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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission File No. 0-14902
 MERIDIAN BIOSCIENCE, INC.
           YES þ NO o
  YES o NO þ
  YES þ NO o
 - - -
 YES o NO þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  YES o NO þ




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##### 



PagePart IItem 1 Business
    
    
    4Item 1A Risk Factors
    
    
    13Item 1B Unresolved Staff Comments
    
    
    20Item 2 Properties
    
    
    20Item 3 Legal Proceedings
    
    
    20Item 4 Submission of Matters to a Vote of Security Holders
    
    
    20Part IIItem 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6 Selected Financial Data
    
    
    21Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 8 Financial Statements and Supplementary Data
    
    
    41Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    72Item 9A Controls and Procedures
    
    
    72Item 9B Other Information
    
    
    72Part IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    72Item 11 Executive Compensation
    
    
    72Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    73Item 13 Certain Relationships and Related Transactions, and Director Independence
    
    
    72Item 14 Principal Accountant Fees and Services
    
    
    72Item 15 Exhibits and Financial Statement Schedules
    
    
    73EX-10.38EX-13EX-21EX-23EX-31.1EX-31.2EX-32
    -3-




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This Annual Report on Form 10-K includes forward-looking statements about our business and results
of operations that are subject to risks and uncertainties. See Forward-Looking Statements above.
Factors that could cause or contribute to such differences include those discussed in Item 1A. In
addition to the risk factors discussed herein, we are also subject to additional risks and
uncertainties not presently known to us or that we currently deem immaterial. If any of these
risks and uncertainties develops into actual events, our business, financial condition or results
of operations could be adversely affected.
 Unless the context requires otherwise, references in this Annual Report on Form 10-K to we, us,
our, or our company refer to Meridian Bioscience, Inc. and its subsidiaries.
 
  BUSINESS
 Overview
  Operating Segments
  -4-




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www.meridianbioscience.com http://www.sec.gov
 US Diagnostics Operating Segment
 Overview
   -5-




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H. pylori difficile
 Market Trends
   Sales and Marketing
   -6-




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Products and Markets
  Research and Development
 ä ä Card Ò
 ® ® ® ®
 Card ®
 -7-




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C. difficile
 Manufacturing
  Intellectual Property, Patents, and Licenses
  Government Regulation
   -8-




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European Diagnostics Operating Segment
   Life Science Operating Segment
 Overview
  -9-




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Products, Markets and Growth Strategies
  
    
    BIODESIGN Antibodies, antigens and assay development reagents
    
    Viral Antigens Custom infectious disease antigens
    
    OEM Concepts Custom antibody development and manufacturing, in vivo or in vitro
    
    Meridian Biologics Development and manufacturing of cGMP clinical grade biologicals
 -10-




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Research and Development
  Manufacturing and Government Regulation
   -11-




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Competition
 Diagnostics
   Life Science
   Acquisitions
  -12-




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International Markets
  Environmental
  
  RISK FACTORS
  Risks Affecting Growth and Profitability of our Business
 We may be unable to develop new products and services or acquire products and services on favorable
terms.
  -13-




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We may be unable to successfully integrate operations or to achieve expected cost savings from
acquisitions we make.
  Revenues for our diagnostic operating segments may be impacted by our reliance upon two key
distributors, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
 Key Distributors
  -14-




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Seasonal Factors and Sporadic Outbreaks
  Changing Diagnostic Market Conditions
   Revenues for our Life Science operating segment may be impacted by customer concentrations and
buying patterns.
   -15-




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Intense competition could adversely affect our profitability.
  We are dependent on international sales, and our financial results may be adversely impacted by
foreign currency, regulatory or other developments affecting international markets.
  Risks Affecting our Manufacturing Operations
 We are subject to comprehensive regulation, and our ability to earn profits may be restricted by
these regulations.
  -16-




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Significant interruptions in production at our principal manufacturing facilities and/or
third-party manufacturing facilities would adversely affect our business and operating results.
  We are dependent on sole-source suppliers for certain critical components and products. A supply
interruption could adversely affect our business.
   -17-




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Risks Related to Intellectual Property and Product Liability
 We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize.
  Product infringement claims by other companies could result in costly disputes and could limit our
ability to sell our products.
  If product liability lawsuits are successfully brought against us, we may incur substantial
liabilities and may have to limit or cease sales of our products.
  -18-




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Other Risks Affecting Our Business
 Our business could be negatively affected if we are unable to attract, hire, and retain key
personnel.
  Our bank credit agreement imposes restrictions with respect to our operations.
   Risks Related to Our Common Stock
  -19-




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UNRESOLVED STAFF COMMENTS
  
  PROPERTIES
    
  LEGAL PROCEEDINGS
  
  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -20-




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MARKET FOR REGISTRANTS COMMON  EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
       
  SELECTED FINANCIAL DATA
  -21-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS
 Refer to Forward Looking Statements following the Index in front of this Form 10-K and Item 1A
Risk Factors on pages 13 through 19 of this Annual Report.
 Overview:
 C. difficile, H.
pylori
 C difficile H. pylori C. difficile H. pylori H. pylori H. pylori TM C. difficile
 E. coli
  -22-




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2008
    
    2007
    
    2006Gross profit
    
    
    62
    %
    
    
    61
    %
    
    
    60
    %Operating expenses
    
    
    30
    %
    
    
    32
    %
    
    
    35
    %Operating income
    
    
    32
    %
    
    
    28
    %
    
    
    25
    %
  Operating Segments:
   -23-




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Results of Operations:
 Fourth Quarter
   Fiscal Year
    -24-




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2008
    
    2007
    
    ChangeNet Earnings -US GAAP basis
    
    $
    30,202,000
    
    
    $
    26,721,000
    
    
    
    13
    %Tax benefit not expected to recur in the future
    
    
    
    
    
    
    (2,425,000
    )
    
    
    100
    %Excluding tax benefit
    
    $
    30,202,000
    
    
    $
    24,296,000
    
    
    
    24
    %2008
    
    2007
    
    ChangeNet Earnings per Basic Common Share -US GAAP basis
    
    $
    0.75
    
    
    $
    0.67
    
    
    
    12
    %Tax benefit not expected to recur in the future
    
    
    
    
    
    
    (0.06
    )
    
    
    100
    %Excluding tax benefit
    
    $
    0.75
    
    
    $
    0.61
    
    
    
    23
    %2008
    
    2007
    
    ChangeNet Earnings per Diluted Common Share -US GAAP basis
    
    $
    0.74
    
    
    $
    0.66
    
    
    
    12
    %Tax benefit not expected to recur in the future
    
    
    
    
    
    
    (0.06
    )
    
    
    100
    %Excluding tax benefit
    
    $
    0.74
    
    
    $
    0.60
    
    
    
    23
    %
 Accounting Changes and Error Corrections
 -25-




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Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007 and Fiscal
Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30, 2006.
 Net sales
 2008 vs.
    
    2007 vs.2007
    
    20062008
    
    2007
    
    2006
    
    Inc (Dec)
    
    Inc (Dec)US Diagnostics
    
    $
    88,419,000
    
    
    $
    74,845,000
    
    
    $
    65,721,000
    
    
    
    18
    %
    
    
    14
    %European Diagnostics
    
    
    27,980,000
    
    
    
    23,563,000
    
    
    
    19,828,000
    
    
    
    19
    %
    
    
    19
    %Life Science
    
    
    23,240,000
    
    
    
    24,555,000
    
    
    
    22,864,000
    
    
    
    (5
    )%
    
    
    7
    %Consolidated
    
    $
    139,639,000
    
    
    $
    122,963,000
    
    
    $
    108,413,000
    
    
    
    14
    %
    
    
    13
    %International -Exported from US
    
    $
    16,450,000
    
    
    $
    15,128,000
    
    
    $
    14,729,000
    
    
    
    9
    %
    
    
    3
    %European Diagnostics
    
    
    27,980,000
    
    
    
    23,563,000
    
    
    
    19,828,000
    
    
    
    19
    %
    
    
    19
    %Total
    
    $
    44,430,000
    
    
    $
    38,691,000
    
    
    $
    34,557,000
    
    
    
    15
    %
    
    
    12
    %% of total sales
    
    
    32
    %
    
    
    31
    %
    
    
    32
    %
 C. difficile H. pylori Card ® E. coli C. difficile H. pylori C. difficile H. pylori H. pylori
  C. difficile
 -26-




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Card Ò  ® ®
   Gross Profit
 2008 vs.
    
    2007 vs.2007
    
    20062008
    
    2007
    
    2006
    
    Inc (Dec)
    
    Inc (Dec)Gross Profit
    
    $
    86,480,000
    
    
    $
    74,940,000
    
    
    $
    64,684,000
    
    
    
    15
    %
    
    
    16
    %Gross Profit Margin
    
    
    62
    %
    
    
    61
    %
    
    
    60
    %
    
    
    1
    %
    
    
    1
    %
   -27-




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Operating Expenses
 Research &
    
    Selling &
    
    General &Development
    
    Marketing
    
    Administrative2006 Expenses
    
    $
    4,799,000
    
    
    $
    16,698,000
    
    
    $
    16,293,000% of Sales
    
    
    4
    %
    
    
    15
    %
    
    
    15
    %Fiscal 2007 Increases (Decreases):US Diagnostics
    
    
    1,229,000
    
    
    
    (9,000
    )
    
    
    1,606,000European Diagnostics
    
    
    
    
    
    
    469,000
    
    
    
    (392,000
    )Life Science
    
    
    57,000
    
    
    
    (34,000
    )
    
    
    (806,000
    )2007 Expenses
    
    $
    6,085,000
    
    
    $
    17,124,000
    
    
    $
    16,701,000% of Sales
    
    
    5
    %
    
    
    14
    %
    
    
    14
    %% Increase (Decrease)
    
    
    27
    %
    
    
    3
    %
    
    
    3
    %Fiscal 2008 Increases (Decreases):US Diagnostics
    
    
    307,000
    
    
    
    1,523,000
    
    
    
    (293,000
    )European Diagnostics
    
    
    
    
    
    
    423,000
    
    
    
    389,000Life Science
    
    
    (209,000
    )
    
    
    (300,000
    )
    
