##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2007
 OR
 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 number 0-14902
 MERIDIAN
BIOSCIENCE, INC.
 31-0888197Incorporated under the laws of Ohio
    
    (I.R.S. Employer Identification No.)
 
  þ o
  o þ o
  o þ
  Class
    
    Outstanding April 30, 2007Common Stock, no par value
    
    26,479,767




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##### 



MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
  
 Page(s)PART I FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Statements of Operations Three Months Ended March 31, 2007 and 2006 Six Months Ended March 31, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows Six Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Balance Sheets March 31, 2007 and September 30, 2006
    
    
    5-6Consolidated Statement of Changes in Shareholders Equity Six Months Ended March 31, 2007
    
    
    7Notes to Consolidated Financial Statements
    
    
    8-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 6. Exhibits
    
    
    21Signature
    
    
    22EX-31.1EX-31.2EX-32
  The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil
litigation for forward-looking statements accompanied by meaningful cautionary statements.
Except for historical information, this report contains forward-looking statements which may be
identified by words such as estimates, anticipates, projects, plans, seeks, may,
will, expects, intends, believes, should and similar expressions or the negative
versions thereof and which also may be identified by their context. Such statements, whether
expressed or implied, are based upon current expectations of the Company and speak only as of
the date made. The Company assumes no obligation to publicly update any forward-looking
statements. These statements are subject to various risks, uncertainties and other factors that
could cause actual results to differ materially, including, without limitation, the following:
Meridians continued growth depends, in part, on its ability to introduce into the marketplace
enhancements of existing products or new products that incorporate technological advances, meet
customer requirements and respond to products developed by Meridians competition. While
Meridian has introduced a number of internally developed products, there can be no assurance
that it will be successful in the future in introducing such products on a timely basis.
Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may
cause adverse changes to pricing and distribution. Costs and difficulties in complying with laws
and regulations administered by the United States Food and Drug Administration can result in
unanticipated expenses and delays and interruptions to the sale of new and existing products.
Changes in the relative strength or weakness of the U.S. dollar can change expected results.
One of Meridians main growth strategies is the acquisition of companies and product lines.
There can be no assurance that additional acquisitions will be consummated or that, if
consummated, will be successful and the acquired businesses successfully integrated into
Meridians operations. In addition to the factors described in this paragraph, Part I, Item 1A
Risk Factors of our Form 10-K contains a list of uncertainties and risks that may affect the
financial performance of the Company.
 Page 2 of  22




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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations (Unaudited)
 (in thousands, except per share data)
 Three Months
    
    Six MonthsEnded March 31,
    
    Ended March 31,2007
    
    2006
    
    2007
    
    2006NET SALES
    
    $
    32,094
    
    
    $
    28,272
    
    
    $
    60,814
    
    
    $
    53,180COST OF SALES
    
    
    13,271
    
    
    
    11,692
    
    
    
    24,394
    
    
    
    21,450Gross profit
    
    
    18,823
    
    
    
    16,580
    
    
    
    36,420
    
    
    
    31,730OPERATING EXPENSES:Research and development
    
    
    1,718
    
    
    
    1,203
    
    
    
    3,033
    
    
    
    2,355Sales and marketing
    
    
    4,064
    
    
    
    4,053
    
    
    
    8,259
    
    
    
    8,271General and administrative
    
    
    4,207
    
    
    
    4,347
    
    
    
    8,251
    
    
    
    7,957Total operating expenses
    
    
    9,989
    
    
    
    9,603
    
    
    
    19,543
    
    
    
    18,583Operating income
    
    
    8,834
    
    
    
    6,977
    
    
    
    16,877
    
    
    
    13,147OTHER INCOME (EXPENSE):Interest income
    
    
    357
    
    
    
    238
    
    
    
    752
    
    
    
    487Interest expense
    
    
    (8
    )
    
    
    (32
    )
    
    
    (38
    )
    
    
    (67
    )Other, net
    
    
    27
    
    
    
