UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission file Number: 0-26126
SEROLOGICALS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-2142225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
780 Park North Blvd.
Ste. 110
Clarkston, Georgia 30021
(Address of principal (Zip Code)
executive offices)
(404) 296-5595
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past (90) days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at October 31, 1996
Common Stock, $.01 par value per share 9,407,345
<PAGE>
INDEX
SEROLOGICALS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
December 31, 1995 and September 29, 1996...................... 3
Condensed Consolidated Statements of Income -
Nine and Three Months ended October 1, 1995
and September 29, 1996........................................ 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended October 1, 1995 and September 29, 1996...... 5
Notes to Condensed Consolidated Financial Statements............... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 9-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 15
SIGNATURES.......................................................... 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 29,
1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,887,225 $18,257,853
Trade accounts receivable, net 5,607,840 6,020,083
Inventories 3,865,635 6,012,691
Other current assets 734,760 1,172,127
---------- ----------
Total current assets 13,095,460 31,462,754
---------- ----------
PROPERTY AND EQUIPMENT, net 6,595,410 8,454,901
---------- ----------
OTHER ASSETS:
Goodwill, net 27,960,637 31,482,968
FDA Licenses 1,812,839 2,538,035
Non-compete agreements, net 544,475 924,813
Other 315,004 441,648
---------- ----------
30,632,955 35,387,464
---------- ----------
$50,323,825 $75,305,119
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
and capital lease obligations $272,255 $74,311
Accounts payable 2,240,215 1,642,161
Accrued liabilities 4,331,704 4,409,293
Deferred revenue 77,650 305,511
--------- ---------
Total current liabilities 6,921,824 6,431,276
--------- ---------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current maturities 6,750,945 3,661,126
--------- ---------
OTHER LIABILITIES 58,390 34,112
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
30,000,000 shares authorized,
8,406,251 shares issued and outstanding
at December 31, 1995 and 9,407,345
shares issued and outstanding at
September 29, 1996 84,063 94,073
Additional paid-in capital 29,339,537 51,945,241
Retained earnings 7,131,915 13,099,586
Cumulative translation adjustment 37,151 39,705
---------- ----------
Total stockholders' equity 36,592,666 65,178,605
---------- ----------
$50,323,825 $75,305,119
========== ==========
The accompanying notes are an integral part of these
consolidated balance sheets.
Page 3
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
---------------------- ----------------------
Oct. 1, Sept. 29, Oct. 1, Sept. 29,
1995 1996 1995 1996
---------- ---------- ---------- ----------
Net sales $38,317,510 $47,258,891 $13,609,878 $15,818,716
Costs and expenses:
Cost of sales 23,026,340 27,686,252 8,326,708 9,177,168
Selling, general, and
administrative expenses 6,124,023 6,880,080 1,860,083 2,248,412
Product development expenses 1,507,982 1,685,832 400,278 555,663
Interest expense (income) 1,892,737 296,795 137,271 (75,813)
Other expense, net 989,835 1,293,667 320,831 411,687
--------- --------- --------- ---------
Income before income taxes
and extraordinary loss 4,776,593 9,416,265 2,564,707 3,501,599
Provision for income taxes 1,827,616 3,434,387 932,978 1,293,588
--------- --------- --------- ---------
Income before extraordinary
loss 2,948,977 5,981,878 1,631,729 2,208,011
Extraordinary loss on early
retirement of debt, net of
income taxes (1,822,988) (14,206) - -
--------- --------- --------- ---------
Net income 1,125,989 5,967,672 1,631,729 2,208,011
Accretion of common stock
put warrants 45,556 - - -
--------- --------- --------- ---------
Net income available for
common stockholders $1,080,433 $5,967,672 $1,631,729 $2,208,011
========= ========= ========= =========
Net income per common share:
Income before
extraordinary loss $0.40 $0.64 $0.19 $0.22
Extraordinary loss (0.25) - - -
----- ----- ----- -----
Net income available for
common stockholders $0.15 $0.64 $0.19 $0.22
===== ===== ===== =====
Weighted average common and
common equivalent shares
outstanding 7,242,840 9,381,142 8,722,682 10,010,836
The accompanying notes are an integral part of these consolidated statements.
Page 4
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
------------------------------
October 1, September 29,
1995 1996
---------- -------------
Operating activities:
Net income $1,125,989 $5,967,672
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,041,470 2,506,021
Deferred income tax provision (benefit) 27,486 (60,806)
Extraordinary loss, net 1,822,988 14,206
Non-cash compensation expense 346,500 -
Payments of corporate relocation expenses (267,184) (6,250)
Changes in operating assets and liabilities,
net of acquired working capital
Trade accounts receivable, net (2,658,476) (188,881)
Inventories 67,174 (1,873,901)
Other current assets (318,731) (422,206)
Accounts payable 422,912 (721,812)
Accrued liabilities 1,120,601 202,239
Deferred revenue 51,844 227,341
---------- ----------
Total adjustments 2,656,584 (324,049)
---------- ----------
Net cash provided by operating activities 3,782,573 5,643,623
---------- ----------
Investing activities:
Purchases of property and equipment (968,793) (2,459,410)
Purchase of businesses - (6,292,304)
Other (833,917) (250,169)
---------- ----------
Net cash used in investing activities (1,802,710) (9,001,883)
---------- ----------
Financing activities:
Proceeds from revolving line of credit 6,503,739 7,796,047
Payments on revolving line of credit (4,445,575) (9,854,803)
Proceeds from long-term debt and capital
lease obligations 21,747,699 89,100
Payments on long-term debt and capital
lease obligations (54,722,652) (1,339,221)
Payment of debt issuance costs 13,692 -
Proceeds from issuance of stock 24,577,618 21,670,120
Proceeds from exercise of stock options - 345,604
---------- ----------
Net cash (used in) provided by
financing activities (6,325,479) 18,706,847
---------- ----------
Effect of changes in foreign exchange rate 29,917 22,041
---------- ----------
Net (decrease) increase in cash
and cash equivalents (4,315,699) 15,370,628
Cash and cash equivalents,
beginning of period 6,900,854 2,887,225
---------- ----------
Cash and cash equivalents, end of period $2,585,155 $18,257,853
========== ==========
Supplemental Disclosures:
Interest Paid $1,973,912 $472,561
Taxes Paid $1,150,457 $3,648,702
The accompanying notes are an integral part of these consolidated statements.
