Refer to "Forward Looking Statements" following the Index in front of this Form 10-Q. In the discussion that follows, all amounts are in thousands (both tables and text), except per share data and percentages.

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.

Results of Operations

Net earnings for the first quarter of fiscal 2013 increased 29% to $8,474, or $0.20 per diluted share, from net earnings for the first quarter of fiscal 2012 of $6,578, or $0.16 per diluted share. This increase reflects the combined effects of both increased sales and increased operating expense. Additionally, the fiscal 2012 first quarter included $444 of costs associated with the consolidation of the Saco, Maine operations into the Memphis, Tennessee facility (impact on earnings of $289, or $0.01 per diluted share). Consolidated sales increased 13% to $45,351 for the first quarter of fiscal 2013 compared to the same period of the prior year. Increased sales across all of our diagnostic focus product families (C. difficile, Foodborne and H. pylori) as well as in our Life Science segment, contributed to this increase. In addition, an early and strong start to the influenza season resulted in an increase in sales of our Respiratory family of products compared to the fiscal 2012 first quarter.

Sales for the U.S. Diagnostics segment for the first quarter of fiscal 2013 increased 21% compared to the first quarter of fiscal 2012, reflecting growth across all of our focus product families - 14% growth in H. pylori products, 16% growth in foodborne products, and 17% growth in C. difficile products. Sales of our influenza respiratory products increased 211%, or approximately $1,000. First quarter fiscal 2013 sales for our European Diagnostics segment decreased 4% compared to the first quarter of fiscal 2012 due primarily to a negative currency effect. On an organic basis, which excludes the effects of currency translation, sales of our European Diagnostics segment were flat compared to the 2012 first quarter, with growth in C. difficile and H. pylori product sales offset by a decline in sales of our foodborne product family. Reflecting growth in its molecular reagent business being largely offset by a decline in its bulk immunoassay reagent business, sales of our Life Science segment increased by 1% during the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012.

Non-GAAP Information

The tables below provide information on net earnings, basic earnings per share and diluted earnings per share, excluding the effect of costs associated with the consolidation of our Saco, Maine operations into our Memphis, Tennessee facility (Q1 fiscal 2012), each of which is a non-GAAP financial measure, as well as reconciliations to 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:

1. These measures help to appropriately evaluate and compare the results of operations from period to period by removing the impact of non-routine costs related to consolidating the Maine operations (Q1 fiscal 2012); and

2. These measures are used by our management for various purposes, including evaluating performance against incentive bonus achievement targets, comparing performance from period to period in presentations to our Board of Directors, and as a basis for strategic planning and forecasting.

                                                         Three Months
                                                      Ended December 31,
                                                       2012          2011
          Net Earnings -
          U.S. GAAP basis                           $    8,474      $ 6,578
          Facility consolidation costs (1)                  -           289

          Adjusted earnings                         $    8,474      $ 6,867

          Net Earnings per Basic Common Share -
          U.S. GAAP basis                           $     0.21      $  0.16
          Facility consolidation costs (1)                  -          0.01

          Adjusted Basic EPS                        $     0.21      $  0.17

          Net Earnings per Diluted Common Share -
          U.S. GAAP basis                           $     0.20      $  0.16
          Facility consolidation costs (1)                  -          0.01

          Adjusted Diluted EPS                      $     0.20      $  0.17

(1) These facility consolidation costs are net of an income tax effect of $155, which was calculated using the effective tax rates of the jurisdictions in which the costs were incurred.

Revenue Overview

Our Diagnostics segments provide the largest share of our consolidated revenues, 79% and 76% for the first quarters of fiscal 2013 and fiscal 2012, respectively. Sales from our focus families (C. difficile, Foodborne and H. pylori) comprised 60% and 62% of our Diagnostics segments' revenues during the first quarters of fiscal 2013 and fiscal 2012, respectively. During the fiscal 2013 first quarter, 21% of our Diagnostic segments' revenues came from sales of our illumigene® molecular platform, which now consists of three FDA-cleared products: illumigene C. difficile, illumigene Group B Strep and illumigene Group A Strep.

