Back to GetFilings.com
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 Quarter Ended: August 31, 2002
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 P.O. Box 5625 Norcross, Georgia 30091-5625
(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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of October 4, 2002: Common Stock, $0.10 Par Value - 12,385,264
IMMUCOR, INC.
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------
August 31, 2002 May 31, 2002
-------------------------------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,518,574 $ 4,012,560
Accounts receivable, trade (less allowance for doubtful accounts of $1,617,655 at
August 31, 2002 and $1,483,688 at May 31, 2002) 26,326,044 27,182,566
Inventories 16,184,778 15,557,034
Income taxes receivable 291,513 592,097
Deferred income taxes 987,491 987,491
Prepaid expenses and other 1,414,575 1,834,521
--------------------- --------------------
Total current assets 50,722,975 50,166,269
LONG-TERM INVESTMENT - At cost 1,000,000 1,000,000
PROPERTY, PLANT AND EQUIPMENT - Net 17,085,898 17,027,024
DEFERRED INCOME TAXES 889,906 889,906
OTHER ASSETS - Net 2,860,056 2,977,130
DEFERRED LICENSING COSTS - Net 1,301,231 1,370,620
EXCESS OF COST OVER NET TANGIBLE ASSETS ACQUIRED - Net 27,983,663 27,936,514
--------------------- --------------------
$ 101,843,729 $ 101,367,463
===================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED BALANCE SHEETS (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
August 31, 2002 May 31, 2002
--------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Audited)
CURRENT LIABILITIES:
Current portion of borrowings under bank line of credit agreements $ 1,612,702 $ 1,995,630
Current portion of long-term debt 3,028,395 3,662,304
Current portion of capital lease obligations 879,257 975,506
Accounts payable 7,550,750 8,136,198
Income taxes payable 1,114,991 3,165,247
Accrued salaries and wages 1,391,075 1,821,452
Deferred income taxes 338,259 371,404
Other accrued liabilities 2,399,959 2,968,701
---------------------- --------------------
Total current liabilities 18,315,388 23,096,442
BORROWINGS UNDER BANK LINE OF CREDIT AGREEMENTS - Net of current portion 2,831,904 3,033,683
LONG-TERM DEBT - Net of current portion 22,745,323 27,294,082
CAPITAL LEASE OBLIGATIONS - Net of current portion 1,098,227 1,252,948
DEFERRED INCOME TAXES 2,076,930 2,035,387
OTHER LIABILITIES 848,488 702,047
SHAREHOLDERS' EQUITY:
Common stock - authorized 45,000,000 shares, $0.10 par value; 12,385,916 and
11,555,645 issued and outstanding at August 31, 2002 and May 31, 2002,
respectively 1,238,591 1,155,563
Additional paid-in capital 25,678,596 19,520,658
Retained earnings 31,638,152 28,671,351
Accumulated other comprehensive loss (4,627,870) (5,394,698)
---------------------- --------------------
Total shareholders' equity 53,927,469 43,952,874
---------------------- --------------------
$ 101,843,729 $ 101,367,463
====================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------------------
August 31, August 31,
2002 2001
------------------------------------
NET SALES $ 23,215,431 $ 18,639,962
COST OF SALES 9,866,764 9,377,509
-------------- -------------
GROSS MARGIN 13,348,667 9,262,453
-------------- -------------
OPERATING EXPENSES:
Research and development 365,611 487,012
Selling and marketing 3,336,900 2,829,609
Distribution 1,732,807 1,633,708
General and administrative 2,214,220 1,948,919
Amortization expense 72,566 407,811
-------------- -------------
Total operating expenses 7,722,104 7,307,059
-------------- -------------
INCOME FROM OPERATIONS 5,626,563 1,955,394
-------------- -------------
OTHER INCOME (EXPENSE):
Interest income 45,272 1,068
Interest expense (814,622) (1,152,418)
Other - net (199,182) 672,580
-------------- -------------
Total other (968,532) (478,770)
-------------- -------------
INCOME BEFORE INCOME TAXES 4,658,031 1,476,624
INCOME TAX EXPENSE 1,663,553 223,948
-------------- -------------
NET INCOME $ 2,994,478 $ 1,252,676
=============== ===============
Earnings per share:
Basic $ 0.25 $ 0.11
=============== ===============
Diluted $ 0.23 $ 0.11
=============== ===============
Weighted average shares outstanding:
Basic 12,181,838 10,916,425
================ ================
Diluted 13,190,763 10,944,348
================ ================
See notes to consolidated financial statements.
IMMUCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
August 31, August 31,
---------- ----------
2002 2001
------------------------------------
OPERATING ACTIVITIES:
Net income $2,994,478 $1,252,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 1,076,740 1,053,020
Amortization of other assets and excess of cost over net tangible assets acquired 72,566 407,811
Amortization of debt issue costs 112,454 20,801
Provision for doubtful accounts 101,691 90,000
Disposal of assets in settlement - 806,108
Deferred tax provision 8,398 54,867
Changes in operating assets and liabilities:
Accounts receivable, trade 754,831 (620,286)
Income taxes (70,555) (79,640)
Inventories (710,974) (22,018)
Other current assets (100,725) (923,979)
Other long-term assets (128,935) (157,032)
Accounts payable (385,448) 1,115,761
Other current liabilities (999,119) 246,079
Other long-term liabilities 146,442 20,131
----------------- -----------------
Total adjustments (122,634) 2,011,623
----------------- -----------------
Cash provided by operating activities 2,871,844 3,264,299
INVESTING ACTIVITIES:
Purchases of / deposits on property and equipment (892,627) (1,272,123)
----------------- -----------------
Cash used in investing activities (892,627) (1,272,123)
FINANCING ACTIVITIES:
Borrowings under line of credit agreements net of repayments (1,109,732) (566,487)
Repayment of long-term debt and capital lease obligations (5,137,550) (1,141,782)
Repayment of notes payable - (133,409)
Payment of debt issue costs (200,000) -
Exercise of stock options and warrants (830,272 shares) 5,188,666 -
----------------- ----------------
Cash used in financing activities (1,258,616) (1,841,678)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 785,413 865,871
----------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,506,014 1,016,369
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,012,560 3,124,517
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,518,574 $4,140,886
================= ================
See notes to consolidated financial statements.
IMMUCOR, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. However, there has been no material
change in the information disclosed in the Company's annual financial statements
dated May 31, 2002, except as disclosed herein. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended August 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending May 31, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
May 31, 2002.
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market:
As of As of
August 31, 2002 May 31, 2002
---------------------- ----------------------
Raw materials and supplies $ 5,835,914 $ 5,725,149
Work in process 1,679,268 1,532,821
Finished goods 8,669,596 8,299,064
---------------------- ----------------------
$16,184,778 $15,557,034
====================== ======================
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share. The Company implemented a three-for-two stock split
on September 13, 2002 to shareholders of record as of the close of business on
August 26, 2002. The split was effected in the form of a 50% stock dividend. All
share and per share amounts disclosed in this document have been restated to
reflect this stock split discussed in Note 8 to the Consolidated Financial
Statements.
Three Months Ended
August 31, August 31,
2002 2001
---------------- ---------------
Numerator for basic and diluted earnings per share:
Income available to common shareholders $2,994,478 $1,252,676
================ ===============
Denominator:
For basic earnings per share - weighted
average basis 12,181,838 10,916,425
Effect of dilutive stock options and warrants 1,008,925 27,923
---------------- ---------------
Denominator for diluted earnings per
share-adjusted weighted-average shares 13,190,763 10,944,348
================ ===============
Basic earnings per share $0.25 $0.11
================ ===============
Diluted earnings per share $0.23 $0.11
================ ===============
4. DOMESTIC AND FOREIGN OPERATIONS
Information concerning the Company's domestic and foreign operations is
summarized below (in 000s):
---------------------------------------------------------------------------------------------------
Three Months Ended August 31, 2002
---------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
Net reagent sales:
Unaffiliated customers $15,673 $2,222 $1,467 $1,457 $1,194 $ - $22,013
Affiliates 1,756 105 4 37 80 (1,982) -
---------- ---------- --------- ---------- --------- ------------- -------------
Total 17,429 2,327 1,471 1,494 1,274 (1,982) 22,013
Net instrument sales:
Unaffiliated customers 755 199 - - 248 - 1,202
Affiliates 18 365 - - - (383) -
---------- ---------- --------- ---------- --------- ------------- -------------
Total 773 564 - - 248 (383) 1,202
Income (loss) from operations 5,179 60 (38) 321 188 (83) 5,627
Net income (loss) 2,734 (1) (15) 161 164 (49) 2,994
---------------------------------------------------------------------------------------------------
Three Months Ended August 31, 2001
---------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
Net reagent sales:
Unaffiliated customers $11,817 $2,173 $1,396 $1,297 $1,121 $ - $17,804
Affiliates 1,826 66 - 32 104 (2,028) -
---------- ---------- --------- ---------- --------- ------------- -------------
Total 13,643 2,239 1,396 1,329 1,225 (2,028) 17,804
Net instrument sales:
Unaffiliated customers 651 37 28 - 120 - 836
Affiliates 33 289 - - - (322) -
---------- ---------- --------- ---------- --------- ------------- -------------
Total 684 326 28 - 120 (322) 836
Income from operations 1,134 202 121 346 175 (23) 1,955
Net income (loss) 1,378 123 (134) 100 (75) (139) 1,253
The Company's U.S. operations made net export sales to unaffiliated customers of
approximately $1,235,000 and $1,306,000 for the three months ended August 31,
2002 and 2001, respectively. The Company's German operations made net export
sales to unaffiliated customers of approximately $640,000 and $897,000 for the
three months ended August 31, 2002 and 2001, respectively. The Company's
Canadian operations made net export sales to unaffiliated customers of
approximately $620,000 and $570,000 for the three months ended August 31, 2002
and 2001, respectively. Product sales to affiliates are valued at market prices.