Page 5
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SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Serologicals Corporation (the "Company") and its
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accompanying statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the management of the Company, the
accompanying unaudited condensed consolidated financial statements reflect
all adjustments, which are of a normal recurring nature, to present fairly
the Company's financial position, results of operations and cash flows at the
dates and for the periods presented. Interim results of operations are not
necessarily indicative of results to be expected for a 12-month period. The
interim financial statements should be read in conjunction with the audited
consolidated financial statements as of December 31, 1995 and the notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. Furthermore, certain reclassifications have been
made to the 1995 financial statements to be consistent with the 1996
financial statement presentation.
2. ORGANIZATION AND BUSINESS OPERATIONS
The Company is a leading worldwide provider of human antibody-based
products and services to major healthcare companies. Through the Company's
network of 39 donor centers, it collects, characterizes and provides antibody
products that are used as the active ingredients in a number of pharmaceutical
products. The Company is also engaged in the development, manufacturing and
sale of monoclonal antibodies at its facilities in the United Kingdom
("U.K.").
3. PUBLIC OFFERINGS OF COMMON STOCK
In June 1995, the Company completed an initial public offering ("IPO")
of 2.4 million shares of its common stock at $11.50 per share which resulted
in gross proceeds of $27.6 million (before underwriting discount and other
offering expenses). The net proceeds, approximately $24.6 million after
related expenses, were used to repay long-term debt. The early retirement of
this debt resulted in an extraordinary loss of $1.8 million (net of income
taxes) due to early retirement costs associated with the $7.5 million
subordinated note payable and the write-off of debt issuance costs. In
connection with the IPO, an additional 1.5 million shares of common stock
were issued in accordance with the automatic conversion of 12,587 shares of
the Company's Series A Preferred Stock. Additionally, the Company recognized
a non-recurring, non-cash charge of $346,500 ($215,000 net of income taxes)
for compensation expense related to the acceleration of vesting of an
officer's stock options at the IPO date. Put options related to the holders
of certain warrants were terminated as a result of the IPO due to previous
agreements between such holders and the Company. This resulted in a
reclassification to additional paid-in capital of $2.2 million from Common
Stock Put Warrants.
In June 1996, the Company completed an offering (the "Secondary
Offering") of 2.1 million shares of its common stock at $26.00 per share. Of
the 2.1 million shares, the Company sold 900,000 shares, which resulted in
net proceeds of approximately $22.0 million, including proceeds from options
which were exercised and the resulting shares sold pursuant to the Secondary
Offering. The net proceeds were used to retire approximately $7.9 million of
debt, with the remainder, or approximately $14.1 million, available to the
Company for general corporate purposes. The Company recognized an
extraordinary loss of $14,000 (net of income taxes) related to the early
retirement of debt.
Page 6
<PAGE>
4. EARNINGS PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock outstanding plus common equivalent shares. Common
equivalent shares from convertible preferred stock (using the if-converted
method) and from stock options and warrants (using the treasury stock method)
have been included in the computation when dilutive. For periods prior to
the IPO, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued by the Company at
prices below the public offering price during the twelve-month period prior
to the IPO have been included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method and the IPO price
of $11.50 per share). For the periods presented, fully diluted earnings per
share has not been presented as the effect of including related common
equivalent shares is not dilutive.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 31, 1995 and
September 29, 1996 consisted of the following:
December 31, September 29,
1995 1996
------------ -------------
$20,000,000 revolving credit facility,
variable interest rate (7.43% at December 31,
1995) payable on July 20, 1998 $2,058,756 $ -
$3,500,000 convertible subordinated note
payable, interest at 12% and 9% at December 31,
1995 and September 29, 1996, respectively;
interest payable monthly, payable on December 23,
1997 (the "Convertible Note") 3,500,000 3,500,000
Subordinated note payable with an effective
interest rate of 16%, principal due in full
on February 1, 1997; interest at 5% payable
quarterly (net of unamortized discount of
$66,773 at December 31, 1995) 748,552 -
Capital lease obligations at varying interest
rates and terms, maturing through June 2001 201,674 220,310
Other notes at varying interest rates and terms
maturing through March 1999 (net of unamortized
discount of $10,213 at December 31, 1995) 514,218 15,127
--------- ---------
7,023,200 3,735,437
Less current maturities 272,255 74,311
---------- ----------
$6,750,945 $3,661,126
========== ==========
Page 7
<PAGE>
6. ACQUISITION OF AM RHO LABORATORIES AND THE SOUTHEASTERN GROUP
On February 14, 1996, the Company acquired the assets of Am Rho
Laboratories, Inc. ("Am Rho") for approximately $1.7 million. The purchase
price consisted of $1.1 million in cash at closing, the assumption of
certain liabilities and forgiveness of a $500,000 note receivable from Am-
Rho, Inc., the parent of Am-Rho. The pro forma information provided below
does not include the actual results of operations of Am Rho prior to February
14, 1996 as the impact of these results was not material.
