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 28, 1997
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.
Suite 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 24, 1997
Common Stock, $.01 par value per share 15,634,690
<PAGE>
INDEX
SEROLOGICALS CORPORATION AND SUBSIDIARIES
PART I.
- - -------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
December 29, 1996 and September 28, 1997. . . . . . . . . . . .3
Condensed Consolidated Statements of Income -
For the three and nine months ended September 29, 1996 and
September 28, 1997. . . . . . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 29, 1996 and
September 28, 1997 . . . . . . . . . . . . . . . . . . . . . . .5
Notes to Condensed Consolidated Financial Statements . . . . . .6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . .10-15
PART II.
- - --------
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . .16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
- - ----------
<PAGE>
PART I.
- - -------
Item 1. Financial Statements
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Dec. 29, Sept. 28,
1996 1997
----- -----
<C> <C>
<S>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $21,232 $27,913
Trade accounts receivable, net 5,235 10,586
Inventories 5,746 8,642
Other current assets 1,131 837
------ ------
Total current assets 33,344 47,978
------ ------
PROPERTY AND EQUIPMENT, net 9,800 12,744
------ ------
OTHER ASSETS:
Goodwill, net 33,541 51,431
Other, net 4,152 5,849
------ ------
Total other assets 37,693 57,280
------ ------
$80,837 $118,002
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
and capital lease obligations $3,567 $2,616
Accounts payable 2,795 2,141
Accrued liabilities 6,208 8,768
Deferred revenue 69 683
------ ------
Total current liabilities 12,639 14,208
------ ------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current maturities 147 4,570
------ ------
OTHER LIABILITIES 168 308
------ ------
STOCKHOLDERS' EQUITY:
Common stock 141 156
Additional paid-in capital 52,164 74,644
Retained earnings 15,368 24,093
Cumulative translation adjustment 210 23
------- ------
Total stockholders' equity 67,883 98,916
------- ------
$80,837 $118,002
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
--------- --------- ---------- ---------
<C> <C> <C> <C>
<S>
Net sales $47,259 $72,571 $15,819 $26,609
Costs and expenses:
Cost of sales 27,686 46,085 9,177 16,873
Selling, general and
administrative expenses 6,880 9,621 2,248 3,415
Product development expenses 1,686 1,474 556 474
Interest expense (income), net 297 (358) (76) (134)
Other expense, net 1,294 2,016 412 942
------ ------ ------ ------
Income before income taxes
and extraordinary loss 9,416 13,733 3,502 5,039
Provision for income taxes 3,434 5,008 1,294 1,812
------ ------ ------ -------
Income before extraordinary
loss 5,982 8,725 2,208 3,227
Extraordinary loss on early
retirement of debt, net of
income taxes 14 -- -- --
------ ----- ------ ------
Net income $5,968 $8,725 $2,208 $3,227
====== ====== ====== ======
Net income per common
share-primary:
Income before extraordinary
loss $0.42 $0.57 $0.15 $0.20
Extraordinary loss -- -- -- --
----- ----- ----- -----
Net income $0.42 $0.57 $0.15 $0.20
===== ===== ===== =====
Weighted average common and
common equivalent shares
outstanding-primary 14,072 15,541 15,016 16,027
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 29, Sept. 28,
1996 1997
---- ----
<C> <C>
<S>
Operating activities:
Net income $5,968 $8,725
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,506 3,721
Deferred income tax (benefit) provision (61) 202
Extraordinary loss, net 14 --
Changes in operating assets and
liabilities, net of acquisitions of businesses:
Trade accounts receivable, net (689) (4,711)
Inventories (1,874) (1,226)
Other current assets (422) 281
Accounts payable (722) (1,181)
Accrued expenses 196 1,442
Deferred revenue 227 (201)
----- ------
Total adjustments (825) (1,673)
----- ------
Net cash provided by operating activities 5,143 7,052
------ -------
Investing activities:
Purchases of property and equipment (2,459) (3,128)
Acquistions of businesses (4,639) (15,449)
Other (249) (468)
------ -------
Net cash used in investing activities (7,347) (19,045)
------ -------
Financing activities:
Net payments under revolving line of credit (2,059) --
Proceeds from issuance of long-term debt 89 525
Payments on long-term debt and capital
lease obligations (2,493) (200)
Proceeds from sales of common stock 21,670 17,542
Proceeds from employee stock plans 346 994
------ ------
Net cash provided by financing activities 17,553 18,861
------ ------
Effect of changes in foreign exchange rate 22 (187)
------ ------
Net increase in cash and cash equivalents 15,371 6,681
Cash and cash equivalents, beginning of period 2,887 21,232
------ ------
Cash and cash equivalents, end of period $18,258 $27,913
======= =======
Supplemental Disclosures:
Interest Paid $473 $207
Taxes Paid $3,649 $4,311
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Serologicals Corporation (the "Company") is a leading worldwide
provider of specialty human antibody-based products and services to major
healthcare companies. The Company's services, including donor
recruitment, donor management and clinical testing services, enable the
Company to provide value-added, antibody-based products that are used as
the active ingredients in therapeutic and diagnostic pharmaceutical
products. The Company operates 59 donor centers, 16 of which specialize
in the collection of specialty antibodies and 43 of which primarily
collect IVIG antibodies from which a number of products are produced.
