UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) | ||
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended September 28, 2003 | ||
| OR | ||
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from_______to________. | ||
Commission File Number: 0-26126
SEROLOGICALS CORPORATION
| Delaware (State or other jurisdiction of incorporation or organization) |
58-2142225 (I.R.S. Employer Identification Number) |
| 5655 Spalding Drive | ||
| Norcross, Georgia (Address of principal executive offices) |
30092 (Zip Code) |
(678) 728-2000
(Registrant’s Telephone Number Including Area Code)
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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class | Outstanding at November 4, 2003 | |||
| Common Stock, $.01 par value per share | 24,660,040 | |||
INDEX
SEROLOGICALS CORPORATION AND SUBSIDIARIES
PART I. |
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Item 1. Financial Statements |
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Unaudited Consolidated Balance Sheets -
September 28, 2003 and December 29, 2002 |
3 | ||||
Unaudited Consolidated Statements of Income (Loss) -
For the three and nine months ended September 28, 2003 and September 29, 2002 |
4 | ||||
Unaudited Consolidated Statements of Cash Flows -
For the nine months ended September 28, 2003 and September 29, 2002 |
5 | ||||
Unaudited Notes to Consolidated Financial Statements |
6 | ||||
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
17 | ||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
25 | ||||
Item 4. Controls and Procedures |
26 | ||||
PART II. |
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Item 1. Legal Proceedings |
26 | ||||
Item 6. Exhibits and Reports on Form 8-K |
26 | ||||
SIGNATURES |
28 | ||||
PART I.
Item 1. Financial Statements
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
| September 28, | December 29, | |||||||||||
| 2003 | 2002 | |||||||||||
| ASSETS | ||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 41,879 | $ | 15,242 | ||||||||
Trade accounts receivable, net |
27,223 | 22,090 | ||||||||||
Inventories |
35,168 | 19,535 | ||||||||||
Other current assets |
12,004 | 5,546 | ||||||||||
Total current assets |
116,274 | 62,413 | ||||||||||
PROPERTY AND EQUIPMENT, net |
65,352 | 48,725 | ||||||||||
DISCONTINUED OPERATIONS (Note 3) |
15,218 | 35,126 | ||||||||||
OTHER ASSETS: |
||||||||||||
Goodwill |
93,330 | 30,812 | ||||||||||
Intangible assets, net |
50,549 | 13,765 | ||||||||||
Other |
649 | 324 | ||||||||||
Total other assets |
144,528 | 44,901 | ||||||||||
Total assets |
$ | 341,372 | $ | 191,165 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Current maturities of capital lease obligations |
$ | 7 | $ | 385 | ||||||||
Accounts payable |
4,813 | 4,983 | ||||||||||
Accrued liabilities |
16,692 | 9,361 | ||||||||||
Total current liabilities |
21,512 | 14,729 | ||||||||||
CONVERTIBLE DEBENTURES (Note 5) |
130,000 | — | ||||||||||
CAPITAL LEASE OBLIGATIONS, less current maturities (Note 6) |
32 | 39 | ||||||||||
DEFERRED INCOME TAXES |
17,184 | 4,062 | ||||||||||
OTHER LIABILITIES |
54 | 95 | ||||||||||
DISCONTINUED OPERATIONS (Note 3) |
1,955 | 1,870 | ||||||||||
STOCKHOLDERS’ EQUITY: |
||||||||||||
Preferred stock |
— | — | ||||||||||
Common stock |
279 | 277 | ||||||||||
Additional paid-in capital |
119,169 | 118,116 | ||||||||||
Retained earnings |
68,831 | 72,211 | ||||||||||
Accumulated other comprehensive income |
2,703 | 113 | ||||||||||
Less: Common stock held in treasury |
(20,347 | ) | (20,347 | ) | ||||||||
Total stockholders’ equity |
170,635 | 170,370 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 341,372 | $ | 191,165 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited and in thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 28, | September 29, | September 28, | September 29, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
Net sales |
$ | 42,010 | $ | 23,726 | $ | 100,555 | $ | 71,611 | |||||||||||
Costs and expenses: |
|||||||||||||||||||
Cost of sales |
18,714 | 11,093 | 45,342 | 33,464 | |||||||||||||||
Selling, general and
administrative
expenses |
12,826 | 7,588 | 31,116 | 25,542 | |||||||||||||||