The global revenue change for our Diagnostics segments during the fiscal 2013 first quarter was an increase of 17%, reflecting growth in all of our focus product families - 10% growth in H. pylori products, 13% growth in C. difficile products, and 15% in foodborne products.

illumigene Molecular Platform Products

Sales from our illumigene molecular platform products increased 66% to $7,400 in the first quarter of fiscal 2013 compared to the first quarter of the prior fiscal year, with nearly 975 clinical laboratories now using this innovative molecular platform. Our illumigene molecular C. difficile product was cleared by the FDA in July 2010, followed by our illumigene GBS (Group B Streptococcus), which was cleared by the FDA in December 2011, and our illumigene Group A Strep (Group A Streptococcus; Strep Throat), which was cleared in September 2012.

Additional illumigene molecular products are in development. These include a test for Mycoplasma pneumoniae (Walking Pneumonia), which was recently submitted to the FDA for marketing clearance and is expected to be available for sale in the U.S. during the third quarter of fiscal 2013. Our fifth test, for Bordetella pertussis (Whooping Cough), is expected to be available for sale in the U.S. during the third or fourth quarter of fiscal 2013. Our most recently announced tests, for Chlamydia trachomatis and Neisseria gonerrhoeae, are expected to be available for sale during the first half of 2014.

We believe that the diagnostic testing market is moving away from culture and immunoassay testing to molecular testing for diseases where there is a favorable cost/benefit position for the total cost of healthcare. While this market is competitive, with molecular companies such as Cepheid and Becton Dickinson and new entrants such as Quidel, Great Basin and Quest, we believe we are well positioned to capitalize on the migration to molecular testing. Our simple, easy to use, illumigene platform, with its expanding menu, requires no expensive equipment purchase and little to no maintenance cost. These features, along with its small footprint and the performance of the illumigene assays, make illumigene an attractive molecular platform to any size hospital.

C. difficile Products

Our C. difficile family grew 17% for our U.S. Diagnostics segment and 1% for our European Diagnostics segment on an organic basis. This growth is largely driven by the growth of our illumigene C. difficile product, which now represents nearly 70% of total C. difficile revenues. While the C. difficile market continues to be highly competitive, we are the only company that can offer a full range of high performing C. difficile testing formats, including toxin, GDH and molecular tests.

Foodborne Products

Although our foodborne products are marketed and sold on a global basis, most of our sales volume is within the U.S. Diagnostics segment. We continue to see demand increases in the United States, as laboratories realize the benefits of increased sensitivity and faster turnaround time with our tests for Enterohemorrhagic E. coli (EHEC) and Campylobacter, compared to traditional culture methods. Sales increases for these products within the U.S. Diagnostics segment were 16% for the first quarter of fiscal 2013.

The primary competition for our foodborne products is laboratory culture methods. We believe that our products have two principal advantages versus culture methods: 1) test accuracy, and 2) improved work flow, resulting in a significantly shortened time to test result (20 minutes vs. 24-48 hours for culture).

H. pylori Products

During the first quarter of fiscal 2013, sales of H. pylori products grew 14% for our U.S. Diagnostics segment; continuing to reflect the benefits of our partnerships with managed care companies in promoting the health and economic benefits of a test and treat strategy, and the ongoing effects of such strategy moving physician behavior away from serology-based testing toward direct antigen testing. Compared to the first quarter of fiscal 2012, sales of H. pylori products for our European Diagnostics segment increased 2% on an organic basis for the first quarter of fiscal 2013.

Respiratory Products

During the first quarter of fiscal 2013, total respiratory sales for our Diagnostics segments increased 42% compared to the fiscal 2012 first quarter, with our influenza product contributing approximately $1,800 in sales. This increase reflects the impact of the strong and early start to this year's influenza season, compared to a relatively mild season in fiscal 2012. In the U.S. we continue to see strong customer orders for our influenza product during January 2013. Influenza sales were negligible in Europe during the quarter.

