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: November 30, 2014
		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	(I.R.S. Employer
	incorporation or organization)	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 November 30, 2012, 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 January 13, 2015, there were 100 shares of common stock outstanding.

 

 

 

IMMUCOR, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

INDEX

 

 

PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:	3
Consolidated Balance Sheets (unaudited, except for May 31, 2014)		3
Consolidated Statements of Operations (unaudited)		4
Consolidated Statements of Comprehensive (Loss) Income (unaudited)		6
Consolidated Statements of Cash Flows (unaudited)		7
Notes to Consolidated Financial Statements (unaudited)		8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 6.	Exhibits	40
	SIGNATURES	40

 

 

 ITEM 1. Consolidated Financial Statements

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
		November 30, 2014				May 31, 2014
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	15,105				23,621
Trade accounts receivable, net of allowance for doubtful accounts of $854 and $898 at November 30, 2014 and May 31, 2014, respectively			70,302				69,629
Inventories			47,400				49,151
Deferred income tax assets, current portion			8,083				8,251
Prepaid expenses and other current assets			11,048				12,582
Total current assets			151,938				163,234
PROPERTY AND EQUIPMENT, net			75,303				76,311
GOODWILL			847,562				851,563
OTHER INTANGIBLE ASSETS, net			681,135				692,870
DEFERRED FINANCING COSTS, net			29,792				33,116
OTHER ASSETS			12,790				7,320
Total assets		$	1,798,520				1,824,414
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	17,662				15,665
Accrued interest and interest rate swap liability			19,524				19,605
Accrued expenses and other current liabilities			22,312				23,716
Income taxes payable			4,385				4,927
Deferred revenue, current portion			2,564				2,813
Current portion of long-term debt, net of debt discounts			4,538				4,591
Total current liabilities			70,985				71,317
LONG-TERM DEBT, net of debt discounts			1,035,206				1,037,183
DEFERRED REVENUE			65				86
DEFERRED INCOME TAX LIABILITIES			219,269				223,379
OTHER LONG-TERM LIABILITIES			31,034				23,833
Total liabilities			1,356,559				1,355,798
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS' EQUITY:
Common stock, $0.00 par value, 100 shares authorized, issued and outstanding as of November 30, 2014 and May 31, 2014, respectively			-				-
Additional paid-in capital			754,614				753,147
Accumulated deficit			(285,821	)			(271,264	)
Accumulated other comprehensive loss			(26,832	)			(13,267	)
Total shareholders' equity			441,961				468,616
Total liabilities and shareholders' equity		$	1,798,520				1,824,414

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
		Three Months Ended
		November 30
		2014				2013
NET SALES		$	96,277				100,203
COST OF SALES (exclusive of amortization shown separately below)			35,773				34,682
GROSS MARGIN			60,504				65,521
OPERATING EXPENSES
Research and development			7,115				7,310
Selling and marketing			15,373				15,170
Distribution			5,316				4,837
General and administrative			10,698				8,277
Amortization expense			13,651				13,215
Acquisition-related items			-				(3,318	)
Total operating expenses			52,153				45,491
INCOME FROM OPERATIONS			8,351				20,030
NON-OPERATING (EXPENSE) INCOME
Interest income			32				3
Interest expense			(22,822	)			(22,093	)
Other, net			214				20
Total non-operating net expense			(22,576	)			(22,070	)
LOSS BEFORE INCOME TAXES			(14,225	)			(2,040	)
BENEFIT FOR INCOME TAXES			(5,148	)			(1,253	)
NET LOSS		$	(9,077	)			(787	)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
		Six Months Ended
		November 30
		2014				2013
NET SALES		$	198,717				196,247
COST OF SALES (exclusive of amortization shown separately below)			72,600				70,733
GROSS MARGIN			126,117				125,514
OPERATING EXPENSES
Research and development			14,194				15,440
Selling and marketing			30,429				29,462
Distribution			10,356				9,556
General and administrative			21,581				19,253
Amortization expense			27,332				26,422
Acquisition-related items			-				(4,638	)
Total operating expenses			103,892				95,495
INCOME FROM OPERATIONS			22,225				30,019
NON-OPERATING (EXPENSE) INCOME
Interest income			88				12
Interest expense			(45,120	)			(44,271	)
Other, net			289				(195	)
Total non-operating net expense			(44,743	)			(44,454	)
LOSS BEFORE INCOME TAXES			(22,518	)			(14,435	)
BENEFIT FOR INCOME TAXES			(7,961	)			(5,888	)
NET LOSS		$	(14,557	)			(8,547	)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(Unaudited)
		Three Months Ended
		November 30
		2014				2013
NET LOSS		$	(9,077	)			(787	)
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustment			(9,397	)			3,162
Changes in fair value of cash flow hedges:
Portion of cash flow hedges recognized in other comprehensive income			118				(314	)
Less: reclassification adjustment for losses included in net income			(39	)			134
Net changes in fair value of cash flow hedges			79				(180	)
OTHER COMPREHENSIVE (LOSS) INCOME			(9,318	)			2,982
COMPREHENSIVE (LOSS) INCOME		$	(18,395	)			2,195

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(Unaudited)
		Six Months Ended
		November 30
		2014				2013
NET LOSS		$	(14,557	)			(8,547	)
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustment			(13,762	)			4,547
Changes in fair value of cash flow hedges:
Portion of cash flow hedges recognized in other comprehensive income			367				204
Less: reclassification adjustment for losses included in net income			(170	)			(59	)
Net changes in fair value of cash flow hedges			197				145
OTHER COMPREHENSIVE (LOSS) INCOME			(13,565	)			4,692
COMPREHENSIVE LOSS		$	(28,122	)			(3,855	)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
		Six Months Ended
		November 30
		2014				2013
OPERATING ACTIVITIES:
Net loss		$	(14,557	)			(8,547	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			36,131				35,115
Noncash interest expense			5,420				4,460
Loss on disposition and retirement of fixed assets			75				93
Inventory fair value adjustment			-				2,742
Provision for doubtful accounts			20				(1,934	)
Share-based compensation expense			1,467				818
Deferred income taxes			(10,096	)			(8,430	)
Change in fair value of contingent consideration			-				(4,638	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, trade			(3,770	)			(1,268	)
Income taxes			(25	)			46
Inventories			(2,436	)			(9,340	)
Other assets			843				(869	)
Accounts payable			2,726				4,429
Deferred revenue			(166	)			290
Accrued expenses and other liabilities			(619	)			78
Cash provided by operating activities			15,013				13,045
INVESTING ACTIVITIES:
Purchases of property and equipment			(6,903	)			(4,311	)
Receipt from acquisition of business related to finalizing certain working capital adjustments			-				1,116
Other investments			(5,300	)			-
Acquisitions of businesses, net of cash acquired			(6,396	)			-
Cash used in investing activities			(18,599	)			(3,195	)
FINANCING ACTIVITIES:
Repayments of long-term debt			(3,328	)			(3,678	)
Proceeds from Revolving Facility			29,500				-
Repayments of Revolving Facility			(29,500	)			-
Cash used in financing activities			(3,328	)			(3,678	)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS			(1,602	)			663
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(8,516	)			6,835
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			23,621				29,388
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	15,105				36,223
SUPPLEMENTAL INFORMATION:
Income taxes paid, net of refunds		$	2,325				2,081
Interest paid			39,702				40,138
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Movement from inventory to property and equipment of instruments placed on rental agreements		$	3,069				5,151

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

IMMUCOR, INC. AND SUBSIDIARIES

 Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.	NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Nature of Business

 

Immucor, Inc. (“Immucor”) and its subsidiaries (collectively, the “Company”) develops, manufactures and sells transfusion and transplantation diagnostics products used by hospitals, donor centers and reference laboratories around the world. Our products are used in a number of tests performed in the typing and screening of blood, organs or stem cells to identify certain properties of the cell and serum components of human blood and tissue to ensure donor-recipient compatibility for blood transfusion, and organ transplantations. The Company operates manufacturing facilities in North America with both direct affiliate offices and third-party distribution arrangements worldwide.

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission’s (“SEC”) instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Company’s interim results are not necessarily indicative of the Company’s expected full year results. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and related notes for the year ended May 31, 2014, included in the Company’s Annual Report on Form 10-K filed with the SEC on August 26, 2014.

 

Basis of Consolidation

 

The consolidated financial statements include the accounts of Immucor and all its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. There are no other entities controlled by the Company, either directly or indirectly.

 

Impact of Recently Issued Accounting Standards

 

Accounting Changes Adopted by the Company in Fiscal 2015

 

In November 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-17, Business Combinations: Pushdown Accounting (“ASU 2014-17”). ASU 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period as a change in accounting principle in accordance with ASC Topic 250, Accounting Changes and Error Corrections. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 also requires an acquired entity that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting. The Company has adopted the amendments in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. The adoption of ASU 2014-12 did not have a material impact on the Company’s consolidated financial statements.

 

Accounting Changes Not Yet Adopted

 

In June 2014, the FASB issued an ASU on stock-based compensation, ASU 2014-12, Compensation – Stock Compensation, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (“ASU 2014-12”).  The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, which corresponds to the Company’s first quarter of fiscal 2017. Earlier adoption is permitted. The Company is evaluating the effect of adoption of ASU 2014-12 on its consolidated financial statements.

