10-Q 1 form10q022802.txt FORM10Q022802 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: February 28, 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 April 2, 2002: Common Stock, $0.10 Par Value - 7,326,742
IMMUCOR, INC. CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------------- February 28, 2002 May 31, 2001 ------------------------------------------- ASSETS (Unaudited) (Audited) CURRENT ASSETS: Cash and cash equivalents $ 3,938,689 $ 3,124,517 Accounts receivable, trade - Net 26,448,038 21,167,490 Loan to officer - 395,826 Inventories 14,603,330 15,668,637 Income taxes receivable 647,187 402,243 Deferred income taxes 578,015 631,797 Prepaid expenses and other 2,814,173 891,356 --------------------- -------------------- Total current assets 49,029,432 42,281,866 LONG-TERM INVESTMENT - At cost 1,000,000 1,000,000 PROPERTY, PLANT AND EQUIPMENT - Net 16,731,962 18,333,952 DEFERRED INCOME TAXES 1,525,936 1,525,936 OTHER ASSETS - Net 1,911,036 2,104,845 DEFERRED LICENSING COSTS - Net 1,437,281 1,652,102 EXCESS OF COST OVER NET TANGIBLE ASSETS ACQUIRED - Net 27,783,181 28,913,981 --------------------- -------------------- $99,418,828 $95,812,682 ===================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC. CONSOLIDATED BALANCE SHEETS (continued) ------------------------------------------------------------------------------- February 28, 2002 May 31, 2001 -------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Audited) CURRENT LIABILITIES: Current portion of borrowings under bank line of credit agreements $ 8,116,689 $ 2,417,121 Current portion of long-term debt 11,116,896 5,563,363 Note payable to related party 50,091 349,654 Current portion of capital lease obligations 778,990 768,142 Accounts payable 9,646,463 8,647,066 Income taxes payable 1,282,496 23,102 Accrued salaries and wages 1,238,122 1,530,772 Deferred income taxes 375,275 98,308 Other accrued liabilities 5,350,549 3,561,676 ---------------------- -------------------- Total current liabilities 37,955,571 22,959,204 BORROWINGS UNDER BANK LINE OF CREDIT AGREEMENTS - 3,268,740 LONG-TERM DEBT 21,792,725 34,839,576 CAPITAL LEASE OBLIGATIONS 1,104,796 1,629,705 DEFERRED INCOME TAXES 2,785,079 3,119,402 OTHER LIABILITIES 188,896 152,588 SHAREHOLDERS' EQUITY: Common stock - authorized 45,000,000 shares, $0.10 par value; 7,284,117 and 7,277,617 issued and outstanding, respectively 728,412 727,762 Additional paid-in capital 15,484,989 15,439,889 Retained earnings 26,255,060 20,261,628 Accumulated other comprehensive loss (6,876,700) (6,585,812) ---------------------- -------------------- Total shareholders' equity 35,591,761 29,843,467 ---------------------- -------------------- $ 99,418,828 $ 95,812,682 ====================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended February 28, February 28, February 28, February 28, 2002 2001 2002 2001 NET SALES............................................. $ 21,124,979 $ 16,861,462 $ 60,683,213 $ 50,755,968 COST OF SALES......................................... 9,198,670 9,825,683 27,669,380 27,232,886 -------------- -------------- -------------- -------------- GROSS MARGIN.......................................... 11,926,309 7,035,779 33,013,833 23,523,082 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Research and development......................... 472,838 498,361 1,452,542 1,499,715 Selling and marketing............................ 2,942,208 3,283,774 8,246,928 9,530,653 Distribution..................................... 1,318,962 1,492,278 4,209,697 4,331,402 General and administrative....................... 2,870,775 3,568,170 8,264,794 8,069,995 Loss on impairment of goodwill................... - 3,308,119 - 3,308,119 Amortization expense............................. 411,289 455,309 1,225,805 1,383,062 -------------- -------------- -------------- -------------- Total operating expenses...................... 8,016,072 12,606,011 23,399,766 28,122,946 -------------- -------------- -------------- -------------- INCOME (LOSS) FROM OPERATIONS......................... 3,910,237 (5,570,232) 9,614,067 (4,599,864) -------------- -------------- -------------- -------------- OTHER INCOME (EXPENSE): Interest income.................................. 17,591 - 21,259 11,159 Interest expense................................. (813,654) (1,191,940) (3,393,591) (2,861,815) Other - net...................................... 143,888 56,698 1,316,074 183,644 -------------- -------------- -------------- -------------- Total other................................... (652,175) (1,135,242) (2,056,258) (2,667,012) -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES..................... 3,258,062 (6,705,474) 7,557,809 (7,266,876) INCOME TAX EXPENSE (BENEFIT).......................... 748,110 (871,898) 1,564,041 (605,620) -------------- --------------- -------------- -------------- NET INCOME (LOSS)..................................... $ 2,509,952 $ (5,833,576) $ 5,993,768 $ (6,661,256) ============== =============== ============== =============== Earnings (loss) per share: Basic............................................ $0.34 $(0.80) $0.82 $(0.91) ============== =============== ============== =============== Diluted.......................................... $0.32 $(0.80) $0.80 $(0.91) ============== =============== ============== =============== Weighted average shares outstanding: Basic............................................ 7,279,901 7,277,617 7,278,378 7,289,012 ============== =============== ============== =============== Diluted.......................................... 7,823,340 7,277,617 7,489,871 7,289,012 ============== =============== ============== ===============
See notes to consolidated financial statements.
IMMUCOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ----------------------------------------------------------------------------------------------------------------------------- Nine Months Ended February 28, February 28, 2002 2001 ------------------------------------ OPERATING ACTIVITIES: Net income (loss) $5,993,768 $(6,661,256) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 3,499,274 2,451,349 Amortization of other assets and excess of cost over net tangible assets acquired 1,225,805 1,383,062 Impairment of goodwill - 3,308,119 (Gain) loss on retirement of fixed assets (189,455) 42,522 Changes in operating assets and liabilities: Accounts receivable, trade (4,699,392) (1,350,984) Loan payment from officer 395,826 - Income taxes 1,010,876 (1,303,478) Inventories 1,065,307 (112,607) Other current assets (1,605,029) (1,766,926) Accounts payable 999,397 1,762,201 Other current liabilities 1,532,530 1,179,573 ----------------- ----------------- Total adjustments 3,235,139 5,592,831 ----------------- ----------------- Cash provided by (used in) operating activities 9,228,907 (1,068,425) INVESTING ACTIVITIES: Purchases of / deposits on property and equipment (2,328,844) (3,258,769) ----------------- ----------------- Cash used in investing activities (2,328,844) (3,258,769) FINANCING ACTIVITIES: Borrowings under line of credit agreements net of repayments (598,441) 38,191 Proceeds from issuance of long term debt and capital lease obligations - 35,079,771 Repayment of long-term debt and capital lease obligations (4,996,339) (29,231,882) Repayment of notes payable (299,563) - Exercise of stock options (6,500 shares) 45,750 - Purchase and retirement of stock (184,500 shares) - (1,484,713) ----------------- ---------------- Cash (used in) provided by financing activities (5,848,593) 4,401,367 EFFECT OF EXCHANGE RATE CHANGES ON CASH (237,298) (667,511) ----------------- ---------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 814,172 (593,338) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,124,517 3,505,926 ----------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,938,689 $2,912,588 ================= ================
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, 2001, 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, 2002 are not necessarily indicative of the results that may be expected for the year ending May 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K/A for the year ended May 31, 2001. 2. INVENTORIES Inventories are stated at the lower of first-in, first-out cost or market: As of As of February 28, 2002 May 31, 2001 ---------------------- ---------------------- Raw materials and supplies $ 5,554,130 $ 5,524,301 Work in process 1,754,220 2,095,363 Finished goods 7,294,980 8,048,973 ---------------------- ---------------------- $14,603,330 $15,668,637 ====================== ====================== 3. EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share.
