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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 1998
SEROLOGICALS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-26126 58-2152225
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(State of other (Commission (IRS Employer
jurisdiction) file number) Identification No.)
780 Park North Blvd.
Suite 110
Clarkston, Georgia 30021
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(Address of Principal executive offices) (Zip code)
Registrant's telephone number, including area code: (404) 296-5595
(Former name or former address, if changed since last report)
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AMENDMENT NO. 1
This Amendment on Form 8-K/A amends the Current Report on Form 8-K filed by
Serologicals Corporation on January 12, 1999 with respect to the Company's
acquisition of the domestic Pentex Blood Proteins Group of Bayer Corporation.
This Amendment is being filed for the sole purpose of filing the following
Financial Statements and Exhibits that were previously omitted.
Item 7. Financial Statements and Exhibits.
(A) Financial statements of businesses acquired.
1. Audited Financial Statements of the Pentex Blood Proteins
Group for the nine months ended September 30, 1998.
a. Report of Independent Public Accountants
b. Balance Sheet as of September 30, 1998
c. Statement of Operations for the nine months ended
September 30, 1998
d. Statement of Group Equity for the nine months ended
September 30, 1998
e. Statement of Cash Flows for the nine months ended
September 30, 1998
f. Notes to Financial Statements
(B) Pro forma financial information.
1. Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company as of and for the nine months
ended September 27, 1998
(C) Exhibits.
1. Exhibit 2.2: First Amendment to the Agreement of Purchase
and Sale
2. Exhibit 23.1: Consent of Arthur Andersen LLP
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 hereunto duly authorized.
Serologicals Corporation
(Registrant)
March 12, 1999 /s/ Russell H. Plumb//
------------------------------
Russell H. Plumb
Vice President, Finance and
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Serologicals Corporation:
We have audited the accompanying balance sheet of the Pentex Blood Proteins
Group (as described in Note 1) of Bayer Corporation (an Indiana corporation) as
of September 30, 1998 and the related statements of operations, group equity
and cash flows for the nine months then ended. These financial statements are
the responsibility of the Bayer Corporation's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Pentex Blood Proteins
Group of Bayer Corporation as of September 30, 1998 and the results of its
operations and its cash flows for the nine months then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 15, 1999
PENTEX BLOOD PROTEINS GROUP (Note 1)
(A Carve-Out Entity of Bayer Corporation)
BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
CURRENT ASSETS:
Accounts receivable $1,639,492
Inventories 3,832,558
Prepaid expenses 25,097
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Total current assets 5,497,147
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PROPERTY AND EQUIPMENT:
Land and improvements 267,142
Buildings and improvements 4,176,756
Machinery and equipment 5,019,451
Furniture and fixtures 114,884
Leasehold improvements 50,034
Construction in progress 668,382
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9,357,270
Less accumulated depreciation and amortization 6,436,526
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Net property and equipment 3,860,123
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Total assets $9,357,270
==========
LIABILITIES AND GROUP EQUITY
CURRENT LIABILITIES:
Accounts payable $ 381,812
Accrued liabilities 236,321
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Total current liabilities 618,133
COMMITMENTS AND CONTINGENCIES (Note 3)
GROUP EQUITY 8,739,137
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Total liabilities and group equity $9,357,270
==========
The accompanying notes are an integral part of this balance sheet.
PENTEX BLOOD PROTEINS GROUP (Note 1)
(A Carve-Out Entity of Bayer Corporation)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NET SALES $10,301,157
COSTS AND EXPENSES:
Cost of sales 5,172,892
Selling, general and administrative expenses 1,865,825
Product development expenses 152,970
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Total costs and expenses 7,191,687
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NET INCOME $3,109,470
==========
The accompanying notes are an integral part of this statement.
PENTEX BLOOD PROTEINS GROUP (Note 1)
(A Carve-Out Entity of Bayer Corporation)
STATEMENT OF GROUP EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Group equity, December 31, 1997 $7,849,044
Net income 3,109,470
Net distributions to Bayer Corporation (2,219,377)
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Group equity, September 30, 1998 $8,739,137
==========
The accompanying notes are an integral part of this statement.
