Attached files
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EX-32.2 - EXHIBIT 32.2 - IMMUCOR INC | ex32-2.htm |
EX-31.2 - EXHIBIT 31.2 - IMMUCOR INC | ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - IMMUCOR INC | ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - IMMUCOR INC | ex31-1.htm |
FORM 10-Q
United States
Securities and Exchange Commission
Washington, D. C. 20549
(Mark One) | |
X |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: August 31, 2015
OR
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-14820
IMMUCOR, INC.
(Exact name of registrant as specified in its charter)
Georgia |
22-2408354 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3130 Gateway Drive Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (770) 441-2051
Indicate by 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 X
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 Regulation S-T (Section 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 X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
Accelerated filer |
|
|
Non-accelerated filer X |
Smaller reporting company |
(do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of August 19, 2011, there was no established public trading market for the Company’s common stock; therefore, the aggregate market value of the common stock is not determinable.
As of October 13, 2015, there were 100 shares of common stock outstanding.
IMMUCOR, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL STATEMENTS
INDEX
PART I. FINANCIAL INFORMATION | ||
Item 1. |
Consolidated Financial Statements: | 1 |
Consolidated Balance Sheets (unaudited, except for May 31, 2015) |
1 | |
Consolidated Statements of Operations (unaudited) |
2 | |
Consolidated Statements of Comprehensive (Loss) Income (unaudited) |
3 | |
Consolidated Statements of Cash Flows (unaudited) |
4 | |
Notes to Consolidated Financial Statements (unaudited) |
5 | |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 31 |
Item 4. |
Controls and Procedures | 31 |
PART II. OTHER INFORMATION | ||
Item 1. |
Legal Proceedings | 32 |
Item 1A. |
Risk Factors | 32 |
Item 5. |
Other Information | 32 |
Item 6. |
Exhibits | 33 |
|
SIGNATURES | 33 |
ITEM 1. Consolidated Financial Statements |
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(Amounts in thousands, except share data) |
August 31, 2015 |
May 31, 2015 |
|||||||
(Unaudited) |
||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 19,027 | 18,363 | |||||
Trade accounts receivable, net of allowance for doubtful accounts of $1,607 and $1,669 at August 31, 2015 and May 31, 2015, respectively |
65,683 | 67,674 | ||||||
Inventories, net |
48,453 | 41,847 | ||||||
Deferred income tax assets, current portion |
5,977 | 5,931 | ||||||
Prepaid expenses and other current assets |
10,155 | 11,161 | ||||||
Total current assets |
149,295 | 144,976 | ||||||
PROPERTY AND EQUIPMENT, net |
73,340 | 73,574 | ||||||
GOODWILL |
842,310 | 842,258 | ||||||
INTANGIBLE ASSETS, net |
636,946 | 650,294 | ||||||
DEFERRED FINANCING COSTS, net |
24,645 | 26,399 | ||||||
OTHER ASSETS |
15,522 | 15,185 | ||||||
Total assets |
$ | 1,742,058 | 1,752,686 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 15,977 | 13,866 | |||||
Accrued interest and interest rate swap liability |
8,177 | 19,288 | ||||||
Accrued expenses and other current liabilities |
19,086 | 26,208 | ||||||
Income taxes payable |
3,252 | 3,496 | ||||||
Deferred revenue, current portion |
2,956 | 2,703 | ||||||
Current portion of long-term debt, net of debt discounts |
20,437 | 4,469 | ||||||
Total current liabilities |
69,885 | 70,030 | ||||||
LONG-TERM DEBT, net of debt discounts |
1,032,334 | 1,033,276 | ||||||
DEFERRED INCOME TAX LIABILITIES |
232,680 | 236,487 | ||||||
OTHER LONG-TERM LIABILITIES |
29,722 | 29,212 | ||||||
Total liabilities |
1,364,621 | 1,369,005 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 18) |
||||||||
SHAREHOLDERS' EQUITY: |
||||||||
Common stock, $0.00 par value, 100 shares authorized, issued and outstanding as of August 31, 2015 and May 31, 2015, respectively |
- | - | ||||||
Additional paid-in capital |
756,124 | 755,234 | ||||||
Accumulated deficit |
(339,205 | ) | (331,989 | ) | ||||
Accumulated other comprehensive loss |
(39,482 | ) | (39,564 | ) | ||||
Total shareholders' equity |
377,437 | 383,681 | ||||||
Total liabilities and shareholders' equity |
$ | 1,742,058 | 1,752,686 |
The accompanying notes are an integral part of these Consolidated Financial Statements. |
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands) |
(Unaudited) |
Three Months Ended |
||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
NET SALES |
$ | 96,712 | 102,441 | |||||
COST OF SALES (exclusive of amortization shown separately below) |
34,642 | 36,827 | ||||||
GROSS PROFIT |
62,070 | 65,614 | ||||||
OPERATING EXPENSES |
||||||||
Research and development |
6,830 | 7,078 | ||||||
Selling and marketing |
13,987 | 15,056 | ||||||
Distribution |
4,419 | 5,040 | ||||||
General and administrative |
10,746 | 10,884 | ||||||
Amortization expense |
13,578 | 13,682 | ||||||
Total operating expenses |
49,560 | 51,740 | ||||||
INCOME FROM OPERATIONS |
12,510 | 13,874 | ||||||
NON-OPERATING (EXPENSE) INCOME |
||||||||
Interest income |
42 | 56 | ||||||
Interest expense |
(22,492 | ) | (22,298 | ) | ||||
Other, net |
(127 | ) | 76 | |||||
Total non-operating net expense |
(22,577 | ) | (22,166 | ) | ||||
LOSS BEFORE INCOME TAXES |
(10,067 | ) | (8,292 | ) | ||||
BENEFIT FOR INCOME TAXES |
(2,850 | ) | (2,813 | ) | ||||
NET LOSS |
$ | (7,217 | ) | (5,479 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements. |
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME |
(in thousands) |
(Unaudited) |
Three Months Ended |
||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
NET LOSS |
$ | (7,217 | ) | (5,479 | ) | |||
OTHER COMPREHENSIVE INCOME (LOSS), net of tax: |
||||||||
Foreign currency translation adjustment |
22 | (4,365 | ) | |||||
Changes in fair value of cash flow hedges: |
||||||||
Portion of cash flow hedges recognized in other comprehensive income |
180 | 249 | ||||||
Less: reclassification adjustment for losses included in net income |
(120 | ) | (132 | ) | ||||
Net changes in fair value of cash flow hedges |
60 | 117 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) |
82 | (4,248 | ) | |||||
COMPREHENSIVE LOSS |
$ | (7,135 | ) | (9,727 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements. |
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
(Unaudited) |
Three Months Ended |
||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (7,217 | ) | (5,479 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
17,049 | 18,395 | ||||||
Noncash interest expense |
2,695 | 2,422 | ||||||
Loss on disposition and retirement of fixed assets |
125 | 47 | ||||||
Provision (recoveries) for doubtful accounts |
19 | 56 | ||||||
Share-based compensation expense |
887 | 518 | ||||||
Deferred income taxes |
(3,903 | ) | (4,035 | ) | ||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable, trade |
2,328 | (3,295 | ) | |||||
Income taxes |
300 | 71 | ||||||
Inventories |
(7,916 | ) | (1,764 | ) | ||||
Other assets |
330 | 555 | ||||||
Accounts payable |
2,174 | 2,119 | ||||||
Deferred revenue |
247 | 288 | ||||||
Accrued expenses and other liabilities |
(15,025 | ) | (10,204 | ) | ||||
Cash used in operating activities |
(7,907 | ) | (306 | ) | ||||
INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(1,991 | ) | (3,285 | ) | ||||
Other investments |
(3,100 | ) | - | |||||
Acquisitions of businesses, net of cash acquired |
(750 | ) | (241 | ) | ||||
Cash used in investing activities |
(5,841 | ) | (3,526 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Repayments of long-term debt |
(1,662 | ) | (1,664 | ) | ||||
Proceeds from Revolving Facility |
20,000 | 8,000 | ||||||
Repayments of Revolving Facility |
(4,000 | ) | (8,000 | ) | ||||
Cash provided by (used in) financing activities |
14,338 | (1,664 | ) | |||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
74 | (770 | ) | |||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
664 | (6,266 | ) | |||||
Cash and cash equivalents at beginning of period |
18,363 | 23,621 | ||||||
Cash and cash equivalents at end of period |
$ | 19,027 | 17,355 | |||||
SUPPLEMENTAL INFORMATION: |
||||||||
Income taxes paid, net of refunds |
$ | 700 | 933 | |||||
Interest paid |
30,783 | 30,529 | ||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Movement from inventory to property and equipment of instruments placed on rental agreements |
$ | 1,297 | 1,717 |
The accompanying notes are an integral part of these Consolidated Financial Statements. |
IMMUCOR, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
NATURE OF BUSINESS AND BASIS OF PRESENTATION |
Nature of Business
Immucor, Inc. (“Immucor”) and its subsidiaries (collectively, the “Company”) develop, manufacture and sell transfusion and transplantation diagnostics products used by hospitals, donor centers and reference laboratories around the world. Our products are used in a number of tests performed in the typing and screening of blood, organs or stem cells to identify certain properties of the cell and serum components of human blood and tissue to ensure donor-recipient compatibility for blood transfusion, and organ transplantations. The Company operates manufacturing facilities in North America with both direct affiliate offices and third-party distribution arrangements worldwide.
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission’s (“SEC”) instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Company’s interim results are not necessarily indicative of the Company’s expected full year results. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and related notes for the year ended May 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on August 21, 2015.
Basis of Consolidation
The consolidated financial statements include the accounts of Immucor and all its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. There are no other entities controlled by the Company, either directly or indirectly.