Three Months Ended Nine Months Ended February 28, February 28, February 28, February 28, 2002 2001 2002 2001 ---------------- --------------- ---------------- --------------- Numerator for basic and diluted earnings (loss) per share: Income (loss) available to common shareholders $2,509,952 $(5,833,576) $5,993,768 $(6,661,256) ================ =============== ================ =============== Denominator: For basic earnings (loss) per share - weighted average basis 7,279,901 7,277,617 7,278,378 7,289,012 Effect of dilutive stock options and warrants 543,439 - 211,493 - ---------------- --------------- ---------------- --------------- Denominator for diluted earnings (loss) per share-adjusted weighted-average shares 7,823,340 7,277,617 7,489,871 7,289,012 ================ =============== ================ =============== Basic earnings (loss) per share $0.34 $(0.80) $0.82 $(0.91) ================ =============== ================ =============== Diluted earnings (loss) per share $0.32 $(0.80) $0.80 $(0.91) ================ =============== ================ ===============
4. BANK LINE OF CREDIT AGREEMENTS AND DEBT OBLIGATIONS In September 2001, the Company successfully negotiated a waiver of covenant defaults from its primary lender in the Loan Agreement dated February 23, 2001 and obtained a relaxation of such loan covenants for four quarters in exchange for a cash waiver fee, increased interest rates and other conditions. As amended, the Company is required to meet quarterly and cumulative Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) covenants and quarterly funded debt to EBITDA ratios. But once the Company's trailing twelve-month funded debt to EBITDA reaches 2.50 to 1 or less the interest rates on these loans will revert back to the more favorable pricing provided in the original Loan Agreement dated February 23, 2001. The Company is currently in compliance with all of the ratios of the loan modification agreement entered into in September 2001. In order to obtain the waiver, the Company agreed to seek a minimum of $5.0 million in junior capital, in the form of either an equity or subordinated debt investment. The Company has not obtained the investment to date and is no longer actively searching for a junior capital investment partner. Because the Company did not obtain such investment by December 31, 2001, the Company became obligated to pay the lender an additional fee of $450,000 (payable in twelve equal monthly installments beginning January 31, 2002). The Company also became obligated to issue the lender a warrant to purchase 750,000 shares of Immucor, Inc. stock at the market price of the stock on December 31, 2001. In March 2002, the Company agreed to pay the lender $500,000 in cash in lieu of issuing any warrants. See footnote 10. Additionally, since the junior capital investment was not received by December 31, 2001, the revolving lines of credit and Term Note A were re-priced at prime plus 2.0% and Term Note B was re-priced at prime plus 4.0% until the junior capital is received. If the junior capital is not received by April 30, 2002, all existing credit facilities will be reset to mature on February 28, 2003. However, the Company's primary lender recently indicated that if the junior capital was not obtained it intends to work with the Company to extend the maturities of the lines of credit beyond February 28, 2003. The lines of credit under the original Loan Agreement dated February 23, 2001 expire February 28, 2003. These lines of credit are presently classified as current on the balance sheet. The Company is confident that prior to the announcement of fiscal year earnings, the letter of intent from its senior lender will translate into a financing agreement that clearly permits the Company to refinance these lines of credit on a long-term basis. 5. DOMESTIC AND FOREIGN OPERATIONS Information concerning the Company's domestic and foreign operations is summarized below (in 000s):
--------------------------------------------------------------------------------------------------- Three Months Ended February 28, 2002 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Other Eliminations Consolidated Net sales: Unaffiliated customers $14,779 $2,089 $1,473 $1,391 $1,393 $ - $21,125 Affiliates 1,643 213 - 22 58 (1,936) - ---------- ---------- --------- ---------- --------- ------------- ------------- Total 16,422 2,302 1,473 1,413 1,451 (1,936) 21,125 Income (loss) from operations 3,921 (108) (145) 367 (125) - 3,910 --------------------------------------------------------------------------------------------------- Three Months Ended February 28, 2001 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Other Eliminations Consolidated Net sales: Unaffiliated customers $10,654 $2,058 $1,445 $1,225 $1,479 $ - $16,861 Affiliates 1,747 113 - 13 52 (1,925) - ---------- ---------- --------- ---------- --------- ------------- ------------- Total 12,401 2,171 1,445 1,238 1,531 (1,925) 16,861 (Loss) Income from operations (1,846) (7) 186 172 (4,075) - (5,570) --------------------------------------------------------------------------------------------------- Nine Months Ended February 28, 2002 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Other Eliminations Consolidated Net sales: Unaffiliated customers $41,599 $6,774 $4,483 $3,947 $3,880 $ - $60,683 Affiliates 5,227 831 - 69 208 (6,335) - ---------- ---------- --------- ---------- --------- ------------- ------------- Total 46,826 7,605 4,483 4,016 4,088 (6,335) 60,683 Income (loss) from operations 8,510 187 138 1,012 (210) (23) 9,614 --------------------------------------------------------------------------------------------------- Nine Months Ended February 28, 2001 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Other Eliminations Consolidated Net sales: Unaffiliated customers $31,846 $6,179 $4,189 $3,985 $4,557 $ - $50,756 Affiliates 5,134 260 - 58 142 (5,594) - ---------- ---------- --------- ---------- --------- ------------- ------------- Total 36,980 6,439 4,189 4,043 4,699 (5,594) 50,756 (Loss) Income from operations (2,174) 641 479 846 (4,333) (59) (4,600)