Life Science Segment

Sales for our Life Science segment increased 1% for the first quarter of fiscal 2013, reflecting a 9% increase in our molecular reagent business being largely offset by a 4% decrease in our bulk immunoassay reagent business. Our molecular reagent business, operated through our Bioline Group, continues to benefit from its new product launches and advancements during recent months - most notably its SensiFAST™ and MyTaq™ PCR components. The decrease in our bulk immunoassay reagent business, on the other hand, largely results from the timing and size of certain large customers' orders, along with the timing of contract manufacturing work.

Foreign Currency

During the first quarter of fiscal 2013, currency exchange rates had an approximate $150 unfavorable impact on revenue; $175 unfavorable within the European Diagnostics segment and $25 favorable in the Life Science segment. This compares to currency exchange having an approximate $50 unfavorable impact on revenue in the first quarter of fiscal 2012.

Significant Customers

Two national distributors in our U.S. Diagnostics segment accounted for 55% and 50% of total sales for this segment for the first quarters of fiscal 2013 and 2012, respectively.

Our Life Science segment's sales of purified antigens and reagents to two diagnostic manufacturing customers accounted for 18% and 27% of the segment's total sales during the first quarters of fiscal 2013 and 2012, respectively. The fluctuation in the percentage of sales during the quarter reflects the inherent volatility in the buying patterns of these customers.

Medical Device Tax

On January 1, 2013, the medical device tax established as part of the U.S. healthcare reform legislation became effective and as a result, the Company made its first required tax deposit near the end of January. As previously disclosed, we currently anticipate that this legislation will result in an excise tax for the Company of approximately $2,000 in fiscal 2013, of which little, if any, can be passed on to the customer.

Segment Revenues

Our reportable segments are U.S. Diagnostics, European Diagnostics and Life Science. The U.S. Diagnostics segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the U.S. and countries outside of Australia, Europe, Africa and the Middle East. The European Diagnostics segment consists of the sale and distribution of diagnostic test kits in Australia, Europe, Africa and the Middle East. The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents domestically and abroad. The Life Science segment also includes the contract development and manufacture of cGMP clinical grade proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.

Revenues for the Diagnostics segments, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and strength of certain diseases, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by the timing and nature of arrangements for contract services work, which may have longer production cycles than bioresearch reagents and bulk antigens and antibodies, as well as buying patterns of major customers, and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues.

Revenues for each of our segments are shown below.

                                       Three Months Ended December 31,
                                   2012                2011          Inc (Dec)
        U.S. Diagnostics       $     30,366        $     25,009              21 %
        European Diagnostics          5,303               5,505              (4 )%
        Life Science                  9,682               9,561               1 %

        Consolidated           $     45,351        $     40,075              13 %

        International -
        U.S. Diagnostics       $      1,773        $      1,485              19 %
        European Diagnostics          5,303               5,505              (4 )%
        Life Science                  5,354               5,720              (6 )%

        Total                  $     12,430        $     12,710              (2 )%

        % of total sales                 27 %                32 %

Gross Profit



                                       Three Months Ended December 31,
                                     2012           2011          Change
             Gross Profit          $  28,796      $ 24,542               17 %

             Gross Profit Margin         64  %         61  %      +3 points

The overall gross profit margin increase for the first quarter of fiscal 2013 primarily results from the combined effects of 1) mix of sales from the Company's segments; 2) the lower overall cost structure from the consolidation of our U.S. Life Science manufacturing facilities; and 3) mix of products sold.

Our overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, bulk antigens and antibodies, proficiency panels, and contract research and development and contract manufacturing services. Product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.

