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: February 28, 1999
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 April 10, 1999: Common Stock, $. 10 Par Value - 7,438,405
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Balance Sheets
February 28 May 31,
ASSETS 1999 1998
(Unaudited) (Audited)
---------------- ---------------
Current assets:
Cash and cash equivalents $1,720,774 $15,816,217
Accounts receivable, net 19,561,186 12,214,270
Accounts receivable, other 168,963 695,430
Inventories 14,103,333 8,462,850
Income taxes receivable 126,544 95,166
Deferred income taxes 380,123 370,029
Other assets 1,012,016 447,661
---------------- ---------------
Total current assets 37,072,939 38,101,623
Long-term investment 1,000,000 1,000,000
Property and equipment, at cost 19,992,891 10,505,766
less accumulated depreciation (5,351,086) (4,486,974)
---------------- ---------------
14,641,805 6,018,792
Other assets, net 2,982,341 801,779
Cash value of life insurance 1,580,664 0
Excess of cost over net tangible
assets acquired, net 27,851,389 11,622,082
---------------- ---------------
$85,129,138 $57,544,276
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $534,036 $359,325
Accounts payable 5,661,877 3,069,973
Income taxes payable 302,699 359,598
Accrued salaries and wages 724,631 862,550
Other accrued liabilities 1,564,475 501,739
---------------- ---------------
Total current liabilities 8,787,718 5,153,185
Long-term obligations 33,444,459 8,911,727
Deferred income taxes 1,403,458 1,046,814
Other liabilities 2,917,738 0
Shareholders' equity:
Common stock, $.10 par value 743,691 807,881
Additional paid-in capital 16,120,647 22,079,468
Retained earnings 24,257,873 21,937,697
Accumulated other comprehensive loss (2,546,446) (2,392,496)
---------------- ---------------
Total shareholders' equity 38,575,765 42,432,550
---------------- ---------------
$85,129,138 $57,544,276
================ ===============
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $16,758,106 $10,155,231 $40,782,061 $29,620,819
Cost of sales 7,589,998 4,792,144 18,558,724 13,401,159
---------------- --------------- ---------------- ----------------
Gross profit 9,168,108 5,363,087 22,223,337 16,219,660
Research and development 413,335 259,188 1,000,707 728,566
Selling and marketing 3,045,981 1,789,660 7,337,310 5,317,683
Distribution 964,498 571,134 2,262,647 1,738,740
General and administrative 2,339,135 1,683,030 6,132,643 5,097,192
Merger-related expenses 120,331 0 432,692 0
Amortization expense 329,543 144,168 710,777 446,687
---------------- --------------- ---------------- ----------------
Total operating expenses 7,212,823 4,447,180 17,876,776 13,328,868
---------------- --------------- ---------------- ----------------
Income from operations 1,955,285 915,907 4,346,561 2,890,792
Interest income 19,697 189,763 305,630 588,259
Interest expense (516,843) (155,794) (903,322) (474,895)
Other income (expense) 18,268 (94,630) 93,695 (104,602)
---------------- --------------- ---------------- ----------------
Total other (478,878) (60,661) (503,997) 8,762
---------------- --------------- ---------------- ----------------
Income before income taxes 1,476,407 855,246 3,842,564 2,899,554
Income taxes 500,310 390,023 1,522,388 1,330,269
---------------- --------------- ---------------- ----------------
Net income $976,097 $465,223 $2,320,176 $1,569,285
================ =============== ================ ================
Earnings per share:
Basic $0.13 $0.06 $0.30 $0.19
================ =============== ================ ================
Diluted $0.13 $0.06 $0.29 $0.19
================ =============== ================ ================
Weighted average shares outstanding:
Basic 7,459,589 8,090,594 7,711,459 8,089,905
================ =============== ================ ================
Diluted 7,720,680 8,408,038 7,981,352 8,459,165
================ =============== ================ ================
</TABLE>
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 28, February 28,
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,320,176 $1,569,285
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,219,312 1,017,668
Amortization 710,777 443,364
Changes in assets and liabilities:
Accounts receivable (3,755,190) (1,085,086)
Accounts receivable, other 526,467 95,362
Income tax receivable 233,246 (1,946)
Inventories (1,955,139) (190,668)
Other current assets 245,457 (204,369)