5. COMPREHENSIVE INCOME
The components of comprehensive income for the three-month periods ended August
31, 2002 and 2001 are as follows:
Three Months Ended
August 31, August 31,
2002 2001
---------------- ----------------
Net income $ 2,994,478 $ 1,252,676
Net foreign currency translation 761,691 951,502
Cumulative effect of the adoption of FAS
133 on June 1, 2001, net of taxes - (102,721)
Hedge loss reclassified into earnings 5,137 -
---------------- ----------------
Comprehensive income $ 3,761,306 $ 2,101,457
================ ================
Accumulated comprehensive loss as of August 31, 2002 and May 31, 2002 was
($4,627,870) and ($5,394,698), respectively. The balance, consisting primarily
of net losses on foreign currency translation adjustments and fluctuations in
the fair value of the Company's interest rate swaps, has been disclosed in the
shareholders' equity section of the consolidated balance sheets.
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. In June 2000, the FASB
issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities-an Amendment to FASB Statement No. 133. This statement
amended certain provisions of SFAS No. 133. Accordingly, the Company adopted
SFAS No. 133, as amended by SFAS No. 138, effective the first quarter of fiscal
2002. The cumulative effect of the adoption of SFAS No. 133 on June 1, 2001
resulted in a comprehensive loss (a component of Shareholders' Equity on the
balance sheet) of approximately $103,000, net of $26,000 in income taxes,
relating to the interest rate swap agreements. Since the swap agreement related
to the Canadian line of credit matured in December 2001, an adjustment of
approximately $15,000 was made to comprehensive loss and reclassified to
earnings as interest expense in fiscal 2002. Due to the ineffectiveness of the
swap related to the U. S. loan, approximately $16,000 was reclassified from
comprehensive loss to earnings as interest expense and approximately $267,000
was charged directly to interest expense in fiscal 2002. The remaining balance
of approximately $72,000 will be amortized over the remaining term of the loan.
Approximately $5,100 of this ineffectiveness was charged to interest expense for
the period ended August 31, 2002, and approximately $116,000 was charged
directly to interest expense in the first quarter of fiscal 2003.
See Note 9 of the consolidated financial statements for a discussion of SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Statement supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, however it retains the fundamental provisions of that statement related to
the recognition and measurement of the impairment of long-lived assets to be
"held and used." The Statement is effective for year-ends beginning after
December 15, 2001. The Company adopted SFAS No. 144 effective June 1, 2002
without impact on its financial position or results of operations.
7. INCOME TAXES
Income tax expense for the period ended August 31, 2002 of approximately
$1,664,000 was greater as a percentage of pre-tax income than income tax expense
of approximately $224,000 as a percentage of pre-tax income for the period ended
August 31, 2001 primarily due to net operating loss carryforwards utilized
during the prior year.
8. STOCK SPLIT
On July 24, 2002, the Board of Directors approved a three-for-two stock split,
which was effected in the form of a 50% stock dividend. The date of distribution
was September 13, 2002 to the shareholders of record at the close of business on
August 26, 2002. The number of shares outstanding at the close of business on
August 26, 2002 was 8,257,277. The stock split added an additional 4,128,639
shares to outstanding shares. All share and per share amounts disclosed in this
document have been restated to reflect this stock split. The total number of
shares outstanding at the stock split pay date was 12,385,916.
