Attached files
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EX-31.1 - EXHIBIT 31.1 - IMMUCOR INC | ex31-1.htm |
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 |
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: February 29, 2016
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 April 11, 2016, there were 100 shares of common stock outstanding.
IMMUCOR, INC.
QUARTERLY FINANCIAL STATEMENTS
INDEX
PART I. FINANCIAL INFORMATION | ||
Item 1. |
Consolidated Financial Statements: |
3 |
|
|
|
Consolidated Balance Sheets (unaudited, except for May 31, 2015) |
3 | |
Consolidated Statements of Operations (unaudited) | 4 | |
Consolidated Statements of Comprehensive Loss (unaudited) | 6 | |
Consolidated Statement of Changes in Equity (unaudited for the period ending February 29, 2016) | 8 | |
Consolidated Statements of Cash Flows (unaudited) | 9 | |
Notes to Consolidated Financial Statements (unaudited) | 10 | |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
33 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
43 |
Item 4. | Controls and Procedures | 43 |
PART II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 44 |
Item 1A. | Risk Factors | 44 |
Item 5. | Other Information | 44 |
Item 6. | Exhibits | 45 |
SIGNATURES | 45 |
ITEM 1. Consolidated Financial Statements
IMMUCOR, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
February 29, 2016 |
May 31, 2015 |
|||||||
(Unaudited) |
||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 12,190 | 18,363 | |||||
Trade accounts receivable, net of allowance for doubtful accounts of $1,978 and $1,669 at February 29, 2016 and May 31, 2015, respectively |
59,970 | 67,674 | ||||||
Inventories, net |
47,844 | 41,847 | ||||||
Deferred income tax assets, current portion |
6,021 | 5,931 | ||||||
Prepaid expenses and other current assets |
9,817 | 11,161 | ||||||
Total current assets |
135,842 | 144,976 | ||||||
PROPERTY AND EQUIPMENT, net |
72,788 | 73,574 | ||||||
GOODWILL |
840,841 | 842,258 | ||||||
INTANGIBLE ASSETS, net |
608,832 | 650,294 | ||||||
DEFERRED FINANCING COSTS, net |
21,072 | 26,399 | ||||||
OTHER ASSETS |
17,305 | 15,185 | ||||||
Total assets |
$ | 1,696,680 | 1,752,686 | |||||
LIABILITIES AND EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 17,555 | 13,866 | |||||
Accrued interest and interest rate swap liability |
7,764 | 19,288 | ||||||
Accrued expenses and other current liabilities |
19,503 | 26,208 | ||||||
Income taxes payable |
3,108 | 3,496 | ||||||
Deferred revenue, current portion |
2,656 | 2,703 | ||||||
Current portion of long-term debt, net of debt discounts |
8,878 | 4,469 | ||||||
Total current liabilities |
59,464 | 70,030 | ||||||
LONG-TERM DEBT, net of debt discounts |
1,030,478 | 1,033,276 | ||||||
DEFERRED INCOME TAX LIABILITIES |
219,351 | 236,487 | ||||||
OTHER LONG-TERM LIABILITIES |
30,765 | 29,212 | ||||||
Total liabilities |
1,340,058 | 1,369,005 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 19) |
||||||||
EQUITY: |
||||||||
Shareholders' equity of Immucor, Inc.: |
||||||||
Common stock, $0.00 par value, 100 shares authorized, issued and outstanding as of February 29, 2016 and May 31, 2015, respectively |
- | - | ||||||
Additional paid-in capital |
753,279 | 755,234 | ||||||
Accumulated deficit |
(359,425 | ) | (331,989 | ) | ||||
Accumulated other comprehensive loss |
(42,995 | ) | (39,564 | ) | ||||
Total shareholders' equity of Immucor, Inc. |
350,859 | 383,681 | ||||||
Equity of noncontrolling interest (Note 4) |
5,763 | - | ||||||
Total equity |
356,622 | 383,681 | ||||||
Total liabilities and equity |
$ | 1,696,680 | 1,752,686 |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Three Months Ended |
||||||||
February 29 |
February 28 |
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2016 |
2015 |
|||||||
NET SALES |
$ | 88,893 | 95,605 | |||||
COST OF SALES (exclusive of amortization shown separately below) |
34,130 | 33,971 | ||||||
GROSS PROFIT |
54,763 | 61,634 | ||||||
OPERATING EXPENSES |
||||||||
Research and development |
6,910 | 7,280 | ||||||
Selling and marketing |
13,251 | 13,513 | ||||||
Distribution |
4,155 | 4,986 | ||||||
General and administrative |
11,779 | 9,362 | ||||||
Amortization expense |
13,575 | 13,615 | ||||||
Total operating expenses |
49,670 | 48,756 | ||||||
INCOME FROM OPERATIONS |
5,093 | 12,878 | ||||||
NON-OPERATING (EXPENSE) INCOME |
||||||||
Interest income |
48 | 42 | ||||||
Interest expense |
(22,329 | ) | (21,793 | ) | ||||
Other, net |
(317 | ) | 177 | |||||
Total non-operating net expense |
(22,598 | ) | (21,574 | ) | ||||
LOSS BEFORE INCOME TAXES |
(17,505 | ) | (8,696 | ) | ||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(8,845 | ) | 30,744 | |||||
NET LOSS |
$ | (8,660 | ) | (39,440 | ) | |||
Net loss attributable to noncontrolling interest | (237 | ) | - | |||||
NET LOSS ATTRIBUTABLE TO IMMUCOR, INC. | $ | (8,423 | ) | (39,440 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Nine Months Ended |
||||||||
February 29 |
February 28 |
|||||||
2016 |
2015 |
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NET SALES |
$ | 281,854 | 294,323 | |||||
COST OF SALES (exclusive of amortization shown separately below) |
106,660 | 106,571 | ||||||
GROSS PROFIT |
175,194 | 187,752 | ||||||
OPERATING EXPENSES |
||||||||
Research and development |
20,500 | 21,474 | ||||||
Selling and marketing |
42,057 | 43,942 | ||||||
Distribution |
12,969 | 15,342 | ||||||
General and administrative |
33,133 | 30,943 | ||||||
Amortization expense |
40,745 | 40,948 | ||||||
Total operating expenses |
149,404 | 152,649 | ||||||
INCOME FROM OPERATIONS |
25,790 | 35,103 | ||||||
NON-OPERATING (EXPENSE) INCOME |
||||||||
Interest income |
132 | 131 | ||||||
Interest expense |
(67,275 | ) | (66,913 | ) | ||||
Other, net |
(366 | ) | 465 | |||||
Total non-operating net expense |
(67,509 | ) | (66,317 | ) | ||||
LOSS BEFORE INCOME TAXES |
(41,719 | ) | (31,214 | ) | ||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(14,046 | ) | 22,783 | |||||
NET LOSS |
(27,673 | ) | (53,997 | ) | ||||
Net loss attributable to noncontrolling interest |
(237 | ) | - | |||||
NET LOSS ATTRIBUTABLE TO IMMUCOR, INC. |
$ | (27,436 | ) | (53,997 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
Three Months Ended |
||||||||
February 29 2016 |
February 28 2015 |
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NET LOSS |
$ | (8,423 | ) | (39,440 | ) | |||
OTHER COMPREHENSIVE INCOME (LOSS), net of tax: |
||||||||
Foreign currency translation adjustment |
1,795 | (13,915 | ) | |||||
Changes in fair value of cash flow hedges: |
||||||||
Portion of cash flow hedges recognized in other comprehensive income |
108 | 186 | ||||||
Less: reclassification adjustment for (losses) gains included in net income |
3 | (72 | ) | |||||
Net changes in fair value of cash flow hedges |
111 | 114 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) |
1,906 | (13,801 | ) | |||||
COMPREHENSIVE LOSS |
(6,517 | ) | (53,241 | ) | ||||
Comprehensive loss attributable to the noncontrolling interest |
(237 | ) | - | |||||
COMPREHENSIVE LOSS ATTIBUTABLE TO SHAREHOLDERS OF IMMUCOR, INC. |
$ | (6,280 | ) | (53,241 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
Nine Months Ended |
||||||||
February 29 2016 |
February 28 2015 |
|||||||
NET LOSS |
$ | (27,436 | ) | (53,997 | ) | |||
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax: |
||||||||
Foreign currency translation adjustment |
(3,680 | ) | (27,677 | ) | ||||
Changes in fair value of cash flow hedges: |
||||||||
Portion of cash flow hedges recognized in other comprehensive income |
417 | 553 | ||||||
Less: reclassification adjustment for losses included in net income |
(168 | ) | (242 | ) | ||||
Net changes in fair value of cash flow hedges |
249 | 311 | ||||||
OTHER COMPREHENSIVE LOSS |
(3,431 | ) | (27,366 | ) | ||||
COMPREHENSIVE LOSS |
(30,867 | ) | (81,363 | ) | ||||
Comprehensive loss attributable to the noncontrolling interest |
(237 | ) | - | |||||
COMPREHENSIVE LOSS ATTIBUTABLE TO SHAREHOLDERS OF IMMUCOR, INC. |
$ | (30,630 | ) | (81,363 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands)
Accumulated |
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Additional |
Retained |
Other |
Non- |
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Common Stock |
Paid-In |
Earnings |
Comprehensive |
controlling |
||||||||||||||||||||||||
Shares (1) |
Amount (1) |
Capital (1) |
(1) |
Income (Loss) (1) |
Interest |
Total |
||||||||||||||||||||||
Audited: |
||||||||||||||||||||||||||||
BALANCE, MAY 31, 2013 |
100 | $ | - | 751,635 | (89,007 | ) | (17,922 | ) | 644,706 | |||||||||||||||||||
Share-based compensation expense |
- | - | 1,512 | - | - | 1,512 | ||||||||||||||||||||||
Net loss |
- | - | - | (182,257 | ) | - | (182,257 | ) | ||||||||||||||||||||
Other comprehensive loss (net of taxes): |
||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- | - | - | - | 4,315 | 4,315 | ||||||||||||||||||||||
Cash flow hedges, net of tax |
- | - | - | - | 340 | 340 | ||||||||||||||||||||||
BALANCE, MAY 31, 2014 |
100 | - | 753,147 | (271,264 | ) | (13,267 | ) | 468,616 | ||||||||||||||||||||
Share-based compensation expense |
- | - | 2,087 | - | - | 2,087 | ||||||||||||||||||||||
Net loss |
- | - | - | (60,725 | ) | - | (60,725 | ) | ||||||||||||||||||||
Other comprehensive loss (net of taxes): |
||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- | - | - | - | (26,712 | ) | (26,712 | ) | ||||||||||||||||||||
Cash flow hedges, net of tax |
- | - | - | - | 415 | 415 | ||||||||||||||||||||||
BALANCE, May 31, 2015 |
100 | - | 755,234 | (331,989 | ) | (39,564 | ) | 383,681 | ||||||||||||||||||||
Unaudited: |
||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | 4,045 | - | - | 4,045 | ||||||||||||||||||||||
Non-cash dividend |
(6,000 | ) | (6,000 | ) | ||||||||||||||||||||||||
Equity of noncontrolling interest |
6,000 | 6,000 | ||||||||||||||||||||||||||
Net loss |
- | - | - | (27,436 | ) | - | (237 | ) | (27,673 | ) | ||||||||||||||||||
Other comprehensive loss (net of taxes): |
||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- | - | - | - | (3,680 | ) | (3,680 | ) | ||||||||||||||||||||
Cash flow hedges, net of tax |
- | - | - | - | 249 | 249 | ||||||||||||||||||||||
BALANCE, FEBRUARY 29, 2016 |
100 | $ | - | 753,279 | (359,425 | ) | (42,995 | ) | 5,763 | 356,622 |
(1) - Shareholders’ equity of Immucor, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended |
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February 29 2016 |
February 28 2015 |
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OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (27,673 | ) | (53,997 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
51,417 | 53,843 | ||||||
Noncash interest expense |
8,178 | 7,557 | ||||||
Loss on disposition and retirement of fixed assets |
526 | 237 | ||||||
Provision for doubtful accounts |
456 | 372 | ||||||
Share-based compensation expense |
4,045 | 1,800 | ||||||
Deferred income taxes |
(16,953 | ) | 21,496 | |||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable, trade |
6,774 | (9,259 | ) | |||||