On March 6, 1996 the Company, through its subsidiary Seramune, Inc.
("Seramune"), acquired the stock of Southeastern Biologics, Inc. and Plasma
Management, Inc. and substantially all of the assets of Concho Biologics,
Inc. in a single transaction (collectively referred to as the "Southeastern
Acquisition") for approximately $4.75 million. The Southeastern Acquisition
includes a provision for contingent consideration based on the performance of
the acquired businesses over the 12 months subsequent to closing. The
purchase price consisted of $3.6 million in cash and the assumption of $1.1
million of indebtedness. The following unaudited data summarizes the pro
forma results of operations for the nine months ended October 1, 1995 and
September 29, 1996 as if the Southeastern Acquisition had occurred on January
1 of each period. The unaudited pro forma information has been prepared for
comparative purposes only and does not purport to represent what the results
of operations would have been had the transaction actually occurred on the
date indicated, or what the results of operations may be in the future.
Nine months ended
-----------------------------
(In thousands, except per share data) October 1, September 29,
1995 1996
---------- -------------
Net sales $41,878 $48,275
Income before extraordinary loss 2,670 5,912
Income before extraordinary loss
per common share $0.37 $0.63
Net income available for common stockholders 802 5,898
Net income per common share $0.12 $0.63
The above acquisitions were accounted for as a purchase in accordance with
APB No. 16, and accordingly, the purchase price has been preliminarily
allocated to the net assets acquired based on the estimated fair values as of
the acquisition date. The excess of the cost over the estimated fair value
of the net assets acquired has been allocated to goodwill.
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
including, without limitation, statements regarding the sufficiency of the
Company's liquidity and sources of capital. These forward-looking statements
are subject to certain risks, uncertainties and other factors which could
cause actual results to differ materially. Additional information on factors
that could potentially affect the Company or its financial results may be
found in the Company's filings with the Securities and Exchange Commission.
Overview
The Company, through its wholly-owned subsidiaries, Serologicals, Inc.
("Serologicals"), Bioscot, Ltd., ("Bioscot") and Seramune, is a leading
worldwide provider of human antibody-based products and services to major
healthcare companies.
As of September 29, 1996, Serologicals operated 13 donor centers that
specialize in the collection of specialty antibodies. Bioscot operated two
FDA-licensed monoclonal antibody manufacturing facilities in Scotland.
Seramune operated 26 donor centers that collect antibodies for IVIG.
In June 1995, the Company completed an IPO and issued 2.4 million shares
of Common Stock at a price of $11.50 per share. The net proceeds to the
Company of $24.6 million, plus cash on hand of approximately $400,000, were
used to retire $7.5 million of subordinated debt and approximately $17.5
million of borrowings under a term credit facility incurred primarily for the
Seramune acquisition. An extraordinary charge of $1.8 million (net of
income taxes) was recorded in relation to the early extinguishment of this
debt and associated debt issuance costs. Additionally, the Company
recognized a non-recurring, non-cash charge of $346,500 for compensation
expense ($215,000 net of income taxes) related to the acceleration of vesting
of an officer's stock options.
In July 1995, the Company amended its credit agreement with NationsBank
of Georgia, N.A. ("NationsBank") and obtained a $20.0 million revolving
credit facility (the "Revolving Credit Facility") to provide working capital
and finance future acquisitions, product development and new business
opportunities.
In June 1996, the Company completed the Secondary Offering of 2.1
million shares of its Common Stock at $26.00 per share. Of the 2.1 million
shares, the Company sold 900,000 shares, which resulted in net proceeds of
approximately $22 million, including proceeds from options which were
exercised and the resulting shares sold pursuant to the Secondary Offering.
The net proceeds were used to retire approximately $7.9 million of debt, with
the remainder, or approximately $14.1 million, available to the Company for
general corporate purposes. The options which were exercised and sold
pursuant to the Secondary Offering generated income tax benefits of
approximately $514,000, which the Company recorded as additional paid in
capital in the second quarter. The sale of the remaining 1.2 million shares
by existing stockholders resulted in net proceeds of $29.5 million to those
stockholders.
During the third quarter of 1996, increasing regulatory scrutiny
continued to be a significant factor in shaping the industry. This heightened
level of regulatory oversight is creating the need for companies
in the industry to meet higher operating standards. The Company believes it
maintains an adequate regulatory infrastructure and that it is currently
allocating sufficient resources to meet these industry challenges.