 

   

In May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. The Company will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, which corresponds to the Company’s first quarter of fiscal 2018. 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 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, Femtoarrays^TM. Among other uses, Sentilus has been developing Femtoarrays^TM 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 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 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 is 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 are valued at $18.8 million in the aggregate. Goodwill is valued at $0.6 million and the long-term deferred tax liability is valued at $7.2 million. The purchase price allocation for this acquisition is preliminary and is subject to material valuation adjustments or tax matters that may be identified within the measurement period. The goodwill arising from this acquisition is not deductible for tax purposes.

 

 

Acquisition of LIFECODES distribution business – The Company completed the acquisition of the LIFECODES distribution business in India effective August 1, 2014. This acquisition enables Immucor to streamline the distribution of its LIFECODES products in that region. The Company acquired the assets of the India distribution business for a total cash purchase price of $0.4 million, of which a total of $0.2 million was paid in both the first and second quarters of fiscal 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.

 

Business combinations completed in fiscal 2014:

 

Acquisition of Organ-i – On May 30, 2014, the Company completed the acquisition of Organ-i, Inc. (“Organ-i”) a privately-held company focused on developing non-invasive tests to monitor and predict organ health for transplant recipients. This acquisition expands Immucor’s product offering for post-transplant testing and complements the existing LIFECODES business. The total cash purchase price of this business was $12.0 million plus a potential earn-out of up to $18.0 million if certain product and financial targets during fiscal years 2015 through 2020 are met. Management estimated that the fair value of the contingent consideration arrangement as of the acquisition date was approximately $11.3 million. This was determined by applying a form of the income approach, based on 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 were the earn-out period payment probabilities and an appropriate discount rate. These assumptions are considered to be level 3 inputs by ASC Topic 820, which is not observable in the market. Including the contingent consideration, the aggregate estimated fair value of the consideration paid was approximately $23.3 million. The other identifiable intangible assets including existing technology, IPR&D and non-competition agreements are valued at $26.7 million. Goodwill is valued at $5.8 million and the long-term deferred tax liability is valued at $9.1 million. The goodwill arising from this acquisition is not deductible for tax purposes.

 

Acquisition of LIFECODES distribution businesses – The Company completed the acquisition of the LIFECODES distribution businesses in both the United Kingdom (“UK”) and Italy on January 31, 2014. These acquisitions enable Immucor to streamline the distribution of its LIFECODES products in Europe. The Company acquired the stock of the UK distribution business for a total cash purchase price of $4.0 million, including acquired cash of $1.2 million. The Company acquired the assets of the Italy distribution business for a total cash purchase price of $2.4 million. In total, the Company acquired other identifiable intangible assets of $3.5 million and $1.1 million of goodwill, respectively, in these acquisitions.  The other identifiable intangible assets are mainly customer relationships, which represent the fair value of the existing customer base. The tangible assets acquired in these acquisitions were not material to the Company’s consolidated financial statements. All of the goodwill arising from the Italy asset acquisition is deductible for income tax purposes.  The goodwill arising from the UK acquisition is not deductible for tax purposes.

 

 

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 collaboration, the Company paid $0.7 million for a warrant with an exclusive option to acquire 100% of the common stock of Sirona and also loaned $4.6 million bearing interest at a market rate to Sirona for development funding. The collaborative arrangement includes the potential for future interest bearing loans from the Company of up to $6.7 million over the following two year period, subject to the achievement of certain development milestones and other terms of the arrangement. Sirona is considered to be a variable interest entity (“VIE”). However, because Sirona retains sole responsibility for and control of the operations of the business and for achieving product commercialization, the Company is not required to consolidate results for Sirona. The maximum loss exposure associated with the VIE is $12.0 million, which includes the outstanding loan to Sirona of $4.6 million and the amount paid for the warrant of $0.7 million, and any future loans made by Immucor. The outstanding loan and the warrant asset are both included in Other assets on the Company’s consolidated balance sheet as of November 30, 2014.

 

 

4.	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 six months ended November 30, 2014, approximately $1.1 million, and $2.0 million was recorded for the monitoring fees, additional services provided by the Sponsor, and out-of-pocket expenses, respectively. In the three months and six months ended November 30, 2013, $0.9 million, and $1.9 million, was recorded for these same types of fees and expenses, respectively. These expenses are included in general and administrative expenses in the consolidated statements of operations. As of November 30, 2014 and May 31, 2014, the Company owed $1.0 million and $0.9 million, respectively, to the Sponsor for these fees and expenses.

 

 

5.	INVENTORIES

 

Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Inventories as of November 30, 2014, and May 31, 2014 include the following (in thousands):

  

		As of
		November 30, 2014				May 31, 2014
Raw materials and supplies		$	14,101				12,110
Work in process			6,855				9,146
Finished goods			26,444				27,895
		$	47,400				49,151

 

 

6.	PROPERTY AND EQUIPMENT, net

 

Property and equipment consists of the following (in thousands):

  

		As of
		November 30, 2014				May 31, 2014
Land		$	275				290
Buildings and improvements			2,771				2,966
Leasehold improvements			25,225				24,693
Capital work-in-progress			5,924				3,927
Furniture and fixtures			3,978				3,656
Machinery, equipment and instruments			91,517				88,057
			129,690				123,589
Less accumulated depreciation			(54,387	)			(47,278	)
Property and equipment, net		$	75,303				76,311

 

Depreciation expense was $4.1 million and $8.8 million in the three months and six months ended November 30, 2014, and was $4.3 million and $8.7 million in the three months and six months ended November 30, 2013. Depreciation expense is primarily included in cost of sales in the consolidated statements of operations.

 

 

7.

GOODWILL

 

The consolidated financial statements include the goodwill resulting from the acquisition of Immucor in the first quarter of fiscal 2012, and the acquisition of various businesses completed through the second quarter of fiscal 2015. The following table presents the changes in the carrying amount of goodwill during the six months ended November 30, 2014 and the fiscal year ended May 31, 2014 (in thousands):

  

		November 30, 2014				May 31, 2014
Balance at beginning of period		$	851,563				1,003,463
Additions:
Acquisition of businesses			667				6,912
Foreign currency translation adjustment			(4,668	)			1,188
Impairment loss			-				(160,000	)
Balance at end of period		$	847,562				851,563

 

There were no accumulated impairment losses for the Company’s goodwill prior to the period ending May 31, 2014. For the periods ending May 31, 2014 and November 30, 2014, the Company had $160.0 million of accumulated impairment losses on goodwill.

 

 

8.	OTHER INTANGIBLE ASSETS, net

  

Other intangible assets, net consist of the following (in thousands):

 

						As of
						November 30, 2014												May 31, 2014
		Weighted Average Life (years)				Cost				Accumulated Amortization				Net				Cost				Accumulated Amortization				Net
Other intangible assets subject to amortization:
Customer relationships			20			$	466,865				(75,147	)			391,718				470,679				(63,989	)			406,690
Existing technology / trade names			11				314,350				(85,400	)			228,950				314,350				(71,246	)			243,104
Corporate trade name			15				40,000				(8,754	)			31,246				40,000				(7,421	)			32,579
Below market leasehold interests			7				1,200				(506	)			694				1,200				(449	)			751
Other intangibles			4				429				(102	)			327				399				(53	)			346
Total amortizable assets							822,844				(169,909	)			652,935				826,628				(143,158	)			683,470
Other intangible assets not subject to amortization:
In-process research and development							28,200				-				28,200				9,400				-				9,400
Total non-amortizable assets							28,200				-				28,200				9,400				-				9,400
Other intangible assets, net						$	851,044				(169,909	)			681,135				836,028				(143,158	)			692,870

 

The weighted average life for below market leasehold interests changed from 6 to 8 years as of August 31, 2013 as a result of the renewal of certain lease agreements which extended the lease terms of existing leases. The costs associated with the new leases were treated as operating expenses as incurred.

 

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.

 

In fiscal 2014, it was determined that an IPR&D project related to our transplant and molecular diagnostics business was no longer economically feasible. This project was therefore abandoned and fully written-off in fiscal 2014. As a result, a loss of $0.2 million was recorded in fiscal 2014 and included in impairment loss on the Company’s consolidated statement of operations.

 

 

Amortization expense related to these intangible assets for the three months and six months ended November 30, 2014 was $13.7 million and $27.3 million, and for the three months and six months ended November 30, 2013 was $13.2 million and $26.4 million, respectively. Expected amortization expense for the remainder of fiscal 2015 and for each of the five succeeding years is as follows (in thousands):

  

Year Ending May 31:
2015		$	27,358
2016			54,686
2017			54,530
2018			54,415
2019			50,491
2020			49,384

 

9.	DEFERRED FINANCING COSTS, net

 

Changes in deferred financing costs during the six months ended November 30, 2014 and the fiscal year ended May 31, 2014 are as follows (in thousands):

 

		November 30, 2014				May 31, 2014
Balance at beginning of period		$	33,116				39,449
Amortization			(3,324	)			(6,333	)
Balance at end of period		$	29,792				33,116

 

Deferred financing costs are capitalized and are amortized over the life of the related debt agreements using the effective interest rate method, except the Revolving Facility which uses the straight line method.

