10-Q 1 blud20161215_10q.htm FORM 10-Q

FORM 10-Q

United States

Securities and Exchange Commission

Washington, D. C. 20549

	(Mark One)
	X	Quarterly Report Pursuant to Section 13 or 15(d)
		of the Securities Exchange Act of 1934

		For the quarterly period ended: November 30, 2016

		OR
	_	Transition Report Pursuant to Section 13 or 15(d)
		of the Securities Exchange Act of 1934

		Commission File Number: 0-14820

IMMUCOR, INC.

(Exact name of registrant as specified in its charter)

Georgia	22-2408354
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

3130 Gateway Drive Norcross, Georgia 30071

(Address of principal executive offices) (Zip Code)

Registrant's telephone number: (770) 441-2051

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	Accelerated filer

Non-accelerated filer X	Smaller reporting company
(do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of August 19, 2011, there was no established public trading market for the Company’s common stock; therefore, the aggregate market value of the common stock is not determinable.

As of January 17, 2017, there were 100 shares of common stock outstanding.

IMMUCOR, INC.

QUARTERLY FINANCIAL STATEMENTS

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:

Consolidated Balance Sheets (unaudited, except for May 31, 2016)		3
Consolidated Statements of Operations (unaudited)		4
Consolidated Statements of Comprehensive Loss (unaudited)		6
Consolidated Statement of Changes in Equity (unaudited for the period ending November 30, 2016)		8
Consolidated Statements of Cash Flows (unaudited)		9
Notes to Consolidated Financial Statements (unaudited)		10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

	SIGNATURES	41

ITEM 1. Consolidated Financial Statements
IMMUCOR, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

	November 30, 2016			May 31, 2016
	(Unaudited)
ASSETS

Current Assets:
Cash and cash equivalents	$	10,488			10,263
Trade accounts receivable, net of allowance for doubtful accounts of $871 and $2,114 at November 30, 2016 and May 31, 2016, respectively		59,711			62,043
Inventories, net		47,335			46,894
Prepaid expenses and other current assets		7,765			8,479
Total current assets		125,299			127,679

Property and equipment, net		76,310			76,015
Goodwill		854,416			857,023
Intangible assets, net		603,205			633,097
Other assets		10,864			13,819
Total assets	$	1,670,094			1,707,633

LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable	$	17,398			22,229
Accrued interest and interest rate swap liability		18,588			18,869
Accrued expenses and other current liabilities		21,284			22,009
Income taxes payable		3,394			2,585
Deferred revenue, current portion		3,333			2,864
Current portion of long-term debt		16,745			6,806
Total current liabilities		80,742			75,362

Long-term debt, excluding current portion		1,009,574			1,007,948
Deferred income tax liabilities		207,603			222,357
Other long-term liabilities		54,233			57,420
Total liabilities		1,352,152			1,363,087
Commitments and Contingencies (Note 18)
Equity:
Shareholders' equity of Immucor, Inc.:
Common stock, $0.00 par value, 100 shares authorized, issued and outstanding as of November 30, 2016 and May 31, 2016, respectively		-			-
Additional paid-in capital		752,152			753,709
Accumulated deficit		(393,951	)		(374,079	)
Accumulated other comprehensive loss		(45,796	)		(39,407	)
Total shareholders' equity of Immucor, Inc.		312,405			340,223
Equity of noncontrolling interest (Note 3)		5,537			4,323
Total equity		317,942			344,546
Total liabilities and equity	$	1,670,094			1,707,633

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)

	Three Months Ended
	November 30
	2016			2015

Net sales	$	93,676			96,249
Cost of sales (*)		38,170			37,888
Gross profit		55,506			58,361

Operating expenses:
Research and development		8,800			6,760
Selling and marketing		15,405			14,819
Distribution		4,463			4,395
General and administrative		10,514			10,608
Amortization expense		14,126			13,591
Total operating expenses		53,308			50,173

Income from operations		2,198			8,188

Non-operating income (expense):
Interest income		8			41
Interest expense		(23,127	)		(22,454	)
Other, net		45			78
Total non-operating net expense		(23,074	)		(22,335	)

Loss before income taxes		(20,876	)		(14,147	)
Benefit for income taxes		(8,121	)		(2,351	)
Net loss		(12,755	)		(11,796	)
Net loss attributable to noncontrolling interest		(1,542	)		-
Net loss attributable to shareholders of Immucor, Inc.	$	(11,213	)		(11,796	)

(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)

	Six Months Ended
	November 30
	2016			2015

Net sales	$	192,269			192,961
Cost of sales (*)		74,631			72,529
Gross profit		117,638			120,432

Operating expenses:
Research and development		17,797			13,590
Selling and marketing		30,492			28,806
Distribution		8,565			8,814
General and administrative		22,064			21,354
Amortization expense		28,306			27,169
Total operating expenses		107,224			99,733

Income from operations		10,414			20,699

Non-operating income (expense):
Interest income		14			83
Interest expense		(46,229	)		(44,946	)
Other, net		(554	)		(50	)
Total non-operating net expense		(46,769	)		(44,913	)

Loss before income taxes		(36,355	)		(24,214	)
Benefit for income taxes		(13,497	)		(5,201	)
Net loss		(22,858	)		(19,013	)
Net loss attributable to noncontrolling interest		(2,986	)		-
Net loss attributable to shareholders of Immucor, Inc.	$	(19,872	)		(19,013	)

(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.

The accompanying notes are an integral part of these consolidated financial statements.


IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)

	Three Months Ended
	November 30
	2016			2015

Net loss	$	(12,755	)		(11,796	)

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(6,176	)		(5,497	)

Changes in fair value of cash flow hedges:
Portion of cash flow hedges recognized in other comprehensive loss		38			129
Less: reclassification adjustment for losses included in net loss		(16	)		(51	)
Net changes in fair value of cash flow hedges		22			78

Other comprehensive loss		(6,154	)		(5,419	)

Comprehensive loss		(18,909	)		(17,215	)

Comprehensive loss attributable to the noncontrolling interest		(1,542	)		-

Comprehensive loss attributable to shareholders of Immucor, Inc.	$	(17,367	)		(17,215	)

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)

	Six Months Ended
	November 30
	2016			2015

Net loss	$	(22,858	)		(19,013	)

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(6,483	)		(5,475	)

Changes in fair value of cash flow hedges:
Portion of cash flow hedges recognized in other comprehensive loss		155			309
Less: reclassification adjustment for losses included in net loss		(61	)		(171	)
Net changes in fair value of cash flow hedges		94			138