Accounts payable 1,294,808 (956,678)
Income taxes payable (89,989) 64,207
Other current liabilities 385,006 267,841
------------- -------------
Cash provided by operating activities 1,134,930 1,018,980
INVESTING ACTIVITIES:
Purchase of / deposits on property and equipment (2,344,313) (974,703)
Cash paid for acquisition, net of cash acquired (25,658,125) 0
Acquisition-related severance (1,957,940) 0
Increase / decrease in other assets (3,222,946) 34,822
------------- -------------
Cash used in investing activities (33,183,324) (939,881)
FINANCING ACTIVITIES:
Borrowings under line of credit agreements 25,200,000 0
Repayment of notes payable / line of credit (1,299,200) (842,427)
Exercise of stock options and warrants 1,330,996 328,911
Purchase and retirement of stock (7,354,007) (151,615)
------------- -------------
Cash provided by (used in) financing activities 17,877,789 (665,131)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 75,163 (552,627)
------------- -------------
DECREASE IN CASH
AND CASH EQUIVALENTS (14,095,443) (1,138,659)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 15,816,217 15,718,234
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $1,720,774 $14,579,575
============= =============
Noncash investing and financing activities:
Fair value of assets acquired $17,757,750
Cost in excess of assets acquired 17,078,722
Liabilities assumed (9,178,347)
=============
Net cash paid for acquisition $25,658,125
=============
</TABLE>
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 nine month period
ended February 28, 1999 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
February 28, 1999 May 31, 1998
-------------------- -------------------
Raw materials and supplies $3,217,761 $2,668,444
Work in process 901,738 762,475
Finished goods 9,983,834 5,031,931
==================== ===================
$14,103,333 $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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Income available to common shareholders $976,097 $465,223 $2,320,176 $1,569,285
================ =============== ================ ===============
Denominator:
For basic earnings per share - weighted
average basis 7,459,589 8,090,594 7,711,459 8,089,905
Effect of dilutive stock options and warrants 261,091 317,444 269,893 369,260
---------------- --------------- ---------------- ---------------
Denominator for diluted earnings per share -
adjusted weighted-average shares 7,720,680 8,408,038 7,981,352 8,459,165
================ =============== ================ ===============
Basic earnings per share $0.13 $0.06 $0.30 $0.19
================ =============== ================ ===============
Diluted earnings per share $0.13 $0.06 $0.29 $0.19
================ =============== ================ ===============
</TABLE>
<PAGE>
4. DOMESTIC AND FOREIGN OPERATIONS
Information concerning the Company's domestic and foreign operations is
summarized below (in 000s):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the Three Months Ended February 28, 1999
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $10,633 $2,619 $1,684 $937 $885 $ - $16,758
Affiliates 1,366 88 16 30 - (1,500) -
---------- ---------- ---------- ---------- --------- ------------ -------------
Total 11,999 2,707 1700 967 885 (1,500) 16,758
Income from operations 1,122 464 196 198 (27) 2 1,955
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
For the Three Months Ended February 28, 1998
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $5,047 $2,358 $1,443 $1,121 $186 $ - $10,155
Affiliates 901 61 - 45 - (1007) -
---------- ---------- ---------- ---------- --------- ------------ -------------
Total 5,948 2,419 1,443 1,166 186 (1007) 10,155
Income from operations 185 259 128 306 27 11 916
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the Nine Months Ended February 28, 1999
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $23,131 $7,697 $5,083 $3,153 $1,718 $ - $40,782
Affiliates 3,413 255 16 123 - (3,807) -
---------- ---------- ---------- ---------- --------- ------------ -------------
Total 26,544 7,952 5,099 3,276 1,718 (3,807) 40,782
Income from operations 1,671 1,224 587 821 64 (20) 4,347
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the Nine Months Ended February 28, 1998
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $14,570 $7,041 $4,244 $3,200 $566 $ - $29,621
Affiliates 2,746 208 18 115 - (3,087) -