The Company is also engaged in the development, manufacturing and sale of
monoclonal antibodies at its facilities in the United Kingdom.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of 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 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 management, 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 29, 1996
and the notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 29, 1996.
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 the Nations Note and the Bio-Lab Note (Note
4) (using the "if-converted" method) and stock options and warrants
(calculated according to the treasury stock method) have been included in
the computation when dilutive. For the periods presented, fully diluted
earnings per share has not been presented as the dilutive effect is not
material. (Note 5).
Weighted average common and common equivalent shares outstanding for all
periods presented have been adjusted to reflect the Company's 3-for-2
common stock split effected in the form of a 50% stock dividend paid
February 28, 1997 to holders of record as of February 10, 1997.
2. SALE OF COMMON STOCK
On September 9, 1997, the Company sold 950,000 shares of its common stock,
at a price of $19.50 per share, in a private placement transaction made in
reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, afforded by Section 4(2) thereof. The
net proceeds to the Company from the sale of the shares were approximately
$17.5 million, and will be used for general corporate purposes, including
strategic acquisitions and investments. Pursuant to the same transaction,
one of the Company's shareholders sold 250,000 shares of common stock; the
Company received none of the proceeds from this sale. A registration
statement relating to the resale by the purchasers of the shares of common
stock sold by the Company was declared effective by the Securities and
Exchange Commission on September 3, 1997.
6
<PAGE>
3. ACQUISITIONS
On March 6, 1997, the Company acquired Nations Biologics, Inc. and its
affiliates (the "Nations Group") for approximately $14.2 million (the
"Nations Acquisition"), before recording certain transaction costs and
subject to adjustment based primarily on the post-acquisition performance
of the businesses acquired over the 14-month period subsequent to closing.
The purchase price consisted of approximately $10.2 million of cash and
the issuance to one of the sellers of a $4.0 million convertible
subordinated promissory note maturing on March 7, 2002 (the Nations Note
as defined in Note 4). The Company financed the $10.2 million of cash
paid at closing with cash on hand.
The following unaudited data summarize the pro forma results of
operations for the nine months ended September 29, 1996 and September 28,
1997 as if the Nations 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 actually have been had the transaction
actually occurred on the dates indicated, or what the results of
operations may be in the future. Further, the results for the nine
months ended September 29, 1996 include a non-recurring gain of $555,000
recognized by the Nations Group related to the sale of a donor center.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
<C> <C>
<S>
(In thousands, except per share data) Sept. 29, Sept. 28,
1996 1997
---- ----
Net sales $52,826 $75,693
Income before extraordinary loss $5,864 $8,678
Income before extraordinary loss per share $0.42 $0.56
</TABLE>
On August 13, 1997, the Company acquired certain assets of three non-
specialty donor centers from Seracare, Inc. in exchange for two non-
specialty donor centers operated by the Company and $250,000 cash (the
"Seracare Exchange"). The operations of two of the donor centers acquired
were consolidated with the operations of two donor centers already
operated by the Company in the same geographic location.
On September 23, 1997, the Company acquired all of the outstanding
capital stock of Bio-Lab, Inc. and Med-Lab, Inc. for $8.5 million, before
recording certain transaction costs and subject to adjustment based on the
net assets of the companies acquired, as defined, as of the closing date
(the "Bio-Lab Acquisition"). The purchase price consisted of $5.95
million in cash and the issuance to one of the sellers of a $2.55 million
convertible subordinated promissory note due September 23, 2000 (the "Bio-
Lab Note"). The Company financed the $5.95 million of cash paid at
closing with cash on hand.
The Nations Acquisition, the Bio-Lab Acquisition and the Seracare
Exchange were accounted for as purchases in accordance with APB No. 16,
and accordingly, the purchase prices have been preliminarily allocated to
the net tangible and identifiable intangible assets acquired based on
their estimated fair values as of the acquisition dates. The excess of
the cost over the estimated fair values of the net tangible and
identifiable intangible assets acquired has been preliminarily allocated
to goodwill.