Impact of Recently Issued Accounting Standards –
Accounting Standards Not Yet Adopted
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory: Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of this update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, which corresponds to the Company’s first quarter of fiscal year 2018. Early adoption is permitted. The Company is evaluating the effect of the adoption of ASU 2015-11 on its consolidated financial statements.
In May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. The Company will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. An amendment was made in July 2015 to change the effective date of this standard from the first interim period within annual reporting periods beginning after December 15, 2016 to December 16, 2017, which corresponds to the Company’s first quarter of fiscal year 2019. No early adoption is permitted under this standard, and it is to be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect of the adoption of ASU 2014-09 on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 changes the presentation of debt issuance costs for term debt in the balance sheet by requiring the debt issuance costs to be presented as a direct deduction from the related debt liability, rather than recorded as an asset. The standard is required to be adopted in interim and annual periods beginning on or after December 15, 2015, which corresponds to the Company’s first quarter of fiscal year 2017. This standard is to be applied retrospectively and early adoption is permitted. The Company is evaluating the effect of the adoption of ASU 2015-03 on its consolidated financial statements.
2. |
BUSINESS COMBINATIONS |
Business combinations completed in fiscal year 2016:
Acquisition of reference lab – On August 3, 2015, the Company completed the asset purchase of a U.S. reference lab for a total cash purchase price of $0.8 million. This acquisition will enable Immucor to deliver current Immucor products as a service to customers as well as to commercialize newly developed products. The fair values of the acquired assets are $0.3 million for equipment, $0.2 million for identifiable intangible assets and $0.3 million for goodwill.
Business combinations completed in fiscal year 2015:
Acquisition of Sentilus – On October 1, 2014, the Company completed the acquisition of Sentilus, Inc. (“Sentilus”). Sentilus was a privately-held company focused on developing a novel, inkjet-printed antibody microarray-based technology, FemtoarraysTM. Among other uses, Sentilus has been developing FemtoarraysTM and the underlying technology for use in a variety of in vitro diagnostics areas, including transfusion diagnostics, and could potentially serve as a next generation technology platform for our transfusion diagnostics business. The total cash purchase price of the Sentilus business was $6.0 million which was paid in the second quarter of fiscal year 2015. The purchase agreement includes two contingent consideration arrangements, one for achieving certain regulatory milestones with a potential earn-out for $4.0 million in cash over the next three years, and the other in the form of performance payments based on a percentage of net future sales of the to-be-developed products over approximately the next twenty years. Management estimated that the fair value of the contingent consideration arrangements, as of the acquisition date, was approximately $6.3 million, which is included in Other long-term liabilities on the Company’s consolidated balance sheet. This was determined by applying a form of the income approach, based upon the probability-weighted projected payment amounts discounted to present value at a rate appropriate for the risk of achieving the financial performance targets. The key assumptions were the earn-out period payment probabilities, projected revenues, discount rate and the timing of payments. The present value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments. These assumptions are considered to be level 3 inputs by ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), which are not observable in the market. Including the contingent consideration, the aggregate estimated fair value of the consideration paid was approximately $12.3 million. The other identifiable intangible assets include in-process research and development (“IPR&D”) and a non-competition agreement, which was valued at $18.8 million in the aggregate. Goodwill was valued at $0.6 million and the long-term deferred tax liability was valued at $7.2 million. The goodwill arising from this acquisition is not deductible for tax purposes.
Acquisition of LIFECODES distribution business – The Company completed the acquisition of the LIFECODES distribution business in India effective August 1, 2014. This acquisition enables Immucor to streamline the distribution of its LIFECODES products in that region. The Company acquired the assets of the India distribution business for a total cash purchase price of $0.4 million, of which a total of $0.2 million was paid in both the first and second quarters of fiscal year 2015. The purchase price also included a potential earn-out of up to $0.2 million if certain financial targets are met during the two year period ending July 2016.
The operating results of these acquired businesses have been included in the Company’s consolidated results of operations since their dates of acquisition.
3. |
OTHER INVESTMENTS |
Sirona Collaboration – On October 3, 2014, the Company entered into a collaborative arrangement with Sirona Genomics, Inc. (“Sirona”) for the commercialization of Sirona’s human leukocyte antigen (“HLA”) typing sample preparation and bioinformatics offering for next-generation sequencing. As part of this collaborative arrangement, the Company paid $0.7 million for a warrant with an exclusive option to acquire 100% of the common stock of Sirona and has loaned $7.7 million bearing interest at a market rate to Sirona for development funding. The collaborative arrangement also includes the potential for future interest bearing loans from the Company of up to $3.6 million over a two year period from the date of the arrangement, subject to the achievement of certain development milestones and other terms of the arrangement.
Sirona is considered to be a variable interest entity (“VIE”). However, because Sirona retains sole responsibility for and control of the operations of the business and for achieving product commercialization, the Company is not required to consolidate the results of Sirona. The maximum loss exposure associated with the VIE is $12.0 million, which includes the outstanding loan to Sirona of $7.7 million and the amount paid for the warrant of $0.7 million, and any future potential loans to be made by Immucor. The outstanding loan and the warrant asset are both included in Other assets on the Company’s consolidated balance sheet as of August 31, 2015.
4. |
RELATED PARTY TRANSACTIONS |
In connection with the acquisition of Immucor in fiscal year 2012, the Company entered into a management services agreement with TPG Capital, L.P. (the “Sponsor”). Pursuant to such agreement, and in exchange for on-going consulting and management advisory services that are being provided to the Company, the Sponsor receives an aggregate annual monitoring fee of approximately $3.0 million. In the three months ended August 31, 2015, and August 31, 2014, approximately $0.8 million, and $0.9 million, respectively, was recorded for the monitoring fees, additional services provided by the Sponsor, and out-of-pocket expenses. These expenses are included in general and administrative expenses in the Company’s consolidated statements of operations. As of August 31, 2015 and May 31, 2015, the Company owed $0.8 million and $0.7 million, respectively, to the Sponsor for these fees and expenses.
5. |
INVENTORIES, net |
Inventories, net are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Inventories, net consist of the following (in thousands):
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Raw materials and supplies |
$ | 14,171 | 10,816 | |||||
Work in process |
8,795 | 9,197 | ||||||
Finished goods |
25,487 | 21,834 | ||||||
$ | 48,453 | 41,847 |
6. |
PROPERTY AND EQUIPMENT, net |
Property and equipment, net consists of the following (in thousands):
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Land |
$ | 238 | 250 | |||||
Buildings and improvements |
2,357 | 2,494 | ||||||
Leasehold improvements |
25,816 | 25,639 | ||||||
Capital work-in-progress |
8,100 | 6,897 | ||||||
Furniture and fixtures |
3,765 | 3,757 | ||||||
Machinery, equipment and instruments |
95,250 | 94,021 | ||||||
135,526 | 133,058 | |||||||
Less accumulated depreciation |
(62,186 | ) | (59,484 | ) | ||||
Property and equipment, net |
$ | 73,340 | 73,574 |
Depreciation expense was $3.5 million in the three months ended August 31, 2015, and was $4.7 million in the three months ended August 31, 2014. Depreciation expense is primarily included in cost of sales in the Company’s consolidated statements of operations.
7. |
GOODWILL |
The consolidated financial statements include the goodwill resulting from the acquisition of Immucor in the first quarter of fiscal year 2012, and the acquisition of various businesses since that date. The following table presents the changes in the carrying amount of goodwill during the three months ended August 31, 2015 and the fiscal year ended May 31, 2015 (in thousands):
August 31, 2015 |
May 31, 2015 |
|||||||
Balance at beginning of period |
$ | 842,258 | 851,563 | |||||
Additions: |
||||||||
Acquisition of businesses |
346 | 432 | ||||||
Foreign currency translation adjustment |
(294 | ) | (9,737 | ) | ||||
Balance at end of period |
$ | 842,310 | 842,258 |
In the first quarter of fiscal year 2016 and in fiscal year 2015, there were no significant changes in goodwill other than the impact of changes in foreign currency exchange rates, and an increase in goodwill from business acquisitions completed in those periods. For the periods ending August 31, 2015 and May 31, 2015, the Company had $160.0 million of accumulated impairment losses on goodwill.
8. |
OTHER INTANGIBLE ASSETS, net |
Other intangible assets, net consist of the following (in thousands):
As of |
||||||||||||||||||||||||||||
August 31, 2015 |
May 31, 2015 |
|||||||||||||||||||||||||||
Weighted Average Life (years) |
Cost |
Accumulated Amortization |
Net |
Cost |
Accumulated Amortization |
Net |
||||||||||||||||||||||
Other intangible assets subject to amortization: |
||||||||||||||||||||||||||||
Customer relationships |
19 | $ | 462,639 | (91,868 | ) | 370,771 | 462,534 | (86,052 | ) | 376,482 | ||||||||||||||||||
Existing technology / trade names |
11 | 315,004 | (106,645 | ) | 208,359 | 314,850 | (99,565 | ) | 215,285 | |||||||||||||||||||
Corporate trade name |
15 | 40,000 | (10,754 | ) | 29,246 | 40,000 | (10,088 | ) | 29,912 | |||||||||||||||||||
Below market leasehold interests |
7 | 1,200 | (576 | ) | 624 | 1,200 | (557 | ) | 643 | |||||||||||||||||||
Other intangibles |
4 | 429 | (183 | ) | 246 | 428 | (156 | ) | 272 | |||||||||||||||||||
Total amortizable assets |
819,272 | (210,026 | ) | 609,246 | 819,012 | (196,418 | ) | 622,594 | ||||||||||||||||||||
Intangible assets not subject to amortization: |
||||||||||||||||||||||||||||
In-process research and development |
27,700 | - | 27,700 | 27,700 | - | 27,700 | ||||||||||||||||||||||
Total non-amortizable assets |
27,700 | - | 27,700 | 27,700 | - | 27,700 | ||||||||||||||||||||||
Other intangible assets, net |
$ | 846,972 | (210,026 | ) | 636,946 | 846,712 | (196,418 | ) | 650,294 |
A portion of the Company’s customer relationships is held in functional currencies outside the U.S. Therefore, the stated cost as well as the accumulated amortization is affected by the fluctuation in foreign currency exchange rates.