Other comprehensive loss		(6,389	)		(5,337	)

Comprehensive loss		(29,247	)		(24,350	)

Comprehensive loss attributable to the noncontrolling interest		(2,986	)		-

Comprehensive loss attributable to shareholders of Immucor, Inc.	$	(26,261	)		(24,350	)

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands)

	Equity accounts attributable to Immucor, Inc.
											Accumulated
								Retained			Other
					Additional			Earnings			Comprehensive			Non-
	Common Stock				Paid-In			(Deficit)			Income (Loss)			controlling
	Shares (1)		Amount (1)		Capital (1)			(1)			(1)			Interest			Total
Audited:
Balance, May 31, 2015		100	$	-		755,234			(331,989	)		(39,564	)		-			383,681
Share-based compensation expense		-		-		5,326			-			-			-			5,326
Activities with IVD Holdings Inc.		-		-		(851	)		-			-			-			(851	)
Non-cash dividend distributed		-		-		(6,000	)		-			-			-			(6,000	)
Equity of noncontrolling interest															6,000			6,000
Net loss		-		-		-			(42,090	)		-			(1,677	)		(43,767	)
Other comprehensive (loss) income, net of taxes:
Foreign currency translation adjustments		-		-		-			-			(174	)		-			(174	)
Changes in fair value of cash flow hedges, net of tax		-		-		-			-			331			-			331
Balance, May 31, 2016		100	$	-		753,709			(374,079	)		(39,407	)		4,323			344,546

Unaudited:
Share-based compensation expense		-		-		2,472			-			-			-			2,472
Activities with IVD Holdings Inc.		-		-		501			-			-			-			501
Dividends distributed		-		-		(4,530	)		-			-			-			(4,530	)
Equity of noncontrolling interest		-		-		-			-			-			4,200			4,200
Net loss		-		-		-			(19,872	)		-			(2,986	)		(22,858	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		-		-		-			-			(6,483	)		-			(6,483	)
Changes in fair value of cash flow hedges, net of tax		-		-		-			-			94			-			94
Balance, November 30, 2016		100	$	-		752,152			(393,951	)		(45,796	)		5,537			317,942

(1) - Shareholders’ equity of Immucor, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended
	November 30
	2016			2015
Operating activities:
Net loss	$	(22,858	)		(19,013	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		36,176			34,217
Noncash interest expense		7,190			5,429
Loss on disposition and retirement of fixed assets		483			443
Provision for doubtful accounts		98			360
Share-based compensation expense		2,472			2,780
Deferred income taxes		(16,148	)		(7,208	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, trade		717			1,021
Income taxes		988			(309	)
Inventories		(4,149	)		(6,170	)
Other assets		246			1,166
Accounts payable		(4,348	)		(187	)
Deferred revenue		531			156
Accrued expenses and other liabilities		(424	)		(4,644	)
Cash provided by operating activities		974			8,041
Investing activities:
Purchases of property and equipment		(6,908	)		(3,889	)
Proceeds from sale of property and equipment		43			-
Other investments		-			(3,100	)
Acquisitions of businesses, net of cash acquired		(128	)		(750	)
Cash used in investing activities		(6,993	)		(7,739	)
Financing activities:
Repayments of long-term debt		(3,429	)		(3,323	)
Proceeds from Revolving Facilities		49,000			28,000
Repayments of Revolving Facilities		(39,000	)		(28,000	)
Dividend payments		(4,530	)		-
Proceeds from capital contribution to noncontrolling interest		4,200			-
Cash provided by (used in) financing activities		6,241			(3,323	)
Effect of exchange rates on cash and cash equivalents		3			(275	)
Increase (decrease) in cash and cash equivalents		225			(3,296	)
Cash and cash equivalents at beginning of period		10,263			18,363
Cash and cash equivalents at end of period	$	10,488			15,067
Supplemental information:
Income taxes paid, net of refunds	$	1,387			2,053
Interest paid		39,344			39,514
Non-cash investing and financing activities:
Movement from inventory to property and equipment of instruments placed on rental agreements	$	3,048			2,691

The accompanying notes are an integral part of these consolidated financial statements.

IMMUCOR, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.	NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

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

Basis of Presentation

The accompanying consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and the Securities and Exchange Commission’s (“SEC”) instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company’s interim results are not necessarily indicative of the Company’s expected full year results. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and related notes for the year ended May 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on August 22, 2016.

Certain reclassifications have been made to the Company’s consolidated financial statements for fiscal year 2016 to conform to the fiscal year 2017 presentation. We have also performed an evaluation of subsequent events through the date the financial statements were issued.

Basis of Consolidation

The consolidated financial statements include the accounts of Immucor, Inc., its wholly owned subsidiaries, and a variable interest entity (“VIE”) that is required to be consolidated in accordance with GAAP (Refer to Note 3 for additional information on our consolidated VIE). All significant intercompany balances and transactions have been eliminated in consolidation. There are no other entities controlled by the Company, either directly or indirectly.

Impact of Recently Issued Accounting Standards -

Accounting Updates Not Yet Adopted

In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-17, Consolidation: Interest Held through Related Parties That Are under Common Control (“ASU 2016-17”), which changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related parties, including related parties that are under common control with the reporting entity. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, which corresponds to the Company’s first quarter of fiscal year 2018. Early adoption is permitted, including adoption in an interim period. If an entity adopts the pending content that links to this paragraph in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently in the process of evaluating the impact of ASU 2016-17 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Therefore, under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for interim and annual reporting periods beginning after December 15, 2017, which corresponds to the Company’s first quarter of fiscal year 2019. Early adoption is permitted as of the first interim period and the amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not expect the adoption of ASU 2016-16 to have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which corresponds to the Company’s first quarter of fiscal year 2019. Early adoption is permitted and the amendments should be applied using a retrospective method. The Company does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). ASU 2016-13 will replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 will be effective for the Company beginning in the first quarter of fiscal year 2020, and early adoption is permitted but not earlier than fiscal year 2019. The Company does not expect the adoption of ASU 2016-13 to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which will replace most existing lease accounting guidance in GAAP. The core principle of ASU 2016-02 is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which corresponds to the Company’s first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the effect of the adoption of ASU 2016-02 on its consolidated financial statements.