The Company's U.S. operation made net export sales to unaffiliated customers of approximately $1,124,000 and $1,281,000 for the three months ended February 28, 2002 and 2001, respectively and $3,871,000 and $4,177,000 for the nine months ended February 28, 2002 and 2001, respectively. The Company's German operation made net export sales to unaffiliated customers of approximately $567,000 and $594,000 for the three months ended February 28, 2002 and 2001, respectively and $1,582,000 and $981,000 for the nine months ended February 28, 2002 and 2001, respectively. The Company's Canadian operation made net export sales to unaffiliated customers of approximately $598,000 and $570,000 for the three months ended February 28, 2002 and 2001, respectively and $1,500,000 and $1,850,000 for the nine months ended February 28, 2002 and 2001, respectively. Product sales to affiliates are valued at market prices. 6. COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss) for the three-month and nine-month periods ended February 28, 2002 and 2001 are as follows:
Three Months Ended Nine Months Ended February 28, February 28, February 28, February 28, 2002 2001 2002 2001 ------------------ ------------------ ---------------------------------------- Net income (loss) $ 2,509,952 $ (5,833,576) $ 5,993,768 $ (6,661,256) Net foreign currency translation (982,060) 554,369 137,165 (444,604) Net derivatives qualifying as hedges - - (325,332) - Cumulative effect of the adoption of FAS 133 on June 1, 2001, net of taxes - - (102,721) - ------------------ ------------------ -------------------- -------------------- Comprehensive income (loss) $ 1,527,892 $ (5,279,207) $ 5,702,880 $ (7,105,860) ================== ================== ==================== ====================
Accumulated comprehensive loss as of February 28, 2002 and May 31, 2001 was ($6,876,700) and ($6,585,812), 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. 7. LOANS TO OFFICERS AND DIRECTORS On June 6, 2000 Edward L. Gallup, President and CEO of Immucor, Inc. entered into a loan agreement with Immucor, Inc. to borrow up to $400,000 in order to meet margin calls related to loans made by brokerage companies. The Company made the loan because it believed that certain benefits would accrue to the Company and its shareholders if such margin calls were satisfied by some means other than having those shares sold by the broker. The loan is payable on demand to the Company and bears interest at the rate charged by the Company under the Company's loan agreement with its principal lender. The loan, including interest, was fully paid in January 2002. 8. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Effective June 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("Statement 133"). Statement No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. For derivatives designated as hedges, the change in the fair value of the derivative will either be offset against the change in the fair value of the hedged asset, liability, or firm commitment through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. As of February 28, 2002, the Company had two interest rate swap agreements to hedge against exposure to interest rate risk. The cumulative effect of the adoption of FAS 133 on June 1, 2001 resulted in a comprehensive loss of approximately $103,000, relating to the interest rate swap agreements. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, collectively, the Statements. These Statements drastically change the accounting for business combinations, goodwill and intangible assets. Statement 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. Statement 141 also changes the criteria to recognize intangible assets apart from goodwill. Under Statement 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of Statement 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of Statement 142 are effective upon adoption of Statement 142. Pre-existing goodwill and intangibles will be amortized during the transition period until adoption. Companies are required to adopt Statement 142 in their fiscal year beginning after December 15, 2001. Early adoption is permitted for companies with fiscal years beginning after March 15, 2001. The Company plans to adopt Statement 142 effective June 1, 2002. 9. INCOME TAX (BENEFIT) EXPENSE Income tax (benefit) expense as shown in the statements of consolidated operations differ from the amount that would be computed if income before income taxes was multiplied by the United States federal income tax rate (statutory rate) applicable in each period. The reasons for this difference are as follows:
Three Months Ended Nine Months Ended February 28, February 28, February 28, February 28, 2002 2001 2002 2001 Benefit (expense) at statutory rate $ 1,107,741 $ (2,279,861) $ 2,569,655 $ (2,470,738) Increase (decrease) resulting from: Amortization 139,839 154,805 416,774 470,241 Net operating loss carry-forward (659,365) - (1,812,609) - Foreign operations 256,611 228,325 778,102 196,516 Impairment of goodwill - 1,124,760 - 1,124,760 Other (96,716) (99,927) (387,881) 73,601 ----------------------------------------------------------------------- Tax provision per statement of operations $ 748,110 $ (871,898) $ 1,564,041 $ (605,620) =======================================================================