Amortization expense related to these intangible assets for the three months ended August 31, 2015 and August 31, 2014 was $13.6 million and $13.7 million, respectively. Expected amortization expense for the remainder of fiscal year 2016 and for each of the five succeeding years is as follows (in thousands):
Year Ending May 31: |
||||||
2016 |
$ | 40,813 | ||||
2017 |
54,261 | |||||
2018 |
54,147 | |||||
2019 |
50,223 | |||||
2020 |
49,115 | |||||
2021 |
49,089 |
9. |
DEFERRED FINANCING COSTS, net |
Changes in deferred financing costs during the three months ended August 31, 2015 and the fiscal year ended May 31, 2015 are as follows (in thousands):
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Balance at beginning of period |
$ | 26,399 | 33,116 | |||||
Amortization |
(1,754 | ) | (6,717 | ) | ||||
Balance at end of period |
$ | 24,645 | 26,399 |
Deferred financing costs are capitalized and are amortized over the life of the related debt agreements using the effective interest rate method, except the senior secured revolving loan facility which uses the straight line method.
10. |
LONG-TERM DEBT |
Long-term debt consists of the following (in thousands):
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Term Loan Facility, net of $6,848 and $7,381 debt discounts, respectively |
$ | 639,904 | 641,029 | |||||
Notes, net of $3,136 and $3,291 debt discounts, respectively |
396,864 | 396,709 | ||||||
Revolving Facility |
16,000 | - | ||||||
Capital lease agreements |
3 | 7 | ||||||
1,052,771 | 1,037,745 | |||||||
Less current portion, net of debt discounts |
(20,437 | ) | (4,469 | ) | ||||
Long-term debt, net of current portion |
$ | 1,032,334 | 1,033,276 |
Senior Secured Credit Facilities, Security Agreement and Guaranty
The Company is party to a credit agreement and related security and other agreements as subsequently amended, with a bank syndicate of lenders, and Citibank N.A. as the Administrative Agent. The credit agreement, as amended, provides for (1) a $663.3 million senior secured term loan facility with Term B-2 Loans (the “Term Loan Facility”) and (2) a $100.0 million senior secured revolving loan facility (the “Revolving Facility,” and together with the Term Loan Facility, the “Senior Credit Facilities”). In addition to borrowings upon prior notice, the Revolving Facility includes borrowing capacity in the form of letters of credit and borrowings on same-day notice, referred to as swing line loans, in each case, up to $25.0 million, and is available in U.S. dollars, GBP, Euros, Yen, Canadian dollars and in such other currencies as the Company and the Administrative Agent under the Revolving Facility may agree (subject to a sublimit for such non-U.S. currencies).
Borrowings under the Senior Credit Facilities bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either (a) in the case of borrowings in U.S. dollars, a base rate determined by reference to the highest of (1) the prime rate of Citibank, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) in the case of borrowings in U.S. dollars or another currency, a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which, in the case of the Term Loan Facility only, shall be no less than 1.25%. The applicable margin for borrowings under the Term Loan Facility is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. The applicable margin for borrowings under the Revolving Facility is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. The applicable margin for borrowings under the Revolving Facility is subject to a 0.25% step-down, when the Company’s senior secured net leverage ratio at the end of a fiscal quarter is less than or equal to 3:00 to 1:00.
The interest rate on the Term Loan Facility was 5.00% as of August 31, 2015 and May 31, 2015. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Term Loan Facility is 6.10% for the quarter ended August 31, 2015. At August 31, 2015, there were $16.0 million outstanding borrowings under the Revolving Facility and no outstanding letters of credit. The weighted average interest rate on the borrowings from the Revolving Facility was 4.9% during the first quarter of fiscal year 2016.
The Company is required to make scheduled principal payments on the last business day of each calendar quarter equal to 0.25% of the original principal amount of loans under the Term Loan Facility with the balance due and payable on August 19, 2018. Currently scheduled principal payments are $1.7 million per quarter. The Company is also required to repay loans under the Term Loan Facility based on annual excess cash flows as defined in the credit agreement governing the Term Loan Facility and upon the occurrence of certain other events set forth in that credit agreement. The additional principal due under the terms of the excess cash flow requirement was zero for fiscal years 2015 and 2014. The terms of the Senior Credit Facilities provide that any principal paid as a result of the excess cash flow requirement, shall be applied to the scheduled installments of principal following the date of prepayment in direct order of maturity.
All obligations under the Senior Credit Facilities are unconditionally guaranteed by the parent company of Immucor, IVD Intermediate Holdings B Inc. (the “Parent”), and certain of Immucor’s existing and future wholly owned domestic subsidiaries (such subsidiaries collectively, the “Subsidiary Guarantors”), and are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Parent and Subsidiary Guarantors, subject in each case to customary exceptions and exclusions.
Indenture and the Senior Notes Due 2019
The Company has also issued $400.0 million in principal amount of Notes. The Notes bear interest at a rate of 11.125% per annum, and interest is payable semi-annually on February 15 and August 15 of each year. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Notes is 11.6% for the quarter ended August 31, 2015. The Notes mature on August 15, 2019.
Subject to certain exceptions, the Notes are guaranteed on a senior unsecured basis by each of Immucor’s current and future wholly owned domestic restricted subsidiaries (and non-wholly owned subsidiaries if such non-wholly owned subsidiaries guarantee the Company’s or another guarantor’s other capital market debt securities) that is a guarantor of certain debt of the Company or another guarantor, including the Senior Credit Facilities. The Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future indebtedness that is not expressly subordinated in right of payment thereto. The Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of payment thereto and effectively junior to (a) the Company’s existing and future secured indebtedness, including the Senior Credit Facilities described above, to the extent of the value of the collateral securing such indebtedness and (b) all existing and future liabilities of the Company’s non-guarantor subsidiaries.
The Company is not aware of any violations of the covenants pursuant to the terms of the indenture governing the Notes or the credit agreement governing the Senior Credit Facilities.
Future Commitments
The following is a summary of the combined principal maturities of all long-term debt and principal payments to be made under the Company’s capital lease agreements for the remainder of fiscal year 2016 and each of the fiscal years presented in the table below (in thousands):
Year Ended May 31: |
||||||
2016 |
$ | 20,977 | ||||
2017 |
6,632 | |||||
2018 |
6,632 | |||||
2019 |
628,514 | |||||
2020 |
400,000 | |||||
$ | 1,062,755 |
Interest Expense
The significant components of interest expense are as follows (in thousands):
Three Months Ended |
||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
Notes, including OID amortization |
$ | 11,279 | 11,262 | |||||
Term loan facility, including OID amortization |
8,804 | 8,861 | ||||||
Amortization of deferred financing costs |
1,754 | 1,649 | ||||||
Interest rate swaps and other interest |
210 | 261 | ||||||
Revolving facility fees and interest |
160 | 142 | ||||||
Interest accreted on contingent consideration liability |
285 | 123 | ||||||
Interest expense |
$ | 22,492 | 22,298 |
11. |
DERIVATIVE FINANCIAL INSTRUMENTS |
As of August 31, 2015, the Company has interest rate swap agreements to hedge $155.0 million of its future interest commitments resulting from the Company’s Term Loan Facility, and to protect the Company from variability in cash flows attributable to changes in LIBOR interest rates. The purpose of entering into these swap agreements is to match the LIBOR floor in the swaps with the terms of the Term Loan Facility. Consistent with the terms of the Company’s Term Loan Facility, these swaps include a LIBOR floor of 1.25%. These swap agreements hedge a portion of contractual floating rate interest commitments through the expiration of the agreement in September of each year through 2016. As a result of these agreements, the LIBOR rate associated with the hedged amount of the Company’s indebtedness has been fixed at 1.77% until September 30, 2015.
Prior to October 1, 2014, the Company had swap agreements that hedged $240.0 million of its floating rate interest commitments at a weighted average fixed LIBOR rate of 1.67%. Effective October 1, 2014 through September 30, 2015, the Company has swap agreements that hedge $155.0 million of the Company’s floating rate interest commitments at a weighted average fixed LIBOR rate of 1.77%. Effective October 1, 2015 through September 30, 2016, the Company will have swap agreements to hedge $70.0 million of the Company’s floating rate interest commitments at a fixed LIBOR rate of 1.91%.
The Company designated the interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these swaps are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from accumulated other comprehensive income or loss to interest expense.
The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into interest expense in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in the fair values of derivatives that do not qualify as effective are immediately recognized in earnings.
The gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. As of August 31, 2015, approximately $0.5 million of the deferred net loss on derivative instruments accumulated in other comprehensive loss is expected to be reclassified as interest expense during the next twelve months. This expectation is based on the expected timing of the occurrence of the hedged forecasted transactions.