    
    380,0002008 Expenses
    
    $
    6,183,000
    
    
    $
    18,770,000
    
    
    $
    17,177,000% of Sales
    
    
    4
    %
    
    
    13
    %
    
    
    12
    %% Increase (Decrease)
    
    
    2
    %
    
    
    10
    %
    
    
    3
    %
  TM
  -28-




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Share-Based Payment
 Operating Income
  -29-




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Other Income and Expense
  Income Taxes
  Accounting for Uncertainty in
Income Taxes
 Impact of Inflation
  Liquidity and Capital Resources:
 Comparative Cash Flow Analysis
  -30-




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Goodwill and Other Intangible Assets th
  -31-




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Capital Resources
     -32-




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Student Loan Auction-Rate Securities
     Accounting for Certain
Investments in Debt and Equity Securities,
 -33-




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Known Contractual Obligations:
  Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    5 YearsOperating leases (1)
    
    $
    1,695
    
    
    $
    602
    
    
    $
    939
    
    
    $
    154
    
    
    $
    Purchase obligations (2)
    
    
    13,179
    
    
    
    12,793
    
    
    
    386
    
    
    
    
    
    
    
    OEM Concepts earnout (3)
    
    
    1,814
    
    
    
    1,814
    
    
    
    
    
    
    
    
    
    
    
    FIN 48 liability and
interest(4)
    
    
    779
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    17,467
    
    
    $
    15,988
    
    
    $
    1,325
    
    
    $
    154
    
    
    $
    
 
 (1)
    
    Meridian and its subsidiaries are lessees of (i) office and warehouse buildings in
Florida, Belgium, and France; (ii) automobiles for use by the diagnostic direct sales
forces in the US and Europe; and (iii) certain office equipment such as facsimile machines
and copier machines across all business units, under operating lease agreements that expire
at various dates.(2)
    
    Meridians purchase obligations are primarily outstanding purchase orders for inventory
and service items. These contractual commitments are not in excess of expected production
requirements over the next twelve months.(3)
    
    OEM Concepts earnout obligation is contingent upon future calendar-year sales and gross
profit of OEM Concepts products through December 31, 2008.(4)
    
    As of September 30, 2008, our FIN 48 liability and FIN 48 net interest payable were
$731,000 and $48,000, respectively. Due to inherent uncertainties in the timing of
settlement of tax positions, we are unable to estimate the timing of the effective
settlement of these obligations. -34-




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Other Commitments and Off-balance Sheet Arrangements:
 License Agreements
    Derivative financial instruments
 Accounting for Derivative Instruments and Hedging Activities
 -35-




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Off-balance sheet arrangements
  Market Risk Exposure:
 Foreign Currency Risk
  Concentration of Customers/Products Risk
 ä ä Card Ò
  Critical Accounting Policies:
  -36-




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Revenue Recognition
  Revenue Arrangements with Multiple Deliverables
 Inventories
  -37-




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Intangible Assets
   Accounting for the Impairment or Disposal of Long-lived Assets
    -38-




---



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Income Taxes
 Accounting for Income Taxes
     Recent Accounting Pronouncements:
  -39-




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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  -40-




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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Managements Report on Internal Control over Financial Reporting
    
    
    42Report of Independent Registered Public Accounting Firm
    
    
    43Consolidated Statements of Operations for the years ended September 30, 2008, 2007 and 2006
    
    
    45Consolidated Statements of Cash Flows for the years ended September 30, 2008, 2007 and 2006
    
    
    46Consolidated Balance Sheets as of September 30, 2008 and 2007
    
    
    47Consolidated Statements of Shareholders Equity for the years ended September 30, 2008, 2007 and 2006
    
    
    49Notes to Consolidated Financial Statements
    
    
    50Schedule No. II  Valuation and Qualifying Accounts for the years ended September 30, 2008, 2007
and 2006
    
    
    79
  -41-




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Managements Report on Internal Control over Financial Reporting
    Internal Control
 Integrated Framework,
  /s/ John A. Kraeutler
 /s/ Melissa Lueke
 -42-




---



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
   -43-




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Internal ControlIntegrated Framework
  
 -44-




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)  Meridian Bioscience, Inc. and Subsidiaries
 For the Year Ended September 30,
    
    2008
    
    2007
    
    2006Net Sales
    
    $
    139,639
    
    
    $
    122,963
    
    
    $
    108,413Cost of Sales
    
    
    53,159
    
    
    
    48,023
    
    
    
    43,729Gross Profit
    
    
    86,480
    
    
    
    74,940
    
    
    
    64,684Operating Expenses:Research and development
    
    
    6,183
    
    
    
    6,085
    
    
    
    4,799Selling and marketing
    
    
    18,770
    
    
    
    17,124
    
    
    
    16,698General and administrative
    
    
    17,177
    
    
    
    16,701
    
    
    
    16,293Total operating expenses
    
    
    42,130
    
    
    
    39,910
    
    
    
    37,790Operating Income
    
    
    44,350
    
    
    
    35,030
    
    
    
    26,894Other Income (Expense):Interest income
    
    
    1,533
    
    
    
    1,642
    
    
    
    1,123Interest expense
    
    
    
    
    
    
    (38
    )
    
    
    (128
    )Other, net
    
    
    109
    
    
    
    48
    
    
    
    177Total other income
    
    
    1,642
    
    
    
    1,652
    
    
    
    1,172Earnings Before Income Taxes
    
    
    45,992
    
    
    
    36,682
    
    
    
    28,066Income Tax Provision
    
    
    15,790
    
    
    
    9,961
    
    
    
    9,733Net Earnings
    
    $
    30,202
    
    
    $
    26,721
    
    
    $
    18,333Earnings Per Share Data:Basic earnings per common share
    
    $
    0.75
    
    
    $
    0.67
    
    
    $
    0.47Diluted earnings per common share
    
    
    0.74
    
    
    
    0.66
    
    
    
    0.46Common shares used for basic earnings per common share
    
    
    40,093
    
    
    
    39,584
    
    
    
    39,132Effect of dilutive stock options
    
    
    936
    
    
    
    1,154
    
    
    
    1,032Common shares used for diluted earnings per common share
    
    
    41,029
    
    
    
    40,738
    
    
    
    40,164Dividends declared per common share
    
    $
    0.53
    
    
    $
    0.40
    
    
    $
    0.28Anti-dilutive Securities:Common share options
    
    
    67
    
    
    
    
    
    
    
    32Convertible debentures
    
    
    
    
    
    
    
    
    
    
    279
   -45-




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CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 For the Year Ended September 30,
    
    2008
    
    2007
    
    2006Cash Flows From Operating ActivitiesNet earnings
    
    $
    30,202
    
    
    $
    26,721
    
    
    $
    18,333Non-cash items:Depreciation of property, plant and equipment
    
    
    2,857
    
    
    
    2,764
    
    
    
    2,717Amortization of intangible assets and debt issuance costs
    
    
    1,612
    
    
    
    1,635
    
    
    
    2,572Deferred income taxes
    
    
    976
    
    
    
    800
    
    
    
    47Stock compensation expense
    
    
    1,772
    
    
    
    2,632
    
    
    
    1,082Tax reserve adjustment
    
    
    
    
    
    
    (2,425
    )
    
    
    Loss on disposition of fixed assets
    
    
    9
    
    
    
    5
    
    
    
    38Change in current assets
    
    
    (5,147
    )
    
    
    (3,011
    )
    
    
    (3,146
    )Change in current liabilities
    
    
    (2,967
    )
    
    
    (2,145
    )
    
    
    920Other, net
    
    
    569
    
    
    
    (374
    )
    
    
    (408
    )Net cash provided by operating activities
    
    
    29,883
    
    
    
    26,602
    
    
    
    22,155Cash Flows From Investing ActivitiesAcquisition earnout payments
    
    
    (157
    )
    
    
    (971
    )
    
    
    (1,494
    )Purchases of property, plant and equipment
    
    
    (4,219
    )
    
    
    (3,211
    )
    
    
    (3,120
    )Proceeds from dispositions of property, plant and equipment
    
    
    4
    
    
    
    4
    
    
    
    47Purchases of investments
    
    
    (7,750
    )
    
    
    
    
    
    
    (6,000
    )Proceeds from sales of investments
    
    
    
    
    
    
    4,000
    
    
    
    2,000Other intangibles acquired
    
    
    (1,108
    )
    
    
    (265
    )
    
    
    (122
    )Net cash used in investing activities
    
    
    (13,230
    )
    
    
    (443
    )
    
    
    (8,689
    )Cash Flows From Financing ActivitiesRepayment of debt obligations
    
    
    
    
    
    
    (29
    )
    
    
    (790
    )Dividends paid
    
    
    (21,256
    )
    
    
    (15,836
    )
    
    
    (11,095
    )Proceeds and tax benefits from exercises of stock options
    
    
    4,563
    
    
    
    2,574
    
    
    
    1,660Net cash used in financing activities
    
    
    (16,693
    )
    
    
    (13,291
    )
    
    
    (10,225
    )Effect of Exchange Rate Changes on Cash and Equivalents
    
    
    (63
    )
    
    
    184
    
    
    
    22Net Increase in Cash and Equivalents
    
    
    (103
    )
    
    
    13,052
    
    
    
    3,263Cash and Equivalents at Beginning of Period
    
    
    49,400
    
    
    
    36,348
    
    
    
    33,085Cash and Equivalents at End of Period
    
    $
    49,297
    
    
    $
    49,400
    
    
    $
    36,348
  -46-




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 As of September 30,
    
    2008
    
    
    2007AssetsCurrent Assets:Cash and equivalents
    
    $
    49,297
    
    
    $
    49,400Accounts receivable, less allowances of $230 in 2008 and $258 in 2007
    
    
    25,098
    
    
    
    22,651Inventories
    
    
    19,945
    
    
    
    18,171Prepaid expenses and other current assets
    
    
    3,382
    
    
    
    2,147Deferred income taxes
    
    
    1,736
    
    
    
    1,376Total current assets
    
    
    99,458
    
    
    
    93,745Property, Plant and Equipment, at Cost:Land
    
    
    892
    
    
    
    890Buildings and improvements
    
    
    16,977
    
    
    
    16,907Machinery, equipment and furniture
    
    
    26,458
    
    
    
    24,619Construction in progress
    
    
    3,391
    
    
    
    1,290Subtotal
    
    
    47,718
    
    
    
