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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, 2007.
 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.
 Incorporated under 
the Laws of Ohio 
Phone: (513) 271-3700
    
    3471 River Hills Drive
Cincinnati, Ohio 45244
    
    IRS Employer ID
No. 31-0888197
     o þ
 o þ
 þ o
 - - - þ o
  o þ o
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##### 



PagePart IItem 1 Business
    
    
    3Item 1A Risk Factors
    
    
    12Item 1B Unresolved SEC Staff Comments
    
    
    18Item 2 Properties
    
    
    18Item 3 Legal Proceedings
    
    
    18Item 4 Submission of Matters to a Vote of Security Holders
    
    
    19Part IIItem 5 Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6 Selected Financial Data
    
    
    19Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 8 Financial Statements and Supplementary Data
    
    
    37Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    72Item 9A Controls and Procedures
    
    
    72Item 9B Other Information
    
    
    73Part IIIItem 10 Directors and Executive Officers of the Registrant
    
    
    73Item 11 Executive Compensation
    
    
    73Item 12 Security Ownership of Certain Beneficial Owners and Management
    
    
    73Item 13 Certain Relationships and Related Transactions
    
    
    73Item 14 Principal Accountant Fees and Services
    
    
    73Item 15 Exhibits and Financial Statement Schedules
    
    
    74EX-10.35EX-10.37EX-13EX-18EX-21EX-23EX-31.1EX-31.2EX-32
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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
  -3-




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www.meridianbioscience.com http://www.sec.gov
 US Diagnostics Operating Segment
 Overview
   -4-




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H. pylori difficile
 Market Trends
   Sales and Marketing
   -5-




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Products and Markets
  Research and Development
 ä ä Card Ò
 Card ®
  -6-




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Manufacturing
  Intellectual Property, Patents, and Licenses
 ä ä
 Government Regulation
    -7-




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European Diagnostics Operating Segment
   Life Science Operating Segment
 Overview
    -8-




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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
   -9-




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Research and Development
  Manufacturing and Government Regulation
   Competition
 Diagnostics
   -10-




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Life Science
   Acquisitions
  International Markets
  Environmental
  -11-




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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.
    We may be unable to successfully integrate operations or to achieve expected cost savings from
acquisitions we make.
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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
   Seasonal Factors and Sporadic Outbreaks
  Changing Diagnostic Market Conditions
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Revenues for our Life Science operating segment may be impacted by customer concentrations and
buying patterns.
    Intense competition could adversely affect our profitability.
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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.
   Significant interruptions in production at our principal manufacturing facilities and/or
third-party manufacturing facilities would adversely affect our business and operating results.
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We are dependent on sole-source suppliers for certain critical components and products. A supply
interruption could adversely affect our business.
  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.
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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.
  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
  -17-




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UNRESOLVED SEC STAFF COMMENTS
  
  PROPERTIES
    
  LEGAL PROCEEDINGS
  -18-




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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
  
  MARKET FOR REGISTRANTS COMMON  EQUITY AND RELATED STOCKHOLDER MATTERS
      
  SELECTED FINANCIAL DATA
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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 12 through 19 of this Annual Report.
 Overview:
  Card ® E. coli C difficile C.
difficile Card ® H. pylori H. pylori
  2007
    
    2006
    
    2005Gross profit
    
    
    61
    %
    
    
    60
    %
    
    
    59
    %Operating expenses
    
    
    32
    %
    
    
    35
    %
    
    
    37
    %Operating income
    
    
    28
    %
    
    
    25
    %
    
    
    22
    %
 -20-




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Operating Segments:
   Results of Operations:
 Overview
 Fourth quarter
   -21-




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Accounting Changes and Error Corrections
 Fiscal Year
     -22-




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2007
    
    2006
    
    ChangeNet Earnings -US GAAP basis
    
    $
    26,721
    
    
    $
    18,333
    
    
    
    46
    %Tax benefit not expected to recur in the future
    
    
    (2,425
    )
    
    
    
    
    
    
    (100
    )%Excluding tax benefit
    
    $
    24,296
    
    
    $
    18,333
    
    
    
    33
    %
 2007
    
    2006
    
    ChangeNet Earnings per Basic Common Share -US GAAP basis
    
    $
    0.67
    
    
    $
    0.47
    
    
    
    43
    %Tax benefit not expected to recur in the future
    
    
    (0.06
    )
    
    
    
    
    
    
    (100
    )%Excluding tax benefit
    
    $
    0.61
    
    
    $
    0.47
    
    
    
    30
    %
 2007
    
    2006
    
    ChangeNet Earnings per Diluted Common Share -US GAAP basis
    
    $
    0.66
    
    
    $
    0.46
    
    
    
    43
    %Tax benefit not expected to recur in the future
    
    
    (0.06
    )
    
    
    
    
    
    
    (100
    )%Excluding tax benefit
    
    $
    0.60
    
    
    $
    0.46
    
    
    
    30
    %
 Fiscal Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30, 2006
 Net sales
  C.
difficile Card ® TM H. pylori TM Card ®
 C. difficile Card Ò
 -23-




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Gross Profit
 Card ®
  Operating Expenses
   -24-




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Share-Based Payment
  Operating Income
  Other Income and Expense
  -25-




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Income Taxes
  Fiscal Year Ended September 30, 2006 Compared to Fiscal Year Ended September 30, 2005
 Net sales
  C.
difficile Card Ò H. pylori
 H. pylori C. difficile Card Ò
  -26-




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Gross Profit
 Card ®
  Operating Expenses
   -27-




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Operating Income
  Other Income and Expense
   Income Taxes
  -28-




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Liquidity and Capital Resources:
 Comparative Cash Flow Analysis
      Capital Resources
   -29-




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Known Contractual Obligations:
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsOperating leases (1)
    
    $
    1,516
    
    
    $
    599
    
    
    $
    822
    
    
    $
    95
    
    
    $
    Purchase obligations (2)
    
    
    9,690
    
    
    
    9,305
    
    
    
    385
    
    
    
    
    
    
    
    OEM Concepts earnout (3)
    
    
    1,971
    
    
    
    152
    
    
    
    1,819
    
    
    
    
    
    
    
    Total
    
    $
    13,177
    
    
    $
    10,056
    
    
    $
    3,026
    
    
    $
    95
    
    
    $
    
 
 (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. Other Commitments and Off-balance Sheet Arrangements:
 License Agreements
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Derivative financial instruments
 Accounting for Derivative Instruments and Hedging Activities
 Other
  Market Risk Exposure:
 Foreign Currency Risk
  -32-




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Concentration of Customers/Products Risk
 ä ä Card Ò
  Critical Accounting Policies:
  Revenue Recognition
   -33-




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Revenue Arrangements
with Multiple Deliverables
 Inventories
  Intangible Assets
  Goodwill and Other Intangible Assets
 Accounting for the Impairment or Disposal of Long-lived Assets
 -34-




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Income Taxes
 Accounting for Income Taxes
  -35-




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Recent Accounting Pronouncements:
  
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  -36-




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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Managements Report on Internal Control over Financial Reporting
    
    
    38Report of Independent Registered Public Accounting Firm
    
    
    39Consolidated Statements of Operations for the years ended September 30, 2007, 2006 and 2005
    
    
    41Consolidated Statements of Cash Flows for the years ended September 30, 2007, 2006 and 2005
    
    
    42Consolidated Balance Sheets as of September 30, 2007 and 2006
    
    
    43Consolidated Statements of Shareholders Equity for the years ended September 30, 2007, 2006 and 2005
    
    
    45Notes to Consolidated Financial Statements
    
    
    46Schedule No. II  Valuation and Qualifying Accounts for the years ended September 30, 2007, 2006 and 2005
    
    
    79
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Managements Report on Internal Control over Financial Reporting
    Internal Control 
Integrated Framework,
 /s/ William J. Motto
 /s/ Melissa Lueke
 -38-




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Report of Independent Registered Public Accounting Firm
 
 Internal
ControlIntegrated Framework
   -39-




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Internal ControlIntegrated Framework .
   