Page 9
<PAGE>
Recent Acquisitions
On October 2, 1995, the Company acquired all of the capital stock of
Allegheny Biologicals, Inc. ("ABI"). ABI operates two specialty donor
centers, in Jacksonville, Florida and Pittsburgh, Pennsylvania. The Company
paid approximately $2.5 million in cash and also agreed to pay additional
contingent consideration of up to $500,000 in the future based upon ABI
achieving certain performance measures. On February 14, 1996, the Company
purchased a specialty donor center located in Washington, D.C. and certain
other assets located in Jacksonville, Florida from Am-Rho. The purchase
price consisted of $1.1 million in cash at closing, the assumption of certain
liabilities and forgiveness of a $500,000 note receivable from Am-Rho Inc.,
the parent of Am-Rho. On March 6, 1996, the Company acquired all of the
capital stock of Southeastern Biologics, Inc. and Plasma Management, Inc. and
the assets of Concho Biologics, Inc. in the Southeastern Acquisition. The
purchase price consisted of $3.6 million in cash, the assumption of $1.1
million of indebtedness and additional contingent consideration to be paid
based on the performance of the acquired business over the 12 months
subsequent to the closing. All of these acquisitions were accounted for
using the purchase method.
Results of Operations
The following table sets forth certain operating data of the Company as
a percentage of net sales for the periods indicated below.
Nine months ended Three months ended
------------------------- --------------------------
October 1, September 29, October 1, September 29,
1995 1996 1995 1996
---------- ------------- ---------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 39.9% 41.4% 38.8% 42.0%
Selling, general and
administrative costs 16.0% 14.6% 13.7% 14.2%
Product development 3.9% 3.6% 2.9% 3.5%
Income before
extraordinary loss 7.7% 12.7% 12.0% 14.0%
Net income 2.8% 12.6% 12.0% 14.0%
Three Months Ended October 1, 1995 and September 29, 1996
Net sales increased 16.2%, or $2.2 million, from $13.6 million in 1995
to $15.8 million in 1996. The increase in net sales was due primarily to
additional net sales related to recent acquisitions. Revenues in the third
quarter of 1995 were positively impacted by approximately $754,000 in sales
which related to production from the first and second quarters of 1995 but
had not been shipped, or recognized, until the third quarter pending FDA
licensure at two donor centers. The Company's net sales of therapeutic
products increased 20.8% while net sales of diagnostic products increased
2.8% from the comparable period in the prior year.
Gross profit increased 25.7%, or $1.3 million, from $5.3 million in 1995
to $6.6 million in 1996. The increase resulted primarily from increased
margins on the Company's specialty antibody products, while $604,000 was
related to recent acquisitions. Gross profit, as a percentage of net sales,
increased from 38.8% in 1995 to 42.0% in 1996 due primarily to an increase in
gross profit from specialty antibodies as a percentage of specialty antibody
net sales.
Selling, general and administrative expenses increased 20.8%, or
$388,000, from $1.9 million in 1995 to $2.2 million in 1996. The increase
resulted primarily from incremental administrative expenses associated with
being a public company, the hiring of an additional vice president in
February 1996 and incremental, on-going general corporate expenses related to
the acquisition of ABI and the Am Rho and Southeastern Acquisitions.
Page 10
<PAGE>
Product development expenses increased $156,000, or 38.8%, from $400,000
in 1995 to $556,000 in 1996. The increase was primarily attributable to
increased expenditures related to the development of monoclonal anti-D
therapeutic antibodies.
Other expense, net increased 28.3%, or $91,000 from $321,000 in 1995 to
$412,000 in 1996 due primarily to the amortization of intangible assets as a
result of the acquisition of ABI in October 1995 and the Am Rho and
Southeastern Acquisitions in February 1996 and March 1996, respectively.
Interest expense (income) decreased 155.2%, or $213,000, from $137,000
in 1995 to ($76,000) in 1996, primarily as a result of the retirement of
approximately $7.9 million in debt in June, 1996 with a portion of the
proceeds of the Secondary Offering and the subsequent investment of the
remaining proceeds.
Nine Months Ended October 1, 1995 and September 29, 1996
Net sales increased 23.3%, or $8.9 million, from $38.3 million in 1995
to $47.3 million in 1996. The increase resulted from $4.9 million of
additional net sales from recent acquisitions and increased sales of anti-D
and IVIG antibodies. Net sales of the Company's therapeutic products increased
35.9% while net sales of diagnostic products decreased 6.0% from the
comparable period in the prior year. The decrease in net sales of diagnostic
products was due primarily to reduced shipments of clinical diagnostic
antibodies and polyclonal antibodies used in blood typing reagents during the
first two quarters of 1996.
Gross profit increased 28.0%, or $4.3 million, from $15.3 million in
1995 to $19.6 million in 1996. The increase in gross profit was due largely
to increased net sales of anti-D and IVIG antibodies, while $1.3 million of
the increase related to recent acquisitions. Gross profit, as a percentage
of net sales, increased from 39.9% in 1995 to 41.4% in 1996 due to an
increase in the gross profit from specialty antibodies as a percentage of
specialty antibody net sales, offset in part by an increase in net sales of
lower margin IVIG antibodies and a decrease in the gross profit from IVIG
antibodies as a percentage of IVIG net sales.
Selling, general and administrative expenses increased 12.3%, or
$756,000, from $6.1 million in 1995 to $6.9 million in 1996. Recurring
expenses in 1996 increased by 19.1%, or $1.1 million, to $6.9 million from
$5.8 million, due primarily to incremental administrative expenses associated
with being a public company, the hiring of an additional vice president in
February 1996 and incremental, on-going general corporate expenses related to
the acquisition of ABI and the Am Rho and Southeastern Acquisitions. In
1995, the Company recorded a non-recurring charge of $346,500 for
compensation expense related to the acceleration of vesting of an officer's
stock options in connection with the Company's IPO.