    43,706Less-accumulated depreciation and amortization
    
    
    28,043
    
    
    
    25,395Net property, plant and equipment
    
    
    19,675
    
    
    
    18,311Other Assets:Goodwill
    
    
    9,861
    
    
    
    9,964Other intangible assets, net
    
    
    8,786
    
    
    
    9,457Restricted cash
    
    
    1,000
    
    
    
    1,000Investments in auction-rate securities
    
    
    7,480
    
    
    
    Other assets
    
    
    171
    
    
    
    221Total other assets
    
    
    27,298
    
    
    
    20,642Total assets
    
    $
    146,431
    
    
    $
    132,698
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CONSOLIDATED BALANCE SHEETS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 As of September 30,
    
    2008
    
    
    2007Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    4,777
    
    
    $
    4,704Accrued payroll costs
    
    
    6,777
    
    
    
    7,541Purchase business combination liability
    
    
    3
    
    
    
    152Other accrued expenses
    
    
    3,613
    
    
    
    4,008Income taxes payable
    
    
    891
    
    
    
    662Total current liabilities
    
    
    16,061
    
    
    
    17,067Deferred Income Taxes
    
    
    1,881
    
    
    
    2,683Commitments and ContingenciesShareholders Equity:Preferred stock, no par value, 1,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common shares, no par value, 71,000,000 shares authorized, 40,313,656
and 39,847,391 shares issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    89,107
    
    
    
    82,209Retained earnings
    
    
    39,016
    
    
    
    30,375Accumulated other comprehensive income
    
    
    366
    
    
    
    364Total shareholders equity
    
    
    128,489
    
    
    
    112,948Total liabilities and shareholders equity
    
    $
    146,431
    
    
    $
    132,698
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Meridian Bioscience, Inc. and Subsidiaries
 Additional
    
    
    
    
    
    Accumulated OtherCommon
    
    Shares Held
    
    Treasury
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    ComprehensiveShares Issued
    
    in Treasury
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income (Loss)
    
    TotalBalance at September 30, 2005
    
    
    38,910
    
    
    (18)
    
    $
    (32)
    
    $
    71,568
    
    $
    12,252
    
    $
    (455)
    
    
    
    
    
    $
    83,333Cash dividends paid  $0.28 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,095)
    
    
    
    
    
    
    
    
    
    (11,095)Exercise of stock options
    
    
    245
    
    
    
    
    
    
    
    
    1,722
    
    
    
    
    
    
    
    
    
    
    
    
    1,722Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    1,082
    
    
    
    
    
    
    
    
    
    
    
    
    1,082Debenture conversions
    
    
    99
    
    
    
    
    
    
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    
    610Retirement of treasury shares
    
    
    (18)
    
    
    18
    
    
    32
    
    
    (32)
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,333
    
    
    
    
    
    $
    18,333
    
    
    18,333Hedging activity
    
    
    
    
    
    
    
    
    
   
    
    
    
    
    
    
    
    13
    
    
    13
        
    13Other comprehensive income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    50
    
    
    50Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302
    
    
    302
    
    
    302Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,698Balance at September 30, 2006
    
    
    39,236
    
    
    
    
    
    
    
    
    74,950
    
    
    19,490
   
    
    (90)
    
    
    
    
    
    
    94,350Cash dividends paid  $0.40 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,836)
    
    
    
    
    
    
    
    
    
    (15,836)Exercise of stock options
    
    
    336
    
    
    
    
    
    
    
    
    2,950
    
    
    
    
    
    
    
    
    
    
    
    
    2,950Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    2,632
    
    
    
    
    
    
    
    
    
    
    
    
    2,632Debenture conversions
    
    
    275
    
    
    
    
    
    
    
    
    1,677
    
    
    
    
    
    
    
    
    
    
    
    
    1,677Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,721
    
    
    
    
    
    $
    26,721
    
    
    26,721Hedging activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283)
    
    
    (283)
    
    
    (283)Other comprehensive income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244)
    
    
    (244)
    
    
    (244)Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    981
    
    
    981Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,175Balance at September 30, 2007
    
    
    39,847
    
    
    
    
    
    
    
    
    82,209
    
    
    30,375
    
    
    364
    
    
    
    
    
    
    112,948Adoption of FASB Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305)
    
    
    
    
    
    
    
    
    
    (305)Cash dividends paid  $0.53 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,256)
    
    
    
    
    
    
    
    
    
    (21,256)Exercise of stock options
    
    
    467
    
    
    
    
    
    
    
    
    5,126
    
    
    
    
    
    
    
    
    
    
    
    
    5,126Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    1,772
    
    
    
    
    
    
    
    
    
    
    
    
    1,772Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,202
    
    
    
    
    
    
    $
    30,202
    
    
    30,202Hedging activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273
    
    
    273
    
    
    273Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270)
    
    
    (270)
    
    
    (270)Other comprehensive income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4)
    
    
    (4)
    
    
    (4)Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    3
    
    
    3Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,204Balance at September 30, 2008
    
    
    40,314
    
    
    
    
    $
    
    
    $
    89,107
    
    $
    39,016
    
    $
    366
    
    
    
    
    
    $
    128,489
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Meridian Bioscience, Inc. and Subsidiaries
 (1) Summary of Significant Accounting Policies
 (a)
    
    Nature of Business Meridian is a fully-integrated life science company whose principal
businesses are (i) the development, manufacture and distribution of diagnostic test kits
primarily for certain respiratory, gastrointestinal, viral and parasitic infectious diseases,
(ii) the manufacture and distribution of bulk antigens, antibodies, and reagents used by
researchers and other diagnostic manufacturers and (iii) the contract development and
manufacture of proteins and other biologicals for use by biopharmaceutical and biotechnology
companies engaged in research for new drugs and vaccines.
 (b)
    
    Principles of Consolidation The consolidated financial statements include the accounts of
Meridian Bioscience, Inc. and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Unless the context requires otherwise, references to
Meridian, we, us, our, or our company refer to Meridian Bioscience, Inc. and its
subsidiaries.
 (c)
    
    Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates are discussed in Notes 1(f), 1(g), 1(h), 1(i), 1(k), 1(l), 5 and 6(b).
 (d)
    
    Foreign Currency Translation Assets and liabilities of foreign operations are translated
using year-end exchange rates with gains or losses resulting from translation included in a
separate component of accumulated other comprehensive income or loss. Revenues and expenses
are translated using exchange rates prevailing during the year. We also recognize foreign
currency transaction gains and losses on certain assets and liabilities that are denominated
in the Euro currency. These gains and losses are included in other income and expense in the
accompanying consolidated statements of operations.
 (e)
    
    Cash, Cash Equivalents and Investments We consider short-term investments with original
maturities of 90 days or less to be cash equivalents, including overnight repurchase
agreements, investments in municipal variable rate demand notes that have a seven-day put
feature and institutional money market funds.Our investments in debt securities are accounted for as available-for-sale under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. As such, unrealized holding
gains and losses are reported as a component of other comprehensive income or loss within
shareholders equity until realized,
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except where losses are considered to be
other-than-temporary, in which case they would be recorded to other income and expense, net.
The carrying value of securities classified as cash equivalents was equal to their fair value as
of September 30, 2008 and 2007. There were no realized gains or losses from the sales of
securities classified as cash equivalents during fiscal 2008 or fiscal 2007. As of September
30, 2008, accumulated other comprehensive income included $270,000 of current year unrealized
holding losses related to student loan auction-rate securities, which are discussed below.
 Our investment portfolio includes the following components (dollars in thousands):
 September 30, 2008
    
    September 30, 2007Cash and
    
    Other
    
    Cash and
    
    OtherEquivalents
    
    Assets
    
    Equivalents
    
    AssetsTaxable investments Repurchase agreements
    
    $
    6,711
    
    
    
    
    
    
    $
    7,751Tax-exempt investments Money market funds
    
    
    12,848
    
    
    
    
    
    
    
    2,536Variable rate demand notes
    
    
    23,948
    
    
    
    
    
    
    
    36,069Student loan auction-rate securities
    
    
    
    
    
    $
    7,480
    
    
    
    Cash on hand Restricted
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    $
    1,000Unrestricted
    
    
    5,790
    
    
    
    
    
    
    
    3,044
    
    
    
    Total
    
    $
    49,297
    
    
    $
    8,480
    
    
    $
    49,400
    
    
    $
    1,000
 The primary objectives of our investment activities are to preserve capital and provide
sufficient liquidity to meet operating requirements and fund strategic initiatives such as
acquisitions. We maintain a written investment policy that governs the management of our
investments in fixed income securities. This policy, among other things, provides that we may
purchase only high credit-quality securities, that have short-term ratings of at least A-1 and
P-1 or better, and long-term ratings of at least A-2 and A or better, by Moodys and Standard &
Poors, respectively, at the time of purchase.Our investments in repurchase agreements are with a commercial bank pursuant to an overnight
sweep/liquidity arrangement with our operating cash accounts. Our investments in variable rate
demand notes contain a seven-day put feature.As a result of current conditions in the financial markets, during October 2008, we moved
substantially all of our investments in municipal variable rate demand notes to institutional
money market mutual funds invested in either US Treasuries, or repurchase agreements
collateralized by US Treasuries. Existing investments in institutional tax-exempt money market
mutual funds are covered under the US Treasurys Temporary Guarantee Program for Money Market
Funds. This program provides a guarantee to money market mutual
 