10. SUBSEQUENT EVENTS In March 2002, the Company agreed to pay its senior lender $500,000 in cash in lieu of 750,000 common stock purchase warrants. The warrants were part of the debt agreement entered into in September 2001 and had not been issued pending negotiations with the lender. The warrants could have been exercised for common stock equivalent to an approximate 10% equity position in the Company. Management believes the cash payment was in the best long-term interest of the Company's existing shareholders, as it eliminated the potential dilution of ownership had the warrants been issued. Also in March 2002, the Company signed a letter of intent to transfer all of its commercial activities in France to Bio-Rad Laboratories. Over the five-year life of the agreement, the Company expects revenue growth of $9.0 million. Bio-Rad has a leading position in the French market, with a dedicated sales force and established infrastructure capable of supporting the Company's automation strategy. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact are forward-looking statements as that term is defined in the Private Securities Reform Act of 1995, including, without limitation, statements concerning the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this discussion 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. It is not certain that the Company will achieve expected sales and the Company's ability to do so could be adversely affected by a variety of factors, including significant price decreases by our competitors and the strengthening of the dollar versus the Euro. In addition, continued weakness in the economy and other factors could cause customers to defer capital spending, which would adversely impact instrument sales. Financial Condition and Liquidity: As of February 28, 2002, the Company's cash position totaled $3.9 million, an approximate 26% increase since May 31, 2001. The increase is due to improved operating results of the Company. Accounts receivable increased by $5.3 million since May 31, 2001 due to the reagent price increases that had a significant impact on the second and third quarters and could further increase as the contract renewal cycle is completed. Prepaid expenses and other increased by $1.9 million due to $0.6 million due from Becton, Dickinson no later than April 1, 2002, $0.3 million in progress payments for refurbishing of the German facility and to deferred costs for instruments that are in the installation process. Accounts payable increased by $1.0 million as the Company conserved operating cash-flows to meet scheduled debt payments. Debt payments of $1.0 million and capital expenditures of $0.5 million related to instruments at customer sites on reagent rental agreements were made during the quarter. Debt payments of $5.9 million and capital expenditures of $2.3 million were made during the fiscal year. Additional debt payments of $1.1 million were made early in the fourth quarter from operating cashflows. The current income tax liability increased $1.3 million with the Company's return to profitability and other accrued liabilities rose $1.8 million mainly with deferred instrument revenue, pending completion of customer training and other contractual requirements. Retained earnings (comprehensive loss) and total shareholders' equity improved by $5.7 million due to the earnings for the nine months, offset by unfavorable changes in the net foreign exchange translation and the effective hedge portion of the interest rate swaps. See footnote 6. In September 2001, the Company successfully negotiated a waiver of covenant defaults from its primary lender in the Loan Agreement dated February 23, 2001 and obtained a relaxation of such loan covenants for four quarters in exchange for a cash waiver fee, increased interest rates and other conditions. As amended, the Company is required to meet quarterly and cumulative EBITDA covenants and quarterly funded debt to EBITDA ratios. But once the Company's trailing twelve-month funded debt to EBITDA reaches 2.50 to 1 or less the interest rates on these loans will revert back to the more favorable pricing provided in the original Loan Agreement dated February 23, 2001. The Company is currently in compliance with all of the ratios of the loan modification agreement entered into in September 2001. In order to obtain the waiver, the Company agreed to seek a minimum of $5.0 million in junior capital, in the form of either an equity or subordinated debt investment. The Company has not obtained the investment to date and is no longer actively searching for a junior capital investment partner. Because the Company did not obtain such investment by December 31, 2001, the Company became obligated to pay the lender an additional fee of $450,000 (payable in twelve equal monthly installments beginning January 31, 2002). The Company also became obligated to issue the lender a warrant to purchase 750,000 shares of Immucor, Inc. stock at the market price of the stock on December 31, 2001. In March 2002, the Company agreed to pay the lender $500,000 in cash in lieu of issuing any warrants. See footnote 10. Additionally, since the junior capital investment was not received by December 31, 2001, the revolving lines of credit and Term Note A were re-priced at prime plus 2.0% and Term Note B was re-priced at prime plus 4.0% until the junior capital is received. If the junior capital is not received by April 30, 2002, all