The fair values of the interest rate swap agreements are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (level 2). A summary of the recorded liabilities included in the consolidated balance sheets is as follows (in thousands):
As of | ||||||||
August 31, 2015 | May 31, 2015 | |||||||
Interest rate swaps (included in other liabilities) |
$ | (506 | ) | (686 | ) |
The losses from accumulated other comprehensive loss (“AOCI”) was reclassified to the consolidated statement of operations and appears as follows (in thousands):
Three Months Ended |
||||||||
August 31 |
||||||||
Location of (loss) gain reclassified from AOCI into income |
2015 |
2014 |
||||||
(Losses) gains on cash flow hedges: |
||||||||
Interest expense (effective portion) |
$ | (217 | ) | (261 | ) | |||
Interest income (expense) (ineffective portion) |
$ | (1 | ) | - |
12. |
FAIR VALUE |
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
• |
Level 1—Quoted prices in active markets for identical assets or liabilities. |
• |
Level 2—Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• |
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
As of August 31, 2015 |
||||||||||||||||
Fair Value Measurements of Assets (Liabilities) Using |
Carrying |
|||||||||||||||
(Level 1) |
(Level 2) |
(Level 3) |
Amount |
|||||||||||||
(in thousands of dollars) | ||||||||||||||||
Derivative instruments |
$ | - | (506 | ) | - | (506 | ) | |||||||||
Contingent consideration liability |
$ | - | - | (18,863 | ) | (18,863 | ) |
As of May 31, 2015 |
||||||||||||||||
Fair Value Measurements of Assets (Liabilities) Using |
Carrying |
|||||||||||||||
(Level 1) |
(Level 2) |
(Level 3) |
Amount |
|||||||||||||
(in thousands of dollars) | ||||||||||||||||
Derivative instruments |
$ | - | (686 | ) | - | (686 | ) | |||||||||
Contingent consideration liability |
$ | - | - | (18,596 | ) | (18,596 | ) |
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short-term maturity of these instruments. Of the $19.0 million and $18.4 million of cash and cash equivalents at August 31, 2015 and May 31, 2015, respectively, approximately 32% and 37% was located in the U.S., respectively.
The Company uses derivative financial instruments, primarily in the form of floating-to-fixed interest rate swap agreements, in order to mitigate the risks associated with interest rate fluctuations on the Company’s floating rate indebtedness. The estimated fair value of the Company’s derivative instruments is based on quoted market prices for similar instruments (a level 2 input) and are reflected at fair value in the consolidated balance sheets. The level 2 inputs used to calculate fair value were interest rates, volatility and credit derivative markets. The Company’s current and long-term derivative financial instrument liabilities are included in accrued interest and interest rate swap liability and other long-term liabilities in the Company’s consolidated balance sheets.
The fair value of the Company’s Notes and the Term Loan Facility (collectively referred to as the Company’s debt instruments) is estimated to be $419.3 million and $646.8 million at August 31, 2015, respectively, based on recent trades of similar instruments. The fair value of the Notes and the Term Loan Facility was estimated to be $424.3 million and $653.3 million at May 31, 2015, respectively, based on the fair value of these instruments at that time.
Management believes that these liabilities can be liquidated without restriction.
As of August 31, 2015, the Company had $18.9 million in contingent consideration liabilities for earn-out provisions resulting from acquisitions, of which $0.1 million was included in Accrued expenses and other current liabilities and $18.8 million was included in Other long-term liabilities on the Company’s consolidated balance sheet.
As of May 31, 2015, the Company had $18.6 million in contingent consideration liabilities for earn-out provisions, of which $0.1 million was included in Accrued expenses and other current liabilities and $18.5 million was included in Other long-term liabilities on the Company’s consolidated balance sheet.
The fair value of these contingent consideration liabilities was determined by applying a form of the income approach (a level 3 input), based upon the probability-weighted projected payment amounts discounted to present value at a rate appropriate for the risk of achieving the performance targets. The key assumptions included in the calculations were the earn-out period payment probabilities, projected revenues, discount rate and the timing of payments. The present value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments.
The changes in the contingent consideration liability are summarized in the following table (in thousands):
Three Months Ended |
Twelve Months Ended |
|||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Balance at the beginning of the period |
$ | (18,596 | ) | (11,300 | ) | |||
Additions due to acquisitions |
- | (6,469 | ) | |||||
Payments |
18 | 87 | ||||||
Accretion of fair value |
(285 | ) | (914 | ) | ||||
Balance at the end of the period |
$ | (18,863 | ) | (18,596 | ) |
13. |
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
The changes in accumulated other comprehensive (loss) income are as follows (in thousands):
Pretax |
Tax |
After Tax |
||||||||||
Three Months Ended August 31, 2015 |
||||||||||||
Foreign exchange translation adjustment |
$ | (29 | ) | (51 | ) | 22 | ||||||
Changes in fair value of cash flow hedges |
180 | 120 | 60 | |||||||||
$ | 151 | 69 | 82 | |||||||||
Three Months Ended August 31, 2014 |
||||||||||||
Foreign exchange translation adjustment |
$ | (4,340 | ) | 25 | (4,365 | ) | ||||||
Changes in fair value of cash flow hedges |
248 | 131 | 117 | |||||||||
$ | (4,092 | ) | 156 | (4,248 | ) |
The components of accumulated other comprehensive loss are as follows (in thousands):
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Cumulative foreign currency translation adjustment |
$ | (39,117 | ) | (39,139 | ) | |||
Change in fair value of cash flow hedges, net of tax |
(365 | ) | (425 | ) | ||||
Accumulated other comprehensive loss |
$ | (39,482 | ) | (39,564 | ) |
14. |
SHARE-BASED COMPENSATION |
The Company has granted nonvested restricted stock, stock options, and stock appreciation rights to key employees and directors under several stock award plans. The Company granted stock awards with an aggregate fair value of approximately $11.9 million and $0.6 million during the first three months ended August 31, 2015 and August 31, 2014, respectively. As of August 31, 2015, a total of 19,423 shares were available for future grants.
Restricted stock units typically vest over a two year period (50% per year) and do not expire. Upon vesting, restricted stock units are settled in shares of IVD Holdings Inc.’s common stock. Stock option awards are granted with service-based vesting conditions, and performance-based or market-based vesting conditions. The service-based vesting options contain tiered vesting terms over the service period. The performance-based or market-based options vest in tranches upon the achievement of certain performance or market objectives, which are measured over a three or four year period. The stock appreciation rights vest only on the occurrence of a liquidity event. These awards have a ten year term.
In the first quarter of fiscal year 2016, the Company granted 279,247 shares of options with service-based conditions and 34,566 shares of restricted stock units. In conjunction with these grants, the Compensation Committee approved an increase in the shares eligible for grant under the Company’s 2011 Equity Incentive Plan from 514,631 shares to 808,444 shares.
Stock options with service-based vesting conditions
The Company has granted awards that contain service-based vesting conditions. These awards contain tiered vesting terms over the service period. The compensation cost for these options is recognized on a straight-line basis over the vesting periods. Activity for the service-based vesting options was as follows for the quarter ended August 31, 2015:
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value (1) |
|||||||||||||
Service-based options outstanding at May 31, 2015 |
158,329 | $ | 100.00 | |||||||||||||
Granted |
279,247 | 100.00 | ||||||||||||||
Exercised |
- | - | ||||||||||||||
Forfeited |
(3,000 | ) | 100.00 | |||||||||||||
Expired or cancelled |
- | 100.00 | ||||||||||||||
Service-based options outstanding at August 31, 2015 |
434,576 | 100.00 | 8.8 | $ | - | |||||||||||
Exercisable at August 31, 2015 |
107,633 | $ | 100.00 | 6.6 | $ | - |
(1) |
The aggregate intrinsic value in the above table represents the total pre-tax amount that a participant would receive if the option had been exercised on the last day of the respective fiscal year. Options with a market value less than its exercise value are not included in the intrinsic value amount. |
The weighted-average grant-date fair value of share options granted during the first quarter of fiscal year 2016 was $29.85. As of August 31, 2015, there was $9.1 million of total unrecognized compensation cost related to nonvested service-based stock option awards. This compensation cost is expected to be recognized over a weighted average period of approximately 3.7 years.
Restricted stock units
The fair value of restricted stock is estimated using the Monte Carlo simulation approach described above and is then discounted due to non-marketability. The following is a summary of the changes in unvested restricted stock units for the first quarter of fiscal year 2016:
Number of Shares |
Weighted-Average Grant-Date Fair Value |
|||||||
Nonvested restricted stock units outstanding at May 31, 2015 |
2,400 | $ | 84.55 | |||||
Granted |
34,566 | 104.24 | ||||||
Vested |
- | - | ||||||
Forfeited |
- | - | ||||||
Nonvested restricted stock units outstanding at August 31, 2015 |
36,966 | $ | 102.98 |
As of August 31, 2015, there was $3.6 million of total unrecognized compensation cost related to nonvested restricted stock awards. This compensation cost is expected to be recognized over the weighted average period of approximately 3.7 years.
Other awards
There were no significant changes in options granted with performance-based or market-based conditions in the first quarter of fiscal year 2016. As of August 31, 2015, there was $0.2 million of total unrecognized compensation cost related to nonvested performance-based or market-based stock option awards. This compensation cost is expected to be recognized over the weighted average period of approximately 1.0 year.
As of August 31, 2015 there was no expense or liability recognized related to the stock appreciation rights granted as management has determined that a liquidity event is not considered probable. The fair value of the liability relating to cash-settled stock appreciation rights was approximately $2.6 million as of August 31, 2015.
The Company recognized expense of $0.9 million and $0.5 million in the three months ended August 31, 2015 and August 31, 2014, respectively, before income tax benefits, for all of the Company’s stock plans.
15. |
INCOME TAXES |
The effective tax rate for the quarters ended August 31, 2015 and August 31, 2014 was 28.3% and 33.9%, respectively. The difference between the federal statutory rate and the effective tax rate for the quarters ended August 31, 2015 and 2014 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate and the impact of recording U. S. income taxes associated with current and future distributions of foreign earnings.
The Company does not consider itself to be permanently reinvested with respect to its accumulated and unrepatriated earnings as well as the future earnings of each foreign subsidiary. Accordingly, the Company has provided for deferred taxes on future earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary in excess of its accumulated and unrepatriated earnings to be permanently reinvested and thus has not recorded a deferred tax liability on that amount.
16. |
SEGMENT AND GEOGRAPHIC INFORMATION |
The Company determines operating segments in accordance with its internal operating structure, which is organized based upon product groups. Each segment is separately managed and is evaluated primarily upon operating results. The Company has two operating segments, the Transfusion segment and the Transplant & Molecular segment, which have been aggregated into one reportable segment.
