kraeutler |
Chief Executive Officer |
Exhibit 31.2
Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)
I, Melissa A. Lueke, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Meridian Bioscience, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 10, 2015
/s/ Melissa A. Lueke |
Melissa A. Lueke |
Executive Vice President and Chief Financial Officer |
Exhibit 32
Meridian Bioscience, Inc.
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
In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of Meridian Bioscience, Inc. (the Company) on Form 10-Q for the period ended June 30, 2015 (the Report), the undersigned officers of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ John A. Kraeutler |
John A. Kraeutler |
Chief Executive Officer |
August 10, 2015 |
/s/ Melissa A. Lueke |
Melissa A. Lueke |
Executive Vice President and |
Chief Financial Officer |
August 10, 2015 |