 

 

10.	LONG-TERM DEBT

 

Long-term debt consists of the following (in thousands):

 

		As of
		November 30, 2014				May 31, 2014
Term Loan Facility, net of $8,415 and $9,435 debt discounts, respectively		$	643,313				645,609
Notes, net of $3,584 and $3,862 debt discounts, respectively			396,416				396,138
Capital lease agreements			15				27
			1,039,744				1,041,774
Less current portion, net of discounts			(4,538	)			(4,591	)
Long-term debt, net of current portion		$	1,035,206				1,037,183

  

Senior Secured Credit Facilities, Security Agreement and Guaranty  

 

The Company is party to a credit agreement and related security and other agreements as subsequently amended, with a bank syndicate of lenders, and Citibank N.A. as the Administrative Agent. The credit agreement, as amended, provides for (1) a $663.3 million senior secured term loan facility with Term B-2 Loans (the “Term Loan Facility”) and (2) a $100.0 million senior secured revolving loan facility (the “Revolving Facility,” and together with the Term Loan Facility, the “Senior Credit Facilities”). In addition to borrowings upon prior notice, the Revolving Facility includes borrowing capacity in the form of letters of credit and borrowings on same-day notice, referred to as swing line loans, in each case, up to $25.0 million, and is available in U.S. dollars, GBP, Euros, Yen, Canadian dollars and in such other currencies as the Company and the Administrative Agent under the Revolving Facility may agree (subject to a sublimit for such non-U.S. currencies). The Term Loan Facility matures on August 19, 2018 and the Revolving Facility matures on August 19, 2017.

 

 

Borrowings under the Senior Credit Facilities bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either (a) in the case of borrowings in U.S. dollars, a base rate determined by reference to the highest of (1) the prime rate of Citibank, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) in the case of borrowings in U.S. dollars or another currency, a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which, in the case of the Term Loan Facility only, shall be no less than 1.25%. The applicable margin for borrowings under the Term Loan Facility is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. The applicable margin for borrowings under the Revolving Facility is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. The applicable margin for borrowings under the Revolving Facility is subject to a 0.25% step-down, when the Company’s senior secured net leverage ratio at the end of a fiscal quarter is less than or equal to 3:00 to 1:00.

 

The interest rate on the Term Loan Facility was 5.00% as of November 30, 2014 and May 31, 2014. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Term Loan Facility is 6.7% for the six months ended November 30, 2014. During the first six months of fiscal 2015, the Company borrowed and repaid $29.5 million from our Revolving Facility. The weighted average interest rate on the borrowings from the Revolving Facility during first six months of fiscal 2015 was approximately 5.2%. At November 30, 2014, there were no 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 2014 and was $2.0 million for fiscal 2013. The fiscal 2013 additional principal payment of $2.0 million was paid in September 2013. The terms of the Senior Credit Facilities provide that any principal paid as a result of the excess cash flow requirement, shall be applied to the scheduled installments of principal following the date of prepayment in direct order of maturity.

 

All obligations under the Senior Credit Facilities are unconditionally guaranteed by the parent company of Immucor, IVD Intermediate Holdings B Inc. (the “Parent”), and certain of Immucor’s existing and future wholly owned domestic subsidiaries (such subsidiaries collectively, the “Subsidiary Guarantors”), and are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Parent and Subsidiary Guarantors, subject in each case to customary exceptions and exclusions.

 

Indenture and the Senior Notes Due 2019

 

The Company has also issued $400.0 million in principal amount of Notes. The Notes bear interest at a rate of 11.125% per annum, and interest is payable semi-annually on February 15 and August 15 of each year. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Notes is 11.6% for the six months ended November 30, 2014. 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 2015 and each of the fiscal years presented in the table below (in thousands):

 

For the Year Ended May 31:
2015		$	3,324
2016			6,639
2017			6,632
2018			6,632
2019			628,516
Thereafter			400,000
		$	1,051,743

 

Interest Expense

 

The significant components of interest expense are as follows (in thousands):

 

		Three Months Ended								Six Months Ended
		November 30								November 30
		2014				2013				2014				2013
Notes, including OID amortization		$	11,265				11,250			$	22,527				22,497
Term Loan Facility, including OID amortization			8,758				8,806				17,619				17,726
Amortization of deferred financing costs			1,675				1,580				3,324				3,136
Interest rate swaps			229				262				492				524
Revolving Facility fees and interest			216				126				358				254
Interest accreted on contingent consideration liability			679				69				800				134
Interest expense		$	22,822				22,093			$	45,120				44,271

 

11.	DERIVATIVE FINANCIAL INSTRUMENTS

 

As of November 30, 2014, the Company has interest rate swap agreements to hedge $155.0 million of its future interest commitments resulting from the Company’s Term Loan Facility, and to protect the Company from variability in cash flows attributable to changes in LIBOR interest rates. The purpose of entering into these swap agreements is to match the LIBOR floor in the swaps with the terms of the Term Loan Facility. Consistent with the terms of the Company’s Term Loan Facility, these swaps include a LIBOR floor of 1.25%. These swap agreements hedge a portion of contractual floating rate interest commitments through the expiration of the agreement in September of each year through 2016.

 

Prior to October 1, 2014, the Company had swap agreements that hedged $240.0 million of its floating rate interest commitments at a weighted average fixed LIBOR rate of 1.67%. Effective October 1, 2014 through September 30, 2015, the Company has swap agreements that hedge $155.0 million of the Company’s floating rate interest commitments at a weighted average fixed LIBOR rate of 1.77%.  Effective October 1, 2015 through September 30, 2016, the Company 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 has 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 November 30, 2014, approximately $0.8 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
		November 30, 2014				May 31, 2014
Interest rate swaps (included in other liabilities)		$	(990	)			(1,357	)

 

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								Six Months Ended
		November 30								November 30
Location of (loss) gain reclassified from AOCI into income		2014				2013				2014				2013
(Losses) gains on cash flow hedges:
Interest expense (effective portion)		$	(225	)			(246	)			(486	)			(503	)
Interest income (expense) (ineffective portion)		$	(2	)			(10	)			(2	)			(7	)

 

 

12.	FAIR VALUE

 

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

  

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

•

Level 2—Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

•

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

		As of November 30, 2014
		Fair Value Measurements of Assets (Liabilities) Using												Carrying
		(Level 1)				(Level 2)				(Level 3)				Amount
		(in thousands)
Derivative instruments		$	-				(990	)			-				(990	)
Contingent consideration liability		$	-				-				(18,538	)			(18,538	)

 

 

   

		As of May 31, 2014
		Fair Value Measurements of Assets (Liabilities) Using												Carrying
		(Level 1)				(Level 2)				(Level 3)				Amount
		(in thousands)
Derivative instruments		$	-				(1,357	)			-				(1,357	)
Contingent consideration liability		$	-				-				(11,300	)			(11,300	)

 

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 $15.1 million and $23.6 million of cash and cash equivalents at November 30, 2014 and May 31, 2014, respectively, approximately 24% and 19% was located in the U.S., respectively.

 

The Company uses derivative financial instruments, primarily in the form of floating-to-fixed interest rate swap agreements, in order to mitigate the risks associated with interest rate fluctuations on the Company’s floating rate indebtedness. The estimated fair value of the Company’s derivative instruments is based on quoted market prices for similar instruments (a level 2 input) and are reflected at fair value in the consolidated balance sheets. The level 2 inputs used to calculate fair value were interest rates, volatility and credit derivative markets. The Company’s current and long-term derivative financial instrument liabilities are included in Accrued interest and interest rate swap liability and Other long-term liabilities in the Company’s consolidated balance sheets.

 

The fair value of the Company’s Notes and the Term Loan Facility (collectively referred to as the Company’s debt instruments) is estimated to be $435.3 million and $655.0 million at November 30, 2014, respectively, based on recent trades of similar instruments. The fair value of the Notes and the Term Loan Facility was estimated to be $446.3 million and $656.7 million at May 31, 2014, respectively, based on the fair value of these instruments at that time.

 

Management believes that these liabilities can be liquidated without restriction.

 

At November 30, 2014, the Company had $18.5 million in contingent consideration liabilities for earn-out provisions resulting from acquisitions completed since May 30, 2014. 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. As of November 30, 2014, $0.1 million of the contingent consideration liability was included in Accrued expenses and other current liabilities and $18.4 million was included in Other long-term liabilities on the Company’s consolidated balance sheet. As of May 31, 2014, the contingent consideration liability was included in Other long-term liabilities on the Company’s consolidated balance sheet.

 

As of the beginning of fiscal 2014, the Company had a contingent consideration liability of $4.5 million for an earn-out provision resulting from the LIFECODES acquisition, which was written down by $3.3 million in the second quarter of fiscal 2014 and by $4.6 million in the first six months of fiscal 2014. The adjustment to the estimated fair value amount was reflected as a gain in the acquisition-related items on the Company’s consolidated statements of operations.

