SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-Q

For the Quarterly Period Ended December 31, 20172018

OR

For the transition period from                    to                    

Commission filenumber0-14902

MERIDIAN BIOSCIENCE, INC.

Incorporated under the laws of Ohio

31-0888197

(I.R.S. Employer Identification No.)

3471 River Hills Drive

Cincinnati, Ohio 45244

(513)271-3700

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM10-Q

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form10-Q contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “should” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings and revenue, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following: Meridian’s operating results, financial condition and 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, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with the ramp upits introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which our customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process. The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. We haveIn the past, the Company has identified a material weakness in our internal control over financial reporting, which has been remediated, but the Company can make no assurances that a material weakness will not be identified in the future, which if identified and not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements. In addition to the factors described in this paragraph, as well as those factors identified from time to time in our filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of our most recent Annual Report on Form10-K contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on our forward-looking statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollar amounts in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

ASSETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollarsdollar amounts in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated StatementStatements of Changes in Shareholders’ Equity (Unaudited)

(dollarsdollar and sharesshare amounts in thousands)thousands, except per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Dollars in Thousands, Except Per Share Amounts

(Unaudited)

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2017,2018, the results of its operations for the three month periods ended December 31, 20172018 and 2016,2017, and its cash flows for the three month periods ended December 31, 20172018 and 2016.2017. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s fiscal 20172018 Annual Report on Form10-K. Financial information as of September 30, 20172018 has been derived from the Company’s audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year.

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 20172018 Annual Report on Form10-K.10-K and should be referred to for a description of the Company’s current significant accounting policies, with the exception of Revenue Recognition, which is set forth below.

Recent Accounting PronouncementsRevenue Recognition –

In May 2014, the FASB issuedAdoption of New Standard

On October 1, 2018, we adopted ASUNo. 2014-09,Revenue from Contracts with Customers, which supersedes and replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. This guidance, including any clarification guidance thereon, will be effectiveusing the modified retrospective transition method applied to those contracts that were not completed as of that date. Results for the Companyreporting periods beginning on or after October 1, 2018 (fiscal 2019). Theare presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previously applicable guidance.

Upon adoption, we recorded a reduction of $116 to the opening balance of retained earnings as of October 1, 2018. This adjustment is related to writing off the book value of clinical diagnostic testing instruments located at customers for which there is no contractual arrangement for the instrument to be returned to the Company. Instruments placed with customers under an agreement to return the instrument to the Company has prepared an inventory of its existing revenue streamswere reclassified to machinery and a preliminary analysisequipment. Prior to adoption of the new guidance, all instruments placed with customers were capitalized and amortized over an estimated three-year utilization period, with the net balance reflected as deferred instrument costs.

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The following table summarizes the impact of the new revenue recognition criteria applying ASUstandard on our opening balance sheet:

Revenue by Product Platform/Type

Practical Expedients and Exemptions

Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.

Our products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.

We expense as incurred the costs to obtain contracts, as the amortization period would have been one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain expanded disclosure requirements,partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.

Reagent Rental Arrangements

Our Alethia and LeadCare product platforms require the Company doesuse of instruments for the tests to be processed. In many cases a customer is given use of the instrument, provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to Meridian. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rental” agreements. These agreements may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not currently anticipate that its planned adoptionwithin the scope of ASUNo. 2014-09 but rather ASU2016-02,Leases. Accordingly, we first allocate the transaction price between the lease elements and thenon-lease elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of thenon-lease elements.

For the portion of the transaction price allocated to thenon-lease elements, which are principally the test kits, the related revenue will be recognized at a modified retrospective basis will have a material impact on its reported revenues.point-in-time when control transfers.

Revenue allocated to the lease elements of these Reagent Rental arrangements represent less than 1% of total revenue and are included as part of net revenues in our Condensed Consolidated Statements of Income.

Recent Accounting Pronouncements –

In February 2016, the FASB issued ASU2016-02,Leases, which amends the accounting guidance related to leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is permitted. The Company expects to begin its assessment of the impact that adoption of this guidance will have on its financial statements later induring the second quarter of fiscal 2018.2019.

In MarchAugust 2016, the FASB issued ASU2016-09,2016-15,ImprovementsClassification of Certain Cash Receipts and Cash Payments. The update addresses certain specific cash flows and their treatment, with the objective being to Employee Share-Based Payment Accounting, which amendsreduce the accounting for share-based payment transactions. These changes, whichexisting diversity in how the items are designed for simplification, involve several aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities,presented and classification onclassified within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019, with the Condensed Consolidated Statements of Cash Flows reflecting such adoption, including the information related to restricted cash.