PENTEX BLOOD PROTEINS GROUP (Note 1)
(A Carve-Out Entity of Bayer Corporation)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
OPERATING ACTIVITIES:
Net income $3,109,470
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 334,967
Changes in operating assets and liabilities:
Accounts receivable (289,660)
Inventories (533,927)
Other current assets (25,451)
Accounts payable and accrued liabilities 289,771
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Total adjustments (224,300)
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Net cash provided by operating activities 2,885,170
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INVESTING ACTIVITIES:
Purchases of property and equipment (665,793)
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Net cash used in investing activities (665,793)
FINANCING ACTIVITIES:
Net distributions to Bayer Corporation (2,219,377)
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Net cash used in financing activities (2,219,377)
NET CHANGE IN CASH $0
CASH, beginning of period $0
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CASH, end of period $0
=========
The accompanying notes are an integral part of this statement.
PENTEX BLOOD PROTEINS GROUP (Note 1)
(A Carve-Out Entity of Bayer Corporation)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS:
The domestic Pentex Blood Proteins Group ("Pentex") of Bayer Corporation
("Bayer") is engaged in the research, manufacturing, marketing and sale of
a full line of high quality purified blood protein products primarily to
customers in the diagnostics and biopharmaceuticals industries in the United
States and approximately 25 other countries worldwide. The assets comprising
the business were owned by Bayer, an Indiana corporation and a wholly-owned
subsidiary of Bayer AG, a German corporation, and were operated as a business
unit within the Diagnostics Business Group of Bayer until their sale to
Serologicals Corporation on December 29, 1998 (Note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Pentex is not a separate legal entity, subsidiary, division or segment of
Bayer and, accordingly, it has no independent financing sources. All net
funding has been summarized in the accompanying balance sheet as "group
equity." The accompanying financial statements of Pentex have been derived
from the financial statements of Bayer and have been prepared to present the
financial position, results of operations and cash flows of Pentex on a stand-
alone basis. All revenues and expenses and assets and liabilities specifically
identifiable to Pentex are included.
Pentex is a party to certain sales transactions with foreign affiliates of
Bayer AG. All such sales, expenses and related accounts have been eliminated
in the accompanying financial statements.
Allocation of Bayer Services
The accompanying financial statements include an allocation of costs and
expenses for services performed for Pentex by Bayer. The services provided
include support in major functional areas such as accounts receivable and
accounts payable processing, human resource management, benefits, regulatory
compliance, treasury management services, legal support and environmental and
engineering services. These expenses have been allocated to Pentex based upon
the identification of such services specifically used by Pentex. Where
determinations based on specific usage alone have been impracticable, other
methods and criteria were used that management believes provide a reasonable
estimate of the cost attributable to Pentex. These methods consisted of, among
others, allocating costs based on the number of employees within Pentex and the
estimated percentage of Bayer staff time allocable to Pentex. These
allocations totaled $1,157,049 for the nine months ended September 30, 1998 and
are included in the accompanying statement of operations. It is not
practicable to provide a detailed estimate of the expenses that would be
recognized if Pentex were a separate, stand alone legal entity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. Market for inventories is net
realizable value. Inventories consisted of the following at September 30,
1998:
Raw materials $ 384,139
Work in progress 1,007,596
Finished goods 2,440,823
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$3,832,558
==========
Property and Equipment
Fixed assets are stated at cost and are depreciated using the straight-line
method over their estimated useful lives. Depreciable lives for buildings and
improvements, furniture, fixtures, machinery and equipment range from 3 to 33
years. Leasehold improvements are amortized over the shorter of the lease
terms or the economic lives of the assets. Expenditures for maintenance and
repairs are charged to expense as incurred. Construction in progress at
September 30, 1998 consisted of expenditures related to the expansion of
Pentex's manufacturing facility in Kankakee, Illinois.
Long-Lived Assets
Pentex periodically reviews recoverability of long-lived assets to
determine whether the carrying values of such assets will be recovered through
the future cash flows expected from the use of the assets and their eventual
disposition. Management believes that the long-lived assets in the accompanying
balance sheet are appropriately valued and thus no impairment losses have been
recorded by Pentex.
Revenue Recognition
Pentex's policy is to recognize revenue upon the shipment of its products.
Product Development
Product development costs are expensed in the periods in which they are
incurred.