9. ADOPTION OF NEW ACCOUNTING STANDARD
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment, or more frequently if impairment indicators arise. The
review process will entail assessing the fair value of the net assets underlying
the Company's acquisition related goodwill on a business by business basis. If
the fair value is deemed less than the related carrying value, the Company will
be required to reduce the amount of the goodwill. These reductions will be made
retroactive to June 1, 2002. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The Company has applied the new accounting rules to goodwill and intangible
assets, all of which were acquired prior to July 1, 2001, during the quarter
ending August 31, 2002. As of August 31, 2002, the financial statements included
acquisition related goodwill of $26.6 million, net of previous amortization of
$6.8 million. Goodwill, net of amortization, totaled $18.3 million, $1.7
million, $0.7 million, $5.7 million and $0.2 million in the U.S., Germany,
Italy, Canada, and other, respectively. The process of implementing SFAS No. 142
has begun and will be completed during the first half of fiscal 2003. The
Company does not expect a substantial reduction in goodwill as a result of this
process. In addition, the Company no longer amortizes acquisition related
goodwill. The table below shows the periods ended August 31, 2002 and 2001 on a
comparative basis given the adoption of the amortization provisions of SFAS 142.
Quarters ended
August 31, August 31,
2002 2001
---------------- -----------------
Net income as reported $2,994,478 $1,252,676
Add: Goodwill amortization, net of taxes - 215,864
----------- -----------
Net income as adjusted for SFAS No. 142 $2,994,478 $1,468,540
Net income per basic share:
As reported $0.25 $0.11
As adjusted $0.25 $0.13
Net income per diluted share:
As reported $0.23 $0.11
As adjusted $0.23 $0.13
Excess of Cost Over Net Tangible Assets Acquired includes a $1.7 million
customer list. Accumulated amortization of the customer list as of August 31,
2002 and May 31, 2002, was $0.3 million and $0.3 million, respectively.
The customer list is being amortized over a useful life of 20 years. The
estimated amortization expense relating to the customer list for each of the
next five fiscal years is as follows:
2003 $ 85,000
2004 85,000
2005 85,000
2006 85,000
2007 85,000
Thereafter 970,000
---------------------
$ 1,395,000
=====================
9. LOAN AMENDMENT
On July 18, 2002, the Company amended the loan agreement. The amendment extended
the term of the lines of credit from February 28, 2003 to December 1, 2005.
Borrowings under the senior credit facility will be priced subject to a pricing
grid that varies based upon the Company's Funded Debt to EBITDA, as defined in
the senior credit facility. The interest rate on the effective date of the
amendment was LIBOR plus 200 basis points on the revolving lines of credit and
Term Loan A and LIBOR plus 250 basis points on Term Loan B. At August 31, 2002
there was approximately $23.9 million outstanding under the revolvers and Term
Loan A and approximately $6.0 million outstanding under Term Loan B. The Company
made a $4.5 million payment against the revolving line of credit in July 2002.
Pricing under the amendment did not change from the original loan agreement
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements that Immucor may make from time to time, including statements
contained in this report, constitute "forward-looking statements" under the
federal securities laws. Forward-looking statements may be identified by words
such as "plans," "expects," "believes," "anticipates," "estimates," "projects,"
"will" and other words of similar meaning used in conjunction with, among other
things, discussions of future operations, financial performance, product
development and new product launches, market position and expenditures. Factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, Immucor include the
following, some of which are described in greater detail below: the decision of
customers to defer capital spending, increased competition in the sale of
instruments and reagents, changes in interest rates and general economic
conditions. In addition, the strengthening of the dollar versus the Euro would
adversely impact reported European results. Investors are cautioned not to place
undue reliance on any forward-looking statements. Immucor cautions that
historical results should not be relied upon as indications of future
performance. Immucor assumes no obligation to update any forward-looking
statements.
Critical Accounting Policies
General
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 and Note 6 to the Consolidated Financial
Statements of this Quarterly Report on Form 10-Q. Note that our preparation of
this Form 10-Q requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting period. There can be no assurance that
actual results will not differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements ("SAB 101"), as amended by
SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. Should changes in
conditions cause management to determine these criteria are not met for certain
future transactions, revenue recognized for any reporting period could be
adversely affected. Revenue from the sale of the Company's reagents is
recognized upon shipment since both title and risk of loss transfers to the
customer upon shipment. Revenue from the sale of the Company's medical
instruments is recognized upon shipment and completion of contractual
obligations relating to training and/or installation based on terms of the
related agreements. Revenue from rentals of the Company's medical instruments is
recognized over the life of the rental agreement.
