-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FN8rDg58VWWjTziLSMsy3xAdC7KMV3mCdAA4ZelyMe0FxH5QpK9KyTZgbjCxb54m vPy1ZexTzCumaFNJHrgiUg== 0000736822-02-000043.txt : 20020829 0000736822-02-000043.hdr.sgml : 20020829 20020829141217 ACCESSION NUMBER: 0000736822-02-000043 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUCOR INC CENTRAL INDEX KEY: 0000736822 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 222408354 STATE OF INCORPORATION: GA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14820 FILM NUMBER: 02752490 BUSINESS ADDRESS: STREET 1: 3130 GATWAY STREET 2: PO BOX 5625 CITY: NORCROSS STATE: GA ZIP: 30091 BUSINESS PHONE: 7704412051 MAIL ADDRESS: STREET 1: 3130 GATEWAY DR STREET 2: P O BOX 5625 CITY: NORCROSS STATE: GA ZIP: 30091-5625 10-K 1 form10k0502.txt FORM10K053102 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 2002 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14820 IMMUCOR, INC. (Exact name of registrant as specified in its charter) Georgia 22-2408354 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3130 GATEWAY DRIVE, 30091 P.O. BOX 5625 (Zip Code) Norcross, Georgia (Address of principal executive offices) Registrant's telephone number, including area code, is (770) 441-2051 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.10 PAR VALUE (Title of Class) COMMON STOCK PURCHASE RIGHTS (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- -------- Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of July 31, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant was $219,944,920. As of July 31, 2002, there were 8,162,393 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on November 15, 2002, are incorporated by reference in Part III. PART I Item 1.--Business Founded in 1982, Immucor, Inc., a Georgia corporation ("Immucor" or the "Company"), develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood prior to blood transfusion. Background and Developments During Fiscal Year 2002 During fiscal 1999 the Company implemented its strategic plans to consolidate the U.S. blood bank market, leaving Immucor and Ortho Clinical Diagnostics as the only two companies offering a complete line of blood banking reagents in the U.S. The Company executed its plans through a series of acquisitions. o Acquisition of Gamma Biologicals, Inc. On October 27, 1998, the Company completed the acquisition of Gamma Biologicals, Inc. ("Gamma") for a total transaction value of approximately $27.8 million. Located in Houston, Texas, Gamma manufactures and distributes a wide variety of in-vitro diagnostic reagents to blood donation centers, transfusion departments of hospitals and medical laboratories in the U.S. and internationally. Gamma was the third largest domestic blood bank serology company before the acquisition. This acquisition significantly strengthened the Company's competitive position in the U.S. market and added to its customer base and product offerings, thereby extending the Company's global marketing reach. Combining Immucor's Automated Product Family and Capture(R) with Gamma's line of monoclonal reagents and red cell products represents a natural fit and creates an enhanced selection of products for our customers worldwide (see Products). o Acquisition of the BCA blood bank division assets of Biopool International, Inc. On April 30, 1999 the Company purchased certain assets, primarily accounts receivable and inventory, of the BCA blood bank division of Biopool International, Inc. for approximately $4.5 million. This acquisition added five well-accepted products to the Company's reagent portfolio. As a result of the above acquisitions, Immucor became the North American market leader in terms of sales and strengthened its market position worldwide. See - Competition and Marketing and Distribution. The Company financed the acquisitions with cash reserves and the proceeds of a loan from its primary U.S. bank. See Liquidity and Capital Resources and Note 3 to the Consolidated Financial Statements. During fiscal 2002, the Company resolved the remaining performance issues relating to its ABS2000 instrument and launched its Version 2 software for this instrument. In December 2000, we lifted the safety notification for antibody screening and crossmatch assay, and were able to lift the safety notification for blood grouping and launch our Version 2 software on October 1, 2001. Before we could lift the safety notification and install the new software, the Company had to submit a corrective action plan to the U.S. Food and Drug Administration ("FDA"), and then service engineers had to complete field corrective action on the ABS2000 and to accumulate clinical data. In May 2002, the Company transferred all of its commercial activities in France to Bio-Rad Laboratories under the terms of a five-year distribution agreement. Over the 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. In September 1999, the Company entered into a manufacturing and development agreement with Stratec Biomedical AG ("Stratec"), headquartered in Germany. Under the terms of the agreement, Stratec will manufacture and develop a fully automated analyzer known as the Galileo that will be initially targeted to the European community utilizing the Company's Capture(R) technology. The instrument will be marketed exclusively by Immucor to hospital transfusion laboratories and blood donor centers for patient and donor blood typing and antibody screening and identification. In order to maintain exclusive European distribution rights the Company must purchase 250 instruments over the five-year initial term of the agreement. If the Company purchases less than 250 instruments over the period it will be allowed to negotiate a good faith extension. The Company has made some initial sales to European distributors but plans the full launch of the Galileo in selected European countries during the first quarter of fiscal 2003. On June 11, 2001, the Company reached a settlement of the arbitration proceeding it had initiated against Becton, Dickinson and Company. 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 received on June 11, 2001 and the second installment of $0.6 million was received on April 2, 2002. This settlement represents a reimbursement for asset impairment and lost profits. In return, Immucor agreed to give up its right to distribute the IMAGN instrument and associated reagents in Italy and Portugal and to cooperate with Becton in the transition of customers and product re-launch. Industry Immucor is part of the immunohematology industry, which generally seeks to prevent or cure certain diseases or conditions through the transfusion of blood and blood components. In the U.S., the FDA regulates human blood as a drug and as a biological product, and it regulates the transfusion of blood as the administration of a drug and of a biological product. The FDA regulates all phases of the immunohematology industry, including donor selection and the collection, classification, storage, handling and transfusion of blood and blood components. The FDA requires all facilities that manufacture products used for any of those purposes, and the products themselves, to be registered or licensed by the FDA. See Regulation of Business. The principal components of blood are plasma (the fluid portion) and cells. Blood also contains antibodies and antigens. Antibodies are proteins that are naturally produced by the human body in response to the introduction of foreign substances (antigens). Antigens are substances that stimulate the production of antibodies. Red blood cells, which transport oxygen from the lungs to other parts of the body and return carbon dioxide to the lungs, are categorized by four blood groups (A, B, AB and O) and two blood types (Rh positive and Rh negative), based on the presence or absence of certain antigens on the surface of the cells. It is crucial that the health care provider correctly identify the antibodies and antigens present in patient and donor blood. For example, if a donor's red blood cells contain antigens that could react with the corresponding antibody in the patient's plasma, the transfusion of the red blood cells may result in the potentially life threatening destruction of the transfused red blood cells. Because of the critical importance of matching patient and donor blood, compatibility testing procedures are generally performed by highly educated technologists in hospitals, blood banks and laboratories. At present, with few exceptions, these tests are performed manually using procedures which the Company believes can be significantly improved using its instrumentation and solid phase system to automate the testing procedures. See Products -- Blood Bank Automation and Solid Phase Technology. The Company believes that the worldwide market for traditional blood bank reagents is approximately $380 million, and that this market is relatively mature given current technology. The industry is labor-intensive and the Company estimates worldwide industry labor costs approach $1 billion. Therefore, the introduction of labor-saving products will provide additional growth in the market. The Company believes that its blood bank automation and solid phase testing systems improve test results and reduce the time necessary to perform certain test procedures, thereby offering a cost-effective alternative for its customers. See Products -- Blood Bank Automation and Solid Phase Technology. The Company anticipates that automation will increase the available market for traditional and automated reagents to $575 million while decreasing the overall cost of blood testing by reducing the labor component by approximately $500 million. Immucor Strategy The Company's strategy is to further strengthen its competitive position in the blood bank testing market by restructuring the market through automation of the transfusion laboratory and to firmly establish Immucor as the world leader in blood bank automation. In order to implement this strategy, the Company intends to: Maximize Instrument Placements. The Company's market research has been unable to find another company that has filed an application for FDA clearance of an automated blood bank device for the hospital and clinical reference laboratory markets. Several years ago Olympus America Inc. developed an automated analyzer for the blood donor market. The instrument performs only ABO/Rh testing and does not perform antibody screening. The Olympus instrument users currently dilute commercial ABO and Rh reagents for the machine's use. Gamma began developing diluted ready-for-use reagents for Olympus several years ago. Gamma has received clearance from the FDA for six of the reagents and is awaiting clearance for the seventh. Management does not believe the Olympus instrument will have an effect on its instrument strategy. Management estimates that Immucor should have a two-to-three year window of opportunity to establish itself as the leading blood bank device company in the United States. The Company's strategy is to strengthen its leadership position in the automation of blood bank testing by establishing a large base of installed instruments that future market entrants must overcome. To facilitate instrument placements, the Company offers customers a selection of automated analyzers, which address the various needs of low-, medium-, and high-volume testing facilities. In order to satisfy the broad spectrum of customers' operational and financial criteria, the Company intends to continue to offer several instrument procurement options, including third-party financing leases, direct sales and reagent rentals and to expand the range and price points of its instrument offerings. Substantial Market Price Adjustment. Over the past several years manufacturers have been facing increased costs of manufacturing while, during the same period, market prices for blood bank products have decreased. The Company has begun to utilize its market leadership position in the United States to realign its prices with its costs. The Company expects this adjustment will have significant favorable impact on the Company's financial performance while adding only slightly to the cost of a patient transfusion. Maximize Revenue Stream Per Placement. Each instrument placed typically provides the Company with a recurring revenue stream through the sale of reagents and supplies. Immucor's family of blood bank testing systems operates exclusively with the Company's proprietary reagent lines and Capture(R) technology. Because these reagents have been developed for automated technology, they command a premium price over traditional products. The average annual revenue per placement is $70,000 to $100,000, depending on facility testing volume. The Company also continues to develop new reagent applications and upgrade system software and hardware in order to expand instrument test menus, thereby increasing consumable usage per placement. Develop New and Enhanced Products. Immucor continually seeks to improve existing products and develop new ones to enhance its market share. The Company has successfully introduced and commercialized the ABS2000, the ROSYS Plato, the DIAS PLUS and the next generation Galileo automated analyzers, all of which operate exclusively with Immucor's proprietary solid phase Capture(R) assays. Expand Intellectual Property Position. The Company seeks to expand its intellectual property position by entering into strategic alliances, acquiring rights of first refusal on future commercial developments and licensing existing technologies. Products Most of Immucor's current reagent products are used in tests performed prior to blood transfusions to determine the blood group and type of patients' and donors' blood, in the detection and identification of blood group antibodies, in platelet antibody detection, in paternity testing and in prenatal care. The FDA requires the accurate testing of blood and blood components prior to transfusions using only FDA licensed reagents such as those manufactured and sold by the Company. The following table sets forth the products sold by or exclusively for the Company, most of which are manufactured by or exclusively for the Company. Product Group Principal Use ABO Blood Grouping Detect and identify ABO antigens on red blood cells in order to classify a specimen's blood group as either A, B, AB or O. Rh Blood Typing Detect Rh antigens in order to classify a specimen as either Rh positive or Rh negative, and to detect other Rh-hr antigens. Anti-human Globulin Used with other products for routine crossmatching, Serums (Coombs Serums) and antibody detection and identification; allows a reaction to occur by bridging between antibodies that by themselves could not cause a reaction. Reagent Red Blood Cells Detect and identify antibodies in patient or donor blood, confirm ABO blood grouping results and validate the performance of anti-human serum in the test system. Rare Serums Detect the presence or absence of rare antigens. Product Group Principal Use (continued) Antibody Potentiators Increase the sensitivity of antigen-antibody tests. Quality Control Systems Daily evaluation of the reactivity of routine blood testing reagents. Monoclonal (Hybridoma) Detect and identify ABO and other antigens on red Antibody-based Reagents blood cells. Technical Proficiency Reagent tests used to determine technical proficiency Systems and provide continuing education for technical staff. Fetal Bleed Screen Kit Used to detect excessive fetal-maternal hemorrhage in Rh-negative women. Capture-P(R) Used for the detection of platelet antibodies. Capture-R(R) Used to detect and identify unexpected blood group antibodies. Capture-CMV(R) Used for the detection of antibodies to cytomegalo- virus. Capture-S(R) Used for the detection of antilipid antibodies for syphilis screening. SegmentSampler(TM) Disposable blood handling safety device. ABS2000 Fully automated blood bank system used for patient ABO /Rh grouping, antibody screening, donor ABO/Rh confirmation testing and crossmatching. Rh (D) Immune Globulin Administered by injection once during and once after (Human) pregnancy to an Rh negative woman who delivers an Rh positive infant to prevent hemolytic disease of the newborn. HLA Serums Transplant typing and paternity testing. Infectious Diseases Detection of certain infectious diseases by the methods of Capture, ELISA, Immunofluorescence and Latex Slide Tests. Clinical Chemistry Blood analysis and pathological testing. Immunofluorescent Used in clinical research to identify rare cell Monoclonal Antibodies surface antigens. Automated Microtitration Instruments providing laboratories automated batch Plate Processors and processing and positive sample identification of Liquid Handlers routine blood donor tests. Microtitration Plate Instrument that reads and interprets test results of Reader Immucor's proprietary Capture(R) products. ROSYS Plato System Semi-automated blood bank serology system targeting medium and high volume testing facilities performing up to 40 samples per hour. DIAS PLUS System Addresses the needs of donor centers and the high- volume lab markets processing more than 100,000 samples per year. GALILEO System Currently launched in Europe, this fully automated high volume analyzer will be the successor to the ABS2000, ROSYS Plato and DIAS PLUS. It is capable of performing 70 type and screen tests per hour. Systems The Company believes that the blood banking industry today is labor-intensive, and that a market exists for further automation of blood compatibility tests currently being performed manually by hospital and donor center blood bank technologists. Based on the results of independent workflow studies, the Company believes that its Blood Bank Automation products significantly reduce the amount of blood bank technologist time required to perform routine blood compatibility tests. ABS2000: Fully Automated Blood Bank System. On July 6, 1998, the Company announced it received FDA clearance to market the ABS2000 in the U.S. This automated, "walk-away", blood bank analyzer uses Immucor's proprietary