In May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. The Company will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. An amendment was made in July 2015 to change the effective date of this standard from the first interim period within annual reporting periods beginning after December 15, 2016 to December 15, 2017, which corresponds to the Company’s first quarter of fiscal year 2019. In March 2016, the FASB issued ASU 2016-08, which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. No early adoption is permitted under these standards, and it is to be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect of the adoption of ASU 2014-09 on its consolidated financial statements.

2.	BUSINESS COMBINATIONS

Business combinations completed in fiscal 2016:

Acquisition of Sirona - On March 4, 2016, the Company exercised its warrant and acquired 100% of the common stock of Sirona Genomics, Inc. (“Sirona”). The cash paid for the Sirona business was $15.0 million, of which $0.6 million was paid prior to fiscal year 2016 for the warrant, and $14.4 million was paid in the fourth quarter of fiscal year 2016. The purchase agreement included two contingent consideration arrangements, one for achieving certain revenue targets in each of the next five years and the other for achieving a revenue milestone during the next five years. The combined potential earn-out for these arrangements is $45.0 million in cash over the next five years. Management estimated that the fair value of the contingent consideration arrangements, as of the acquisition date, was approximately $20.0 million, which is included in Other long-term liabilities on the Company’s consolidated balance sheet. Including the contingent consideration, the aggregate estimated fair value of the consideration to be paid is approximately $35.0 million. The fair value of the assets and liabilities acquired was $40.6 million for identifiable intangible assets (existing technologies), $14.8 million for goodwill, $2.1 million for property and equipment, $1.3 million of cash, $1.5 million for current liabilities, $9.7 million for a Promissory Note payable to Immucor, and $12.5 million for long-term deferred tax liabilities. The goodwill arising from this acquisition is not deductible for tax purposes.

The Company determines contingent consideration liabilities by applying a form of the income approach, based upon the probability-weighted projected payment amounts discounted to present value at a rate appropriate for the risk of achieving the financial performance targets. The key assumptions were the earn-out period payment probabilities, projected revenues, discount rate and the timing of payments. The present value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments. These assumptions are considered to be level 3 inputs by ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), which are not observable in the market.

Acquisition of reference lab – On August 3, 2015, the Company completed the asset purchase of a U.S. reference lab for a total cash purchase price of $0.8 million. This acquisition will enable the Company to deliver current Immucor products as a service to customers as well as commercialize newly developed products. The fair values of the acquired assets were $0.3 million for equipment, $0.2 million for identifiable intangible assets and $0.3 million for goodwill. The goodwill is deductible for tax purposes.

Financial Information

The operating results of the acquired businesses have been included in the Company’s consolidated results of operations since their dates of acquisition.

3.	CONSOLIDATED VARIABLE INTEREST ENTITY

In February 2016, the Company contributed the assets of its Sentilus business acquired in October 2014 to a newly formed company, Sentilus Holdco LLC (“Sentilus LLC”). The Company then distributed its interest in Sentilus LLC via a dividend, indirectly, to IVD Intermediate Holdings A Inc., which is the owner of Immucor’s Parent company, IVD Intermediate Holdings B Inc.

Sentilus LLC develops Femtoarrays^TM and the underlying technology for use in a variety of in vitro diagnostics areas. This business was spun-off from Immucor to be able to separately market the potential new product offerings outside the Company’s current Transfusion and Transplant markets. The book value of the assets and liabilities transferred was $6.0 million. The book value included assets of $1.0 million of cash, $0.5 million of equipment, $18.8 million of identifiable intangible assets, and $0.1 million of goodwill, and liabilities of $7.2 million of deferred income tax liabilities, and a $7.2 million obligation to Immucor for contingent consideration liabilities.

Sentilus LLC is considered to be a VIE. Sentilus LLC is operated as a separate business. Sentilus LLC and the Company have entered into management services agreements (the “Management Contracts”) pursuant to which Immucor provides management, financial, legal and human resource services as well as personnel, materials and business locations to Sentilus LLC in exchange for management fees at Immucor’s cost plus a specified “arms-length” margin (which is subject to periodic adjustment). Immucor’s executive management controls and operates the Sentilus LLC business. Immucor is considered the primary beneficiary of Sentilus LLC because it is managing the Sentilus LLC business and providing the necessary personnel and support to operate the business under the terms of the Management Contracts. Accordingly, the financial results of Sentilus LLC are included in the consolidated financial results of the Company.

The operations of Sentilus LLC will be primarily funded through either additional potential future dividends from Immucor or from additional capital contributions from IVD Holdings Inc. (“Holdings”), the Parent company of IVD Intermediate Holdings A Inc. The Company could be exposed to a loss related to the Sentilus LLC business if there are expenses that are incurred by the Company on behalf of Sentilus LLC under the terms of the Management Contracts and are not reimbursed. This risk is deemed unlikely since all of the entities involved in this arrangement are under the common control of Holdings.

The following tables include the carrying amounts and classification of the assets and liabilities of Sentilus LLC that are included in the Company’s consolidated balance sheet as of November 30, 2016 and May 31, 2016 that cannot be used to settle the obligations of Immucor, and are not Immucor’s obligation to pay (in thousands):

As of November 30, 2016
ASSETS			LIABILITIES
Current assets:			Current liabilities:
Cash and cash equivalents	$	8	Accounts payable	$	436
Total current assets		8	Accrued expenses and other current liabilities		15
			Total current liabilities		451

Noncurrent assets:			Noncurrent liabilities:
Property and equipment, net		661	Deferred income tax		4,581
Goodwill		105
Other intangible assets, net		18,817	Obligation to Immucor for contingent consideration liabilities		7,819
Total noncurrent assets		19,583	Total noncurrent liabilities		12,400

Total Assets	$	19,591	Total Liabilities	$	12,851

As of May 31, 2016
ASSETS			LIABILITIES
Current assets:			Current liabilities:
Cash and cash equivalents	$	36	Accounts payable	$	744
Total current assets		36	Accrued expenses and other current liabilities		4
			Total current liabilities		748

Noncurrent assets:			Noncurrent liabilities:
Property and equipment, net		644	Deferred income tax		6,207
Goodwill		105
Other intangible assets, net		18,820	Obligation to Immucor for contingent consideration liabilities		7,433

Total noncurrent assets		19,569	Total noncurrent liabilities		13,640

Total Assets	$	19,605	Total Liabilities	$	14,388

4.	RELATED PARTY TRANSACTIONS

In connection with the Immucor Acquisition in fiscal year 2012, the Company entered into a management services agreement with TPG Capital, L.P. (the “Sponsor”). Pursuant to such agreement, and in exchange for on-going consulting and management advisory services that are provided to the Company, the Sponsor receives an aggregate annual monitoring fee of approximately $3.0 million. In the three months and six months ended November 30, 2016, approximately $0.8 million, and $1.7 million, respectively, was recorded for monitoring fees, additional services provided by the Sponsor, and out-of-pocket expenses and substantially all of these expenses are included in general and administrative expenses in the consolidated statements of operations. In the three months and six months ended November 30, 2015, approximately $0.8 million, and $1.6 million was recorded for these same types of fees and expenses, respectively. As of November 30, 2016 and May 31, 2016, the Company owed $2.3 million and $1.7 million, respectively, to the Sponsor for these fees and expenses.