Product development expenses increased 11.8%, or $178,000, from $1.5
million in 1995 to $1.7 million in the current year. The increase was
primarily attributable to increased expenditures related to the development
of monoclonal anti-D therapeutic antibodies.
Other expense, net increased 30.7%, or $304,000, from $1.0 million in
1995 to $1.3 million in 1996 due primarily to the amortization of intangible
assets resulting from the acquisition of ABI in October 1995 and the Am Rho
and Southeastern Acquisitions in February 1996 and March 1996, respectively.
Page 11
<PAGE>
Interest expense decreased 84.3%, or $1.6 million, from $1.9
million in 1995 to $297,000 in 1996, primarily as a result of the retirement
of approximately $25.0 million in debt in June 1995 with proceeds from the
IPO, the retirement of approximately $7.9 million of debt in June 1996 with
a portion of the proceeds from the Secondary Offering and the subsequent
investment of the remaining proceeds.
The provision for income taxes, as a percentage of income before income
taxes and extraordinary loss, decreased from 38.3% in 1995 to 36.5% in 1996,
due primarily to an increase in 1996 in tax credits related to research and
development expenditures and export sales and a tax benefit related to a non-
recurring dividend paid by the Company's foreign subsidiary in the second
quarter of 1996.
The extraordinary loss (net of income taxes) decreased $1.8 million
from $1.8 million in 1995 to $14,000 in 1996, due to the early extinguishment
of debt in the second quarter of 1995 associated with the IPO. Approximately
$1.4 million of this amount related to the acceleration of the original issue
discount ("OID") associated with the repayment of subordinated debt. The
remainder related to the write-off of the debt issuance cost associated with
the repayment of debt from IPO proceeds.
Liquidity and Capital Resources
As of September 29, 1996, the Company had cash and cash equivalents and
working capital of $18.3 million and $25.0 million, respectively. Pending
further use, the Company currently invests all idle cash in highly liquid,
short term instruments with original maturities of three months or less.
Net cash provided by operations for the nine months ended October 1,
1995 was $3.8 million, as compared to $5.6 million for the nine months ended
September 29, 1996, an increase of $1.8 million. The increase in cash flow
from operations was primarily attributable to an increase in income before
extraordinary items and the effect of an increase in accounts receivable
during 1995, primarily due to the growth in accounts receivable from
acquisitions and the change in the payment pattern of a significant customer
from advance payments for orders to payment after shipment. The increase in
cash provided from operations in 1996 was offset in part by an increase in
inventories in 1996, primarily caused by the need to maintain inventory at
levels required under certain purchase agreements and a decrease in accounts
payable and accrued liabilities, due primarily to significantly higher foreign,
federal and state income tax payments in 1996.
Net cash flow used in investing activities for the nine months ended
October 1, 1995, was $1.8 million as compared to $9.0 million for the nine
months ended September 29, 1996. The increase in cash used in investing
activities is primarily attributable to $6.3 million used for the Am-Rho and
Southeastern Acquisitions, which occurred in the first quarter of 1996, and
an increase in capital expenditures of $1.5 million.
Net cash flow (used in) provided by financing activities, including the
effects of changes in foreign currency rates, for the nine months ended
October 1, 1995 was ($6.3 million) as compared to $18.7 million for the nine
months ended September 29, 1996. The increase in net cash flow provided by
financing activities in 1996 related primarily to the Company raising
approximately $22.0 million in net proceeds from the Secondary Offering in
June 1996.
Capital expenditures relate primarily to the Company's facilities,
related equipment, the acquisition or development of additional specialty and
non-specialty antibody donor centers, the development of software and
information systems and the expansion of the Company's monoclonal production
facility in the U.K. During the nine months ended October 1, 1995 and
September 29, 1996, capital expenditures were $969,000 and $2.5 million,
respectively. The increase in capital expenditures in 1996 is due primarily
to the renovation of a number of donor centers, the upgrading of the
Company's information system and the expansion of the Company's monoclonal
antibody production facilities in the U.K.
Page 12
<PAGE>
During 1996, the Company anticipates a significant increase in capital
expenditures over prior years' levels. The major factors affecting this
increase include (i) the relocation and expansion of the Company's monoclonal
production facilities in Scotland; (ii) upgrading of the Company's
information systems to support its planned growth; and (iii) the development,
relocation and upgrading of specialty and non-specialty donor centers to
increase production capabilities and efficiencies.
In early 1996, the Company received a grant from a governmental
authority in Scotland to defray a portion of the expenses associated with the
relocation and expansion of its monoclonal production facilities. The grant,
of up to L580,000, is payable to the Company in three installments over
approximately three years and the timing and amount of the payments are
subject to (i) the level of capital expenditures made and (ii) the creation
of additional jobs at Bioscot. To date, the Company has not received any
proceeds from such grants.
On July 20, 1995, the Company entered into the Revolving Credit Facility
with NationsBank providing for maximum borrowings of $20.0 million. The
Revolving Credit Facility has a three-year term with a variable interest rate
and provides for a maximum of $15.0 million for future acquisitions. The
Company anticipates using the proceeds from the Revolving Credit Facility to
fund capital expenditures, acquisitions and any increased working capital
needs. The amount outstanding under the Revolving Credit Facility was $2.1
million at December 31, 1995 and $0 at September 29, 1996.