Allowance for Doubtful Accounts
Immucor maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
allowance is approximately 6.1% of the accounts receivable balance. The Company
continually monitors the collectibility of its customer accounts and when
indications arise that amounts are not likely to be collected, the amount is
charged to the allowance for doubtful accounts. If the financial condition of
Immucor's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances could be required.
Inventory
Inventories are stated at the lower of first-in, first-out cost or market. Cost
includes material, labor and manufacturing overhead. The Company uses a standard
cost system that applies labor and manufacturing overhead factors to inventory
based on budgeted production levels, staffing levels and costs of operation.
Actual costs and production levels may vary from the standard and will be
charged to the consolidated statement of operations as a component of cost of
sales.
Goodwill and Other Long-lived Assets
In assessing the recoverability of the Company's goodwill and other long-lived
assets the Company must make assumptions regarding estimated future cash flows
and other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
On June 1, 2002 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, and will be required to
analyze its goodwill and intangible assets for impairment on an annual basis or
more frequently if impairment indicators arise. In October 2001, the FASB issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The Statement supercedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, however it
retains the fundamental provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and used."
The Company adopted SFAS No. 144 effective June 1, 2002 without impact on its
financial position or results of operations.
Income Taxes
Our income tax policy records the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts reported
in the accompanying consolidated balance sheets, as well as operating loss and
tax credit carry-forwards. We follow very specific and detailed guidelines
regarding the recoverability of any tax assets recorded on the balance sheet and
provide any necessary allowances as required. The Company believes that the
value of the Company's net deferred tax assets assumes that the Company will be
able to generate sufficient future taxable income in certain tax jurisdictions,
based on estimates and assumptions. If these estimates and related assumptions
change in the future, the Company may be required to record additional valuation
allowances against its deferred tax assets resulting in additional income tax
expense in the Company's consolidated statements of operations. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, carry back opportunities, and tax
planning strategies in making this assessment. Management evaluates the
realizability of the deferred tax assets and assesses the need for additional
valuation allowances quarterly.
Financial Condition
As of August 31, 2002, the Company's cash and cash equivalents balance totaled
$5.5 million, an improvement of $1.5 million over the quarter ended May 31, 2002
and $1.4 million over the quarter ended August 31, 2001. Net working capital for
the period ended August 31, 2002 increased to $32.5 million, an improvement of
$5.3 million, from $27.1 million for the quarter ended May 31, 2002 and an
improvement of $11.0 million, from $21.4 million for the period ended August 31,
2001. The price increases implemented in fiscal 2002 have significantly
strengthened the Company's financial position. As a consequence, the Company
experienced a rise in the value of its stock and, as a result, option holders
have exercised a large number of options bringing an additional influx of cash.
The effect of exchange rate changes increased cash at August 31, 2002 by
approximately $0.8 million from May 31, 2002.
Net cash provided by operating activities totaled approximately $2.9 million,
$3.9 million, and $3.3 million for the three-month periods ended August 31,
2002, May 31, 2002 and August 31, 2001, respectively. During the quarter ended
August 31, 2002, the Company improved net income by $0.2 million over the
quarter ended May 31, 2002 and $1.7 million over the quarter ended August 31,
2001 that included one-time benefits of $0.2 million and $0.8 million,
respectively, for a legal settlement. Revenues were relatively consistent with
the quarter ended May 31, 2002 and $4.6 million higher than the quarter ended
August 31, 2001, as a result of reagent price increases in the United States.
Gross margin, as a percentage of sales, was 57.5%, 58.2% and 49.7% for the
three-month periods ended August 31, 2002, May 31, 2002 and August 31, 2001,
respectively. The current quarter was affected by unfavorable manufacturing
variances which are expected to improve over the course of the fiscal year.
During the quarter ended August 31, 2002, $0.9 million of cash was used in
investing activities for capital expenditures which included approximately $0.4
million for expansion of the Company's computer network capabilities, $0.2
million to refurbish the German facility and $0.3 million for manufacturing and
quality system improvements at its Norcross and Houston facilities. Planned
capital expenditures for fiscal 2003 total approximately $4.1 million, and
include approximately $0.3 million for U.S. clinical trial Galileo instruments,
approximately $1.3 million for Galileo reagent rental instruments installed in
Europe, $1.3 million for manufacturing and quality system improvements at its
domestic manufacturing facilities and $1.2 million for expansion of its computer
network capabilities.