---------- ---------- ---------- ---------- --------- ------------ -------------
Total 17,316 7,249 4,262 3,315 566 (3,087) 29,621
Income from operations 667 784 392 965 79 4 2,891
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------- -----------------------------------------
February 28, 1999 May 31, 1998
----------------------------------------- -----------------------------------------
Total Total
Long-lived Identifiable Long-lived Identifiable
Assets Assets Net Assets Assets Assets Net Assets
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. $49,043 $73,375 $40,296 $19,826 $47,293 $45,060
Germany 4,040 8,378 4,852 4,165 8,085 4,282
Italy 2,400 10,784 (960) 2,475 9,944 (1,072)
Canada 7,893 9,403 1,638 7,974 9,593 1,404
Other 473 2,927 812 445 1,513 758
Eliminations (15,793) (19,738) (8,062) (15,442) (18,884) (7,999)
============= ============= ============= ============= ============= =============
Consolidated $48,056 $85,129 $38,576 $19,443 $57,544 $42,433
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
4. DOMESTIC AND FOREIGN OPERATIONS (CONTINUED)
The Company's U.S. operation made net export sales to unaffiliated customers of
approximately $1,726,000 and $880,000 for the three months ended February 28,
1999 and 1998, respectively and $3,769,000 and $2,620,000 for the nine months
ended February 28, 1999 and 1998, respectively. The Company's German operation
made net export sales to unaffiliated customers of approximately $618,000 and
$472,000 for the three months ended February 28, 1999 and 1998, respectively and
$992,000 and $846,000 for the nine months ended February 28, 1999 and 1998,
respectively. The Company's Canadian operation made export net sales to
unaffiliated customers of approximately $492,000 and $801,000 for the three
months ended February 28, 1999 and 1998, respectively and $1,899,000 and
$2,262,000 for the nine months ended February 28, 1999 and 1998, 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 February 28, 1999 and 1998, total
comprehensive income was $98,102 and $78,958, respectively, and for the nine
months ended February 28, 1999 and 1998, was $2,166,226 and $890,976,
respectively, which is comprised of net income and other comprehensive income
(losses). Other comprehensive loss for the three months ended February 28, 1999
and 1998 was ($877,995) and ($386,265), respectively and other comprehensive
loss for the nine months ended February 28, 1999 and 1998 was ($153,950) and
($678,309), respectively, and consisted of income (losses) on foreign currency
translation adjustments. Accumulated other comprehensive loss as of February 28,
1999 was ($2,546,446). 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.
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 February 28, 1999 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 February 28, 1999 the loan receivable balance was approximately $169,000.
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. ACQUISITION OF GAMMA BIOLOGICALS, INC.
Pursuant to a definitive merger agreement dated September 21, 1998, Immucor,
through a newly formed subsidiary ("Gamma Acquisition Corporation"), acquired
94.3% of the issued and outstanding shares of Gamma Biologicals, Inc. ("Gamma
Biologicals"). Immucor purchased the shares from Gamma shareholders
("Shareholders") for a cash tender offer of $5.40 per share for a total
transaction value of $24,322,753 ("Purchase Price"), subject to certain
adjustments. According to the depository for the offer, 4,361,110 shares were
tendered pursuant to the offer and Immucor purchased all shares tendered. The
Purchase Price was determined through arm's length negotiations and $5,000,000
of the Purchase Price was paid in cash and the remaining $19,322,753 of the
Purchase Price was funded by a $20,000,000 loan from Wachovia Bank of Georgia,
N.A., a U.S. commercial bank, to Gamma Acquisition Corporation.
<PAGE>
7. ACQUISITION OF GAMMA BIOLOGICALS, INC. (CONTINUED)
On November 4, 1998, the Company entered into an interest rate swap agreement
with a notional amount of $15,000,000 maturing on the same date of the loan
which converts the loan's floating rate to a fixed rate. In connection with the
purchase, there is an outstanding patent litigation claim against the Company
and its wholly-owned subsidiary (Gamma Biologicals) for which the outcome is not
yet determined. Management believes it has a meritorious defense against the
alleged infringement.