Capture(R) reagent product technology to perform blood bank patient testing and is manufactured exclusively for Immucor by Bio-Tek Instruments, Inc., a wholly owned subsidiary of Lionheart Technologies, Inc. During fiscal 1999, the Company began to implement its marketing plan for domestic sale of the product. ROSYS Plato: Microplate Liquid Handler and Sample Processor. The system provides medium sized donor centers, clinical reference laboratories and large hospital transfusion laboratories with automated liquid and sample handling for processing of microtitration plates and also uses Immucor's proprietary solid phase Capture(R) assays. DIAS PLUS: High Volume Microplate Processor. The instrument provides large blood donor centers and clinical reference laboratories with automated batch processing and positive sample identification of routine blood donor tests, and uses the Company's Capture-R(R), Capture-CMV(R) and Capture-S(R) products. GALILEO: High Volume Microplate Processor. The system provides hospitals, clinical reference laboratories and blood donor centers a fully automated solution to the labor intensive process of blood compatibility testing. The Galileo uses Immucor's proprietary Capture(R) reagent product technology and is manufactured exclusively for Immucor by Stratec. Multireader Plus: Microplate Reader. Semi-automated spectraphotometric microtitration plate reader that reads and interprets test results of Immucor's proprietary Capture(R) products. Together with the ROSYS Plato or the DIAS PLUS, the Multireader Plus completes a semi-automated blood bank system ideally suited for blood donor centers, large hospital transfusion laboratories and large reference laboratories. Laboratory Equipment. Immucor also distributes laboratory equipment designed to automate certain blood testing procedures and used in conjunction with the Company's Capture(R) product. Proprietary Technology Under traditional agglutination blood testing techniques, the technologist mixes serum with red blood cells in a test tube, performs several additional procedures, and then examines the mixture to determine whether there has been an agglutination reaction. A positive reaction will occur if the cells are drawn together in clumps by the presence of corresponding antibodies and antigens. However, when the mixture remains in a fluid state, it is sometimes difficult for the technologist to determine whether a positive reaction has occurred. Because of the critical importance of matching patient and donor blood, testing procedures using agglutination techniques are usually performed manually by highly educated technologists. Depending on the technical proficiency of the person performing the test, the process can take from 30 minutes to one hour, and if the test results are ambiguous the entire process may need to be repeated. Thus, a significant amount of expensive labor is involved in manual agglutination testing. Based on industry sources, the Company believes that labor costs are the largest component of the total cost of operating a hospital blood bank. The Company believes that its solid phase blood testing system improves test results and reduces the time necessary to perform certain blood testing procedures related to the transfusion of blood and blood components. Solid Phase Technology. In the Company's proprietary solid phase blood test system, one of the reactants (either an antigen or an antibody) is applied or bound to a solid support, such as a well in a microtitration plate. During testing, the bound reactant captures other reactants in a fluid state and binds those fluid reactants to the solid phase (the bound reactant). The binding of the fluid reactants into the solid phase occurs rapidly and results in clearly defined test reactions that are often easier to interpret than the subjective results sometimes obtained from existing agglutination technology. Based on results obtained with Capture-P(R), Capture-R(R), Capture-CMV(R), Capture-S(R) and the Company's ongoing research, the Company believes that solid phase test results, in batch test mode, can generally be obtained in substantially less time than by existing techniques. Immucor has obtained FDA clearance for sale of four test systems using its solid phase technology: a Platelet Antibody Detection System, Capture-P(R); a Red Cell Antibody Detection System, Capture-R(R); and two Infectious Disease Tests, Capture-CMV(R) and Capture-S(R). In these four test systems, antigens are applied and bound to the surface of a small well in a plastic microtitration plate, and patient or donor serum or plasma is placed in the well. After the addition of special proprietary indicator cells manufactured by Immucor, positive reactions indicating the presence of blood group antibodies adhere to the well as a thin layer and negative reactions do not adhere but settle to the bottom as a small cell button. Products Under Development Immucor continually seeks to improve its existing products and to develop new ones in order to enhance its market share. Prior to their sale, any new products will require licensing or pre-market approval by the FDA. The Company employs several persons in the U.S. whose specific duties are improving existing products and developing new products for the Company's existing and potential customers. The Company also has established relationships with other individuals and institutions that provide similar services and the Company expects that it will continue to form and maintain such relationships. The Company intends to continue focusing its product development efforts primarily in the areas of blood bank automation and solid phase technology and in several other areas that may also be useful in connection with the development of these products. For the fiscal years ended May 31, 2002, 2001 and 2000, the Company spent approximately $2.0 million, $1.9 million and $2.0 million, respectively, for research and development. The Company may in the future acquire related technologies and product lines, or the companies that own them, to improve the Company's ability to meet the needs of its customers. For the ten-year period ending May 31, 2002 the Company has invested $7.2 million in instrument research and development principally under research contracts with Bio-Tek, Stratec and DYNEX. Blood Bank Automation. The Company believes that the blood banking industry today is labor-intensive, and that a market exists for further automation of blood compatibility tests currently being performed manually by hospital and donor center blood bank technologists. Since 1992 the Company has worked with Bio-Tek Instruments, Inc., a wholly owned subsidiary of Lionheart Technologies, Inc., combining Immucor's reagent manufacturing expertise with Bio-Tek's medical instrumentation expertise to develop an automated, "walk-away", blood bank analyzer, the ABS2000. Bio-Tek has been responsible for engineering, software development and manufacturing. The Company announced clearance to market the ABS2000 in the U.S. from the FDA on July 6, 1998 and continues to develop system software/hardware upgrades to add additional tests to its menu, increase ease of use, improve throughput and add stat testing capabilities. Second generation ABS2000 software was cleared for market by the FDA on October 1, 2001. In June 2000 isolated performance issues arose at certain ABS2000 installations that resulted in mistypings not directly affecting any patient transfusions. The Company issued a safety notification, requesting customers to confirm ABS2000 results with manual backup testing until the cause of the difficulty was identified and corrected. The Company identified the factors that caused the performance issues and submitted this information to the FDA. On December 6, 2000, with the FDA's approval, the safety notification for antibody screening and crossmatch assays was removed. Customers no longer have to perform manual backup tests for either of these procedures. In addition to this, the Company's corrective action plan for blood grouping was accepted by the FDA and in connection with the plan, a special 510(k) was submitted to the FDA. The plan called for Company service engineers to complete field corrective action on the ABS2000 and to accumulate clinical data for group and type assays for selected customers. The Company completed these tasks and the safety notification for blood grouping was lifted on September 26, 2001. On October 1, 2001, the Company launched its ABS2000 Version 2 software. This second-generation software has a number of new features that help maximize productivity of the instrument and the technologists, including: o The ability to perform a 2-cell screen - increases productivity. The 2-cell screen product has been cleared by the FDA and is expected to begin shipment during the second quarter of fiscal 2003. o The availability of "mini batches" which allow for faster access to results once the samples are processed. o Less maintenance, which saves time and money. o Customized Quality Control, which allows the technologist to only perform QC for assays that are being tested. In August 2002, Immucor placed an order, amounting to $3.3 million, for 50 additional ABS2000 to be delivered by February 2003. On September 1, 1999, the Company entered into a manufacturing and development agreement with Stratec Biomedical AG ("Stratec"), headquartered in Germany. Under the terms of the agreement, Stratec will manufacture and develop a fully automated analyzer known as the Galileo that will be initially targeted to the European community utilizing the Company's Capture(R) technology. The instrument will be marketed exclusively by Immucor to hospital transfusion laboratories and blood donor centers for patient and donor blood typing and antibody screening and identification. In order to maintain exclusive European distribution rights the Company must purchase 250 instruments over the five year initial term of the agreement. If the Company purchases less than 250 instruments over the period it will be allowed to negotiate a good faith extension. The Company made some initial sales to European distributors in fiscal 2002 but began the full launch of the Galileo in selected European countries in June 2002. The Company expects to install 25 instruments in Europe during fiscal 2003 through outright sales and reagent rental agreements. Additional Solid Phase Applications. The Company plans to continue to develop and refine its patented solid phase technology. Currently, the Company is developing a screening test for the detection of weak D antigens on donor red cells. Monoclonal Antibodies. Monoclonal antibodies are derived by fusing an antibody-producing cell with a tumor cell, resulting in a hybridoma cell that manufactures the original antibody. The Company is actively engaged in the development of additional monoclonal antibodies for a variety of uses, including the detection of blood group and infectious disease antigens, and for use in its solid phase test systems. Monoclonal antibodies are highly specific, a trait which allows them to detect and identify antigens with greater efficiency than other reagents. Product quality and consistency is maintained from production lot to production lot. The Company continues to pursue the development of such antibodies principally through Gamma and Dominion, the Company's Canadian subsidiary. Marketing and Distribution Immucor's potential U.S. customers are approximately 6,000 blood banks, hospitals and clinical laboratories. The Company maintains an active client base of over 5,500 customers worldwide, and no single customer purchases in excess of 2% of the Company's current annual sales volume. The Company believes there is a slight amount of seasonality to its sales activity as fewer donations and elective surgical procedures are performed in its first and third quarters. There is no material backlog of reagent revenues. At May 31, 2002 the Company had a backlog of installed but unrecorded instrument sales of approximately $700,000. During fiscal 1999, the Company increased its market share through the successful implementation of its acquisition strategy (see Item 1. - Business). The Company believes it is now the market leader in North America. In addition, the Company seeks to continue to increase its worldwide market share through the use of its experienced direct sales force and through the expansion of its product line to offer customers a full range of products for their reagent needs. The Company believes it can increase its market share by marketing products based on its blood bank automation strategy and solid phase technology. The Company markets and sells its products to its customers directly through 104 sales, marketing and support personnel employed by the Company in the U.S., Canada, Germany, Portugal, Italy, Spain, and Belgium. In addition, the Company utilizes 14 sales agents in Italy. The Company has hired personnel whom the Company considers to be highly experienced and respected for their knowledge of the blood bank diagnostic business and/or individuals with previous success in laboratory instrument reagent sales. To effect the smooth transition to a systems company, the Company conducted extensive capital sales training of its existing sales force and added specialized capital sales representatives to the organization. Continuing technical support and service is also provided to customers through the Company's Consultation Laboratory, which was significantly strengthened with the acquisition of Gamma in October 1998. The Consultation Laboratory assists the Company's customers in identifying certain blood group antibodies that are rare or difficult to detect. Immucor also sponsors workshops in the U.S., Europe, Latin America and Asia to which customers are invited to hear the latest developments in the field. The Company also markets its products internationally through distributors located throughout the world. For the fiscal years ended May 31, 2002, 2001 and 2000, the Company had foreign net sales, including net domestic export sales to unaffiliated customers, of approximately $31.3 million, $31.3 million and $35.1 million, respectively. These sales accounted for approximately 37%, 45% and 46% of the Company's total net sales for the respective fiscal years. During the years ended May 31, 2002, 2001 and 2000, the Company's U.S. operations made net export sales to unaffiliated customers of approximately $5.3 million, $5.8 million and $6.7 million, respectively. Most of the Company's foreign sales occurred in Europe and Canada where the Company maintains subsidiaries. The Company's German operations made net export sales to unaffiliated customers of approximately $2.3 million, $1.1 million and $1.5 million for the years ended May 31, 2002, 2001, and 2000, respectively. The Company's Canadian operations made net export sales to unaffiliated customers of approximately $2.1 million, $2.4 million and $2.2 million for the years ending May 31, 2002, 2001, and 2000, respectively. The Company's Italian operations made sales in Italy of $6.0 million, $5.6 million, and $6.7 million for the years ending May 31, 2002, 2001, and 2000, respectively. Please refer to Note 13 to our consolidated financial statements for revenue and profit information for each of our last three fiscal years attributable to the different geographic areas in which we do business. Fluctuations in foreign exchange rates, principally with the U.S. dollar versus the Euro, could impact operating results when translations of the Company's subsidiaries' financial statements are made in accordance with current accounting guidelines. For the year ended May 31, 2002, foreign net sales declined $0.30 million due to the exchange fluctuation of the Euro. Since the end of the fiscal year, the Euro has strengthened against the dollar which favorably affected foreign net sales for the two months ended July 31, 2002 by $0.3 million. Suppliers The Company obtains raw materials from numerous outside suppliers. The Company is not dependent on any single supplier, except for certain manufacturers of instrumentation, including Lionheart Technologies Inc. for the ABS2000, Dynex Technologies Inc. for the DIAS Plus, QIAGEN N.V. for the ROSYS Plato and Stratec Biomedical AG for the Galileo (see Note 12 to the Consolidated Financial Statements), and Serologicals, Inc., the joint manufacturer of some of the Company's monoclonal antibody-based products. The Company believes that its business relationship with its suppliers is excellent. Management believes that if the supply of instrumentation were interrupted, alternate suppliers could be found, but the commencement of supply could take one to two years. Certain of the Company's products are derived from blood having particular or rare combinations of antibodies or antigens, which are found in a limited number of individuals. The Company to date has not experienced any major difficulty in obtaining sufficient quantities of such blood for use in manufacturing its products, but there can be no assurance that a sufficient supply of such blood will always be available to the Company. Regulation of Business The manufacture and sale of blood banking products is a highly regulated business and is subject to continuing compliance with various federal and state statutes, rules and regulations that generally include licensing, product testing, facilities compliance, product labeling, and consumer disclosure (see Industry). An FDA license is issued for an indefinite period of time, subject to the FDA's right to revoke the license. As part of its overview responsibility, the FDA makes plant and facility inspections on an unannounced basis. Further, a sample of each production lot of many of the Company's products must be submitted to and approved by the FDA prior to its sale or distribution. The Company operates under U.S. Government Establishment License No. 886 granted by the FDA in December 1982 to the Company and U.S. Government Establishment License No. 435, granted by the National