Income Taxes
Pentex is not in itself a taxable entity and, accordingly, no provision or
benefit for United States federal or state income taxes has been recorded in
the accompanying financial statements.
Credit Risk
The accounts receivable of Pentex potentially subject the business to
credit risk, as collateral is generally not required. However, the business
risk of loss is limited due to the significant number of customers to whom
Pentex sells its products, the majority of which are large pharmaceutical
companies with excellent credit ratings. In management's opinion, the carrying
amount of Pentex's accounts receivable approximates their fair value.
3. COMMITMENTS AND CONTINGENCIES:
Operating Leases
Pentex leases certain storage space, equipment and automobiles under non-
cancelable operating lease agreements. Future minimum annual rental
obligations under noncancelable operating leases at September 30, 1998 were as
follows:
Period from October 1,1998
through December 31, 1998 $13,638
Year ending December 31:
1999 40,215
2000 14,864
Rent expense totaled $56,334 during the nine months ended September 30,
1998.
4. SUBSEQUENT EVENT:
Effective December 29, 1998, Serologicals Corporation acquired
substantially all of the assets of Pentex for $27.5 million plus assumption
of certain liabilities, subject to adjustment based upon the final net assets
as of the closing date. The acquisition will be accounted for under the
purchase method of accounting in accordance with APB No. 16.
PRO FORMA FINANCIAL INFORMATION
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The following unaudited pro forma condensed consolidated balance sheet as of
September 27, 1998 and unaudited pro forma condensed consolidated statement of
income for the nine months then ended (collectively, the "Pro Forma
Statements") are based on the unaudited historical Condensed Consolidated
Financial Statements of Serologicals Corporation (the "Company"), included in
the Company's Quarterly Report on Form 10-Q, the audited historical Financial
Statements of Pentex included elsewhere in this report on Form 8-K/A and the
unaudited historical financial statements of Pentex International (as defined
in the notes hereto), adjusted to give effect to the acquisition of Pentex
and of Pentex International (collectively, the "Pentex Acquisitions") using
the purchase method of accounting and the assumptions and adjustments in the
accompanying Notes to the Pro Forma Statements. The pro forma condensed
consolidated balance sheet gives effect to the transactions as if they
occurred on September 27, 1998 and the pro forma condensed consolidated
statement of income gives effect to the transactions as if they occurred on
December 29, 1997, the first day of the Company's 1998 fiscal year.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Statements
are provided for informational purposes only and do not purport to represent
what the Company's financial position and results of operations would actually
have been had the Pentex Acquisition in fact occurred on such dates or to
project the Company's financial position or results of operations for any
future period. Furthermore, the allocation of the purchase price is
preliminary and subject to revision when additional information regarding asset
and liability valuations is obtained.
The Pro Forma Statements and the Notes thereto should be read in conjunction
with the historical Condensed Consolidated Financial Statements of the Company
and Notes thereto included in the Company's Quarterly Report on Form 10-Q for
the nine months ended September 27, 1998, the Consolidated Financial Statements
of the Company and Notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 28, 1997 and the historical Financial
Statements of Pentex and Notes thereto for the nine months ended September 30,
1998 included elsewhere in this report on Form 8-K/A.
SEROLOGICALS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
(in thousands, except per share amounts)
Pentex
Company Pentex International Pro Forma Pro Forma
Historical Historical Historical(a) Adjustments Consolidated
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Net Sales $91,506 $10,301 $1,721 $103,528
Costs and expenses:
Cost of sales 59,953 5,173 748 65,874
Selling, general and
administrative
expenses 10,383 1,866 254 12,503
Product development
expenses 1,144 153 0 1,297
Other expense 1,995 0 0 758 (b) 2,753
Interest (income)
Expense, net (632) 0 0 1,088 (c) 456
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Income before income
taxes 18,663 3,109 719 (1,846) 20,645
Provision for income
taxes 6,644 0 0 773 (d) 7,417
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Net income $12,019 $3,109 $719 ($2,619) $13,228
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Net income per
common share:
Basic $0.50 $0.55
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Diluted $0.47 $0.51
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Weighted average
shares:
Basic 23,884 23,884
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Diluted 25,792 25,792
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SEROLOGICALS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SEPTEMBER 27, 1998
(Dollars in thousands)
The historical condensed consolidated statement of income presented for the
Company is for the nine months ended September 27, 1998 and the historical
statements of income for Pentex and Pentex International are for the nine
months ended September 30, 1998. The pro forma adjustments below give effect
to the Pentex Acquisitions as if they had been consummated on December 29,
1997, the first day of the Company's 1998 fiscal year.