The Company manufactures and markets a complete line of diagnostics products and automated systems used primarily by hospitals, donor centers and reference laboratories in a number of tests performed to detect and identify certain properties of human blood and human tissue to enable the most compatible match available between patient and donor. These tests are performed for the purpose of blood transfusion, pre-transplant human leukocyte antigen (“HLA”) typing and screening processes as well as post-transplant patient monitoring to aid in the identification of graft rejection.
The Company operates in various geographies. These geographic markets are comprised of the United States, Europe, Canada, Japan and other international markets. These other international markets are considered Emerging Markets for our business. These products are marketed globally, both directly to the end user and through established distributors.
Accounting policies for segments are the same as those described in the summary of significant accounting policies.
The following is a summary of the Company’s segment data (in thousands):
Three Months Ended | ||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
Net sales by product group: |
||||||||
Transfusion |
$ | 81,156 | 86,369 | |||||
Transplant & Molecular |
15,556 | 16,072 | ||||||
Total |
$ | 96,712 | 102,441 |
Following is a summary of enterprise-wide information (in thousands):
Three Months Ended | ||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
Net sales to customers by geography are as follows: |
||||||||
United States |
$ | 61,422 | 62,379 | |||||
Europe (A) |
17,787 | 21,447 | ||||||
Canada |
3,899 | 4,891 | ||||||
Other |
13,604 | 13,724 | ||||||
Total |
$ | 96,712 | 102,441 |
Net sales are attributed to individual countries based on the customer’s country of origin at the time of the sale and where the Company has an operating entity.
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Long-lived assets (excluding goodwill and intangibles) by geography: |
||||||||
United States |
$ | 52,737 | 52,764 | |||||
Europe (B) |
14,527 | 14,542 | ||||||
Canada |
3,700 | 4,029 | ||||||
Other (C) |
2,376 | 2,239 | ||||||
Total |
$ | 73,340 | 73,574 |
As of |
||||||||
August 31, 2015 |
May 31, 2015 |
|||||||
Concentration of net assets by geography: |
||||||||
United States |
$ | 233,419 | $ | 241,522 | ||||
Europe |
103,265 | 100,071 | ||||||
Canada |
28,808 | 30,274 | ||||||
Other (C) |
11,944 | 11,814 | ||||||
Total |
$ | 377,436 | 383,681 |
(A) – Net sales to any individual country within Europe were not material to the Company’s consolidated net sales.
(B) - Long-lived assets located in any individual country within Europe were not material to the Company's consolidated long-lived assets.
(C) - Primarily Japan and India.
Sales to an individual customer did not exceed more than 10% of our net sales during the three months ended August 31, 2015, or August 31, 2014.
17. |
CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES |
The Company has certain outstanding indebtedness that is guaranteed by its U.S. subsidiaries. However, the indebtedness is not guaranteed by the Company’s foreign subsidiaries. The guarantor subsidiaries are all wholly owned and the guarantees are made on a joint and several basis and are full and unconditional. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented. The condensed consolidating financial information of the Company is as follows:
Balance Sheets
IMMUCOR, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATING BALANCE SHEETS |
August 31, 2015 |
(in thousands) |
(Unaudited) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 6,503 | (449 | ) | 12,973 | - | 19,027 | |||||||||||||
Accounts receivable, net |
28,704 | 5,888 | 31,091 | - | 65,683 | |||||||||||||||
Intercompany receivable |
74,871 | 18,891 | 7,902 | (101,664 | ) | - | ||||||||||||||
Inventories, net |
21,748 | 15,132 | 13,466 | (1,893 | ) | 48,453 | ||||||||||||||
Deferred income tax assets, current portion |
2,511 | 2,254 | 481 | 731 | 5,977 | |||||||||||||||
Prepaid expenses and other current assets |
4,763 | 470 | 4,922 | - | 10,155 | |||||||||||||||
Total current assets |
139,100 | 42,186 | 70,835 | (102,826 | ) | 149,295 | ||||||||||||||
PROPERTY AND EQUIPMENT, net |
39,309 | 13,428 | 20,603 | - | 73,340 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
219,954 | 5,020 | 3,019 | (227,993 | ) | - | ||||||||||||||
GOODWILL |
744,149 | 47,985 | 50,176 | - | 842,310 | |||||||||||||||
OTHER INTANGIBLE ASSETS, net |
545,147 | 58,250 | 33,549 | - | 636,946 | |||||||||||||||
DEFERRED FINANCING COSTS, net |
24,645 | - | - | - | 24,645 | |||||||||||||||
OTHER ASSETS |
14,711 | 436 | 375 | - | 15,522 | |||||||||||||||
Total assets |
$ | 1,727,015 | 167,305 | 178,557 | (330,819 | ) | 1,742,058 | |||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Accounts payable |
$ | 9,214 | 2,794 | 3,969 | - | 15,977 | ||||||||||||||
Intercompany payable |
2,423 | 90,626 | 8,615 | (101,664 | ) | - | ||||||||||||||
Accrued interest and interest rate swap liability |
8,177 | - | - | - | 8,177 | |||||||||||||||
Accrued expenses and other current liabilities |
8,108 | 4,556 | 6,422 | - | 19,086 | |||||||||||||||
Income taxes payable |
30,031 | (30,090 | ) | 3,311 | - | 3,252 | ||||||||||||||
Deferred revenue, current portion |
1,691 | 4 | 1,261 | - | 2,956 | |||||||||||||||
Current portion of long term debt, net of debt discounts |
20,433 | 4 | - | - | 20,437 | |||||||||||||||
Total current liabilities |
80,077 | 67,894 | 23,578 | (101,664 | ) | 69,885 | ||||||||||||||
LONG TERM DEBT, net of debt discounts |
1,032,334 | - | - | - | 1,032,334 | |||||||||||||||
DEFERRED INCOME TAX LIABILITIES |
220,801 | 2,238 | 9,641 | - | 232,680 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
16,367 | 12,035 | 1,320 | - | 29,722 | |||||||||||||||
Total liabilities |
1,349,579 | 82,167 | 34,539 | (101,664 | ) | 1,364,621 | ||||||||||||||
SHAREHOLDERS' EQUITY: |
||||||||||||||||||||
Total shareholders' equity |
377,436 | 85,138 | 144,018 | (229,155 | ) | 377,437 | ||||||||||||||
Total liabilities and shareholders' equity |
$ | 1,727,015 | 167,305 | 178,557 | (330,819 | ) | 1,742,058 |
IMMUCOR, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATING BALANCE SHEETS |
May 31, 2015 |
(in thousands) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 7,080 | (263 | ) | 11,546 | - | 18,363 | |||||||||||||
Accounts receivable, net |
30,442 | 6,014 | 31,218 | - | 67,674 | |||||||||||||||
Intercompany receivable |
68,815 | 24,201 | 8,861 | (101,877 | ) | - | ||||||||||||||
Inventories |
18,361 | 13,706 | 11,830 | (2,050 | ) | 41,847 | ||||||||||||||
Deferred income tax assets, current portion |
2,512 | 2,253 | 375 | 791 | 5,931 | |||||||||||||||
Prepaid expenses and other current assets |
5,178 | 426 | 5,557 | - | 11,161 | |||||||||||||||
Total current assets |
132,388 | 46,337 | 69,387 | (103,136 | ) | 144,976 | ||||||||||||||
PROPERTY AND EQUIPMENT, net |
38,915 | 13,849 | 20,810 | - | 73,574 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
220,412 | 5,021 | 3,019 | (228,452 | ) | - | ||||||||||||||
GOODWILL |
744,149 | 47,640 | 50,469 | - | 842,258 | |||||||||||||||
OTHER INTANGIBLE ASSETS, net |
557,133 | 59,164 | 33,997 | - | 650,294 | |||||||||||||||
DEFERRED FINANCING COSTS, net |
26,399 | - | - | - | 26,399 | |||||||||||||||
OTHER ASSETS |
14,533 | 310 | 342 | - | 15,185 | |||||||||||||||
Total assets |
$ | 1,733,929 | 172,321 | 178,024 | (331,588 | ) | 1,752,686 | |||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Accounts payable |
$ | 6,297 | 2,604 | 4,965 | - | 13,866 | ||||||||||||||
Intercompany payable |
2,389 | 91,547 | 7,941 | (101,877 | ) | - | ||||||||||||||
Accrued interest and interest swap liability |
19,288 | - | - | - | 19,288 | |||||||||||||||
Accrued expenses and other current liabilities |
13,758 | 5,131 | 7,319 | - | 26,208 | |||||||||||||||
Income taxes payable |
30,061 | (30,074 | ) | 3,509 | - | 3,496 | ||||||||||||||
Deferred revenue, current portion |
1,498 | 7 | 1,198 | - | 2,703 | |||||||||||||||
Current portion of long-term debt, net of debt discounts |
4,462 | 7 | - | - | 4,469 | |||||||||||||||
Total current liabilities |
77,753 | 69,222 | 24,932 | (101,877 | ) | 70,030 | ||||||||||||||
LONG-TERM DEBT, net of debt discounts |
1,033,276 | - | - | - | 1,033,276 | |||||||||||||||
DEFERRED INCOME TAX LIABILITIES |
223,232 | 3,639 | 9,616 | - | 236,487 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
15,987 | 11,908 | 1,317 | - | 29,212 | |||||||||||||||
Total liabilities |
1,350,248 | 84,769 | 35,865 | (101,877 | ) | 1,369,005 | ||||||||||||||
SHAREHOLDERS' EQUITY: |
||||||||||||||||||||
Total shareholders' equity |
383,681 | 87,552 | 142,159 | (229,711 | ) | 383,681 | ||||||||||||||
Total liabilities and shareholders' equity |
$ | 1,733,929 | 172,321 | 178,024 | (331,588 | ) | 1,752,686 |
Statements of Operations for the Quarter
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATING STATEMENTS OF OPERATIONS |
Three Months Ended August 31, 2015 |
(in thousands) |