Institutes of Health in 1971 to Gamma Biologicals, Inc. In November 2001 the FDA inspected the Gamma Biologicals, Inc. facility in Houston, Texas and reported several observations. The Company responded to these observations and on February 25, 2002 the FDA requested additional information regarding our response. On June 25, 2002 the FDA advised the Company that its responses were acceptable and would be verified during the next inspection. The FDA district office inspected the Gamma facility in July, 2002 and made two observations. The Company plans to respond to these observations. Also in November 2001 the FDA inspected the Immucor, Inc. facility in Norcross, Georgia and reported several observations. The Company responded to the observations. On February 14, 2002 the FDA advised the Company that the responses appear adequate and would be verified at the next inspection. In addition to its facilities license, the Company holds several product licenses to manufacture blood grouping reagents. To obtain a product license, the Company must submit the product manufacturing methods to the FDA, perform a clinical trial of the product, and demonstrate to the satisfaction of the FDA that the product meets certain efficacy and safety standards. There can be no assurance that any future product licenses will be obtained by the Company. To sell its products in Germany, Immucor GmbH must license its products with the Paul-Ehrlich-Institute prior to product introduction. In addition, an import license for products purchased outside the European Economic Community is required. To date, Immucor GmbH has been able to obtain licenses needed to effectively promote its products in Germany and throughout Europe. In North America, the Company has hired and retained several employees who are highly experienced in FDA and other regulatory authority compliance, and the Company believes that its manufacturing and on-going quality control procedures conform to the required federal and state rules and regulations. Patents, Trademarks and Royalties Since 1986, the U.S. Patent Office has issued to Immucor six patents pertaining to its solid phase technology. Immucor's solid phase technology, including patent rights, was acquired from five researchers at the Community Blood Center of Greater Kansas City ("Blood Center") pursuant to an agreement entered into on March 11, 1983, and amended in 1985 and 1987. In 1987, one of the researchers joined the Company as Director of Research and Development to continue to develop new products using the solid phase technology. The agreement terminates on August 26, 2006, the date on which the first patent issued on the technology expires. The Company has agreed to pay the Blood Center royalties equal to 4% of the net sales from products utilizing the solid phase technology. For the fiscal years ended May 31, 2002, 2001 and 2000 the Company paid royalties of approximately $517,000, $435,000, and $409,000 under this agreement. See Note 11 to the Consolidated Financial Statements. The Company has registered the trademark "Immucor" and several product names, such as "ABS2000", "ImmuAdd", "Capture", "Capture-P", "MCP", "Capture-R", "Ready-Screen", "Ready-ID", and "Capture-CMV". Dominion Biologicals, Limited has registered the trademark "NOVACLONE". Gamma Biologicals, Inc. has registered the trademark "Gamma" and several product names including "RQC", "ELU-Kit", "Quin", "EGA-Kit", "RiSE", "Tech-Chek", and "SegmentSampler". Through the acquisition of the BCA blood bank division of Biopool International, Inc., the Company acquired several registered trademarks but plans to continue production of only one of the products with the registered trademark "RESt". The Company continues to distribute four products manufactured by Biopool, Inc. Competition Competition is based on quality of product, price, talent of sales forces, ability to furnish a range of existing and new products, customer services and continuity of product supply. During the past several years, the industry has experienced aggressive price competition, particularly among manufacturers that target large hospitals and institutions as key customers. In spite of this competitive environment, the Company has maintained its worldwide sales and increased its domestic reagent market share. Management believes that this is due to the Company's emphasis on product quality, the introduction of new products, specialty products, customer service and training. With the Company's fiscal 1999 purchases of Gamma and the assets of the BCA blood bank division of Biopool International, Inc., the Company believes that Ortho Clinical Diagnostics, a Johnson & Johnson company, is now its sole competitor with licenses to manufacture a complete line of blood banking reagents in the United States. The Company believes that it became the North American market leader in terms of sales during fiscal 1999. Olympus America Inc. has developed an automated analyzer for the blood donor market. The instrument performs only ABO/Rh testing and does not perform antibody screening. The Olympus instrument users currently dilute commercial ABO and Rh reagents for the machine's use. Gamma began developing diluted ready-for-use reagents for Olympus several years ago. Gamma has received clearance from the FDA for six of the reagents and is awaiting clearance for the seventh. Management does not believe the Olympus instrument will have an effect on its instrument strategy in North America. Biotest AG, a German Pharmaceutical and Diagnostic company, presently has FDA licenses for six reagent products. Since the product line is incomplete there is no evidence that Biotest will be in a position, in the near term, to market a complete commercially-viable product line. European competitors for blood bank products include Biotest and Diamed, a Swiss company. Both of these companies have been established longer than the Company and may have greater financial and other resources than the Company. Diamed has a larger global market share than the Company. However, the Company believes that it is well positioned to compete favorably in the business principally because of the completeness of its product line, quality and price of its products, the sale of innovative products such as blood bank automation, the Company's Capture(R) products (see Products), continuing research efforts in the area of blood bank automation (see Products Under Development), the experience and expertise of its sales personnel (see Marketing and Distribution) and the expertise of its technical and customer support staff. Employees At July 31, 2002, the Company and its subsidiaries had a total of 481 employees. The Company had 325 full time employees in the U.S., of whom 27 were in sales and marketing, 258 were in manufacturing, research and distribution, and 40 were in administration. In Germany, Portugal, Italy, Spain, Canada, and Belgium, the Company had 156 full-time employees, of whom 77 were in sales and marketing, 45 were in research, distribution and administration and 34 were in manufacturing. The Company has experienced a low turnover rate among its technical and sales staff and none of the Company's employees are represented by a union. The Company considers its employee relations to be good. Available Information Immucor files reports, proxy statements and other information under the Securities Exchange Act of 1934, as amended (the "1934 Act") with the Securities and Exchange Commission (the "Commission"). The public may read and copy any Company filings at the Commission's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Because the Company makes filings to the Commission electronically, you may also access this information at the Commission's Internet site (http://www.sec.gov). This site contains reports, proxies and information statements and other information regarding issuers that file electronically with the Commission. Item 2.--Properties. The Company leases approximately 67,000 square feet in Norcross, Georgia, a suburb of Atlanta, as its executive offices, laboratories and manufacturing facilities. Rent charges for the fiscal year ended May 31, 2002 were approximately $678,000. The term of the lease is for a six-year period ending August 2005 with a right to renew for an additional five years. The Company owns a 41,000 square foot building on a three-acre tract of land in northwest Houston, which is used primarily for manufacturing and shipping. In Germany, the Company leases 1,566 square meters near Frankfurt. Rent expense for the fiscal year ended May 31, 2002 totaled approximately $159,000. The term of the lease in Germany is through April 2009. In Italy rent expense for the fiscal year ended May 31, 2002 totaled approximately $84,000 for 700 square meters. The Company has five separate lease agreements for the facility in Italy with terms expiring between September 2004 and November 2007. In Portugal, the Company leases 120 square meters of office space and rent expense for the fiscal year ended May 31, 2002 was approximately $14,500. In Spain, the Company leases 165 square meters of office space and rent expense for the fiscal year ended May 31, 2002 was approximately $18,000. In Belgium, the Company owns land and a 575 square meter building subject to a first lien mortgage. In Canada, the Company owns a 15,000 square foot building on approximately one acre of land. The Company believes all of its facilities and lease terms are adequate and suitable for the Company's current and anticipated business for the foreseeable future. Item 3.--Legal Proceedings. No material proceedings are pending against the Company, and no similar proceedings are known by the Company to be contemplated by governmental authorities. Item 4.--Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5.--Market for Registrant's Common Equity and Related Stockholder Matters. Immucor's Common Stock trades on The NASDAQ National Market System of The NASDAQ Stock Market under the symbol: BLUD. The following table sets forth the quarterly high and low sale prices of the Common Stock for the fiscal periods indicated as reported by NASDAQ. These prices represent inter-dealer quotations without retail markups, markdowns or commissions and may not represent actual transactions. High Low ---------------- ---------------- Period June 1 through July 31, 2002 $ 28.880 $ 16.260 Fiscal Year Ended May 31, 2002 First Quarter $5.000 $2.400 Second Quarter 8.150 2.500 Third Quarter 12.410 6.200 Fourth Quarter 19.750 10.310 Fiscal Year Ended May 31, 2001 First Quarter $8.313 $3.438 Second Quarter 5.438 3.000 Third Quarter 4.406 2.688 Fourth Quarter 4.219 2.200 As of July 31, 2002, there were 329 holders of record of the Company's common stock. The last reported sales price of the common stock on such date was $28.190. Immucor has not declared any cash dividends with respect to its common stock. The Company presently intends to continue to retain all earnings in connection with its business. In connection with the Company's agreement with its principal lender, the Company granted its principal lender a security interest in substantially all of the Company's assets in addition to other security. Additionally, the loan agreement contains certain financial and other covenants which, among other things, limit annual capital expenditures, prevent payment of cash dividends or the repurchase of stock, limit the incurrence of additional debt, and require the maintenance of certain financial ratios. See Note 3 of the Consolidated Financial Statements. On July 24, 2002, the Board of Directors approved a 3-for-2 stock split, which will be effected in the form of a 50% stock dividend to shareholders of record as of the close of business on August 26, 2002. As of July 31, 2002, the Company had 8,162,393 shares of common stock outstanding. The stock split will increase the number of shares of common stock outstanding to approximately 12,243,590 shares. The expected date of distribution is September 13, 2002. The stock split is the fourth for the Company since its initial public offering in December 1985. Previously, the Company implemented a three-for-two split in 1991, a five-for-four split in 1990, and a five-for-four split in 1987. No adjustments have been recorded in the financial statements to reflect the impact on share information of the 3-for-2 stock split. See Note 17. Recent Sales of Unregistered Securities From January 28, 2002 until June 4, 2002, the Company issued an aggregate of 105,980 shares of its common stock to participants in its 1998 Employee Stock Option Plan. Such shares were issued upon payment of the exercise price, which ranged from a low of $8.75 per share to a high of $12.375 per share, and totaled $1,059,644. The Company inadvertently issued such shares prior to the filing of a registration statement on Form S-8 covering the shares to be issued under that plan. The Company filed the required registration statement on Form S-8 on June 14, 2002. In connection with the Company's acquisition of its Belgian and French distribution rights in 1999, the Company issued the seller of such rights a warrant to purchase 100,000 shares of Immucor's common stock in a transaction exempt under Section 4(2) of the Securities Act. When the Company issued the warrant, it intended for the issuance of shares upon exercise of the warrant to be exempt under Section 4(2) of the Securities Act, and obtained the warrant holder's agreement to not resell any of the shares received upon exercise of the warrant except in compliance with the Securities Act. On June 7, 2002, Immucor issued 50,000 shares of common stock upon a partial exercise of the warrant. However, due to the Company's mistaken belief that either the Company's issuance of those shares or the warrant holder's resale of those shares had been registered under the Securities Act, when the warrant was exercised the Company issued the shares without a restrictive legend or stop transfer order, thereby allowing the warrant holder to resell the shares shortly after issuance. Equity Compensation Plan Information
The following data reflects the effect of the recent 3-for-2 stock split. See Note 17. Number of securities to Weighted average exercise Number of securities be issued upon exercise price of outstanding remaining available Plan category of outstanding options, options, warrants and for future issuance warrants and rights rights ======================================= ========================= =========================== ======================== Equity compensation plans approved by security holders 1,210,640 $5.15 157,296 ======================================= ========================= =========================== ======================== Equity compensation plans not approved by security holders * 1,503,037 $4.84 296,738 ======================================= ========================= =========================== ======================== Total 2,713,677 $4.98 454,034 ======================================= ========================= =========================== ========================
* For a description of the material features of our 1990 and 1995 Employee Stock Option Plans, see Note 7 of the Consolidated Financial Statements. Item 6.--Consolidated Selected Financial Data.
(All amounts are in thousands, except per share amounts) Year Ended May 31, --------------------------------------------------------------------------------- 2002 2001 2000 1999 (1) 1998 --------------- -------------- -------------- --------------- -------------- Statement of Operations Data: Net sales $84,144 $69,438 $76,541 $59,525 $39,790 Cost of sales 37,477 38,086 36,408 27,551 18,168 --------------- -------------- -------------- --------------- -------------- Gross profit 46,667 31,352 40,133 31,974 21,622 --------------- -------------- -------------- --------------- -------------- Operating expenses: Research and development 1,997 1,894 2,003 1,294 971 Selling, general, and administrative 29,629 30,519 30,771 23,812 16,918 Loss on impairment of goodwill - 3,063 - - - Merger-related expenses - - - 559 - --------------- -------------- -------------- --------------- -------------- Total operating expenses 31,626 35,476 32,774 25,665 17,889 --------------- -------------- -------------- --------------- -------------- Income (loss) from operations 15,041 (4,124) 7,359 6,309 3,733 --------------- -------------- -------------- --------------- -------------- Other: Interest income 41 58 31 313 789 Interest expense (4,454) (3,747) (2,911) (1,416) (616) Other 1,356 229 231 202 (27) --------------- -------------- -------------- --------------- -------------- Total other (3,057) (3,460) (2,649) (901) 146 --------------- -------------- -------------- --------------- -------------- Income (loss) before income taxes 11,984 (7,584) 4,710 5,408 3,879 Income taxes 3,189 465 1,898 1,847 1,810 --------------- -------------- -------------- --------------- -------------- Net income (loss) $ 8,795 $ (8,049) $ 2,812 $ 3,561 $ 2,069 =============== ============== ============== =============== ============== Income (loss) per share: Basic $1.20 $(1.10) $0.36 $0.47 $0.26 =============== ============== ============== =============== ============== Diluted $1.15 $(1.10) $0.33 $0.45 $0.25 =============== ============== ============== =============== ============== Weighted average shares outstanding Basic 7,306 7,286 7,713 7,646 8,095 =============== ============== ============== =============== ============== Diluted 7,635 7,286 8,520 7,959 8,443 =============== ============== ============== =============== ============== Balance Sheet Data: Working capital $ 27,070 $ 19,536 $ 21,868 $ 21,141 $ 32,948 Total assets 101,367 95,813 102,775 99,734 57,544 Long-term obligations, less current portion 31,581 39,951 34,815 31,548 8,912 Retained earnings 29,057 20,262 28,311 25,499 21,938 Shareholders' equity 43,953 29,843 40,919 40,053 42,433 (1) Includes results of Gamma Biologicals, Inc. since October 27, 1998, Medichim and Immunochim since March 15, 1999 and BCA, a division of Biopool, since April 30, 1999.