(a) The column labeled "Pentex International Historical" represents certain
activities carried on by foreign affiliates of Bayer AG located in France,
Italy, Germany and the United Kingdom ("Pentex International") the net assets
of which, pursuant to the terms of the Agreement of Purchase and Sale, as
amended, the Company has agreed to acquire for $1.5 million. As of the date
of the filing of this report, the closing of the purchase of these assets had
not occurred. However, due to the probability of consummation of such
transaction, a pro forma adjustment to include the operations of Pentex
International is included.
(b) The pro forma adjustment to other expense represents the increase in
amortization expense related to the goodwill and other intangible assets
acquired in the Pentex Acquisitions.
(c) The pro forma adjustment to interest (income) expense, net reflects the
loss of interest income on cash used by the Company in the Pentex Acquisitions
at an effective rate of 5%.
(c) The pro forma adjustment to income taxes represents (i) the imputed tax
expense on the operating results of Pentex and Pentex International at
statutory rates in effect during the period presented, as they were not
taxpaying entities and thus did not provide for income taxes, and (ii) the
tax impact of applying the Company's pro forma effective tax rate to the
pro forma adjustments.
SEROLOGICALS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 1998
(in thousands)
Pentex
Company Pentex International Pro Forma Pro Forma
Historical Historical Historical(a) Adjustments Consolidated
---------- ---------- ------------- ----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $32,713 $ 0 $ 0 $ (29,000) (b) $ 3,713
Trade accounts
receivable,
net 18,996 1,639 511 0 21,146
Inventories 12,953 3,833 330 0 17,116
Other current
assets 2,235 25 0 0 2,260
-------- -------- -------- -------- -------
Total current
assets 66,897 5,497 841 (29,000) 44,235
======== ======== ======== ======== ========
PROPERTY AND
EQUIPMENT, Net 15,770 3,860 0 19,630
GOODWILL AND
OTHER ASSETS 58,749 0 0 20,220 (c) 78,969
------- -------- -------- --------- --------
$141,416 $ 9,357 $ 841 (8,780) $142,834
======== ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion
of long-term
debt $ 1,288 $ 0 $ 0 $ 0 $ 1,288
Accounts payable 2,660 382 3,042
Accrued
liabilities 10,053 236 800 (d) 11,089
Deferred
revenue 100 0 0 100
Total current ------- ------- ------- -------- -------
Liabilities 14,101 618 0 800 15,519
------- ------- ------- -------- -------
LONG-TERM DEBT 3,070 0 0 3,070
OTHER LIABILITIES 244 0 0 0 244
STOCKHOLDERS' EQUITY:
Group equity 0 8,739 841 (9,580) (e) 0
Common stock 245 0 0 0 245
Additional paid-in
capital 84,499 0 0 0 84,499
Retained
earnings 39,390 0 0 0 39,390
Accumulated other
comprehensive
income (133) 0 0 0 (133)
Total stockholders' -------- -------- --------- --------
Equity 124,001 8,739 841 (9,580) 124,001
-------- -------- -------- -------- --------
$141,416 $ 9,357 $ 841 $ (8,780) $142,834
======== ======== ======== ======== ========
SEROLOGICALS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 1998
(Dollars in thousands)
The historical balance sheet presented for the Company is as of September
27, 1998 and the historical Balance sheets for the Pentex and Pentex
International are as of September 30, 1998. The following adjustments reflect
the Pentex Acquisition as if they were consummated on September 27, 1998 and
using the purchase method of accounting. The total purchase price for the
Pentex Acquisition has been preliminarily allocated to tangible and
identifiable intangible assets and liabilities based upon management's
estimate of their respective fair market values with the excess of cost over
the fair value of net assets acquired allocated to goodwill. The allocation
of the purchase price is subject to revision when additional information
concerning asset and liability valuations is obtained. Additionally, the
purchase price is subject to adjustment based on the final net assets as of
the closing date.