Research and development |
1,628 | 1,555 | 4,298 | 3,931 | |||||||||||||||
Amortization of intangibles |
630 | 223 | 1,551 | 660 | |||||||||||||||
Special charges (Note 4) |
504 | — | 2,778 | — | |||||||||||||||
Operating income |
7,708 | 3,267 | 15,470 | 8,014 | |||||||||||||||
Other expense, net |
61 | 36 | 248 | 91 | |||||||||||||||
Write-off of deferred financing
costs (Note 4) |
4,112 | — | 4,492 | — | |||||||||||||||
Interest expense (income), net |
1,399 | 34 | 2,953 | (424 | ) | ||||||||||||||
Income from continuing operations |
2,136 | 3,197 | 7,777 | 8,347 | |||||||||||||||
Provision for income taxes |
742 | 1,119 | 2,725 | 2,921 | |||||||||||||||
Net income from continuing
operations |
1,394 | 2,078 | 5,052 | 5,426 | |||||||||||||||
Income (loss) from discontinued
operations, net of income taxes
(Note 3) |
(7,930 | ) | 1,203 | (8,435 | ) | 4,345 | |||||||||||||
Net income (loss) |
$ | (6,536 | ) | $ | 3,281 | $ | (3,383 | ) | $ | 9,771 | |||||||||
Basic earnings (loss) per share: |
|||||||||||||||||||
Net income from continuing
operations |
$ | 0.06 | $ | 0.09 | $ | 0.21 | $ | 0.22 | |||||||||||
Discontinued operations |
(0.32 | ) | 0.05 | (0.34 | ) | 0.18 | |||||||||||||
Net income (loss) |
$ | (0.26 | ) | $ | 0.14 | $ | (0.13 | ) | $ | 0.40 | |||||||||
Diluted earnings (loss) per share: |
|||||||||||||||||||
Net income from continuing
operations |
$ | 0.06 | $ | 0.08 | $ | 0.20 | $ | 0.22 | |||||||||||
Discontinued operations |
(0.32 | ) | 0.05 | (0.34 | ) | 0.17 | |||||||||||||
Net income (loss) |
$ | (0.26 | ) | $ | 0.13 | $ | (0.14 | ) | $ | 0.39 | |||||||||
Weighted average shares: |
|||||||||||||||||||
Basic |
24,567,487 | 24,385,579 | 24,502,089 | 24,330,530 | |||||||||||||||
Diluted |
25,059,584 | 24,840,035 | 24,873,651 | 24,859,193 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
| Nine Months Ended | |||||||||||
| September 28, | September 29, | ||||||||||
| 2003 | 2002 | ||||||||||
Operating activities: |
|||||||||||
Net income (loss) |
$ | (3,383 | ) | $ | 9,771 | ||||||
Income (loss) from discontinued operations |
(8,435 | ) | 4,345 | ||||||||
Net
income from continuing operations |
5,052 | 5,426 | |||||||||
Adjustments to reconcile net income (loss) to net cash provided
by operating activities: |
|||||||||||
Depreciation and amortization |
6,351 | 3,855 | |||||||||
Tax benefit from exercise of stock options |
190 | 758 | |||||||||
Non-cash special charges and write-off of deferred financing costs |
6,402 | — | |||||||||
Deferred income tax provision |
1,109 | 691 | |||||||||
Deferred and other compensation |
62 | 179 | |||||||||
Changes in operating assets and liabilities, net of effect of
business combination: |
|||||||||||
Trade accounts receivable, net |
(202 | ) | (5,070 | ) | |||||||
Inventories |
(9,404 | ) | 455 | ||||||||
Other current assets |
(4,475 | ) | 2,410 | ||||||||
Accounts payable |
(1,551 | ) | (464 | ) | |||||||
Accrued liabilities |
1,270 | (1,572 | ) | ||||||||
Other, net |
(363 | ) | 219 | ||||||||
Total adjustments |
(611 | ) | 1,461 | ||||||||
Net cash provided by operating activities |
4,441 | 6,887 | |||||||||
Investing activities: |
|||||||||||
Purchases of property and equipment |
(12,262 | ) | (8,881 | ) | |||||||
Purchase of business, net of cash received |
(97,097 | ) | — | ||||||||
Other |
— | (263 | ) | ||||||||
Net cash used in investing activities |
(109,359 | ) | (9,144 | ) | |||||||
Financing activities: |
|||||||||||
Proceeds from convertible debentures |
130,000 | — | |||||||||
Proceeds from term loan |
82,500 | — | |||||||||
Repayment of term loan |
(82,500 | ) | — | ||||||||
Payments on long-term debt and capital leases |
(385 | ) | (4,142 | ) | |||||||
Proceeds from stock plans |
803 | 2,459 | |||||||||
Payment of debt issuance costs |
(8,706 | ) | — | ||||||||
Other |
— | (347 | ) | ||||||||
Net cash provided by (used in) financing activities |
121,712 | (2,030 | ) | ||||||||
Net cash provided by discontinued operations |
9,843 | 3,293 | |||||||||
Net increase (decrease) in cash and cash equivalents |
26,637 | (994 | ) | ||||||||
Cash and cash equivalents, beginning of period |
15,242 | 12,119 | |||||||||