 -40-




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CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
 Meridian Bioscience, Inc. and Subsidiaries
 For the Year Ended September 30,
    
    2007
    
    2006
    
    2005Net Sales
    
    $
    122,963
    
    
    $
    108,413
    
    
    $
    92,965Cost of Sales
    
    
    48,023
    
    
    
    43,729
    
    
    
    38,075Gross Profit
    
    
    74,940
    
    
    
    64,684
    
    
    
    54,890Operating Expenses:Research and development
    
    
    6,085
    
    
    
    4,799
    
    
    
    3,866Selling and marketing
    
    
    17,124
    
    
    
    16,698
    
    
    
    15,208General and administrative
    
    
    16,701
    
    
    
    16,293
    
    
    
    15,491Total operating expenses
    
    
    39,910
    
    
    
    37,790
    
    
    
    34,565Operating Income
    
    
    35,030
    
    
    
    26,894
    
    
    
    20,325Other Income (Expense):Interest income
    
    
    1,642
    
    
    
    1,123
    
    
    
    43Interest expense
    
    
    (38
    )
    
    
    (128
    )
    
    
    (770
    )Other, net
    
    
    48
    
    
    
    177
    
    
    
    107Total other income (expense)
    
    
    1,652
    
    
    
    1,172
    
    
    
    (620
    )Earnings Before Income Taxes
    
    
    36,682
    
    
    
    28,066
    
    
    
    19,705Income Tax Provision
    
    
    9,961
    
    
    
    9,733
    
    
    
    7,067Net Earnings
    
    $
    26,721
    
    
    $
    18,333
    
    
    $
    12,638Earnings Per Share Data:Basic earnings per common share
    
    $
    0.67
    
    
    $
    0.47
    
    
    $
    0.36Diluted earnings per common share
    
    
    0.66
    
    
    
    0.46
    
    
    
    0.35Common shares used for basic earnings per common share
    
    
    39,584
    
    
    
    39,132
    
    
    
    35,211Effect of dilutive stock options
    
    
    1,154
    
    
    
    1,032
    
    
    
    945Common shares used for diluted earnings per common share
    
    
    40,738
    
    
    
    40,164
    
    
    
    36,156Dividends declared per common share
    
    $
    0.40
    
    
    $
    0.28
    
    
    $
    0.21Anti-dilutive Securities:Common share options
    
    
    
    
    
    
    32
    
    
    
    2Convertible debentures
    
    
    
    
    
    
    279
    
    
    
    380
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CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 For the Year Ended September 30,
    
    2007
    
    2006
    
    2005Cash Flows From Operating ActivitiesNet earnings
    
    $
    26,721
    
    
    $
    18,333
    
    
    $
    12,638Non-cash items:Depreciation of property, plant and equipment
    
    
    2,764
    
    
    
    2,717
    
    
    
    2,597Amortization of intangible assets and deferred issuance costs
    
    
    1,635
    
    
    
    2,572
    
    
    
    1,655Deferred income taxes
    
    
    800
    
    
    
    47
    
    
    
    (243
    )Stock compensation expense
    
    
    2,632
    
    
    
    1,082
    
    
    
    279Tax reserve adjustment
    
    
    (2,425
    )
    
    
    
    
    
    
    (Gain) loss on disposition of fixed assets
    
    
    5
    
    
    
    38
    
    
    
    (7
    )Change in current assets, net of acquisition
    
    
    (3,011
    )
    
    
    (3,146
    )
    
    
    (1,100
    )Change in current liabilities, net of acquisition
    
    
    (2,145
    )
    
    
    920
    
    
    
    2,455Other, net
    
    
    (374
    )
    
    
    (408
    )
    
    
    (87
    )Net cash provided by operating activities
    
    
    26,602
    
    
    
    22,155
    
    
    
    18,187Cash Flows From Investing ActivitiesAcquisition earnout payments
    
    
    (971
    )
    
    
    (1,494
    )
    
    
    (678
    )Purchases of property, plant and equipment
    
    
    (3,211
    )
    
    
    (3,120
    )
    
    
    (2,590
    )Proceeds from dispositions of property, plant and equipment
    
    
    4
    
    
    
    47
    
    
    
    14Acquisition of OEM Concepts, Inc.
    
    
    
    
    
    
    
    
    
    
    (6,383
    )Purchases of short-term investments
    
    
    
    
    
    
    (6,000
    )
    
    
    Proceeds from sales of short-term investments
    
    
    4,000
    
    
    
    2,000
    
    
    
    Other intangibles acquired
    
    
    (265
    )
    
    
    (122
    )
    
    
    (10
    )Net cash used in investing activities
    
    
    (443
    )
    
    
    (8,689
    )
    
    
    (9,647
    )Cash Flows From Financing ActivitiesRepayment of debt obligations
    
    
    (29
    )
    
    
    (790
    )
    
    
    (3,061
    )Dividends paid
    
    
    (15,836
    )
    
    
    (11,095
    )
    
    
    (7,200
    )Proceeds and tax benefits from exercises of stock options
    
    
    2,574
    
    
    
    1,660
    
    
    
    3,302Proceeds from issuance of common shares
    
    
    
    
    
    
    
    
    
    
    29,925Common share issuance costs
    
    
    
    
    
    
    
    
    
    
    (345
    )Other
    
    
    
    
    
    
    
    
    
    
    (3
    )Net cash provided by (used in) financing activities
    
    
    (13,291
    )
    
    
    (10,225
    )
    
    
    22,618Effect of Exchange Rate Changes on Cash and Equivalents
    
    
    184
    
    
    
    22
    
    
    
    (56
    )Net Increase in Cash and Equivalents
    
    
    13,052
    
    
    
    3,263
    
    
    
    31,102Cash and Equivalents at Beginning of Period
    
    
    36,348
    
    
    
    33,085
    
    
    
    1,983Cash and Equivalents at End of Period
    
    $
    49,400
    
    
    $
    36,348
    
    
    $
    33,085
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CONSOLIDATED BALANCE SHEETS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 As of September 30,
    
    2007
    
    2006AssetsCurrent Assets:Cash and equivalents
    
    $
    49,400
    
    
    $
    36,348Short term investments
    
    
    
    
    