 

 

The changes in the contingent consideration liabilities are summarized in the following table (in thousands):

 

		Six Months Ended				Twelve Months Ended
		November 30, 2014				May 31, 2014
Balance at the beginning of the period		$	(11,300	)			(4,504	)
Additions due to acquisitions			(6,468	)			(11,300	)
Change in fair value			-				4,638
Payments			30				-
Accretion of fair value			(800	)			(134	)
Balance at the end of the period		$	(18,538	)			(11,300	)

 

13.	ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

 

The changes in accumulated other comprehensive (loss) income are as follows (in thousands):

 

		Pretax				Tax				After Tax
Six Months Ended November 30, 2014
Foreign exchange translation adjustment		$	(13,625	)			137				(13,762	)
Changes in fair value of cash flow hedges			367				170				197
		$	(13,258	)			307				(13,565	)
Six Months Ended November 30, 2013
Foreign exchange translation adjustment		$	4,547				-				4,547
Changes in fair value of cash flow hedges			204				59				145
		$	4,751				59				4,692

 

The components of accumulated other comprehensive loss as of November 30, 2014 and May 31, 2014 are as follows (in thousands):

 

		As of
		November 30, 2014				May 31, 2014
Cumulative foreign currency translation adjustment		$	(26,189	)			(12,427	)
Change in fair value of cash flow hedges, net of tax			(643	)			(840	)
Accumulated other comprehensive loss		$	(26,832	)			(13,267	)

 

 

14.	SHARE-BASED COMPENSATION

 

The Company has granted nonvested restricted stock, stock options, and stock appreciation rights to key employees, directors and consultants under several stock award plans.  The Company granted stock awards with an aggregate fair value of approximately zero and $0.6 million during the three months and six months ended November 30, 2014 and $0.2 million and $0.3 million during the three months and six months ended November 30, 2013, respectively.  As of November 30, 2014, a total of 31,723 shares were available for future grants.

 

Restricted stock units typically vest over a two year period (50% per year) and do not expire. Upon vesting, restricted stock units are settled in shares of IVD Holdings Inc.’s common stock. Stock option awards are granted with service-based vesting conditions, and performance-based or market-based vesting conditions.  The service-based vesting options contain tiered vesting terms over the service period. The performance-based or market-based options vest in tranches based upon 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, which are measured over a three or four year period.  The stock appreciation rights vest only on the occurrence of a liquidity event.  These awards have a ten year term. 

 

 

During fiscal 2014 and in the first quarter of fiscal 2015, stock option awards were measured based upon the achievement of the market condition since the Company believed that the achievement of the performance conditions were not probable. Effective on September 2, 2014, the Company amended its 2011 Equity Incentive Plan to (1) modify the financial targets for all unvested performance-based option grants, and (2) specify that the unvested options will vest on each of August 19, 2015 and August 19, 2016 if the financial targets are achieved or exceeded for the immediately preceding fiscal years, or will vest on the later date if the financial targets are not achieved for fiscal 2015 but are achieved for the combined fiscal 2015 and 2016 periods. As a result of this plan amendment, the Company believes that the achievement of the performance conditions is now probable and therefore the stock-based compensation cost was remeasured as of September 2, 2014 for all unvested performance-based option grants.

 

The Company recognized expense of $1.0 million and $1.5 million in the three months and six months ended November 30, 2014 and $0.4 million and $0.8 million in the three months and six months ended November 30, 2013, respectively, before income tax benefits, for all of the Company’s stock plans.  As of November 30, 2014, there was $2.6 million of total unrecognized compensation cost related the Company’s stock plans that will be recognized over approximately 2.1 years. 

 

As of November 30, 2014 there was no expense or liability recognized related to the stock appreciation rights granted as management has determined that a liquidity event is not considered probable. The fair value of the liability relating to cash-settled stock appreciation rights was approximately $0.9 million as of November 30, 2014. 

 

 

15.	INCOME TAXES

 

The effective tax rate for the six months ended November 30, 2014 and November 30, 2013 was 35.4% and 40.8%, respectively.  The difference between the federal statutory rate and the effective tax rate for the six months ended November 30, 2014 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate and the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings. The difference between the United States federal statutory rate and the effective tax rate for the six months ended November 30, 2013 was primarily due to the following: (1) a portion of the Company’s income is subject to tax in various tax jurisdictions with rates that differ from the U.S. statutory tax rate, (2) the fact that the gain on the acquisition related item is not taxable, and (3) the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings. 

 

The Company does not consider itself to be permanently reinvested with respect to its accumulated and unrepatriated earnings as well as the future earnings of each foreign subsidiary. Accordingly, the Company has provided for deferred taxes on future earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary in excess of its accumulated and unrepatriated earnings to be permanently reinvested and thus has not recorded a deferred tax liability on that amount.

 

 

16.	SEGMENT AND GEOGRAPHIC INFORMATION

 

The Company determines operating segments in accordance with its internal operating structure, which is organized based upon product groups. Each segment is separately managed and is evaluated primarily upon operating results. The Company has two operating segments, the Transfusion segment and the Transplant & Molecular segment, which have been aggregated into one reportable segment.

 

The Company manufactures and markets a complete line of diagnostics products and automated systems used primarily by hospitals, donor centers and reference laboratories in a number of tests performed to detect and identify certain properties of human blood and human tissue to enable the most compatible match available between patient and donor. These tests are performed for the purpose of blood transfusion, pre-transplant human leukocyte antigen (“HLA”) typing and screening processes as well as post-transplant patient monitoring to aid in the identification of graft rejection.

 

The Company operates in various geographies. These geographic markets are comprised of the United States, Europe, Canada, Japan and other international markets. These other international markets are considered Emerging Markets for our business. These products are marketed globally, both directly to the end user and through established distributors.

 

 

Accounting policies for segments are the same as those described in the summary of significant accounting policies.

 

The following is a summary of the Company’s segment data (in thousands):

 

		Three Months Ended								Six Months Ended
		November 30								November 30
		2014				2013				2014				2013
Net sales by product group:
Transfusion		$	81,652				85,559			$	168,020				168,549
Transplant & Molecular			14,625				14,644				30,697				27,698
Total		$	96,277				100,203			$	198,717				196,247

 

Following is a summary of enterprise-wide information (in thousands):

 

		Three Months Ended								Six Months Ended
		November 30								November 30
		2014				2013				2014				2013
Net sales to customers by geography are as follows:
United States		$	57,099				61,416			$	119,612				122,546
Europe (A)			20,122				19,373				41,569				37,289
Canada			4,711				5,061				9,602				9,614
Other			14,345				14,353				27,934				26,798
Total		$	96,277				100,203			$	198,717				196,247

 

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
		November 30, 2014				May 31, 2014
Long-lived assets (excluding goodwill and intangibles) by geography:
United States		$	53,774				54,066
Europe (B)			14,752				15,725
Canada			4,575				4,517
Other (C)			2,202				2,003
Total		$	75,303				76,311

 

		As of
		November 30, 2014				May 31, 2014
Concentration of net assets by geography:
United States		$	288,304				299,948
Europe			110,489				123,095
Canada			31,201				32,802
Other (C)			11,967				12,771
Total		$	441,961				468,616

 

(A) – Net sales to any individual country within Europe were not material to the Company’s consolidated net sales.

(B) - Long-lived assets located in any individual country within Europe were not material to the Company's consolidated long-lived assets.

(C) - Primarily Japan and India.

 

Sales to an individual customer did not exceed more than 10% of our net sales during the three months and six months ended November 30, 2014, or November 30, 2013.

 

  

17.	CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES

 

The Company has certain outstanding indebtedness that is guaranteed by its U.S. subsidiaries. However, the indebtedness is not guaranteed by the Company’s foreign subsidiaries. The guarantor subsidiaries are all wholly owned and the guarantees are made on a joint and several basis and are full and unconditional. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented. The condensed consolidating financial information of the Company is as follows:

 

Balance Sheets

 

IMMUCOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
November 30, 2014
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	3,675				(87	)			11,517				-				15,105
Accounts receivable, net			30,166				5,400				34,736				-				70,302
Intercompany receivable			65,143				18,824				9,149				(93,116	)			-
Inventories			20,150				16,312				12,771				(1,833	)			47,400
Deferred income tax assets, current portion			4,160				2,807				409				707				8,083
Prepaid expenses and other current assets			4,980				362				5,706				-				11,048
Total current assets			128,274				43,618				74,288				(94,242	)			151,938
PROPERTY AND EQUIPMENT, net			38,564				15,210				21,529				-				75,303
INVESTMENT IN SUBSIDIARIES			239,266				5,020				3,019				(247,305	)			-
GOODWILL			744,149				47,874				55,539				-				847,562
OTHER INTANGIBLE ASSETS, net			581,105				61,321				38,709				-				681,135
DEFERRED FINANCING COSTS, net			29,792				-				-				-				29,792
OTHER ASSETS			12,241				195				354				-				12,790
Total assets		$	1,773,391				173,238				193,438				(341,547	)			1,798,520
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	9,207				3,573				4,882				-				17,662
Intercompany payable			2,415				81,691				9,010				(93,116	)			-
Accrued interest and interest rate swap liability			19,524				-				-				-				19,524
Accrued expenses and other current liabilities			8,727				5,064				8,521				-				22,312
Income taxes payable			30,857				(30,206	)			3,734				-				4,385
Deferred revenue, current portion			1,433				4				1,127				-				2,564
Current portion of long term debt, net of debt discounts			4,525				13				-				-				4,538
Total current liabilities			76,688				60,139				27,274				(93,116	)			70,985
LONG TERM DEBT, NET OF DEBT DISCOUNTS			1,035,204				2				-				-				1,035,206
DEFERRED REVENUE			-				-				65				-				65
DEFERRED INCOME TAX LIABILITIES			201,570				6,659				11,040				-				219,269
OTHER LONG-TERM LIABILITIES			17,968				11,665				1,401				-				31,034
Total liabilities			1,331,430				78,465				39,780				(93,116	)			1,356,559
SHAREHOLDERS' EQUITY:
Total shareholders' equity			441,961				94,773				153,658				(248,431	)			441,961
Total liabilities and shareholders' equity		$	1,773,391				173,238				193,438				(341,547	)			1,798,520