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fund shareholders of $1 per
share net asset value for funds invested as of September 19, 2008, if the fund were to liquidate
its assets as a result of its net asset value falling below $0.995.Our investment portfolio also includes student loan auction-rate securities, which are long-term
student loan revenue bonds whose interest rates are reset every 35 days via a Dutch auction
process. All of our auction-rate securities are backed by pools of student loans originated
under the Federal Family Education Loan Program (FFELP). FFELP student loans are guaranteed by
State guarantors who have reinsurance agreements with the US Department of Education. All of
our student loan auction-rate securities were rated Aaa and AAA by Moodys and Standard &
Poors, respectively, at the time of purchase, and have continued to maintain these credit
ratings through the present time.The Dutch auction process historically provided the necessary liquidity mechanism to either
purchase or sell these securities. Beginning in mid-February 2008, liquidity issues in the US
credit markets resulted in the failure of auctions across a broad spectrum of tax-exempt
securities, including student loan revenue bonds. Auctions for the student loan revenue bonds
that we hold have continued to fail through the present time.The consequence of a failed auction is that we do not have access to the principal amount of our
investments. Issuers are still required to make interest payments when due in the event of
failed auctions. We have not experienced any missed interest payments to date.Our auction-rate securities were purchased through UBS Financial Services, Inc. During November
2008, we accepted an offer from UBS, AG (UBS) of Auction Rate Security Rights. These rights
permit us to require UBS between June 30, 2010 and July 2, 2012 (the exercise period) to
purchase our auction-rate securities at par value. In exchange, UBS is granted the right, at
their sole discretion, to sell or otherwise dispose of our auction-rate security investments
until July 2, 2012 as long as we receive a payment of par value upon the sale or disposition.
In addition, the rights permit us to establish a demand revolving credit line in an amount equal
to the par value of the securities at a net no cost. We are still able to sell the auction-rate
securities on our own, but in such a circumstance, we would lose the par value support from UBS.As of September 30, 2008, the carrying value of our auction-rate securities was reduced by
$270,000. We consider this adjustment to be temporary under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and accordingly, it has been recorded as a
component of other comprehensive income in shareholders equity. This adjustment was based upon
a valuation prepared by an independent appraisal firm. Our investments in student loan
auction-rate securities are included in other long-term assets in the accompanying consolidated
balance sheet based on the maturities of the student loan revenue bonds (2029 to 2037).
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We do not believe that the recent auction failures and our inability to liquidate these
investments for some period of time will have any material impact on our ability to fund our
operating requirements, capital expenditures, dividend payments, acquisitions, if any, or other
business requirements.(f)
    
    Inventories Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis (FIFO) for substantially all of our inventories.We establish reserves against cost for excess and obsolete materials, finished goods whose shelf
life may expire before sale to customers, and other identified exposures. Such reserves were
$1,103,000 and $1,162,000 at September 30, 2008 and 2007, respectively. Management estimates
these reserves based on assumptions about future demand and market conditions. If actual demand
and market conditions were to be less favorable than such estimates, additional inventory
write-downs would be required and recorded in the period known. Such adjustments would
negatively affect gross profit margin and overall results of operations.Prior to July 1, 2007, the cost of certain inventories within the Life Science operating segment
was determined by the last-in, first-out (LIFO) method. Effective July 1, 2007, we changed
our method of accounting for this inventory from the LIFO method to the FIFO method, and now
substantially all of our inventories are reflected at the lower of cost or market with cost
determined by the FIFO method. We changed to the FIFO method for these inventories because: it
conforms substantially all of our worldwide inventories to a consistent basis of accounting; and
it provides better comparability to our industry peers, many of whom use the FIFO method of
accounting for inventories. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 154, Accounting Changes and Error Corrections, the change in accounting has been
retrospectively applied to all prior periods presented herein. The impact was not material to
our results of operations or financial position.(g)
    
    Property, Plant and Equipment Property, plant and equipment are stated at cost. Upon
retirement or other disposition of property, plant and equipment, the cost and related
accumulated depreciation and amortization are removed from the accounts and the resulting gain
or loss is reflected in earnings. Maintenance and repairs are expensed as incurred.
Depreciation and amortization are computed on the straight-line method in amounts sufficient
to write-off the cost over the estimated useful lives as follows:
 
 (h)
    
    Intangible Assets and Application of SFAS Nos. 142 and 144 SFAS No. 142, Goodwill and Other
Intangible Assets,addresses accounting and reporting for acquired goodwill and other
intangible assets. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives are subject to an annual impairment review (or more frequently if impairment
indicators arise) by applying a fair-value based
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test. We perform our annual impairment
review as of June 30, the end of our third fiscal quarter. We have no intangible assets with
indefinite lives other than goodwill. There have been no impairments from the analyses
prepared pursuant to SFAS No. 142. During fiscal 2008, the change in goodwill was a decrease
of $103,000. This change consisted of an increase related to the OEM Concepts earnout
obligations for calendar 2007 and the first nine months of calendar 2008 in the amount of
$7,000 (Life Science operating segment), offset by a decrease of $110,000 related to
recognition of acquired tax benefits (US Diagnostics operating segment). During fiscal 2007,
the change in goodwill was an increase of $100,000. This change consisted of an increase
related to the OEM Concepts earnout obligations for calendar 2006 and the first nine months of
calendar 2007 in the amount of $186,000 (Life Science operating segment), offset by a decrease
of $86,000 related to recognition of acquired tax benefits (US Diagnostics operating segment).
 A summary of Meridians acquired intangible assets subject to amortization, as of September 30,
2008 and 2007 is as follows (dollars in thousands).
 Wtd Avg
    
    2008
    
    
    
    
    
    2007Amort
    
    Gross
    
    2008
    
    Gross
    
    2007Period
    
    Carrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAs of September 30,
    
    (Yrs)
    
    Value
    
    Amortization
    
    Value
    
    AmortizationCore products and cell lines
    
    
    15
    
    
    $
    4,698
    
    
    $
    2,602
    
    
    $
    4,698
    
    
    $
    2,313Manufacturing technologies
    
    
    14
    
    
    
    6,057
    
    
    
    4,440
    
    
    
    5,907
    
    
    
    4,089Trademarks, licenses and patents
    
    
    8
    
    
    
    2,663
    
    
    
    1,843
    
    
    
    2,270
    
    
    
    1,694Customer lists and supply
agreements
    
    
    13
    
    
    
    11,039
    
    
    
    6,786
    
    
    
    10,641
    
    
    
    5,963$
    24,457
    
    
    $
    15,671
    
    
    $
    23,516
    
    
    $
    14,059
 The actual aggregate amortization expense for these intangible assets for fiscal 2008, 2007, and
2006 was $1,612,000, $1,632,000, and $2,560,000, respectively. The amortization expense for
fiscal 2006 included an impairment charge of $826,000 on a supply agreement discussed below.
The estimated aggregate amortization expense for these intangible assets for each of the five
succeeding fiscal years is as follows: fiscal 2009 - $1,574,000,
fiscal 2010 - $1,412,000,
fiscal 2011 - $1,297,000, fiscal 2012- $1,152,000 and fiscal 2013 - $1,152,000.SFAS No. 144, Accounting for Impairment or Disposal of Long-lived Assets,establishes a single
model for accounting for impairment or disposal of long-lived assets. Long-lived assets,
excluding goodwill and identifiable intangibles with indefinite lives, are reviewed for
impairment when events or circumstances indicate that such assets may not be recoverable at
their carrying value. Whether an event or circumstance triggers an impairment is determined by
comparing an estimate of the assets future cash flows to its carrying value. If impairment has
occurred, it is measured by a fair-value based test. During fiscal 2006, we determined that the
carrying value of a supply contract with the US Department of Defense (the Department) related
to the Life Science operating segment had become impaired and recorded such impairment in the
amount of $826,000 to general and administrative expenses. The impairment was measured by
comparing the present value of expected future cash flows to the carrying value of the contract.
The contract provided for the supply of biological materials during a base period and also
contained four optional 12-month renewal periods through March 31, 2009. Changes in the
Departments Critical Reagents
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Program lowered the amount of materials to be supplied under the
contract. During March 2007, the Department informed us that it would not be exercising the
optional renewal period from April 1, 2007 through March 31, 2008. We do not expect to supply
any more materials under this contract, and as of September 30, 2008 and September 30, 2007, the
carrying value of this contract was zero. There have been no events or circumstances indicating
that the carrying value of other such assets may not be recoverable.Meridians ability to recover its intangible assets, both identifiable intangibles and goodwill,
is dependent upon the future cash flows of the related acquired businesses and assets. The
application of SFAS Nos. 142 and 144 requires management to make judgments and assumptions
regarding future cash flows, including sales levels, gross profit margins, operating expense
levels, working capital levels, and capital expenditures. With respect to identifiable
intangibles and fixed assets, management also makes judgments and assumptions regarding useful
lives.Management considers the following factors in evaluating events and circumstances for possible
impairment: (i) significant under-performance relative to historical or projected operating
results, (ii) negative industry trends, (iii) sales levels of specific groups of products
(related to specific identifiable intangibles), (iv) changes in overall business strategies and
(v) other factors.If actual cash flows are less favorable than projections, this could trigger impairment of
intangible assets and other long-lived assets. If impairment were to occur, this would
negatively affect overall results of operations.(i)
    
    Revenue Recognition Revenue is generally recognized from sales when product is shipped and
title has passed to the buyer. Revenue for the US Diagnostics operating segment is reduced at
the date of sale for estimated rebates that will be claimed by customers. Management
estimates accruals for rebate agreements based on historical statistics, current trends, and
other factors. Changes to the accruals are recorded in the period that they become known.
Our rebate accruals were $3,259,000 at September 30, 2008 and $2,415,000 at September 30,
2007.Life Science revenue for contract services may come from standalone arrangements for process
development and/or optimization work (contract research and development services) or custom
manufacturing, or multiple-deliverable arrangements that include process development work
followed by larger-scale manufacturing (both contract research and development services and
contract manufacturing services). Revenue is recognized based on the nature of the
arrangements, using the principles in EITF 00-21, Revenue Arrangements with Multiple
Deliverables. The framework in EITF 00-21 is based on each of the multiple deliverables in a
given arrangement having distinct and separate fair values. Fair values are determined via
consistent pricing between standalone arrangements and multiple deliverable arrangements, as
well as a competitive bidding process. Contract research and development services may be
performed on a time and materials basis or fixed fee basis. For time and materials
arrangements, revenue is
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recognized as services are performed and billed. For fixed fee
arrangements, revenue is recognized upon completion and acceptance by the customer. For
contract manufacturing services, revenue is generally recognized upon delivery of product and
acceptance by the customer. In some cases, customers may request that we store on their behalf,
clinical grade biologicals that we produce under contract manufacturing agreements. These cases
arise when customers do not have clinical grade storage facilities or do not want to risk
contamination during transport. For such cases, revenue may be recognized on a bill-and-hold
basis pursuant to the satisfaction of criteria in SEC Staff Accounting Bulletins Nos. 101 and
104 related to bill-and-hold revenue recognition.
 Trade accounts receivable are recorded in the accompanying consolidated balance sheet at
invoiced amounts less provisions for rebates and doubtful accounts. The allowance for doubtful
accounts represents our estimate of probable credit losses and is based on historical write-off
experience. The allowance for doubtful accounts and related metrics, such as days sales
outstanding, are reviewed monthly. Accounts with past due balances over 90 days are reviewed
individually for collectibility. Customer invoices are charged off against the allowance when
we believe it is probable the invoices will not be paid.(j)
    