    
    4,000Accounts receivable, less allowances of $258 in 2007 and $408 in 2006
    
    
    22,651
    
    
    
    19,645Inventories
    
    
    18,171
    
    
    
    16,989Prepaid expenses and other current assets
    
    
    2,147
    
    
    
    2,109Deferred income taxes
    
    
    1,376
    
    
    
    1,651Total current assets
    
    
    93,745
    
    
    
    80,742Property, Plant and Equipment, at Cost:Land
    
    
    890
    
    
    
    701Buildings and improvements
    
    
    16,907
    
    
    
    15,963Machinery, equipment and furniture
    
    
    24,619
    
    
    
    22,902Construction in progress
    
    
    1,290
    
    
    
    870Subtotal
    
    
    43,706
    
    
    
    40,436Less-accumulated depreciation and amortization
    
    
    25,395
    
    
    
    22,629Net property, plant and equipment
    
    
    18,311
    
    
    
    17,807Other Assets:Deferred debenture offering costs, net
    
    
    
    
    
    
    106Goodwill
    
    
    9,964
    
    
    
    9,864Other intangible assets, net
    
    
    9,457
    
    
    
    10,816Restricted cash
    
    
    1,000
    
    
    
    1,000Other assets
    
    
    221
    
    
    
    193Total other assets
    
    
    20,642
    
    
    
    21,979Total assets
    
    $
    132,698
    
    
    $
    120,528
  -43-




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CONSOLIDATED BALANCE SHEETS (dollars in thousands)
 Meridian Bioscience, Inc. and Subsidiaries
 As of September 30,
    
    2007
    
    2006Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    4,704
    
    
    $
    3,671Accrued payroll costs
    
    
    7,541
    
    
    
    7,896Purchase business combination liability
    
    
    152
    
    
    
    937Other accrued expenses
    
    
    4,008
    
    
    
    3,955Income taxes payable
    
    
    662
    
    
    
    4,158Total current liabilities
    
    
    17,067
    
    
    
    20,617Convertible Subordinated Debentures
    
    
    
    
    
    
    1,803Deferred Income Taxes
    
    
    2,683
    
    
    
    3,758Commitments 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, 39,847,391 and
39,235,777 shares issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    82,209
    
    
    
    74,950Retained earnings
    
    
    30,375
    
    
    
    19,490Accumulated other comprehensive income (loss)
    
    
    364
    
    
    
    (90
    )Total shareholders equity
    
    
    112,948
    
    
    
    94,350Total liabilities and shareholders equity
    
    $
    132,698
    
    
    $
    120,528
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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, 2004
    
    
    33,685
    
    
    
    (18
    )
    
    
    (32
    )
    
    
    25,936
    
    
    
    6,814
    
    
    
    (294
    )
    
    
    
    
    
    
    32,424Cash dividends paid  $0.21 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,200
    )
    
    
    
    
    
    
    
    
    
    
    (7,200
    )Exercise of stock options, net of tax
    
    
    863
    
    
    
    
    
    
    
    
    
    
    
    3,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,956Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279Debenture conversions
    
    
    1,662
    
    
    
    
    
    
    
    
    
    
    
    11,817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,817Common share offering, net
    
    
    2,700
    
    
    
    
    
    
    
    
    
    
    
    29,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,580Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,638
    
    
    
    
    
    
    $
    12,638
    
    
    
    12,638Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    (161
    )
    
    
    (161
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,477Balance 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, net of tax
    
    
    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 tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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, net of tax
    
    
    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 tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    (244
    )
    
    
    (244
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    981
    
    
    
    981Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,175Balance at September 30, 2007
    
    
    39,847
    
    
    
    
    
    
    $
    
    
    
    $
    82,209
    
    
    $
    30,375
    
    
    $
    364
    
    
    
    
    
    
    $
    112,948
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##### Table of Contents



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(g), 1(h), 1(i), 1(j), 1(l), 1(m), 7 and 8(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 (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 Equivalents 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.
 (f)
    
    Short-term Investments Auction-rate securities are separately classified as short-term
investments in the consolidated financial statements and are accounted for as
available-for-sale securities 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 until realized. The carrying value of
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##### Table of Contents



these securities was equal to their fair value as of September 30, 2006. We did not hold any
auction-rate securities at September 30, 2007. There were no realized gains or losses from the
sales of these securities during fiscal 2007.
 (g)
    
    Inventories- Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis (FIFO).
 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
$1,162,000 and $1,158,000 at September 30, 2007 and 2006, 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 effects of the change as it
relates to our consolidated financial statements for the periods presented are as follows:
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Statement of Operations (dollars in thousands)
 Nine Months Ended June 30, 2007
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeNet Sales
    
    $
    90,577
    
    
    $
    90,577
    
    
    $
    Cost of Sales
    
    
    34,871
    
    
    
    34,826
    
    
    
    (45
    )Gross Profit
    
    
    55,706
    
    
    
    55,751
    
    
    
    45Operating Expenses
    
    
    29,356
    
    
    
    29,356
    
    
    
    Operating Income
    
    
    26,350
    
    
    
    26,395
    
    
    
    45Other Income (Expense)
    
    
    1,169
    
    
    
    1,169
    
    
    
    Earnings Before Income Taxes
    
    
    27,519
    
    
    
    27,564
    
    
    
    45Income Tax Provision
    
    
    7,270
    
    
    
    7,287
    
    
    
    17Net Earnings
    
    $
    20,249
    
    
    $
    20,277
    
    
    $
    28Earnings Per Share Data:Basic earnings per common share
    
    $
    0.51
    
    
    $
    0.51
    
    
    $
    Diluted earnings per common share
    
    $
    0.50
    
    
    $
    0.50
    
    
    $
    
 -48-




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##### Table of Contents



Statement of Operations (dollars in thousands)
 Year Ended September 30, 2006
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeNet Sales
    
    $
    108,413
    
    
    $
    108,413
    
    
    $
    Cost of Sales
    
    
    43,742
    
    
    
    43,729
    
    
    
    (13
    )Gross Profit
    
    
    64,671
    
    
    
    64,684
    
    
    
    13Operating Expenses
    
    
    37,790
    
    
    
    37,790
    
    
    
    Operating Income
    
    
    26,881
    
    
    
    26,894
    
    
    
    13Other Income (Expense)
    
    
    1,172
    
    
    
    1,172
    
    
    
    Earnings Before Income Taxes
    
    
    28,053
    
    
    
    28,066
    
    
    
    13Income Tax Provision
    
    
    9,728
    
    
    
    9,733
    
    
    
    5Net Earnings
    
    $
    18,325
    
    
    $
    18,333
    
    
    $
    8Earnings Per Share Data:Basic earnings per common share
    
    $
    0.47
    
    
    $
    0.47
    
    
    $
    Diluted earnings per common share
    
    $
    0.46
    
    
    $
    0.46
    
    
    $
    
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##### Table of Contents



Statement of Operations (dollars in thousands)
 Year Ended September 30, 2005
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeNet Sales
    
    $
    92,965
    
    
    $
    92,965
    
    
    $
    Cost of Sales
    
    
    38,184
    
    
    
    38,075
    
    
    