    63
    
    
    
    91
    
    
    
    (29
    )Total other income (expense)
    
    
    376
    
    
    
    269
    
    
    
    805
    
    
    
    391Earnings before income taxes
    
    
    9,210
    
    
    
    7,246
    
    
    
    17,682
    
    
    
    13,538INCOME TAX PROVISION
    
    
    3,329
    
    
    
    2,523
    
    
    
    6,237
    
    
    
    4,853NET EARNINGS
    
    $
    5,881
    
    
    $
    4,723
    
    
    $
    11,445
    
    
    $
    8,685BASIC EARNINGS PER COMMON SHARE
    
    $
    0.22
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    0.33DILUTED EARNINGS PER COMMON SHARE
    
    $
    0.22
    
    
    $
    0.18
    
    
    $
    0.43
    
    
    $
    0.32AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  BASIC
    
    
    26,345
    
    
    
    26,142
    
    
    
    26,267
    
    
    
    26,050DILUTIVE COMMON STOCK OPTIONS
    
    
    648
    
    
    
    694
    
    
    
    640
    
    
    
    696AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  DILUTED
    
    
    26,993
    
    
    
    26,836
    
    
    
    26,907
    
    
    
    26,746ANTI-DILUTIVE SECURITIES:Common stock options
    
    
    
    
    
    
    11
    
    
    
    12
    
    
    
    6Shares from convertible debentures
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    190DIVIDENDS DECLARED PER COMMON SHARE
    
    $
    0.160
    
    
    $
    0.115
    
    
    $
    0.275
    
    
    $
    0.195
  Page 3 of  22




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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows (Unaudited)
 (dollars in thousands)
 Six Months Ended March 31,
    
    2007
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings
    
    $
    11,445
    
    
    $
    8,685Non-cash items:Depreciation of property, plant and equipment
    
    
    1,371
    
    
    
    1,344Amortization of intangible assets and deferred costs
    
    
    818
    
    
    
    913Stock based compensation
    
    
    774
    
    
    
    319Deferred income taxes
    
    
    820
    
    
    
    314Loss on disposition of fixed assets
    
    
    2
    
    
    
    44Change in accounts receivable, inventory, and prepaid expenses
    
    
    (1,110
    )
    
    
    (1,323
    )Change in accounts payable, accrued expenses, and income
taxes payable
    
    
    (5,773
    )
    
    
    (3,882
    )Other
    
    
    (51
    )
    
    
    66Net cash provided by operating activities
    
    
    8,296
    
    
    
    6,480CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of property, plant and equipment
    
    
    (1,680
    )
    
    
    (2,054
    )Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    34Purchase of intangibles
    
    
    (265
    )
    
    
    Acquisition payments
    
    
    (971
    )
    
    
    (1,494
    )Sales of short-term investments
    
    
    4,000
    
    
    
    Net cash provided by (used for) investing activities
    
    
    1,084
    
    
    
    (3,514
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of debt obligations
    
    
    (29
    )
    
    
    (469
    )Dividends paid
    
    
    (7,220
    )
    
    
    (5,089
    )Proceeds and tax benefits from exercises of stock options
    
    
    1,392
    
    
    
    825Other
    
    
    
    
    
    
    (3
    )Net cash used for financing activities
    
    
    (5,857
    )
    
    
    (4,736
    )Effect of
Exchange Rate Changes on Cash and Equivalents
    
    
    57
    
    
    
    8Net Increase (Decrease) in Cash and Equivalents
    
    
    3,580
    
    
    
    (1,762
    )Cash and Equivalents at Beginning of Period
    
    
    36,348
    
    
    
    33,085Cash and Equivalents at End of Period
    
    $
    39,928
    
    
    $
    31,323
  Page 4 of  22




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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
 March 31,
    
    September 30,2007
    
    2006ASSETSCURRENT ASSETS:Cash and equivalents
    
    $
    39,928
    
    
    $
    36,348Short term investments
    
    
    