    Research and Development Costs Research and development costs are charged to expense as
incurred. Research and development costs include, among other things, salaries and wages for
research scientists, materials and supplies used in the development of new products, costs for
clinical trials, and costs for facilities and equipment.(k)
    
    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
years estimates. See Note 5.On October 1, 2007, we began accounting for uncertain tax positions in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN 48). FIN 48 requires use
of 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 ultimate
settlement. If it is not more likely than not that the benefit will be sustained on its
technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized
tax benefits as a portion of our income tax provision in the consolidated statements of
operations. See Note 5.(l)
    
    Stock-based Compensation We account for stock-based compensation pursuant to SFAS No. 123R,
Share-Based Payment. SFAS No. 123R requires recognition of compensation expense for all
share-based
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awards made to employees, based upon the fair value of the share-based award on
the date of the grant. Meridian elected to adopt the provisions of SFAS No. 123R, utilizing
the modified prospective method, which required compensation expense be measured and
recognized based on grant-date fair value for stock option awards granted after July 1, 2005,
our adoption date, and the non-vested portions of stock options awards granted prior to July
1, 2005. See Note 6(b).
 (m)
    
    Derivative Financial InstrumentsWe account for our derivative financial instruments in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. These instruments are designated as cash flow hedges, and therefore, the effective
portion of the net gain or loss on the derivative instrument is reported as a component of
accumulated other comprehensive income (loss) and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings. For the ineffective
portion of the hedge, gains or losses are charged to earnings in the current period. All
derivative instruments are recognized as either assets or liabilities at fair value in the
consolidated balance sheets. Cash flows from our hedging instruments are classified in
operating activities, consistent with cash flows from the related items being hedged. See
Note 4.(n)
    
    Comprehensive Income (Loss)Comprehensive income (loss) represents the net change in
shareholders equity during a period from sources other than transactions with shareholders.
Our comprehensive income or loss is comprised of net earnings, foreign currency translation,
changes in the fair value of forward exchange contracts accounted for as cash flow hedges, and
changes in the fair value of available-for-sale (AFS) fixed income securities. Components of
beginning and ending accumulated other comprehensive income or loss, and related activity, are
shown in the following table (in thousands):
 Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCurrency
    
    Cash
    
    
    
    
    
    Unrealized Loss
    
    OtherTranslation
    
    Flow
    
    Income
    
    on AFS
    
    ComprehensiveAdjustment
    
    Hedges
    
    Taxes
    
    Securities
    
    Income (Loss)Balance at September 30, 2007
    
    $
    828
    
    $
    (270)
    
    $
    (194)
    
    $
    
    
    $
    364Currency translation
    
    
    3
    
    
    
       
    
    
    
    
    
    
    3Reclassifications to earnings of hedging
activity
    
    
    
    
    
    599
    
    
    
    
    
    
    
    
    599Net unrealized losses on hedging instruments
    
    
    
    
    
    (326)
    
    
    
    
    
    
    
    
    (326)Net unrealized losses on auction-rate securities
    
    
    
    
    
    
    
    
    
    
    
    (270)
    
    
    (270)Taxes
    
    
    
    
    
    
    
    
    (4)
    
    
    
    
    
    (4)Balance at September 30, 2008
    
    $
    831
    
    $
    3
    
    $
    (198)
    
    $
    (270)
    
    $
    366
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(o)
    
    Supplemental Cash flow Information Supplemental cash flow information is as follows for fiscal
2008 , 2007 and 2006 (dollars in thousands):
 Year Ended September 30,
    
    2008
    
    2007
    
    2006Cash paid for -Income taxes
    
    $
    15,365
    
    
    $
    12,412
    
    
    $
    6,734Interest
    
    
    
    
    
    
    37
    
    
    
    106Non-cash items -Debenture conversions
    
    
    
    
    
    
    1,775
    
    
    
    648
 (p)
    
    Recent Accounting Pronouncements During September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements. SFAS No. 157 defines fair value and provides a framework for measuring
fair value, including a hierarchy that prioritizes the inputs to valuation techniques into
three broad levels. This fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets and liabilities and the lowest priority to unobservable
inputs. We are required to adopt SFAS No. 157 in fiscal 2009. We are currently in the
process of evaluating the impact of SFAS No. 157 on our financial statements.During February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits
an entity to choose to measure certain financial instruments and other items at fair value where
such financial instruments and other items are not currently required to be measured at fair
value. For financial instruments and other items where the fair value option is elected,
unrealized gains and losses are reported in earnings. We are required to adopt SFAS No. 159 in
fiscal 2009. We are currently in the process of evaluating the impact of SFAS No. 159 on our
financial statements.In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, as part of a joint
project with the International Accounting Standards Board. SFAS No. 141(R) provides for several
significant changes to existing accounting practices for business combinations. Most notably,
(i) acquisition-related transaction costs, such as legal and professional fees, shall be expensed
rather than accounted for as part of the acquisition cost; (ii) acquired in-process research and
development shall be capitalized rather than expensed at the acquisition date; and (iii)
contingent consideration shall be recorded at fair value at the acquisition date rather than the
points in time that payment becomes probable. SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008. Thus, for Meridian, it will affect any acquisitions completed
on or after October 1, 2009.In April 2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets. This statement provides guidance on the determination of the useful life of
intangible assets in accordance with SFAS No. 142.For intangible assets acquired after the
effective date, a company is not required to consider renewal or extension at substantial cost
or with material modification of existing terms to be factors that limit the useful life of the
asset. Instead, the company must consider its own historical
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experience in renewing or
extending similar arrangements, adjusted by certain company-specific factors. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008 and for interim periods within
those fiscal years, which, for Meridian, would be fiscal 2010. Early adoption is prohibited.
We do not expect the adoption of this standard to have a material effect on our results of
operations.
 In June 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133. This statement requires additional
disclosures regarding the effect of hedging activities on a companys results. This statement
is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, which for Meridian would be the second quarter of fiscal 2009. We have
elected to early-adopt this statement, as permitted. See Note 4.(q)
    
    Shipping and Handling costs Shipping and handling costs invoiced to customers are included
in net sales. Costs to distribute products to customers, including inbound freight costs,
warehousing costs, and other shipping and handling activities are included in cost of goods
sold.(r)
    
    Non-income Government-Assessed Taxes We classify all non-income, government-assessed taxes
(sales, use, and value-added) collected from customers and remitted by us to appropriate
revenue authorities, on a net basis (excluded from net sales) in the accompanying consolidated
statements of operations.(s)
    
    Reclassifications Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
 (2)      Inventories
 Inventories are comprised of the following (dollars in thousands):
 As of September 30,
    
    2008
    
    2007Raw materials
    
    $
    5,238
    
    $
    4,816Work-in-process
    
    
    4,867
    
    
    5,141Finished goods
    
    
    9,840
    
    
    8,214$
    19,945
    
    $
    18,171
 (3) Bank Credit Arrangements
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(4) Hedging Transactions
   Notional
    
    Contract
    
    
    Estimated Fair
    
    
    AverageAmount
    
    Value
    
    
    Value
    
    
    Exchange Rate
    
    
    Maturity2,900
    
    $
    4,118
    
    
    $
    4,091
    
    
    
    1.4199
    
    
    FY 2009
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(5) Income Taxes
  Year Ended September 30,
    
    2008
    
    
    2007
    
    
    2006Earnings before income taxes -Domestic
    
    $
    42,187
    
    
    $
    33,324
    
    
    $
    25,365Foreign
    
    
    3,805
    
    
    
    3,358
    
    
    
    2,701Total
    
    $
    45,992
    
    
    $
    36,682
    
    
    $
    28,066Provision (credit) for income taxes -Federal Current provision
    
    $
    14,307
    
    
    $
    11,179
    
    
    $
    8,902Temporary differencesFixed asset basis differences and depreciation
    
    
    (108
    )
    
    
    (105
    )
    
    
    (65
    )Intangible asset basis differences and amortization
    
    
    (249
    )
    
    
    (249
    )
    
    
    (588
    )Currently non-deductible expenses and reserves
    
    
    (286
    )
    
    
    238
    
    
    
    (88
    )Stock based compensation
    
    
    (610
    )
    
    
    (678
    )
    
    
    (339
    )Other, net
    
    
    231
    
    
    
    (258
    )
    
    
    2Tax contingency reserve adjustment
    
    
    
    
    
    
    (2,425
    )
    
    
    Subtotal
    
    
    13,285
    
    
    
    7,702
    
    
    
    7,824State and local
    
    
    1,303
    
    
    
    1,250
    
    
    
    814Foreign
    
    
    1,202
    
    
    
    1,009
    
    
    
    1,095Total
    
    $
    15,790
    
    
    $
    9,961
    
    
    $
    9,733
  Year Ended September 30,
    
    2008
    
    2007
    
    2006Computed income taxes at statutory rate
    
    $
    16,097
    
    
    
    35.0
    %
    
    $
    12,839
    
    
    
    35.0
    %
    
    $
    9,824
    
    
    
    35.0
    %Increase (decrease) in taxes resulting from -State and local income taxes
    
    
    902
    
    
    
    2.0
    
    
    
    835
    
    
    
    2.3
    
    
    
    685
    
    
    
    2.4Federal and state tax credits
    
    
    (34
    )
    
    
    (0.1
    )
    
    
    (213
    )
    
    
    (0.6
    )
    
    
    (88
    )
    
    
    (0.3
    )Foreign tax rate differences
    
    
    196
    
    
    
    0.4
    
    
    
    170
    
    
    
    0.5
    
    
    
    145
    
    
    
    0.5Valuation allowance reversal  France
    
    
    
    
    
    
    
    
    
    
    (309
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    Extra territorial income exclusion
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (0.2
    )
    
    
    (275
    )
    
    
    (1.0
    )Qualified domestic production incentives
    
    
    (715
    )
    