 

 

  

IMMUCOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2014
(in thousands)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	4,863				(409	)			19,167				-				23,621
Accounts receivable, net			29,558				5,137				34,934				-				69,629
Intercompany receivable			57,167				15,058				6,548				(78,773	)			-
Inventories			20,733				17,358				13,184				(2,124	)			49,151
Deferred income tax assets, current portion			4,160				2,807				464				820				8,251
Prepaid expenses and other current assets			6,228				470				5,884				-				12,582
Total current assets			122,709				40,421				80,181				(80,077	)			163,234
PROPERTY AND EQUIPMENT, net			37,963				16,103				22,245				-				76,311
INVESTMENT IN SUBSIDIARIES			247,567				5,021				3,114				(255,702	)			-
GOODWILL			743,512				47,877				60,174				-				851,563
OTHER INTANGIBLE ASSETS, net			586,243				63,474				43,153				-				692,870
DEFERRED FINANCING COSTS, net			33,116				-				-				-				33,116
OTHER ASSETS			6,721				260				339				-				7,320
Total assets		$	1,777,831				173,156				209,206				(335,779	)			1,824,414
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	6,805				5,945				2,915				-				15,665
Intercompany payable			99				69,999				8,675				(78,773	)			-
Accrued interest and interest swap liability			19,605				-				-				-				19,605
Accrued expenses and other current liabilities			8,681				4,950				10,085				-				23,716
Income taxes payable			30,785				(29,698	)			3,840				-				4,927
Deferred revenue, current portion			1,269				12				1,532				-				2,813
Current portion of long-term debt, net of debt discounts			4,580				11				-				-				4,591
Total current liabilities			71,824				51,219				27,047				(78,773	)			71,317
LONG-TERM DEBT, net of debt discounts			1,037,168				15				-				-				1,037,183
DEFERRED REVENUE			14				-				72				-				86
DEFERRED INCOME TAX LIABILITIES			201,184				10,157				12,038				-				223,379
OTHER LONG-TERM LIABILITIES			11,025				11,425				1,383				-				23,833
Total liabilities			1,321,215				72,816				40,540				(78,773	)			1,355,798
SHAREHOLDERS' EQUITY:
Total shareholders' equity			456,616				100,340				168,666				(257,006	)			468,616
Total liabilities and shareholders' equity		$	1,777,831				173,156				209,206				(335,779	)			1,824,414

 

 

Statements of Operations for the Quarter

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended November 30, 2014
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
NET SALES		$	61,381				13,442				40,049				(18,595	)			96,277
COST OF SALES (exclusive of amortization shown separately below)			20,184				8,366				25,818				(18,595	)			35,773
GROSS MARGIN			41,197				5,076				14,231				-				60,504
OPERATING EXPENSES:
Research and development			2,756				4,152				207				-				7,115
Selling and marketing			6,598				2,498				6,277				-				15,373
Distribution			2,714				400				2,202				-				5,316
General and administrative			7,030				1,223				2,445				-				10,698
Amortization expense			11,971				1,076				604				-				13,651
Total operating expenses			31,069				9,349				11,735				-				52,153
INCOME (LOSS) FROM OPERATIONS			10,128				(4,273	)			2,496				-				8,351
NON-OPERATING (EXPENSE) INCOME:
Interest income			15				-				45				(28	)			32
Interest expense			(22,709	)			(123	)			(18	)			28				(22,822	)
Other, net			273				(48	)			(11	)			-				214
Total non-operating (expense) income			(22,421	)			(171	)			16				-				(22,576	)
(LOSS) INCOME BEFORE INCOME TAXES			(12,293	)			(4,444	)			2,512				-				(14,225	)
(BENEFIT) PROVISION FOR INCOME TAXES			(4,215	)			(1,740	)			807				-				(5,148	)
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES			(8,078	)			(2,704	)			1,705				-				(9,077	)
Net Income (Loss) of consolidated subsidiaries			(999	)			-				-				999				-
NET (LOSS) INCOME		$	(9,077	)			(2,704	)			1,705				999				(9,077	)

 

   

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended November 30, 2013
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
NET SALES		$	65,161				14,090				37,963				(17,011	)			100,203
COST OF SALES (exclusive of amortization shown separately below)			20,298				7,150				24,245				(17,011	)			34,682
GROSS MARGIN			44,863				6,940				13,718				-				65,521
OPERATING EXPENSES:
Research and development			3,470				3,767				73				-				7,310
Selling and marketing			6,387				2,442				6,341				-				15,170
Distribution			2,679				373				1,785				-				4,837
General and administrative			3,986				2,165				2,126				-				8,277
Amortization expense			11,971				666				578				-				13,215
Acquisition-related items			(3,318	)			-				-				-				(3,318	)
Total operating expenses			25,175				9,413				10,903				-				45,491
INCOME (LOSS) FROM OPERATIONS			19,688				(2,473	)			2,815				-				20,030
NON-OPERATING (EXPENSE) INCOME:
Interest income			-				-				7				(4	)			3
Interest expense			(22,090	)			-				(7	)			4				(22,093	)
Other, net			(41	)			44				17				-				20
Total non-operating (expense) income			(22,131	)			44				17				-				(22,070	)
(LOSS) INCOME BEFORE INCOME TAXES			(2,443	)			(2,429	)			2,832				-				(2,040	)
(BENEFIT) PROVISION FOR INCOME TAXES			(1,322	)			(839	)			908				-				(1,253	)
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES			(1,121	)			(1,590	)			1,924				-				(787	)
Net income (loss) of consolidated subsidiaries			334				-				-				(334	)			-
NET (LOSS) INCOME		$	(787	)			(1,590	)			1,924				(334	)			(787	)

  

 

 

Statements of Operations for the Six Month Periods

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended November 30, 2014
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
NET SALES		$	127,649				28,056				79,621				(36,609	)			198,717
COST OF SALES (exclusive of amortization shown separately below)			40,958				17,993				50,258				(36,609	)			72,600
GROSS MARGIN			86,691				10,063				29,363				-				126,117
OPERATING EXPENSES:
Research and development			5,396				8,367				431				-				14,194
Selling and marketing			12,835				5,193				12,401				-				30,429
Distribution			5,394				788				4,174				-				10,356
General and administrative			14,291				2,269				5,021				-				21,581
Amortization expense			23,942				2,151				1,239				-				27,332
Total operating expenses			61,858				18,768				23,266				-				103,892
INCOME (LOSS) FROM OPERATIONS			24,833				(8,705	)			6,097				-				22,225
NON-OPERATING (EXPENSE) INCOME:
Interest income			18				-				123				(53	)			88
Interest expense			(44,889	)			(247	)			(37	)			53				(45,120	)
Other, net			414				(87	)			(38	)			-				289
Total non-operating (expense) income			(44,457	)			(334	)			48				-				(44,743	)
(LOSS) INCOME BEFORE INCOME TAXES			(19,624	)			(9,039	)			6,145				-				(22,518	)
(BENEFIT) PROVISION FOR INCOME TAXES			(6,404	)			(3,475	)			1,918				-				(7,961	)
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES			(13,220	)			(5,564	)			4,227				-				(14,557	)
Net Income (Loss) of consolidated subsidiaries			(1,337	)			-				-				1,337				-
NET (LOSS) INCOME		$	(14,557	)			(5,564	)			4,227				1,337				(14,557	)

  

 

 

IMMUCOR, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended November 30, 2013
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
NET SALES		$	129,372				27,754				72,953				(33,832	)			196,247
COST OF SALES (exclusive of amortization shown separately below)			42,323				16,294				45,948				(33,832	)			70,733
GROSS MARGIN			87,049				11,460				27,005				-				125,514
OPERATING EXPENSES:
Research and development			7,102				8,257				81				-				15,440
Selling and marketing			12,714				4,536				12,212				-				29,462
Distribution			5,402				755				3,399				-				9,556
General and administrative			10,853				3,900				4,500				-				19,253
Amortization expense			23,942				1,334				1,146				-				26,422
Acquisition-related items			(4,638	)			-				-				-				(4,638	)
Total operating expenses			55,375				18,782				21,338				-				95,495
INCOME (LOSS) FROM OPERATIONS			31,674				(7,322	)			5,667				-				30,019
NON-OPERATING (EXPENSE) INCOME:
Interest income			1				2				35				(26	)			12
Interest expense			(44,282	)			-				(15	)			26				(44,271	)
Other, net			(436	)			72				169				-				(195	)
Total non-operating (expense) income			(44,717	)			74				189				-				(44,454	)
(LOSS) INCOME BEFORE INCOME TAXES			(13,043	)			(7,248	)			5,856				-				(14,435	)
(BENEFIT) PROVISION FOR INCOME TAXES			(5,268	)			(2,454	)			1,834				-				(5,888	)
NET (LOSS) INCOME BEFORE EARNINGS OF CONSOLIDATED SUBSIDIARIES			(7,775	)			(4,794	)			4,022				-				(8,547	)
Net (Loss) income of consolidated subsidiaries			(772	)			-				-				772				-
NET (LOSS) INCOME		$	(8,547	)			(4,794	)			4,022				772				(8,547	)

 

 

Statements of Cash Flows for the Six Month Periods

 

IMMUCOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
Six Months Ended November 30, 2014
(in thousands)
(Unaudited)
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
Net cash provided by (used in) operating activities		$	12,001				1,805				1,603				(396	)			15,013
Net cash used in investing activities			(9,770	)			(1,435	)			(7,394	)			-				(18,599	)
Net cash used in financing activities			(3,317	)			(12	)			(323	)			324				(3,328	)
Effect of exchange rate changes on cash and cash equivalents			(137	)			-				(1,537	)			72				(1,602	)
(Decrease) increase in cash and cash equivalents			(1,223	)			358				(7,651	)			-				(8,516	)
Cash and cash equivalents at beginning of period			4,898				(445	)			19,168				-				23,621
Cash and cash equivalents at end of period		$	3,675				(87	)			11,517				-				15,105

  

IMMUCOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
Six Months Ended November 30, 2013
(in thousands)
(Unaudited)
		Successor
		Immucor, Inc.				Guarantors				Non-Guarantors				Eliminations				Total
Net cash provided by (used in) operating activities		$	8,013				(2,735	)			8,564				(797	)			13,045
Net cash provided by (used in) investing activities			4,084				(1,169	)			(6,110	)			-				(3,195	)
Net cash (used in) provided by financing activities			(3,647	)			(31	)			(785	)			785				(3,678	)
Effect of exchange rate changes on cash and cash equivalents			(34	)			-				685				12				663
Increase (decrease) in cash and cash equivalents			8,416				(3,935	)			2,354				-				6,835
Cash and cash equivalents at beginning of period			6,971				4,107				18,310				-				29,388
Cash and cash equivalents at end of period		$	15,387				172				20,664				-				36,223

  

 

18.	COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

From time to time the Company is a party to certain legal proceedings in the ordinary course of business. Currently the Company and its subsidiary BioArray Solutions Ltd. (“BioArray”) are defendants in an action brought against them 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 now reasonably estimable, but that any potential liability would not be material to the Company’s operations or to its financial condition.

 

 

Purchase Commitments

 

Purchase commitments made in the normal course of business were $44.8 million as of November 30, 2014. These purchases were primarily for inventory items. The following is a schedule of approximate future payments for

purchase commitments as of November 30, 2014 (in thousands):

 

2015		$	21,553
2016			4,766
2017			3,705
2018			3,883
2019			4,083

 

Other Commitments 

 

On October 3, 2014, the Company entered into a collaborative arrangement with Sirona for the commercialization of Sirona’s HLA typing sample preparation and bioinformatics offering for next generation sequencing. As part of the Sirona collaboration, the Company has an exclusive option to acquire 100% of the common stock of Sirona, and the Company has a potential obligation to provide additional funding in the form of interest bearing loans of up to $6.7 million over the following two year period, subject to the achievement of certain development milestones and other terms of the arrangement. Refer to Note 3 of the Company’s consolidated financial statements for additional information.

  

 

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 enable the most compatible match available between patient and donor. Our offerings are targeted at hospitals, donor centers and reference laboratories around the globe. We have manufacturing facilities in the United States (“U.S.”) and Canada and sell our products through both direct affiliate offices and third-party distribution arrangements.

 

We operate in various geographies. These geographic markets are comprised of the United States, Europe, Canada, Japan and other international markets. These other international markets are considered Emerging Markets for our business. These products are marketed globally, both directly to the end user and through established distributors.

 

We operate in a highly regulated industry and are subject to continuing compliance with multiple country-specific statutes, regulations and standards. For example, in the U.S. the Food and Drug Administration (“FDA”) regulates all aspects of the transfusion process, including the marketing of reagents and instruments used to determine compatibility. Additionally, we are subject to government legislation that governs the delivery of healthcare.

 

Our automated instrument-reagent systems operate on a “razor/razor blade” model, with our instruments serving as the “razors” and our reagents serving as the “razor blades.” For transfusion diagnostics, our instruments are “closed systems,” meaning our proprietary reagents can only be used on our instruments. For transplant diagnostics, our reagents run on Luminex instruments, which are open systems. The “razor/razor blade” business model generates a recurring revenue stream for us.

 

Business Highlights of Fiscal 2015

 

The following is a summary of significant factors affecting our business in the second quarter and first six months of fiscal 2015:

 

Acquisitions and 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 HLA typing sample preparation and bioinformatics offering for next-generation sequencing. As part of the collaboration, the Company paid $0.7 million for a warrant with an exclusive option to acquire 100% of the common stock of Sirona at a future date, and also loaned $4.6 million to Sirona for development funding. The collaborative arrangement includes the potential to provide additional future funding in the form of a loan of up to $6.7 million over the following two year period, subject to the achievement of certain development milestones and other terms of the arrangement.

 

●

Sentilus Acquisition – On October 1, 2014, the Company paid $6.0 million to acquire Sentilus, Inc. (“Sentilus”). Sentilus was a privately-held company focused on developing a novel, inkjet-printed antibody microarray-based technology, FemtoarraysTM. 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 molecular transfusion diagnostics business.

 

  

Results of Operations

 

The following table sets forth items from the consolidated statements of operations as reported and as a percentage of net sales for each period (in thousands of dollars, except percentages).

 

		Three Months Ended
		November 30								Change
		2014				2013				Amount				%
Net sales		$	96,277				100,203			$	(3,926	)			(3.9	)
Cost of sales (*)			35,773				34,682				1,091				3.1
Gross margin			60,504				65,521				(5,017	)			(7.7	)
Operating expenses:
Research and development			7,115				7,310				(195	)			(2.7	)
Selling and marketing			15,373				15,170				203				1.3
Distribution			5,316				4,837				479				9.9
General and administrative			10,698				8,277				2,421				29.2
Amortization expense			13,651				13,215				436				3.3
Acquisition-related items			-				(3,318	)			3,318				**
Total operating expenses			52,153				45,491				6,662				14.6
Income from operations			8,351				20,030				(11,679	)			(58.3	)
Non-operating (expense) income:
Interest income			32				3				29				966.7
Interest expense			(22,822	)			(22,093	)			(729	)			3.3
Other, net			214				20				194				970.0
Total non-operating net expense			(22,576	)			(22,070	)			(506	)			2.3
Loss before income taxes			(14,225	)			(2,040	)			(12,185	)			597.3
Benefit for income taxes			(5,148	)			(1,253	)			(3,895	)			310.9
Net loss		$	(9,077	)			(787	)		$	(8,290	)			1,053.4

 

(*)	Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.
(**)	Calculation is not meaningful.

   

		Six Months Ended
		November 30								Change
		2014				2013				Amount				%
Net sales		$	198,717				196,247			$	2,470				1.3
Cost of sales (*)			72,600				70,733				1,867				2.6
Gross margin			126,117				125,514				603				0.5
Operating expenses:
Research and development			14,194				15,440				(1,246	)			(8.1	)
Selling and marketing			30,429				29,462				967				3.3
Distribution			10,356				9,556				800				8.4
General and administrative			21,581				19,253				2,328				12.1
Amortization expense			27,332				26,422				910				3.4
Acquisition-related items			-				(4,638	)			4,638				**
Total operating expenses			103,892				95,495				8,397				8.8
Income from operations			22,225				30,019				(7,794	)			(26.0	)
Non-operating (expense) income:
Interest income			88				12				76				633.3
Interest expense			(45,120	)			(44,271	)			(849	)			1.9
Other, net			289				(195	)			484				**
Total non-operating net expense			(44,743	)			(44,454	)			(289	)			0.7
Loss before income taxes			(22,518	)			(14,435	)			(8,083	)			56.0
Benefit for income taxes			(7,961	)			(5,888	)			(2,073	)			35.2
Net loss		$	(14,557	)			(8,547	)		$	(6,010	)			70.3

 

(*)	Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.
(**)	Calculation is not meaningful.

Three Months Ended November 30, 2014 and November 30, 2013:

 

Net sales were $96.3 million for the three months ended November 30, 2014 as compared with $100.2 million for the three months ended November 30, 2013, a decrease of $3.9 million, or 3.9%. This decrease in net sales is described in the discussion of net sales by product group below. Net sales by product group are presented in the

following table (in thousands of dollars, except percentages):

 

		Three Months Ended
		November 30								Change
		2014				2013				Amount				%
Net sales by product group:
Transfusion		$	81,652				85,559			$	(3,907	)			(4.6	)
Transplant & Molecular			14,625				14,644				(19	)			(0.1	)
Total		$	96,277				100,203			$	(3,926	)			(3.9	)

 

Transfusion: Net sales of our transfusion products for the three months ended November 30, 2014 were $81.7 million as compared with $85.6 million for the three months ended November 30, 2013, a decrease of $3.9 million, or 4.6%. This decrease in net sales was mainly due to a lower number of ship cycles and an unfavorable effect of changes in foreign currency exchange rates on our international operations in the second quarter of fiscal 2015 as compared with the same period in fiscal 2014. After adjusting for the impact of ship cycles and foreign currency exchange rate fluctuations, net sales in the second quarter of fiscal 2015 increased by 1.7 % when compared with the second quarter of fiscal 2014.

 

 

Transplant & Molecular: Net sales of our transplant and molecular products were comparable for the three months ended November 30, 2014 and the three months ended November 30, 2013. Increases in net sales in Europe, and the Emerging Markets in the second quarter of fiscal 2015 as compared with the second quarter of fiscal 2014 were offset by decreases in net sales in the U.S. market. The increase in net sales in Europe and the Emerging Markets in the second quarter of fiscal 2015 was primarily driven by continued efforts to expand our market reach and strong customer acceptance of our Transplant and Molecular products in those markets. The decrease in net sales in the U.S. market was mainly due to lower sales of our Molecular products, which management believes is a temporary situation, as our customers convert their existing systems to incorporate our new blood typing assay, the PreciseType^TM HEA test, that was recently approved for commercial use by the FDA.