    (109
    )Gross Profit
    
    
    54,781
    
    
    
    54,890
    
    
    
    109Operating Expenses
    
    
    34,565
    
    
    
    34,565
    
    
    
    Operating Income
    
    
    20,216
    
    
    
    20,325
    
    
    
    109Other Income (Expense)
    
    
    (620
    )
    
    
    (620
    )
    
    
    Earnings Before Income Taxes
    
    
    19,596
    
    
    
    19,705
    
    
    
    109Income Tax Provision
    
    
    7,031
    
    
    
    7,067
    
    
    
    36Net Earnings
    
    $
    12,565
    
    
    $
    12,638
    
    
    $
    73Earnings Per Share Data:Basic earnings per common share
    
    $
    0.36
    
    
    $
    0.36
    
    
    $
    Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    
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##### Table of Contents



Balance Sheet (dollars in thousands)
 June 30, 2007
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeCurrent assets:Inventories
    
    $
    18,825
    
    
    $
    18,179
    
    
    $
    (646
    )Deferred income taxes
    
    
    1,141
    
    
    
    1,358
    
    
    
    217Aggregated other current assets
    
    
    66,821
    
    
    
    66,821
    
    
    
    Total current assets
    
    
    86,787
    
    
    
    86,358
    
    
    
    (429
    )Aggregated other assets, net
    
    
    38,881
    
    
    
    38,881
    
    
    
    Total assets
    
    $
    125,668
    
    
    $
    125,239
    
    
    $
    (429
    )Total liabilities
    
    $
    16,855
    
    
    $
    16,855
    
    
    $
    Retained earnings
    
    
    28,705
    
    
    
    28,276
    
    
    
    (429
    )Other shareholders equity
    
    
    80,108
    
    
    
    80,108
    
    
    
    Total shareholders equity
    
    
    108,813
    
    
    
    108,384
    
    
    
    (429
    )Total liabilities and shareholders equity
    
    $
    125,668
    
    
    $
    125,239
    
    
    $
    (429
    )
 -51-




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##### Table of Contents



Balance Sheet (dollars in thousands)
 September 30, 2006
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeCurrent assets:Inventories
    
    $
    17,680
    
    
    $
    16,989
    
    
    $
    (691
    )Deferred income taxes
    
    
    1,387
    
    
    
    1,651
    
    
    
    264Aggregated other current assets
    
    
    62,102
    
    
    
    62,102
    
    
    
    Total current assets
    
    
    81,169
    
    
    
    80,742
    
    
    
    (427
    )Aggregated other assets, net
    
    
    39,786
    
    
    
    39,786
    
    
    
    Total assets
    
    $
    120,955
    
    
    $
    120,528
    
    
    $
    (427
    )Total liabilities
    
    $
    26,178
    
    
    $
    26,178
    
    
    $
    Retained earnings
    
    
    19,917
    
    
    
    19,490
    
    
    
    (427
    )Other shareholders equity
    
    
    74,860
    
    
    
    74,860
    
    
    
    Total shareholders equity
    
    
    94,777
    
    
    
    94,350
    
    
    
    (427
    )Total liabilities and shareholders equity
    
    $
    120,955
    
    
    $
    120,528
    
    
    $
    (427
    )
 -52-




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##### Table of Contents



Balance Sheet (dollars in thousands)
 September 30, 2005
 Effect ofLIFO Method
    
    
    FIFO Method
    
    
    ChangeCurrent assets:Inventories
    
    $
    16,785
    
    
    $
    16,081
    
    
    $
    (704
    )Deferred income taxes
    
    
    1,258
    
    
    
    1,527
    
    
    
    269Aggregated other current assets
    
    
    52,117
    
    
    
    52,117
    
    
    
    Total current assets
    
    
    70,160
    
    
    
    69,725
    
    
    
    (435
    )Aggregated other assets, net
    
    
    40,409
    
    
    
    40,409
    
    
    
    Total assets
    
    $
    110,569
    
    
    $
    110,134
    
    
    $
    (435
    )Total liabilities
    
    $
    26,801
    
    
    $
    26,801
    
    
    $
    Retained earnings
    
    
    12,687
    
    
    
    12,252
    
    
    
    (435
    )Other shareholders equity
    
    
    71,081
    
    
    
    71,081
    
    
    
    Total shareholders equity
    
    
    83,768
    
    
    
    83,333
    
    
    
    (435
    )Total liabilities and shareholders equity
    
    $
    110,569
    
    
    $
    110,134
    
    
    $
    (435
    )
 (h)
    
    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:
   (i)
    
    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 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 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). During fiscal 2006, the change in goodwill was an increase of $1,085,000. This
change
 -53-




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##### Table of Contents



Wtd Avg
    
    2007
    
    
    
    
    
    2006Amort
    
    Gross
    
    2007
    
    Gross
    
    2006Period
    
    Carrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAs of September 30,
    
    (Yrs)
    
    Value
    
    Amortization
    
    Value
    
    AmortizationCore products and cell lines
    
    
    15
    
    
    $
    4,698
    
    
    $
    2,313
    
    
    $
    4,698
    
    
    $
    2,023Manufacturing technologies
    
    
    15
    
    
    
    5,907
    
    
    
    4,089
    
    
    
    5,907
    
    
    
    3,743Trademarks, licenses and patents
    
    
    12
    
    
    
    2,270
    
    
    
    1,694
    
    
    
    2,005
    
    
    
    1,545Customer lists and supply
agreements
    
    
    13
    
    
    
    10,641
    
    
    
    5,963
    
    
    
    10,633
    
    
    
    5,116$
    23,516
    
    
    $
    14,059
    
    
    $
    23,243
    
    
    $
    12,427
  Accounting for Impairment or Disposal of Long-lived Assets
 -54-




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##### Table of Contents



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.(j)
    
    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 $2,415,000 at September 30, 2007 and $2,181,000 at
September 30, 2006.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 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 recognized upon delivery of product and acceptance
by the customer.
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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.(k)
    
    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, and costs
for facilities and equipment.(l)
    
    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 7.(m)
    
    Stock-based Compensation We account for stock-based compensation pursuant to SFAS No. 123R,
Share-Based Payment, which was adopted as of July 1, 2005. SFAS No. 123R requires recognition
of compensation expense for all share-based awards made to employees, based upon the fair
value of the share-based award on the date of the grant. 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 and the non-vested portions of stock options awards
granted prior to July 1, 2005. See Note 8(b).
 (n)
    
    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 6.
 (o)
    
    Comprehensive Income (Loss)Comprehensive income represents the net change in shareholders
equity during a period from sources other than transactions with shareholders. Meridians
comprehensive income
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is comprised of net earnings, foreign currency translation, and changes
in the fair value of forward exchange contracts accounted for as cash flow hedges.
Components of beginning and ending accumulated other comprehensive income (loss), and related
activity, are shown in the following table (in thousands):
 AccumulatedCurrency
    
    
    
    
    
    
    
    
    
    OtherTranslation
    
    Cash Flow
    
    Tax
    
    ComprehensiveAdjustment
    
    Hedges
    
    Benefits
    
    Income (Loss)Balance at September 30, 2006
    
    $
    (153
    )
    