    
    
    
    4,000Accounts receivable, less allowances of $420 and $408
for doubtful accounts
    
    
    20,340
    
    
    
    19,645Inventories
    
    
    18,864
    
    
    
    17,680Prepaid expenses and other current assets
    
    
    1,858
    
    
    
    2,109Deferred income taxes
    
    
    1,141
    
    
    
    1,387Total current assets
    
    
    82,131
    
    
    
    81,169PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    878
    
    
    
    701Buildings and improvements
    
    
    16,824
    
    
    
    15,963Machinery, equipment and furniture
    
    
    23,799
    
    
    
    22,902Construction in progress
    
    
    564
    
    
    
    870Subtotal
    
    
    42,065
    
    
    
    40,436Less: accumulated depreciation and amortization
    
    
    23,924
    
    
    
    22,629Net property, plant and equipment
    
    
    18,141
    
    
    
    17,807OTHER ASSETS:Deferred debenture offering costs, net
    
    
    
    
    
    
    106Goodwill
    
    
    9,898
    
    
    
    9,864Other intangible assets, net
    
    
    10,270
    
    
    
    10,816Restricted cash
    
    
    1,000
    
    
    
    1,000Other assets
    
    
    185
    
    
    
    193Total other assets
    
    
    21,353
    
    
    
    21,979TOTAL ASSETS
    
    $
    121,625
    
    
    $
    120,955
  Page 5 of  22




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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
 March 31,
    
    September 30,2007
    
    2006LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    3,199
    
    
    $
    3,671Accrued payroll costs
    
    
    4,478
    
    
    
    7,896Purchase business combination liabilities
    
    
    
    
    
    
    937Other accrued expenses
    
    
    4,634
    
    
    
    3,955Income taxes payable
    
    
    2,605
    
    
    
    4,158Total current liabilities
    
    
    14,916
    
    
    
    20,617CONVERTIBLE SUBORDINATED DEBENTURES
    
    
    
    
    
    
    1,803DEFERRED INCOME TAXES
    
    
    3,621
    
    
    
    3,758COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Preferred stock, no par value, 1,500,000 shares
authorized, none issued
    
    
    
    
    
    
    Common shares, no par value, 50,000,000 shares authorized,
26,468,353 and 26,157,185 shares issued, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    78,822
    
    
    
    74,950Retained earnings
    
    
    24,142
    
    
    
    19,917Accumulated other comprehensive income (loss)
    
    
    124
    
    
    
    (90
    )Total shareholders equity
    
    
    103,088
    
    
    
    94,777TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    121,625
    
    
    $
    120,955
  Page 6 of  22




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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Changes in Shareholders Equity (Unaudited)
(dollars and shares in thousands)
 AccumulatedCommon
    
    Additional
    
    
    
    
    
    Other
    
    
    
    
    
    TotalShares
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    ShareholdersIssued
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income (Loss)
    
    EquityBalance at September 30, 2006
    
    
    26,157
    
    
    $
    74,950
    
    
    $
    19,917
    
    
    $
    (90
    )
    
    $
    
    
    
    $
    94,777Dividends paid
    
    
    
    
    
    
    
    
    
    
    (7,220
    )
    
    
    
    
    
    
    
    
    
    
    (7,220
    )Exercise of stock options, net of tax
    
    
    128
    
    
    
    1,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,421Stock based compensation
    
    
    
    
    
    
    774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    774Bond conversion
    
    
    183
    
    
    
    1,677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,677Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    11,445
    
    
    
    
    
    
    
    11,445
    
    
    
    11,445Hedging activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (33
    )
    
    
    (33
    )Other comprehensive income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    (117
    )
    
    
    (117
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    364
    
    
    
    364Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,659Balance at March 31, 2007
    
    
    26,468
    
    
    $
    78,822
    
    
    $
    24,142
    
    
    $
    124
    
    
    
    
    