Net cash used in financing activities totaled $1.3 million. During the quarter,
the Company paid $6.4 million of long-term debt, debt issue costs and capital
lease obligations. However, the Company received $5.2 million in cash from the
exercise of stock options. These options were granted in prior fiscal years and
provided for exercise prices equal to the market value of the Company's stock on
the date granted. The Company experienced a rise in the value of its stock
during the recently completed fiscal year and as a result option holders have
exercised a large number of options.
Accounts receivable decreased by approximately $0.8 million from May 31, 2002
due to improved U.S. collections. Inventory increased $0.7 million for the
period with the purchase of Galileo instruments for product launch, the purchase
of additional Rosys instruments, the timing of receipt of third-party
distributed product and the increase in shipping supplies for the implementation
of a new shipping package configuration designed to maintain acceptable
environmental temperature and preserve product quality during shipment. In
August 2002, Immucor placed an order, amounting to $3.3 million, for 50
additional ABS2000 instruments to be delivered starting in February 2003. Income
tax refund receivable decreased due to the refund of tax overpayments in the
German subsidiary. Prepaid and other assets decreased by $0.1 million due
primarily to receipts of amounts due from financial institutions upon exercise
of stock options. Other long-term assets decreased in the quarter ended August
31, 2002 primarily as a result of amortization of debt issue costs. Deferred
licensing costs declined due to normal amortization and excess of cost over net
tangible assets acquired increased due to the exchange rate effect of the Euro
on the Company's European subsidiaries.
Accounts payable decreased by $0.4 million due to increased funds available from
the exercise of stock options. The current income tax liability decreased due to
estimated tax payments made during the quarter and the tax benefit of $1.7
million related to the stock option exercises. Other current liabilities
decreased by $1.0 million as the May 31, 2002 year-end accrual for executive,
management and supervisory bonuses and other accruals for legal, audit and
royalties fees were paid during the current quarter. Other long-term liabilities
increased by $0.1 million primarily due to the change in value of the interest
rate swap agreement.
Common stock and additional paid-in capital increased by an aggregate of $6.6
million primarily due to the exercise of stock options, described above, and the
related tax benefit. Also, common stock increased and retained earnings
decreased by $0.4 million due to the effect of the three-for-two stock split on
September 13, 2002. Retained earnings and (comprehensive loss) improved by $3.3
million due to the earnings for the year and favorable changes in the net
foreign exchange translation. The financial statements of foreign subsidiaries
have been translated into U.S. dollars in accordance with FASB Statement No. 52,
Foreign Currency Translation. All balance sheet accounts have been translated
using the exchange rates in effect at the balance sheet dates. Income statement
amounts have been translated using the average exchange rates for each period.
The gains and losses resulting from the changes in exchange rates from year to
year have been reported separately as a component of comprehensive income
(loss). The effect of foreign currency transaction gains and losses has been
recorded in the accompanying statements of operations.
In July, 2002, the Company and its primary lender amended their loan agreement
to extend the term of the existing revolving lines of credit from February 28,
2003 to December 1, 2005. Borrowings under the senior credit facility were
re-priced according to a price that varies based upon the Company's ratio of
Funded Debt to EBITDA, as defined in the senior credit facility. The interest
rate on the effective date of the amendment was LIBOR plus a spread of 200 basis
points on the revolving lines of credit and Term Loan A and LIBOR plus a spread
of 250 basis points on the Term Loan B.
Management is focused on reducing the leverage on the Company's balance sheet
and does not anticipate that there will be a need for additional borrowings.
Management expects that cash and cash equivalents and internally generated funds
will be sufficient to support operations, scheduled debt repayments and planned
capital expenditures for the next 12 months, as well as fund future long-term
debt payments.
Results of Operations
For the quarter ended August 31, 2002 revenues totaled $23.2 million, a $4.6
million, or 24.5% increase over the quarter ended August 31, 2001. The increase
in revenues occurred predominantly as a result of reagent price increases in the
United States. Income before income taxes reached $4.7 million for the quarter
compared to income before tax of $1.5 million for the prior year quarter. Net
income increased to $3.0 million versus net income of $1.3 million in the same
period last year. Diluted earnings per share were $0.23 on 13.2 million weighted
average shares outstanding compared with $0.11 on 10.9 million weighted average
shares outstanding, adjusted for the three-for-two stock split on September 13,
2002, for the same period last year. The rise in the Company's stock price over
the past year has increased the dilutive effect of stock options and warrants by
approximately 1.0 million shares that are used to arrive at diluted earnings per
share. Earnings before interest, taxes, depreciation and amortization (EBITDA)
were $6.6 million and compare favorably with last year's EBITDA, (excluding the
$0.8 million Becton Dickson settlement), of $3.2 million.
Net sales
Reagent revenues grew to $22.0 million compared to $17.8 million in the first
quarter of fiscal 2001, a 23.6% increase. The Company believes growth in reagent
revenue occurred as a result of price increases in North America, new customers
and volume increases in proprietary Capture(R) products. Sales of instruments
during the quarter were better than expected at $1.2 million as compared to $0.8
million in the previous year. Instrument sales grew as a result of new
placements and concentrated efforts to reduce the backlog of instruments
installed but not recorded as revenue due to post installation criteria. The
instrument backlog currently stands at $0.7 million. The effect on revenues of
the change in the Euro exchange rate was an increase of $645,000 for the quarter
ended August 31, 2002.
Cost of Sales
Cost of sales, as a percentage of sales, totaled 42.5% versus 50.3% for the same
period in the prior year. Cost of sales increased approximately $0.5 million, as
compared to the prior year. The effect on cost of sales of the change in the
Euro exchange rate accounted for approximately $0.3 million of the increase and
the remainder was as a result of unfavorable manufacturing variances which are
expected to improve over the course of the fiscal year.
Operating expenses
When compared to the prior year, research and development costs for the quarter
ended August 31, 2002 declined 24.9% from the prior year period primarily
related to a reduction of instrument development initiatives with the initial
launch of the Galileo in the European market. The instrument is being marketed
exclusively by Immucor to hospital transfusion laboratories and blood donor
centers for patient and donor blood typing and antibody screening and
identification.
Selling and marketing expenses increased $0.5 million for the quarter ended
August 31, 2002 as compared to the prior year period. The domestic reagent price
increases resulted in an equivalent rise in commissions. Travel and marketing
expenses increased with sales effort in Europe to market the Galileo.
Distribution expenses for the quarter ended August 31, 2002 increased by $0.1
million compared to the prior year. There were additional shipping expenses
related to new customers and volume increases in proprietary Capture(R)
products, as well as, the implementation of a new shipping package configuration
designed to maintain acceptable environmental temperature and preserve product
quality during shipment.
General and administrative expenses for the quarter ended August 31, 2002 rose
approximately $0.3 million, but declined as a percentage of sales to 9.5% for
the quarter ended August 31, 2002 from 10.5% for the quarter ended August 31,
2001. The increase was largely due to increased professional fees for computer
software improvements as the Company began its second year on its enterprise
software system.
Amortization expense declined $0.3 million as compared with the prior period due
to the adoption of SFAS No.142, Goodwill and Other Intangible Assets, which
requires goodwill and indefinite lived intangible assets to be reviewed annually
for impairment, or more frequently if impairment factors arise, instead of
amortized. The Company does not currently note any indications of impairment and
expects amortization will be approximately $1.2 million less in fiscal 2003 than
in fiscal 2002.
Interest expense
When compared to the prior year, interest expense decreased $0.3 million in the
quarter ended August 31, 2002. The decrease is the result of the reduced
borrowings on long-term debt and a more favorable interest rate that became
effective in May 2002 under the original loan agreement and continued with the
July 2002 amendment to the loan agreement. The amortization of debt issue costs
that is charged to interest expense was lower in the current quarter due to the
reset of the long-term debt maturity dates.
Other income (expense)
Other income for the first quarter of fiscal 2002 was positively impacted by
$0.8 million from the settlement of the Becton, Dickinson arbitration. The
settlement called for Becton to pay Immucor, Inc. a total of $1.8 million,
payable in two installments, with a $1.2 million payment received in the first
quarter of 2002. The current quarter other expense primarily reflected foreign
currency translation losses that exceeded foreign currency translation gains.
Income taxes
Income tax expense increased for the quarter ended August 31, 2002, as compared
to the prior period, due to higher income in the current period and utilization
of net operating loss carry-forwards in the prior period. During the fourth
quarter of fiscal 2001, the Company elected to record a valuation allowance in
an amount equal to the net deferred tax assets of the Company, amounting to $1.2
million. Effectively, this non-cash allowance reflected the elimination of
domestic deferred taxes as a balance sheet asset and was used to reduce domestic
taxes in fiscal 2002. The net operating loss carry-forwards generated in fiscal
2001 also reduced the fiscal 2002 United States tax provision and were fully
utilized by the quarter ended February 28, 2002.