The Company believes that existing cash balances, cash generated from
operations and the borrowing capacity available under the Revolving Credit
Facility are sufficient to fund operations and anticipated capital
expenditures for at least 12 months and may be used to fund the Company's
acquisition strategy.
The Company is in the second year of a five-year supply contract with
Bayer Corporation ("Bayer") for the sale of antibodies for IVIG. The
contract provides for successive one-year renewals, unless notice is given by
either party, and commitments from Bayer to purchase specified amounts on an
escalating basis over the five-year term. In addition, pursuant to the
Southeastern Acquisition, the Company acquired a second supply contract with
Bayer for the sale of antibodies for IVIG, with terms substantially similar
to those contained in the Company's existing contract with Bayer except as it
relates to volume levels. Early termination of these contracts could
adversely affect the Company's net cash from operations in the short term.
On January 21, 1996, the Company entered into an amended agreement with
the holders of the $3.5 million Convertible Note. Under the terms of the
amendment, the earliest call date of the note was changed from January 21,
1996 to January 21, 1997, the interest rate decreased to 9% from 12% and the
conversion price increased to $14.00 from $10.93 per share of common stock.
The amended agreement decreases the number of shares issuable at conversion
from approximately 320,500 shares to 250,000 shares.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", which becomes effective for fiscal years beginning after
December 15, 1995. SFAS 121 establishes standards for determining when
impairment losses on long-lived assets have occurred and how impairment
losses should be measured. The Company adopted SFAS 121 effective January 1,
1996. The financial statement impact of adopting SFAS 121 was not material.
Page 13
<PAGE>
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation,"
which becomes effective for fiscal years beginning after December 15, 1995.
SFAS 123 establishes new financial accounting and reporting standards for
stock-based compensation plans. However, entities are allowed to elect
whether to measure compensation expense for stock-based compensation under
SFAS 123 or Accounting Principles Board No. 25 ("APB No. 25"), "Accounting
for Stock Issued to Employees." The Company has elected to remain with the
accounting under APB No. 25 and will make the required pro forma disclosures
of net income and earnings per share as if the provisions of SFAS 123 had
been applied in its December 31, 1996 financial statements. The potential
impact of adopting this standard on the Company's pro forma disclosures of
net income and earnings per share has not been quantified at this time.
Page 14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on From 8-K
a. Exhibits:
Exhibit 10.1 -- Employment Agreement between the Company and
Terence Dobson
Exhibit 27 -- Financial Data Schedule
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.
SEROLOGICALS CORPORATION
(Registrant)
Date: November 12, 1996 By: /s/Russell H. Plumb//
Russell H. Plumb
Vice President, Finance and
Chief Financial Officer
Page 15
<PAGE>
September 5, 1996
Terence Dobson
Nether Cromlix
Auchenley Road
Dunblane
Scotland
FK159JF
Dear Terry:
I am pleased on behalf of Serologicals Corporation, (the "Corporation"), to
offer you ("you" or the "Executive") employment with the Corporation (the
"Employment") on the terms set forth herein (the "Offer").
1. Position, Duties and Responsibilities.
a. You shall serve as the Vice President, International Development,
responsible for the duties outlined in the attached Job Description.
b. You will devote all your business time and attention to the business
and affairs of the Corporation consistent with your position with the
Corporation. Nothing herein, however, shall preclude you from engaging in
charitable and community affairs, or giving attention to your investments
provided that such activities do not interfere with the performance of your
duties and responsibilities enumerated herein. You will maintain directorship
on the Bioscot, Ltd. board for a period of one (1) year from January 1, 1997
for no additional compensation.
c. Except as otherwise specifically stated herein, you shall be subject
to all of the requirements and provisions described in the Company's employee
handbook, as it may be amended from time to time.
d. Your Employment shall commence hereunder effective on or about January
1, 1997 (the "Effective Date") and continue for successive one (1) year periods,
unless otherwise terminated pursuant to the provisions hereof.
2. Compensation and Related Matters.
a. Base Salary. You shall be paid a base salary (the "Base Salary") equal
to $120,000 per year. The Base Salary shall be payable to you in the manner
and on the date(s) on which the Corporation pays its other executives, but in
no event less frequently than monthly.
Page 1
<PAGE>
b. Incentive Compensation. You shall be eligible to participate in such
bonus and incentive compensation plans of the Corporation in which other
officers of the Corporation are generally eligible to participate, as the Board
or a Committee thereof shall determine from time to time in its sole discretion,
subject to and in accordance with the terms and provisions of such plans.
c. Employee Benefit Programs. You shall be eligible, subject to the
satisfactory completion of a physical examination, to receive fringe benefits
now provided or may hereinafter be provided by the Corporation to its
executives.
As an employee of the Corporation, you will become eligible for participation in
the Corporation benefits set forth below.
-- Comprehensive medical/dental insurance, including Prescription Card
Service
-- Corporation paid life insurance (two times your annual salary)
-- Serologicals Corporation's Employees' Retirement Plan - 401(k)
-- Short-term Disability Insurance
-- Long-term Disability Insurance
-- Flexible Spending Account (Medical and Dependent Care)
-- Employee Stock Purchase Plan
d. Reimbursement of Expenses. It is contemplated that in connection with
your Employment hereunder, hereunder, you may be required to incur business,
entertainment and travel expenses. The Corporation agrees to promptly
reimburse you in full for all reasonable out-of-pocket business, entertainment
and other related expenses (including all expenses of travel and living expenses
while away from home on business or at the request of, and in service of, the
Corporation) incurred or expended by you incident to the performance of your
duties hereunder; provided, that you properly account for such expenses in
accordance with the policies and procedures established by the Board and
applicable to the executives of the Corporation.
e. Paid Time Off. You shall be entitled, in each calendar year of your
Employment, to the number of paid vacation days determined by the Corporation
from time to time to be appropriate for its executives, but in no event less
than five (5) weeks in any such year during your Employment the term (pro rated,
as necessary, for partial calendar years during your Employment the Term).