 

Gross margin decreased by $5.0 million for the three months ended November 30, 2014 as compared with the three months ended November 30, 2013, or 7.7%, mainly due to the lower net sales generated in the three months ended November 30, 2014. Gross margin as a percentage of consolidated net sales was approximately 2.5% lower for the three months ended November 30, 2014 as compared with the three months ended November 30, 2013. The lower gross margin percentage was primarily due to a less favorable product mix, a lower production volume of our Transfusion products over which fixed costs were absorbed, and an unfavorable effect of foreign currency exchange rates on the gross margin of our international operations in the three months ended November 30, 2014.

 

Research and development expenses were $7.1 million for the three months ended November 30, 2014 as compared with $7.3 million for the three months ended November 30, 2013. The decrease of $0.2 million, or 2.7%, was primarily due to the completion of certain significant development projects in fiscal 2014, including the development work related to the PreciseType^TM HEA test that was completed in the fourth quarter of fiscal 2014. These decreases in research and development expenses were partially offset by additional expenses associated with development activities from recently acquired businesses.

 

Selling and marketing expenses were comparable for the three months ended November 30, 2014 and the three months ended November 30, 2013. Selling and marketing expenses were $15.4 million for the three months ended November 30, 2014 and $15.2 million for the three months ended November 30, 2013, an increase of $0.2 million, or 1.3%.

 

Distribution expenses were $5.3 million for the three months ended November 30, 2014 and $4.8 million for the three months ended November 30, 2013, an increase of $0.5 million, or 9.9%. The increase in distribution expenses is primarily due to higher costs in our European market in the second quarter of fiscal 2015 as compared with the second quarter of fiscal 2014. The higher distribution costs recorded in our European market were primarily driven by improvements in the packaging materials of our temperature sensitive products, and a strategic initiative to consolidate and outsource the distribution process in Europe. The strategic initiative caused a one-time increase in costs, but is expected to reduce distribution costs on a long-term basis.

 

General and administrative expenses were $10.7 million for the three months ended November 30, 2014 and $8.3 million for the three months ended November 30, 2013, an increase of $2.4 million, or 29.2%. The increase in general and administrative expenses is primarily due to a one-time credit that was recorded in the second quarter of fiscal 2014, and higher acquisition transaction costs recorded in the second quarter of fiscal 2015. The one-time credit reduced bad debt expense by $1.9 million resulting from a change in estimate of our allowance for doubtful accounts to better reflect our actual bad debt experience.

 

Amortization expense was $13.6 million for the three months ended November 30, 2014 as compared with $13.2 million for the three months ended November 30, 2013, an increase of $0.4 million, or 3.3%. The increase was primarily due to additional costs related to acquisitions completed since May 30, 2014.

 

Acquisition-related items were zero for the three months ended November 30, 2014 as compared with a gain of $3.3 million for the three months ended November 30, 2013. The gain reported in the three months ended November 30, 2013 resulted from a decrease in the contingent consideration liability related to the acquisition of our LIFECODES business. Based upon information available in the second quarter of fiscal 2014, management determined that the likelihood of achieving the financial performance target was lower than originally estimated and decreased the fair value of the related contingent consideration liability.

 

 

Non-operating net expense was $22.6 million for the three months ended November 30, 2014 as compared with $22.1 million for the three months ended November 30, 2013, an increase of $0.5 million, or 2.3%. The increase in interest expense of $0.7 million was partially offset by an increase in net exchange gains of $0.2 million in the second quarter of fiscal 2015 as compared with the second quarter of fiscal 2014. The increase in interest expense was primarily due to an increase in accretion of our contingent consideration liabilities in the second quarter of fiscal 2015 as compared with the second quarter of fiscal 2014 due to a higher contingent consideration liability balance from acquisitions completed in fiscal 2015. Exchange gains and losses are recorded for foreign currency transactions denominated in a currency other than the functional currency of the reporting entity, and the ineffective portion of our interest rate swap arrangements used to hedge against interest rate exposure.

 

The effective tax rate for the three months ended November 30, 2014 and 2013 was 36.2% and 61.4%, respectively.  The effective tax rate for the fiscal 2015 period was lower than the effective tax rate for the corresponding period in fiscal 2014 primarily due to changes in the mix of income by tax jurisdiction, the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings, and the fact that the gain on acquisition related items only impacted the fiscal 2014 effective tax rate.

 

Six Months Ended November 30, 2014 and November 30, 2013:

 

Net sales were $198.7 million for the six months ended November 30, 2014 as compared with $196.2 million for the six months ended November 30, 2013, an increase of $2.5 million, or 1.3%. This increase 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):

 

		Six Months Ended
		November 30								Change
		2014				2013				Amount				%
Net sales by product group:
Transfusion		$	168,020			$	168,549			$	(529	)			(0.3	)
Transplant & Molecular			30,697				27,698				2,999				10.8
Total		$	198,717				196,247			$	2,470				1.3

 

Transfusion: Net sales of our transfusion products for the six months ended November 30, 2014 were $168.0 million as compared with $168.5 million for the six months ended November 30, 2013, a decrease of $0.5 million, or 0.3%. This decrease in net sales was mainly due to a lower number of ship cycles in the first six months of fiscal 2015 as compared with the same period in fiscal 2014 and an unfavorable effect of changes in foreign currency exchange rates on our international operations partially offset by higher net sales generated from our capture reagents. The higher net sales generated from our capture reagents in Europe and the Emerging Markets were primarily driven by continued efforts to expand our market reach into those regions, and the residual benefit of an increase in our installed base of instruments in those markets. After adjusting for the impact of ship cycles, net sales in the first six months of fiscal 2015 increased by 1.5 % when compared with the first six months of fiscal 2014.

 

Transplant & Molecular: Net sales of our transplant and molecular products for the six months ended November 30, 2014 were $30.7 million as compared with $27.7 million for the six months ended November 30, 2013, an increase of $3.0 million, or 10.8%. The increase in net sales was primarily due to higher net sales in Europe and the Emerging Markets during the six months ended November 30, 2014 partially offset by decreases in net sales in the U.S. market. The increase in net sales in Europe and the Emerging Markets in the first six months of fiscal 2015 was primarily driven by continued efforts to expand our market reach and strong customer acceptance of our Transplant and Molecular products in those markets. The decrease in net sales in the U.S. market was mainly due to lower sales of our Molecular products in the second quarter of fiscal 2015, which management believes is a temporary situation, as our customers convert their existing systems to incorporate our new blood typing assay, the PreciseType^TM HEA test, which was recently approved for commercial use by the FDA.

 

Gross margin increased by $0.6 million for the six months ended November 30, 2014 as compared with the six months ended November 30, 2013, or 0.5%, mainly due to the higher net sales generated in the six months ended November 30, 2014. Gross margin as a percentage of consolidated net sales was approximately 0.5% lower for the six months ended November 30, 2014 as compared with the six months ended November 30, 2013. The lower gross margin percentage was primarily due to a less favorable product mix in the six month ended November 30, 2014 partially offset by the amortization of the fair value of inventory of $2.7 million related to the acquisition of LIFECODES that was included in fiscal 2014 that was not included in fiscal 2015.

 

 

Research and development expenses were $14.2 million for the six months ended November 30, 2014 as compared with $15.4 million for the six months ended November 30, 2013. The decrease of $1.2 million, or 8.1%, was primarily due to the completion of certain significant development projects in fiscal 2014, including the development work related to the PreciseType^TM HEA test that was completed in the fourth quarter of fiscal 2014. These decreases in research and development expenses were partially offset by additional expenses associated with development activities from recently acquired businesses.

 

Selling and marketing expenses were $30.4 million for the six months ended November 30, 2014 as compared with $29.4 million for the six months ended November 30, 2013. The increase in selling and marketing expenses of $1.0 million, or 3.3%, was primarily attributable to additional personnel costs to support the anticipated growth of the business and other operating expenses.

 

Distribution expenses were $10.4 million for the six months ended November 30, 2014 and $9.6 million for the six months ended November 30, 2013, an increase of $0.8 million, or 8.4%. The increase in distribution expenses in the first six months of fiscal 2015 were primarily due to higher distribution costs in our European market. The higher distribution costs recorded in our European market were primarily driven by improvements in the packaging materials of our temperature sensitive products, and a strategic initiative to consolidate and outsource the distribution process in Europe. The strategic initiative caused a one-time increase in costs, but is expected to reduce distribution costs on a long-term basis.

 

General and administrative expenses were $21.6 million for the six months ended November 30, 2014 as compared with $19.3 million for the six months ended November 30, 2013. The increase in general and administrative expenses of $2.3 million, or 12.1%, were mainly due to a one-time credit that was recorded in the first six months of fiscal 2014, higher acquisition transaction costs, and an increase in stock-based compensation costs recorded in the first six months of fiscal 2015. The one-time credit reduced bad debt expense by $1.9 million resulting from a change in estimate of our allowance for doubtful accounts to better reflect our actual bad debt experience.