Sentilus LLC and the Company have entered into management services agreements. Refer to Note 3 of the consolidated financial statements for additional information.

5.	INVENTORIES, NET

Inventories, net are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories, net consist of the following (in thousands):

	As of
	November 30, 2016		May 31, 2016

Raw materials and supplies	$	12,490		11,840
Work in process		11,138		11,944
Finished goods		23,707		23,110
Total Inventories, net	$	47,335		46,894

6.	PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following (in thousands):

	As of
	November 30, 2016			May 31, 2016

Land	$	211			217
Buildings and improvements		2,144			2,163
Leasehold improvements		25,916			26,261
Capital work-in-progress		7,452			4,275
Furniture and fixtures		4,104			3,861
Machinery, equipment and instruments		112,869			110,145
Total property and equipment		152,696			146,922
Less: Accumulated depreciation		(76,386	)		(70,907	)
Property and equipment, net	$	76,310			76,015

Depreciation expense was $3.9 million and $7.9 million in the three months and six months ended November 30, 2016 and was $3.6 million and $7.0 million in the three months and six months ended November 30, 2015, respectively. Depreciation expense is primarily included in cost of sales in the Company’s consolidated statements of operations.

7.	GOODWILL

The consolidated financial statements include the goodwill resulting from the acquisition of various businesses by Immucor. The following table presents the changes in the carrying amount of goodwill during the six months ended November 30, 2016 and the fiscal year ended May 31, 2016 (in thousands):

	November 30, 2016			May 31, 2016

Balance at beginning of period	$	857,023			842,258
Additions:
Acquisition of businesses		-			15,131
Foreign currency translation adjustment		(2,607	)		(366	)
Balance at end of period	$	854,416			857,023

In the first six months of fiscal year 2017, and the twelve months of fiscal year 2016, there were no significant changes in goodwill other than the impact of changes in foreign currency exchange rates, and an increase in goodwill from business acquisitions completed in those periods.

During the first six months of fiscal year 2017, and the twelve months of fiscal year 2016, there were no impairment losses recorded. For the periods ending November 30, 2016 and May 31, 2016, the Company had $160.0 million of accumulated impairment losses on goodwill.

8.	OTHER INTANGIBLE ASSETS, NET

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

			As of
			November 30, 2016							May 31, 2016
	Weighted Average Life (years)		Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net

Other intangible assets subject to amortization:
Customer relationships		20	$	460,483		(120,286	)		340,197		462,602		(109,260	)		353,342
Existing technology / trade names		12		355,604		(143,854	)		211,750		355,604		(128,530	)		227,074
Corporate trade name		15		40,000		(14,088	)		25,912		40,000		(12,754	)		27,246
Below market leasehold interests		4		1,200		(667	)		533		1,200		(631	)		569
Other intangibles		4		428		(315	)		113		428		(262	)		166
Total amortizable assets				857,715		(279,210	)		578,505		859,834		(251,437	)		608,397

Intangible assets not subject to amortization:
In-process research and development				24,700		-			24,700		24,700		-			24,700
Total non-amortizable assets				24,700		-			24,700		24,700		-			24,700

Other intangible assets, net			$	882,415		(279,210	)		603,205		884,534		(251,437	)		633,097

A portion of the Company’s customer relationships is held in functional currencies outside the U.S. Therefore, the stated cost as well as the accumulated amortization is affected by the fluctuation in foreign currency exchange rates.

Amortization expense related to these intangible assets for the three months and six months ended November 30, 2016 was $14.1 million and $28.3 million and for the three months and six months ended November 30, 2015 was $13.6 million and $27.2 million, respectively. Expected amortization expense for the remainder of fiscal year 2017

and for each of the five succeeding years is as follows (in thousands):

Year Ending May 31:
2017	$	28,289
2018		56,507
2019		52,583
2020		51,475
2021		51,446
2022		51,441

9.	LONG-TERM DEBT

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

	As of November 30, 2016										As of May 31, 2016
	Gross		OID ₍₁₎			DFC ₍₂₎			Net		Gross		OID ₍₁₎			DFC ₍₂₎			Net

Term Loan Facility	$	638,460		(4,076	)		(9,620	)		624,764		641,777		(5,210	)		(12,174	)		624,393
Notes		400,000		(2,297	)		(6,268	)		391,435		400,000		(2,648	)		(7,223	)		390,129
Revolving Facilities		10,000		-			-			10,000		-		-			-			-
Capital lease agreements		120		-			-			120		232		-			-			232
Total long-term debt		1,048,580		(6,373	)		(15,888	)		1,026,319		1,042,009		(7,858	)		(19,397	)		1,014,754
Less: Current portion of long-term debt		16,745		-			-			16,745		6,806		-			-			6,806
Long-term debt, excluding current portion	$	1,031,835		(6,373	)		(15,888	)		1,009,574		1,035,203		(7,858	)		(19,397	)		1,007,948

(1) - OID refers to original issue discounts on the Company's long-term debt

(2) - DFC refers to deferred financing costs related to the Company's long-term debt facilities

Senior Secured Credit Facilities, Security Agreement and Guaranty

The Company is party to a credit agreement and related security and other agreements as subsequently amended, with a bank syndicate of lenders, and Citibank N.A. as the Administrative Agent. The credit agreement, as amended, provides for (1) a $663.3 million senior secured term loan facility (the “Term Loan Facility”) and (2) $80.0 million of senior secured revolving loan facilities (the “Revolving Facilities,” and together with the Term Loan Facility, the “Senior Credit Facilities”). In addition to borrowings upon prior notice, the Revolving Facilities include borrowing capacity in the form of letters of credit and borrowings on same-day notice, referred to as swing line loans, in each case, up to $25.0 million, and is available in U.S. dollars, GBP, Euros, Yen, Canadian dollars and in such other currencies as the Company and the Administrative Agent under the Revolving Facilities may agree (subject to a sublimit for such non-U.S. currencies).