    
    (1.6
    )
    
    
    (290
    )
    
    
    (0.8
    )
    
    
    (236
    )
    
    
    (0.8
    )Tax exempt interest
    
    
    (417
    )
    
    
    (0.9
    )
    
    
    (418
    )
    
    
    (1.1
    )
    
    
    (281
    )
    
    
    (1.0
    )Tax contingency reserve adjustment
    
    
    
    
    
    
    
    
    
    
    (2,425
    )
    
    
    (6.6
    )
    
    
    
    
    
    
    Other, net
    
    
    (239
    )
    
    
    (0.5
    )
    
    
    (172
    )
    
    
    (0.5
    )
    
    
    (41
    )
    
    
    (0.1
    )$
    15,790
    
    
    
    34.3
    %
    
    $
    9,961
    
    
    
    27.2
    %
    
    $
    9,733
    
    
    
    34.7
    %
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As of September 30,
    
    2008
    
    
    2007Deferred tax assets -Valuation reserves and non-deductible expenses
    
    $
    951
    
    
    $
    922Stock compensation expense not deductible
    
    
    1,527
    
    
    
    1,237Net operating loss carryforwards
    
    
    865
    
    
    
    920Inventory basis differences
    
    
    779
    
    
    
    472Other
    
    
    6
    
    
    
    90Subtotal
    
    
    4,128
    
    
    
    3,641Less valuation allowance
    
    
    (466
    )
    
    
    (569
    )Deferred tax assets
    
    
    3,662
    
    
    
    3,072Deferred tax liabilities -Fixed asset basis differences and depreciation
    
    
    (639
    )
    
    
    (711
    )Intangible asset basis differences and amortization
    
    
    (2,680
    )
    
    
    (2,918
    )Other
    
    
    (488
    )
    
    
    (750
    )Deferred tax liabilities
    
    
    (3,807
    )
    
    
    (4,379
    )Net deferred tax liabilities
    
    $
    (145
    )
    
    $
    (1,307
    )
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Unrecognized income tax benefits at October 1, 2007
    
    $
    856Additions for tax positions related to the current year
    
    
    123Additions for tax positions of prior years
    
    
    125Reductions for tax positions of prior years
    
    
    (13)Settlements
    
    
    (20)Expiration of statute of limitations
    
    
    (292)Unrecognized income tax benefits at September 30, 2008
    
    $
    779
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(6) Employee Benefits
 (a)
    
    Savings and Investment Plan We have a profit sharing and retirement savings plan covering
substantially all full-time US employees. Profit sharing contributions to the plan, which are
discretionary, are approved by the Board of Directors. The plan permits participants to
contribute to the plan through salary reduction. Under terms of the plan, we match 50% of an
employees contributions, up to maximum match of 3% of eligible compensation. Our
discretionary and matching contributions to the plan amounted to approximately $1,214,000,
$1,132,000, and $1,066,000, during fiscal 2008, 2007 and 2006, respectively.
 (b)
    
    Stock-Based Compensation Plans We have one active stock-based compensation plan, the 2004
Equity Compensation plan, which became effective December 7, 2004, as amended (the 2004
Plan) and an Employee Stock Purchase Plan (the ESP Plan), which became effective October 1,
1997. Effective October 1, 1997, we began selling shares of stock to our full-time and
part-time employees under the ESP Plan up to the number of shares equivalent to a 1% to 15%
payroll deduction from an employees base salary plus an additional 5% dollar match of this
deduction by Meridian.We may grant new shares for options for up to 3,000,000 shares under the 2004 Plan, of which we
have granted 1,075,000 through September 30, 2008. Options may be granted at exercise prices
not less than 100% of the closing market value of the underlying common shares on the date of
grant and have maximum terms up to ten years. Vesting schedules are established at the time of
grant and may be set based on future service periods, achievement of performance targets, or a
combination thereof. All options contain provisions restricting their transferability and
limiting their exercise in the event of termination of employment or the disability or death of
the optionee. We have granted options for 5,407,000 shares under similar plans that have
expired.On November 14, 2007, we granted 252,000 options to certain employees subject to attainment of a
specified earnings target for fiscal 2008. As the target was not met and the options forfeited,
they have been excluded from the tables below.We adopted SFAS No. 123(R) as of July 1, 2005. SFAS No. 123(R) requires recognition of
compensation expense for all share-based payments made to employees, based upon the fair value
of the share-based payment on the date of the grant. We elected to adopt the provisions of SFAS
No. 123(R), pursuant to the modified prospective method, which requires compensation expense be
measured and recognized based on grant-date fair value for stock option awards granted after
July 1, 2005 and the non-vested portions of stock option awards granted prior to July 1, 2005.The amount of stock-based compensation expense reported was $1,772,000, $2,632,000 and
$1,082,000 in fiscal 2008, fiscal 2007, and fiscal 2006, respectively. The total income tax
benefit recognized in the income statement for these stock-based compensation arrangements was
$610,000, $678,000, and $339,000,
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##### Table of Contents



for fiscal 2008, fiscal 2007, and fiscal 2006, respectively.
We expect future stock compensation expense for unvested options as of September 30, 2008 to be
$1,547,000, which will be recognized during fiscal years 2009 through 2013.
 SFAS No. 123(R) requires that we recognize compensation expense only for the portion of shares
that we expect to vest. As such, we apply estimated forfeiture rates to our compensation
expense calculations. These rates have been derived using historical forfeiture data,
stratified by several employee groups. During fiscal 2008 and fiscal 2007, we recorded $235,000
and $210,000, respectively, in stock compensation expense to adjust estimated forfeiture rates
to actual.We have elected to use the Black-Scholes option pricing model to determine grant-date fair
value, with the following assumptions: (i) expected share price volatility based on implied
volatility calculations using options for Meridian and a peer-group of companies; (ii) expected
life of options based on contractual lives, employees historical exercise behavior and
employees historical post-vesting employment termination behavior; (iii) risk-free interest
rates based on treasury rates that correspond to the expected lives of the options; and (iv)
dividend yield based on the expected yield on underlying Meridian common stock.
 Year Ended September 30,
    
    2008
    
    2007
    
    2006Risk-free interest rates
    
    
    4.56
    %
    
    
    4.64
    %
    
    
    4.3%-4.4
    %Dividend yield
    
    
    1.45
    %
    
    
    1.96
    %
    
    
    1.55
    %Life of option
    
    5.70-7.30 yrs.
    
    5.80-7.50 yrs.
    
    5.70-7.50 yrs.Share price volatility
    
    
    44
    %
    
    
    44
    %
    
    
    46
    %Forfeitures (by employee group)
    
    
    0%-17
    %
    
    
    0%-20
    %
    
    
    0%-20
    %
  Wtd Avg
    
    Wtd AvgExercise
    
    Remaining
    
    AggregateShares
    
    Price
    
    Life (Yrs)
    
    Intrinsic ValueOutstanding
beginning of period
    
    
    1,931,884
    
    
    $
    7.79Grants
    
    
    100,950
    
    
    
    33.22Exercises
    
    
    (468,559
    )
    
    
    5.84Forfeitures
    
    
    (13,714
    )
    
    
    16.25Cancellations
    
    
    (2,547
    )
    
    
    16.68Outstanding end of period
    
    
    1,548,014
    
    
    $
    9.95
    
    
    
    5.6
    
    
    $
    29,978,000Exercisable end of period
    
    
    528,952
    
    
    $
    7.72
    
    
    
    5.2
    
    
    $
    11,355,000
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A summary of the status of our nonvested shares as of September 30, 2008, and changes during the
year ended September 30, 2008, is presented below:
 Weighted-Average GrantDate FairShares
    
    ValueNonvested beginning of period
    
    
    1,284,364
    
    
    $
    4.03Granted
    
    
    100,950
    
    
    
    14.58Vested
    
    
    (352,538
    )
    
    
    4.75Forfeited
    
    
    (13,714
    )
    
    
    7.11Nonvested end of period
    
    
    1,019,062
    
    
    $
    4.79
 The weighted average grant-date fair value of options granted was $14.58, $7.10, and $6.54 for
fiscal 2008, 2007, and 2006, respectively. The total intrinsic value of options exercised was
$11,405,000, $5,526,000 and $2,648,000, for fiscal 2008, 2007, and 2006, respectively. The
total grant-date fair value of options that vested during fiscal 2008, 2007, and 2006 was
$1,674,000, $721,000 and $296,000, respectively.Cash received from options exercised was $2,668,000, $1,318,000, and $990,000 for fiscal 2008,
2007, and 2006, respectively. Tax benefits realized and recorded to additional paid-in capital
from option exercises totaled $2,458,000, $1,632,000, and $732,000 for fiscal 2008, 2007, and
2006 respectively.
 (7) Major Customers and Segment Data
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Year Ended September 30,
    
    2008
    
    2007
    
    2006Customer A (US Diagnostics)
    
    $
    31,285
    
    
    
    (22
    %)
    
    $
    24,444
    
    
    
    (20
    %)
    
    $
    19,543
    
    
    
    (18
    %)Customer B (US Diagnostics)
    
    $
    16,160
    
    
    
    (12
    %)
    
    $
    13,340
    
    
    
    (11
    %)
    
    $
    10,989
    
    
    
    (10
    %)
   Year Ended September 30,
    
    2008
    
    2007
    
    2006Italy
    
    $
    8,942
    
    
    $
    7,838
    
    
    $
    6,840France
    
    
    3,263
    
    
    
    3,070
    
    
    
    2,387United Kingdom
    
    
    2,655
    
    
    
    1,987
    
    
    
    1,571Holland
    
    
    2,138
    
    
    
    1,610
    
    
    
    1,372Belgium
    
    
    1,865
    
    
    
    1,558
    
    
    
    1,504Other countries
    
    
    9,117
    
    
    
    7,500
    
    
    
    6,154Total European Operating Segment
    
    $
    27,980
    
    
    $
    23,563
    
    
    $
    19,828
  -67-




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##### Table of Contents



US
    
    European
    
    LifeDiagnostics
    
    Diagnostics
    
    Science
    
    Elim (1)
    
    TotalFiscal Year 2008 -Net sales Third-party
    
    $
    88,419
    
    
    $
    27,980
    
    
    $
    23,240
    
    
    