existing credit facilities will be reset to mature on February 28, 2003. However, the Company's primary lender recently indicated that if the junior capital was not obtained it intends to work with the Company to extend the maturities of the lines of credit beyond February 28, 2003. The lines of credit under the original Loan Agreement dated February 23, 2001 expire February 28, 2003. These lines of credit are presently classified as current on the balance sheet. The Company is confident that prior to the announcement of fiscal year earnings, the letter of intent from its senior lender will translate into a financing agreement that clearly permits the Company to refinance these lines of credit on a long-term basis. Prior to December 31, 2001, the Company had a signed letter of intent with a junior capital investment group. Due to the upward movement of the market value of the Company's stock after signing this letter of intent, it was no longer attractive to the Company to obtain an investment from this group on the terms provided for in the letter, and the Company's obligations under such letter of intent have since expired (other than certain confidentiality requirements). Management has opened negotiations with its lender to waive the junior capital requirement from the loan agreement. However, there can be no assurance that the Company will be successful in its negotiations or that the Company will be able to do so in time to avoid the consequences as specified in its loan agreement with its principal lender. Management expects that with the significant price increase, cash and cash equivalents and internally generated funds will be sufficient to support operations and planned capital expenditures for the next 12 months. In addition, Management believes that most capital expenditures planned for the next 12 months can be delayed in the event capital resources become inadequate. Results of Operations: During the quarter the Company improved net income by $8.3 million over the prior year. For the nine-month period, the Company improved net income by $12.7 million over the prior year including the one-time benefit of a $1.2 million settlement with Becton, Dickinson and Company and short-swing trading profits from Kairos Group that contributed $0.36 million to pre-tax income. Prior year net loss for both the quarter and nine-months includes a $3.3 loss on impairment of goodwill related to the acquisition of the Company's Belgian and French subsidiaries, and $1.3 million in nonrecurring expenses related to the implementation of the Company's cost savings plan. The implementation of the cost savings plan in the fourth quarter of fiscal 2001 has had a positive effect on the Company's cash position. The net result of the quarter's cash-flow was a $1 million improvement in cash position compared to the prior year. Results of German and Italian operations continue to suffer from the lack of a competitive automated instrument. The Company expects operating results to improve in these operations with the full launch of Gallileo which is expected to begin in the first quarter of fiscal 2003. Net sales Revenues for the quarter ended February 28, 2002 rose by $4.3 million over the same quarter last fiscal year largely due to the aggressive price increase begun in the third quarter of fiscal year 2001 and new group contracts. Instrument sales for the quarter ended February 28, 2002 were up $0.5 million to $1.3 million, although there remains a backlog of over $1.7 million pending completion of customer training. As a result of the lifting of the ABS2000 safety alert, the Company expects that, over time, instrument sales will return to previous levels. For the first nine months of the year revenues totaled a record $60.7 million, a $9.9 million, or 19.6%, increase over the prior year period. Reagent price increases contributed approximately $10 million to the increase for the year. The Company expects to improve sales by $12.0 million for the fiscal year ending May 31, 2002 as a result of the price increases and a single new group contract. This estimate is based on, among other things, the fact that a substantial portion of the fiscal year is complete and the current level of order backlog and contractually committed purchases. In making this projection, the Company extrapolated recent past results and assumed existing customers will continue to make purchases at their current rate of purchase at current prices. Further, Immucor has assumed that it will not lose any customers or gain any customers, or that revenues from new customers will offset lost revenues from lost customers. Partially offsetting the reagent price increases and new and group contract renewals is the de-emphasis on sales of low margin OEM products which has the consequence of improving gross profit margin percentage. The Company has also prudently assumed that instrument sales will be consistent with, and not improve over the previous fiscal year. Investors are cautioned against attributing undue certainty to the Company's assessment of the future since there can be no assurance that the Company will achieve this level of revenues. Immucor's ability to do so could be adversely affected by a variety of factors, the most significant of which, in the Company's opinion, are significant price decreases by our competitors, the general condition of the economy (which could deteriorate to such a point that it causes customers to defer capital spending which would adversely impact instrument sales), unexpected expenses and increased regulatory costs, and the value of the Euro versus the Dollar, which would depress