Borrowings under the Senior Credit Facilities bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either (a) in the case of borrowings in U.S. dollars, a base rate determined by reference to the highest of (1) the prime rate of Citibank, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) in the case of borrowings in U.S. dollars or another currency, a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which, in the case of the Term Loan Facility only, shall be no less than 1.25%. The applicable margin for borrowings under the Term Loan Facility is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. The applicable margin for borrowings under the Revolving Facilities is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings, subject to a 0% LIBOR floor. The applicable margin for borrowings under the Revolving Facilities is subject to a 0.25% step-down, when the Company’s senior secured net leverage ratio at the end of a fiscal quarter is less than or equal to 3:00 to 1:00. The Revolving Facilities mature on the earlier of (i) February 19, 2020, (ii) May 19, 2018, if the maturity of the Term Loan Facility has not been extended by such date, and (iii) 90 days prior to any maturity date of certain funded material indebtedness (which maturity date shall be no earlier than October 19, 2018). Certain other Company actions would also result in a springing maturity of the Revolving Facilities as early as August 20, 2017. The aggregate principal amount of the revolving credit commitments is as follows: (1) $80.0 million as of May 4, 2016, (2) on August 19, 2018, to $70.0 million, (3) on February 19, 2019, to $60.0 million, and (4) on August 19, 2019, to $50.0 million.

The interest rate on the Term Loan Facility was 5.00% as of November 30, 2016 and May 31, 2016. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Term Loan Facility is 6.17% for the six months ended November 30, 2016. The weighted average interest rate on the borrowings from the Revolving Facilities during the first six months of fiscal year 2017 was approximately 4.79%. At November 30, 2016, there were $10.0 million of outstanding borrowings under the Revolving Facilities and no outstanding letters of credit.

The Company is required to make scheduled principal payments on the last business day of each calendar quarter equal to 0.25% of the original principal amount of loans under the Term Loan Facility with the balance due and payable on August 19, 2018. Currently scheduled principal payments are $1.7 million per quarter. The Company is also required to repay loans under the Term Loan Facility based on annual excess cash flows as defined in the credit agreement governing the Term Loan Facility and upon the occurrence of certain other events set forth in that credit agreement. The additional principal due under the terms of the excess cash flow requirement was zero for fiscal year 2016 and fiscal year 2015. The terms of the Senior Credit Facilities provide that any principal paid as a result of the excess cash flow requirement, shall be applied to the scheduled installments of principal following the date of prepayment in direct order of maturity.

All obligations under the Senior Credit Facilities are unconditionally guaranteed by the parent company of Immucor, IVD Intermediate Holdings B Inc. (the “Parent”), and certain of Immucor’s existing and future wholly owned domestic subsidiaries (such subsidiaries collectively, the “Subsidiary Guarantors”), and are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Parent and Subsidiary Guarantors, subject in each case to customary exceptions and exclusions. Neither the assets nor the equity of Sentilus LLC is collateral for the Senior Credit Facilities.

Indenture and the Senior Notes Due 2019

The Company has also issued $400.0 million in principal amount of Senior Notes (the “Notes”). The Notes bear interest at a rate of 11.125% per annum, and interest is payable semi-annually on February 15 and August 15 of each year. Including the amortization of deferred financing costs and the original issue discount, the effective interest rate on the Notes is 11.75% for the six months ended November 30, 2016. The Notes mature on August 15, 2019.

Subject to certain exceptions, the Notes are guaranteed on a senior unsecured basis by each of Immucor’s current and future wholly owned domestic restricted subsidiaries (and non-wholly owned subsidiaries if such non-wholly owned subsidiaries guarantee the Company’s or another guarantor’s other capital market debt securities) that is a guarantor of certain debt of the Company or another guarantor, including the Senior Credit Facilities. The Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future indebtedness that is not expressly subordinated in right of payment thereto. The Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of payment thereto and effectively junior to (a) the Company’s existing and future secured indebtedness, including the Senior Credit Facilities described above, to the extent of the value of the collateral securing such indebtedness and (b) all existing and future liabilities of the Company’s non-guarantor subsidiaries.

The Company is not aware of any violations of the covenants pursuant to the terms of the indenture governing the Notes or the credit agreement governing the Senior Credit Facilities.

Future Commitments

The following is a summary of the combined principal maturities of all long-term debt and principal payments to be made under the Company’s capital lease agreements for each of the fiscal years presented in the table below (in thousands):

Year Ended May 31:
2017	$	13,435
2018		6,632
2019		628,513
2020		400,000
Total	$	1,048,580

Interest Expense

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

	Three Months Ended				Six Months Ended
	November 30				November 30
	2016		2015		2016		2015

Notes, including OID amortization	$	11,303		11,283		22,600		22,562
Term loan facility, including OID amortization		8,648		8,702		17,396		17,506
Amortization of deferred financing costs		1,774		1,781		3,514		3,533
Interest rate swaps and other interest		48		153		176		369
Revolving facility fees and interest		342		249		549		409
Interest accreted on contingent consideration liabilities		1,012		286		1,994		567
Total interest expense	$	23,127		22,454		46,229		44,946

Deferred financing costs

Changes in deferred financing costs during the six months ended November 30, 2016 and the fiscal year ended May 31, 2016 are as follows (in thousands):

	November 30, 2016			May 31, 2016

Balance at beginning of period	$	19,397			26,399
Debt issuance costs (1)		5			118
Amortization		(3,514	)		(7,120	)
Balance at end of period	$	15,888			19,397

(1) Debt issuance costs are related to Amendment No. 6 of our credit agreement

Deferred financing costs are capitalized and are amortized over the life of the related debt agreements using the effective interest rate method, except for the costs associated with the Revolving Facilities which uses the straight-line method. The deferred financing costs associated with the Revolving Facilities are included in the amount of deferred financing costs for the Term Loan Facility.

10.