    
    $
    103,088
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 1. Basis of Presentation:
     2. Significant Accounting Policies
 (a) Revenue Recognition 
  Revenue Arrangements with Multiple Deliverables
 Page 8 of  22




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(b) Comprehensive Income 
    Three Months
    
    Six MonthsEnded March 31,
    
    Ended March 31,2007
    
    2006
    
    2007
    
    2006Net earnings
    
    $
    5,881
    
    
    $
    4,723
    
    
    $
    11,445
    
    
    $
    8,685Hedging activity
    
    
    6
    
    
    
    
    
    
    
    (33
    )
    
    
    Income taxes
    
    
    (33
    )
    
    
    5
    
    
    
    (117
    )
    
    
    (41
    )Foreign currency translation adjustment
    
    
    89
    
    
    
    (18
    )
    
    
    364
    
    
    
    154Comprehensive income
    
    $
    5,943
    
    
    $
    4,710
    
    
    $
    11,659
    
    
    $
    8,798
 (c) Income Taxes -
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(d) Stock-based Compensation 
 Share-Based
Payment
 (e) Cash equivalents 
  (f) Short-term investments 
 Accounting for Certain Investments in Debt and Equity Securities
 (g) Derivative financial instruments 
 Accounting for Derivative Instruments and Hedging Activities
 (h) Reclassifications 
  Page 10 of  22




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3. Inventories :
  March 31,
    
    September 30,2007
    
    2006Raw materials
    
    $
    4,311
    
    
    $
    3,973Work-in-process
    
    
    5,578
    
    
    
    5,139Finished goods
    
    
    8,975
    
    
    
    8,568$
    18,864
    
    
    $
    17,680
 4. Segment Information
  Page 11 of  22




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US
    
    European
    
    LifeDiagnostics
    
    Diagnostics
    
    Science
    
    Eliminations(1)
    
    TotalThree Months  2007Net sales -Third-party
    
    $
    19,866
    
    
    $
    6,274
    
    
    $
    5,954
    
    
    $
    
    
    
    $
    32,094Inter-segment
    
    
    2,041
    
    
    
    
    
    
    
    89
    
    
    
    (2,130
    )
    
    
    Operating income
    
    
    6,814
    
    
    
    1,207
    
    
    
    848
    
    
    
    (35
    )
    
    
    8,834Total assets (March 31, 2007)
    
    
    104,575
    
    
    
    14,192
    
    
    
    43,170
    
    
    
    (40,312
    )
    
    
    121,625Three Months  2006Net sales -Third-party
    
    $
    17,012
    
    
    $
    5,319
    
    
    $
    5,941
    
    
    $
    
    
    
    $
    28,272Inter-segment
    
    
    1,930
    
    
    
    
    
    
    
    298
    
    
    
    (2,228
    )
    
    
    Operating income
    
    
    4,748
    
    
    
    933
    
    
    
    1,319
    
    
    
    (23
    )
    
    
    6,977Total assets (September 30,
2006)
    
    
    109,678
    
    
    
    12,716
    
    
    
    42,178
    
    
    
    (43,617
    )
    
    
    120,955Six Months  2007Net sales -Third-party
    
    $
    38,820
    
    
    $
    11,529
    
    
    $
    10,465
    
    
    $
    
    
    
    $
    60,814Inter-segment
    
    
    4,261
    
    
    
    
    
    
    
    358
    
    
    
    (4,619
    )
    
    
    Operating income
    
    
    13,995
    
    
    
    2,092
    
    
    
    867
    
    
    
    (77
    )
    
    
    16,877Six Months  2006Net sales -Third-party
    
    $
    33,006
    
    
    $
    9,554
    
    
    $
    10,620
    
    
    $
    
    
    
    $
    53,180Inter-segment
    
    
    3,627
    
    
    
    
    
    
    
    422
    
    
    
    (4,049
    )
    
    
    Operating income
    
    
    9,818
    
    
    
    1,539
    
    
    