You may take your allotted vacation days at such times as are mutually
convenient for the Corporation and you, consistent with the Corporation's
vacation policy in effect with respect to its executives. Additionally, you
shall also be entitled to sixteen (16) hours of personal time off and eighty
(80) hours of sick leave per calendar year (pro-rated, as necessary, for
partial calendar years during the your EmploymentTerm). You shall also be
entitled to all paid holidays given by the Corporation to its executives.
Page 2
<PAGE>
f. Relocation. The Corporation agrees to reimburse you for the following
relocation expenses:
-- Reimbursement on costs associated withcosts of the sale and purchase of
residence within eighteen (18) months of the Effective Date, including
without limitation realtor's. Realtor's fees, not more than one
points, appraisals, etc. and other standard closing costs (including
reasonable attorney's fees in connection with such closings.) There
will be no reimbursement for loss of any equity on the sale of the
Executive's current residence.
-- Reimbursement of automobile rental/lease expense for six (6) months
(expiring June 30, 1997), not to exceed $500/month.
-- Reimbursement of temporary housing expense for six (6) months (expiring
June 30, 1997), not to exceed $2,200/month.
-- Full reimbursement of reasonable moving expenses, including the actual
cost of packing, shipping, unpacking, and placing household goods and
personal effects from one residence. Full value insurance protection.
-- Temporary storage of household goods (not to exceed 90 days).
-- Three (3) trips for spouse's travel to Atlanta for the purpose of house
hunting.
-- One-time relocation payment equal to two (2) weeks pay to help cover
the cost of incidental moving expenses.
-- One-time gross up payment to cover tax liability for payments made
under this Agreement. Payment is made at year end.
3. Termination by the Company. Notwithstanding the foregoing, the Corporation
may terminate your employment at any time. In the event of termination
resulting from the elimination of your position, you shall be entitled to
continue to receive your Base Salary for a nine (9) month period from effective
date of termination. Under no other termination circumstances will you be
eligible for any form of salary continuation.
4. Nondisclosure. You acknowledge and agree that, during your employment by
the Corporation hereunder hereunder and during your prior employment with
Bioscot, Ltd., you came or will come to have knowledge and information with
respect to trade secrets or confidential or secret plans, projects, materials,
business methods, operations, techniques, customers, employees, financial
conditions, policies and accounts of the Corporation with respect to the
business of the Corporation its successors or assigns or any of its affiliates.
You agree that you will not at any time divulge, furnish or make accessible to
anyone (other than in the regular course of your performance of services for
the benefit of the Corporation, its successors or assigns) any knowledge or
information with respect to such confidential or secret plans, secret projects,
secret materials, the financial condition of the Corporation, its successors
or assigns, or any of its affiliates, confidential business methods, operations,
techniques, customers, customer lists, employees, policies or accounts or trade
secrets, including, but not limited to, the identity of donors and donor lists
of the Corporation, its successors or assigns or any of its affiliates.
Notwithstanding the foregoing, confidential information described in the
preceding sentences shall not include any information which (i) is known
generally to the public (other than as a result of unauthorized disclosure by
you), (ii) was available to you on a nonconfidential basis prior to its
disclosure to you by the Corporation or (iii) is required to be disclosed
pursuant to the valid order of a governmental agency or a judicial court of
competent jurisdiction, in which case you shall give prompt written notice to
the Corporation of such requirement so that the Corporation may take such
action as it deems appropriate.
Page 3
<PAGE>
5. Non-Compete and Non-Solicitation. As a material inducement to the
Corporation to enter into this letter, you agree that at all times during the
term of your Employment hereunder and for a period of nine (9) months after
the termination of your Employment, you will not, in any way, directly or
indirectly, solicit, divert, or take away or attempt to solicit, divert, or
take away customers, the business of, or any of the donors of the Corporation
or its successors or assigns or any of its affiliates that dealt with the
Corporation or its successors or assigns or any of its affiliates during your
Employment.
You agree that during your Employment and for a period of nine (9) months after
the termination for any reason of your Employment, you will not in a geographic
area in which the Corporation or its successors or assigns or any of its
affiliates were conducting business during the term of your Employment or at the
date of termination thereof, directly, or indirectly through any means,
including a business entity in which you have an ownership interest, request or
induce any other employee of the Corporation or its affiliates or any donor to
the Corporation or its affiliates to terminate their relationship with the
Corporation or its affiliates and enter into a similar relationship with
another business entity engaged in a business similar to the Corporation's.