DERIVATIVE FINANCIAL INSTRUMENTS

As of November 30, 2016, the Company no longer has any outstanding interest rate swap agreements. Prior to October 1, 2016, the Company had entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $70.0 million related to a portion of the Company’s floating rate indebtedness. The purpose of the interest rate swap was to hedge the Company’s future interest commitments resulting from the Term Loan Facility, and to protect the Company from variability in cash flows attributable to changes in LIBOR interest rates. The Company had entered into a swap agreement to match the LIBOR floor in the swaps with the terms of the Term Loan Facility. Consistent with the terms of the Company’s Term Loan Facility, the swap included a LIBOR floor of 1.25%. The swap agreement hedged a portion of contractual floating rate interest commitments through the expiration of the swap agreement in September 2016.

Effective October 1, 2014 through September 30, 2015, the Company had swap agreements that hedged $155.0 million of the Company’s floating rate interest commitments at a weighted average fixed LIBOR rate of 1.77%. Effective October 1, 2015 through September 30, 2016, the Company has swap agreements to hedge $70.0 million of the Company’s floating rate interest commitments at a fixed LIBOR rate of 1.91%.

The Company designated these interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these swaps are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from accumulated other comprehensive income or loss to interest expense.

The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into interest expense in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in the fair values of derivatives that do not qualify as effective are immediately recognized in earnings.

The gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings.

The fair values of the interest rate swap agreements are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (level 2). A summary of the recorded liabilities included in the consolidated balance sheets is as follows (in thousands):

	As of
	November 30, 2016		May 31, 2016

Interest rate swaps (included in other liabilities)	$	-		(155	)

The losses from accumulated other comprehensive loss (“AOCI”) was reclassified to the consolidated statement of operations and appears as follows (in thousands):

	Three Months Ended						Six Months Ended
	November 30						November 30
Location of loss reclassified from AOCI into income	2016			2015			2016			2015

Loss on cash flow hedges:
Interest expense (effective portion)	$	(41	)		(151	)		(167	)		(368	)
Interest expense (ineffective portion)	$	-			-			-			(1	)

11.

FAIR VALUE

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

•

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

•

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

•

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	As of November 30, 2016
	Fair Value Measurements of Assets (Liabilities) Using							Carrying
	(Level 1)		(Level 2)		(Level 3)			Amount
	(in thousands)

Derivative instruments	$	-		-		-			-
Contingent consideration liabilities	$	-		-		(42,344	)		(42,344	)

	As of May 31, 2016
	Fair Value Measurements of Assets (Liabilities) Using								Carrying
	(Level 1)		(Level 2)			(Level 3)			Amount
	(in thousands of dollars)

Derivative instruments	$	-		(155	)		-			(155	)
Contingent consideration liabilities	$	-		-			(40,356	)		(40,356	)

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short-term maturity of these instruments. Of the $10.5 million and $10.3 million of cash and cash equivalents at November 30, 2016 and May 31, 2016, respectively, approximately 32% and 38% was located in the U.S., respectively.

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

The fair value of the Notes and the Term Loan Facility (collectively referred to as the Company’s debt instruments) is estimated to be $370.0 million and $622.5 million at November 30, 2016, respectively, based on recent trades of similar instruments. The fair value of the Notes and the Term Loan Facility was estimated to be $364.3 million and $614.5 million at May 31, 2016, respectively, based on the fair value of these instruments at that time.

Management believes that these liabilities can be liquidated without restriction.

As of November 30, 2016 and May 31, 2016, the Company had $42.3 million and $40.4 million, respectively, in contingent consideration liabilities for earn-out provisions resulting from acquisitions included in Other long-term liabilities on the Company’s consolidated balance sheet.

The fair value of these contingent consideration liabilities was determined by applying a form of the income approach (a level 3 input), based upon the probability-weighted projected payment amounts discounted to present value at a rate appropriate for the risk of achieving the performance targets. The key assumptions included in the calculations were the earn-out period payment probabilities, projected revenues, discount rate and the timing of payments. The present value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments.

The changes in the Company’s current and long-term contingent consideration liabilities are summarized in the following table (in thousands):

	Six Months Ended			Twelve Months Ended
	November 30, 2016			May 31, 2016
Balance at the beginning of the period	$	(40,356	)		(18,596	)
Additions due to acquisitions		-			(20,000	)
Payments		6			65
Accretion of fair value		(1,994	)		(1,825	)
Balance at the end of the period	$	(42,344	)		(40,356	)

12.

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

Total accumulated other comprehensive (loss) income is included in the Consolidated Statement of Changes in Equity. The changes in accumulated other comprehensive (loss) income are as follows (in thousands):

	Pretax			Tax			After Tax
Six Months Ended November 30, 2016
Foreign exchange translation adjustments	$	(6,572	)		(89	)		(6,483	)
Changes in fair value of cash flow hedges		155			61			94
Accumulated other comprehensive loss	$	(6,417	)		(28	)		(6,389	)

Twelve Months Ended May 31, 2016
Foreign exchange translation adjustments	$	(282	)		(108	)		(174	)
Changes in fair value of cash flow hedges		530			199			331
Accumulated other comprehensive income	$	248			91			157

The components of accumulated other comprehensive loss are as follows (in thousands):

	As of
	November 30, 2016			May 31, 2016

Cumulative foreign currency translation adjustments	$	(45,796	)		(39,313	)
Change in fair value of cash flow hedges, net of tax		-			(94	)
Accumulated other comprehensive loss	$	(45,796	)		(39,407	)

13.

SHARE-BASED COMPENSATION

The Company has granted nonvested restricted stock, and stock options to key employees and directors under its 2011 Equity Incentive Plan. The Company granted stock awards with an aggregate fair value of approximately $0.1 million, and $1.0 million during the three months and six months ended November 30, 2016 and $5.2 million and $17.1 million during the three months and six months ended November 30, 2015, respectively. As of November 30, 2016, a total of 31,853 shares were available for future grants.

Restricted stock units typically vest over a two-year period (50% per year) and do not expire. Upon vesting, and in some cases certain other triggers, restricted stock units are settled in shares of IVD Holdings Inc.’s common stock. Stock option awards are granted with service-based vesting conditions (“service-based options”), and performance-based or market-based vesting conditions (“performance-based options”). The service-based options contain tiered vesting terms over the service period. The performance-based options vest in tranches upon the achievement of certain performance or market objectives, which are measured over a three or four year period.

The Company recognized expense of $1.1 million and $2.5 million in the three months and six months ended November 30, 2016 and $1.9 million and $2.8 million in the three months and six months ended November 30, 2015, respectively, before income tax benefits, for all the Company’s stock awards. As of November 30, 2016, there was $11.4 million of total unrecognized compensation cost related the Company’s stock plans that will be recognized over approximately 2.7 years.

14.