    
    
    
    $
    139,639Inter-segment
    
    
    11,563
    
    
    
    2
    
    
    
    543
    
    
    $
    (12,108
    )
    
    
    Operating income
    
    
    36,095
    
    
    
    5,397
    
    
    
    3,186
    
    
    
    (328
    )
    
    
    44,350Depreciation and amortization
    
    
    2,745
    
    
    
    111
    
    
    
    1,614
    
    
    
    
    
    
    
    4,470Capital expenditures
    
    
    2,193
    
    
    
    39
    
    
    
    1,987
    
    
    
    
    
    
    
    4,219Total assets
    
    
    126,808
    
    
    
    15,955
    
    
    
    49,619
    
    
    
    (45,951
    )
    
    
    146,431Fiscal Year 2007 -Net sales Third-party
    
    $
    74,845
    
    
    $
    23,563
    
    
    $
    24,555
    
    
    
    
    
    
    $
    122,963Inter-segment
    
    
    8,872
    
    
    
    
    
    
    
    532
    
    
    $
    (9,404
    )
    
    
    Operating income
    
    
    26,454
    
    
    
    4,930
    
    
    
    3,795
    
    
    
    (149
    )
    
    
    35,030Depreciation and amortization
    
    
    2,641
    
    
    
    110
    
    
    
    1,648
    
    
    
    
    
    
    
    4,399Capital expenditures
    
    
    1,645
    
    
    
    52
    
    
    
    1,514
    
    
    
    
    
    
    
    3,211Total assets
    
    
    115,297
    
    
    
    13,600
    
    
    
    45,410
    
    
    
    (41,609
    )
    
    
    132,698Fiscal Year 2006 -Net sales Third-party
    
    $
    65,721
    
    
    $
    19,828
    
    
    $
    22,864
    
    
    
    
    
    
    $
    108,413Inter-segment
    
    
    7,171
    
    
    
    
    
    
    
    712
    
    
    $
    (7,883
    )
    
    
    Operating income
    
    
    19,881
    
    
    
    3,828
    
    
    
    3,144
    
    
    
    41
    
    
    
    26,894Depreciation and amortization
    
    
    2,586
    
    
    
    129
    
    
    
    2,574
    
    
    
    
    
    
    
    5,289Capital expenditures
    
    
    2,040
    
    
    
    37
    
    
    
    1,043
    
    
    
    
    
    
    
    3,120Total assets
    
    
    109,678
    
    
    
    12,716
    
    
    
    41,751
    
    
    
    (43,617
    )
    
    
    120,528
 
 (1)
    
    Eliminations consist of intersegment transactions. -68-




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##### Table of Contents



Year Ended September 30,
    
    2008
    
    2007
    
    2006Segment operating income
    
    $
    44,350
    
    
    $
    35,030
    
    
    $
    26,894Interest income
    
    
    1,533
    
    
    
    1,642
    
    
    
    1,123Interest expense
    
    
    
    
    
    
    (38
    )
    
    
    (128
    )Other, net
    
    
    109
    
    
    
    48
    
    
    
    177Consolidated earnings before income taxes
    
    $
    45,992
    
    
    $
    36,682
    
    
    $
    28,066
  (8) Commitments and Contingencies
 (a)
    
    Royalty Commitments We have entered into various license agreements that require payment of
royalties based on a specified percentage of the sales of licensed products (1% to 8%). These
royalty expenses are recognized on an as-earned basis and recorded in the year earned as a
component of cost of sales. Annual royalty expenses associated with these agreements were
approximately $600,000, $739,000, and $866,000, respectively, for the fiscal years ended
September 30, 2008, 2007 and 2006.During October 2006, we entered into a license agreement with Eiken Chemical Co., Ltd., that
provides rights to Eikens loop-mediated isothermal amplification technology for infectious
disease testing in the United States and 18 other geographic markets. The agreement calls for
payments of up to 200,000,000 Japanese Yen (approximately $1,889,000 as of September 30, 2008)
based on the achievement of certain milestones and on-going royalties once products are
available for commercial sale. Payments made during product development are expected to occur
over a five-year period and began in fiscal 2007 with a payment equal to 20,000,000 Japanese Yen
or $169,000.During the fourth quarter of fiscal 2007, we began seeking recovery of approximately $1,400,000
of past royalties paid and interest under a license agreement around certain rapid diagnostic
testing technology. This license agreement covered patent rights that were narrowed in scope
via other litigation with the licensor that did not involve Meridian. We strongly believe that
the licensed patent, as reissued, does not cover any of our products. We also ceased further
royalty payments under this license agreement. The licensor to this agreement disputes our
position that the patent, as reissued, does not cover our products. Although we believe that
our position is very strong, we are unable to predict the outcome of this matter.
 -69-




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##### Table of Contents



No provision has been made in the accompanying financial statements for on-going royalties, if
any, nor has any accrual or income been recorded for recovery of past royalties paid.(b)
    
    Purchase Commitments We have purchase commitments primarily for inventory and service items
as part of the normal course of business. Commitments made under these obligations are
$12,793,000, $187,000, and $199,000 for fiscal 2009, 2010, and 2011, respectively. No
commitments have been made beyond fiscal 2011.(c)
    
    Operating Lease Commitments Meridian and its subsidiaries are lessees of (i) office and
warehouse buildings in Florida, Belgium, and France; (ii) automobiles for use by the direct
sales forces in the US and Europe; and (iii) certain office equipment such as facsimile
machines and copier machines across all business units, under operating lease agreements that
expire at various dates. Amounts charged to expense under operating leases were $674,000,
$696,000 and $686,000 for fiscal 2008, 2007 and 2006, respectively. Operating lease
commitments for each of the five succeeding fiscal years are as follows: fiscal 2009 -
$602,000, fiscal 2010  $453,000, fiscal 2011  $290,000, fiscal 2012  $196,000, and fiscal
2013  $154,000.(d)
    
    Litigation We are a party to litigation that we believe is in the normal course of
business. The ultimate resolution of these matters is not expected to have a material adverse
effect on our financial position, results of operations or cash flows. No provision has been
made in the accompanying consolidated financial statements for these matters.(e)
    
    Indemnifications In conjunction with certain contracts and agreements, we provide routine
indemnifications whose terms range in duration and in some circumstances are not explicitly
defined. The maximum obligation under some such indemnifications is not explicitly stated
and, as a result, cannot be reasonably estimated. We have not made any payments for these
indemnifications and no liability is recorded at September 30, 2008 or September 30, 2007. We
believe that if we were to incur a loss on any of these matters, the loss would not have a
material effect on our financial condition.(f)
    
    Viral Antigens EarnoutThe purchase agreement for the Viral Antigens purchase acquisition provided for additional
consideration, contingent upon Viral Antigens earnings through September 30, 2006. Final
earnout consideration in the amount of $853,000 for fiscal 2006 was paid during the second
quarter of fiscal 2007. This amount is included in goodwill in the accompanying consolidated
balance sheets.
 -70-




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##### Table of Contents



(g)
    
    OEM Concepts EarnoutThe purchase agreement for the OEM Concepts acquisition provides for additional consideration,
up to a maximum remaining amount of $1,814,000 at September 30, 2008, contingent upon future
calendar year sales and gross profit of OEM Concepts products through December 31, 2008.
Earnout consideration in the amount of $275,000 has been paid to date for calendar 2006 and
2007. Earnout consideration in the amount of $3,000 has been accrued in the accompanying
consolidated balance sheet for calendar 2008 to date. Future earnout consideration, if any,
will be allocated to goodwill, and will be recorded in the period in which it is earned and
payable.
 (9) Quarterly Financial Data (Unaudited)
 All quarters of fiscal 2007 have been adjusted to reflect the July 1, 2007 change in accounting
for certain inventories within the Life Science operating segment from the LIFO method to the
FIFO method.Amounts are in thousands except per share data. The sum of the earnings per common share and
cash dividends per share may not equal the corresponding annual amounts due to interim quarter
rounding.
 For the Quarter Ended in Fiscal 2008
    
    December 31
    
    March 31
    
    June 30
    
    September 30Net sales
    
    $
    33,847
    
    
    $
    36,249
    
    
    $
    33,068
    
    
    $
    36,475Gross profit
    
    
    21,752
    
    
    
    21,115
    
    
    
    21,287
    
    
    
    22,326Net earnings
    
    
    7,456
    
    
    
    7,299
    
    
    
    7,763
    
    
    
    7,684Basic earnings per common share
    
    
    0.19
    
    
    
    0.18
    
    
    
    0.19
    
    
    
    0.19Diluted earnings per common share
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.19
    
    
    
    0.19Cash dividends per common share
    
    
    0.11
    
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.14For the Quarter Ended in Fiscal 2007
    
    December 31
    
    March 31
    
    June 30
    
    September 30Net sales
    
    $
    28,720
    
    
    $
    32,094
    
    
    $
    29,763
    
    
    $
    32,386Gross profit
    
    
    17,612
    
    
    
    18,838
    
    
    
    19,301
    
    
    
    19,189Net earnings
    
    
    5,573
    
    
    
    5,890
    
    
    
    8,814
    
    
    
    6,444Basic earnings per common share
    
    
    0.14
    
    
    
    0.15
    
    
    
    0.22
    
    
    
    0.16Diluted earnings per common share
    
    
    0.14
    
    
    
    0.15
    
    
    
    0.22
    
    
    
    0.16Cash dividends per common share
    
    
    0.08
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
 (10) Stock Split
 On April 19, 2007, we announced a three-for-two stock split, with fractional shares paid in
cash. This split was effective on May 11, 2007, for shareholders of record on May 4, 2007. All
references in this Annual Report on Form 10-K to number of shares and per share amounts reflect
this stock split.
 -71-




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##### Table of Contents



CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
  CONTROLS AND PROCEDURES
   
  OTHER INFORMATION
  
   -72-




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##### Table of Contents



EQUITY
COMPENSATION PLAN INFORMATION
  (c)Number of securities(a)
    
    
    
    
    
    remaining availableNumber of
    
    (b)
    
    for future issuanceSecurities to be
    
    Weighted-
    
    under equityissued upon
    
    average exercise
    
    compensation plansexercise of
    
    price of
    
    (excludingoutstanding
    
    outstanding
    
    securitiesoptions, warrants
    
    options, warrants
    
    reflected in columnPlan Category
    
    and rights
    
    and rights
    
    (a))Equity compensation
plans approved by
security
holders(1)
    