Item 7.--Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain statements that Immucor may make from time to time, including statements contained in this report, constitute "forward-looking statements" under the federal securities laws. Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will" and other words of similar meaning used in conjunction with, among other things, discussions of future operations, financial performance, product development and new product launches, market position and expenditures. Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Immucor include the following, some of which are described in greater detail below: the decision of customers to defer capital spending, increased competition in the sale of instruments and reagents, changes in interest rates and general economic conditions. In addition, the strengthening of the dollar versus the Euro would adversely impact reported European results. Investors are cautioned not to place undue reliance on any forward-looking statements. Immucor cautions that historical results should not be relied upon as indications of future performance. Immucor assumes no obligation to update any forward-looking statements. Critical Accounting Policies General We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 to the Consolidated Financial Statements in Item 14 of this Annual Report on Form 10-K. Note that our preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. Revenue Recognition The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. Revenue from the sale of the Company's reagents is recognized upon shipment since both title and risk of loss transfers to the customer upon shipment. Revenue from the sale of the Company's medical instruments is recognized upon shipment and completion of contractual obligations relating to training and/or installation based on terms of the related agreements. Revenue from rentals of the Company's medical instruments is recognized over the life of the rental agreement. Allowance for Doubtful Accounts Immucor maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is approximately 5.2% of the accounts receivable balance. The Company continually monitors the collectibility of its customer accounts and when indications arise that amounts are not likely to be collected, the amount is charged to the allowance for doubtful accounts. If the financial condition of Immucor's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. Inventory Inventories are stated at the lower of first-in, first-out cost or market. Cost includes material, labor and manufacturing overhead. The Company uses a standard cost system that applies labor and manufacturing overhead factors to inventory based on budgeted production levels, staffing levels and costs of operation. Actual costs and production levels may vary from the standard and will be charged to the consolidated statement of operations as a component of cost of sales. Goodwill and Other Long-lived Assets In assessing the recoverability of the Company's goodwill and other long-lived assets the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. On June 1, 2002 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, and will be required to analyze its goodwill and intangible assets for impairment on an annual basis or more frequently if impairment indicators arise. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." The Statement is effective for year-ends beginning after December 15, 2001. The Company is in the process of evaluating the impact SFAS No. 144 will have upon adoption but does not anticipate it will have a significant impact on its financial position or results of operations. Income Taxes Our income tax policy records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow very specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required. Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carry back opportunities, and tax planning strategies in making this assessment. Management evaluates the realizability of the deferred tax assets and assesses the need for additional valuation allowances quarterly. (a) Liquidity and Capital Resources Net cash provided by operating activities totaled approximately $13.1 million, $2.4 million, and $6.1 million for the fiscal years 2002, 2001 and 2000, respectively. As of May 31, 2002, the Company's cash and cash equivalents balance totaled $4.0 million. The approximately 450% increase in cash provided by operating activities from 2001 to 2002 resulted from the turnaround in operating results of the Company. During fiscal 2002, the Company improved net income by $16.8 million over fiscal 2001 including the one-time benefit of a $1.8 million settlement with Becton, Dickinson and Company and the disgorgement of $0.4 million of short-swing trading profits from the Kairos Group. The net loss in fiscal 2001 included a $3.1 million loss on impairment of goodwill related to 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 price increases during fiscal year 2001 and 2002 and the cost savings plan in the fourth quarter of fiscal 2001 had a materially beneficial effect on the Company's cash position which the Company expects to continue in fiscal 2003. In May 2002, the Company transferred all of its commercial activities in France to Bio-Rad Laboratories under the terms of a five-year distribution agreement. Over the 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. The assets related to the French operations were minor to the total assets of the Belgian and French operations. During fiscal 2002, $3.4 million of cash was used in investing activities primarily for capital expenditures of $1.1 million for instruments at customer sites on reagent rental agreements, $1.8 million for computer hardware and software enhancements of the enterprise software system, and $0.5 million to refurbish the German facility. Planned capital expenditures for fiscal 2003 total approximately $4.1 million, and include approximately $0.3 million for U.S. clinical trial Galileo instruments and approximately $1.3 million for Galileo reagent rental instruments installed in Europe. Additionally, the Company has budgeted $1.3 million for manufacturing and quality system improvements at its Norcross and Houston facilities during fiscal 2003. Expansion of the Company's computer network capabilities, including foreign subsidiaries, is budgeted at $1.2 million for fiscal 2003. Net cash used in financing activities totaled $9.3 million. During fiscal 2002, the Company paid principal of $12.6 million of long-term debt, debt issue costs and capital lease obligations. However, the Company received $2.8 million in cash from the exercise of stock options. Most of these options were granted in prior fiscal years and provide for exercise prices equal to the market value of the Company's stock on the date granted. The Company has experienced a rise in the value of its stock during the recently completed fiscal year and as a result option holders have exercised a large number of options. See Note 7 and Item 5--"Market for Registrant's Common Equity and Related Stockholder Matters--Equity Compensation Plan Information." Accounts receivable increased by $6.0 million from May 31, 2001 due to the reagent price increases that had a significant positive impact on the second half of the fiscal year, but remains at approximately 120 days sales outstanding. Inventory levels stayed relatively constant for the year at approximately 145 days sales in inventory. In August 2002, Immucor placed an order, amounting to $3.3 million, for 50 additional ABS2000 instruments to be delivered by February 2003. Income tax refund receivable, due from the German fiscal authorities, increased due to a decrease in pretax income and overpayments in the German subsidiary. Net deferred income tax liabilities decreased by $0.5 million for fiscal 2002 as the Company adjusted its assessment of estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-forwards. Prepaid and other assets increased by $0.9 million due to prepayments for insurance coverage and amounts due from financial institutions upon exercise of stock options. Other long-term assets increased in fiscal 2002 over fiscal 2001 primarily as a result of loan fees to be paid in installments to the Company's primary lender. See Note 3 of the Consolidated Financial Statements. Deferred licensing costs and excess of cost over net tangible assets acquired declined in fiscal 2002 over fiscal 2001 due to normal amortization. Accounts payable decreased by $0.3 million as the Company's operating cash-flows improved. The current income tax liability increased $3.1 million in fiscal 2002 over fiscal 2001 as a result of the Company's return to profitability and after fully utilizing net operating loss carry-forwards generated in prior periods. Other accrued liabilities declined $0.6 million mainly as the result of recognizing deferred instrument revenue as customer training and other contractual requirements were completed. Accrued salaries and wages include an accrual for approximately $0.7 million for executive bonuses to be paid in fiscal 2003. Other long-term liabilities increased by $0.5 million primarily due to the changes in value of the interest rate swap agreement. See Item 7A. - Quantitative and Qualitative Disclosures About Market Risk. Common stock and additional paid-in capital increased by an aggregate of $4.1 million primarily due to the exercise of stock options, described above, and the related tax benefit. Approximately $0.7 million of stock options were exercised as of May 31, 2002 but are classified as a receivable until the amounts due from financial institutions are received. Retained earnings and (comprehensive loss) improved by $10 million due to the earnings for the year and favorable changes in the net foreign exchange translation, offset by the effect of the interest rate swaps. See Item 7A--Quantitative and Qualitative Disclosures About Market Risk--Interest Rates. The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency Translation. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average exchange rates for each year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of comprehensive income (loss). The effect of foreign currency transaction gains and losses has been recorded in the accompanying statements of operations. Since the end of the fiscal year, the Euro has strengthened against the dollar, which increased accounts receivable, inventory, net property, plant and equipment, accounts payable and long-term debt for the period ended July 31, 2002 by $0.7 million, $0.1 million, $0.2 million, 0.1 million and $0.2 million, respectively. The Company amended its loan agreement during fiscal 2002 and again in the first quarter of fiscal 2003. In September 2001, the Company negotiated a waiver from its primary lender of covenant defaults under 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 was required to meet quarterly and cumulative Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") covenants and quarterly funded debt to EBITDA ratios. The interest rates would revert back to the more favorable pricing provided in the original Loan Agreement dated February 23, 2001 once the Company's ratio of trailing twelve-month funded debt to EBITDA reached 2.50 to 1 or less. 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 equity or subordinated debt investment. However, the Company did not obtain such investment by December 31, 2001 and, as a result, 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 subject to negotiations of terms. 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 was received. Because the junior capital investment was not received by April 30, 2002, all existing revolving lines of credit were reset to mature on February 28, 2003. In March 2002, the Company agreed to pay the lender $500,000 in cash in lieu of issuing any warrants. The fee is payable in four monthly installments of $75,000 commencing September 30, 2002 followed by payments of $100,000 on January 31, 2003 and February 28, 2003. During the third quarter of the fiscal year the Company achieved the trailing twelve-month EBITDA required by the original Loan Agreement dated February 23, 2001. On May 1, 2002 the Company was notified by its senior lender that it would allow the pricing of the loans to revert to LIBOR plus the applicable margin per the original Loan Agreement. In July, 2002, the Company and its primary lender again amended the loan agreement to extend the term of the existing revolving lines of credit from February 28, 2003 to December 1, 2005. Borrowings under the senior credit facility were re-priced according to a pricing grid that varies based upon the Company's ratio of Funded Debt to EBITDA, as defined in the senior credit facility. The current interest rate on the effective date of the amendment will be LIBOR plus a spread of 200 basis points on the revolving lines of credit and Term Loan A and LIBOR plus a spread of 250 basis points on the Term Loan B. At May 31, 2002 there was approximately $27.3 million of outstanding debt under the lines of credit and Term Loan A and approximately $6.0 million outstanding under Term Loan B. In addition, as of May 31, 2002, the Company's Italian and Spanish subsidiaries had outstanding debt of approximately $2.1 million under lines of credit and its Belgian subsidiary had outstanding debt of approximately $0.5 million under line of credit agreements. The Company can borrow an additional $2.5 million in funds under the U.S. line of credit, $1.2 million under the Canadian line of credit, and no additional funds are available under the German line of credit. The Company's Italian and Spanish subsidiaries have an ability to borrow an additional $475,000 and its Belgian subsidiary can borrow an additional $320,000. The Company made a $4.5 million payment against the line of credit in July 2002. In fiscal 1998, the Company authorized a program to repurchase up to 10% of its common stock in the open market. During fiscal 2001 and 2000, the Company repurchased 184,500 and 415,500 shares of its common stock for approximately $1.5 and $3.5 million, respectively. The Company is restricted from the repurchase of additional shares under debt covenants of the current loan agreement. The Company previously granted its principal lender a security interest in substantially all of the Company's assets in addition to other security. Additionally, the loan agreement contains certain financial and other covenants which, among other things, limit annual capital expenditures, prevent payment of cash dividends or the repurchase of stock, limit the incurrence of additional debt, and require the maintenance of certain financial ratios. The Canadian revolving line of credit and German line of credit are guaranteed by the Company. The interest rate swap agreement with the U.S. bank is also guaranteed by the Company. At May 31, 2002 and May 31, 2001, the Company had an interest rate swap agreement in the Company's functional currency, maturing in 2005 with an initial notional principal amount of $15 million which amortizes over the life of the instrument. The fair value of the interest rate swap agreement represents the estimated receipts or payments that would be made to terminate the agreement and is included with other long-term liabilities on the balance sheet. At May 31, 2002 and May 31, 2001, the Company would have paid $369,492 and $87,321, respectively, to terminate the agreement in the Company's functional currency. See Item 7A--Quantitative and Qualitative Disclosures About Market Risk--Interest Rates. There are no restrictions on the Company's foreign subsidiaries in the matter of sending dividends, or making loans or advances to the parent Company. Management is focused on reducing the leverage on the Company's balance sheet and does not anticipate that there will be a need for additional borrowings. Management expects that cash and cash equivalents and internally generated funds will be sufficient to support operations, scheduled debt repayments and planned capital expenditures for the next 12 months, as well as fund future long-term debt payments. Contractual Obligations and Commercial Commitments
- ------------------------------------ ----------------------------------------------------------------------- Contractual Obligations Payments Due by Period (in thousands) - ------------------------------------ ----------------------------------------------------------------------- Total Less than 1 1-3 years 4 - 5 years After 5 years year - ------------------------------------ ------------- -------------- ------------ ------------ ---------------- Long Term Debt and Lines of Credit $35,986 $ 5,658 $29,918 $410 - - ------------------------------------ ------------- -------------- ------------ ------------ ---------------- Capital Lease Obligations 2,228 975 1,253 - - - ------------------------------------ ------------- -------------- ------------ ------------ ---------------- Operating Leases 4,312 1,211 2,599 502 - - ------------------------------------ ------------- -------------- ------------ ------------ ---------------- Other Long Term Obligations 3,300 3,300 - - - - ------------------------------------ ------------- -------------- ------------ ------------ ---------------- Total Contractual Cash Obligations $45,826 $11,144 $33,770 $912 - - ------------------------------------ ------------- -------------- ------------ ------------ ----------------
(b) Results of Operations For the fiscal year ended May 31, 2002 revenues totaled a record $84.1 million, a $14.7 million, or 21.2% increase over the prior year. The increase in revenues occurred predominantly as a result of reagent price increases in the United States. Income before income taxes reached $12.0 million for fiscal 2002 compared to a net loss before tax of $7.6 million for fiscal 2001. Net income increased to $8.8 million versus a loss of $8.0 million in the same period last year. Diluted earnings per share were $1.15 on 7.6 million weighted average shares outstanding compared with $(1.10) on 7.3 million weighted average shares outstanding for the same period last year. The rise in the Company's stock price over the past year has increased the dilutive effect of stock options and warrants by approximately 300,000 shares that are used to arrive at diluted earnings per share. See Note 8 of the Consolidated Financial Statements. Year to date EBITDA reached $22.7 million versus $2.3 million in the prior year. In addition, the Company renewed or obtained new contracts with purchasing groups during fiscal year 2002. These agreements generally reflected the Company's new pricing structure, although in some cases the new prices were only partially implemented in the first year of a contract and will not be fully implemented until fiscal year 2003. Net income also was favorably affected by the cost savings plan the Company implemented in the fourth quarter of 2001. The Company reduced costs through layoffs, the closure of operations in the Netherlands and curtailed spending. Officers of the Company agreed to a salary reduction of approximately eight percent of their total base compensation. In the third quarter of 2001 the Company recorded approximately $1.3 million in nonrecurring expenses related to the implementation of the plan. Other income for the year rose $1.1 million. 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 received on June 11, 2001, and the second installment of $0.6 million was received April 2, 2002. A loss on disposal of assets of approximately $0.8 million related to IMAGN was netted against the settlement from Becton, along with $51,000 in instrument financing settlement fees. Other income for the second quarter was favorably affected by the disgorgement of short-swing trading profits by the Kairos Group that contributed $0.4 million to pre-tax income. These items of income do not arise from the Company's ongoing business. 