 

Amortization expense was $27.3 million for the six months ended November 30, 2014 as compared with $26.4 million for the six months ended November 30, 2013, an increase of $0.9 million, or 3.4%. The increase was primarily due to additional costs related to acquisitions completed since May 30, 2014.

 

Acquisition-related items were zero for the six months ended November 30, 2014 as compared with a gain of $4.6 million for the six months ended November 30, 2013. The gain reported in the six months ended November 30, 2013 resulted from a decrease in the contingent consideration liability related to the acquisition of our LIFECODES business. Based upon information available in the first quarter of fiscal 2014, management determined that the likelihood of achieving the financial performance target was lower than originally estimated and decreased the fair value of the related contingent consideration liability.

 

Non-operating net expense was $44.7 million for the six months ended November 30, 2014 as compared with $44.4 million for the six months ended November 30, 2013, an increase of $0.3 million, or 0.7%. This increase in non-operating net expense in the first six months of fiscal 2015 as compared with the same period of fiscal 2014 was mainly due to an increase in interest expense of $0.8 million partially offset by a favorable change in exchange gains and losses of $0.5 million. The increase in interest expense in the first six months of fiscal 2015 was primarily due to an increase in accretion of our contingent consideration liabilities due to a higher contingent consideration liability balance from acquisitions completed since May 30, 2014. Exchange gains and losses are recorded for foreign currency transactions denominated in a currency other than the functional currency of the reporting entity, and the ineffective portion of our interest rate swap arrangements used to hedge against interest rate exposure.

 

The effective tax rate for the six months ended November 30, 2014 and 2013 was 35.4% and 40.8%, respectively.  The effective tax rate for the fiscal 2015 period was lower than the effective tax rate for the corresponding period in fiscal 2014 primarily due to changes in the mix of income by tax jurisdiction, the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings, and the fact that the gain on acquisition related items only impacted the fiscal 2014 effective tax rate.

 

 

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 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 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 GAAP results and using EBITDA and Adjusted EBITDA as supplemental information. Adjusted EBITDA for the three months and six months ended November 30, 2014 and November 30, 2013 is calculated as follows (in thousands):

 

		Three Months Ended								Six Months Ended
		November 30								November 30
		2014				2013				2014				2013
Net loss		$	(9,077	)			(787	)		$	(14,557	)			(8,547	)
Interest expense (income), net			22,790				22,090				45,032				44,259
Income tax (benefit) expense			(5,148	)			(1,253	)			(7,961	)			(5,888	)
Depreciation and amortization*			17,735				17,536				36,131				35,115
EBITDA			26,300				37,586				58,645				64,939
Adjustments to EBITDA:
Stock-based compensation (i)			948				371				1,467				818
Acquisition expenses, net (ii)			965				(3,033	)			1,791				(3,943	)
Sponsor fee (iii)			1,097				928				2,031				1,933
Non-cash impact of purchase accounting (iv)			110				597				221				2,939
Certain non-recurring expenses and other (v)			4,017				2,074				6,420				5,948
Adjusted EBITDA		$	33,437				38,523			$	70,575				72,634

 

i.

Represents non-cash stock-based compensation.

ii.

Represents non-recurring items related to acquisition activities including legal, accounting and other costs. The items included in the second quarter and first six months of fiscal 2013 also included a non-cash gain of $3.3 million and $4.6 million, respectively, resulting from the decrease in the contingent consideration liability related to the LIFECODES acquisition.

iii.

Represents management fees and other charges associated with a management services agreement with the Sponsor.

iv.

Represents non-cash expenses, such as inventory valuation adjustments, primarily incurred as a result of the LIFECODES acquisition.

v.

Represents non-recurring or non-cash items not included in captions above including personnel and business optimization costs.

 

 

Under the Revolving Facility, the senior secured leverage ratio is the sole financial covenant. We believe the future directional trend of this ratio will provide valuable insight to understanding our operational performance and financial position with respect to our debt obligations. The senior secured leverage ratio is defined by our credit agreement governing the Senior Credit Facilities as consolidated senior secured net debt divided by the total of the last twelve months Adjusted EBITDA. Adjusted EBITDA used in this leverage ratio is calculated in a similar manner to that included in the table presented above, except that it includes certain additional adjustments such as projected cost savings and synergies calculated on a pro forma basis that we expect to realize in future periods related to actions already taken or expected to be taken within twelve months of the end of the applicable period, including the LIFECODES acquisition and related initiatives, and the deferred revenue adjustment described above. As of November 30, 2014, 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 six months of fiscal 2015, our cash and cash equivalents decreased by $8.5 million to $15.1 million as of November 30, 2014. The decrease was primarily due to $18.6 million of cash used for investments in new businesses, the Sirona collaboration, and additional property and equipment. In addition, $3.3 million of net cash was used to repay long-term debt in the first six months of fiscal 2015. These decreases in cash and cash equivalents were partially offset by positive cash flow contributed by our operating activities. The cash balance at November 30, 2014 includes cash of $11.5 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 six months of fiscal 2014, our cash and cash equivalents increased by $6.8 million to $36.2 million as of November 30, 2013. The increase was primary due to positive cash flow contributed by our operating activities partially offset by net cash used for investing activities, mainly to purchase additional property and equipment, and to repay $3.7 million of long-term debt in the first six months of fiscal 2014. There were no borrowings from the Revolving Facility during the first six months of fiscal 2014.

 

Operating activities

 

Operating activities provided $15.1 million of cash and cash equivalents in the first six months of fiscal 2015 as compared with $13.0 of cash provided by operating activities in the first six months of fiscal 2014. The increase in cash provided by operating activities was mainly due to lower working capital requirements in the first six months of fiscal 2015, primarily driven by a reduction in inventories in the first six months of fiscal 2015 as compared with an increase in inventories in the same period of fiscal 2014, reflecting management’s priority to manage inventory levels in fiscal 2015.

 

Investing activities

 

 

We used cash of $18.6 million for investments in new businesses, the Sirona collaboration, and additional property and equipment including the upgrade of certain financial systems and the implementation of a new financial consolidations application in the first six months of fiscal 2015. We used $4.3 million to purchase property and equipment in the first six months of fiscal 2014. In addition, during the first six months of fiscal 2014, we received $1.1 million due from the seller of LIFECODES as a result of finalizing certain purchase price adjustments.

 

Financing activities

 

In the first six months of fiscal 2015, we used net cash from financing activities of $3.3 million for repayments of our long-term debt. We also borrowed and repaid $29.5 million from our Revolving Facility during the six months of fiscal 2015. As of November 30, 2014, there were no amounts outstanding under our Revolving Facility. In the first six months of fiscal 2014, we used cash from financing activities of $3.7 million for repayments of our long-term debt and had no amounts outstanding under our Revolving Facility as of November 30, 2013.

 

 

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 $32.9 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 November 30, 2014, we had principal of $1,051.7 million of long-term borrowings outstanding under our Term Loan Facility and the Notes. Our net total available borrowings under our Revolving Facility was $100.0 million as of November 30, 2014.

 

We expect that recurring capital expenditures during fiscal 2015 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 systems. These expenditures exclude the purchase of instrument assets that are used in equipment rental agreements with our customers, which is reflected in non-cash investing and financing activities in our consolidated statements of cash flows.

 

 

Management believes that existing cash and cash equivalent balances, cash provided from operations, and borrowings available under the Revolving Facility of our Senior Credit Facilities will provide sufficient liquidity to meet the operating and capital expenditure needs for existing operations during the next twelve months.

 

As part of the Sirona collaboration, we have an exclusive option to acquire 100% of the common stock of Sirona, and we have a potential obligation to provide additional funding in the form of interest bearing loans of up to $6.7 million over the following two year period, subject to the achievement of certain development milestones and other terms of the arrangement. Refer to Note 3 of our consolidated financial statements for additional information.

  

Commitments and Contractual Obligations

 

As of November 30, 2014, our material cash commitments and contractual obligations have not changed significantly from those disclosed in our Annual Report for the year ended May 31, 2014 except for an increase in earn-out liabilities of $6.5 million related to acquisitions completed in the first half of fiscal 2015, and a potential obligation to provide additional future funding in a form of a loan of up to $6.7 million over the following two year period related to the Sirona Collaboration arrangement.

  

Off-Balance Sheet Arrangements

 

We have no off-balance sheet financial arrangements as of November 30, 2014.

  

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, 2014.

  

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. Words such as “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 instruments into their blood banking operations;

•

increased competition;

•

product development 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 or persons acting on our behalf 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, 2014.

 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

As of November 30, 2014, there have been no material changes regarding the Company’s 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, 2014.

 

 

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 November 30, 2014. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of November 30, 2014, 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.

 

During the three months ended November 30, 2014, the Company implemented a new financial consolidations application. Except for this item, there were no changes in our internal control over financial reporting during the quarter ended November 30, 2014 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

 

From time to time the Company is a party to certain legal proceedings in the ordinary course of business. Currently the Company and its subsidiary BioArray Solutions Ltd. (“BioArray”) are defendants in an action brought against them 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 now reasonably estimable, but that any potential liability would not be material to the Company’s operations or to its financial condition.

 

 

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, 2014. 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 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:	January 13, 2015			By:	/s/ William A. Hawkins
				William A. Hawkins, Chief Executive Officer
				(Principal Executive Officer)
Date:	January 13, 2015			By:	/s/ Dominique Petitgenet
				Dominique Petitgenet, Chief Financial Officer
				(Principal Financial and Accounting Officer)

 

40