    
    1,502,164
    
    
    $
    9.861
    
    
    
    1,985,609Equity compensation
plans not approved by
security holders
    
    
    45,850
    
    
    
    12.810
    
    
    
    Total
    
    
    1,548,014
    
    
    $
    9.949
    
    
    
    1,985,609
 
 (1)
    
    1994 Directors Stock Option Plan1996 Stock Option Plan, as amended in 20011999 Directors Stock Option Plan2004 Equity Compensation Plan, as amended 
  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    Exhibit Number
    
    Description of Exhibit3.1
    
    Articles of Incorporation, including amendments not related to Company name change
(Incorporated by reference to Registration Statement No. 333-02613 on Form S-3 filed
with the Securities and Exchange Commission on April 18, 1996 and Meridians Form 8-K
filed with the Securities and Exchange Commission on May 16, 2007)3.2
    
    Code of Regulations (Incorporated by reference to Meridians Form 8-K filed with the
Securities and Exchange Commission on July 23, 2008)10.5
    
    Sublicense Agreement dated June 17, 1993 among Johnson & Johnson, the Scripps Research
Institute and Meridian Concerning certain Patent Rights (Incorporated by reference to
Meridians Form 8-K filed with the Securities and Exchange Commission on June 17, 1993)10.6
    
    Assignment dated June 17, 1993 from Ortho Diagnostic Systems Inc. to Meridian
 -73-




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##### Table of Contents



Exhibit Number
    
    Description of Exhibitconcerning certain Patent Rights (Incorporated by reference to Meridians Form 8-K
filed with the Securities and Exchange Commission on June 17, 1993)10.9
    
    Merger Agreement among Gull Laboratories, Inc., Meridian Diagnostics, Inc. Fresenius AG
and Meridian Acquisition Co. dated as of September 15, 1998 (Incorporated by reference
to Meridians Form 8-K filed with the Securities and Exchange Commission on September
17, 1998)10.10*
    
    Savings and Investment Plan Prototype Adoption Agreement (Incorporated by reference to
Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003)10.14*
    
    1994 Directors Stock Option Plan (Incorporated by reference to Registration Statement
No. 33-78868 on Form S-8 filed with the Securities and Exchange Commission on May 12,
1994)10.15*
    
    1996 Stock Option Plan (Incorporated by reference to Meridians Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1996)10.16*
    
    Salary Continuation Agreement for John A. Kraeutler (Incorporated by reference to
Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1995)10.17
    
    Merger Agreement Among Gull Laboratories, Inc., Meridian Diagnostics, Inc. Fresenius AG
and Meridian Acquisition Co. dated as of September 15, 1998, as amended on October 22,
1998 (Incorporated by reference to Meridians Report on Form 8-K filed with the
Securities and Exchange Commission on September 17, 1998 and Meridians Report on Form
8-K filed with the Securities and Exchange Commission on November 13, 1998)10.18*
    
    1999 Directors Stock Option Plan (Incorporated by reference to Meridians Proxy
Statement filed with the Securities and Exchange Commission on December 21, 1998)10.20
    
    Dividend Reinvestment Plan (Incorporated by reference to Meridians Annual Report on
Form 10-K for the Fiscal Year Ended September 30, 1999)10.21
    
    Merger Agreement dated September 13, 2000 among Meridian and the Shareholders of Viral
Antigens, Inc. (Incorporated by reference to Meridians Form 8-K filed with the
Securities and Exchange Commission on September 29, 2000)10.23*
    
    Employment Agreement Dated February 15, 2001 between Meridian and John A. Kraeutler,
including the Addendum to Employment Agreement dated April 24, 2001 between Meridian
and John A. Kraeutler (Incorporated by reference to Meridians Annual Report on Form
10-K for the Fiscal Year Ended September 30, 2001)10.24*
    
    Sample Option Agreement Dated October 1, 2001 (Incorporated by reference to Meridians
Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2001)10.26*
    
    1996 Stock Option Plan as Amended and Restated Effective January 23, 2001 (Incorporated
by reference to Meridians Proxy Statement filed with the Securities and Exchange
Commission on December 21, 1998)10.27*
    
    Sample Option Agreement Dated November 19, 2002 (Incorporated by reference to
Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003)10.28*
    
    Agreement Concerning Disability and Death dated September 10, 2003, between Meridian
and William J. Motto (Incorporated by reference to Meridians Annual Report on Form
10-K for the Fiscal Year Ended September 30, 2003)
 -74-




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##### Table of Contents



Exhibit Number
    
    Description of Exhibit10.29*
    
    Professional Services Agreement dated October 1, 2002 between Meridian and Antonio
Interno (Incorporated by reference to Meridians Annual Report on Form 10-K for the
Fiscal Year Ended September 30, 2003)10.31
    
    Stock Purchase Agreement of OEM Concepts, Inc. by Meridian Bioscience, Inc. dated
January 31, 2005 (Incorporated by reference to Meridians Annual Report on Form 10-K
for the Fiscal Year Ended September 30, 2005)10.32*
    
    Sample Option Agreement dated November 10, 2005 (Incorporated by reference to
Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2005)10.33*
    
    2004 Equity Compensation Plan, Amended and Restated through January 22, 2008
(Incorporated by reference to Meridians Proxy Statement filed with the Securities and
Exchange Commission on December 19, 2007)10.34*
    
    Fiscal 2006 Officers Compensation Plan, Amended and Restated through January 19, 2006
(Incorporated by reference to Meridians Form 8-K filed with the Securities and
Exchange Commission on January 19, 2006)10.35*
    
    Sample Option Agreement dated November 14, 2007 (Incorporated by reference to
Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2007)10.36*
    
    Fiscal 2007 Officers Performance Compensation Plan (Incorporated by reference to
Meridians Form 8-K filed with the Securities and Exchange Commission on November 21,
2006)10.37
    
    Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience
Corporation, Omega Technologies, Inc. Meridian Life Science, Inc. and Fifth Third Bank
dated August 1, 2007 (Incorporated by reference to Meridians Annual Report on Form
10-K for the Fiscal Year Ended September 30, 2007)10.37.1
    
    Amended and Restated Revolving Note with Fifth Third Bank dated August 1, (Incorporated
by reference to Meridians Annual Report on Form 10-K for the Fiscal Year Ended
September 30, 2007)10.38*
    
    Sample Restricted Stock Agreement dated November 12, 2008 (Filed herewith)13
    
    2008 Annual Report to Shareholders (1)14
    
    Code of Ethics (Incorporated by reference to Meridians Annual Report on Form 10-K for
the Fiscal Year Ended September 30, 2003)18
    
    Grant Thornton Preferability Letter (Incorporated by reference to Meridians Annual
Report on Form 10-K for the Fiscal Year Ended September 30, 2007)21
    
    Subsidiaries of the Registrant (Filed herewith)23
    
    Consent of Independent Registered Public Accounting Firm (Filed herewith)31.1
    
    Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith)31.2
    
    Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith)
 -75-




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##### Table of Contents



Exhibit Number
    
    Description of Exhibit32
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
(Filed herewith)
 
 (1)
    
    Only portions of the 2008 Annual Report to Shareholders specifically are incorporated by
reference in this Form 10-K as filed herewith. A supplemental paper copy of the 2008 Annual Report
to Shareholders has been provided to the Securities and Exchange Commission for informational
purposes only.*
    
    Management Compensatory Contracts  -76-




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##### Table of Contents



SIGNATURES
  MERIDIAN BIOSCIENCE, INC.By:
    /s/ John A. KraeutlerDate: November 26, 2008
    
    John A. KraeutlerChief Executive Officer -77-




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##### Table of Contents



Signature
    
    Capacity
    
    Date/s/ William J. Motto

William J. Motto
    
    Chairman of the Board of Directors
    
    November 26, 2008/s/ John A. Kraeutler

John A. Kraeutler
    
    Chief Executive Officer, Director
    
    November 26, 2008/s/ Melissa Lueke

Melissa Lueke
    
    Vice President and Chief
Financial Officer
    
    November 26, 2008/s/ James A. Buzard

James A. Buzard
    
    Director
    
    November 26, 2008/s/ Gary P. Kreider

Gary P. Kreider
    
    Director
    
    November 26, 2008/s/ David C. Phillips

David C. Phillips
    
    Director
    
    November 26, 2008/s/ Robert J. Ready

Robert J. Ready
    
    Director
    
    November 26, 2008
 -78-




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##### Table of Contents



ChargedBalance at
    
    to Costs
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    and
    
    
    
    
    
    
    
    
    
    at End ofDescription
    
    of Period
    
    Expenses
    
    Deductions
    
    Other (a)
    
    PeriodYear Ended September 30, 2008:Allowance for doubtful accounts
    
    $
    258
    
    
    $
    38
    
    
    $
    (70
    )
    
    $
    4
    
    
    $
    230Inventory realizability reserves
    
    
    1,162
    
    
    
    551
    
    
    
    (610
    )
    
    
    
    
    
    
    1,103Valuation allowances  deferred taxes
    
    
    569
    
    
    
    
    
    
    
    (115
    )
    
    
    12
    
    
    
    466Year Ended September 30, 2007:Allowance for doubtful accounts
    
    $
    408
    
    
    $
    19
    
    
    $
    (200
    )
    
    $
    31
    
    
    $
    258Inventory realizability reserves
    
    
    1,158
    
    
    
    259
    
    
    
    (258
    )
    
    
    3
    
    
    
    1,162Valuation allowances  deferred taxes
    
    
    888
    
    
    
    
    
    
    
    (390
    )
    
    
    71
    
    
    
    569Year Ended September 30, 2006:Allowance for doubtful accounts
    
    $
    360
    
    
    $
    132
    
    
    $
    (102
    )
    
    $
    18
    
    
    $
    408Inventory realizability reserves
    
    
    556
    
    
    
    822
    
    
    
    (221
    )
    
    
    1
    
    
    
    1,158Valuation allowances  deferred taxes
    
    
    927
    
    
    
    
    
    
    
    (32
    )
    
    
    (7
    )
    
    
    888
 
 (a)
    
    Balances reflect the effects of currency translation. -79-