Immucor effected the merger of Gamma Acquisition Corporation into Gamma
Biologicals on October 30, 1998. In the merger, each remaining outstanding share
of Gamma Biologicals was converted into the right to receive $5.40 net in cash
and Gamma Biologicals became a majority-owned subsidiary of Immucor.
Located in Houston, Texas, Gamma Biologicals manufactures and sells a wide
variety of in-vitro diagnostic reagents to blood donation centers, transfusion
departments of hospitals, medical laboratories and research institutions through
a direct sales force and distributor network. The company accounted for the
transaction as a purchase business combination. The results of the operations of
Gamma Biologicals since October 27, 1998 are included in the 1998 Consolidated
Statements of Income. Goodwill, which represents the excess of costs over net
assets acquired, will be amortized on a straightline basis over 30 years.
The purchase price allocation subject to certain adjustments is as follows:
Current assets $8,590,559
Property, plant and equipment, net 7,535,909
Other assets 2,320,447
Excess of costs over net assets acquired - Goodwill 17,078,722
Less: Liabilities assumed (8,308,458)
----------------
Purchase price $27,217,179
================
The pro forma unaudited results of operations for the nine months ended February
28, 1999 and February 28, 1998, assuming consummation of the purchase as of June
1, 1997, including financing from the proceeds of a bank loan and ignoring any
cost-saving initiatives are presented below:
Nine Months Ended Nine Months Ended
February 28, 1999 February 28, 1998
----------------------- ----------------------
Net sales $48,171,710 $43,460,758
Net income 1,241,138 2,114,252
Net income per common share:
Basic .16 .26
Diluted .16 .25
8. SUBSEQUENT EVENTS
On March 15, 1999, the Company acquired the distribution rights to market its
products in France and Belgium through the purchase of its former distributors,
Immunochim s.a.r.l. (France) and Medichim S.A. (Belgium) for a combination of
cash, Company stock options, and an incentive earn out. In addition, a
non-compete agreement and intellectual property were purchased and will be
amortized over the term of the agreements and will be classified as other
assets.
On April 6, 1999, the Company announced the signing of a definitive agreement
for the purchase of certain assets of the BCA blood bank division of Biopool
International, Inc. The total purchase price of $4.5 million includes $3 million
for net working capital and $1.5 million for the product lines. The transaction
is expected to close on May 1, 1999.
<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 nine months ended February 28, 1999 the Company increased its
profitability, maintained positive working capital and had no significant change
in the cash from operating activities. As of February 28, 1999, the Company's
cash position totaled $1,720,774. For the nine months ended February 28, 1999,
the Company generated cash from operating activities of $1,134,929 and repaid
$1,299,200 of bank debt primarily in Germany and Canada.
On October 27, 1998, the Company acquired 94.3% of the issued and
outstanding common stock of Gamma Biologicals, Inc. for a cash tender offer of
$5.40 per share and certain transaction costs for a total value of $26,661,918.
Approximately $5,000,000 of the purchase price was paid in cash and the
remainder was funded by a $20,000,000 loan from the Company's lead bank, use of
Gamma Biologicals, Inc.'s cash and assuming other liabilities. In addition, as
of February 28, 1999, the Company has made severance payments related to the
acquisition in the amount of $1,957,940.
In June 1997, the Company authorized a program to repurchase up to 10% of
its common stock in the open market. During the nine month period ended February
28, 1999 the Company repurchased approximately 822,800 shares of its common
stock for $7,354,007 under the program. To date 925,600 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 181,000 stock options and warrants
provided $1,330,996 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 February 28, 1999 totaled $16,758,000,
an increase of $6,603,000 (65%) over last year's $10,155,000. Current year three
month results included $4,560,000 in net sales from Gamma Biologicals, Inc.
acquired on October 27, 1998 (see Financial Condition and Liquidity). The
remaining increase in sales was generated equally in the US and Europe and was
primarily due to instrumentation sales. The Company generated instrument
revenues of $2,200,000 for the quarter and $3,750,000 for the nine month period.