Cash and cash equivalents, end of period |
$ | 41,879 | $ | 11,125 | |||||||
Supplemental Disclosures: |
|||||||||||
Interest paid, net of amounts capitalized |
$ | 2,735 | $ | — | |||||||
Income taxes paid |
$ | 2,287 | $ | 3,003 | |||||||
Non-Cash Investing and Financing Activities: |
|||||||||||
Stock acquired by employees in lieu of cash bonus |
$ | 138 | $ | 212 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(UNAUDITED)
| 1. | ORGANIZATION AND BASIS OF PRESENTATION |
Organization
Serologicals Corporation, a Delaware corporation, (together with its subsidiaries, the “Company” or “Serologicals”) is a global provider of biological products and enabling technologies to life science companies. The Company’s products are essential for the research, development and manufacturing of biologically based life science products. The Company’s products and technologies are used in a wide variety of applications within the areas of oncology, hematology, immunology, cardiology and infectious diseases, as well as in the study of molecular biology. The Company’s customers include many of the leading life sciences companies throughout the world.
The Company conducts manufacturing, distribution and research and development for its research products segment from facilities in California, Australia and the United Kingdom. The Company conducts manufacturing for its cell culture and diagnostic products segments at facilities located in North America and the United Kingdom. The Company’s protein fractionation facilities are located in Kankakee, Illinois and Toronto, Ontario. These facilities provide a variety of proteins used in diagnostic reagents and cell culture media components for use as additives in biotechnology-based products. The Company operates a monoclonal antibody manufacturing facility in Scotland that is engaged in the development and manufacturing of monoclonal antibody products for use in diagnostic products such as blood typing reagents and controls for tests used for diagnosing certain infectious diseases. The Company operates a facility in Milford, Massachusetts that includes a central product distribution facility, as well as operations related to production of substrates used in diagnostic assays.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Serologicals and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, to present fairly Serologicals’ financial position, results of operations and cash flows at the dates and for the periods presented. Interim results of operations are not necessarily indicative of results to be expected for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements as of December 29, 2002 and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2002, as amended by the Company’s Current Report on Form 8-K filed on August 8, 2003.
Financial statements for all periods presented have been reclassified to separately report results of discontinued operations from results of continuing operations (Note 3). Disclosures included herein pertain to the Company’s continuing operations unless otherwise noted.
Certain prior year amounts have been reclassified to conform to the current year presentation.
6
Inventories
Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Market for work-in-process and finished goods inventories is net realizable value and for raw materials is replacement cost. The components of inventories are stated as follows (in thousands):
| September 28, | December 29, | ||||||||
| 2003 | 2002 | ||||||||
Raw materials |
$ | 9,130 | $ | 4,167 | |||||
Work-in-process |
9,878 | 4,132 | |||||||
Finished goods |
16,160 | 11,236 | |||||||
Total |
$ | 35,168 | $ | 19,535 | |||||
Earnings (loss) Per Share
Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. The calculation of diluted earnings per share is similar to basic earnings (loss) per share, except the weighted average number of shares includes the dilutive effect of stock options and similar instruments.
The following table sets forth the calculation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 28, | September 29, | September 28, | September 29, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||