In February 2018, and as a result recorded $160the FASB issued ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to address certain of the recent U.S. federal income tax legislation’s impact on Accumulated Other Comprehensive Income (“AOCI”). The guidance specifically provides the option of reclassifying “stranded tax effects” related to the income tax provision, which under the previous guidance would have been recorded within additionalpaid-in capital. While the future effectlegislation from AOCI to retained earnings. Adoption and implementation of the optional guidance is dependent upon numerous factors (e.g.,not effective for the market priceCompany until the beginning of fiscal 2020, although early adoption is permitted. The Company plans to adopt this guidance in fiscal 2020 as required but does not expect adoption to have a significant impact on the Company’s common stock on the equity award grant date, the exercise/lapse datesconsolidated results of equity awards, and the market price of the Company’s common stock on such exercise/lapse dates), the effect is not expected to be material.

Reclassifications –

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.

Cash and equivalents include the following components:

Inventories are comprised of the following:

A summary of our acquired intangible assets subject to amortization, as of December 31, 20172018 and September 30, 2017,2018, is as follows:

The actual aggregate amortization expense for these intangible assets was $938$829 and $968$938 for the three months ended December 31, 20172018 and 2016,2017, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 20232024 is as follows: remainder of fiscal 2018 – $2,628, fiscal 2019 – $3,343,$2,487, fiscal 2020 – $3,178,$3,156, fiscal 2021 – $2,561,$2,560, fiscal 2022 – $2,182, and fiscal 2023 – $2,170.$2,170, and fiscal 2024 – $2,166.

On May 17, 2017, the FDA issued a field safety notice advising customers to discontinue use of Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25^th and June 5^th.Magellan’s lead testing systems are capable of processing both capillary and venous blood samples. Magellan’s LeadCare Plus and LeadCare Ultra systems, which account for approximately 10% of Magellan’s annual revenues, are used predominantly with venous blood samples. Magellan’s LeadCare and LeadCare II systems are predominantly used with capillary blood samples.

Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s Quality System, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress. To date, we have satisfied our post-Warning Letter reporting requirements with the FDA. During the firstsecond quarter of fiscal 2018, we incurred approximately $500the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. As part of this plan, certain functions and locations within both business units were streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Quality System remediation costs, primarily relatedTaunton, Massachusetts and Singapore, the operations of which were transferred to regulatory consultants.

locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. As a result of these matters, we expect to experience delays in reinstating venous blood sample testing on our LeadCare products, as well as in obtaining 510(k) clearance for new Magellan products. We also expect delays in obtaining export certifications for Magellan products during the remediation period. In light of these factors and their impacts, during our 2017 third fiscal quarter, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). With the assistance of an independent valuation firm, Magellan’s fair value was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the Magellan reporting unit did, in fact, exceed its fair value. As a result, an impairment charge of $6,628, on both apre-tax andafter-tax basis, wasactivities, restructuring costs totaling $6,332 were recorded during the fiscal 2017 third quarter. Given allyear ended September 30, 2018.

A summary of the factors considered, we do not anticipate, at this time, any further goodwill impairment charge fromaccrued liability associated with the Magellan acquisition.restructuring costs as of December 31, 2018 and September 30, 2018, is as follows:

In connection with the acquisition of Magellan Biosciences, Inc., and its wholly-owned subsidiary Magellan Diagnostics, Inc. (collectively, “Magellan”), on March 22, 2016, the Company entered into a $60,000 five-year term loan with a commercial bank. The term loan requires quarterly principal and interest payments, with interest at a variable rate tied to LIBOR, and a balloon principal payment due March 31, 2021. The required principal payments on the term loan for each of the remaining fiscal years are as follows: remainder of fiscal 2018 - $3,375, fiscal 2019 - $5,250,– $4,125, fiscal 2020 -– $6,000, and fiscal 2021 -– $39,000. In light of the term loan’s interest being determined on a variable rate basis, the fair value of the term loan at December 31, 20172018 approximates the current carrying value reflected in the accompanying Condensed Consolidated Balance Sheet.