(a) The column labeled "Pentex International Historical" represents certain
assets owned by Pentex International which the Company has agreed to acquire
for $1.5 million.
(b) To reflect cash paid for Pentex (27.5 million) and expected to be paid for
Pentex International ($1.5 million).
(c) Includes allocation of purchase price to goodwill and other identifiable
intangible assets acquired.
(d) Adjustment to record estimated transaction costs (e.g., legal,
accounting, investment banking, etc.) of $800,000.
(e) To eliminate group equity within Bayer Corporation.
FIRST AMENDMENT TO THE AGREEMENT OF PURCHASE AND SALE
This First Amendment to the Agreement of Purchase and Sale, dated
as of December 29,1998 (this "Amendment"), by and between Bayer Corporation,
an Indiana corporation ("Bayer"), and Serologicals Corporation, a Delaware
corporation ("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Bayer and Purchaser are parties to the Agreement of
Purchase and Sale, dated as of November 30, 1998 (the "Purchase Agreement");
WHEREAS, pursuant to the Purchase Agreement, Bayer shall sell to
Purchaser, and Purchaser shall purchase from Bayer, the Assets;
WHEREAS, Bayer has represented to Purchaser that the Assets
include all assets which are reasonably necessary for the conduct of the
Business as currently conducted;
WHEREAS, certain Assets required to conduct the Business will not
be transferred to Purchaser at the Closing but shall remain in the
possession of certain Bayer foreign affiliates until such Assets may be
properly transferred to Purchaser;
WHEREAS, Purchaser shall not be required to pay the full Purchase
Price to Bayer at Closing until Bayer shall properly transfer all of the
Assets to Bayer; and
WHEREAS, the parties set forth below have agreed to amending the
Purchase Agreement.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and upon the terms
and subject to the conditions hereinafter set forth, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties do
hereby agree as follows:
1. Definitions. Any capitalized term used herein
and not defined shall have the respective meaning ascribed to it
in the Purchase Agreement, which is hereby incorporated herein.
2. Purchase Price and Payment. Notwithstanding
Section 2.4 of the Purchase Agreement, the amount payable as the
Purchase Price by Purchaser to Bayer at the Closing shall be
$27,500,000. Upon transfer by Bayer of all of Bayer's right,
title and interest in and to the Inventory and accounts
receivable held by Bayer's foreign affiliates and included within
the Assets (the "Foreign Assets") to Purchaser pursuant to duly
executed instruments of transfer and assignment in form and
substance reasonably satisfactory to Purchaser, sufficient to
vest in Purchaser the interests in the Foreign Assets, Purchaser
shall pay $1,500,000 to Bayer by wire transfer in immediately
available funds to the account of Bayer previously specified to
Purchaser by Bayer. Notwithstanding anything contained herein to
the contrary, Bayer shall not be required to transfer the Foreign
Assets on the Closing Date.
3. Purchase Agreement. Except as set forth in this
Amendment, all other terms and conditions of the Purchase
Agreement shall remain unchanged and in full force and effect.
4. Counterparts. This Amendment may be executed in
one or more counterparts, each of which shall for all purposes be
deemed to be an original and all of which shall constitute the
same instrument.
5. Title Insurance Policy. The amount of $9,000,000
set forth in Section 8.5 of the Sales Agreement is hereby deleted
and replaced with the amount of $5,000,000.
6. Headings. The headings of the paragraphs herein
are included solely for convenience of reference and shall not
control the meaning or interpretation of any provision of this
Amendment.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed on its behalf as of the date first above written.
BAYER CORPORATION:
By: /s/ W. Michael Weaber
-------------------------
W. Michael Weaber
Senior Vice President
SEROLOGICALS CORPORATION:
By: /s/ Russell H. Plumb
-------------------------
Russell H. Plumb
Vice President, Finance
and Administration
and Chief Financial Officer
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 15, 1999 and to all references to our
firm, included in this Form 8-K/A, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-59041, 333-59043, 333-47433,
333-03769, 333-03771 and 333-09549) and on Form S-3 (File No. 333-34345).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 12, 1999