    $
    13
    
    
    $
    50
    
    
    $
    (90
    )Currency translation
    
    
    981
    
    
    
    
    
    
    
    
    
    
    
    981Reclassifications to earnings of hedging activity
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    94Net unrealized losses on hedging instruments
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    (377
    )Tax benefits
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    (244
    )Balance at September 30, 2007
    
    $
    828
    
    
    $
    (270
    )
    
    $
    (194
    )
    
    $
    364
 (p)
    
    Supplemental Cash flow Information Supplemental cash flow information is as follows for
fiscal 2007 , 2006 and 2005 (dollars in thousands):
 Year Ended September 30,
    
    2007
    
    2006
    
    2005Cash paid for -Income taxes
    
    $
    12,412
    
    
    $
    6,734
    
    
    $
    7,067Interest
    
    
    37
    
    
    
    106
    
    
    
    493Non-cash items -Debenture conversions
    
    
    1,775
    
    
    
    648
    
    
    
    11,737
 (q)
    
    Recent Accounting Pronouncements During July 2006, the Financial Accounting Standards Board
issued Interpretation 48, Accounting for Uncertainty in Income Taxes: An Interpretation of
FASB Statement No. 109. Interpretation 48 establishes criteria that an individual tax
position would have to meet for some or all of the benefit of that position to be recognized
in an entitys financial statements. Interpretation 48 also establishes disclosure criteria
for tax contingency reserves. We will be required to adopt Interpretation 48 during the first
quarter of fiscal 2008. At this time, we are unable to determine the impact that adoption of
this pronouncement will have on our financial condition.
 During September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 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 157 in fiscal 2009. We are currently in the process of
evaluating the impact of SFAS 157 on our financial statements.
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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 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 159 in
fiscal 2009. We are currently in the process of evaluating the impact of SFAS 157 on our
financial statements.
 (r)
    
    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.
 (s)
    
    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.
 (t)
    
    Reclassifications Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
 (2)
    
    OEM Concepts Acquisition
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##### Table of Contents



Purchase price, including transaction costs and
earnout payments made
    
    $
    7,056Fair value of assets acquired -Cash
    
    $
    207Accounts receivable
    
    
    505Inventory
    
    
    643Prepaid expenses
    
    
    47Property, plant and equipment, net
    
    
    145Specific intangibles
    
    
    5,527Goodwill
    
    
    2,709Other assets
    
    
    99,792Fair value of liabilities assumed -Debt and capital lease obligations
    
    
    233Deferred income tax liabilities
    
    
    2,062Other liabilities
    
    
    4412,736Fair value of net assets acquired
    
    $
    7,056
 (3) Inventories
  As of September 30,
    
    2007
    
    2006Raw materials
    
    $
    4,816
    
    
    $
    4,024Work-in-process
    
    
    5,141
    
    
    
    4,578Finished goods
    
    
    8,214
    
    
    
    8,387$
    18,171
    
    
    $
    16,989
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(4) Bank Credit Arrangements
  (5) Long-Term Debt Obligations
  (6) Hedging Transactions
  Notional
    
    
    Contract
    
    
    Estimated Fair
    
    
    AverageAmount
    
    
    Value
    
    
    Value
    
    
    Exchange Rate
    
    
    Maturity
    4,200
    
    
    $
    5,756
    
    
    $
    6,003
    
    
    
    1.3703
    
    
    FY 2008
    300
    
    
    $
    421
    
    
    $
    429
    
    
    
    1.4021
    
    
    FY 2009
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(7) Income Taxes
  Year Ended September 30,
    
    2007
    
    
    2006
    
    
    2005Earnings before income taxes -Domestic
    
    $
    33,324
    
    
    $
    25,365
    
    
    $
    17,640Foreign
    
    
    3,358
    
    
    
    2,701
    
    
    
    2,065Total
    
    $
    36,682
    
    
    $
    28,066
    
    
    $
    19,705Provision (credit) for income taxes -Federal Current provision
    
    $
    11,179
    
    
    $
    8,902
    
    
    $
    6,550Temporary differencesFixed asset basis differences and depreciation
    
    
    (105
    )
    
    
    (65
    )
    
    
    (57
    )Intangible asset basis differences and amortization
    
    
    (249
    )
    
    
    (588
    )
    
    
    (227
    )Currently non-deductible expenses and reserves
    
    
    238
    
    
    
    (88
    )
    
    
    (467
    )Stock based compensation
    
    
    (678
    )
    
    
    (339
    )
    
    
    (65
    )Other, net
    
    
    (258
    )
    
    
    2
    
    
    
    (163
    )Tax contingency reserve adjustment
    
    
    (2,425
    )
    
    
    
    
    
    
    Subtotal
    
    
    7,702
    
    
    
    7,824
    
    
    
    5,571State and local
    
    
    1,250
    
    
    
    814
    
    
    
    600Foreign
    
    
    1,009
    
    
    
    1,095
    
    
    
    896Total
    
    $
    9,961
    
    
    $
    9,733
    
    
    $
    7,067
  Year Ended September 30,
    
    2007
    
    2006
    
    2005Computed income taxes at statutory rate
    
    $
    12,839
    
    
    
    35.0
    %
    
    $
    9,824
    
    
    
    35.0
    %
    
    $
    6,895
    
    
    
    35.0
    %Increase (decrease) in taxes resulting from -State and local income taxes
    
    
    835
    
    
    
    2.3
    
    
    
    685
    
    
    
    2.4
    
    
    
    500
    
    
    
    2.5Federal and state tax credits
    
    
    (213
    )
    
    
    (0.6
    )
    
    
    (88
    )
    
    
    (0.3
    )
    
    
    (166
    )
    
    
    (0.8
    )Subpart F income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    0.6Foreign tax rate differences
    
    
    170
    
    
    
    0.5
    
    
    
    145
    
    
    
    0.5
    
    
    
    19
    
    
    
    0.1Valuation allowance reversal  France
    
    
    (309
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extra territorial income exclusion
    
    
    (56
    )
    
    
    (0.2
    )
    
    
    (275
    )
    
    
    (1.0
    )
    
    
    (306
    )
    
    
    (1.6
    )Qualified domestic production incentives
    
    
    (290
    )
    
    
    (0.8
    )
    
    
    (236
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    Tax exempt interest
    
    
    (418
    )
    
    
    (1.1
    )
    
    
    (281
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    Tax contingency reserve adjustment
    
    
    (2,425
    )
    
    
    (6.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    (172
    )
    
    
    (0.5
    )
    
    
    (41
    )
    
    
    (0.1
    )
    
    
    8
    
    
    
    0.1$
    9,961
    
    
    
    27.2
    %
    
    $
    9,733
    
    
    
    34.7
    %
    
    $
    7,067
    
    
    
    35.9
    %
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As of September 30,
    
    2007
    
    
    2006Deferred tax assets -Valuation reserves and non-deductible expenses
    
    $
    922
    
    
    $
    1,465Stock compensation expense not deductible
    
    
    1,237
    
    
    
    503Net operating loss carryforwards
    
    
    920
    
    
    
    890Inventory basis differences
    
    
    472
    
    
    