In order to limit exposure to volatility in the LIBOR interest rate, the Company and the commercial bank also entered into an interest rate swap that effectively converts the variable interest rate on the term loan to a fixed rate of 2.76%. With an initial notional balance of $60,000, the interest rate swap was established with critical terms identical to those of the term loan, includingincluding: (i) notional reduction amounts and dates; (ii) LIBOR settlement rates; (iii) rate reset dates; and (iv) term/maturity. Due to this, the interest rate swap has been designated as an effective cash flow hedge, with changes in fair value reflected as a separate component of other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income. At December 31, 20172018 and September 30, 2017,2018, the fair value of the interest rate swap was $1,156$1,145 and $815,$1,722, respectively, and is reflected as anon-current asset in the accompanying Condensed Consolidated Balance Sheets. This fair value was determined by reference to a third party valuation,information provided by the counterparty, and is considered a Level 2 input within the fair value hierarchy of valuation techniques.

In addition, the Company maintains a $30,000 revolving credit facility with a commercial bank, which expires March 31, 2021. There were no borrowings outstanding on this credit facility at December 31, 20172018 or September 30, 2017.2018.

The term loan and the revolving credit facility are collateralized by the business assets of the Company’s U.S. subsidiaries and require compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the borrowing agreement. As of December 31, 2017,2018, the Company is in compliance with all covenants. The Company is also required to maintain a compensating cash balance with the bank in the amount of $1,000, and is in compliance with this requirement.

Meridian was formed in 1976 and functions as a fully-integrated life science company with principal businesses inin: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal viral,and respiratory and parasitic infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents used by researchers and other diagnostic manufacturers.

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio; Magellan’sOhio, and manufacturing operations for blood chemistry products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston);, and the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels.levels in blood.

The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany; and Sydney, Australia;Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents domestically and abroad, including a sales and business development and distribution facilitiesfacility in Singapore and Beijing, China to further pursue growing revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g.,in-vitro medical device manufacturing, microRNA detection,next-gen sequencing, plant genotyping, and mutation detection, among others).

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Amounts due from two Diagnostics distributor customers accounted for 25%14% and 11%12% of consolidated accounts receivable at December 31, 20172018 and September 30, 2017,2018, respectively. Revenues from these two distributor customers accounted for 38%34% and 23%32% of the Diagnostics segment third-party revenues during the three months ended December 31, 20172018 and 2016,2017, respectively, and represented 27%24% and 17%23% of consolidated revenues for the fiscal 20182019 and 20172018 first quarters, respectively.

Within our Life Science segment, two diagnostic manufacturing customers accounted for 15%28% and 19%15% of the segment’s third-party revenues during the three months ended December 31, 20172018 and 2016,2017, respectively.

Segment information for the interim periods is as follows:

On December 6, 2017, Michael Edelson filed a class actionderivative complaint in the United States District Court for the Southern District of Ohio naming Meridian, its Chief Executive Officer, Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The lawsuit underlying plaintiff’s class action complaint seeks compensatory damages, injunctive relief, equitable relief relating to corporate governance matters and attorneys’ fees to all membersfees. The case has been stayed by agreement of the proposed class. Becauseparties pending resolution of the litigation and related discoverymotion to dismiss the class action described above. We are in preliminary stages, we do not have sufficient informationunable to determine or predict the ultimate outcome or estimate the range of possible losses, if any. Accordingly, no provision for litigation losses has been included within either of the accompanying Condensed Consolidated StatementStatements of Operations for the fiscal quarterthree months ended December 31, 2018 or December 31, 2017. The Company maintains an insurance policy covering these matters, which has a $500 deductible.

On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and is working with the DOJ to promptly respond to the subpoena. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $540 and $0 of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three months ended December 31, 2018 and December 31, 2017, respectively.

On October 9, 2018, the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’sHelicobacter pylori stool antigen test to detectH. pylori for use on its automated LIAISON platform under the Meridian brand name worldwide. The new collaboration results in the termination of all pending legal disputes between the two parties and will expand the previous agreement between DiaSorin and Meridian, which focused on the sale, by DiaSorin, ofco-developed products in major countries in continental Europe. Approximately $50 and $730 of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three months ended December 31, 2018 and December 31, 2017, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Refer to “Forward-Looking Statements” following the Table of Contents in front of this Form10-Q. In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.

Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of Meridian’s financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes thereto beginning on page 1.