7
<PAGE>
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 29, 1996 and
September 28, 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 29, Sept. 28,
1996 1997
---- ----
<C> <C>
<S>
$4.0 million convertible subordinated note
payable, interest at 4.5% payable quarterly
commencing July 1, 1997; maturing on
March 7, 2002 $ -- $4,000
$3.5 million convertible subordinated note
payable, interest payable monthly at 5.25%;
principal payable on April 9, 1997 3,500 --
$2.55 million convertible subordinated note
payable, interest payable quarterly at 4.0%;
principal payable on September 23, 2000 -- 2,550
Capital lease obligations at varying interest
rates and terms, maturing through 2001 200 154
Other notes at varying interest rates and
terms maturing through March 2000 14 482
----- -----
3,714 7,186
Less current maturities 3,567 2,616
----- -----
$147 $4,570
===== ======
</TABLE>
In connection with the Nations Acquisition, the Company issued one
of the sellers a $4.0 million convertible subordinated note (the "Nations
Note") maturing on March 7, 2002. The Nations Note bears interest at a
rate of 4.5% per annum through the earlier of the date of repayment,
conversion or March 7, 2000. On or after March 7, 1998, 1999 and 2000,
the payee may call for repayment (or conversion into shares of the
Company's common stock) one-third, two-thirds and all, respectively, of
the then outstanding principal amount of the Nations Note, subject to
certain restrictions as to minimum amounts and frequency. The Nations
Note is convertible at the option of the holder at a conversion price of
$18.76 per share, the fair market value of the Company's common stock at
the date of issuance. The Company has the right to call the Nations Note
at any time commencing March 7, 2000, or earlier if certain events occur.
In connection with the Bio-Lab Acquisition, the Company issued one of
the sellers the Bio-Lab Note, which bears interest at a rate of 4.0% per
annum through the earlier of the date of repayment or conversion.
Commencing September 23, 1999, the Bio-Lab Note may be prepaid, in whole
or in part, upon not less than thirty days prior written notice by the
Company. The Company may also prepay the note prior to September 23,
1999, in whole or in part, at a premium of the then outstanding principal
balance if certain events occur. On or after September 23, 1998, 1999 and
2000, the payee may call for repayment (or conversion into shares of the
Company's common stock) one-third, two-thirds and all, respectively, of
the then outstanding principal amount of the Bio-Lab Note, subject to
certain restrictions as to minimum amounts and frequency. The Bio-Lab
Note is convertible at the option of the holder at a conversion price of
$20.97 per share, the fair market value of the Company's stock at the date
of issuance.
8
<PAGE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which will become effective for the Company in its
fiscal quarter and year ending December 28, 1997. This statement
establishes new, simplified standards for computing and presenting
earnings per share. SFAS No. 128 replaces the traditional presentations
of primary earnings per share and fully diluted earnings per share with
basic earnings per share and diluted earnings per share, respectively.
Basic earnings per share excludes the dilutive effect of stock options,
warrants, convertible indebtedness and similar instruments while diluted
earnings per share is computed similarly to fully diluted earnings per
share. Pro forma earnings per share, assuming the adoption of SFAS No.
128 for the periods indicated below, is as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
------------------------------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
---- ---- ---- ----
<C> <C> <C> <C>
<S>
Basic earnings per share-
pro forma $0.45 $0.60 $0.16 $0.22
Diluted earnings per share-
pro forma $0.42 $0.57 $0.15 $0.20
</TABLE>
In July 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for reporting and display of "comprehensive
income", which is the total of net income and all other non-owner changes
in stockholders' equity, and its components. The Company is in the
process of evaluating SFAS No. 130 and its impact and will adopt the
standard in the first quarter of its 1998 fiscal year.
In July 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131, which supersedes
SFAS Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments
are based on the same criteria on which management disaggregates a
business for making operating decisions and assessing performance. The
Company is in the process of evaluating SFAS No. 131 and its impact and
will adopt the standard for its 1998 fiscal year.
6. SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
The following non-cash investing and financing transactions were
entered into during the nine months ended September 29, 1996 and
September 28, 1997 (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 29, Sept. 28,
1996 1997
---- ----
<C> <C>
<S>
Debt assumption $1,154 $ --
Forgiveness of note receivable in
connection with business acquisition 500 --
Issuance of promissory notes as acquisition
consideration -- 6,650
Conversion of subordinated note payable into
common stock -- 3,500
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This Form 10-Q contains certain "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, which
generally can be identified by the use of terms such as "may," "expect,"
"anticipate," "intend," "estimate," "believe," "continue" or similar
variations or the negative thereof. These forward looking statements
include, without limitation, statements regarding the effect of changing
regulatory and industry standards; the level of capital expenditures
during the following twelve months; the sufficiency of capital and
liquidity to fund operations, capital expenditures and the Company's
acquisition strategy; and the use of proceeds from the Company's Revolver.