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 after the full European launch of its Galileo instrument in the first quarter of fiscal 2003. Comparison of Years Ended May 31, 2002 and May 31, 2001 Net sales Revenues for the year ended May 31, 2002 rose by $14.7 million over the prior fiscal year largely due to the aggressive price increase begun in the third quarter of fiscal year 2001 and to new group contracts. Instrument sales for the year ended May 31, 2002 were up $1.8 million to $5.3 million. Instrument sales grew as a result of new placements and concentrated efforts to reduce the backlog of instruments, currently $0.7 million, installed but not recorded as revenue due to post installation criteria. The effect on revenues of the change in the Euro exchange rate was a decrease of $295,000 for fiscal 2002. Since the end of the fiscal year, the Euro has strengthened against the dollar which favorably affected foreign net sales, for the two months ended July 31, 2002 by $0.3 million. Instrument sales also benefited from the lifting of the safety notification on the ABS2000. In December 2000, we lifted the safety notification for antibody screening and crossmatch assay, and were able to lift the safety notification for blood grouping and launch our Version 2 software on October 1, 2001. Before we could lift the safety notification and install the new software, the Company had to submit a corrective action plan to the U.S. Food and Drug Administration (FDA), and then service engineers had to complete field corrective action on the ABS2000 and to accumulate clinical data. The cost of installing the new software on instruments in the field was less than $50,000. Gross profit Gross profit, as a percentage of sales, totaled 55.5% versus 45.2% in the prior year. Gross profit increased $15.3 million, as compared to the prior year, due to the aggressive price increases mentioned above. Gross profits were also enhanced by the discontinuance of significant costs incurred in the prior year 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 notification. The effect on gross profit of the change in the Euro exchange rate was a decrease of $139,000 for fiscal 2002. In fiscal 2002, the Company evaluated the carrying value of the DIAS PLUS instruments and estimated that the undiscounted cash flow indicated an impairment. An impairment loss of approximately $270,000 was charged to depreciation expense on the statement of operations. Operating expenses When compared to the prior year, research and development costs for fiscal 2002 rose 5% over fiscal 2001 and were 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. Selling and marketing expenses decreased $0.9 million for fiscal 2002 as compared to the prior year. Until the fourth quarter of fiscal 2001, the Company had been developing an infrastructure to support an increased level of instrument sales. However, in light of the issues with the ABS2000 and continued customer migration to purchasing groups, the Company reevaluated the focus of its sales and marketing efforts. The domestic sales staff was significantly reduced and the Netherlands facility was closed, resulting in a positive effect on selling and marketing expenses. Travel expenses and commissions rose to partially offset the previous cost savings due to renewed instrumentation efforts and higher revenues, in the second half of fiscal year 2002,from the domestic reagent price increases. Selling and marketing expenses for fiscal 2003 are likely to increase with the impact of a full year of these travel expenses and commissions and sales effort in Europe to market the Galileo. Distribution expenses for the year ended May 31, 2002 decreased slightly compared to the prior year, but as a percentage of sales have decreased from 8.2% to 6.6%. Additional shipping expenses related to a new purchasing group were offset by volume discounts offered by carriers. It is expected that distribution expenses for fiscal 2003 will increase to approximately 7.5% as a percentage of sales, with the implementation of a new shipping package configuration designed to maintain acceptable environmental temperature and preserve product quality during shipment. General and administrative expenses for the year ended May 31, 2002 increased $0.4 million. Expenses in the prior year included $1.1 million of nonrecurring expenses, primarily severance, related to the implementation of the cost savings plan. The increase for the current year is due primarily to legal expenses related to the proxy contest incurred in the second quarter, various bank fees and professional fees incurred mainly for support of the enterprise software system after the June 1, 2001 implementation. Fiscal 2003 general and administrative expenses should decline as the Company begins the second year on the enterprise software system. Due to continued operating losses and reorganization at the Company's French and Belgian operations, an impairment in value of the goodwill related to these acquisitions caused a non-cash charge to earnings of approximately $3.1 million in fiscal 2001. Amortization expense declined $0.3 million as compared with the prior period due to the goodwill impairment mentioned above. In June of fiscal 2003 the Company adopted Statement of Financial Accounting Standards No.142, Goodwill and Other Intangible Assets, which requires goodwill and indefinite lived intangible assets to be reviewed annually for impairment, or more frequently if impairment factors arise, instead of amortized. The Company does not currently foresee any indications of impairment and expects amortization will be approximately $1.2 million less in fiscal 2003 than in fiscal 2002. Interest expense When compared to fiscal 2001, interest expense increased $0.7 million in fiscal 2002. The 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 leases capitalized in fiscal 2001. Fiscal 2003 interest expense is expected to decline due to lower outstanding debt and a more favorable interest rate pricing grid as discussed in Liquidity and Capital Resources. Other income Other income for the year rose $1.1 million. 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 received on June 11, 2001, and the second installment of $0.6 million was received April 2, 2002. A loss on the disposal of assets valuing approximately $0.8 million related to IMAGN was netted against the settlement from Becton, along with $51,000 in instrument financing settlement fees. Other income for the second quarter was favorably affected by the disgorgement of short-swing trading profits by the Kairos Group that contributed $0.4 million to pre-tax income. These items of income do not arise from the Company's ongoing business. Income taxes Income tax expense increased for the year ended May 31, 2002 as compared to the prior period due to higher income. 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. The Net Operating Loss Carry-forwards generated in fiscal 2001 also reduced the current year United States tax provision and were fully utilized by the quarter ended February 28, 2002. This effectively increased reported net income for fiscal 2002 by approximately $2.3 million. Fiscal 2003 will bear the full United States tax burden. See Note 10 of the Consolidated Financial Statements. Comparison of Years Ended May 31, 2001 and May 31, 2000 Net sales Total sales declined to $69.4 million in fiscal 2001 from $76.5 million in fiscal 2000. Instrument sales, $3.5 million compared to $10.4 million recorded for the prior year, reflected delays in customers accepting instruments. During June 2000 isolated performance issues were experienced by certain ABS2000 customers, as discussed under the heading "Comparison of Years Ended May 31, 2002 and May 31, 2001--Net sales." For the year, the Company had issued credits reducing sales by $0.8 million for returned instruments and had a reserve of $0.1 million remaining for possible future returns. The Company had an installed instrument backlog of $0.7 million of unbilled revenue awaiting customer acceptance. The strength of the U.S. dollar versus the Euro had the effect of reducing reported European sales by approximately $2.4 million compared to the prior year. Italian and Portuguese revenues were also adversely affected by the interrupted supply of IMAGN 2000 reagents of approximately $1.0 million. The revenue fall was mitigated by $2.3 million in revenue improvements. First, the Company experienced a $1.7 million, or 2.5%, increase in sales of its core reagent products. Secondly, the Company launched an aggressive reagent price increase in the third quarter that improved revenues by approximately $0.5 million for fiscal 2001. Finally, late in the fiscal year the Company renewed important national account purchasing agreements at higher prices and added a new national account with a significant number of hospitals at prices that should significantly improve sales and profits. The Company realized $0.2 million in additional sales from the new national account in fiscal 2001. Gross profit Gross profit, as a percentage of sales, totaled 45.2% for the year ended May 31, 2001 versus 52.4% for the year ended May 31, 2000; a decline of 7.2%. Cost of sales increased by $1.7 million as compared to the prior year, despite the decrease in sales. There were additional expenditures of $637,000 incurred to resolve the ABS2000 issue, instrument backlog installation costs of $30,000 incurred in advance of revenue recognition, under-absorption of fixed instrumentation support costs of $924,000, and reagents provided free of charge to customers performing backup testing amounting to $275,000 that all contributed to the negative impact on gross profit. Additionally, approximately $0.3 million of the increase was caused by higher production costs due to increased FDA regulatory requirements. Also, biological contamination and other isolated manufacturing problems with certain production lots in the third quarter resulted in additional manufacturing costs of approximately $0.2 million. The strength of the U.S. dollar versus the Euro reduced European gross profit by $1.2 million. Operating expenses When compared to the prior year, research and development costs, as a percentage of sales, remained relatively constant. Instrument development initiatives for the Galileo for the European market were continuing. Selling and marketing expenses decreased over $530,000, as compared to the prior year. The Company was 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 fourth quarter of fiscal 2001 benefited from the implementation of the cost savings plan, discussed above. See "Results of Operations." Distribution expenses as a percentage of sales increased from 7.8% to 8.2% for fiscal 2001 as compared to the prior year, although costs decreased approximately $300,000, due primarily to a $324,000 decrease in domestic shipping expense. Approximately 40% of the domestic decrease was attributable to volume discounts offered by carriers and reduced overnight shipments. Consolidated shipments of core reagent products continued at or above historical levels. The decrease in sales in fiscal 2001 was due primarily to the impact of the ABS2000 safety notification and the strength of the U.S. dollar. Neither factor had a significant impact on distribution activities. The major portion of the nonrecurring expenses related to the implementation of the cost savings plan was classified as general and administrative. Of the $1.3 million in nonrecurring expenses, $1.1 million was charged to general and administrative and was primarily related to severance. Amortization expense remained relatively constant with the prior period. Due to continued operating losses and reorganization at the Company's French and Belgian operations, an impairment in value of the goodwill related to these acquisitions caused a non-cash charge to earnings of approximately $3.1 million. Interest expense When compared to the prior year, interest expense increased $836,000. This was the result of increased borrowings and increased borrowing costs on long-term debt and capitalized leases. Other income Other income for fiscal 2001 remained relatively constant as compared to the prior year, and was comprised primarily of foreign currency transaction gains. Income taxes Income tax expense decreased during fiscal 2001, as compared to the prior year, due to the operating losses outlined above. During the fourth quarter, 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 had no impact on Immucor's ability to utilize these amounts to reduce future taxes in profitable periods. (c) Impact of Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In July 1999, the FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133 for one year. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities-an amendment to FASB Statement No. 133. This statement amended certain provisions of SFAS No. 133. Accordingly, the Company adopted SFAS No. 133, as amended by SFAS No. 138, effective the first quarter of fiscal 2002. The cumulative effect of the adoption of SFAS No. 133 on June 1, 2001 resulted in a comprehensive loss (a component of Shareholders' Equity on the balance sheet) of approximately $103,000, net of $26,000 in income taxes, relating to the Company's interest rate swap agreements. Since the swap agreement related to the Canadian line of credit matured in December 2001, an adjustment of approximately $15,000 was made to comprehensive loss and reclassified to earnings as interest expense. Due to the ineffectiveness of the swap related to the U. S. loan, approximately $16,000 was reclassified from comprehensive loss to earnings as interest expense and approximately $267,000 was charged directly to interest expense. The remaining balance of approximately $72,000 will be amortized over the remaining term of the loan. See Note 3 of the Consolidated Financial Statements. In June 2001, the FASB issued SFAS 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 will adopt Statement 142 effective June 1, 2002. Under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, the Company evaluates goodwill and intangible assets for impairment, when events and circumstances indicate that the assets might be impaired, and records an impairment loss if the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment loss recognized is equal to the difference between the discounted cash flows and the carrying amount of the assets. The Company does not currently foresee any indications of impairment and believes amortization will be approximately $1.2 million less in fiscal 2003 due to the adoption of Statement 142. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement supercedes SFAS No. 121, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." The Statement is effective for year-ends beginning after December 15, 2001. The Company is in the process of evaluating the impact SFAS No. 144 will have upon adoption but does not anticipate it will have a significant impact on its financial position or results of operations. Item 7A.--Quantitative and Qualitative Disclosures About Market Risk Market Risk. The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates which could adversely impact its results of operations and financial condition. To manage the volatility relating to these typical business exposures, the Company may enter into various derivative transactions when appropriate. The Company does not hold or issue derivative instruments for trading or other speculative purposes. Interest Rate Risk. Interest rate swap agreements are entered into with the objective of managing exposure to interest rate changes. The Company has entered into interest rate swaps to effectively convert a portion of variable rate bank debt into fixed rates. At May 31, 2002 and May 31, 2001, the Company had an interest rate swap agreement in the Company's functional currency, maturing in 2005, with an initial notional principal amount of $15 million which amortizes over the life of the instrument. At May 31, 2001, the Company had an interest rate swap agreement in Canadian dollars with an aggregate notional principal amount of $2.4 million, which matured in December 2001. The fair value of the interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreements and are included with other long-term liabilities on the balance sheet. At May 31, 2002 and May 31, 2001, the Company would have paid $369,492 and $87,321, respectively, to terminate the agreement in the Company's functional currency. At May 31, 2001, the Company would have paid $41,619 to terminate the Canadian dollar agreement. See Note 3 to the Consolidated Financial Statements. The Company had $36.0 million in outstanding debt at May 31, 2002. A 100 basis point increase or decrease in interest rates could decrease or increase annual net income by $0.4 million. Foreign Currency. Operating income generated outside the United States as a percentage of total operating income was 7% in 2002, 17% in 2001 and 44% in 2000. Fluctuations in foreign exchange rates, principally with the U.S. dollar versus the Euro, could impact operating results when translations of the Company's subsidiaries' financial statements are made in accordance with current accounting guidelines. It has not been the Company's practice to actively hedge its foreign subsidiaries' assets or liabilities denominated in local currency. Most of the foreign currency exposures are managed locally by the Company's foreign subsidiaries through the hedging of purchase commitments with the advance purchase of the required non-functional currencies. However, the Company believes that over time weaknesses in one particular currency are offset by strengths in others. In 2002, 2001, and 2000 the Company recorded foreign currency transaction (losses) gains of approximately $(445,000), $(10,000), and $152,000, respectively. For fiscal 2002 the fluctuation of the Euro weighted average exchange rate reduced net sales by approximately $295,000. A 10 percent change in the year to date weighted average Euro exchange rate would have had the effect of increasing or decreasing net sales by approximately $2.0 million. Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 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. The cumulative effect of the adoption of SFAS No. 133 on June 1, 2001 resulted in a comprehensive loss (a component of Shareholders' Equity on the balance sheet) of approximately $103,000, net of $26,000 in income taxes, relating to the interest rate swap agreements. Since the swap agreement related to the Canadian line of credit matured in December 2001, an adjustment of approximately $15,000 was made to comprehensive loss and reclassified to earnings as interest expense. Due to the ineffectiveness of the swap related to the U. S. loan, approximately $16,000 was reclassified from comprehensive loss to earnings as interest expense and approximately $267,000 was charged directly to interest expense. The remaining balance of approximately $72,000 will be amortized over the remaining term of the loan. See Note 3 of the Consolidated Financial Statements. Item 8.--Financial Statements and Supplementary Data. The following consolidated financial statements of the Company are included under this item: -Report of Independent Auditors -Consolidated Balance Sheets, May 31, 2002 and 2001 -Consolidated Statements of Operations for the Years Ended May 31, 2002, 2001 and 2000 -Consolidated Statements of Shareholders' Equity for the Years Ended May 31, 2002, 2001 and 2000 -Consolidated Statements of Cash Flows for the Years Ended May 31, 2002, 2001 and 2000 -Notes to Consolidated Financial Statements -Consolidated Financial Statement Schedule REPORT OF INDEPENDENT AUDITORS To Board of Directors and Shareholders Immucor, Inc. We have audited the accompanying consolidated balance sheets of Immucor, Inc. (the "Company") as of May 31, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Immucor, Inc. at May 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Atlanta, Georgia July 19, 2002
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------------------------------------------------- May 31, ------------------------------------------ ASSETS 2002 2001 CURRENT ASSETS: Cash and cash equivalents $ 4,012,560 $ 3,124,517 Accounts receivable, trade (less allowance for doubtful accounts of $1,483,688 in 2002 and $1,244,488 in 2001) 27,182,566 21,167,490 Loan to officer - 395,826 Inventories 15,557,034 15,668,637 Income taxes receivable 592,097 402,243 Deferred income taxes 987,491 631,797 Prepaid expenses and other 1,834,521 891,356 -------------------- -------------------- Total current assets 50,166,269 42,281,866 LONG-TERM INVESTMENT - At cost 1,000,000 1,000,000 PROPERTY, PLANT AND EQUIPMENT - Net 17,027,024 18,333,952 DEFERRED INCOME TAXES 889,906 1,525,936 OTHER ASSETS - Net 2,977,130 2,104,845 DEFERRED LICENSING COSTS - Net 1,370,620 1,652,102 EXCESS OF COST OVER NET TANGIBLE ASSETS ACQUIRED - Net 27,936,514 28,913,981 -------------------- -------------------- $101,367,463 $95,812,682 ==================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) - ---------------------------------------------------------------------------------------------------------------------------------- May 31, ------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001 CURRENT LIABILITIES: Current portion of borrowings under bank line of credit agreements $ 1,995,630 $ 2,417,121 Current portion of long-term debt 3,662,304 5,494,829 Note payable to related party - 349,654 Current portion of capital lease obligations 975,506 848,632 Accounts payable 8,136,198 8,421,602 Income taxes payable 3,165,247 23,102 Accrued salaries and wages 1,821,452 1,530,772 Deferred income taxes 371,404 98,308 Other accrued liabilities 2,968,701 3,561,676 --------------------- -------------------- Total current liabilities 23,096,442 22,745,696 BORROWINGS UNDER BANK LINE OF CREDIT AGREEMENTS - Net of current portion 3,033,683 3,268,740 LONG-TERM DEBT - Net of current portion 27,294,082 34,839,576 CAPITAL LEASE OBLIGATIONS - Net of current portion 1,252,948 1,843,213 DEFERRED INCOME TAXES 2,035,387 3,119,402 OTHER LIABILITIES 702,047 152,588 SHAREHOLDERS' EQUITY: Common stock - authorized 45,000,000 shares, $0.10 par value; issued and outstanding 7,703,757 at May 31, 2002 and 7,277,617 at May 31, 2001 770,376 727,762 Additional paid-in capital 19,520,658 15,439,889 Retained earnings 29,056,538 20,261,628 Accumulated other comprehensive loss (5,394,698) (6,585,812) --------------------- -------------------- Total shareholders' equity 43,952,874 29,843,467 --------------------- -------------------- $ 101,367,463 $ 95,812,682 ===================== ====================
See notes to consolidated financial statements.
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended May 31, ----------------------------------------------------------------- 2002 2001 2000 NET SALES $ 84,144,374 $ 69,438,114 $ 76,540,476 COST OF SALES 37,477,187 38,086,270 36,407,764 -------------------- -------------------- --------------------- GROSS PROFIT 46,667,187 31,351,844 40,132,712 OPERATING EXPENSES: Research and development 1,996,742 1,893,580 2,002,597 Selling and marketing 10,993,957 11,854,242 12,391,837 Distribution 5,541,604 5,659,707 5,966,178 General and administrative 11,473,176 11,107,861 10,533,826 Loss on impairment of goodwill - 3,062,519 - Amortization expense 1,620,935 1,897,582 1,879,049 -------------------- -------------------- --------------------- 31,626,414 35,475,491 32,773,487 -------------------- -------------------- --------------------- INCOME (LOSS) FROM OPERATIONS 15,040,773 (4,123,647) 7,359,225 OTHER: Interest income 40,700 57,530 30,801 Interest expense (4,453,802) (3,746,928) (2,911,029) Other, net 1,356,143 229,383 230,658 -------------------- -------------------- --------------------- (3,056,959) (3,460,015) (2,649,570) -------------------- -------------------- --------------------- INCOME (LOSS) BEFORE INCOME TAXES 11,983,814 (7,583,662) 4,709,655 INCOME TAXES 3,188,904 465,451 1,897,635 -------------------- -------------------- --------------------- NET INCOME (LOSS) $ 8,794,910 $ (8,049,113) $ 2,812,020 ==================== ==================== ===================== INCOME (LOSS) PER SHARE Basic $1.20 $(1.10) $0.36 ==================== ==================== ===================== Diluted $1.15 $(1.10) $0.33 ==================== ==================== =====================
See notes to consolidated financial statements.