Sales by the Company's European subsidiaries increased 30% over last year's
total of which 7% was due to favorable rates of foreign exchange in Europe as
compared to the prior period. For the nine months ended February 28, 1999, net
sales were $40,782,000 (including Gamma's $6,354,000) compared to $29,621,000 in
the prior year.
<PAGE>
Gross profit
As a percent of sales, gross profit for the three months ended February 28,
1999 totaled 54.7% versus 52.8% for the same period in 1998. The increase in
gross profit margin was primarily caused by increased end customer sales at
higher margins. Also, the Company has begun to recognize the benefit of
increased higher margin reagent sales associated with instrument placements this
quarter.
Operating expenses
When compared to the prior year, three and nine month periods ended February
28, 1999 research and development costs increased $154,000 and $272,000
respectively with $295,000 year-to-date additional research expense resulting
from the acquisition of Gamma Biologicals, Inc. (see Financial Condition and
Liquidity).
Selling and marketing expenses for the three and nine month periods
increased $1,256,000 and $2,020,000 respectively as compared to the same period
last year. Part of the increase was due to the inclusion of Gamma Biologicals,
Inc.: $630,000 for three months and $996,000 for nine months. The remainder of
the increase is primarily due to the effect of higher payroll expense due to
additional personnel required for the Company's instrumentation strategy,
increased expenses for the launch of the ABS2000, and expansion of its Spanish
and Italian operations.
Distribution expenses increased $393,000 for the three month period and
$524,000 for the nine month period of which Gamma Biologicals, Inc. accounts for
$273,000 for the quarter and $374,000 for the nine month period. The remaining
increase relates to increased shipping activity.
General and administrative expenses for the three and nine month periods
increased $656,000 and $1,035,000, respectively with additional expenses of
$343,000 for three months and $535,000 for nine months resulting from the
purchase of Gamma Biologicals, Inc. and the remainder due to higher expenses as
we expand operations worldwide.
Merger-related expenses are one-time expenses related to the Gamma
Biologicals Inc. acquisition.
Interest income
Interest income decreased $170,000 for the quarter and $283,000 for the nine
month period due to lower cash balances as compared to last year caused by the
purchase of treasury stock and the purchase of Gamma Biologicals, Inc. which was
partially funded by the use of the Company's cash. (see Financial Conditions and
Liquidity).
Interest expense
When compared to the prior year three and nine month period, interest
expense increased $361,000 and $428,000. This is a result of the purchase of
Gamma Biological, Inc. which was primarily financed with the proceeds of a bank
loan.
Other income(expense)
Other income increased $113,000 for the three month period and $198,000 for
the nine month period 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.
<PAGE>
Income taxes
Income tax expense as a percent of pretax income, decreased during the three
month period ended August 31, 1998 and nine month period ended February 28, 1999
due to lower taxes provided in Germany and the United States as compared to the
prior period. This is 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 May 1999.
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 has entered into an agreement with a major
software provider for an enterprise wide business software system that is year
2000 compliant. The Company's implementation plan is to install the software by
March 1999, test and modify by October 1999 and be operating by November 1999.
The Company has already installed the software and is currently setting
milestone completion dates during the implementation period and will 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 and will begin to make program modifications to
the existing internal business software in June 1999. The Company estimates that
all modifications and testing can be completed within two to three months at a
cost of approximately $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 II - 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) On January 11, 1999, the Company filed a Form 8-K/A dated October
27, 1998, relating to Item 2 and Item 7, the acquisition of Gamma
Biologicals, Inc. On February 8, 1999, the Company filed Amendment No.
2 to Form 8-K/A dated October 27, 1998, relating to Item 2 and Item 7,
the acquisition of Gamma Biologicals, Inc.
<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: April 14, 1999
/s/ Edward L. Gallup Edward L. Gallup, President
/s/ Steven C. Ramsey Steven C. Ramsey, Senior Vice President - Finance
(Principal Accounting Officer)
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