These forward looking statements are subject to certain risks and
uncertainties, such as changes in the economy or market conditions,
changes in government policy or regulations and other factors discussed in
Part I of the Company's Annual Report on Form 10-K for the year ended
December 29, 1996, which could cause actual results to differ materially.
Overview and Recent Developments
The Company is a leading worldwide provider of specialty human
antibody-based products and services to major healthcare companies. As
of October 24, 1997, the Company operated 59 donor centers, 16 of which
specialize in specialty antibody collections and 43 of which primarily
collect IVIG antibodies from which a number of products are produced.
The Company also operates two Food and Drug Administration ("FDA")
licensed monoclonal antibody manufacturing facilities in Scotland and a
laboratory testing facility in Clarkston (Atlanta), Georgia.
In February 1997, the Company declared a 3-for-2 split of its common
stock effected in the form of a 50% stock dividend paid on February 28,
1997 to holders of record as of February 10, 1997. All share and per
share amounts herein have been retroactively adjusted to reflect such
split.
On March 6, 1997, the Company acquired the Nations Group, which
operated 16 non-specialty donor centers. The Company paid approximately
$14.2 million, before recording certain transaction costs and subject to
adjustment based primarily on the post-acquisition performance of the
businesses acquired over the 14-month period subsequent to closing. The
purchase price consisted of approximately $10.2 million of cash and the
issuance of the Nations Note (See Note 4 of Notes to Condensed
Consolidated Financial Statements). The Company financed the $10.2
million of cash paid at closing with cash on hand.
On August 13, 1997, the Company acquired certain assets of three non-
specialty donor centers from Seracare, Inc. in exchange for two non-
specialty donor centers operated by the Company and $250,000 in cash (the
"Seracare Exchange"). The operations of two of the donor centers acquired
were consolidated with the operations of two donor centers already
operated by the Company in the same geographic location.
On September 9, 1997, the Company sold 950,000 shares of common
stock, at a price of $19.50 per share, in a private placement transaction
made in reliance upon the exemption from the registration requirements of
the Securities Act of 1933, as amended, afforded by Section 4(2) thereof.
The net proceeds to the Company from the sale of the shares were
approximately $17.5 million, and will be used for general corporate
purposes, including strategic acquisitions and investments. Pursuant to
the same transaction, one of the Company's stockholders sold 250,000
shares of common stock; the Company received none of the proceeds from
this sale. A registration statement relating to the resale by the
purchasers of the shares of common stock sold by the Company was declared
effective by the Securities and Exchange Commission on September 3, 1997.
10
<PAGE>
On September 23, 1997, the Company acquired Bio-Lab, Inc. and Med-
Lab, Inc., which each operated one specialty donor center. The Company
paid $8.5 million, before recording certain transaction costs and subject
to adjustment based on the net assets of the acquired companies, as
defined, as of the closing date. The purchase price consisted of $6.0
million of cash and the issuance to one of the sellers of the Bio-Lab Note
(See Note 4 of Notes to Condensed Consolidated Financial Statements). The
Company financed the $6.0 million of cash paid at closing with cash on
hand.
Increasing regulatory scrutiny continues to be a significant factor
affecting the industry, resulting in more detailed and frequent
inspections by the FDA and a potentially greater number of observations
per inspection, deficiency notices, warning letters, product recalls and
temporary or permanent closures of facilities. One factor contributing to
this trend is the FDA's implementation of a new approach to inspections of
donor centers and manufacturing facilities, including the Company's
customers, entitled "Team Biologics". Under this new approach,
substantially all inspections will be performed by highly trained field
investigators who will focus more extensively on the FDA's current good
manufacturing practices (GMP) and the Quality Assurance guidelines adopted
by the FDA in 1995. On occasion, the Company has received notifications
and deficiency notices from the FDA of possible deficiencies in the
Company's compliance with FDA regulations or its own internal standard
operating procedures. To date, the Company believes that it has
adequately addressed or corrected such deficiencies.