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Additional Other Total Common Stock Paid-In Retained Comprehensive Shareholders' Shares Amount Capital Earnings Loss Equity --------------------------------------------------------------------------------------- BALANCE, MAY 31, 1999 7,488,411 $748,841 $16,945,885 $25,498,721 $(3,140,780) $40,052,667 Exercise of stock options and warrants 389,207 38,921 2,947,602 - - 2,986,523 Tax benefits related to stock options and other - - 377,375 - - 377,375 Stock repurchase (415,500) (41,550) (3,422,058) - - (3,463,608) Comprehensive income: Foreign currency translation adjustment - - - - (1,846,179) (1,846,179) Net income - - - 2,812,020 - 2,812,020 --------------- Total comprehensive income 965,841 --------------------------------------------------------------------------------------- BALANCE, MAY 31, 2000 7,462,118 746,212 16,848,804 28,310,741 (4,986,959) 40,918,798 Tax benefits related to stock options and other - - 57,348 - - 57,348 Stock repurchase (184,501) (18,450) (1,466,263) - - (1,484,713) Comprehensive income: Foreign currency translation adjustment - - - - (1,598,853) (1,598,853) Net loss - - - (8,049,113) - (8,049,113) --------------- Total comprehensive loss (9,647,966) --------------------------------------------------------------------------------------- BALANCE, MAY 31, 2001 7,277,617 727,762 15,439,889 20,261,628 (6,585,812) 29,843,467 Exercise of stock options and warrants 426,140 42,614 3,427,977 - - 3,470,591 Tax benefits related to stock options and other - - 652,792 - - 652,792 Comprehensive income: Foreign currency translation adjustment - - - - 1,263,026 1,263,026 Cumulative effect of the adoption of SFAS 133 on June 1, 2001, net of taxes - - - - (102,721) (102,721) Hedge loss reclassified into earnings - - - - 30,809 30,809 Net income - - - 8,794,910 - 8,794,910 --------------- Total comprehensive income 9,986,024 --------------------------------------------------------------------------------------- BALANCE, MAY 31, 2002 7,703,757 $770,376 $19,520,658 $29,056,538 $(5,394,698) $43,952,874 =======================================================================================
See notes to consolidated financial statements
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------------------- Year Ended May 31, ----------------------------------------------------- 2002 2001 2000 OPERATING ACTIVITIES: Net income (loss) $8,794,910 $(8,049,113) $2,812,020 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 4,494,661 4,228,545 2,936,615 Amortization of other assets and excess of cost over net tangible assets acquired 1,620,935 1,897,582 1,879,049 Amortization of debt issue costs 620,857 33,338 10,538 Impairment of goodwill - 3,062,519 - Disposal of assets in settlement 806,108 - - Impairment of fixed assets 268,539 - - Deferred tax provision (530,583) (143,950) 79,110 Provision for doubtful accounts 819,167 673,997 452,983 Changes in operating assets and liabilities, net of effects of business acquisitions: Accounts receivable, trade (6,995,826) (115,425) (680,156) Accounts receivable from former officer and director - - 140,946 Loan to officer 395,826 (395,826) - Income taxes 3,605,083 358,633 370,222 Inventories 111,603 1,144,602 (1,228,317) Other current assets (288,671) 673,612 (307,185) Other long-term assets (594,604) 146,448 111,950 Accounts payable (285,404) (795,911) (675,764) Other current liabilities (302,295) 334,101 1,967,091 Other long-term liabilities 549,459 (673,004) (1,801,171) ---------------- ----------------- ---------------- Total adjustments 4,294,855 10,429,261 3,255,911 ---------------- ----------------- ---------------- Cash provided by operating activities 13,089,765 2,380,148 6,067,931 INVESTING ACTIVITIES: Purchases of / deposits on property and equipment (3,367,016) (5,522,107) (3,418,430) Cash paid for acquisition, net of cash acquired - - (523,682) Acquisition-related severance - - (85,960) Increase in other assets - - (258,972) ---------------- ----------------- ---------------- Cash used in investing activities (3,367,016) (5,522,107) (4,287,044)
See notes to consolidated financial statements.
IMMUCOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) - --------------------------------------------------------------------------------------------------------------------------------- Year Ended May 31, ------------------------------------------------------------- 2002 2001 2000 FINANCING ACTIVITIES: Borrowings, net of repayments under line of credit agreements $ (496,403) $ 2,058,297 $ 555,068 Proceeds from issuance of long-term debt 23,451 33,786,131 7,474,196 Repayment of long-term debt and capital lease obligations (11,001,830) (30,349,314) (5,362,814) Borrowings (repayments) of long-term debt to related party-net (349,654) 349,654 (1,633,947) Exercise of stock options 2,816,097 - 2,986,523 Payment of debt issue costs (763,862) (325,144) (43,830) Stock repurchases - (1,484,713) (3,463,608) ------------------- ------------------- ------------------- Cash (used in) provided by financing activities (9,772,201) 4,034,911 511,588 EFFECT OF EXCHANGE RATE CHANGES ON CASH 937,495 (1,274,361) (1,580,141) ------------------- ------------------- ------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 888,043 (381,409) 712,334 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,124,517 3,505,926 2,793,592 ------------------- ------------------- ------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,012,560 $ 3,124,517 $ 3,505,926 =================== =================== =================== Non-cash investing and financing activities: Capital lease obligations $ 419,811 $ 710,129 $ 1,644,737 Fair value of assets acquired - - (1,019,453) Cost in excess of assets acquired - - 1,576,920 Liabilities assumed - - (33,785) ------------------- ------------------- ------------------- Net cash paid for acquisition, net of cash acquired $ - $ - $ 523,682 =================== =================== =================== CASH PAID DURING THE YEAR FOR: Interest, net of amounts capitalized of $135,000 in 2001 $ 3,397,409 $ 3,981,977 $ 2,886,256 Income taxes 663,252 381,133 1,225,635
See notes to consolidated financial statements. IMMUCOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business - The Company's principal business activities are the development, manufacture and marketing of immunological diagnostic medical products. The Company operates facilities in North America and Europe. Consolidation Policy - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications - Certain prior year balances have been reclassified to conform to the current year presentation. Concentration of Credit Risk - At May 31, 2002 and 2001 the Company's entire cash balance of $4,012,560 and $3,124,517, respectively, was on deposit with high quality financial institutions, located primarily in the U.S. The Company obtains raw materials from numerous outside suppliers. The Company is not dependent on any single supplier other than certain instrumentation manufacturers (see Note 12) and the joint manufacturer of some of the Company's monoclonal antibody-based products. The Company believes that its business relationships with its suppliers are excellent. Certain of the Company's products are derived from blood having particular or rare combinations of antibodies or antigens that are found in a limited number of individuals. The Company to date has not experienced any major difficulty in obtaining sufficient quantities of such blood for use in manufacturing its products, but there can be no assurance that the Company will always have available to it a sufficient supply of such blood. At May 31, 2002 and 2001 the Company's accounts receivable balance of $27,182,566 and $21,167,490, respectively, was 54% and 57% of foreign origin, predominantly European. Some European countries require longer payment terms as a part of doing business. This may subject the Company to a higher risk of uncollectiblity. Consideration of this risk is made when the allowance for doubtful accounts is evaluated. The Company generally does not require collateral from its customers. Cash and Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents. Inventories - Inventories are stated at the lower of first-in, first-out cost or market. Cost includes material, labor and manufacturing overhead. Long-Term Investment - The long-term investment, representing a $1.0 million common stock investment in Lionheart Technologies, Inc. acquired in April 1992, is accounted for using the cost method of accounting. Bio-Tek Instruments, Inc. (see Note 12) is a wholly owned subsidiary of Lionheart Technologies, Inc. Interest Rate Swap - The Company uses interest rate swaps to hedge interest rate risk associated with the cashflows of some of its borrowings. Any differences paid or received on interest rate swap agreements are recognized as adjustments to interest expense over the life of each swap, thereby adjusting the effective interest rate on the underlying obligation. The Company has established strict counter-party credit guidelines and only enters into transactions with financial institutions of investment grade or better. As a result, the Company estimates the risk of counter-party default to be minimal. Effective June 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value, based on dealer quotes. 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, as determined by comparing the terms of the interest rate swap agreements and their designated debt instruments, of a derivative's change in fair value will be immediately recognized in earnings. Prior to the adoption of No. SFAS 133, the fair value of the interest rate swaps were not recognized in the financial statements. As of May 31, 2002, the Company's swap balance was $369,492 included in other liabilities. (See Note 3). Fair Value of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, long-term investment and accounts payable approximate their fair values. The fair values of the Company's long-term debt approximate the reported amounts in the accompanying consolidated balance sheets as their interest rates approximate the May 31, 2002 and 2001 market rates for similar debt instruments. Property, Plant and Equipment - Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for replacements are capitalized, and the replaced items are retired. Normal maintenance and repairs are charged to operations. Major maintenance and repair activities that would significantly enhance the useful life of the asset would be capitalized. Certain internal and external costs incurred in the development of computer software for internal use are capitalized and included in property, plant and equipment in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Gains and losses from the sale of plant assets are included in income. Depreciation is computed using the straight-line method over the estimated lives of the related assets ranging from three to 30 years. Excess of Cost Over Net Assets Acquired - Excess of cost over net assets acquired comprises the cost of purchased businesses in excess of values assigned to net tangible assets received, and was being amortized using the straight-line method over 20 to 30 years. Accumulated amortization at May 31, 2002 and 2001 was $6,276,000 and $5,444,000 respectively. Effective June 1, 2002, the Company will adopt SFAS No. 142, Goodwill and Other Intangible Assets. 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. Intangible assets that have finite lives will continue to be amortized over their useful lives. The Company does not currently foresee any indications of impairment and believes amortization will be approximately $1.2 million less in fiscal 2003. The Company evaluates long-lived assets for impairment when events and circumstances indicate that the assets might be impaired and records an impairment loss if the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment loss recognized is equal to the difference between the discounted cash flows and the carrying amount of the assets. In February 2001, due to continued operating losses and a reorganization of the Company's French and Belgian operations, an impairment in value of the goodwill related to these acquisitions caused a non-cash, nonrecurring impact on earnings of approximately $3.1 million. In fiscal 2002, the Company evaluated the carrying value of the DIAS Plus instruments and estimated that the undiscounted cash flow indicated an impairment. An impairment loss of approximately $270,000 was charged to depreciation expense on the statement of operations. The settlement of the Becton, Dickinson arbitration resulted in impairment in asset value of approximately $0.8 million related to IMAGN and was netted against the settlement from Becton, along with $51,000 in instrument financing settlement fees, in other income on the statement of operations. 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 received on June 11, 2001, and the second installment of $0.6 million was received April 2, 2002. The Company believes that the carrying value of the remaining recorded long-lived assets is not impaired. Deferred Licensing Costs - Deferred licensing costs primarily consist of distribution rights for the Company's complete line of reagents purchased from its Canadian distributor, Immucor Canada, Inc., on September 1, 1998, which are being amortized using the straight-line method over ten years. The remaining balance is attributed to license fees for cell lines acquired in the purchase of Gamma Biologicals, Inc. ("Gamma"). Once a product is developed from a cell line, the related license fee is amortized over the term of the respective agreement, generally five years. Accumulated amortization related to deferred licensing costs at May 31, 2002 and 2001 was $962,700 and $690,900, respectively. Foreign Currency Translation - The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average exchange rates for each year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of comprehensive income. The effect of foreign currency transaction gains and losses has been recorded in the accompanying statements of operations. Revenue Recognition - Revenue from the sale of the Company's reagents is recognized upon shipment since both title and risk of loss transfers to the customer upon shipment. Revenue from the sale of the Company's medical instruments is recognized upon shipment and completion of contract obligations relating to training and/or installation based on terms of the related agreements. Revenue from rentals of the Company's medical instruments is recognized over the life of the rental agreement. Shipping and Handling Revenues and Costs - The amounts charged customers for shipping and handling of orders are classified as revenue and reported in the statement of operations as net sales as invoiced. The cost of handling customer orders and the cost of shipments are reported in the operating cost section of the statement of operations as distribution expense as incurred. The cost of handling customer orders and the cost of shipments were approximately $5.5 million, $5.7 million and $6.0 million for the years ended May 31, 2002, 2001 and 2000, respectively. Stock Based Compensation - The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of the grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly does not recognize compensation expense for the stock option grants. As required by SFAS No. 123, Accounting for Stock-Based Compensation, the Company presents supplemental information disclosing pro forma net income and net income per common share as if the Company had recognized compensation expense on stock options granted subsequent to May 31, 1995 under the fair value method of that statement (see Note 7). Advertising Costs - The amounts for advertising are expensed as incurred and are classified as selling and marketing operating expenses. Advertising expense was $0.3 million, $0.3 million, and $0.2 million for the years ended May 31, 2002, 2001 and 2000, respectively. Impact of Recently Issued Accounting Standards - In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities-an Amendment to FASB Statement No. 133. This statement amended certain provisions of SFAS No. 133. Accordingly, the Company adopted SFAS No. 133, as amended by SFAS No. 138, effective the first quarter of fiscal 2002. The cumulative effect of the adoption of SFAS No. 133 on June 1, 2001 resulted in a comprehensive loss (a component of Shareholders' Equity on the balance sheet) of approximately $103,000, net of $26,000 in income taxes, relating to the interest rate swap agreements. Since the swap agreement related to the Canadian line of credit matured in December 2001, an adjustment of approximately $15,000 was made to comprehensive loss and reclassified to earnings as interest expense. Due to the ineffectiveness of the swap related to the U. S. loan, approximately $16,000 was reclassified from comprehensive loss to earnings as interest expense and approximately $267,000 was charged directly to interest expense. The remaining balance of approximately $72,000 will be amortized over the remaining term of the loan. See Note 3. In June 2001, the FASB issued SFAS 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. 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. The Company does not currently foresee any indications of impairment and believes amortization will be approximately $1.2 million less in fiscal 2003. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." The Statement is effective for year-ends beginning after December 15, 2001. The Company is in the process of evaluating the impact SFAS 144 will have upon adoption but does not anticipate it will have a significant impact on its financial position or results of operations. 2. BALANCE SHEET DETAIL
May 31, ----------------------------------- 2002 2001 Inventories: Raw materials and supplies $ 5,725,149 $ 5,524,301 Work in process 1,532,821 2,095,363 Finished goods and goods purchased for resale 8,299,064 8,048,973 ---------------- ---------------- $ 15,557,034 $ 15,668,637 ================ ================ Property, plant and equipment: Land $ 346,597 $ 344,447 Buildings and improvements 6,410,203 6,345,663 Leasehold improvements 1,034,506 935,159 Furniture and fixtures 1,596,696 1,413,073 Machinery and equipment 17,814,446 15,747,482 ---------------- ---------------- 27,202,448 24,785,824 Less accumulated depreciation (12,811,660) (9,236,232) ---------------- ---------------- Property, plant and equipment - net 14,390,788 15,549,592 ---------------- ---------------- Assets under capital lease: Furniture and fixtures 137,090 124,273 Machinery and equipment 3,888,286 3,481,292 ---------------- ---------------- 4,025,376 3,605,565 Less accumulated depreciation (1,389,140) (821,205) ---------------- ---------------- Assets under capital lease - net 2,636,236 2,784,360 ---------------- ---------------- Property, plant and equipment - net $ 17,027,024 $ 18,333,952 ================ ================
3. BANK LINE OF CREDIT AGREEMENTS AND DEBT OBLIGATIONS
May 31, ----------------------------------- 2002 2001 ----------------- ---------------- Primary Obligations Term Loan A (Acquisition term note) (interest rates ranging from LIBOR plus 2.0% to LIBOR plus 3.25% maturing December 2005) $ 16,750,000 $ 19,625,000 Term Loan B (Additional term loan) (interest rate ranging from LIBOR plus 2.5% to LIBOR plus 3.75% maturing December 2005) 6,000,000 6,000,000 Temporary line of credit (Fourth additional term loan) (interest rate ranging from LIBOR plus 2.0% to LIBOR plus 3.25% matured - 1,934,921 October 2001) Revolving Line of credit (Master note) (interest rate ranging from LIBOR plus 2.00% to LIBOR plus 3.25% maturing December 2005) 4,500,000 7,000,000 CAD Term Loan (Third additional term loan) (interest rate ranging from LIBOR plus 2.0% to LIBOR plus 3.25% maturing September 2002) 626,405 2,176,741 Revolving line of credit - Canadian subsidiary (denominated in Canadian dollars with interest rate ranging from LIBOR plus 2.0% to LIBOR plus 3.25% maturing December 2005) 2,880,524 3,971,782 Line of credit - German subsidiary (denominated in Deutsche Marks at an interest rate ranging from LIBOR plus 2.0% to LIBOR plus 3.25% maturing December 2005) 2,574,817 2,335,851 Secondary Obligations Lines of credit - Italian subsidiary (denominated in Lira with interest rates ranging from 7.25% to 9.25% maturing in fiscal 465,496 659,252 2003) Line of credit - Spanish subsidiary (denominated in Pesetas with interest rates ranging from of 4.5 to 5.8% maturing March 2003) 1,530,134 1,388,124 Line of credit - Spanish subsidiary (denominated in Pesetas at an interest rate of 5.25% maturing December 2002) 112,097 - Mortgage note payable - Belgian subsidiary (denominated in Belgian Francs at an interest rate of 6.25% maturing November 2007) 199,457 242,794 Line of credit - Belgian subsidiary (denominated in Belgian Francs with interest rates ranging from 5.5% to 6.0% maturing in 346,769 369,745 November 2007) Note payable - Biotek (interest rate 8.5% maturing January 2002) - 349,654 Notes payable - Various vendors (interest rates ranging from 8.0% to 8.5% with maturity dates ranging from August 2001 to November 2001) - 316,056 ----------------- ---------------- 35,985,699 46,369,920 Less current portion (5,657,934) (8,261,604) ----------------- ---------------- $ 30,327,765 $ 38,108,316 ================= ================