INCOME TAXES

The effective tax rate for the six months ended November 30, 2016 and November 30, 2015 was 37.1% and 21.4%, respectively. The difference between the federal statutory rate and the effective tax rate for the six months ended November 30, 2016 was primarily due to income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate, the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings, and the reversal of uncertain tax positions (net of the corresponding reduction in competent authority assets) resulting from the completion of a foreign income tax examination during the second quarter of fiscal year 2017. The difference between the federal statutory rate and the effective tax rate for the six months ended November 30, 2015, was primarily due to the income subject to tax in the various tax jurisdictions with rates that differ from the U.S. statutory tax rate and the impact of recording U.S. income taxes associated with current and future distributions of foreign earnings. The difference between the effective tax rate of 37.1% for the six months ended November 30, 2016 and 21.4% for the six months ended November 30, 2015 is primarily due to variations in the ratio of foreign income to domestic income for each period.

The Company does not consider itself to be permanently reinvested with respect to its accumulated and un-repatriated earnings as well as the future earnings of each foreign subsidiary. Accordingly, the Company recorded a deferred tax liability associated with unremitted future earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary to be permanently reinvested and thus has not recorded a deferred tax liability on such amounts.

15.

SEGMENT AND GEOGRAPHIC INFORMATION

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

The Company markets a complete line of diagnostics products and automated systems which are used primarily by hospitals, donor centers and reference laboratories in a number of tests performed to detect and identify certain properties of human blood and human tissue to enable the most compatible match available between patient and donor. These tests are performed for the purpose of blood transfusions and organ and stem cell transplantations.

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

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

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

	Three Months Ended				Six Months Ended
	November 30				November 30
	2016		2015		2016		2015
Net sales by product group:
Transfusion	$	76,622		80,521		158,285		161,710
Transplant & Molecular		17,054		15,728		33,984		31,251
Total	$	93,676		96,249		192,269		192,961

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

	Three Months Ended				Six Months Ended
	November 30				November 30
	2016		2015		2016		2015
Net sales to customers by geography are as follows:
United States	$	57,795		61,024		119,972		122,426
Europe (A)		18,082		18,119		35,575		35,919
Canada		3,640		3,952		7,524		7,851
Other		14,159		13,154		29,198		26,765
Total	$	93,676		96,249		192,269		192,961

Net sales are attributed to individual countries based on the customer’s country of origin at the time of the sale and where the Company has an operating entity.

	As of
	November 30, 2016		May 31, 2016
Long-lived assets (excluding goodwill and intangibles) by geography:
United States	$	55,571		55,080
Europe (B)		14,654		14,729
Canada		3,541		3,543
Other (C)		2,544		2,663
Total	$	76,310		76,015

	As of
	November 30, 2016		May 31, 2016
Concentration of net assets by geography:
United States	$	186,199		200,226
Europe		91,883		102,593
Canada		28,804		28,617
Other (C)		11,056		13,110
Total	$	317,942		344,546

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

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

Sales to any individual customer did not equal or exceed 10% of our net sales during the three months and six months ended November 30, 2016, or during the three months and six months ended November 30, 2015.

16.

CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES

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

Refer to Note 3 for information on assets and liabilities of Sentilus LLC, a consolidated variable interest entity, that are included in the Company’s consolidated balance sheet as of November 30, 2016 and May 31, 2016. These assets and liabilities cannot be used to settle the obligations of Immucor, and are not Immucor’s obligation to pay. Accordingly, the condensed consolidated financial information reflects the activity of Sentilus LLC and its related eliminations under the VIE and VIE Eliminations heading. The condensed consolidating financial information of the Company is as follows:

Balance Sheets

IMMUCOR, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

November 30, 2016

(in thousands)

(Unaudited)

	Immucor, Inc.		Guarantors			Non- Guarantors		Eliminations			Immucor, Inc. and Subsidiaries		VIE and VIE eliminations			Total
ASSETS

Current Assets:
Cash and cash equivalents	$	3,660		(283	)		7,103		-			10,480		8			10,488
Accounts receivable, net		26,398		5,781			27,532		-			59,711		-			59,711
Intercompany receivable		99,599		33,187			16,620		(148,203	)		1,203		(1,203	)		-
Inventories, net		20,720		17,042			10,943		(1,370	)		47,335		-			47,335
Prepaid expenses and other current assets		2,973		256			4,536		-			7,765		-			7,765
Total current assets		153,350		55,983			66,734		(149,573	)		126,494		(1,195	)		125,299

Property and equipment, net		41,482		13,428			20,739		-			75,649		661			76,310
Investment in subsidiaries		193,533		20,033			3,019		(216,585	)		-		-			-
Goodwill		744,044		62,771			47,496		-			854,311		105			854,416
Other intangible assets, net		465,903		89,199			29,286		-			584,388		18,817			603,205
Other assets		27,707		272			527		(9,823	)		18,683		(7,819	)		10,864
Total assets	$	1,626,019		241,686			167,801		(375,981	)		1,659,525		10,569			1,670,094

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	8,997		3,045			4,920		-			16,962		436			17,398
Intercompany payable		7,267		128,399			12,537		(148,203	)		-		-			-
Accrued interest and interest rate swap liability		18,588		-			-		-			18,588		-			18,588
Accrued expenses and other current liabilities		10,968		4,525			5,776		-			21,269		15			21,284
Income taxes payable		30,460		(29,816	)		2,750		-			3,394		-			3,394
Deferred revenue, current portion		2,395		-			938		-			3,333		-			3,333
Current portion of long-term debt		16,634		111			-		-			16,745		-			16,745
Total current liabilities		95,309		106,264			26,921		(148,203	)		80,291		451			80,742

Long-term debt, excluding current portion		1,009,566		8			-		-			1,009,574		-			1,009,574
Deferred income tax liabilities		190,812		4,913			7,826		(529	)		203,022		4,581			207,603
Other long-term liabilities		17,927		44,818			1,311		(9,823	)		54,233		-			54,233
Total liabilities		1,313,614		156,003			36,058		(158,555	)		1,347,120		5,032			1,352,152
Equity:
Shareholders' equity of Immucor, Inc.		312,405		85,683			131,743		(217,426	)		312,405		-			312,405
Noncontrolling interest		-		-			-		-			-		5,537			5,537
Total equity		312,405		85,683			131,743		(217,426	)		312,405		5,537			317,942
Total liabilities and equity	$	1,626,019		241,686			167,801		(375,981	)		1,659,525		10,569			1,670,094