The Company is also subject to numerous industry- and customer-
mandated standards. Industry trade organizations, such as the American
Blood Resources Association ("ABRA"), and the Company's customers
continually evaluate their practices and procedures regarding new
information or public concerns over blood safety and diseases which may be
transmitted from donors through their blood or blood components. Based
upon such evaluation, a certain portion of the population may be
prohibited from donating in the future, or certain new testing and
screening procedures may be required to be performed with respect to
certain donors. One specific concern currently facing the industry is
Creutzfeld-Jakob disease ("CJD"), a fatal disease occurring sporadically
in the world at an incidence of about one per million population per year
and which has been reportedly linked in some cases to bovine spongiform
encephalopathy, also know as "mad cow disease". While no acceptable
testing or screening procedure currently exists to detect CJD, it has
generally been found to have a higher incidence in the older population.
In response to this concern, effective in April 1997 and with respect to
certain products, one of the Company's customers ceased accepting
antibodies collected from donors over the age of 59. Another standard
voluntarily accepted by the industry which was adopted effective July 1,
1997 relates to the acceptance of new donors. In an effort to further
minimize the potential that infected plasma could enter the manufacturing
process undetected, all new (i.e., first-time) donors' plasma is excluded
from further manufacture until a negative set of test results is also
obtained on a second donation within six months, essentially precluding
one-time donations. Although the Company does not believe that the loss
of donors resulting from these new standards will have a material
impact on its current operating results, there is no assurance that the
long-term impact of these standards, or the imposition of other blood
safety measures, will not have a material adverse effect on future
operations.
11
<PAGE>
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:
<TABLE>
<CAPTION>
Nine months ended Three months ended
--------------------------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
------- ------- ------ ------
<C> <C> <C> <C>
<S>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 41.4% 36.5% 42.0% 36.6%
Selling, general and
administrative expenses 14.6% 13.3% 14.2% 12.8%
Product development expenses 3.6% 2.0% 3.5% 1.8%
Income before extraordinary
loss 12.7% 12.0% 14.0% 12.1%
Net income 12.6% 12.0% 14.0% 12.1%
</TABLE>
Three months ended September 29, 1996 and September 28, 1997
Net sales increased 68.2%, or $10.8 million, from $15.8 million in
1996 to $26.6 million in 1997. Of the increase, approximately $5.0 million
was attributable to the acquisition of Simi Biologicals, Inc. ("Simi") in
December 1996 and the Nations Acquisition in March 1997. The remainder of
the increase, or approximately $5.8 million, was primarily attributable to
additional net sales of anti-D antibodies, IVIG antibodies, anti-RSV (an
antibody used to treat respiratory syncytial virus, a new product first
shipped during 1997), anti-hepatitis antibodies and monoclonal antibodies
used for blood typing reagents. The Company's net sales of therapeutic
antibodies increased 80.4%, while net sales of diagnostic antibodies
increased 29.6%.
Gross profit increased 46.6%, or $3.1 million, from $6.6 million in
1996 to $9.7 million in 1997. Of the increase, approximately $2.6 million
was primarily attributable to increased net sales of, and higher margins
on, anti-D antibodies and IVIG antibodies, while the remainder was
primarily attributable to the Nations Acquisition and, to a lesser extent,
the acquisition of Simi. Gross profit, as a percentage of net sales
("gross margin") decreased from 42.0% to 36.6%, primarily due to an
increase in net sales of relatively lower-margin IVIG antibodies as a
percentage of total net sales from approximately 35% in 1996 to 47% in
1997. Gross margins from the Company's specialty antibody products
remained consistent with the similar period of 1996.
Selling, general and administrative expenses increased 51.9%, or $1.2
million, from $2.2 million in 1996 to $3.4 million in 1997. The increase
was primarily attributable to a larger sales, financial, recruiting and,
in particular, regulatory infrastructure needed to support the Company's
acquisitions and growth. However, selling, general and administrative
expenses, as a percentage of net sales, decreased from 14.2% to 12.8%.
Product development expenses, which relate primarily to the
development of monoclonal antibodies for blood typing reagents and for
therapeutic products, decreased 14.7%, or $82,000, from $556,000 in 1996
to $474,000 in 1997, primarily due to the timing of certain expenditures
relating to the Company's development of a monoclonal anti-D antibody for
therapeutic purposes.
Net interest income increased 76.3%, or $58,000, from $76,000 in 1996
to $134,000 in 1997, primarily as a result of generally higher cash
balances and the receipt in September 1997 of approximately $17.5 million
in net proceeds from a private placement of 950,000 shares of the
Company's common stock and the subsequent investment of the remaining
proceeds in short term instruments, offset in part by the additional
interest expense attributable to the Nations Note.
12
<PAGE>
Other expense, net increased 128.6%, or $530,000, from $412,000 in
1996 to $942,000 in 1997, primarily attributable to the amortization of
goodwill and other intangible assets relating to the acquisitions of the
Nations Group and Simi and the write-off of two non-compete agreements
associated with previous acquisitions.