Operating Expenses



                                        Research &           Selling &            General &                 Plant               Total Operating
                                        Development          Marketing          Administrative          Consolidation              Expenses
Q1 2012 Expenses                       $       2,273        $     5,377        $          6,643        $           444         $          14,737

% of Sales                                         6 %               13 %                    17 %                    1 %                      37 %

Fiscal 2013 Increases (Decreases):
U.S. Diagnostics                                 208                 24                     540                     -                        772
European Diagnostics                              -                 294                     102                     -                        396
Life Science                                      36                 (2 )                   210                   (444 )                    (200 )

Q1 2013 Expenses                       $       2,517        $     5,693        $          7,495        $            -          $          15,705

% of Sales                                         6 %               13 %                    17 %                   -  %                      35 %
% Increase (Decrease)                             11 %                6 %                    13 %                 (100 )%                      7 %

Overall, total operating expense increased during the first quarter of fiscal 2013 relative to the comparable prior fiscal year quarter, while declining as percentage of consolidated sales. The increase results in large part from the combined effects of our (i) ongoing efforts to control spending in each of our segments while investing the necessary resources in our strategic areas of growth, including increased investment in Research & Development for our molecular platform products; (ii) continuing to realize cost savings from the consolidation of our Core Life Science operations into one facility;
(iii) increased sales personnel costs in Europe in connection with filling open positions and upgrading talent; (iv) increasing incentive compensation expense compared to the prior year quarter based upon improved year-to-date operating results; and (v) incurring costs in connection with the consolidation of our Saco, Maine operations into our Memphis, Tennessee location during the three months ended December 31, 2011 of approximately $444.

Operating Income

Operating income increased 34% to $13,091 for the first quarter of fiscal 2013, as a result of the factors discussed above.

Income Taxes

The effective rate for income taxes was 36% for the first quarter of fiscal 2013, and 35% for the first quarter of fiscal 2012. The increase in the rate for the first quarter of fiscal 2013 primarily reflects the effect of no tax benefit being provided on losses experienced in certain foreign jurisdictions during the first quarter of fiscal 2013. For the fiscal year ending September 30, 2013, we expect the effective tax rate to approximate 34%-35%.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, consideration of acquisition plans, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities. Our investment portfolio presently consists of overnight repurchase agreements.

We have an investment policy that guides the holdings of our investment portfolio. Our objectives in managing the investment portfolio are to
(i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and
(iii) capture a market rate of return commensurate with market conditions and our policy's investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.

At the present time, we do not expect current conditions in the financial markets, or overall economic conditions to have a significant impact on our liquidity needs, financial condition, or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our $30,000 bank credit facility. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets remains tight for an extended period of time, and such conditions impact the collectability of our customer accounts receivable or credit terms with our vendors, or disrupt the supply of raw materials and services.

Net cash provided by operating activities increased 28% for the first quarter of fiscal 2013 to $16,047, reflecting the 29% increase in net earnings, along with the effects of the timing of federal income tax payments, and the timing of payments from and to customers and suppliers, respectively. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and dividends during the next 12 months.

Net cash used for financing activities increased 89% to $14,262 for the first quarter of fiscal 2013. This increase results primarily from the acceleration of the declaration and payment of the fiscal 2013 first quarter cash dividend; thus resulting in two quarterly dividends actually being disbursed during the three months ended December 31, 2012 (i.e., dividends for both fiscal 2012 fourth quarter and fiscal 2013 first quarter). This accelerated payment, believed to be in the best interest of the Company's shareholders, was made in anticipation of potential tax law changes at the beginning of the 2013 calendar year. The next regular quarterly cash dividend is expected be declared in April 2013 and paid in May 2013.

Capital Resources

We have a $30,000 credit facility with a commercial bank that expires on September 15, 2015. As of January 31, 2013, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this facility during the first three months of fiscal 2013 or during the full year of fiscal 2012.

Our capital expenditures are estimated to range between approximately $3,500 to $5,000 for fiscal 2013, with the actual amount depending upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and equivalents on hand, operating cash flows, and/or availability under the $30,000 credit facility discussed above.

We do not utilize any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements.