FORM 10-Q
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, 1998
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 2, 1998: Common Stock, $. 10 Par Value - 7,731,818
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Balance Sheets
August 31, May 31,
ASSETS 1998 1998
(Unaudited) (Audited)
------------- -------------
Current assets:
Cash and cash equivalents $12,700,154 $15,816,217
Accounts receivable, net 12,455,905 12,214,270
Accounts receivable, other 136,752 695,430
Inventories 8,377,012 8,462,850
Income taxes receivable 41,079 95,166
Deferred income taxes 377,875 370,029
Other assets 981,048 447,661
------------- -------------
Total current assets 35,069,825 38,101,623
Long-term investment 1,000,000 1,000,000
Property and equipment, at cost 11,119,813 10,505,766
less accumulated depreciation (4,282,398) (4,486,974)
------------- --------------
6,837,415 6,018,792
Other assets, net 737,345 801,779
Excess of cost over net tangible
assets acquired, net 10,987,012 11,622,082
------------- --------------
$54,631,597 $57,544,276
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank line of credit
agreements $350,995 $359,325
Accounts payable 3,839,557 3,069,973
Income taxes payable 323,301 359,598
Accrued salaries and wages 783,994 862,550
Other accrued liabilities 417,768 501,739
------------- --------------
Total current liabilities 5,715,615 5,153,185
Long-term debt 7,821,608 8,911,727
Deferred income taxes 1,094,422 1,046,814
Shareholders' equity:
Common stock, $.10 par value 776,307 807,881
Additional paid-in capital 19,104,120 22,079,468
Retained earnings 22,565,708 21,937,697
Accumulated other comprehensive loss (2,446,183) (2,392,496)
------------- --------------
Total shareholders' equity 39,999,952 42,432,550
------------- --------------
$54,631,597 $57,544,276
============= ==============
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
August 31, August 31,
1998 1997
---------------- ---------------
Net sales $10,358,465 $9,273,479
Cost of sales 4,652,683 3,847,381
---------------- ---------------
Gross profit 5,705,782 5,426,098
Research and development 290,027 261,299
Selling, general and administrative 4,382,663 4,160,979
---------------- ---------------
Total operating expenses 4,672,690 4,422,278
---------------- ---------------
Income from operations 1,033,092 1,003,820
Interest income 175,032 212,796
Interest expense (134,087) (166,615)
Other income (expense) 36,754 (23,098)
---------------- ---------------
Total other 77,699 23,083
---------------- ---------------
Income before income taxes 1,110,791 1,026,903
Income taxes 482,780 469,248
---------------- ---------------
Net income $628,011 $557,655
================ ===============
Earnings per share:
Basic and diluted $0.08 $0.07
================ ===============
Weighted average shares outstanding:
Basic 8,002,063 8,080,324
================ ===============
Diluted 8,283,567 8,400,726
================ ===============
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
August 31, August 31,
1998 1997
------------ ------------
OPERATING ACTIVITIES:
Net income $628,011 $557,655
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 369,761 365,201
Amortization 140,496 151,725
Changes in assets and liabilities:
Accounts receivable (241,635) 119,552
Accounts receivable, other 558,678 (22,588)
Income tax receivable 54,087 2,045
Inventories 85,838 (1,055,950)
Other current assets (479,273) (61,887)
Accounts payable 769,584 306,145
Income taxes payable (36,297) 87,426
Other current liabilities (114,918) (76,869)
------------ ------------
Cash provided by operating activities 1,734,332 372,455
INVESTING ACTIVITIES:
Purchase of/deposits on property and equipment (1,238,336) (465,906)
Decrease in other assets 0 4,831
------------ ------------
Cash used in investing activities (1,238,336) (461,075)
FINANCING ACTIVITIES:
Borrowings under line of credit agreements 0 67,147
Repayment of notes payable (564,041) (5,035)
Exercise of stock options and warrants 1,231,444 11,250
Purchase and retirement of stock (478,700 shares) (4,238,366) 0
------------ ------------
Cash provided by (used in) financing activities (3,570,963) 73,362
EFFECT OF EXCHANGE RATE CHANGES ON CASH (41,096) (483,303)
------------ ------------
DECREASE IN CASH
AND CASH EQUIVALENTS (3,116,063) (498,561)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 15,816,217 15,718,234
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $12,700,154 $15,219,673
============ ============
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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,
1998, 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, 1998 are not necessarily indicative of the results that may be
expected for the year ending May 31, 1999. 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, 1998.
2. INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market:
As of As of
August 31, 1998 May 31, 1998
----------------- ----------------
Raw materials and supplies $2,653,718 $2,668,444
Work in process 726,264 762,475
Finished goods 4,997,030 5,031,931
================= ================
$8,377,012 $8,462,850
================= ================
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("Statement 128").
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements. The following table sets
forth the computation of basic and diluted earnings per share.
Three Months Ended
August 31, August 31,
1998 1997
------------- -------------
Numerator for basic and diluted earnings per share:
Income available to common shareholders $628,011 $557,655
============= =============
Denominator:
For basic earnings per share - weighted
average basis 8,002,063 8,080,324
Effect of dilutive stock options and warrants 281,504 320,402
------------- -------------
Denominator for diluted earnings per share -
adjusted weighted-average shares 8,283,567 8,400,726
============= =============
Basic earnings per share $0.08 $0.07
============= =============
Diluted earnings per share $0.08 $0.07
============= =============
<PAGE>
4. DOMESTIC AND FOREIGN OPERATIONS
Information concerning the Company's domestic and foreign operations is
summarized below (in 000s):
<TABLE>
<CAPTION>
Three Months Ended August 31, 1998
--------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $4,949 $2,422 $1,514 $1,186 $287 $ - $10,358
Affiliates 976 89 - 68 - (1,133) -
---------- ---------- ---------- ---------- --------- ------------ ------------
Total 5,925 2,511 1,514 1,254 287 (1,133) 10,358
Income from operations 262 336 122 340 7 (34) 1,033
Identifiable assets 29,850 8,825 10,305 8,977 1,602 (4,927) 54,632
Net assets 42,422 4,493 (1,043) 1,408 745 (8,025) 40,000
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended August 31, 1997
--------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $4,409 $2,271 $1,344 $1,071 $178 $ - $9,273
Affiliates 1,053 86 18 28 - (1,185) -
---------- ---------- ---------- ---------- --------- ------------ ------------
Total 5,462 2,357 1,362 1,099 178 1,185 9,273
Income from operations 320 220 134 340 20 (30) 1,004
Identifiable assets 31,916 8,508 9,412 10,200 1,091 (3,456) 57,671
Net assets 44,646 3,759 (1,327) 1,233 101 (7,402) 41,010
</TABLE>
During the three months ended August 31, 1998 and 1997, the Company's U.S.
operation made net export sales to unaffiliated customers of approximately
$831,000 and $779,000, respectively. The Company's German operation made net
export sales to unaffiliated customers of $288,000 and $275,000 for the three
months ended August 31, 1998 and 1997, respectively. The Company's Canadian
operation made export net sales to unaffiliated customers of $811,000 and
$755,000 for the three months ended August 31, 1998 and 1997, respectively.
Product sales to affiliates are valued at market prices.
5. COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
new standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. These new standards require that all items
recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Statement 130 is effective for fiscal years beginning after December
15, 1997. The Company adopted Statement 130 on June 1, 1998 and has not
presented a statement of comprehensive income because the effect of the
components of comprehensive income is not material to its consolidated financial
statements. For the three months ended August 31, 1998 and 1997, total
comprehensive income (loss) was $574,324 and ($222,579), respectively, which is
comprised of net income and other comprehensive losses. Other comprehensive
losses for the three months ended August 31, 1998 and 1997 were ($53,687) and
($780,234), respectively, and consisted of losses on foreign currency
translation adjustments. Accumulated other comprehensive loss as of August 31,
1998 was ($2,446,183). The balance consists of net losses on foreign currency
translation adjustments and has been disclosed in the shareholders' equity
section of the condensed consolidated balance sheet.
<PAGE>
6. ACCOUNTS RECEIVABLE, OTHER
In fiscal 1997, Mr. Josef Wilms, the former president of the Company's German
subsidiary, Immucor GmbH, borrowed, prior to his resignation, $300,000 from the
Company at 6% interest, secured by his warrants to purchase 143,750 shares of
the Company's Common Stock. At May 31, 1998 the loan receivable including
interest totaled $167,000, and at August 31, 1998 the loan and all accrued
interest was fully paid.
In July 1997, management of the Company discovered that Mr. Wilms had caused
Immucor GmbH to make unauthorized loans to him since 1994. The amounts advanced
were documented in the records of Immucor GmbH, including interest rates ranging
from 7.75% to 9.5%, and were generally paid down by the end of each accounting
period, but were not disclosed to the Company's management. The largest
aggregate amounts outstanding under the Immucor GmbH loans were $29,600 in
fiscal 1994, $290,000 in fiscal 1995, $669,000 in fiscal 1996 and $1,311,000 in
fiscal 1997. At May 31, 1998 the amount receivable was approximately $1,300,000
and at August 31, 1998 the loan receivable balance was approximately $137,000.
Mr. Wilms and his family have granted liens on certain property owned by them to
collateralize the loans from the Company. The Company believes it has adequate
collateral to extinguish the remaining debt and, with Mr. Wilm's assistance, is
arranging for the liquidation of this collateral.
7. SUBSEQUENT EVENTS
On September 21, 1998 the Company announced it had entered into a definitive
merger agreement with Gamma Biologicals Inc. under which Gamma Acquisition
Corporation, an Immucor subsidiary, will commence a cash tender offer to acquire
all the outstanding shares of Gamma Biologicals, Inc. for $5.40 per share
followed by a cash merger at the same price. The transaction has been
unanimously approved by the Board of Directors of each company. Upon completion
of the transaction, Gamma Biologicals, Inc. will operate as a wholly owned
subsidiary of Immucor, Inc. The cash tender offer of $5.40 for each Gamma
Biologicals, Inc. share represents a total transaction value of approximately
$25 million. The tender offer is not conditioned upon financing. Subject to
satisfaction of customary closing conditions the Company expects the transaction
to close by October 23, 1998.
On September 1, 1998 the Company acquired the Canadian distribution rights for
the Company's complete line of reagents from its Canadian distributor Immucor
Canada, Inc. for cash consideration of $1.7 million.
<PAGE>
IMMUCOR, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Any statements contained herein that are not historical fact are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Further risks are
detailed in the Company's filings with the Securities and Exchange Commission,
including those set forth in its Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.
Financial Condition and Liquidity:
During the quarter the Company increased its profitability, generated
positive cash flow from operations, and maintained positive working capital. As
of August 31, 1998, the Company's cash position totaled $12,700,154. For the
three months ended August 31, 1998, the Company generated cash from operating
activities of $1,734,332, repaid $564,041 of bank debt in Germany and Canada and
purchased property and equipment of $1,238,336. In June 1997, the Company
authorized a program to repurchase up to 10% of its common stock in the open
market. During the three month period ended August 31, 1998 the Company
repurchased approximately 478,700 shares of its common stock for $4,238,366
under the program. To date 582,000 shares have been purchased under the 1997
program. On August 26, 1998, the Board of Directors authorized the Company to
repurchase up to an additional 800,000 shares of its common stock. The exercise
of approximately 163,000 stock options and warrants provided $1,231,444 in cash.
Management believes that the Company's current cash and cash equivalents
balance, internally generated funds, and amounts available under the lines of
credit should be more than sufficient to support operations to support planned
product introduction and continued improvement and development of products
during the next 12 months. Management also believes additional credit lines
would be available should the need arise for capital improvements, acquisitions
or other corporate purposes.
Results of Operations:
Net sales
Net sales for the three months ended August 31, 1998 totaled $10,358,465, an
increase of $1,084,986 over last year's $9,273,479. Sales increased by $463,565
in the United States primarily due to sales growth of traditional reagents to
large national buying groups. Pursuing these groups was the Company's strategy
to gain market share for traditional reagents and to provide the opportunity for
future instrumentation sales. These buying groups demand most favorable pricing,
and control over 80% of all purchasing decisions in the U.S. In addition, sales
by the Company's Canadian and European subsidiaries increased 13% over last
year's total. The strength of the U.S. Dollar against most major currencies
during the quarter as compared to the same period last year caused a decrease in
the Dollar equivalent product sales revenue. Recorded in their functional
currencies, the increase was 15% and was also primarily due to traditional
reagent sales.
Gross profit
As a percent of sales, gross profit for the three months ended August 31,
1998 totaled 55% versus 58.5% for the same period in 1997. In the U.S., the
decline in gross profit margin was caused by increased national contract
participation and product mix. In the Company's European and Canadian
operations, the reduction in gross profit margin was principally caused by
increased instrument sales. Due to the timing of the sales, the Company has not
recognized the full benefit of the associated reagent sales during this quarter.
The Company expects increased reagent sales in future quarters due to the
placement of these instruments which will positively affect the gross profit
margin.
<PAGE>
Operating expenses
As compared to the prior year, research and development costs increased
$28,728 for the three month period due to increased instrument related
development costs.
Selling, general and administrative expenses increased $221,684 for the
three month period as compared to the same period last year. The increase is
primarily due to the effect of higher payroll expense due to additional
personnel required for the Company's instrumentation strategy.
Interest income
Interest income decreased $37,764 for the quarter due to lower cash balances
as compared to last year.
Interest expense
When compared to the prior year three month period, interest expense
declined $32,528 which was caused by the repayment of bank debt in Germany and
Canada.
Other income(expense)
Other income increased for the three month period as compared to the prior
year due to a gain on sale of certain assets in Europe during the current period
compared to higher currency transaction losses incurred in Europe last year.
Income taxes
Income tax expense as a percent of pretax income, decreased during the three
month period ended August 31, 1998 due to lower taxes provided in Germany as
compared to the prior period as a result of the Company's ongoing implementation
of tax planning strategies.
Year 2000
The Company is aware of the issues that many companies will face as the
year 2000 approaches. In order to become year 2000 compliant, the Company has
set up a project team to address the issue and has taken the following steps:
Impact Assessment- Instances where electronics are used in the Company and
the associated potential risks have been identified. The Company believes that
non-information technology systems and its products are not significantly
impacted. However, internal business information software is affected and will
require program changes in order to become year 2000 compliant.
Third Party Impact Assessment - The Company has begun to verify the
readiness of its significant suppliers and customers through the distribution of
a questionnaire. Although this process is not complete, based on information
available, the Company has no reason to believe that any year 2000 problems
encountered by customers and suppliers will have a significant effect on the
Company's operations. The Company estimates that this assessment will be
completed by February 1999.
<PAGE>
Project Plan - Based on the impact assessment, the need to make software
program changes to the Company's internal business information software has been
identified. In Europe, minor software program changes to existing systems are
being made at a nominal cost making them year 2000 compliant before the summer
of 1999. In North America, since the Company had already planned to implement a
new enterprise wide internal business information software system by September
1999, the need to make software changes to the existing system are for the most
part not required. The Company is currently identifying which software package
to implement and ensuring that the system is year 2000 compliant. The Company
had originally planned to identify a software package by September 1998 and has
decided to delay the decision until November 1998 due to a potential
acquisition. This delay has caused the rescheduling of the Company's
implementation plan. The software should be installed by February 1999, tested
and modified by October 1999 and be operating by November 1999. The Company will
set milestone completion dates during the implementation period of the new
software and be monitoring progress closely.
Contingency Plan - The risk the Company faces is a delay in the
implementation of the new internal business information software. The Company is
uncertain what the costs associated with a delay would be or the related impact
on operations, liquidity and financial condition. Because of this, the Company
has in place a contingency plan which would be put into effect should
implementation milestones not be met. If by April 1999, it is determined that an
October testing and modification milestone cannot be completed, the Company will
begin to make program modifications to the existing internal business software.
The Company estimates that all modifications and testing can be completed within
two months at a cost of less than $20,000 which will be expensed as incurred.
Expenses to date are nominal.
The Company believes that it is diligently addressing the year 2000 issue
and expects that through its actions year 2000 problems are not reasonably
likely to have a material adverse effect on the Company's operations. There can
be no assurance that such problems will not arise.
<PAGE>
PART 11 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company has filed the following exhibits with this report:
27 Financial data schedule.
(b) The Company did not file any reports on Form 8-K during the three
months ended August 31, 1998.
<PAGE>
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 13, 1998
Edward L. Gallup Edward L. Gallup, President
Steven C. Ramsey Steven C. Ramsey, Senior Vice President - Finance
(Principal Accounting Officer)
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