Income taxes |
(495 | ) | 526 | |||||
Inventories |
(11,034 | ) | (6,017 | ) | ||||
Other assets |
1,477 | 1,101 | ||||||
Accounts payable |
4,165 | (3,284 | ) | |||||
Deferred revenue |
(20 | ) | 129 | |||||
Accrued expenses and other liabilities |
(14,022 | ) | (11,712 | ) | ||||
Cash provided by operating activities |
6,841 | 2,792 | ||||||
INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(7,050 | ) | (7,519 | ) | ||||
Other investments |
(4,850 | ) | (5,300 | ) | ||||
Acquisitions of businesses, net of cash acquired |
(750 | ) | (6,396 | ) | ||||
Cash used in investing activities |
(12,650 | ) | (19,215 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Repayments of long-term debt |
(4,982 | ) | (4,993 | ) | ||||
Proceeds from Revolving Facility |
48,000 | 49,500 | ||||||
Repayments of Revolving Facility |
(43,500 | ) | (36,500 | ) | ||||
Cash (used in) provided by financing activities |
(482 | ) | 8,007 | |||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
118 | (3,714 | ) | |||||
DECREASE IN CASH AND CASH EQUIVALENTS |
(6,173 | ) | (12,130 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
18,363 | 23,621 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 12,190 | 11,491 | |||||
SUPPLEMENTAL INFORMATION: |
||||||||
Income taxes paid, net of refunds |
$ | 3,232 | 2,621 | |||||
Interest paid |
70,275 | 70,657 | ||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Movement from inventory to property and equipment of instruments placed on rental agreements |
$ | 4,552 | 5,728 | |||||
Non-cash dividend | 6,000 | - |
The accompanying notes are an integral part of these consolidated financial statements.
IMMUCOR, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. |
NATURE OF BUSINESS AND BASIS OF PRESENTATION |
Nature of Business
Immucor, Inc. (“Immucor” or the “Company”) develops, manufactures and sells transfusion and transplantation diagnostics products used by hospitals, donor centers and reference laboratories around the world. The Company’s products are used in a number of tests performed in the typing and screening of blood, organs or stem cells to ensure donor-recipient compatibility for blood transfusion, and organ and stem cell transplantations. The Company operates manufacturing facilities in North America with both direct 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, Inc., its wholly owned subsidiaries, and a variable interest entity (“VIE”) that is required to be consolidated in accordance with U.S. GAAP (Refer to Note 4 for additional information on our consolidated VIE). 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 Updates Not Yet Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases, which will replace most existing lease accounting guidance in U.S. GAAP. The core principle of ASU 2016-02 is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which corresponds to the Company’s first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the effect of the adoption of ASU 2016-02 on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, which corresponds to the Company’s first quarter of fiscal year 2018. Earlier adoption is permitted as of the beginning of an interim or annual reporting period. The adoption of ASU 2015-17 is not expected to have a material impact on the Company’s financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This standard is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, which corresponds to the Company’s first quarter of fiscal year 2017. Early adoption is permitted. The adoption of ASU 2015-16 is not expected to have a material impact on the Company’s financial statements.
In July 2015, the FASB issued 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 price 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 beginning after December 15, 2016, and interim periods within those annual periods, which corresponds to the Company’s first quarter of fiscal year 2018. Early adoption is permitted. The adoption of ASU 2015-11 is not expected to have a material impact on the Company’s financial statements.
In April 2015, the FASB issued ASU 2015-03, 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. In August 2015, ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), was issued to provide clarification to ASU 2015-03. The standard specifies that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This standard is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, 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 adoption of ASU 2015-03 is not expected to have a material impact on the Company’s 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 15, 2017, which corresponds to the Company’s first quarter of fiscal year 2019. In March 2016, the FASB issued ASU 2016-08, which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. 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.
2. |
BUSINESS COMBINATIONS |
Business combinations completed in fiscal 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 the Company to deliver current Immucor products as a service to customers as well as commercialize newly developed products. The fair values of the acquired assets were $0.3 million for equipment, $0.2 million for identifiable intangible assets and $0.3 million for goodwill. The goodwill is deductible for tax purposes.
Business combinations completed in fiscal 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 the Company 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 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 the 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 loaned Sirona $9.5 million to fund development efforts of its existing projects. Of the $9.5 million loan, $1.8 million was funded in the third quarter of fiscal 2016. The loan to Sirona bears interest at a market rate. The collaborative arrangement also included the potential for future interest bearing loans from the Company of up to $1.8 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. The outstanding loan and the warrant asset are both included in Other assets on the Company’s consolidated balance sheet as of February 29, 2016.
Sirona is considered to be a 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 this VIE as of February 29, 2016 was $12.0 million, which included the outstanding loan to Sirona of $9.5 million, the amount paid for the warrant of $0.7 million, and the maximum amount of future potential loans that could be required under the arrangement.
In March 2016, the Company exercised its warrant to acquire 100% of the common stock of Sirona. Refer to Note 20 of the consolidated financial statements for additional information.
4. |
CONSOLIDATED VARIABLE INTEREST ENTITY |
In February 2016, the Company contributed the assets acquired in the Sentilus acquisition to a newly formed company, Sentilus Holdco LLC (“Sentilus LLC”). The Company then distributed its interest in Sentilus LLC via a dividend, indirectly, to IVD Intermediate Holdings A Inc., which is the owner of Immucor’s Parent company, IVD Intermediate Holdings B Inc.
Sentilus LLC will continue developing FemtoarraysTM and the underlying technology for use in a variety of in vitro diagnostics areas. This business was spun-off from Immucor to be able to separately market the anticipated new product offerings that are expected to have application outside of the Company’s current Transfusion and Transplant markets. The book value of the assets and liabilities transferred was $6.0 million. The book value includes assets of $1.0 million of cash, $0.5 million of equipment, $18.8 million of identifiable intangible assets, and $0.1 million of goodwill, and liabilities of $7.2 million of deferred income tax liabilities, and a $7.2 million obligation to Immucor for contingent consideration liabilities.
Sentilus LLC is considered to be a VIE. Sentilus LLC will be operated as a separate business with Immucor as its only current customer. Sentilus LLC and the Company have entered into management services agreements (the “Management Contracts”) pursuant to which Immucor will provide management, financial, legal and human resource services as well as personnel, materials and business locations to Sentilus LLC in exchange for management fees at Immucor’s cost plus a specified “arms-length” margin (which is subject to periodic adjustment). Immucor’s executive management will control and operate the Sentilus LLC business. Immucor is considered the primary beneficiary of Sentilus LLC because it is managing the Sentilus LLC business and providing the necessary personnel and support to operate the business under the terms of the Management Contracts. Accordingly, the financial results of Sentilus LLC are included in the consolidated financial results of the Company.
The operations of Sentilus LLC will be primarily funded through either additional future dividends from Immucor or from additional capital contributions from IVD Holdings Inc. (“Holdings”), the Parent company of IVD Intermediate Holdings A Inc. The Company could be exposed to a loss related to the Sentilus LLC business if there are expenses which are incurred by the Company on behalf of Sentilus LLC under the terms of the Management Contracts and are not reimbursed. This risk is deemed unlikely since all of the entities involved in this arrangement are under the common control of Holdings.
The following table includes the carrying amounts and classification of the assets and liabilities of Sentilus LLC that are included in the Company’s consolidated balance sheet as of February 29, 2016 that cannot be used to settle the obligations of Immucor, and are not Immucor’s obligation to pay (amounts in thousands):
ASSETS |
LIABILITIES |
||||||||
Current assets: |
Current liabilities: |
||||||||
Cash and cash equivalents |
$ | 1,000 | $ | - | |||||
Total current assets |
1,000 |
Total current liabilities |
- | ||||||
Noncurrent assets: |
Noncurrent liabilities: |
||||||||
Property and equipment, net |
547 |
Deferred Income Tax |
7,148 | ||||||
Goodwill |
105 | Obligation to Immucor for contingent consideration liabilities | 7,310 | ||||||
Other intangible assets, net |
18,822 | ||||||||
Total noncurrent assets |
19,474 |
Total noncurrent liabilities |
14,458 | ||||||
Total Assets |
$ | 20,474 |
Total Liabilities |
$ | 14,458 |
5. |
RELATED PARTY TRANSACTIONS |
In connection with the acquisition of Immucor in fiscal 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 and nine months ended February 29, 2016, approximately $0.8 million, and $2.4 million, respectively, was recorded for the monitoring fees, additional services provided by the Sponsor, and out-of-pocket expenses. In the three months and nine months ended February 28, 2015, $0.9 million, and $2.9 million, respectively, was recorded for these same types of fees and expenses. These expenses are included in general and administrative expenses in the Company’s consolidated statements of operations. As of February 29, 2016 and May 31, 2015, the Company owed $0.8 million and $0.7 million, respectively, to the Sponsor for these fees and expenses.
6. |
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 |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Raw materials and supplies |
$ | 14,029 | 10,816 | |||||
Work in process |
9,034 | 9,197 | ||||||
Finished goods |
24,781 | 21,834 | ||||||
$ | 47,844 | 41,847 |
|
7. |
PROPERTY AND EQUIPMENT, net |
Property and equipment, net consist of the following (in thousands):
As of |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Land |
$ | 233 | 250 | |||||
Buildings and improvements |
2,072 | 2,494 | ||||||
Leasehold improvements |
26,208 | 25,639 | ||||||
Capital work-in-progress |
4,375 | 6,897 | ||||||
Furniture and fixtures |
3,805 | 3,757 | ||||||
Machinery, equipment and instruments |
103,628 | 94,021 | ||||||
140,321 | 133,058 | |||||||
Less accumulated depreciation |
(67,533 | ) | (59,484 | ) | ||||
Property and equipment, net |
$ | 72,788 | 73,574 |
Depreciation expense was $3.6 million and $10.7 million in the three months and nine months ended February 29, 2016, respectively, and $4.1 million and $12.9 million in the three months and nine months ended February 28, 2015, respectively. Depreciation expense is primarily included in cost of sales in the Company’s consolidated statements of operations.
8. |
GOODWILL |
The consolidated financial statements include the goodwill resulting from the acquisition of Immucor in the first quarter of fiscal 2012, and the acquisition of various businesses since that date. The following table presents the changes in the carrying amount of goodwill during the nine months ended February 29, 2016 and the fiscal year ended May 31, 2015 (in thousands):
February 29, 2016 |
May 31, 2015 |
|||||||
Balance at beginning of period |
$ | 842,258 | 851,563 | |||||
Additions: |
||||||||
Acquisition of businesses |
346 | 432 | ||||||
Foreign currency translation adjustment |
(1,763 | ) | (9,737 | ) | ||||
Impairment loss |
- | - | ||||||
Balance at end of period |
$ | 840,841 | 842,258 |
In the first nine months 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. As of February 29, 2016 and May 31, 2015, the Company had $160.0 million of accumulated impairment losses on goodwill.
9. |
OTHER INTANGIBLE ASSETS, net |
Other intangible assets, net consist of the following (in thousands):
As of |
||||||||||||||||||||||||||||
February 29, 2016 |
May 31, 2015 |
|||||||||||||||||||||||||||
Weighted Average Life (years) |
Cost |
Accumulated Amortization |
Net |
Cost |
Accumulated Amortization |
Net |
||||||||||||||||||||||
Other intangible assets subject to amortization: |
||||||||||||||||||||||||||||
Customer relationships |
19 | $ | 461,491 | (103,219 | ) | 358,272 | 462,534 | (86,052 | ) | 376,482 | ||||||||||||||||||
Existing technology / trade names |
11 | 315,004 | (120,838 | ) | 194,166 | 314,850 | (99,565 | ) | 215,285 | |||||||||||||||||||
Corporate trade name |
15 | 40,000 | (12,088 | ) | 27,912 | 40,000 | (10,088 | ) | 29,912 | |||||||||||||||||||
Below market leasehold interests |
7 | 1,200 | (612 | ) | 588 | 1,200 | (557 | ) | 643 | |||||||||||||||||||
Other intangibles |
4 | 429 | (235 | ) | 194 | 428 | (156 | ) | 272 | |||||||||||||||||||
Total amortizable assets |
818,124 | (236,992 | ) | 581,132 | 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 |
$ | 845,824 | (236,992 | ) | 608,832 | 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 and nine months ended February 29, 2016 was $13.6 million and $40.7 million, respectively, and for the three months and nine months ended February 28, 2015 was $13.6 million and $40.9 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 |
$ | 13,597 | ||
2017 |
54,231 | |||
2018 |
54,117 | |||
2019 |
50,193 | |||
2020 |
49,086 | |||
2021 |
49,059 |
|
10. |
DEFERRED FINANCING COSTS, net |
Changes in deferred financing costs, net during the nine months ended February 29, 2016 and the fiscal year ended May 31, 2015 are as follows (in thousands):
As of |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Balance at beginning of period |
$ | 26,399 | 33,116 | |||||
Amortization |
(5,327 | ) | (6,717 | ) | ||||
Balance at end of period |
$ | 21,072 | 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.
|
11. |
LONG-TERM DEBT |
Long-term debt consists of the following (in thousands):
As of |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Term Loan Facility, net of $5,761 and $7,381 debt discounts, respectively |
$ | 637,675 | 641,029 | |||||
Notes, net of $2,819 and $3,291 debt discounts, respectively |
397,181 | 396,709 | ||||||
Revolving Facility |
4,500 | - | ||||||
Capital lease agreements |
- | 7 | ||||||
1,039,356 | 1,037,745 | |||||||
Less current portion, net of debt discounts |
(8,878 | ) | (4,469 | ) | ||||
Long-term debt, net of current portion |
$ | 1,030,478 | 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 (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).
On December 9, 2015, the Company entered into Amendment No. 5 to the credit agreement to modify the financial covenant associated with the Revolving Facility. The amendment provides that beginning with the period ending November 30, 2015, for purposes of calculating its compliance with the senior secured net leverage ratio covenant for any trailing twelve-month period for bank reporting purposes, the Company may calculate EBITDA on a constant currency basis, as defined in the amendment. The use of the constant currency adjustment is subject to the Company’s compliance with certain restrictions.
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 Revolving Facility matures on August 19, 2017.
The interest rate on the Term Loan Facility was 5.00% as of February 29, 2016 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 6.11% for the nine months ended February 29, 2016. During the first nine months of fiscal 2016, the Company borrowed $48.0 million and repaid $43.5 million from our Revolving Facility. The weighted average interest rate on the borrowings from the Revolving Facility during the first nine months of fiscal 2016 was approximately 4.73%. At February 29, 2016, there were $4.5 million of outstanding borrowings under the Revolving Facility and no outstanding letters of credit.
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 year 2015 and fiscal year 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. Neither the assets nor the equity of Sentilus LLC is collateral for the Senior Credit Facility.
Indenture and the Senior Notes Due 2019
The Company has also issued $400.0 million in principal amount of Senior Notes (the “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 11.70% for the nine months ended February 29, 2016. 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 |
$ | 6,159 | ||
2017 |
6,632 | |||
2018 |
6,632 | |||
2019 |
628,513 | |||
2020 |
400,000 | |||
$ | 1,047,936 |
Interest Expense
The significant components of interest expense are as follows (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
February 29 2016 |
February 28 2015 |
February 29 2016 |
February 28 2015 |
|||||||||||||
Notes, including OID amortization |
$ | 11,285 | 11,265 | 33,847 | 33,792 | |||||||||||
Term loan facility, including OID amortization |
8,685 | 8,646 | 26,190 | 26,265 | ||||||||||||
Amortization of deferred financing costs |
1,792 | 1,674 | 5,327 | 4,998 | ||||||||||||
Interest rate swaps and other interest |
122 | 209 | 487 | 700 | ||||||||||||
Revolving facility fees and interest |
154 | 157 | 563 | 516 | ||||||||||||
Interest accreted on contingent consideration liabilities |
291 | (158 | ) | 861 | 642 | |||||||||||
Interest expense |
$ | 22,329 | 21,793 | 67,275 | 66,913 |
12. |
DERIVATIVE FINANCIAL INSTRUMENTS |
As of February 29, 2016, the Company has an interest rate swap agreement to hedge $70.0 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 a swap agreement 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, the swap includes a LIBOR floor of 1.25%. The swap agreement hedges 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 the agreement, the LIBOR rate associated with the hedged amount of the Company’s indebtedness has been fixed at 1.91% until September 30, 2016.
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 had swap agreements that hedged $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 has 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 these 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 February 29, 2016, approximately $0.3 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 |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Interest rate swaps (included in other liabilities) |
$ | (269 | ) | (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 |
Nine Months Ended |
|||||||||||||||
Location of (loss) gain reclassified from AOCI into income |
February 29 2016 |
February 28 2015 |
February 29 2016 |
February 28 2015 |
||||||||||||
(Losses) gains on cash flow hedges: |
||||||||||||||||
Interest expense (effective portion) |
$ | (121 | ) | (207 | ) | (489 | ) | (693 | ) | |||||||
Interest income (expense) (ineffective portion) |
$ | - | - | (1 | ) | (2 | ) |
|
13. |
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 February 29, 2016 |
||||||||||||||||
Fair Value Measurements of Assets (Liabilities) Using |
Carrying |
|||||||||||||||
(Level 1) |
(Level 2) |
(Level 3) |
Amount |
|||||||||||||
(in thousands of dollars) |
||||||||||||||||
Derivative instruments |
$ | - | (269 | ) | - | (269 | ) | |||||||||
Contingent consideration liabilities |
$ | - | - | (19,409 | ) | (19,409 | ) |
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 liabilities |
$ | - | - | (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 $12.2 million and $18.4 million of cash and cash equivalents at February 29, 2016 and May 31, 2015, respectively, approximately 26% 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 derivative financial instrument liabilities are included in Accrued interest and interest rate swap liability 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 $295.3 million and $588.7 million at February 29, 2016, 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 February 29, 2016, the Company had $19.4 million in contingent consideration liabilities for earn-out provisions resulting from acquisitions 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 liabilities are summarized in the following table (in thousands):
Nine Months Ended February 29, 2016 |
Twelve Months Ended May 31, 2015 |
|||||||
Balance at the beginning of the period |
$ | (18,596 | ) | (11,300 | ) | |||
Additions due to acquisitions |
- | (6,469 | ) | |||||
Payments |
48 | 87 | ||||||
Accretion of fair value |
(861 | ) | (914 | ) | ||||
Balance at the end of the period |
$ | (19,409 | ) | (18,596 | ) |
14. |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
The changes in accumulated other comprehensive loss are as follows (in thousands):
Pretax |
Tax |
After Tax |
||||||||||
Nine Months Ended February 29, 2016 |
||||||||||||
Foreign exchange translation adjustment |
$ | (3,949 | ) | (269 | ) | (3,680 | ) | |||||
Changes in fair value of cash flow hedges |
417 | 168 | 249 | |||||||||
$ | (3,532 | ) | (101 | ) | (3,431 | ) | ||||||
Nine Months Ended February 28, 2015 |
||||||||||||
Foreign exchange translation adjustment |
$ | (26,246 | ) | 1,431 | (27,677 | ) | ||||||
Changes in fair value of cash flow hedges |
553 | 242 | 311 | |||||||||
$ | (25,693 | ) | 1,673 | (27,366 | ) |
The components of accumulated other comprehensive loss are as follows (in thousands):
As of |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Cumulative foreign currency translation adjustment |
$ | (42,819 | ) | (39,139 | ) | |||
Change in fair value of cash flow hedges, net of tax |
(176 | ) | (425 | ) | ||||
Accumulated other comprehensive loss |
$ | (42,995 | ) | (39,564 | ) |
15. |
SHARE-BASED COMPENSATION |
The Company has granted nonvested restricted stock, stock options, and stock appreciation rights to key employees and directors under its 2011 Equity Incentive Plan. The Company granted stock awards with an aggregate fair value of approximately zero and $17.2 million during the three months and nine months ended February 29, 2016 and $0.1 million and $0.7 million during the three months and nine months ended February 28, 2015, respectively. During fiscal 2016, 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, and as of February 29, 2016, a total of 66,166 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 (“service-based options”), and performance-based or market-based vesting conditions (“performance-based options”). The service-based options contain tiered vesting terms over the service period. The performance-based options vest in tranches upon the achievement of certain performance or market objectives, which are measured over a three or four year period.
On September 24, 2015, the Company’s Compensation Committee approved a modification to the Company’s 2011 Equity Incentive Plan (“Plan”) effective November 1, 2015. This modification added an alternative service-based vesting opportunity to all previously granted but unvested performance-based options. On October 16, 2015, the Company’s Compensation Committee approved an additional modification to its Plan that converted all stock appreciation rights granted prior to November 1, 2015 to service-based option awards and performance-based option awards. These awards will vest from the original grant through May 31, 2021. This modification resulted in a total increase in stock-based compensation expense of $4.6 million.
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 nine months ended February 29, 2016:
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 |
531,072 | 100.00 | ||||||||||||||
Exercised |
- | - | ||||||||||||||
Forfeited |
(21,186 | ) | 100.00 | |||||||||||||
Expired or cancelled |
(1,910 | ) | 100.00 | |||||||||||||
Service-based options outstanding at February 29, 2016 |
666,305 | 100.00 | 8.0 | $ | - | |||||||||||
Exercisable at February 29, 2016 |
146,393 | $ | 100.00 | 6.2 | $ | - |
(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 nine months of fiscal year 2016 was $25.25.
As of February 29, 2016, there was $11.0 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 3.2 years.
Stock options with performance-based or market-based vesting conditions
The Company has granted awards that contain either performance-based or market-based conditions. Compensation cost for the performance-based or market-based stock options is recognized based on either the achievement of the performance conditions, if they are considered probable, or if they are not considered probable, on the achievement of the market-based condition. Awards granted which vest upon either the satisfaction of the performance or market conditions were measured based upon the achievement of the market condition during fiscal 2016 since the Company believes that the achievement of the performance conditions are not probable. Activity for the performance-based or market-based options was as follows for the nine months ended February 29, 2016:
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value (1) |
|||||||||||||
Performance or market-based options outstanding at May 31, 2015 |
149,329 | $ | 100.00 | |||||||||||||
Granted |
6,538 | 100.00 | ||||||||||||||
Exercised |
- | - | ||||||||||||||
Forfeited |
(20,183 | ) | 100.00 | |||||||||||||
Expired or cancelled |
(101,177 | ) | 100.00 | |||||||||||||
Performance or market-based options outstanding at February 29, 2016 |
34,507 | 100.00 | 5.9 | $ | - | |||||||||||
Exercisable at February 29, 2016 |
34,507 | $ | 100.00 | 5.9 | $ | - |
(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 nine months of fiscal year 2016 was $23.82.
As of February 29, 2016, there was $0.1 million of total unrecognized compensation cost related to nonvested performance-based or market-based vesting conditions awards. This compensation cost is expected to be recognized over a weighted average period of approximately 0.5 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 non-vested restricted stock units for the first nine months 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 |
(800 | ) | 90.72 | |||||
Forfeited |
- | - | ||||||
Nonvested restricted stock units outstanding at February 29, 2016 |
36,166 | $ | 103.25 |
As of February 29, 2016, there was $3.1 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 3.3 years.
Stock appreciation rights
As of November 1, 2015, the Company canceled all its existing stock appreciation rights and converted them to service-based and performance-based option awards.
Number of Shares |
Weighted-Average Grant-Date Fair Value |
|||||||
Stock appreciation rights outstanding at May 31, 2015 |
167,000 | $ | 1.98 | |||||
Granted |
3,000 | 1.98 | ||||||
Vested |
- | - | ||||||
Forfeited |
(2,600 | ) | 1.98 | |||||
Cancelled/Expired |
(167,400 | ) | 1.98 | |||||
Stock appreciation rights outstanding at February 29, 2016 |
- | $ | - |
The Company recognized expense of $1.3 million and $4.0 million in the three months and nine months ended February 29, 2016 and $0.3 million and $1.8 million in the three months and nine months ended February 28, 2015, respectively, before income tax benefits, for all the Company’s stock awards.
|
16. |
INCOME TAXES |
The effective tax rate for the nine months ended February 29, 2016 and February 28, 2015 was 33.7% and -73.0%, respectively. The difference between the federal statutory rate and the effective tax rate for the nine months ended February 29, 2016 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate, the impact of recording U.S. income taxes associated with future remittances of un-repatriated foreign earnings, and changes in the U.S. tax law related to the R&D tax credit during the third quarter of fiscal 2016. The difference between the federal statutory rate and the effective tax rate for the nine months ended February 28, 2015 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 future remittances of un-repatriated foreign earnings. In addition, during the third quarter of fiscal 2015, the Company changed its election with regard to the treatment of its foreign tax credits.
The Company does not consider itself to be permanently reinvested with respect to its accumulated and un-repatriated earnings of each foreign subsidiary. Accordingly, the Company has provided for deferred taxes on future remittances of the un-repatriated earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary in excess of its accumulated and un-repatriated earnings to be permanently reinvested and thus has not recorded a deferred tax liability on that amount.
17. |
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 and transplant.
The Company operates in various geographic markets. These geographic markets are comprised of the United States, Europe, Canada and other international markets. The majority of the other international markets are considered Emerging Markets for our business. Our 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 | Nine Months Ended | |||||||||||||||
February 29 |
February 28 |
February 29 |
February 28 |
|||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Net sales by product group: |
||||||||||||||||
Transfusion |
$ | 73,589 | 79,929 | 235,296 | 247,950 | |||||||||||
Transplant & Molecular |
15,304 | 15,676 | 46,558 | 46,373 | ||||||||||||
Total |
$ | 88,893 | 95,605 | 281,854 | 294,323 |
Following is a summary of enterprise-wide information (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
February 29 |
February 28 |
February 29 |
February 28 |
|||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Net sales to customers by geography are as follows: |
||||||||||||||||
United States |
$ | 57,435 | 60,205 | 179,878 | 179,679 | |||||||||||
Europe (A) |
16,609 | 18,313 | 52,517 | 59,882 | ||||||||||||
Canada |
3,233 | 4,598 | 11,084 | 14,200 | ||||||||||||
Other |
11,616 | 12,489 | 38,375 | 40,562 | ||||||||||||
Total |
$ | 88,893 | 95,605 | 281,854 | 294,323 |
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 | ||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Long-lived assets (excluding goodwill and intangibles) by geography: |
||||||||
United States |
$ | 52,806 | 52,764 | |||||
Europe (B) |
14,059 | 14,542 | ||||||
Canada |
3,483 | 4,029 | ||||||
Other (C) |
2,440 | 2,239 | ||||||
Total |
$ | 72,788 | 73,574 |
As of |
||||||||
February 29, 2016 |
May 31, 2015 |
|||||||
Concentration of net assets by geography: |
||||||||
United States |
$ | 218,636 | 241,522 | |||||
Europe |
99,135 | 100,071 | ||||||
Canada |
26,274 | 30,274 | ||||||
Other (C) |
12,577 | 11,814 | ||||||
Total |
$ | 356,622 | 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 any individual customer did not equal or exceed 10% of our net sales during the three months and nine months ended February 29, 2016, or during the three months and nine months ended February 28, 2015.
|
18. |
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 or its consolidated variable interest entity. 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.
Refer to Note 4 for information on assets and liabilities of Sentilus LLC, a consolidated variable interest entity, that are included in the Company’s consolidated balance sheet as of February 29, 2016. These assets and liabilities cannot be used to settle the obligations of Immucor, and are not Immucor’s obligation to pay. Accordingly, the condensed consolidated financial information reflects the activity of Sentilus LLC under the Non-Guarantors heading. The condensed consolidating financial information of the Company is as follows:
Balance Sheets
IMMUCOR, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
February 29, 2016
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 2,680 | (518 | ) | 10,028 | - | 12,190 | |||||||||||||
Accounts receivable, net |
26,717 | 6,463 | 26,790 | - | 59,970 | |||||||||||||||
Intercompany receivable |
81,485 | 23,737 | 14,788 | (120,010 | ) | - | ||||||||||||||
Inventories, net |
21,779 | 15,917 | 12,086 | (1,938 | ) | 47,844 | ||||||||||||||
Deferred income tax assets, current portion |
2,511 | 2,254 | 508 | 748 | 6,021 | |||||||||||||||
Prepaid expenses and other current assets |
3,864 | 419 | 5,534 | - | 9,817 | |||||||||||||||
Total current assets |
139,036 | 48,272 | 69,734 | (121,200 | ) | 135,842 | ||||||||||||||
PROPERTY AND EQUIPMENT, net |
39,582 | 12,677 | 20,529 | - | 72,788 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
209,211 | 5,020 | 3,019 | (217,250 | ) | - | ||||||||||||||
GOODWILL |
744,045 | 47,985 | 48,811 | - | 840,841 | |||||||||||||||
OTHER INTANGIBLE ASSETS, net |
502,355 | 56,081 | 50,396 | - | 608,832 | |||||||||||||||
DEFERRED FINANCING COSTS, net |
21,072 | - | - | - | 21,072 | |||||||||||||||
OTHER ASSETS |
23,877 | 234 | 444 | (7,250 | ) | 17,305 | ||||||||||||||
Total assets |
$ | 1,679,178 | 170,269 | 192,933 | (345,700 | ) | 1,696,680 | |||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Accounts payable |
$ | 9,485 | 3,641 | 4,429 | - | 17,555 | ||||||||||||||
Intercompany payable |
10,709 | 98,863 | 10,438 | (120,010 | ) | - | ||||||||||||||
Accrued interest and interest rate swap liability |
7,764 | - | - | - | 7,764 | |||||||||||||||
Accrued expenses and other current liabilities |
9,098 | 5,013 | 5,392 | - | 19,503 | |||||||||||||||
Income taxes payable |
30,050 | (30,092 | ) | 3,150 | - | 3,108 | ||||||||||||||
Deferred revenue, current portion |
1,540 | - | 1,116 | - | 2,656 | |||||||||||||||
Current portion of long term debt, net of debt discounts |
8,878 | - | - | - | 8,878 | |||||||||||||||
Total current liabilities |
77,524 | 77,425 | 24,525 | (120,010 | ) | 59,464 | ||||||||||||||
LONG TERM DEBT, net of debt discounts |
1,030,478 | - | - | - | 1,030,478 | |||||||||||||||
DEFERRED INCOME TAX LIABILITIES |
203,432 | (194 | ) | 16,113 | - | 219,351 | ||||||||||||||
OTHER LONG-TERM LIABILITIES |
16,885 | 12,583 | 8,547 | (7,250 | ) | 30,765 | ||||||||||||||
Total liabilities |
1,328,319 | 89,814 | 49,185 | (127,260 | ) | 1,340,058 | ||||||||||||||
EQUITY: |
||||||||||||||||||||
Shareholders' equity of Immucor, Inc. |
350,859 | 80,455 | 137,985 | (218,440 | ) | 350,859 | ||||||||||||||
Noncontrolling interest |
- | - | 5,763 | - | 5,763 | |||||||||||||||
Total equity |
350,859 | 80,455 | 143,748 | (218,440 | ) | 356,622 | ||||||||||||||
Total liabilities and equity |
$ | 1,679,178 | 170,269 | 192,933 | (345,700 | ) | 1,696,680 |
IMMUCOR, INC.
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, net |
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.
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended February 29, 2016
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 57,913 | 14,370 | 32,288 | (15,678 | ) | 88,893 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
20,150 | 8,527 | 21,132 | (15,679 | ) | 34,130 | ||||||||||||||
GROSS PROFIT |
37,763 | 5,843 | 11,156 | 1 | 54,763 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
2,970 | 3,785 | 408 | (253 | ) | 6,910 | ||||||||||||||
Selling and marketing |
5,745 | 2,242 | 5,264 | 13,251 | ||||||||||||||||
Distribution |
2,288 | 333 | 1,534 | 4,155 | ||||||||||||||||
General and administrative |
8,588 | 1,289 | 1,929 | (27 | ) | 11,779 | ||||||||||||||
Amortization expense |
11,972 | 1,082 | 521 | 13,575 | ||||||||||||||||
Total operating expenses |
31,563 | 8,731 | 9,656 | (280 | ) | 49,670 | ||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
6,200 | (2,888 | ) | 1,500 | 281 | 5,093 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
105 | 54 | (111 | ) | 48 | |||||||||||||||
Interest expense |
(22,253 | ) | (118 | ) | (69 | ) | 111 | (22,329 | ) | |||||||||||
Other, net |
4,086 | 92 | (4,215 | ) | (280 | ) | (317 | ) | ||||||||||||
Total non-operating expense |
(18,062 | ) | (26 | ) | (4,230 | ) | (280 | ) | (22,598 | ) | ||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(11,862 | ) | (2,914 | ) | (2,730 | ) | 1 | (17,505 | ) | |||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(7,727 | ) | (1,045 | ) | (73 | ) | (8,845 | ) | ||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(4,135 | ) | (1,869 | ) | (2,657 | ) | 1 | (8,660 | ) | |||||||||||
Net Income (Loss) of consolidated subsidiaries |
(4,288 | ) | 4,288 | - | ||||||||||||||||
NET (LOSS) INCOME |
(8,423 | ) | (1,869 | ) | (2,657 | ) | 4,289 | (8,660 | ) | |||||||||||
Net loss attributable to noncontrolling interest |
(237 | ) | (237 | ) | ||||||||||||||||
NET LOSS ATTRIBUTABLE TO IMMUCOR, INC. |
$ | (8,423 | ) | (1,869 | ) | (2,420 | ) | 4,289 | (8,423 | ) |
IMMUCOR, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended February 28, 2015
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 63,013 | 14,119 | 37,015 | (18,542 | ) | 95,605 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
18,743 | 9,410 | 24,360 | (18,542 | ) | 33,971 | ||||||||||||||
GROSS PROFIT |
44,270 | 4,709 | 12,655 | - | 61,634 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
3,087 | 4,019 | 174 | - | 7,280 | |||||||||||||||
Selling and marketing |
5,973 | 2,431 | 5,109 | - | 13,513 | |||||||||||||||
Distribution |
2,772 | 450 | 1,764 | - | 4,986 | |||||||||||||||
General and administrative |
6,056 | 963 | 2,343 | - | 9,362 | |||||||||||||||
Amortization expense |
11,973 | 1,079 | 563 | - | 13,615 | |||||||||||||||
Total operating expenses |
29,861 | 8,942 | 9,953 | - | 48,756 | |||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
14,409 | (4,233 | ) | 2,702 | - | 12,878 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
23 | - | 44 | (25 | ) | 42 | ||||||||||||||
Interest expense |
(21,664 | ) | (136 | ) | (18 | ) | 25 | (21,793 | ) | |||||||||||
Other, net |
173 | (349 | ) | 353 | - | 177 | ||||||||||||||
Total non-operating (expense) income |
(21,468 | ) | (485 | ) | 379 | - | (21,574 | ) | ||||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(7,059 | ) | (4,718 | ) | 3,081 | - | (8,696 | ) | ||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES |
31,448 | (1,560 | ) | 856 | - | 30,744 | ||||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(38,507 | ) | (3,158 | ) | 2,225 | - | (39,440 | ) | ||||||||||||
Net (loss) income of consolidated subsidiaries |
(933 | ) | - | - | 933 | - | ||||||||||||||
NET (LOSS) INCOME |
$ | (39,440 | ) | (3,158 | ) | 2,225 | 933 | (39,440 | ) |
Statements of Operations for the Nine Month periods
IMMUCOR, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended February 29, 2016
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 185,196 | 43,423 | 102,718 | (49,483 | ) | 281,854 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
62,491 | 26,605 | 67,047 | (49,483 | ) | 106,660 | ||||||||||||||
GROSS PROFIT |
122,705 | 16,818 | 35,671 | - | 175,194 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
8,919 | 11,088 | 746 | (253 | ) | 20,500 | ||||||||||||||
Selling and marketing |
18,820 | 7,745 | 15,492 | - | 42,057 | |||||||||||||||
Distribution |
7,224 | 1,056 | 4,689 | - | 12,969 | |||||||||||||||
General and administrative |
22,683 | 4,117 | 6,360 | (27 | ) | 33,133 | ||||||||||||||
Amortization expense |
35,916 | 3,238 | 1,591 | - | 40,745 | |||||||||||||||
Total operating expenses |
93,562 | 27,244 | 28,878 | (280 | ) | 149,404 | ||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
29,143 | (10,426 | ) | 6,793 | 280 | 25,790 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
183 | - | 114 | (165 | ) | 132 | ||||||||||||||
Interest expense |
(66,997 | ) | (350 | ) | (93 | ) | 165 | (67,275 | ) | |||||||||||
Other, net |
5,046 | (154 | ) | (4,978 | ) | (280 | ) | (366 | ) | |||||||||||
Total non-operating expense |
(61,768 | ) | (504 | ) | (4,957 | ) | (280 | ) | (67,509 | ) | ||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(32,625 | ) | (10,930 | ) | 1,836 | - | (41,719 | ) | ||||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES |
(11,612 | ) | (3,833 | ) | 1,399 | (14,046 | ) | |||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(21,013 | ) | (7,097 | ) | 437 | - | (27,673 | ) | ||||||||||||
Net Income (Loss) of consolidated subsidiaries |
(6,423 | ) | 6,423 | - | ||||||||||||||||
NET (LOSS) INCOME |
(27,436 | ) | (7,097 | ) | 437 | 6,423 | (27,673 | ) | ||||||||||||
Net loss attributable to noncontrolling interest |
- | (237 | ) | (237 | ) | |||||||||||||||
NET LOSS ATTRIBUTABLE TO IMMUCOR, INC. |
$ | (27,436 | ) | (7,097 | ) | 674 | 6,423 | (27,436 | ) |
IMMUCOR, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended February 28, 2015
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
NET SALES |
$ | 190,662 | 42,175 | 116,637 | (55,151 | ) | 294,323 | |||||||||||||
COST OF SALES (exclusive of amortization shown separately below) |
59,702 | 27,403 | 74,617 | (55,151 | ) | 106,571 | ||||||||||||||
GROSS PROFIT |
130,960 | 14,772 | 42,020 | - | 187,752 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Research and development |
8,484 | 12,385 | 605 | - | 21,474 | |||||||||||||||
Selling and marketing |
18,807 | 7,624 | 17,511 | - | 43,942 | |||||||||||||||
Distribution |
8,167 | 1,239 | 5,936 | - | 15,342 | |||||||||||||||
General and administrative |
20,345 | 3,231 | 7,367 | - | 30,943 | |||||||||||||||
Amortization expense |
35,915 | 3,232 | 1,801 | - | 40,948 | |||||||||||||||
Total operating expenses |
91,718 | 27,711 | 33,220 | - | 152,649 | |||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
39,242 | (12,939 | ) | 8,800 | - | 35,103 | ||||||||||||||
NON-OPERATING (EXPENSE) INCOME: |
||||||||||||||||||||
Interest income |
41 | - | 167 | (77 | ) | 131 | ||||||||||||||
Interest expense |
(66,553 | ) | (383 | ) | (54 | ) | 77 | (66,913 | ) | |||||||||||
Other, net |
587 | (436 | ) | 314 | - | 465 | ||||||||||||||
Total non-operating (expense) income |
(65,925 | ) | (819 | ) | 427 | - | (66,317 | ) | ||||||||||||
(LOSS) INCOME BEFORE INCOME TAXES |
(26,683 | ) | (13,758 | ) | 9,227 | - | (31,214 | ) | ||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES |
25,044 | (5,035 | ) | 2,774 | - | 22,783 | ||||||||||||||
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES |
(51,727 | ) | (8,723 | ) | 6,453 | - | (53,997 | ) | ||||||||||||
Net (Loss) income of consolidated subsidiaries |
(2,270 | ) | - | - | 2,270 | - | ||||||||||||||
NET (LOSS) INCOME |
$ | (53,997 | ) | (8,723 | ) | 6,453 | 2,270 | (53,997 | ) |
Statements of Cash Flows for the Nine Month periods
IMMUCOR, INC.
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
Nine Months Ended February 29, 2016
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 10,666 | 1,423 | (1,600 | ) | (3,648 | ) | 6,841 | ||||||||||||
Net cash provided by (used in) investing activities |
(8,860 | ) | (1,671 | ) | 3,890 | (6,009 | ) | (12,650 | ) | |||||||||||
Net cash provided by (used in) financing activities |
(6,475 | ) | (7 | ) | (3,517 | ) | 9,517 | (482 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
269 | - | (291 | ) | 140 | 118 | ||||||||||||||
Decrease in cash and cash equivalents |
(4,400 | ) | (255 | ) | (1,518 | ) | - | (6,173 | ) | |||||||||||
Cash and cash equivalents at beginning of period |
7,080 | (263 | ) | 11,546 | - | 18,363 | ||||||||||||||
Cash and cash equivalents at end of period |
$ | 2,680 | (518 | ) | 10,028 | - | 12,190 |
IMMUCOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
Nine Months Ended February 28, 2015
(in thousands)
(Unaudited)
Immucor, Inc. |
Guarantors |
Non-Guarantors |
Eliminations |
Total |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 304 | 1,486 | 1,447 | (445 | ) | 2,792 | |||||||||||||
Net cash used in investing activities |
(10,188 | ) | (1,582 | ) | (7,445 | ) | - | (19,215 | ) | |||||||||||
Net cash provided by (used in) financing activities |
8,025 | (18 | ) | (324 | ) | 324 | 8,007 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(1,338 | ) | - | (2,497 | ) | 121 | (3,714 | ) | ||||||||||||
Decrease in cash and cash equivalents |
(3,197 | ) | (114 | ) | (8,819 | ) | - | (12,130 | ) | |||||||||||
Cash and cash equivalents at beginning of period |
4,863 | (409 | ) | 19,167 | - | 23,621 | ||||||||||||||
Cash and cash equivalents at end of period |
$ | 1,666 | (523 | ) | 10,348 | - | 11,491 |
19. |
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 a 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, result of operations or cash flow.
Purchase Commitments
Purchase commitments made in the normal course of business were $48.0 million as of February 29, 2016. These purchases were primarily for inventory items. The following is a schedule of the approximate future payments for purchase commitments as of February 29, 2016 (in thousands):
Year ended May 31: |
||||
2016 |
$ | 10,720 | ||
2017 |
21,660 | |||
2018 |
4,405 | |||
2019 |
4,344 | |||
2020 |
4,291 | |||
Thereafter |
2,567 | |||
$ | 47,987 |
|
20. |
SUBSEQUENT EVENTS |
On March 4, 2016, the Company exercised its warrant and acquired 100% of the common stock of Sirona Genomics, Inc. (“Sirona”). The cash paid for the Sirona business was $14.4 million. Immucor has been in a collaborative arrangement with Sirona since October 2014 for the development and commercialization of a next generation sequencing HLA typing product for transplant diagnostics. Sirona will be included in the Company’s consolidated financial statements beginning in the fourth quarter of fiscal year 2016.
On April 5, 2016, the Company announced a plan to consolidate its LIFECODES facilities to simplify the operations, improve the processes, and reduce expenses of its Transplant business. The plan includes closing the Company’s Stamford, CT facility and moving most of the activity to the Company’s Waukesha, WI site with a target completion date of April 30, 2017.
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 geographic markets. These geographic markets are comprised of the United States, Europe, Canada and other international markets. The majojrity of the other international markets are considered Emerging Markets for our business.
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.
Business Highlights of fiscal year 2016:
● |
New product launch in Transplant business – |
o |
In the third quarter of fiscal year 2016, we expanded our product offerings to include MIA FORATM, a next generation sequencing (“NGS”) product for high resolution human leukocyte antigen (“HLA”) typing that provides accurate, comprehensive coverage of 11 HLA genes. MIA FORA, which was developed in collaboration with Sirona Genomics (“Sirona”), is comprised of sample preparation reagents and bioinformatic software that, together, deliver high resolution DNA typing results for transplant patients. We believe MIA FORA will expand our presence in transplant diagnostics, particularly in bone marrow typing, where our market share has historically been small. We believe the Transplant business provides a significant growth opportunity for our business. |
● |
Acquisitions/Investments – |
o |
On March 4, 2016, we exercised our warrant to acquire 100% of the common stock of Sirona for a total of $14.4 million paid in cash. We have collaborated with Sirona on the development and commercialization of NGS product offerings since October 2014. |
● |
Operations – |
o |
On April 5, 2016, we announced a plan to consolidate our LIFECODES facilities to simplify our operations, improve the processes, and reduce expenses of our Transplant business. The plan includes closing our Stamford, CT facility and moving most of the activity to our Waukesha, WI site with a target completion date of April 30, 2017. We anticipate that the costs involved in closing this facility will be recovered within approximately 18 months. |
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 |
||||||||||||||||
February 29 |
February 28 |
Change |
||||||||||||||
2016 |
2015 |
Amount |
% |
|||||||||||||
Net sales |
$ | 88,893 | 95,605 | (6,712 | ) | (7.0 | ) | |||||||||
Cost of sales (*) |
34,130 | 33,971 | 159 | 0.5 | ||||||||||||
Gross profit |
54,763 | 61,634 | (6,871 | ) | (11.1 | ) | ||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
6,910 | 7,280 | (370 | ) | (5.1 | ) | ||||||||||
Selling and marketing |
13,251 | 13,513 | (262 | ) | (1.9 | ) | ||||||||||
Distribution |
4,155 | 4,986 | (831 | ) | (16.7 | ) | ||||||||||
General and administrative |
11,779 | 9,362 | 2,417 | 25.8 | ||||||||||||
Amortization expense |
13,575 | 13,615 | (40 | ) | (0.3 | ) | ||||||||||
Total operating expenses |
49,670 | 48,756 | 914 | 1.9 | ||||||||||||
Income from operations |
5,093 | 12,878 | (7,785 | ) | (60.5 | ) | ||||||||||
Non-operating (expense) income: |
||||||||||||||||
Interest income |
48 | 42 | 6 | 14.3 | ||||||||||||
Interest expense |
(22,329 | ) | (21,793 | ) | (536 | ) | 2.5 | |||||||||
Other, net |
(317 | ) | 177 | (494 | ) | (279.1 | ) | |||||||||
Total non-operating net expense |
(22,598 | ) | (21,574 | ) | (1,024 | ) | 4.7 | |||||||||
Loss before income taxes |
(17,505 | ) | (8,696 | ) | (8,809 | ) | 101.3 | |||||||||
(Benefit) provision for income taxes |
(8,845 | ) | 30,744 | (39,589 | ) | (128.8 | ) | |||||||||
Net loss |
(8,660 | ) | (39,440 | ) | 30,780 | (78.0 | ) | |||||||||
Net loss attributable to noncontrolling interest |
(237 | ) | - | (237 | ) | ** | ||||||||||
Net loss attributable to Immucor, Inc. |
$ | (8,423 | ) | (39,440 | ) | 31,017 | (78.6 | ) |
(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.
(**) Calculation is not meaningful.
Nine Months Ended |
||||||||||||||||
February 29 |
February 28 |
Change |
||||||||||||||
2016 |
2015 |
Amount |
% |
|||||||||||||
Net sales |
$ | 281,854 | 294,323 | (12,469 | ) | (4.2 | ) | |||||||||
Cost of sales (*) |
106,660 | 106,571 | 89 | 0.1 | ||||||||||||
Gross profit |
175,194 | 187,752 | (12,558 | ) | (6.7 | ) | ||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
20,500 | 21,474 | (974 | ) | (4.5 | ) | ||||||||||
Selling and marketing |
42,057 | 43,942 | (1,885 | ) | (4.3 | ) | ||||||||||
Distribution |
12,969 | 15,342 | (2,373 | ) | (15.5 | ) | ||||||||||
General and administrative |
33,133 | 30,943 | 2,190 | 7.1 | ||||||||||||
Amortization expense |
40,745 | 40,948 | (203 | ) | (0.5 | ) | ||||||||||
Total operating expenses |
149,404 | 152,649 | (3,245 | ) | (2.1 | ) | ||||||||||
Income from operations |
25,790 | 35,103 | (9,313 | ) | (26.5 | ) | ||||||||||
Non-operating (expense) income: |
||||||||||||||||
Interest income |
132 | 131 | 1 | 0.8 | ||||||||||||
Interest expense |
(67,275 | ) | (66,913 | ) | (362 | ) | 0.5 | |||||||||
Other, net |
(366 | ) | 465 | (831 | ) | ** | ||||||||||
Total non-operating net expense |
(67,509 | ) | (66,317 | ) | (1,192 | ) | 1.8 | |||||||||
Loss before income taxes |
(41,719 | ) | (31,214 | ) | (10,505 | ) | 33.7 | |||||||||
(Benefit) provision for income taxes |
(14,046 | ) | 22,783 | (36,829 | ) | (161.7 | ) | |||||||||
Net loss |
(27,673 | ) | (53,997 | ) | 26,324 | (48.8 | ) | |||||||||
Net loss attributable to noncontrolling interest |
(237 | ) | - | (237 | ) | ** | ||||||||||
Net loss attributable to Immucor, Inc. |
$ | (27,436 | ) | (53,997 | ) | 26,561 | (49.2 | ) |
(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.
(**) Calculation is not meaningful.
Three Months Ended February 29, 2016 and February 28, 2015:
Net sales were $88.9 million for the three months ended February 29, 2016 as compared with $95.6 million for the three months ended February 28, 2015. The changes in net sales are 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 |
||||||||||||||||
February 29 |
February 28 |
Change |
||||||||||||||
2016 |
2015 |
Amount |
% |
|||||||||||||
Net sales by product group: |
||||||||||||||||
Transfusion |
$ | 73,589 | 79,929 | (6,340 | ) | (7.9 | ) | |||||||||
Transplant & Molecular |
15,304 | 15,676 | (372 | ) | (2.4 | ) | ||||||||||
Total |
$ | 88,893 | 95,605 | (6,712 | ) | (7.0 | ) |
Transfusion: Net sales of our Transfusion products for the three months ended February 29, 2016 were $73.6 million as compared with $79.9 million for the three months ended February 28, 2015, a decrease of $6.3 million, or 7.9%. Transfusion product net sales were lower in the third quarter of fiscal year 2016 as compared with the third quarter of fiscal year 2015 mainly due to an unfavorable change in foreign currency exchange rates on our international operations in the third quarter of fiscal year 2016, and a decrease in the number of ship cycles in that period. After adjusting for the impact of ship cycles and foreign currency exchange rate fluctuations, net sales in the third quarter of fiscal year 2016 were lower by 1.6% when compared with the third quarter of fiscal year 2015 with weakness in Canada and European markets associated with the challenging performance of these economies. Sales in the U.S. and the Emerging Markets were slightly higher year-over-year.
Transplant & Molecular: Net sales of our Transplant & Molecular products for the three months ended February 29, 2016 were $15.3 million as compared with $15.7 million for the three months ended February 28, 2015, a decrease of $0.4 million, or 2.4%. This decrease in net sales was primarily due to an unfavorable change in foreign currency exchange rates on our international operations in the third quarter of fiscal year 2016. After adjusting for the impact of foreign currency exchange rate fluctuations, net sales in the third quarter of fiscal year 2016 were higher by approximately 0.5% when compared with the third quarter of fiscal year 2015. This increase was mainly due to higher sales of our PreciseTypeTM HEA (human erythrocyte antigen) molecular immunohematology test in the U.S. market, which generated record sales in the third quarter of fiscal year 2016.
Gross profit decreased by $6.9 million for the three months ended February 29, 2016 as compared with the three months ended February 28, 2015, or 11.1%, and gross profit as a percentage of consolidated net sales declined from 64.5% to 61.6%. The lower gross profit, and gross profit percentage, was mainly due to unfavorable changes in foreign currency exchange rates, higher net sales of lower margin products, and additional costs related to the start-up of our newly acquired reference lab business, in the third quarter of fiscal year 2016 as compared with the third quarter of fiscal year 2015.
Research and development expenses were $6.9 million for the three months ended February 29, 2016 as compared with $7.3 million for the three months ended February 28, 2015, a decrease of $0.4 million, or 5.1%. The decrease was primarily due to lower depreciation expense in the third quarter of fiscal year 2016 as certain capital assets related to research and development efforts were fully depreciated as of the fourth quarter of fiscal year 2015.
Selling and marketing expenses were $13.2 million for the three months ended February 29, 2016 as compared with $13.5 million for the three months ended February 28, 2015, a decrease of $0.3 million, or 1.9%. The decrease in selling and marketing expenses was primarily attributable to a more favorable effect of changes in foreign currency exchange rates on our international expenses in the third quarter of fiscal year 2016, and lower selling expenses partially offset by an increase in share-based compensation costs and higher regulatory fees. Registration fees are higher in the third quarter of fiscal year 2016 as compared with the same period in the prior year as we continue to register more products globally to expand our market footprint.
Distribution expenses were $4.2 million for the three months ended February 29, 2016 as compared with $5.0 million for the three months ended February 28, 2015, a decrease of $0.8 million, or 16.7%. The decrease in distribution expenses was primarily due to a lower volume of shipments and a more favorable effect of changes in foreign currency exchange rates on our international expenses in the third quarter of fiscal year 2016.
General and administrative expenses were $11.8 million for the three months ended February 29, 2016 as compared with $9.4 million for the three months ended February 28, 2015, an increase of $2.4 million, or 25.8%. The increase in general and administrative expenses was mainly due to higher legal costs related to the spin-off of Sentilus LLC, the acquisition of Sirona, and higher one-time fees related to staffing changes.
Amortization expense was comparable for the three months ended February 29, 2016 and the three months ended February 28, 2015.
Non-operating net expense was $22.6 million for the three months ended February 29, 2016 as compared with $21.6 million for the three months ended February 28, 2015, an increase of $1.0 million, or 4.7%. The increase in non-operating net expense was mainly due to an increase in interest expense partially offset by a less favorable change in the exchange gains and losses in the third quarter of fiscal year 2016 as compared with the third quarter of fiscal year 2015. Interest expense increased primarily due to higher accretion recorded of our contingent consideration liabilities because the prior year was reduced by an adjustment recorded in the third quarter of fiscal 2015 to adjust interest accreted on the contingent consideration liabilities through that period.
The effective tax rate for the three months ended February 29, 2016 and for the three months ended February 28, 2015 was 50.5% and -353.5%, respectively. The difference between the federal statutory rate and the effective tax rate for the quarter ended February 29, 2016 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate, the impact of recording U.S. income taxes associated with future remittances of un-repatriated foreign earnings, and changes in the U.S. tax law related to the R&D tax credit during the third quarter of fiscal 2016. The difference between the federal statutory rate and the effective tax rate for the quarter ended February 28, 2015 was primarily due to the income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory rate and the impact of recording U.S. income taxes associated with the future remittance of its un-repatriated foreign earnings. In addition, during the third quarter of fiscal year 2015, the Company changed its election with regard to the treatment of its foreign tax credits.
Nine Months Ended February 29, 2016 and February 28, 2015:
Net sales were $281.8 million for the nine months ended February 29, 2016 as compared with $294.3 million for the nine months ended February 28, 2015, a decrease of $12.5 million, or 4.2%. 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):
Nine Months Ended |
||||||||||||||||
February 29 |
February 28 |
Change |
||||||||||||||
2016 |
2015 |
Amount |
% |
|||||||||||||
Net sales by product group: |
||||||||||||||||
Transfusion |
$ | 235,296 | 247,950 | (12,654 | ) | (5.1 | ) | |||||||||
Transplant & Molecular |
46,558 | 46,373 | 185 | 0.4 | ||||||||||||
Total |
$ | 281,854 | 294,323 | (12,469 | ) | (4.2 | ) |
Transfusion: Net sales of our Transfusion products for the nine months ended February 29, 2016 were $235.3 million as compared with $248.0 million for the nine months ended February 28, 2015, a decrease of $12.7 million, or 5.1%. This decrease in net sales was mainly due to an unfavorable effect of changes in foreign currency exchange rates on our international operations in the first nine months of fiscal year 2016 as compared with the same period in fiscal year 2015. After adjusting for the impact of ship cycles and foreign currency exchange rate fluctuations, net sales in the first nine months of fiscal year 2016 were lower by 1.6 % when compared with the first nine months of fiscal year 2015 with lower sales in the US, Canada and Europe partially offset by higher sales in the Emerging Markets.
Transplant & Molecular: Net sales of our Transplant & Molecular products for the nine months ended February 29, 2016 were $46.6 million as compared with $46.4 million for the nine months ended February 28, 2015, an increase of $0.2 million, or 0.4%. After adjusting for the impact of foreign currency exchange rate fluctuations, net sales in the first nine months of fiscal year 2016 were higher by approximately 6.1% as compared with the first nine months of fiscal year 2015. This increase in net sales was primarily due to higher sales of our PreciseTypeTM HEA molecular immunohematology product in the U.S. market since its approval for commercial use at the end of fiscal year 2014. Net sales of our Transplant products are also higher, mainly in the Emerging Markets and Europe, in the first nine months of fiscal year 2016 as compared with the same period of fiscal year 2015, as we continue to make progress in penetrating those markets.
Gross profit decreased by $12.6 million for the nine months ended February 29, 2016 as compared with the nine months ended February 28, 2015, or 6.7%, and gross profit as a percentage of consolidated net sales declined from 63.8% to 62.2%. The lower gross profit, and gross profit percentage, was mainly due to unfavorable changes in foreign currency exchange rates, and additional costs related to the start-up of our newly acquired reference lab business in the first nine months of fiscal year 2016 as compared with the first nine months of fiscal year 2015, partially offset by a more favorable product mix.
Research and development expenses were $20.5 million for the nine months ended February 29, 2016 as compared with $21.5 million for the nine months ended February 28, 2015. The decrease of $1.0 million, or 4.5% was primarily due to the timing of expenses related to certain research and development activities and to lower depreciation expense in fiscal year 2016 as certain capital assets related to research and development efforts were fully depreciated as of the fourth quarter of fiscal year 2015.
Selling and marketing expenses were $42.1 million for the nine months ended February 29, 2016 as compared with $44.0 million for the nine months ended February 28, 2015. The decrease in selling and marketing expenses of $1.9 million, or 4.3%, was primarily attributable to a more favorable effect of changes in foreign currency exchange rates on our international expenses in the first nine months of fiscal year 2016. Registration fees are higher in the first nine months of fiscal year 2016 as compared with the same period in the prior year as we continue to register more products globally to expand our market footprint.