    176Other
    
    
    90
    
    
    
    225Subtotal
    
    
    3,641
    
    
    
    3,259Less valuation allowance
    
    
    (569
    )
    
    
    (888
    )Deferred tax assets
    
    
    3,072
    
    
    
    2,371Deferred tax liabilities -Fixed asset basis differences and depreciation
    
    
    (711
    )
    
    
    (830
    )Intangible asset basis differences and amortization
    
    
    (2,918
    )
    
    
    (3,190
    )Other
    
    
    (750
    )
    
    
    (458
    )Deferred tax liabilities
    
    
    (4,379
    )
    
    
    (4,478
    )Net deferred tax liabilities
    
    $
    (1,307
    )
    
    $
    (2,107
    )
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(8) 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 compensation. Our discretionary and
matching contributions to the plan amounted to approximately $1,132,000, $1,066,000, and
$1,006,000, during fiscal 2007, 2006 and 2005, 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.
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We may grant new shares for options for up to 1,462,500 shares under the 2004 Plan, of which we
have granted 976,000 through September 30, 2007. 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.We adopted SFAS No. 123(R), Share-Based Payment, 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.Prior to July 1, 2005, we accounted for our stock based compensation plans pursuant to the
intrinsic value method in APB No. 25. Had compensation cost for these plans been determined
using the fair value method provided in SFAS No. 123(R), our net earnings for fiscal 2005 would
have been $12,376,000, compared to a reported amount of $12,638,000. Basic earnings per share
for fiscal 2005 would have been $0.35, compared to a reported amount of $0.36. Diluted earnings
per share for fiscal 2005 would have been $0.34, compared to a reported amount of $0.35.The amount of stock-based compensation expense reported was $2,632,000, $1,082,000 and $279,000
in fiscal 2007, fiscal 2006, and fiscal 2005, respectively. The total income tax benefit
recognized in the income statement for these stock-based compensation arrangements was $668,000,
$339,000, and $65,000, for fiscal 2007, fiscal 2006, and fiscal 2005, respectively. We expect
stock compensation expense for unvested options as of September 30, 2007 to be $1,565,000, which
will be recognized during fiscal years 2008 through 2011.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 2007, we recorded $210,000 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 for fiscal 2007 and 2006: (i) expected share price
volatility based on implied volatility calculations using options for Meridian and a peer-group
of companies; (ii) expected life of
 -64-




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##### Table of Contents



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,
    
    2007
    
    
    2006
    
    
    2005Risk-free interest rates
    
    
    4.64
    %
    
    
    4.3%-4.4
    %
    
    
    3.8%-4.3
    %Dividend yield
    
    
    1.96
    %
    
    
    1.55
    %
    
    
    2.3%-5.4
    %Life of option
    
    5.80-7.50 yrs.
    
    5.70-7.50 yrs.
    
    6.25-7.00 yrs.Share price volatility
    
    
    44
    %
    
    
    46
    %
    
    
    52%-54
    %Forfeitures (by employee group)
    
    
    0%-20
    %
    
    
    0%-20
    %
    
    
    5%-38
    %
 A summary of the status of our stock option plans at September 30, 2007 and changes during the
year is presented in the table and narrative below:
 Wtd Avg
    
    
    Wtd AvgExercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Life (Yrs)
    
    
    Intrinsic ValueOutstanding beginning of period
    
    
    1,919,696
    
    
    $
    5.48Grants
    
    
    358,925
    
    
    
    16.65Exercises
    
    
    (336,433
    )
    
    
    3.91Forfeitures
    
    
    (9,256
    )
    
    
    13.14Cancellations
    
    
    (1,048
    )
    
    
    6.11Outstanding end of period
    
    
    1,931,884
    
    
    $
    7.79
    
    
    
    5.9
    
    
    $
    43,524,000Exercisable end of period
    
    
    647,520
    
    
    $
    4.80
    
    
    
    4.1
    
    
    $
    16,524,000
  Weighted-Average GrantDate FairShares
    
    
    ValueNonvested beginning of period
    
    
    1,151,595
    
    
    $
    2.93Granted
    
    
    358,925
    
    
    
    7.10Vested
    
    
    (216,900
    )
    
    
    3.34Forfeited
    
    
    (9,256
    )
    
    
    5.74Nonvested end of period
    
    
    1,284,364
    
    
    $
    4.03
 -65-




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##### Table of Contents



The weighted average grant-date fair value of options granted was $7.10, $6.54, and $3.21 for
fiscal 2007, 2006, and 2005, respectively. The total intrinsic value of options exercised was
$5,526,000, $2,648,000 and
$3,659,000, for fiscal 2007, fiscal 2006, and 2005, respectively. The total grant-date fair
value of options that vested during fiscal 2007, 2006, and 2005 was $721,000, $296,000 and
$235,000, respectively.Cash received from options exercised was $1,315,000, $990,000, and $3,302,000 for fiscal 2007,
2006, and 2005, respectively. Tax benefits realized and recorded to additional paid-in capital
from option exercises totaled $1,632,000, $732,000, and $654,000 for fiscal 2007, 2006, and 2005
respectively.
 (9) Major Customers and Segment Data
    Year Ended September 30,
    
    2007
    
    2006
    
    2005Customer A (US Diagnostics)
    
    $
    24,678
    
    
    
    (20
    %)
    
    $
    20,014
    
    
    
    (18
    %)
    
    $
    15,512
    
    
    
    (17
    %)Customer B (US Diagnostics)
    
    $
    13,340
    
    
    
    (11
    %)
    
    $
    10,989
    
    
    
    (10
    %)
    
    $
    8,244
    
    
    
    (9
    %)
  -66-




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##### Table of Contents



Year Ended September 30,
    
    2007
    
    2006
    
    2005Italy
    
    $
    7,838
    
    
    $
    6,840
    
    
    $
    6,221France
    
    
    3,070
    
    
    
    2,387
    
    
    
    2,365United Kingdom
    
    
    1,987
    
    
    
    1,571
    
    
    
    1,454Holland
    
    
    1,610
    
    
    
    1,372
    
    
    
    1,125Belgium
    
    
    1,558
    
    
    
    1,504
    
    
    
    1,303Other
    
    
    7,500
    
    
    
    6,154
    
    
    
    5,350Total European Operating Segment
    
    $
    23,563
    
    
    $
    19,828
    
    
    $
    17,818
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US
    
    
    European
    
    
    LifeDiagnostics
    
    
    Diagnostics
    
    
    Science
    
    
    Elim (1)
    
    
    TotalFiscal Year 2007 -Net sales Third-party
    
    $
    74,845
    
    
    $
    23,563
    
    
    $
    24,555
    
    
    $
    
    
    
    $
    122,963Inter-segment
    
    
    8,872
    
    
    
    
    
    
    
    532
    
    
    
    (9,404
    )
    
    
    Operating income
    
    
    26,825
    
    
    
    4,559
    
    
    
    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
    
    
    20,169
    
    
    
    3,540
    
    
    
    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
    )
    
    
    120,528Fiscal Year 2005 -Net sales Third-party
    
    $
    53,485
    
    
    $
    17,818
    
    
    $
    21,662
    
    
    $
    
    
    