Nine months ended September 29, 1996 and September 28, 1997
Net sales increased 53.6%, or $25.3 million, from $47.3 million in
1996 to $72.6 million in 1997. Of the increase, approximately $13.4
million was attributable to the Nations Acquisition in March 1997 and the
acquisition of Simi in December 1996 and, to a lesser extent, the full-
period effect of acquisitions completed during the first nine months of
1996. The remainder of the increase, or approximately $11.9 million, was
attributable to increased sales of anti-D and, to a lesser extent,
increased sales of monoclonal antibodies used for blood typing reagents,
IVIG antibodies and the introduction of anti-RSV. Consolidated net sales
of the Company's therapeutic and diagnostic products increased 62.4% and
25.1%, respectively.
Gross profit increased 35.3%, or $6.9 million, from $19.6 million in
1996 to $26.5 million in 1997. Of the increase, approximately $5.4
million was the result of increased sales of, and higher margins on, anti-
D and, to a lesser extent, increased sales of IVIG and monoclonal antibody
products. The remainder of the increase, or approximately $1.5 million,
was attributable to the full-period effect of the Nations Acquisition in
March 1997 and, to a lesser extent, acquisitions completed during 1996.
Gross margins decreased from 41.4% for the first nine months of 1996 to
36.5% for the comparable period of 1997, primarily attributable to an
increase in net sales of relatively lower-margin IVIG antibodies as a
percentage of total net sales from approximately 34% in 1996 to 45% in
1997 and initial shipments during 1997 from two donor centers approved
during 1997 whose cost of sales included a higher amount of non-recurring
start up expenses, offset by increased margins on anti-D.
Selling, general and administrative expenses increased 39.8%, or $2.7
million, from $6.9 million in 1996 to $9.6 million in 1997. The increase
was primarily attributable to a larger sales, financial, recruiting and,
in particular, regulatory infrastructure needed to support the Company's
acquisitions and growth. However, selling, general and administrative
expenses, as a percentage of net sales, decreased from 14.6% to 13.3%.
Product development expenses decreased $210,000, or 12.6%, from $1.7
million in the first nine months of 1996 to $1.5 million in the current
year, primarily due to the timing of certain expenditures relating to the
Company's development of a monoclonal anti-D antibody for therapeutic
purposes.
Interest expense (income), net decreased 220.5%, or $655,000, from
net interest expense of $297,000 in 1996 to net interest income of
$358,000 in 1997 as a result of the retirement of approximately $7.9
million in debt in June 1996 with proceeds from a secondary stock offering
and the subsequent investment of the remaining proceeds in short term
instruments and the receipt in September 1997 of approximately $17.5
million in net proceeds from a private placement sale of 950,000 shares of
the Company's common stock, offset in part by the additional interest
expense attributable to the Nations Note.
Other expense, net increased 56.0%, or $725,000, from $1.3 million in
1996 to $2.0 million in 1997, due primarily to the amortization of
goodwill and other intangible assets resulting from acquisitions completed
during 1996, the completion of the Nations Acquisition in the first
quarter of 1997 and the write-off of two non-compete agreements associated
with previous acquisitions.
13
<PAGE>
Liquidity and Capital Resources
As of September 28, 1997, the Company had cash and cash equivalents
and working capital of $27.9 million and $33.8 million, respectively.
Cash and cash equivalents increased $6.7 million from December 29, 1996,
primarily from net proceeds of approximately $17.5 million from the sale
of 950,000 shares of the Company's common stock and $7.1 million of cash
provided by operations, offset by the use of approximately $10.2 million
of cash on hand for the Nations Acquisition in March 1997, $5.95 million
for the Bio-Lab Acquisition in September 1997 and $3.1 million of capital
expenditures. Pending further use, the Company currently invests all
excess 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 September
28, 1997 and September 29, 1996 was approximately $7.1 million and $5.1
million, respectively, or an increase of approximately $1.9 million. The
increase in cash flow from operations was primarily attributable to
increased net income of $2.8 million, $1.2 million of additional non-cash
depreciation and amortization expense and $263,000 of additional non-cash
deferred income tax provision, offset by an increase in operating working
capital cash outflows of approximately $2.3 million. The increased cash
used for operating working capital was primarily attributable to a larger
increase in accounts receivable of $4.0 million, offset by a larger
increase in accrued expenses of $1.2 million. The larger increase in
accounts receivable was primarily a result of increased sales during the
latter part of the third quarter.