Distribution expenses were $13.0 million for the nine months ended February 29, 2016 as compared with $15.3 million for the nine months ended February 28, 2015, a decrease of $2.4 million, or 15.5%. The decrease in distribution expenses was primarily due to a lower volume of shipments in the first nine months of fiscal year 2016, and a reduction in freight expenses and other cost benefits realized from the strategic initiative introduced in fiscal year 2015 which reduced distribution costs on a long-term basis at our international locations. Distribution expenses were also lower in the first nine months of fiscal year 2016 as a result of a more favorable effect of change in foreign currency exchange rates on our international expenses.
General and administrative expenses were $33.1 million for the nine months ended February 29, 2016 as compared with $30.9 million for the nine months ended February 28, 2015. The increase in general and administrative expenses of $2.2 million, or 7.1%, was mainly due to higher transaction costs and share-based compensation costs. These increases were partially offset by a more favorable effect of change in foreign currency exchange rates on our international expenses in the first nine months of fiscal year 2016.
Amortization expense was $40.7 million for the nine months ended February 29, 2016 as compared with $40.9 million for the nine months ended February 28, 2015, a decrease of $0.2 million, or 0.5%. 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 $67.5 million for the nine months ended February 29, 2016 as compared with $66.3 million for the nine months ended February 28, 2015, an increase of $1.2 million, or 1.8%. This increase in non-operating net expense was mainly due to an unfavorable change in exchange gains and losses recorded in the first nine months of fiscal year 2016 as compared with the first nine months of fiscal year 2015. Interest expense recorded for the same periods also increased primarily due to an increase in amortization expense of deferred financing costs and accretion recorded on our contingent consideration liabilities.
The effective tax rate for the nine months ended February 29, 2016 and February 28, 2015 was 33.7% and -73.0%, respectively. The difference between the federal statutory rate and the effective tax rate for the nine months ended February 29, 2016 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate, the impact of recording U.S. income taxes associated with future remittances of un-repatriated foreign earnings, and changes in the U.S. tax law related to the R&D tax credit during the third quarter of fiscal 2016. The difference between the federal statutory rate and the effective tax rate for the nine months ended February 28, 2015 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 future remittances of un-repatriated foreign earnings. In addition, during the third quarter of fiscal 2015, the Company changed its election with regard to the treatment of its foreign tax credits.
Future Trends
With the acquisition of the Sirona business on March 4, 2016, and a plan to continue the development efforts of its existing projects, we expect that our research and development expenses will increase proportionally beginning in the fourth quarter of fiscal year 2016. Refer to Notes 3 and 20 of the consolidated financial statements for additional information on the Sirona acquisition.
With the plan to consolidate our LIFECODES facilities, and the closure of our Stamford, CT operation by April 2017, we expect that our operating expenses will increase in the near-term, but will be recovered within approximately 18 months.
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 third quarter and first nine months of fiscal year 2016 as compared with the same periods of fiscal year 2015. In fiscal year 2016, these foreign markets have continued to experience fluctuations in foreign currency exchange rates which could continue in future periods and 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 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 and nine months ended February 29, 2016 and February 28, 2015 is calculated as follows (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
February 29 |
February 28 |
February 29 |
February 28 |
|||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Net loss |
$ | (8,660 | ) | (39,440 | ) | (27,673 | ) | (53,997 | ) | |||||||
Interest expense (income), net |
22,281 | 21,751 | 67,143 | 66,782 | ||||||||||||
Income tax (benefit) provision |
(8,845 | ) | 30,744 | (14,046 | ) | 22,783 | ||||||||||
Depreciation and amortization |
17,200 | 17,713 | 51,417 | 53,843 | ||||||||||||
EBITDA |
21,976 | 30,768 | 76,841 | 89,411 | ||||||||||||
Adjustments to EBITDA: |
||||||||||||||||
Stock-based compensation (i) |
1,265 | 334 | 4,045 | 1,800 | ||||||||||||
Acquisition expenses, net (ii) |
879 | 373 | 950 | 2,164 | ||||||||||||
Sponsor fee (iii) |
825 | 903 | 2,428 | 2,934 | ||||||||||||
Non-cash impact of purchase accounting (iv) |
112 | 110 | 339 | 331 | ||||||||||||
Certain non-recurring expenses and other (v) |
4,188 | 2,198 | 10,959 | 8,619 | ||||||||||||
Adjusted EBITDA |
$ | 29,245 | 34,686 | 95,562 | 105,259 |
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. |
vi. |
Results for the three and nine months ended February 29, 2016 include the operations of Sentilus LLC |
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 and excludes the operations of Sentilus LLC, which is not included in the bank calculation.
On December 9, 2015, we entered into Amendment No. 5 to the credit agreement to modify the financial covenant associated with the Revolving Facility. The amendment provides that beginning with the period ending November 30, 2015, for purposes of calculating its compliance with the senior secured net leverage ratio covenant for any trailing twelve-month period for bank reporting purposes, we may calculate EBITDA on a constant currency basis, as defined in the amendment. The use of the constant currency adjustment is subject to compliance with certain restrictions. This adjustment is not reflected in the calculation of Adjusted EBITDA above.
As of February 29, 2016, 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 nine months of fiscal year 2016, our cash and cash equivalents decreased by $6.2 million to $12.2 million as of February 29, 2016. The decrease was primarily due to investments in new businesses, additional property and equipment, and an additional loan to Sirona of $4.9 million, as well as repayments of our long-term debt of $5.0 million in the first nine months of fiscal year 2016. These decreases in cash and cash equivalents were partially offset by positive cash flow contributed by our operating activities of approximately $6.8 million and $4.5 million of borrowings from our Revolving Facility. The cash balance at February 29, 2016 includes cash of $9.0 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 nine months of fiscal year 2015, our cash and cash equivalents decreased by $12.1 million to $11.5 million as of February 28, 2015. The decrease was primarily due to $19.2 million of cash used for investments in new businesses, the Sirona collaboration, and additional property and equipment in the first nine months of fiscal year 2015. These decreases in cash and cash equivalents were partially offset by positive cash flow contributed by our operating activities of approximately $2.8 million and $8.0 million of net cash received from financing activities due to $13 million on our Revolving Facility and repaid long-term debt of $5.0 million in the first nine months of fiscal year 2015.
Operating activities
Operating activities provided $6.8 million of cash and cash equivalents in the first nine months of fiscal year 2016 as compared with $2.8 million of cash provided by operating activities in the first nine months of fiscal year 2015. The increase in cash provided by operating activities was mainly due to improvements in working capital management, including higher collections on outstanding receivables partially offset by additional cash used to fund purchases of inventory during the first nine months of fiscal year 2016.
Investing activities
In the first nine months of fiscal year 2016, we used $7.1 million of cash to purchase property and equipment and to upgrade certain financial and operating systems, $4.9 million to fund an additional loan to Sirona, and $0.8 million to acquire the assets of a Reference Lab. In the first nine months of fiscal year 2015, we used $7.5 million of cash to purchase property and equipment, upgrade certain financial systems and implement a new financial consolidations application, $5.3 million to fund the original investment in the Sirona collaboration, and $6.4 million for investments in new businesses.
Financing activities
In the first nine months of fiscal year 2016, we used cash from financing activities of $5.0 million for repayments of our long-term debt. We also borrowed $48.0 million and repaid $43.5 million from our Revolving Facility, and had $4.5 million outstanding under our Revolving Facility as of February 29, 2016. In the first nine months of fiscal year 2015, we used cash from financing activities of $5.0 million for repayments of our long-term debt, and we borrowed $49.5 million from our Revolving Facility and repaid $36.5 million, with $13.0 million outstanding under our Revolving Facility.
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 $32.6 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 February 29, 2016, we had principal of $1,043.4 million of long-term borrowings outstanding under our Term Loan Facility and the Notes, and $4.5 million outstanding on the Revolving Facility. Our net total available borrowings under our Revolving Facility were $95.5 million as of February 29, 2016.
We expect that recurring capital expenditures during fiscal year 2016 will range from $10.0 million to $15.0 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.
On March 4, 2016, we exercised our warrant to acquire 100% of the common stock of Sirona Genomics, Inc. (“Sirona”) and paid a total of $14.4 million in cash. Refer to Notes 3 and 20 of our consolidated financial statements for additional information on the Sirona collaboration.
We and our officers, directors, employees, subsidiaries, affiliates, including IVD Holdings, Inc. (our indirect parent company), or directors, subsidiaries, stockholders or affiliates of IVD Holdings, Inc., may from time to time seek to retire or purchase our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Commitments and Contractual Obligations
As of February 29, 2016, 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 February 29, 2016.
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:
|
• |
our substantial indebtedness; |
|
• |
lower industry blood demand; |
|
• |
lower than expected demand for our instruments; |
|
• |
the decision of customers to defer capital spending; |
|
• |
the failure of customers to efficiently integrate our products into their operations; |
• |
increased competition; |
• |
product development, manufacturing and regulatory obstacles; |
• |
the failure to successfully integrate and capitalize on past or future acquisitions; |
• |
general economic conditions; and |
• |
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 February 29, 2016, 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 February 29, 2016. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 29, 2016, 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 three months ended February 29, 2016 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
Equity Compensation Plan
On September 24, 2015, our Compensation Committee approved a modification to our 2011 Equity Incentive Plan (our “Plan”) effective November 1, 2015. This modification added an alternative service-based vesting opportunity to all previously granted but unvested performance-based options. On October 16, 2015, our Compensation Committee approved an additional modification to our Plan that converted all stock appreciation rights granted prior to November 1, 2015 to service-based option awards and performance-based option awards. These awards will vest from the original grant 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.
IMMUCOR, INC.
(Registrant)
Date: April 11, 2016 |
By: |
/s/ Jeffrey R. Binder | |
|
Jeffrey R. Binder, Chief Executive Officer | ||
(Principal Executive Officer) | |||
Date: April 11, 2016 |
By: |
/s/ Dominique Petitgenet | |
Dominique Petitgenet, Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
46