Primary Obligations In connection with the acquisition of Gamma in October 1998, and the subsequent acquisitions of Medichim, Immunochim and BCA, the Company entered into a bank loan agreement (the "Loan Agreement") with the Company's primary U.S. bank that included an acquisition term note of $20,000,000 maturing in December 2005, an additional term loan of $4,500,000 maturing in March 2004 and a line of credit of $2,000,000 maturing in October 2001. On April 30, 1999 the line of credit for $2,000,000 was canceled and a new line of credit was executed for $5,000,000. These borrowings bore interest rates at LIBOR plus additional percentage points ranging from 0.5% to 1.4% based on certain calculations as defined in the loan agreement. Debt issue costs of $56,250 for advisory fees were paid to an investment banker in conjunction with the acquisition of Gamma. These debt issue costs have been deferred and are being amortized over the life of the loan agreement. In connection with the acquisition of Dominion Biologicals, Limited ("Dominion") in December 1996, the Company entered into a $4,566,200 ($6,200,000 CDN$) long-term revolving line of credit facility with the Company's primary U.S. bank that bore interest charges at LIBOR plus 0.4375%. The interest rate on the remaining principal balance of $715,357 ($1,000,000 CDN$) was LIBOR plus 0.4375%, and was adjusted every 90 days. The Company also issued subordinated promissory notes to the former shareholders of Dominion bearing interest at 6% payable semiannually with principal due in December 1999. On December 17, 1999 the Company entered into an additional term loan (CAD Term Loan) of $3,884,800 ($5,741,000 CDN$) to retire the Canadian subordinated promissory notes. Principal and interest payments are due quarterly commencing March 1, 2000 and continuing through September 1, 2002. On April 20, 2000 the Company entered into an additional term loan of $5,000,000 to finance the repurchase of 415,500 shares common stock. Principal and interest payments were due quarterly commencing September 1, 2001 and continuing through June 1, 2006. In February 2001, the Company revised its loan agreement covering the above-mentioned debt with its primary lender, restructuring the loan covenants and debt repayment schedule. Borrowings under the new loan agreement and related lines of credit totaled $29.4 million, including loan fees of $220,000, retired borrowings under the old loan of $26.0 million and repayment of $1.2 million on the existing German subsidiary loan. Under the new agreement Term Loan A for $20,000,000 would be repaid in quarterly installments of increasing amounts through December 2005. The balance of the Canadian term loan ($3,827,333 CDN$) would continue with equal quarterly principal installments plus interest through December 2002. A temporary line of credit of $2,000,000 was due October 2001. Three lines of credit, one for the U.S. amounting to $7,000,000, one for Canada amounting to $4,035,670 ($6,200,000 CDN$) and one for Germany amounting to $2,335,851 (5,400,000 DM) would mature in February 2003. These borrowings bore interest at LIBOR plus additional percentage points ranging from 2.0% to 3.25% based on certain calculations as defined in the Loan Agreement. Term Loan B for $6,000,000 would be due in full in December 2005. Term Loan B bore interest at LIBOR plus additional percentage points ranging from 2.5% to 3.75% based on certain calculations as defined in the loan agreement. At the inception of the original acquisition term note, the Company entered into an interest rate swap agreement with an effective date of December 1, 1998, for a notional amount of $15,000,000 which amortizes over the life of the instrument, also maturing December 2005. This transaction effectively converted Term Loan A's floating rate to a fixed rate of 5.33% on a portion of the principal balance of $15,000,000 at inception. The fair value of the interest rate swap agreement was $(369,492) at May 31, 2002. The fair value of the interest rate swap agreement represents the estimated receipts or payments that would be made to terminate the agreement and are included with other long-term liabilities on the balance sheet. At the inception of the original Canadian revolving line of credit, the Company simultaneously entered into an interest rate swap agreement with a notional amount of $2,338,166 ($3,500,000 CDN$). This transaction effectively converted the revolver's floating rate to a fixed rate of 6.6375% on the principal balance of $2,338,166. The Canadian swap agreement matured in December 2001. Effective June 1, 2001, the Company adopted SFAS No. 133. SFAS 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. The cumulative effect of the adoption of SFAS No. 133 resulted in a comprehensive loss (a component of Shareholders' Equity on the balance sheet) of approximately $103,000, net of $26,000 in income taxes, relating to the interest rate swap agreements. Since the swap agreement related to the Canadian line of credit matured in December 2001, an adjustment of approximately $15,000 was made to comprehensive loss and reclassified to earnings as interest expense. Due to the ineffectiveness of the swap related to the U. S. loan, approximately $16,000 was reclassified from comprehensive loss to earnings as interest expense and approximately $267,000 was charged directly to interest expense. The remaining balance of approximately $72,000 will be amortized over the remaining term of the loan. In connection with the Company's new agreement with its principal lender, the Company granted its principal lender a security interest in substantially all of the Company's assets in addition to other security. Additionally, the new loan agreement contained certain financial and other covenants which, among other things, limit annual capital expenditures, prevent payment of cash dividends or the repurchase of stock, limit the incurrence of additional debt, and require the maintenance of certain financial ratios. At May 31, 2002, there is $2.5 million in funds available under the U.S. line of credit, $1.2 million available under the Canadian line of credit and no additional funds available under the German line of credit. The Dominion revolving line of credit and German line of credit are guaranteed by the Company. The interest rate swap agreement with the U.S. bank is also guaranteed by the Company. In September 2001, the Company 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 was required to meet quarterly and cumulative Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") covenants and quarterly funded debt to EBITDA ratios. As amended, the loan agreement then provided that once the Company's trailing twelve-month ratio of funded debt to EBITDA reached 2.50 to 1 or less, the interest rates on these loans would revert to the more favorable pricing provided in the original Loan Agreement dated February 23, 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. 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. The fee is payable in four monthly installments of $75,000 commencing September 30, 2002 followed by payments of $100,000 on January 31, 2003 and February 28, 2003. 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 was to be received. Additionally, since the junior capital investment was not received by April 30, 2002, the lines of credit were reset to mature on February 28, 2003. On July 18, 2002, the Company again amended the loan agreement. The amendment extended the term of the lines of credit from February 28, 2003 to December 1, 2005. Borrowings under the senior credit facility will be priced subject to a pricing grid that varies based upon the Company's Funded Debt to EBITDA, as defined in the senior credit facility. The interest rate on the effective date of the amendment was LIBOR plus 200 basis points on the revolving lines of credit and Term Loan A and LIBOR plus 250 basis points on Term Loan B. At May 31, 2002 there was approximately $27.3 million outstanding under the revolvers and Term Loan A and approximately $6.0 million outstanding under Term Loan B. The Company made a $4.5 million payment against the revolving line of credit in July 2002. Pricing under the amendment did not change from the original loan agreement. Secondary Obligations In December 2001, the Spanish subsidiary obtained a temporary line of credit amounting to approximately $252,220 (45,000,000 Pesetas) for short-term financing needs. The line of credit bears interest at 5.25% and matures in December 2002. The Company's Italian subsidiary has outstanding obligations of $465,000 under line of credit agreements denominated in Lira with three Italian banks bearing interest between 7.25% and 9.25%. At May 31, 2002, this subsidiary had an additional borrowing capacity of $475,000 available under these line of credit agreements. The Company's Spanish subsidiary has outstanding obligations of $1,500,000 under a line of credit agreement denominated in Pesetas with a Spanish bank bearing interest at 4.5%. At May 31, 2002, the Company had no funds available under the Spanish line of credit agreement. Upon the acquisition of Medichim, the Company assumed a mortgage note that is collateralized by a first lien on Medichim's land and building. The approximate carrying value of the land and building is $439,000. Medichim has various notes payable with a local bank bearing interest between 5.03% and 10.29%. Medichim also has $666,667 in line of credit agreements denominated in Belgian Francs with one Belgian bank bearing interest between 5.5% and 6.0%. Such lines are guaranteed by the Company. At May 31, 2002, the Company had $320,000 available under these line of credit agreements. The Company entered into various notes payable totaling $666,000 as a means of financing certain obligations in fiscal year 2001. This included a note payable to Bio-Tek Instruments, Inc., a related party for $350,000. (See Note 12) Interest rates ranged from 8.0% to 8.5% and maturity dates ranged from August 2001 to January 2002. As of May 31, 2002 the notes payable had been paid in full. Aggregate maturities of all long-term obligations for each of the next five years and thereafter are as follows: Year Ending May 31: 2003 $ 5,657,934 2004 5,148,814 2005 5,033,657 2006 19,735,326 2007 31,271 Thereafter 378,697 ---------------- $35,985,699 ================ 4. CAPITAL LEASE OBLIGATIONS
May 31, ----------------------------------- 2002 2001 ----------------- ---------------- Manufacturing equipment, bearing interest at rates ranging from 5.46% to $ 541,762 $ 824,414 9.89% and with maturities ranging from April 2003 to September 2005. Enterprise resource planning (ERP) computer system and related equipment, bearing interest at rates ranging from 2.21% to 8.23% and with maturities ranging from June 2001 to December 2005. 791,390 1,035,049 Office furniture and build-outs for facility expansion, bearing interest at rates ranging from 5.6% to 7.63% and with maturities ranging from January 2003 to December 2004. 135,825 253,602 Office equipment, bearing interest at rates ranging from 4.54% to 10.5% and with maturities ranging from December 2003 to December 2005. 223,060 284,782 Instruments and computer equipment - Belgian subsidiary, denominated in Belgian Francs bearing interest at rates ranging from 5.03% to 10.29% and with maturity dates ranging from November 2002 to April 2004. 41,149 68,534 Instruments at customer sites - German subsidiary, bearing interest at 2.2% and with maturity dates ranging from April 2005 to October 2005. 202,376 225,464 Computer equipment and leasehold improvements - Spanish subsidiary, bearing interest at 5.25% and maturing in November 2004. 23,451 - Instruments at customer sites - Italian subsidiary, bearing interest rates ranging from 4.45% to 4.47% and with maturities ranging from 269,441 - July 2004 to March 2005. ----------------- ---------------- 2,228,454 2,691,845 Less current portion (975,506) (848,632) ----------------- ---------------- $ 1,252,948 $ 1,843,213 ================= ================
All of the above capital lease obligations are collateralized by the indicated assets. Amortization on related assets is included in depreciation expense. Aggregate maturities of capital leases for each of the next five years and thereafter are as follows: Year Ending May 31: 2003 $ 975,506 2004 654,155 2005 465,281 2006 133,512 2007 - ---------------- $ 2,228,454 ================ Total imputed interest to be paid out under existing capital leases as of May 31, 2002 is $209,027. 5. 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 believed that certain benefits would accrue to Immucor, Inc. and its shareholders if such margin calls were satisfied by some means other than having those shares sold by the broker. The interest rate on the loan was LIBOR plus 1%, which was then the Company's current borrowing rate. As of May 31, 2002, the loan has been repaid in full. Upon repayment of the loan, the Company's Board of Directors adopted a policy prohibiting loans to officers or directors. 6. COMMON STOCK At May 31, 2002, the following shares of common stock are reserved for future issuance: Common stock options - directors and employees 2,582,217 Common stock warrants - other 210,000 --------- 2,792,217 In connection with the acquisition of Medichim, S.A. and Immunochim, s.a.r.l., the Company issued to the seller an option to acquire, in whole or in part, 100,000 shares of Immucor stock at $8.938 per share in a transaction exempt under Section 4(2) of the Securities Act. The 100,000 options became exercisable at the rate of 33% per year commencing March 2001, expire in fiscal year 2010, and were valued at $310,000 at the date of the acquisition and included in goodwill. Due to continued operating losses and reorganization at the Company's French and Belgian operations, an impairment in value of the goodwill related to these acquisitions caused a non-cash charge to earnings of approximately $3.1 million in fiscal 2001. On June 7, 2002, Immucor issued 50,000 shares of common stock upon a partial exercise of the warrant. As part of the acquisition of Dominion Biologicals, Limited, the Company issued to the sellers five- and ten-year warrants to acquire in whole or in part, 478,417 and 150,000 shares of Immucor stock at $12.00 and $11.98 per share, respectively. These warrants became exercisable one year after the issuance date, with the five-year warrants expiring in December 2001 unexercised and the ten-year warrants expiring in 2006. At May 31, 2002, 40,000 of the ten-year warrants had been exercised and 110,000 are outstanding. Immucor filed a registration statement on Form S-3 in May 1999 with the Securities and Exchange Commission covering the issuance of the shares to be issued upon exercise of these warrants. In connection with other prior years' business acquisitions, the Company issued to the sellers warrants to acquire, in whole or in part, 150,000 and 375,000 shares of the Company's common stock at $26.95 and $7.75 per share, respectively. The 150,000 warrants became exercisable at the rate of 20% per year commencing August 1993, and expired unexercised in September 2001. The 375,000 shares were exercised as follows: 14,062 in fiscal 1992, 205,687 in fiscal 1996, 143,750 in fiscal 1999, and 11,501 in fiscal 2000. At May 31, 2002, all 375,000 warrants had been exercised and none are outstanding. The Company has a Shareholders' Rights Plan under which one common stock purchase right is presently attached to and trades with each outstanding share of the Company's common stock. The rights become exercisable and transferable apart from the common stock ten days after a person or group, without the Company's consent, acquires beneficial ownership of, or the right to obtain beneficial ownership of, 15% or more of the Company's common stock or announces or commences a tender offer or exchange offer that could result in at least 15% ownership. If a person or a group acquires at least 15% ownership, except in a transaction approved by the Company under the rights plan, then each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right's exercise price, common stock or common stock equivalents having a market value immediately prior to the triggering of the right of twice that exercise price. In addition, after an acquirer obtains at least 15% ownership, if the Company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right's exercise price, shares of common stock of the other party to the transaction having a market value immediately prior to the triggering of the right of twice that exercise price. Once exercisable, each right entitles the holder to purchase one share of the Company's common stock at an exercise price of $45, subject to adjustment to prevent dilution. The rights have no voting power and, until exercised, no dilutive effect on net income per common share. The rights expire on April 20, 2009, and in most cases are redeemable at the discretion of the Board of Directors at $0.01 each. All reservations of shares of common stock for purposes other than the rights plan shall take precedence and be superior to any reservation of shares in connection with or under the rights plan. In fiscal 1998, the Company authorized a program to repurchase up to 10% of its common stock in the open market. During fiscal 2001 and 2000, the Company repurchased 184,501 and 415,500 shares of its common stock for approximately $1.5 and $3.5 million, respectively. The Company is restricted from the repurchase of additional shares under debt covenants of the current loan agreement. Additionally, the loan agreement contains certain financial and other covenants which, among other things, limit annual capital expenditures, prevent payment of cash dividends, limit the incurrence of additional debt, and require the maintenance of certain financial ratios. 7. STOCK OPTIONS The Company has various stock option plans that authorize the Company's Compensation Committee to grant employees, officers and directors options to purchase shares of the Company's common stock. Exercise prices of stock options are determined by the Compensation Committee and have generally been the fair market value at the date of the grant. The Company's 1990 Non-Incentive Stock Option Plan authorizes the grant of options to employees, officers and directors for up to 1,000,000 shares of the Company's common stock. All options have 10 year terms and vest and become fully exercisable 50% at the end of two years, 25% at the end of three years, and 25% at the end of four years of continued employment. The Company's 1995 Non-Incentive Stock Option Plan authorizes the grant of options to employees, officers and directors for up to 1,000,000 shares of the Company's common stock. All options have 10 year terms and vest and become fully exercisable 50% at the end of two years, 25% at the end of three years, and 25% at the end of four years of continued employment. The Company's 1998 Non-Incentive Stock Option Plan authorizes the grant of options to employees, officers and directors for up to 1,000,000 shares of the Company's common stock. All options have 10 year terms and vest and become fully exercisable 50% at the end of two years, 25% at the end of three years, and 25% at the end of four years of continued employment. The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to June 1, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with certain weighted average assumptions. The assumptions include a risk-free interest rate of 5.37%, 5.83% and 6.27% in fiscal 2002, 2001 and 2000 respectively, no dividend yields; a volatility factor of the expected market price of the Company's common stock of 0.749 for 2002, 1.023 for 2001, and 0.584 for 2000 based on quarterly closing prices since 1986; and an expected life of each option of 8 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows:
2002 2001 2000 ---- ---- ---- Net income (loss) as reported $8,794,910 $(8,049,113) $2,812,020 Pro forma net income (loss) $7,780,842 $(8,845,439) $1,753,101 Earnings (loss) per share as reported: Basic $1.20 $(1.10) $ 0.36 Diluted $1.15 $(1.10) $ 0.33 Pro forma earnings (loss) per share: Basic $1.06 $(1.21) $ 0.23 Diluted $1.02 $(1.21) $ 0.21
The Company is authorized to issue up to 2,582,217 shares of its Common Stock under various employee and director stock option arrangements. These arrangements include employee incentive plans discussed above and various voluntary salary reduction plans. Options granted under these plans become exercisable at various times and, unless exercised, expire at various dates through fiscal 2012. Transactions involving these stock option arrangements are summarized as follows:
Range Weighted Average of Exercise Exercise Shares Prices Price ------------------- ------------------------------------------ Outstanding at May 31, 1999 2,454,922 $3.330 - 15.375 $ 8.37 Granted 114,400 $8.375 - 14.500 $11.93 Exercised (377,706) $3.330 - 12.000 $ 7.67 Forfeited (97,025) $8.000 - 14.500 $ 9.32 ------------------- Outstanding at May 31, 2000 2,094,591 $5.400 - 15.375 $ 8.65 Granted 101,000 $2.550 - 5.625 $ 4.26 Exercised - - - - $ - Expired (493,300) $7.830 - 9.330 $ 9.32 Forfeited (170,416) $3.750 - 15.375 $ 9.49 ------------------- Outstanding at May 31, 2001 1,531,875 $2.550 - 15.375 $ 8.09 Granted 718,000 $2.690 - 16.920 $ 6.46 Exercised (386,143) $6.000 - 14.500 $ 7.73 Forfeited (54,614) $2.690 - 14.500 $ 8.94 ------------------- Outstanding at May 31, 2002 1,809,118 $2.550 - 16.920 $ 7.46 ===================
At May 31, 2002, 2001 and 2000, options for 847,025, 993,150 and 1,140,716 shares of common stock, respectively, were exercisable, at weighted average exercise prices of $8.16, $7.73 and $7.95, respectively. At May 31, 2002, 302,689 shares of Common Stock were available for future grants. The weighted average grant date fair value of options granted during fiscal 2002, 2001 and 2000 were $6.46, $3.76 and $8.16, respectively. The following table as of May 31, 2002 sets forth by group of exercise price ranges, the number of shares, weighted average exercise prices and weighted average remaining contractual lives of options outstanding, and the number and weighted average exercise prices of options currently exercisable.