    $
    92,965Inter-segment
    
    
    6,553
    
    
    
    15
    
    
    
    804
    
    
    
    (7,372
    )
    
    
    Operating income
    
    
    13,655
    
    
    
    2,315
    
    
    
    4,251
    
    
    
    104
    
    
    
    20,325Depreciation and amortization
    
    
    2,667
    
    
    
    147
    
    
    
    1,438
    
    
    
    
    
    
    
    4,252Capital expenditures
    
    
    1,477
    
    
    
    89
    
    
    
    1,024
    
    
    
    
    
    
    
    2,590Total assets
    
    
    99,878
    
    
    
    11,552
    
    
    
    38,947
    
    
    
    (40,243
    )
    
    
    110,134
 (1)
    
    Eliminations consist of intersegment transactions.
 -68-




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##### Table of Contents



Year Ended September 30,
    
    2007
    
    2006
    
    2005Segment operating income
    
    $
    35,030
    
    
    $
    26,894
    
    
    $
    20,325Interest income
    
    
    1,642
    
    
    
    1,123
    
    
    
    43Interest expense
    
    
    (38
    )
    
    
    (128
    )
    
    
    (770
    )Other, net
    
    
    48
    
    
    
    177
    
    
    
    107Consolidated earnings before income taxes
    
    $
    36,682
    
    
    $
    28,066
    
    
    $
    19,705
  (10) 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 $739,000, $866,000, and $743,000, respectively, for the fiscal years ended
September 30, 2007, 2006 and 2005.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 $1,740,000) 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.
 -69-




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##### Table of Contents



Although we believe that
our position is very strong, we are unable to predict the outcome of this matter.
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
$9,305,000 and $385,000 for fiscal 2008 and fiscal 2009, respectively. No commitments have
been made for fiscal 2010, 2011, or 2012.(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 $696,000,
$686,000 and $621,000 for fiscal 2007, 2006 and 2005, respectively. Operating lease
commitments for each of the five succeeding fiscal years are as follows: fiscal 2008 -
$599,000, fiscal 2009  $464,000, fiscal 2010  $260,000, fiscal 2011  $98,000, and fiscal
2012  $95,000.(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 may 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, 2007 and September 30,
2006. 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 $1,819,000 at September 30, 2007, contingent upon future
calendar year sales and gross profit of OEM Concepts products through December 31, 2008.
Earnout consideration in the amount of $118,000 related to calendar 2006 was paid during fiscal
2007. Earnout consideration in the amount of $152,000 related to the nine-month period ended
September 30, 2007 has been accrued in the accompanying consolidated balance sheet. Future
earnout consideration, if any, will be allocated to goodwill, and will be recorded in the period
in which it is earned and payable.
 (11) Quarterly Financial Data (Unaudited)
 All quarters of fiscal 2007 and fiscal 2006 have been adjusted to reflect the change in
accounting for certain inventories within the Life Science operating segment from the LIFO
method to the FIFO method. See further detail regarding this change in Note 1(g).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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September2007
    
    December 31
    
    
    March 31
    
    
    June 30
    
    
    30As
    
    
    
    
    
    
    As
    
    
    
    
    
    
    AsPreviously
    
    
    As
    
    
    Previously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Adjusted
    
    
    Reported
    
    
    Adjusted
    
    
    Reported
    
    
    AdjustedNet sales
    
    $
    28,720
    
    
    $
    28,720
    
    
    $
    32,094
    
    
    $
    32,094
    
    
    $
    29,763
    
    
    $
    29,763
    
    
    $
    32,386Gross profit
    
    
    17,597
    
    
    
    17,612
    
    
    
    18,823
    
    
    
    18,838
    
    
    
    19,286
    
    
    
    19,301
    
    
    
    19,189Net earnings
    
    
    5,564
    
    
    
    5,573
    
    
    
    5,881
    
    
    
    5,890
    
    
    
    8,804
    
    
    
    8,814
    
    
    
    6,444Basic earnings per common share
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.22
    
    
    
    0.22
    
    
    
    0.16Diluted earnings per common
share
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.22
    
    
    
    0.22
    
    
    
    0.16Cash dividends per common share
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
 For the Quarter Ended in Fiscal2006
    
    December 31
    
    
    March 31
    
    
    June 30
    
    
    September 30As
    
    
    
    
    
    
    As
    
    
    
    
    
    
    As
    
    
    
    
    
    
    AsPreviously
    
    
    As
    
    
    Previously
    
    
    As
    
    
    Previously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Adjusted
    
    
    Reported
    
    
    Adjusted
    
    
    Reported
    
    
    Adjusted
    
    
    Reported
    
    
    AdjustedNet sales
    
    $
    24,908
    
    
    $
    24,908
    
    
    $
    28,272
    
    
    $
    28,272
    
    
    $
    26,583
    
    
    $
    26,583
    
    
    $
    28,650
    
    
    $
    28,650Gross profit
    
    
    15,150
    
    
    
    15,150
    
    
    
    16,580
    
    
    
    16,640
    
    
    
    16,355
    
    
    
    16,385
    
    
    
    16,586
    
    
    
    16,509Net earnings
    
    
    3,962
    
    
    
    3,962
    
    
    
    4,723
    
    
    
    4,760
    
    
    
    4,862
    
    
    
    4,881
    
    
    
    4,778
    
    
    
    4,730Basic earnings per common share
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12Diluted earnings per common
share
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.12Cash dividends per common share
    
    
    0.05
    
    
    
    0.05
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.08
 -71-




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##### Table of Contents



(12) Public Offering of Common Shares and Stock Split
 On September 21, 2005, we issued 2,700,000 common shares at an offering price of $11.67 per
share. The number of shares issued and the offering price per share have been adjusted to
reflect the May 2007 stock split discussed below. The net proceeds from the offering, after
underwriting discounts and offering costs totaling $1,920,000, were approximately $29,580,000.
Underwriting discounts and offering costs incurred in connection with this offering are
reflected as a reduction of shareholders equity.On August 15, 2005, we announced a three-for-two stock split, with fractional shares paid in
cash. This split was effective on September 2, 2005 to shareholders of record as of August 29,
2005. 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 these stock splits.
 
  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
  CONTROLS AND PROCEDURES
   -72-




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##### Table of Contents



OTHER INFORMATION
  
   -73-




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##### Table of Contents



EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    Exhibit Number
    
    Description of Exhibit
    
    Filing Status3.1
    
    Articles of Incorporation, including amendments
not related to Company name change
    
    A3.2
    
    Code of Regulations
    
    B10.5
    
    Sublicense Agreement dated June 17, 1993 among
Johnson & Johnson, the Scripps Research Institute
and Meridian Concerning certain Patent Rights
    
    E10.6
    
    Assignment dated June 17, 1993 from Ortho
Diagnostic Systems Inc. to Meridian concerning
certain Patent Rights
    
    E10.7
    
    Agreement dated January 24, 1994 between Meridian
Diagnostics, Inc. and Immulok, Inc.
    