the Company's European results if the Euro were to decline. Additionally, the Company has not determined what effect, if any, the stockpiling of Immucor's products by some customers prior to such customers' price increases will have on the reliability of Immucor's projections. Investors are also cautioned that Immucor has not determined whether it will issue projections in the future or update its current projection if not otherwise required to do so by the federal securities laws. Gross profit Gross profit increased $4.9 million as compared to the prior year's quarter and increased $9.5 million compared to the prior year to date due to the aggressive price increases mentioned above. The primary reasons for this increase were increased sales and the discontinuance of the significant costs incurred in prior periods to resolve ABS2000 performance issues and the related costs of product concessions provided to customers who were required to perform backup testing during the safety alert. Operating expenses When compared to the prior year, research and development costs remained relatively constant, primarily related to instrument development initiatives for the Galileo for the European market. The Galileo is designed to fulfill the need in Europe for a high-throughput blood serology-testing device with a test menu that includes antibody screening. The Company is beginning trials outside the United States to be staged for full European market launch in the fall of 2002. Selling and marketing expenses decreased $0.34 million for the quarter and $1.3 million for the year to date, as compared to the same period last year. Until the fourth quarter of fiscal 2001, the Company had been developing an infrastructure to support an increased level of instrument sales. But in light of the issues with the ABS2000 and continued customer migration to purchasing groups, the Company reevaluated the focus of the sales and marketing efforts. The domestic sales staff was significantly reduced and the Netherlands facility was closed, resulting in a positive effect on the quarter and year to date net income. Distribution expenses for the quarter and year to date ended February 28, 2002 decreased slightly compared to the prior year, but as a percentage of sales, have decreased from over 8% to under 7%. Any additional shipping expenses related to the new purchasing group were offset by volume discounts offered by carriers. General and administrative expenses for the quarter and nine-month period ended February 28, 2002 decreased $0.7 million and increased $0.2 million, respectively. Expenses in the prior year periods included $1.1 million of nonrecurring expenses, primarily severance, related to the implementation of the cost savings plan. The increase for the nine-month period is due primarily to legal expenses related to the proxy contest incurred in the second quarter and various bank and professional fees. Amortization expense remained relatively constant compared with the prior period. Interest expense When compared to the prior year three-month and nine-month period, interest expense decreased $0.38 million and increased $0.53 million, respectively. The decrease in the quarter resulted from lower overall market rates. The nine-month increase is the result of the increased borrowings on long-term debt, bank fees related to the Company's inability to maintain the financial covenants contained in its prior loan agreement due to past operating losses, and capitalized leases in fiscal 2001. Other income Other income for the quarter was comprised mainly of exchange gains on foreign currencies and improved over the same period for the prior year with improvements in the Euro exchange rate. Other income for the second quarter was favorably affected by the disgorgement of short-swing trading profits by the Kairos Group that contributed $0.36 million to pre-tax income. Other income for the first quarter of fiscal 2002 was favorably affected by 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. The first payment of $1.2 million was made on June 11, 2001, and the second installment of $0.6 million was received April 2, 2002. Assets of approximately $1.0 million related to IMAGN were netted against the settlement from Becton. These items of income do not arise from the Company's ongoing business. Income taxes Income tax expense increased during the three-month period and nine-month period ended February 28, 2002 as compared to the prior period, due to higher income. The Net Operating Loss Carry-forwards generated in fiscal 2001 that reduce the current United States tax provision have been fully utilized in the profitable nine-months ended February 28, 2002. The Company increased the third quarter income tax provision based on estimates of fiscal 2002 earnings. 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 the current year now that the Company has returned to profitability. 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/A for the fiscal year ended May 31, 2001. 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 Form 10-K/A. 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). 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 10-Q filed on January 14, 2002). (b) The Company did not file any reports on Form 8-K during the three months ended February 28, 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: April 10, 2002 By: /s/ Edward L. Gallup ----------------------------- Edward L. Gallup, President (on behalf of Registrant and as Principal Executive Officer) /s/ Steven C. Ramsey ----------------------------- Steven C.Ramsey, Senior Vice President - Finance