(Unaudited) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 63,887 | 14,718 | 35,299 | (17,192 | ) | 96,712 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
20,264 | 8,967 | 22,603 | (17,192 | ) | 34,642 | ||||||||||||||
GROSS PROFIT |
43,623 | 5,751 | 12,696 | - | 62,070 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
2,639 | 4,019 | 172 | - | 6,830 | |||||||||||||||
Selling and marketing |
6,401 | 2,545 | 5,041 | - | 13,987 | |||||||||||||||
Distribution |
2,443 | 389 | 1,587 | - | 4,419 | |||||||||||||||
General and administrative |
7,288 | 1,300 | 2,158 | - | 10,746 | |||||||||||||||
Amortization expense |
11,972 | 1,069 | 537 | - | 13,578 | |||||||||||||||
Total operating expenses |
30,743 | 9,322 | 9,495 | - | 49,560 | |||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
12,880 | (3,571 | ) | 3,201 | - | 12,510 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
39 | - | 25 | (22 | ) | 42 | ||||||||||||||
Interest expense |
(22,384 | ) | (118 | ) | (12 | ) | 22 | (22,492 | ) | |||||||||||
Other, net |
525 | (128 | ) | (524 | ) | - | (127 | ) | ||||||||||||
Total non-operating net expense |
(21,820 | ) | (246 | ) | (511 | ) | - | (22,577 | ) | |||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(8,940 | ) | (3,817 | ) | 2,690 | - | (10,067 | ) | ||||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(2,250 | ) | (1,401 | ) | 801 | - | (2,850 | ) | ||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(6,690 | ) | (2,416 | ) | 1,889 | - | (7,217 | ) | ||||||||||||
Net (loss) income of consolidated subsidiaries |
(527 | ) | - | - | 527 | - | ||||||||||||||
NET (LOSS) INCOME |
$ | (7,217 | ) | (2,416 | ) | 1,889 | 527 | (7,217 | ) |
IMMUCOR, INC. AND SUBSIDIARIES |
CONSOLIDATING STATEMENTS OF OPERATIONS |
Three Months Ended August 31, 2014 |
(in thousands) |
(Unaudited) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 66,268 | 14,614 | 39,573 | (18,014 | ) | 102,441 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
20,775 | 9,627 | 24,439 | (18,014 | ) | 36,827 | ||||||||||||||
GROSS PROFIT |
45,493 | 4,987 | 15,134 | - | 65,614 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
2,640 | 4,214 | 224 | - | 7,078 | |||||||||||||||
Selling and marketing |
6,237 | 2,695 | 6,124 | - | 15,056 | |||||||||||||||
Distribution |
2,680 | 388 | 1,972 | - | 5,040 | |||||||||||||||
General and administrative |
7,261 | 1,045 | 2,578 | - | 10,884 | |||||||||||||||
Amortization expense |
11,971 | 1,076 | 635 | - | 13,682 | |||||||||||||||
Total operating expenses |
30,789 | 9,418 | 11,533 | - | 51,740 | |||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
14,704 | (4,431 | ) | 3,601 | - | 13,874 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
3 | - | 78 | (25 | ) | 56 | ||||||||||||||
Interest expense |
(22,180 | ) | (123 | ) | (20 | ) | 25 | (22,298 | ) | |||||||||||
Other, net |
143 | (40 | ) | (27 | ) | - | 76 | |||||||||||||
Total non-operating (expense) income |
(22,034 | ) | (163 | ) | 31 | - | (22,166 | ) | ||||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(7,330 | ) | (4,594 | ) | 3,632 | - | (8,292 | ) | ||||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(2,189 | ) | (1,734 | ) | 1,110 | - | (2,813 | ) | ||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(5,141 | ) | (2,860 | ) | 2,522 | - | (5,479 | ) | ||||||||||||
Net (loss) income of consolidated subsidiaries |
(338 | ) | - | - | 338 | - | ||||||||||||||
NET (LOSS) INCOME |
$ | (5,479 | ) | (2,860 | ) | 2,522 | 338 | (5,479 | ) |
Statements of Cash Flows for the Quarter
IMMUCOR, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATING CASH FLOW INFORMATION |
Three Months Ended August 31, 2015 |
(in thousands) |
(Unaudited) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (9,987 | ) | 691 | 1,389 | - | (7,907 | ) | ||||||||||||
Net cash used in investing activities |
(4,942 | ) | (873 | ) | (26 | ) | - | (5,841 | ) | |||||||||||
Net cash (used in) provided by financing activities |
14,342 | (4 | ) | - | - | 14,338 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
10 | - | 64 | - | 74 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
(577 | ) | (186 | ) | 1,427 | - | 664 | |||||||||||||
Cash and cash equivalents at beginning of period |
7,080 | (263 | ) | 11,546 | - | 18,363 | ||||||||||||||
Cash and cash equivalents at end of period |
$ | 6,503 | (449 | ) | 12,973 | - | 19,027 |
IMMUCOR, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATING CASH FLOW INFORMATION |
Three Months Ended August 31, 2014 |
(in thousands) |
(Unaudited) |
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2,858 | 124 | (3,288 | ) | - | (306 | ) | ||||||||||||
Net cash used in investing activities |
(2,728 | ) | (369 | ) | (429 | ) | - | (3,526 | ) | |||||||||||
Net cash used in financing activities |
(1,659 | ) | (5 | ) | - | - | (1,664 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(57 | ) | - | (713 | ) | - | (770 | ) | ||||||||||||
Decrease in cash and cash equivalents |
(1,586 | ) | (250 | ) | (4,430 | ) | - | (6,266 | ) | |||||||||||
Cash and cash equivalents at beginning of period |
4,898 | (445 | ) | 19,168 | - | 23,621 | ||||||||||||||
Cash and cash equivalents at end of period |
$ | 3,312 | (695 | ) | 14,738 | - | 17,355 |
18. |
COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
Immucor and BioArray Solutions Limited (“BioArray”), a wholly owned subsidiary of Immucor, are defendants in an action brought in August 2014 by Rutgers, the State University of New Jersey (“Rutgers”), in the Superior Court of New Jersey for Middlesex County, alleging breach of contract and fraud claims under a patent license between Rutgers and BioArray. The Company believes the claims are without merit and that it has meritorious defenses. The Company believes that liability is unlikely and that the amount of any liability is not currently reasonably estimable. Further, the Company believes that any potential liability would not be material to the Company’s operations or to its financial condition.
From time to time, the Company is party to certain legal proceedings in the ordinary course of business. However, the Company is not currently subject to any legal proceedings expected to have a material adverse effect on its consolidated financial position, results of operations or cash flows.
Purchase Commitments
Purchase commitments made in the normal course of business were $37.8 million as of August 31, 2015. These purchases were primarily for inventory items. The following is a schedule of approximate future payments for purchase commitments as of August 31, 2015 (in thousands):
Year ended May 31: |
||||||
2016 |
$ | 13,917 | ||||
2017 |
9,021 | |||||
2018 |
3,883 | |||||
2019 |
4,083 | |||||
2020 |
4,283 | |||||
Thereafter |
2,567 | |||||
$ | 37,754 |
19. |
SUBSEQUENT EVENTS |
On September 24, 2015, the Company’s Compensation Committee approved a modification to its 2011 Equity Incentive Plan effective November 1, 2015. This modification adds an alternative service-based vesting opportunity to all previously granted, but currently unvested, options having solely performance-based or market-based vesting conditions. These awards will vest over an approximately three-year period of time.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We operate in the transfusion and transplantation in vitro diagnostics markets. Our products perform typing and screening of blood, organs or stem cells to ensure donor-recipient compatibility. Our offerings are targeted at hospitals, donor centers and reference laboratories around the globe. We have manufacturing facilities in the United States (“U.S.”) and Canada and sell our products through both direct affiliate offices and third-party distribution arrangements.
We operate in various geographies. These geographic markets are comprised of the United States, Europe, Canada, Japan and other international markets. These other international markets are considered Emerging Markets for our business. These products are marketed globally, both directly to the end user and through established distributors.
We operate in a highly regulated industry and are subject to continuing compliance with multiple country-specific statutes, regulations and standards. For example, in the U.S. the Food and Drug Administration (“FDA”) regulates all aspects of the transfusion process, including the marketing of reagents and instruments used to determine compatibility. Additionally, we are subject to government legislation that governs the delivery of healthcare.
Our automated instrument-reagent systems operate on a “razor/razor blade” model, with our instruments serving as the “razors” and our reagents serving as the “razor blades.” For transfusion diagnostics, our instruments are “closed systems,” meaning our proprietary reagents can only be used on our instruments. For transplant diagnostics, our reagents run on Luminex instruments, which are open systems. The “razor/razor blade” business model generates a recurring revenue stream for us.
Results of Operations
The following table sets forth items from the consolidated statements of operations as reported for each period (in thousands of dollars, except percentages).