    F10.8
    
    Asset Purchase Agreement dated June 24, 1996
between Cambridge Biotech Corporation and Meridian
Diagnostics, Inc.
    
    G10.9
    
    Merger Agreement among Gull Laboratories, Inc.,
Meridian Diagnostics, Inc. Fresenius AG and
Meridian Acquisition Co. dated as of September 15,
1998
    
    H10.10*
    
    Savings and Investment Plan Prototype Adoption
Agreement
    
    S10.14*
    
    1994 Directors Stock Option Plan
    
    J10.15*
    
    1996 Stock Option Plan
    
    K10.16*
    
    Salary Continuation Agreement for John A. Kraeutler
    
    L10.17
    
    First Amendment to Merger Agreement Among Gull
Laboratories, Inc., Meridian Diagnostics, Inc.
Fresenius AG and Meridian Acquisition Co.
    
    M
 -74-




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##### Table of Contents



Exhibit Number
    
    Description of Exhibit
    
    Filing Status10.18*
    
    1999 Directors Stock Option Plan
    
    
    N10.20
    
    Dividend Reinvestment Plan
    
    
    P10.21
    
    Merger Agreement dated September 13, 2000 among
Meridian and the Shareholders of Viral Antigens, Inc.
    
    
    O10.23*
    
    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
    
    
    R10.24*
    
    Sample Option Agreement Dated October 1, 2001
    
    
    R10.26*
    
    1996 Stock Option Plan as Amended and Restated
Effective January 23, 2001
    
    
    Q10.27*
    
    Sample Option Agreement Dated November 19, 2002
    
    
    S10.28*
    
    Agreement Concerning Disability and Death dated
September 10, 2003, between Meridian and William J.
Motto
    
    
    S10.29*
    
    Professional Services Agreement dated October 1, 2002
between Meridian and Antonio Interno
    
    
    S10.31
    
    Stock Purchase Agreement of OEM Concepts, Inc. by
Meridian Bioscience, Inc. dated January 31, 2005
    
    
    W10.32*
    
    Sample Option Agreement dated November 10, 2005
    
    
    W10.33*
    
    2004 Equity Compensation Plan, Amended and Restated
through January 19, 2006
    
    
    V10.34*
    
    Fiscal 2006 Officers Compensation Plan, Amended and
Restated through January 19, 2006
    
    
    V10.35*
    
    Sample Option Agreement dated November 14, 2007
    
    Filed herewith10.36*
    
    Fiscal 2007 Officers Performance Compensation Plan
    
    
    X10.37
    
    Amended and Restated Revolving Note with Fifth Third
Bank dated August 1, 2007
    
    Filed herewith13
    
    2008 Annual Report to Shareholders
    
    
    (1
    )14
    
    Code of Ethics
    
    
    S18
    
    Grant Thornton Preferability Letter
    
    Filed herewith
 -75-




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##### Table of Contents



Exhibit Number
    
    Description of Exhibit
    
    Filing Status21
    
    Subsidiaries of the Registrant
    
    Filed herewith23
    
    Consent of Independent Registered Public Accounting Firm
    
    Filed herewith31.1
    
    Certification of Principal Executive Officer required
by Rule 13a-14(a)
    
    Filed herewith31.2
    
    Certification of Principal Financial Officer required
by Rule 13a-14(a)
    
    Filed herewith32
    
    Section 1350 Certification of Chief Executive Officer
and Chief Financial Officer
    
    Filed herewith
 
 (1)
    
    Only portions of the 2007 Annual Report to Shareholders specifically are incorporated by
reference in this Form 10-K as filed herewith. A supplemental paper copy of the 2007 Annual Report
to Shareholders has been provided to the Securities and Exchange Commission for informational
purposes only.*
    
    Management Compensatory Contracts
  A.
    
    Registration Statement No. 333-02613 on Form S-3 filed with the Securities and Exchange
Commission on April 18, 1996.B.
    
    Registration Statement No. 33-6052 filed under the Securities Act of 1933.C.
    
    Registration Statement No. 333-11077 on Form S-3 filed with the Securities and Exchange
Commission on August 29, 1996.D.
    
    Meridians Schedule T-O filed with the Securities and Exchange Commission on October 24, 2003.E.
    
    Meridians Form 8-K filed with the Securities and Exchange Commission on June 17, 1993.F.
    
    Meridians Forms 8-K filed with the Securities and Exchange Commission on February 8, 1994
and April 6, 1994.G.
    
    Meridians Form 8-K filed with the Securities and Exchange Commission on July 2, 1996.H.
    
    Meridians Form 8-K filed with the Securities and Exchange Commission on September 17, 1998.I.
    
    Not used.J.
    
    Registration Statement No. 33-78868 on Form S-8 filed with the Securities and Exchange
Commission on May 12, 1994.K.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1996.L.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1995.M.
    
    Companys Report on Form 8-K filed with the Securities and Exchange Commission filed on
November 13, 1998.N.
    
    Meridians Proxy Statement filed with the Securities and Exchange Commission on December 21,
1998.O.
    
    Meridians Current Report on Form 8-K dated September 29, 2000.
 -76-




---



##### Table of Contents



P.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1999.Q.
    
    Registration Statement No. 333-75312 on Form S-8 filed with the Securities and Exchange
Commission on December 17, 2001R.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2001.S.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003.T.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2004.U.
    
    Meridians Proxy Statement filed with the Securities and Exchange Commission on December 23,
2004.V.
    
    Meridians Form 8-K dated January 19, 2006.W.
    
    Meridians Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2005.X.
    
    Meridians Form 8-K filed November 21, 2006
 
 SIGNATURES
  MERIDIAN BIOSCIENCE, INC.By:
    /s/ William J. MottoDate: November 30, 2007
    
    William J. MottoChairman of the Board
and Chief 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 and Chief Executive
Officer (Principal Executive
Officer)
    
    November 30, 2007/s/ John A. Kraeutler

John A. Kraeutler
    
    President and Chief Operating
Officer, Director
    
    November 30, 2007/s/ Melissa Lueke

Melissa Lueke
    
    Vice President and Chief
Financial Officer
    
    November 30, 2007/s/ James A. Buzard

James A. Buzard
    
    Director
    
    November 30, 2007/s/ Gary P. Kreider

Gary P. Kreider
    
    Director
    
    November 30, 2007/s/ David C. Phillips

David C. Phillips
    
    Director
    
    November 30, 2007/s/ Robert J. Ready

Robert J. Ready
    
    Director
    
    November 30, 2007
 -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, 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
    )
    
    
    888Year Ended September 30, 2005:Allowance for doubtful accounts
    
    $
    479
    
    
    $
    (37
    )
    
    $
    (88
    )
    
    $
    6
    
    
    $
    360Inventory realizability reserves
    
    
    271
    
    
    
    494
    
    
    
    (369
    )
    
    
    160
    
    
    
    556Valuation allowances  deferred taxes
    
    
    1,177
    
    
    
    
    
    
    
    (223
    )
    
    
    (27
    )
    
    
    927
 
 (a)
    
    Balances reflect the effects of currency translation (fiscal years 2005-2007) and the
acquisition of OEM Concepts January 31, 2005 (fiscal year 2005).
 -79-