Net cash used in investing activities for the nine months ended
September 28, 1997 was $19.0 million as compared to $7.3 million for the
nine months ended September 29, 1996. Cash used in investing activities
in the first nine months of 1996 was primarily related to the February
1996 acquisition of Am-Rho Laboratories, Inc. for approximately $1.1
million in cash, the March 1996 acquisition of Southeastern Biologics,
Inc. and its affiliates for approximately $3.6 million in cash and capital
expenditures of approximately $2.5 million. Cash used in investing
activities in 1997 primarily consisted of approximately $10.2 million in
cash used for the Nations Acquisition, $5.95 million in cash used for the
Bio-Lab Acquisition and capital expenditures of approximately $3.1 million.
Net cash provided by financing activities, including the effects of
changes in foreign currency rates, for the nine months ended September 28,
1997 was approximately $18.7 million as compared to $17.6 million for the
comparable period of 1996. Net cash provided by financing activities in
1996 was primarily related to approximately $21.7 million in net proceeds
to the Company from a secondary stock offering in June 1996, offset in
part by net principal payments on the Revolver (as defined below) and
other indebtedness. Net cash provided by financing activities during 1997
was primarily related to the receipt of approximately $17.5 million of net
proceeds from a private placement sale of 950,000 shares of the Company's
common stock and, to a lesser extent, proceeds from the exercise of stock
options.
Capital expenditures relate primarily to the Company's facilities and
related equipment, the Company's information system and the development of
additional specialty and non-specialty antibody donor centers. During the
first nine months of 1997, capital expenditures were approximately $3.1
million, consisting primarily of expenditures related to the expansion of
the Company's laboratory testing facility and international headquarters
in Clarkston (Atlanta), Georgia, the expansion of the Company's monoclonal
manufacturing facility in the United Kingdom and the upgrading of the
Company's information system.
During the next twelve months, the Company anticipates that it will
maintain current levels of capital expenditures. The major factors
affecting the level of capital expenditures include the upgrading of the
Company's information systems to support its planned growth and the
development, relocation and upgrading of specialty and non-specialty donor
centers to increase production capabilities and efficiencies.
14
<PAGE>
The Company has a revolving credit facility with a bank providing for
maximum borrowings of $20 million, of which $15 million may be used for
acquisitions (the "Revolver"). The Company anticipates using the proceeds
from the Revolver primarily to fund acquisitions. There were no amounts
outstanding under the Revolver at December 29, 1996 or September 28, 1997.
Subsequent to quarter-end, in October 1997, the Company and its lenders
entered into an amended agreement, which, among other items, increased the
total borrowing capacity under the Revolver to $35 million, of which $30
million may be used for acquisitions.
The Company believes that existing cash balances, cash generated from
operations and the borrowing capacity available under the Revolver are
sufficient to fund operations and anticipated capital expenditures for at
least 12 months. As the Company continues to evaluate acquisition and
growth opportunities, it anticipates that additional funding may be
necessary.
The Company is in the third year of two five-year supply contracts
with Bayer Corporation ("Bayer") for the sale of antibodies for IVIG. The
contracts provide 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. The revenues provided
under the contracts are significant and represented approximately 26% of
the Company's revenues for the nine months ended September 28, 1997.
Effective July 1, 1997, the Company negotiated a price increase under
these contracts. In addition, in connection with the Nations Acquisition,
the Company acquired several supply contracts with Alpha Therapeutic
Corporation for the sale of IVIG antibodies collected at 12 of the 16
donor centers operated by the Nations Group and an additional contract
with Bayer for the sale of IVIG antibodies collected at the remaining four
donor centers. Early termination of the contracts could adversely affect
the Company.
On January 15, 1997, the Company entered into an amended agreement
with the holders of a 9% convertible subordinated note issued in the
principal amount of $3.5 million in connection with one of its
acquisitions. Under the terms of the amendment, the interest rate was
decreased to 5.25%. Concurrent with the amendment, the Company called the
note for prepayment on April 9, 1997 and the holders of the note exercised
their conversion rights, resulting in the issuance of 375,000 shares of
the Company's common stock on April 2, 1997.
15
<PAGE>
PART II.
- - --------
Item 2. Changes in Securities
c. September 9, 1997, the Company completed the sale of 950,000
shares of its common stock pursuant to a private placement
transaction with institutional and accredited purchasers. The
transaction was made in reliance upon the exemption from
registration provisions under the Securities Act of 1933, as
amended, as afforded by Section 4(2) thereof. On September 23,
1997, in connection with the Bio-Lab Acquisition, the Company
issued the Bio-Lab Note, as fully described in Note 4 of the
Notes to Consolidated Financial Statements (Unaudited) contained
elsewhere herein. The Bio-Lab Note was issued to one of the
sellers who was an accredited investor. This transaction was
made in reliance upon the exemption from registration provisions
under the Securities Act of 1933, as amended, as afforded by
Section 4(2) thereof.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 11: Statement Re: Computation of Per Share Earnings
Exhibit 27: Financial Data Schedule
b. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on August 18,
1997, in which it announced under Item 5-Other Events, that it
had entered into an agreement for the sale of 950,000 shares of
its common stock in a private placement transaction. The Company
also announced that pursuant to the same agreement, one of its
shareholders had agreed to sell 250,000 shares. On September 9,
1997, the Company filed a Current Report on Form 8-K in which it
announced under Item 5-Other Events, that it had completed the
the aforementioned private placement.