QUARTERLY HIGHLIGHTS

The first quarter of fiscal 2018 proved to be a successful quarter; a quarter highlighted by the following, the effects of which are discussed throughout this MD&A:

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RESULTS OF OPERATIONS

Three Months Ended December 31, 20172018

Net earnings for the first quarter of fiscal 2018 totaled $6,302,2019 increased 29% to $8,106, or $0.15$0.19 per diluted share, relatively flat compared to thefrom net earnings for the first quarter of fiscal 20172018 of $6,279,$6,302, or $0.15 per diluted share. The fiscal 2019 first quarter results include $589 of litigation costs, while the fiscal 2018 first quarter results include $1,483 of costs associated with the transition to our new CEOrestructuring and litigation costs, (collectively, “CEO transition and litigation costs”) (see Note 9 of the accompanying Condensed Consolidated Financial Statements), along with certainone-time tax effects of the recently-enacted U.S. tax reform act.act enacted in December 2017. These items impactedhad a combined impact on net earnings byof $452, or $0.01 per diluted share, in the fiscal 2019 quarter and $239, or less than $0.01 per diluted share, on a net basisin the fiscal 2018 quarter (see “USE OFNON-GAAP MEASURES” below). Consolidated revenues increased 12% to $52,283 for the first quarter of fiscal 20182019 totaled $51,480, a decrease of 2% compared to the same periodfirst quarter of the prior year (10%fiscal 2018 (1% decrease on a constant-currency basis).

Revenues for the Diagnostics segment for the first quarter of fiscal 2018 increased 11%2019 decreased 2% compared to the first quarter of fiscal 2017 (10%2018 (also 2% on a constant-currency basis), comprised of a 12% increase16% decrease in molecular assay products and a 10%2% increase in immunoassay and lead testingblood chemistry assay products. With a 12%16% increase in its molecular components businessreagents products and a 15% increase10% decrease in its immunoassay components business,immunological reagents products, revenues offor our Life Science segment increased by 14%were flat during the first quarter of fiscal 20182019 compared to the first quarter of fiscal 2017, increasing 12% on2018. On a constant-currency basis.basis, revenues for the Life Science segment increased 1%.

Our outlook for Magellan’s LeadCare II testing volume continues to be healthy. In the time period since the FDA released its Safety Notification (which pertained to venous blood lead testing performed on the systems produced by Magellan), nearly 700 new LeadCare II systems utilizing capillary blood samples have been placed in physician offices and clinics. Quality System remediation costs in theThe first quarter Diagnostics revenues reflect improvement in our respiratory illness and blood chemistry assay product lines being more than offset by decreased revenues for our gastrointestinal assays. Life Science revenues reflect inconsistent buying patterns with a number of fiscal 2018 associated with the Magellan FDA matter totaled approximately $500pre-tax, resultingour multi-national IVD manufacturing customers and general market softness in a total impact of less than $0.01 on diluted earnings per share for the quarter. Remediation costs in the remainder of fiscal 2018 are expected to be approximately $250pre-tax, or less than $0.01 impact on diluted earnings per share. Remediation costs relate primarily to professional fees for regulatory consultantsNorth America and periodic Quality System audits. In the course of remediation, Magellan may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of its products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. In addition, at this time, we do not anticipate any further significant impact on our results of operations or financial condition.China.

USE OFNON-GAAP MEASURES

We have supplemented our reported GAAP financial information with information on operating expenses, operating income, net earnings, basic earnings per share and diluted earnings per share excluding the effects of CEO transitionof: (i) restructuring costs (fiscal 2018); (ii) litigation costs (fiscal 2019 and 2018); and (iii) certainone-time tax effects of the tax reform act (fiscal 2018) – each of which is anon-GAAP measure. We have provided in the tables below reconciliations ofto the operating expenses, operating income, net earnings, basic earnings per share and diluted earnings per share with and without the effects of thesenon-routine items, for the fiscal quarters ended December 31, 2017 and December 31, 2016.

amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because:

Revenue reported on a constant-currency basis is also anon-GAAP measure and is calculated by applying current period average foreign currency exchange rates to each of the prior comparable periods. Management analyzes revenue on a constant-currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have anon-operating impact on revenue, management believes that evaluating revenue changes on a constant-currency basis provides an additional and meaningful assessment of revenue to both management and investors.

Thesenon-GAAP measures may be different fromnon-GAAP measures used by other companies. In addition, thesenon-GAAP measures are not based on any comprehensive set of accounting rules or principles.Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our results in conjunction with corresponding GAAP measures.

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