Three Months Ended |
||||||||||||||||
August 31 |
Change |
|||||||||||||||
2015 |
2014 |
Amount |
% |
|||||||||||||
Net sales | $ | 96,712 | 102,441 | (5,729 | ) | (5.6 | ) | |||||||||
Cost of sales (*) | 34,642 | 36,827 | (2,185 | ) | (5.9 | ) | ||||||||||
Gross profit |
62,070 | 65,614 | (3,544 | ) | (5.4 | ) | ||||||||||
Operating expenses: | ||||||||||||||||
Research and development |
6,830 | 7,078 | (248 | ) | (3.5 | ) | ||||||||||
Selling and marketing |
13,987 | 15,056 | (1,069 | ) | (7.1 | ) | ||||||||||
Distribution |
4,419 | 5,040 | (621 | ) | (12.3 | ) | ||||||||||
General and administrative |
10,746 | 10,884 | (138 | ) | (1.3 | ) | ||||||||||
Amortization expense |
13,578 | 13,682 | (104 | ) | (0.8 | ) | ||||||||||
Total operating expenses |
49,560 | 51,740 | (2,180 | ) | (4.2 | ) | ||||||||||
Income from operations | 12,510 | 13,874 | (1,364 | ) | (9.8 | ) | ||||||||||
Non-operating (expense) income: | ||||||||||||||||
Interest income |
42 | 56 | (14 | ) | (25.0 | ) | ||||||||||
Interest expense |
(22,492 | ) | (22,298 | ) | (194 | ) | 0.9 | |||||||||
Other, net |
(127 | ) | 76 | (203 | ) | ** | ||||||||||
Total non-operating net expense |
(22,577 | ) | (22,166 | ) | (411 | ) | 1.9 | |||||||||
Loss before income taxes | (10,067 | ) | (8,292 | ) | (1,775 | ) | 21.4 | |||||||||
Benefit for income taxes | (2,850 | ) | (2,813 | ) | (37 | ) | 1.3 | |||||||||
Net loss |
$ | (7,217 | ) | (5,479 | ) | (1,738 | ) | 31.7 |
(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses. |
(**) Calculation is not meaningful. |
Three Months Ended August 31, 2015 and August 31, 2014:
Net sales were $96.7 million for the three months ended August 31, 2015 as compared with $102.4 million for the three months ended August 31, 2014, a decrease of $5.7 million, or 5.6%. This decrease in net sales is described in the discussion of net sales by product group below. Net sales by product group are presented in the following table (in thousands of dollars, except percentages):
Three Months Ended |
||||||||||||||||
August 31 |
Change |
|||||||||||||||
2015 |
2014 |
Amount |
% |
|||||||||||||
Net sales by product group: |
||||||||||||||||
Transfusion |
$ | 81,156 | 86,369 | (5,213 | ) | (6.0 | ) | |||||||||
Transplant & Molecular |
15,556 | 16,072 | (516 | ) | (3.2 | ) | ||||||||||
Total |
$ | 96,712 | 102,441 | (5,729 | ) | (5.6 | ) |
Transfusion: Net sales of our transfusion products for the three months ended August 31, 2015 were $81.2 million as compared with $86.4 million for the three months ended August 31, 2014, a decrease of $5.2 million, or 6.0%. Transfusion product net sales were lower in the first quarter of fiscal year 2016 with decreases reported across all Transfusion product lines mainly due to an unfavorable change in foreign currency exchange rates in the first quarter of fiscal year 2016. After adjusting for the impact of foreign currency exchange rate fluctuations, net sales in the first three months of fiscal year 2016 were lower by approximately 0.9 % when compared with the first three months of fiscal year 2015. Net sales of our Transfusion products were higher in the first quarter of fiscal year 2015 mainly due to the launch of a new serum product in the U.S. market that resulted in a higher volume of product shipments in that period.
Transplant & Molecular: Net sales of our Transplant & Molecular products for the three months ended August 31, 2015 were $15.6 million as compared with $16.1 million for the three months ended August 31, 2014, a decrease of $0.5 million, or 3.2%. This decrease in net sales was primarily due to an unfavorable change in foreign currency exchange rates in the first quarter of fiscal year 2016 as compared with the first quarter of fiscal year 2015, partially offset by an increase in net sales of our PreciseTypeTM human erythrocyte antigen test and higher net sales generated from our Emerging Markets. Net sales from our PreciseTypeTM product continue to increase since its approval for commercial use at the end of fiscal year 2014 resulting from both an increase in the volume of product shipments and an increase in pricing which reflects the shift from this product being sold for research only use versus for commercial use, with the highest net sales generated in the first quarter of 2016. Net sales of our Transplant & Molecular products are higher in our Emerging Markets as we continue to make progress in penetrating that market. After adjusting for the impact of foreign currency exchange rate fluctuations, net sales in the first three months of fiscal year 2016 increased by approximately 3.5% when compared with the first three months of fiscal year 2015.
Gross profit decreased by $3.5 million for the three months ended August 31, 2015 as compared with the three months ended August 31, 2014, or 5.4%, mainly due to the lower net sales generated in the first three months of fiscal year 2016. Gross profit as a percentage of consolidated net sales was relatively unchanged for the three months ended August 31, 2015 as compared with the three months ended August 31, 2014. The negative impact on our gross profit percentage caused by the changes in foreign currency exchange rates in the first quarter of fiscal year 2016 as compared with the first quarter of fiscal year 2015 was offset by a positive impact from changes in our product mix, and a more favorable gross profit on certain product lines. The most significant increase in gross profit was from our Transplant & Molecular product line for our PreciseTypeTM test that is being sold at a higher price point after its approval by the FDA at the end of fiscal year 2014. The first quarter of fiscal year 2016 included more sales at the higher price point for this product than were included in the first quarter of fiscal year 2015.
Research and development expenses were $6.8 million for the three months ended August 31, 2015 as compared with $7.0 million for the three months ended August 31, 2014, a decrease of $0.2 million, or 3.5%. The decrease is primarily due to reduction in depreciation expense in the first quarter of fiscal year 2016 as certain capital assets related to research and development efforts were fully depreciated in the fourth quarter of fiscal year 2015.
Selling and marketing expenses were $14.0 million for the three months ended August 31, 2015 as compared with $15.1 million for the three months ended August 31, 2014. The decrease in selling and marketing expenses of $1.1 million, or 7.1%, was primarily attributable to a more favorable effect of changes in foreign currency exchange rates in the first quarter of fiscal year 2016.
Distribution expenses were $4.4 million for the three months ended August 31, 2015 and $5.0 million for the three months ended August 31, 2014, a decrease of $0.6 million, or 12.3%. The decrease in distribution expenses is primarily due to a more favorable effect of changes in foreign currency exchange rates on our international expenses in the first quarter of fiscal year 2016 and lower expenses resulting from the strategic initiative introduced in fiscal year 2015 to reduce distribution costs on a long-term basis.
General and administrative expenses were $10.7 million for the three months ended August 31, 2015 as compared with $10.8 million for the three months ended August 31, 2014. The decrease in general and administrative expenses of $0.1 million, or 1.3%, was primarily due to a more favorable effect of changes in foreign currency exchange rates on our international expenses in the first quarter of fiscal year 2016 partially offset by a temporary increase in employee-related costs in the first quarter of fiscal year 2016.
Amortization expense was $13.6 million for the three months ended August 31, 2015 as compared with $13.7 million for the three months ended August 31, 2014, a decrease of $0.1 million, or 0.8%. The decrease was primarily due to a more favorable effect of changes in foreign currency exchange rates on our international expenses.
Non-operating net expense was $22.6 million for the three months ended August 31, 2015 as compared with $22.2 million for the three months ended August 31, 2014, an increase of $0.4 million, or 1.9%. The increase in non-operating net expense was mainly due to an increase in interest expense, higher amortization expense on deferred financing costs, and an unfavorable change in the exchange gains and losses in the first quarter of fiscal year 2016. The increase in interest expense was mainly due to higher interest accreted on the contingent consideration liabilities resulting from the acquisitions completed in fiscal year 2015, and the higher amortization expense on deferred financing costs. The effective interest rate method is used to amortize a portion of our deferred financing costs which results in an increase in amortization expense over time as our long-term debt is accreted to its redemption amount.
The effective tax rate for the quarters ended August 31, 2015 and August 31, 2014 was 28.3% and 33.9%, respectively. The difference between the federal statutory rate and the effective tax rate for the quarters ended August 31, 2015 and 2014 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate and the impact of recording U. S. income taxes associated with current and future distributions of foreign earnings.
Fluctuations in Foreign Currency Exchange Rates
Certain of the foreign markets in which we operate have experienced significant fluctuations in foreign currency exchange rates during fiscal year 2015 which have negatively impacted our consolidated operating results and balance sheet in the first quarter of fiscal year 2016 as compared with the same periods of the previous year. Our foreign markets could continue to see significant fluctuations in foreign currency exchange rates in future periods which could cause a decline in expected future consolidated operating results, balance sheet and cash flows.
Non-GAAP Disclosures
EBITDA and Adjusted EBITDA are both non-GAAP financial measures and are presented in this report because we consider them important supplemental measures of our performance and believe that they are frequently used by interested parties in the evaluation of companies in the industry. EBITDA, as we use it, is net income (loss) before interest, taxes, depreciation and amortization. We believe that the presentation of EBITDA enhances an investor’s understanding of our financial performance. Adjusted EBITDA is calculated in a similar manner as EBITDA except that certain non-cash charges, unusual or non-recurring items and other items that we believe are not representative of our core business are excluded. We believe that Adjusted EBITDA is also a useful financial metric to assess our operating performance from period to period. EBITDA and Adjusted EBITDA do not purport to be an alternative to net income (loss) as a measure of operating performance or to cash flows from operating activities as a measure of liquidity or any other performance measure derived in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
• |
EBITDA and Adjusted EBITDA do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
• |
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, working capital needs; |
• |
EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and |
• |
EBITDA and Adjusted EBITDA can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments, limiting its usefulness as a comparative measure. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in our business. We compensate for these limitations by relying primarily on the U.S. GAAP results and using EBITDA and Adjusted EBITDA as supplemental information. Adjusted EBITDA for the three months ended August 31, 2015 and August 31, 2014 is calculated as follows (in thousands):
Three Months Ended |
||||||||
August 31 |
||||||||
2015 |
2014 |
|||||||
Net loss |
$ | (7,217 | ) | (5,479 | ) | |||
Interest expense (income), net |
22,450 | 22,242 | ||||||
Income tax benefit |
(2,850 | ) | (2,813 | ) | ||||
Depreciation and amortization |
17,049 | 18,395 | ||||||
EBITDA |
29,432 | 32,345 | ||||||
Adjustments to EBITDA: |
||||||||
Stock-based compensation (i) |
887 | 518 | ||||||
Acquisition expenses, net (ii) |
62 | 826 | ||||||
Sponsor fee (iii) |
754 | 934 | ||||||
Non-cash impact of purchase accounting (iv) |
115 | 111 | ||||||
Certain non-recurring expenses and other (v) |
3,009 | 2,404 | ||||||
Adjusted EBITDA |
$ | 34,259 | 37,138 |
i. |
Represents non-cash stock-based compensation. |
ii. |
Represents non-recurring items related to acquisition activities including legal, accounting and other costs. |
iii. |
Represents management fees and other charges associated with a management services agreement with the Sponsor. |
iv. |
Represents non-cash expenses, such as deferred rent expense. |
v. |
Represents non-recurring or non-cash items not included in captions above including personnel and business optimization costs. |
Under the Revolving Facility, the senior secured leverage ratio is the sole financial covenant. We believe the future directional trend of this ratio will provide valuable insight to understanding our operational performance and financial position with respect to our debt obligations. The senior secured leverage ratio is defined by our credit agreement governing the Senior Credit Facilities as consolidated senior secured net debt divided by the total of the last twelve months Adjusted EBITDA. Adjusted EBITDA used in this leverage ratio is calculated in a similar manner to that included in the table presented above, except that it includes certain additional adjustments such as projected cost savings and synergies calculated on a pro forma basis that we expect to realize in future periods related to actions already taken or expected to be taken within twelve months of the end of the applicable period. As of August 31, 2015, we were in compliance with our senior secured net leverage ratio covenant.