    1,805
    
    
    
    (15
    )
    
    
    13,147
 
 (1)
    
    Eliminations consist of intersegment transactions.  5. Intangible Assets:
  WtdAvg
    
    March 31, 2007
    
    September 30, 2006Amort
    
    Gross
    
    
    
    
    
    GrossPeriod
    
    Carrying
    
    Accumulated
    
    Carrying
    
    Accumulated(Yrs)
    
    Value
    
    Amortization
    
    Value
    
    AmortizationCore products and cell lines
    
    
    15
    
    
    $
    4,698
    
    
    $
    2,168
    
    
    $
    4,698
    
    
    $
    2,023Manufacturing technologies
    
    
    15
    
    
    
    5,907
    
    
    
    3,910
    
    
    
    5,907
    
    
    
    3,743Trademarks, licenses and patents
    
    
    12
    
    
    
    2,270
    
    
    
    1,625
    
    
    
    2,005
    
    
    
    1,545Customer lists and supply agreements
    
    
    13
    
    
    
    10,636
    
    
    
    5,538
    
    
    
    10,633
    
    
    
    5,116$
    23,511
    
    
    $
    13,241
    
    
    $
    23,243
    
    
    $
    12,427
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6. Debenture Conversion and Redemption Transactions:
   7. Hedging Transactions:
    Notional
    
    Contract
    
    Estimated Fair
    
    AverageAmount
    
    Value
    
    Value
    
    Exchange Rate
    
    Maturity1,550
    
    $2,046
    
    $2,078
    
    1.3203
    
    FY 2007
  Page 13 of  22




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8. Subsequent Event:
  
  Refer to Forward Looking Statements following the Index in front of this Form 10-Q .
 Operating Segments:
   Results of Operations:
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Net sales
  Page 14 of  22




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C. difficile H. pylori C difficile Card © TM H. pylori TM
 C. difficile Card ® H. pylori
   Gross Profit
   Operating Expenses
   Page 15 of  22




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Operating Income
  Other Income and Expense
  Income Taxes
   Page 16 of  22




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Six Months Ended March 31, 2007 Compared to Six Months Ended March 31, 2006
 Net sales
  C. difficile H. pylori C. difficile Card © TM
 C. difficile H. pylori
   Gross Profit
   Page 17 of  22




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Operating Expenses
     Operating Income
  Other Income and Expense
  Income Taxes
  Page 18 of  22




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Liquidity and Capital Resources:
 Comparative Cash Flow Analysis
      Capital Resources
   Page 19 of  22




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Page 20 of  22




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PART II. OTHER INFORMATION
 
   
   (1)
    
    Election of the following six directors:
James A. Buzard, 22,413,979 votes for, zero votes withheld, and 595,238 abstentions.
John A. Kraeutler, 16,698,988 votes for, zero votes withheld, and 6,310,229 abstentions.
Gary P. Kreider, 14,572,778 votes for, zero votes withheld, and 8,436,439 abstentions.
William J. Motto, 17,366,760 votes for, zero votes withheld, and 5,642,457 abstentions.
David C. Phillips, 22,495,727 votes for, zero votes withheld, and 513,490 abstentions.
Robert J. Ready, 21,475,575 votes for, zero votes withheld, and 1,533,642 abstentions.(2)
    
    Approval of the Meridian Bioscience, Inc. Officers Performance Compensation Plan and annual
net earnings as the factor used to determine the amount of cash bonus payments to be awarded
under the business achievement levels under the Plan: 22,577,984 votes for, 360,450 votes
against, and 70,782 abstentions.(3)
    
    Ratification of appointment of Grant Thornton LLP as Meridians independent public
accountants for fiscal year 2007: 22,972,607 votes for, 14,985 votes against, and 21,625
abstentions.
 
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MERIDIAN BIOSCIENCE, INC.Date: May 2, 2007
    
    /S/ Melissa LuekeMelissa LuekeVice President and Chief Financial Officer
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