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 10, 1997 By: /s/ Russell H. Plumb//
--------------------------------
Russell H. Plumb
Vice President/Chief Financial
Officer (Principal Financial and
Accounting Officer)
16
Exhibit 11
SEROLOGICALS CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
-------- -------- -------- --------
<C> <C> <C> <C>
<S>
NET INCOME PER SHARE-PRIMARY:
Weighted average number of
common shares outstanding 13,259 14,560 14,106 14,929
Shares issued upon assumed
exercise of outstanding stock
options and warrants 813 819 910 878
Shares issued upon assumed
conversion of $4.0 million
convertible note -- 160 -- 213
Shares issued upon assumed
conversion of $2.55 million
convertible note -- 2 -- 7
------ ------ ------ -------
Weighted average number of
common and common equivalent
shares outstanding 14,072 15,541 15,016 16,027
====== ====== ====== =======
Net income $ 5,968 $ 8,725 $ 2,208 $ 3,227
Add back interest, net of tax,
assuming conversion of $4.0
million convertible note -- 66 -- 29
Add back interest, net of tax,
assuming conversion of $2.55
million convertible note -- 1 -- 1
------ ------ ----- ------
Net income, assuming conversion
of notes 5,968 8,792 2,208 3,257
====== ====== ====== ======
Net income per common
share-primary $ 0.42 $ 0.57 $ 0.15 $ 0.20
NET INCOME PER SHARE-FULLY
DILUTED
Weighted average number of
common shares outstanding 13,259 14,560 14,106 14,929
Shares issued upon assumed
exercise of outstanding stock
options and warrants 813 819 910 878
Shares issued upon assumed
conversion of $4.0 million
convertible note -- 160 -- 213
<PAGE>
Shares issued upon assumed
conversion of $2.55 million
convertible note -- 2 -- 7
Shares issued upon assumed
conversion of $3.5 million
convertible note 375 -- 375 --
----- ------ ------ ------
Weighted average number of
fully diluted shares
outstanding 14,447 15,541 15,391 16,027
====== ====== ====== ======
Net income $ 5,968 $ 8,725 $ 2,208 $ 3,227
Add back interest, net of tax,
assuming conversion of
$4.0 million convertible note -- 66 -- 29
Add back interest, net of tax,
assuming conversion of
$2.55 million convertible note -- 1 -- 1
Add back interest, net of tax,
assuming conversion of
$3.5 million convertible note 151 -- -- --
------ ------ ----- -----
Net income, assuming
conversion of notes $ 6,119 $ 8,792 $ 2,208 $ 3,257
====== ======= ======= ======
Net income per common
share-fully diluted $ 0.42 $ 0.57 $ 0.14 $ 0.20
====== ======= ======= ======
</TABLE>
(1) All information herein gives retroactive effect to a 3-for-2 stock split
effected February 28, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SEROLOGICALS CORPORATION FOR
THE QUARTER ENDED SEPTEMBER 28, 1997, AS SET FORTH IN ITS FORM 10-Q FOR SUCH
QUARTER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000767673
<NAME> EX-27
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> SEP-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 27,913
<SECURITIES> 0
<RECEIVABLES> 10,586
<ALLOWANCES> 0
<INVENTORY> 8,642
<CURRENT-ASSETS> 47,978
<PP&E> 19,562
<DEPRECIATION> 6,818
<TOTAL-ASSETS> 12,744
<CURRENT-LIABILITIES> 14,208
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 98,760
<TOTAL-LIABILITY-AND-EQUITY> 118,002
<SALES> 72,571
<TOTAL-REVENUES> 72,571
<CGS> 46,085
<TOTAL-COSTS> 9,621
<OTHER-EXPENSES> 3,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (358)
<INCOME-PRETAX> 13,733
<INCOME-TAX> 5,008
<INCOME-CONTINUING> 8,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,725
<EPS-PRIMARY> .20<F1>
<EPS-DILUTED> .20
<FN>
<F1>Reflects 3-for-2 stock split in February 1997.
</FN>
</TABLE>