Liquidity and Capital Resources
Cash flow
Our principal source of liquidity is our operating cash flow. This cash-generating capability is one of our fundamental strengths and provides us with substantial financial flexibility in meeting our operating, investing and financing requirements.
In the first quarter of fiscal year 2016, our cash and cash equivalents increased by $0.7 million to $19.0 million as of August 31, 2015. The increase was primarily due to net borrowings from our Revolving Facility of $16.0 million offset by $7.9 million used in operating activities, $5.8 million used in investing activities, and $1.7 million used for repayments of our long-term debt. The cash balance at August 31, 2015 includes cash of $13.0 million that is held by our subsidiaries outside of the United States. We are not permanently reinvested in our subsidiaries and can repatriate these funds, if needed, to support future debt payments.
In the first quarter of fiscal year 2015, our cash and cash equivalents decreased by $6.3 million to $17.4 million as of August 31, 2014. The decrease was primary due to net cash used in the purchase of additional property and equipment and the acquisition of new businesses of $3.5 million, and to repay $1.7 million of long-term debt.
Operating activities
Operating activities used $7.9 million cash in the first quarter of fiscal 2016 as compared with $0.3 million in the first quarter of fiscal year 2015. The increase in cash used for operating activities was mainly due to an increase in working capital requirements primarily driven by an increase in inventory balances and a decrease in Accrued expenses and other liabilities due to the semi-annual interest payment made on our Senior Notes during the first quarter of fiscal year 2016.
Investing activities
In the first quarter of fiscal year 2016, we used $2.0 million of cash to purchase property and equipment and to upgrade certain financial and operating systems, $3.1 million to fund an additional loan to Sirona and $0.8 million to acquire the assets of a Reference Lab, as compared with $3.3 million to purchase property and equipment and to upgrade certain financial systems, and $0.2 million for acquisitions in the first quarter of fiscal year 2015.
Financing activities
In the first quarter of fiscal year 2016, we used cash from financing activities of $1.7 million for repayments of our long-term debt, we also borrowed $20.0 million and repaid $4.0 million from our Revolving Facility, and had $16.0 million outstanding under our Revolving Facility as of August 31, 2015. In the first quarter of fiscal year 2015, we used cash from financing activities of $1.7 million for repayments of our long-term debt, we also borrowed and repaid $8.0 million from our Revolving Facility during the quarter, and had no amounts outstanding under our Revolving Facility as of August 31, 2014.
Future Cash Requirements and Restrictions
Our Term Loan Facility requires quarterly principal payments equal to 0.25% of the original principal amount of the loan with the balance due and payable on August 19, 2018. Required principal and interest payments related to our Term Loan Facility are $6.6 million and $32.8 million, respectively, for the next 12 months. Required interest payments related to the Notes is $44.5 million for the next 12 months. The Senior Credit Facilities are secured by substantially all of the tangible and intangible assets of our U.S. subsidiaries and the pledge of 65% of the stock of our foreign subsidiaries. As of August 31, 2015, we had principal of $1,046.8 million of long-term borrowings outstanding under our Term Loan Facility and the Notes, and $16.0 million outstanding on the Revolving Facility. Our net total available borrowings under our Revolving Facility were $84.0 million as of August 31, 2015.
We expect that recurring capital expenditures during fiscal year 2016 will range from $10 million to $15 million. These expenditures will be used to purchase equipment that increases or enhances capacity and productivity, and to upgrade certain financial and operational systems. These expenditures exclude the purchase of instrument assets that are used in equipment rental agreements with our customers, which is reflected in non-cash investing and financing activities in our consolidated statements of cash flows.
Management believes that existing cash and cash equivalent balances, cash provided from operations, and borrowings available under the Revolving Facility of our Senior Credit Facilities will provide sufficient liquidity to meet the operating and capital expenditure needs for existing operations during the next twelve months.
As part of the Sirona collaboration, we have an exclusive option to acquire 100% of the common stock of Sirona, and have a potential obligation to provide additional funding of up to $3.6 million in the form of interest bearing loans. As of August 31, 2015, we had lent Sirona $7.7 million. Additional loans are subject to the achievement of certain development milestones and other terms of the arrangements. Refer to Note 3 of our consolidated financial statements for additional information on the Sirona collaboration.
Commitments and Contractual Obligations
As of August 31, 2015, our material cash commitments and contractual obligations have not changed significantly from those disclosed in our Annual Report for the year ended May 31, 2015.
Off-Balance Sheet Arrangements
We have no off-balance sheet financial arrangements as of August 31, 2015.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which often require the judgment of management in the selection and application of certain accounting principles and methods. We discuss our critical accounting policies in the Management’s Discussion and Analysis section of the Company’s Annual Report on Form 10-K. There have been no other significant changes in our critical accounting policies since May 31, 2015.
Risk Factors and Forward-Looking Statements
This document contains “forward-looking statements,” which include information concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other statements that are not related to present factors or current conditions or that are not purely historical. Many of these statements appear, in particular, under the headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this report, the words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but there can be no assurance that we will realize our expectations or that our beliefs will prove correct.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report. Important factors that could cause our actual results to differ materially from those expressed as forward-looking statements include but are not limited to:
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our substantial indebtedness; |
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lower industry blood demand; |
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lower than expected demand for our instruments; |
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the decision of customers to defer capital spending; |
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the failure of customers to efficiently integrate our products into their operations; |
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increased competition; |
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product development, manufacturing and regulatory obstacles; |
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the failure to successfully integrate and capitalize on past or future acquisitions; |
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general economic conditions; and |
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other risks and uncertainties discussed in this report, particularly in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” |
There may be other factors of which we are currently unaware of or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.
All forward-looking statements attributable to us apply only as of the date they are made and are expressly made subject to the cautionary statements included in this report. Except as may be required by law, we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances occurring after the date they were made or to reflect the occurrence of unanticipated events.
Additional information concerning these and other factors which could cause differences between forward-looking statements and future actual results is discussed under the heading “Risk Factors” in ITEM 1A of this report, and in the Company’s Annual Report on Form 10-K for the year ended May 31, 2015.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
As of August 31, 2015, there have been no material changes regarding our market risk position from those disclosed in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended May 31, 2015.
ITEM 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2015. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2015, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended August 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
We (Immucor, Inc. and BioArray Solutions Limited (“BioArray”), a wholly owned subsidiary of Immucor, Inc.) are defendants in an action brought in August 2014 by Rutgers, the State University of New Jersey (“Rutgers”), in the Superior Court of New Jersey for Middlesex County, alleging breach of contract and fraud claims under a patent license between Rutgers and BioArray. We believe the claims are without merit and that we have meritorious defenses. We believe that liability is unlikely and that the amount of any liability is not currently reasonably estimable. We also believe that any potential liability would not be material to our operations or to our financial condition.
From time to time, we are a party to certain legal proceedings in the ordinary course of business. However, we are not currently subject to any legal proceedings expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
ITEM 1A. Risk Factors
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2015. In addition to the other information included in this report, carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our business. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may have a material adverse effect on our business, financial condition and/or operating results.
ITEM 5. Other Information
On September 24, 2015, our Compensation Committee approved a modification to our 2011 Equity Incentive Plan effective November 1, 2015. This modification adds an alternative service-based vesting opportunity to all previously granted, but currently unvested options having solely performance-based or market-based vesting conditions. These awards will vest from November 1, 2015 to May 31, 2018.
ITEM 6. Exhibits
31.1 |
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a). |
31.2 |
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a). |
32.1 |
Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
32.2 |
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
101.INS |
XBRL Instance Document * |
101.SCH |
XBRL Taxonomy Extension Schema * |
101.CAL |
XBRL Taxonomy Extension Calculation * |
101.DEF |
XBRL Taxonomy Extension Definition * |
101.LAB |
XBRL Taxonomy Extension Label * |
101.PRE |
XBRL Taxonomy Extension Presentation * |
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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IMMUCOR, INC. |
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(Registrant) |
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Date: October 13, 2015 |
By: |
/s/ Jeffrey R. Binder |
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Jeffrey R. Binder, Chief Executive Officer |
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(Principal Executive Officer) |
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Date: October 13, 2015 |
By: |
/s/ Dominique Petitgenet |
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Dominique Petitgenet, Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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