IMMUCOR, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

May 31, 2016

(in thousands)

	Immucor, Inc.		Guarantors			Non-Guarantors		Eliminations			Immucor, Inc. and Subsidiaries		VIE and VIE eliminations			Total
ASSETS

Current Assets:
Cash and cash equivalents	$	4,058		(187	)		6,356		-			10,227		36			10,263
Accounts receivable, net		28,314		5,866			27,863		-			62,043		-			62,043
Intercompany receivable		98,375		26,311			24,710		(148,502	)		894		(894	)		-
Inventories, net		19,853		17,321			11,415		(1,695	)		46,894		-			46,894
Prepaid expenses and other current assets		3,381		449			4,649		-			8,479		-			8,479
Total current assets		153,981		49,760			74,993		(150,197	)		128,537		(858	)		127,679

Property and equipment, net		39,724		14,713			20,934		-			75,371		644			76,015
Investment in subsidiaries		211,451		20,033			3,019		(234,503	)		-		-			-
Goodwill		744,044		62,771			50,103		-			856,918		105			857,023
Other intangible assets, net		489,871		92,500			31,906		-			614,277		18,820			633,097
Other assets		30,346		274			360		(9,728	)		21,252		(7,433	)		13,819
Total assets	$	1,669,417		240,051			181,315		(394,428	)		1,696,355		11,278			1,707,633

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	10,622		5,517			5,346		-			21,485		744			22,229
Intercompany payable		18,293		117,516			12,693		(148,502	)		-		-			-
Accrued interest and interest rate swap liability		18,869		-			-		-			18,869		-			18,869
Accrued expenses and other current liabilities		10,700		5,230			6,075		-			22,005		4			22,009
Income taxes payable		30,190		(29,838	)		2,233		-			2,585		-			2,585
Deferred revenue, current portion		1,785		-			1,079		-			2,864		-			2,864
Current portion of long-term debt		6,634		172			-		-			6,806		-			6,806
Total current liabilities		97,093		98,597			27,426		(148,502	)		74,614		748			75,362

Long-term debt, excluding current portion		1,007,888		60			-		-			1,007,948		-			1,007,948
Deferred income tax liabilities		201,489		7,070			8,245		(654	)		216,150		6,207			222,357
Other long-term liabilities		22,724		43,099			1,325		(9,728	)		57,420		-			57,420
Total liabilities		1,329,194		148,826			36,996		(158,884	)		1,356,132		6,955			1,363,087
Equity:
Shareholders' equity of Immucor, Inc.		340,223		91,225			144,319		(235,544	)		340,223		-			340,223
Noncontrolling interest		-		-			-		-			-		4,323			4,323
Total equity		340,223		91,225			144,319		(235,544	)		340,223		4,323			344,546
Total liabilities and equity	$	1,669,417		240,051			181,315		(394,428	)		1,696,355		11,278			1,707,633

Statements of Operations for the Quarter

IMMUCOR, INC.

CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended November 30, 2016

(in thousands)

(Unaudited)

	Immucor, Inc.			Guarantors			Non- Guarantors			Eliminations			Immucor, Inc. and Subsidiaries			VIE and VIE eliminations			Total

Net sales	$	58,781			15,409			36,502			(17,016	)		93,676			-			93,676
Cost of sales (*)		20,992			9,818			24,376			(17,016	)		38,170			-			38,170
Gross profit		37,789			5,591			12,126			-			55,506			-			55,506

Operating expenses:
Research and development		3,587			4,075			165			-			7,827			973			8,800
Selling and marketing		7,807			2,077			5,521			-			15,405			-			15,405
Distribution		2,314			333			1,816			-			4,463			-			4,463
General and administrative		7,327			1,071			2,095			-			10,493			21			10,514
Amortization expense		11,970			1,629			525			-			14,124			2			14,126
Total operating expenses		33,005			9,185			10,122			-			52,312			996			53,308

Income (loss) from operations		4,784			(3,594	)		2,004			-			3,194			(996	)		2,198

Non-operating income (expense):
Interest income		198			-			96			(90	)		204			(196	)		8
Interest expense		(22,321	)		(864	)		(32	)		90			(23,127	)		-			(23,127	)
Other, net		4,334			340			(3,450	)		-			1,224			(1,179	)		45
Total non-operating net expense		(17,789	)		(524	)		(3,386	)		-			(21,699	)		(1,375	)		(23,074	)

Loss before income taxes		(13,005	)		(4,118	)		(1,382	)		-			(18,505	)		(2,371	)		(20,876	)
(Benefit) provision for income taxes		(6,657	)		(1,321	)		686			-			(7,292	)		(829	)		(8,121	)
Net loss before earnings of consolidated subsidaries		(6,348	)		(2,797	)		(2,068	)		-			(11,213	)		(1,542	)		(12,755	)
Net (loss) income of consolidated subsidiaries		(4,865	)		-			-			4,865			-			-			-
Net (loss) income		(11,213	)		(2,797	)		(2,068	)		4,865			(11,213	)		(1,542	)		(12,755	)
Net loss attributable to noncontrolling interest		-			-			-			-			-			(1,542	)		(1,542	)
Net (loss) income attributable to shareholders of Immucor, Inc.	$	(11,213	)		(2,797	)		(2,068	)		4,865			(11,213	)		-			(11,213	)

(*) Cost of sales is exclusive of amortization expense which is shown separately within operating expenses.

IMMUCOR, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended November 30, 2015
(in thousands)
(Unaudited)

	Immucor, Inc.			Guarantors			Non-Guarantors			Eliminations			Total

Net sales	$	63,396			14,335			35,132			(16,614	)		96,249
Cost of sales (*)		22,075			9,111			23,316			(16,614	)		37,888
Gross profit		41,321			5,224			11,816			-			58,361

Operating expenses:
Research and development		3,310			3,284			166			-			6,760
Selling and marketing		6,675			2,959			5,185			-			14,819
Distribution		2,493			334			1,568			-			4,395
General and administrative		6,809			1,528			2,271			-			10,608
Amortization expense		11,972			1,087			532			-			13,591
Total operating expenses		31,259			9,192			9,722			-			50,173

Income (loss) from operations		10,062			(3,968	)		2,094			-			8,188

Non-operating (expense) income:
Interest income		39			-			34			(32	)		41
Interest expense		(22,361	)		(114	)		(11	)		32

IMMUCOR INC 10-Q