Competition
Competition is based on quality of product, price, sales force talent, ability
to furnish a range of existing and new products, customer services and
continuity of product supply. During the past several years, the industry has
experienced aggressive price competition, particularly among manufacturers that
target large hospitals and institutions as key customers. In spite of this
competitive environment, the Company has maintained its worldwide sales and
increased its domestic reagent market share. Management believes that this is
due to the Company's emphasis on product quality, the introduction of new
products, specialty products, customer service and training. With the Company's
fiscal 1999 purchases of Gamma and the assets of the BCA blood bank division of
Biopool International, Inc., the Company believes that Ortho Clinical
Diagnostics, a Johnson & Johnson company, is now its sole competitor with
licenses to manufacture a complete line of blood banking reagents in the United
States. The Company believes that it became the North American market leader in
terms of sales during fiscal 1999.
Olympus America Inc. has developed an automated analyzer for the blood donor
market. The instrument performs only ABO/Rh testing and does not perform
antibody screening. The Olympus instrument users currently dilute commercial ABO
and Rh reagents for the machine's use. Gamma began developing diluted
ready-for-use reagents for Olympus several years ago. Gamma has received
clearance from the FDA for six of the reagents and is awaiting clearance for the
seventh. Management does not believe the Olympus instrument will have an effect
on its instrument strategy in North America.
Biotest AG, a German Pharmaceutical and Diagnostic company, presently has FDA
licenses for six reagent products. Management does not believe Biotest will
provide a material competitive threat in the U.S. in the near future since their
product line is incomplete and there is no evidence that Biotest will be in a
position, in the near term, to market a complete commercially-viable product
line.
European competitors for blood bank products include Biotest and Diamed, a Swiss
company. Both of these companies have been established longer than the Company
and may have greater financial and other resources than the Company. Diamed has
a larger global market share than the Company. However, the Company believes
that it is well positioned to compete favorably in the business principally
because of the completeness of its product line, quality and price of its
products, the sale of innovative products such as blood bank automation, the
Company's Capture(R) products, continuing research efforts in the area of blood
bank automation, the experience and expertise of its sales personnel and the
expertise of its technical and customer support staff.
ITEM 3. Quantitative and Qualitative Disclosures On Market Risk
There have been no material changes regarding the Company's market risk position
from the information provided in its Annual Report on Form 10-K for the fiscal
year ended May 31, 2002. The quantitative and qualitative disclosures about
market risk are discussed in Item 7A-Quantitative and Qualitative Disclosures
About Market Risk, contained in the Company's Annual Report on Form 10-K.
ITEM 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) The Company has filed the following exhibits with this report.
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Immucor, Inc.'s quarterly report on Form
10-Q filed on January 16, 2001).
3.2 Amended and Restated Bylaws (amended and restated as of February 12,
2002) (incorporated by reference to Exhibit 3.2 to Immucor, Inc.'s
quarterly report on Form 10-Q filed on April 11, 2002).
4.1 Amended and Restated Shareholder Rights Agreement dated as of November
20, 2001 between Immucor, Inc. and EquiServe Trust Company, N.A. as
Rights Agent (incorporated by reference to Exhibit 4.1 to Immucor,
Inc.'s quarterly report on Form 10-Q filed on January 14, 2002).
(b) The Company did not file any reports on Form 8-K during the three months
ended August 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMUCOR, INC.
(Registrant)
Date: October 11, 2002 By: /s/ Edward L. Gallup
----------------- --------------------
Edward L. Gallup, President and Chief Executive
Officer (on behalf of Registrant and as
Principal Executive Officer)
/s/ Steven C. Ramsey
--------------------
Steven C. Ramsey, Senior Vice President - Finance
(Principal Accounting Officer)
CERTIFICATIONS
I, Edward L. Gallup, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Immucor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 11, 2002
/s/ Edward L. Gallup
- --------------------
Edward L. Gallup,
President (Chief Executive Officer)
I, Steven C. Ramsey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Immucor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 11, 2002
/s/ Steven C. Ramsey
- --------------------
Steven C. Ramsey,
Senior Vice President - Finance (Chief Accounting Officer)
EXHIBIT INDEX
Number Description
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Immucor, Inc.'s quarterly report on Form
10-Q filed on January 16, 2001).
3.2 Amended and Restated Bylaws (amended and restated as of February 12,
2002) (incorporated by reference to Exhibit 3.2 to Immucor, Inc.'s
quarterly report on Form 10-Q filed on April 11, 2002).
4.1 Amended and Restated Shareholder Rights Agreement dated as of November
20, 2001 between Immucor, Inc. and EquiServe Trust Company, N.A. as
Rights Agent (incorporated by reference to Exhibit 4.1 to Immucor,
Inc.'s quarterly report on Form 10-Q filed on January 14, 2002).