6. Miscellaneous.
a. Governing Law. This letter letter is to be governed by and interpreted
in accordance with the laws of the State of Georgia applicable to agreements
made and to be performed within that State except as provided herein.
b. No Attorney Provided. The Corporation advises you that it is not
providing legal advice in connection with your acceptance and execution hereof
and that, if you so elect, you should consult with an attorney prior to such
execution.
c. Affiliate. References to the "Corporation" hereunder shall include
"affiliates" thereof, as such term is defined in Rule 405 under the Securities
Act of 1933, as amended. The Corporation shall have the right to designate any
of its affiliates as your employer hereunder Serologicals, Inc., Seramune, Inc.,
or any affiliate of the Corporation.
d. Severability. If any provision of this letter Letter shall be
determined to be invalid, illegal or unenforceable in whole or in part, all
other provisions hereof shall remain in full force and effect to the fullest
extent permitted by law.
Please indicate your acceptance of this Offer Offer by signing in the space
provided below.
Very Truly yours,
SEROLOGICALS CORPORATION
By: /s/Harold J. Tenoso, Ph.D.
--------------------------
Harold J. Tenoso, Ph.D.
Title: President/CEO
ACKNOWLEDGED AND AGREED
this __30th____ day of September, 1996.
_/s/ Terence Dobson//______
Terence Dobson
Page 4
<PAGE>
JOB DESCRIPTION
EXEMPT
DATE: August 30, 1996
JOB TITLE: VICE PRESIDENT, INTERNATIONAL DEVELOPMENT
DIVISION: SEROLOGICALS, INC.
DEPARTMENT: PRODUCT DEVELOPMENT
INCUMBENT: TERENCE DOBSON
POSITION PURPOSE:
Manage the performance of Serologicals, Inc.'s product development division
through effective strategic planning, communication, policy formation,
delegation, and control.
ESSENTIAL JOB FUNCTIONS:
1. Assist President/CEO in developing and organizing the Corporation's product
development function in conjunction with remainder of Corporation's business
divisions.
2. Oversee and evaluate Corporation's product development operations to ensure
compliance with state and federal regulations and standard operating
procedures.
3. Assure Product Development department costs are in line with budget and
financial projections.
4. As required, provide management services to other departments and divisions.
5. Manage and evaluate the performance of the Product Development department
staff.
6. Employee will Assist in maintaining the established Quality System under
the ISO 9000 guidelines. The employee will also continue educating the
departmental staff members on the Company's Quality System and will
ensure that all operations in the department are within compliance.
Page 1
<PAGE>
POSITION: VICE PRESIDENT, INTERNATIONAL DEVELOPMENT
ORGANIZATIONAL RELATIONSHIP:
__________
PRESIDENT
__________
|
|
|
__________________________________|_____________________________________________
| | | | | |
| | | | | |
| | | | | |
_____|_____ _____|_____ ______|____ _____|_____ _____|______ _____|_____
VP, Finance VP, VP VP, Sales VP VP
and Regulatory Operations and Int'l Healthcare
Admin. Affairs Marketing Development Services
___________ ___________ ___________ ___________ ____________ ___________
JOB SPECIFICATIONS:
1. Bachelors degree in a basic science (biology, chemistry, etc.). Experience
in Company's products and services.
2. Comprehensive working knowledge of Company's industry, general knowledge of
medical technology related to disease-state diagnosis and treatment.
3. Effective communications skills in dealing with peers, direct reports,
customers, regulatory officials, and medical professionals.
4. Demonstrated proficiency in identifying problems, implementing solutions and
motivating others to achieve established strategic goals. Strong customer
service orientation and interpersonal understanding.
PHYSICAL REQUIREMENTS:
1. Ability to travel via automobile and/or airplane.
2. Ability to articulate clearly and conduct oral presentations.
3. Occupational exposure to bloodborne pathogens.
I acknowledge by my signature below, that the duties listed on this job
description represent those tasks falling within my immediate responsibility.
I must inform my immediate supervisor and/or the Director, Human Resources,
should I have a significant change in duties or responsibilities after signing
this job description.
_/s/ Terence Dobson//_________________________ _9-30-96_________
Signature of Employee Date
/s/ Harold J. Tenoso, Ph.D.___________________ _9-27-96_________
Signature of Supervisor/Manager Date
/s/ Regina D. Bryant__________________________ _9-26-96_________
Signature of Director, Human Resources Date
Page 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Serologicals Corporation and Subsidiaries' Condensed Consolidated Balance
Sheets and Statements of Income
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> $18,257,853
<SECURITIES> 0
<RECEIVABLES> 6,020,083
<ALLOWANCES> 0
<INVENTORY> 6,012,691
<CURRENT-ASSETS> $31,462,754
<PP&E> 14,311,473
<DEPRECIATION> 5,856,572
<TOTAL-ASSETS> $75,305,119
<CURRENT-LIABILITIES> $6,431,276
<BONDS> 0
0
0
<COMMON> 94,073
<OTHER-SE> 65,084,532
<TOTAL-LIABILITY-AND-EQUITY> $75,305,119
<SALES> $47,258,891
<TOTAL-REVENUES> 47,258,891
<CGS> 27,686,252
<TOTAL-COSTS> 27,686,252
<OTHER-EXPENSES> 10,156,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,795
<INCOME-PRETAX> 9,416,265
<INCOME-TAX> 3,434,387
<INCOME-CONTINUING> 5,981,878
<DISCONTINUED> 0
<EXTRAORDINARY> (14,206)
<CHANGES> 0
<NET-INCOME> $5,967,672
<EPS-PRIMARY> $0.64
<EPS-DILUTED> 0<F1>
<FN>
<F1>Fully diluted EPS is Anti-dilutive.
</FN>
</TABLE>