Options Outstanding Options Exercisable ------------------------------------------- ------------------------------- Weighted Range of Number Weighted Average Number Weighted Exercise of Average Contractual of Average Prices Shares Exercise Price Life (Years) Shares Exercise Price --------------------- ------------- -------------- -------------- -------------- ---------------- $ 2.55 $ 5.63 205,500 $3.60 8.4 11,000 $5.50 6.00 9.98 1,520,668 7.70 6.9 801,600 8.04 10.00 16.92 82,950 12.72 7.3 34,425 11.90 ------------- -------------- 1,809,118 7.46 7.1 847,025 8.16 ============= ==============
8. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share.
Year Ended May 31, ---------------------------------------------------- 2002 2001 2000 Numerator for basic and diluted earnings per share: Net income (loss) $8,794,910 $(8,049,113) $2,812,020 ==================================================== Denominator: For basic earnings per share - weighted average shares 7,306,179 7,286,163 7,713,229 Effect of dilutive stock options and warrants 329,259 - 806,992 ---------------------------------------------------- Denominator for diluted earnings per share - Adjusted weighted-average shares 7,635,438 7,286,163 8,520,221 ==================================================== Basic earnings (loss) per share $1.20 $(1.10) $0.36 ==================================================== Diluted earnings (loss) per share $1.15 $(1.10) $0.33 ====================================================
The effect of 1,300,069 out-of-the-money options and warrants were excluded from the above calculation as inclusion of these securities would be anti-dilutive for the year ended May 31, 2002. 9. COMMITMENTS AND CONTINGENCIES Lease Commitments The Company leases domestic office and warehouse facilities under an operating lease agreement expiring in 2005 with a right to renew for an additional five years. The Company leases foreign office and warehouse facilities and automobiles under operating lease agreements expiring at various dates through 2009. Total rental expense, principally for office and warehouse space, was $1,154,000 in fiscal 2002, $920,600 in fiscal 2001 and $945,300 in fiscal 2000. In Germany, the office facility is leased from a company owned by the family of a former officer. Rental payments under this lease were $159,000, $165,000 and $172,000 for fiscal 2002, 2001 and 2000, respectively and are believed to be at fair market value. The following is a schedule of approximate future annual lease payments under all operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of May 31, 2002: Year Ending May 31: 2003 $1,210,527 2004 1,141,035 2005 1,010,178 2006 447,985 2007 173,202 Thereafter 328,700 ---------------- $ 4,311,627 ================ The Company may, at its option, extend its office and warehouse facilities lease terms through various dates. Other Commitments In order to satisfy the broad spectrum of customers' operational and financial criteria, the Company offers several instrument procurement options, including third-party financing leases, direct sales and reagent rentals. In connection with certain third party financing leases of the Company's automated systems, the third party lessor's customers are committed to purchasing reagent products exclusively from the Company. If the Company is unable to supply such products, this could represent a breach of the Company's agreement with the third party financing company. See additional commitments in Note 12. Contingencies From time to time, the Company is involved in certain legal proceedings and claims which arise in the normal course of business, none of which, in the opinion of management and its counsel, is expected to have a material adverse effect on the Company's consolidated operations or financial position. 10. INCOME TAXES Sources of income (loss) before income taxes are summarized below: Year Ended May 31, ------------------------------------------------------ 2002 2001 2000 Domestic Operations $11,826,961 $(3,877,675) $2,629,676 Foreign Operations 156,853 (3,705,987) 2,079,979 ----------------- ---------------- ---------------- Total $11,983,814 $(7,583,662) $4,709,655 ================= ================ ================ The provision for income taxes is summarized as follows: Year Ended May 31, ------------------------------------------------------- 2002 2001 2000 Current: Federal $2,953,976 $(34,169) $ 448,706 Foreign 489,441 934,472 1,317,178 State 276,070 (290,902) 52,641 ----------------- ----------------- ----------------- 3,719,487 609,401 1,818,525 ----------------- ----------------- ----------------- Deferred: Federal (633,102) (471,516) 123,913 Foreign 53,745 85,196 (59,340) State 48,774 242,370 14,537 ----------------- ----------------- ----------------- (530,583) (143,950) 79,110 ----------------- ----------------- ----------------- Income taxes $3,188,904 $465,451 $1,897,635 ================= ================= ================= Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes; and (b) operating loss carry-forwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company's Spanish subsidiary had net operating loss carry-forwards for income tax purposes of $786,420, which expire in 2003 and 2004. The Company's Belgian subsidiary had net operating loss carry-forwards for income tax purposes of $1,740,500, which do not expire. Based on an assessment of all available evidence including, but not limited to, the operating history and lack of profitability of certain subsidiaries, the Company is uncertain as to the ability to realize certain of their foreign net operating loss carry-forwards and tax credits and, as a result, a deferred tax valuation allowance has been recorded against these deferred tax assets. The tax effects of significant items comprising the Company's net deferred tax liability at May 31, 2002 and 2001 are as follows: Year Ended May 31, ----------------------------------- 2002 2001 Deferred tax liabilities: Amortization $(1,652,831) $(1,786,438) Depreciation (512,518) (1,431,272) Other (241,442) - Deferred tax assets: Reserves not currently deductible 1,610,561 710,846 Operating loss carry-forwards 881,261 3,893,422 Uniform capitalization 539,611 576,967 ------------------ --------------- 624,642 1,963,525 Valuation allowance (1,154,036) (3,023,502) ------------------ --------------- Net deferred tax liability $(529,394) $(1,059,977) ================== =============== The Company's effective tax rate differs from the federal statutory rate as follows:
Year Ended May 31, ----------------------------------------------- 2002 2001 2000 Federal statutory tax rate 34% 34% 34% State income taxes, net of federal tax benefit 3 2 1 Foreign Sales Corporation commissions (1) 3 (5) Higher effective income tax rates of other countries 3 (26) 9 Excess of cost over tangible assets acquired - net 3 (4) 6 Change in deferred tax valuation allowance (16) (15) - Change in entity classification for Spanish subsidiary 1 1 (7) Other - (1) 2 -------- --------- --------- 27% (6%) 40% ======== ========= =========
As a result of utilizing compensation cost deductions arising from the exercise of nonqualified employee stock options for federal and state income tax purposes, the Company realized income tax benefits of $596,953, $0, and $320,027 in fiscal 2002, 2001 and 2000, respectively. Additionally, the Company recorded income tax benefits of $55,839 in fiscal 2002 and $57,348 in fiscal 2001 and 2000, caused by patent amortization expense deductions resulting from a 1993 exercise of stock options previously issued in connection with the acquisition of certain technology. These income tax benefits are recognized in the accompanying financial statements as additions to additional paid-in capital rather than as reductions of the respective income tax provisions because the related compensation deductions are not recognized as compensation expense for financial reporting purposes. 11. TECHNOLOGY RIGHTS In March 1983, the Company acquired rights to technology to be used in developing diagnostic testing products. In connection with this acquisition, the Company has agreed to pay to the Blood Center of Greater Kansas City royalties equal to 4% of the net sales from products utilizing the technology. Royalties under this agreement amounted to approximately $472,800, $435,200 and $409,300 in fiscal 2002, 2001 and 2000, respectively. 12. INSTRUMENT DEVELOPMENT AND MANUFACTURING AGREEMENTS The Company has contracted with Bio-Tek Instruments, Inc. for the development of a fully automated, "walk-away", blood bank analyzer. Known as the ABS2000, the analyzer utilizes the Company's patented Capture(R) technology and is being marketed in Europe and the United States to hospital transfusion laboratories for patient testing. Under the terms of the 15 year agreement, the Company reimburses Bio-Tek Instruments, Inc. for its development costs, and the Company is granted worldwide marketing rights to sell the instrument for use in the human clinical diagnostic market for testing of human blood or blood components with centrifugation. Bio-Tek Instruments, Inc. may sell the product in other markets paying the Company up to a 4% royalty of the selling price. To date, Bio-Tek has not exercised this option. In order to maintain the exclusive worldwide marketing rights the Company must purchase 250 instruments over a six-year period beginning with the delivery of the first production instrument that occurred in fiscal 1997. If the Company purchases less than 250 instruments over a six-year period, it has the right to continue to purchase the instruments on a non-exclusive basis. Based upon the Company's current projections, the Company presently does not believe it will maintain its exclusivity rights for the term of the agreement. The loss of exclusivity is not viewed as detrimental due to the fact that the ABS2000 is designed to work solely with the Company's proprietary reagents. In April 1999 the Company entered into a manufacturing and development agreement with Rosys Anthos AG ("Rosys"), headquartered in Switzerland. Under the terms of the agreement, Rosys will manufacture and develop an analyzer known as the ROSYS Plato in the U.S. and the ABS Precis in Europe utilizing the Company's Capture(R) technologies. The instrument will be marketed exclusively by Immucor to hospital transfusion laboratories and blood donor centers for patient and donor blood typing and antibody screening and identification. In order to maintain exclusive worldwide distribution rights the Company must purchase 120 instruments over the three year initial term of the agreement. If the Company purchases less than 120 instruments over the period it will be allowed to continue purchasing the instrument on a non-exclusive basis for an additional two year period. As of May 31, 2002, the Company has purchased a total of 137 Rosys instruments and thus has met this purchase requirement. On September 1, 1999, the Company entered into a manufacturing and development agreement with Stratec Biomedical AG ("Stratec"), headquartered in Germany. Under the terms of the agreement, Stratec will manufacture and develop a fully automated analyzer known as the Galileo which will be initially targeted to the European community utilizing the Company's Capture(R) technology. The instrument will be marketed exclusively by Immucor to hospital transfusion laboratories and blood donor centers for patient and donor blood typing and antibody screening and identification. In order to maintain exclusive European distribution rights the Company must purchase 250 instruments over the five-year initial term of the agreement. If the Company purchases less than 250 instruments over the period it will be allowed to negotiate a good faith extension. In fiscal 2002, 2001 and 2000, the Company incurred and expensed approximately $625,000, $680,000 and $750,000, respectively, in instrument research and development costs principally under these contracts. 13. DOMESTIC AND FOREIGN OPERATIONS
Information concerning the Company's domestic and foreign operations is summarized below (in 000s): Year Ended May 31, 2002 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Note 1 Other Eliminations Consolidated Net reagent sales: Unaffiliated customers $54,180 $8,751 $5,861 $5,317 $4,687 - $78,796 Affiliates 7,150 139 28 44 245 $(7,606) - Net instrument sales: Unaffiliated customers 3,980 710 112 - 546 - 5,348 Affiliates 165 928 - - 46 (1,139) - --------- ---------- ---------- ---------- --------- ------------ -------------- Total 65,475 10,528 6,001 5,361 5,524 (8,745) 84,144 Depreciation 3,105 340 590 110 350 - 4,495 Amortization 1,111 117 77 257 59 - 1,621 Income(loss)from operations 14,078 102 (20) 1,281 (295) (105) 15,041 Interest expense (3,832) (206) (52) (330) (34) - (4,454) Interest income 17 20 2 - 2 - 41 Income tax expense 2,700 71 20 390 62 (54) 3,189 Capital expenditures 1,132 801 807 75 774 - 3,589 Long-lived assets 58,386 3,845 2,916 6,989 2,942 (23,877) 51,201 Identifiable assets 96,581 12,209 12,728 9,140 8,799 (38,090) 101,367 Net assets 51,889 4,278 455 2,885 (2,290) (13,264) 43,953 Year Ended May 31, 2001 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Note 1 Other Eliminations Consolidated Net reagent sales: Unaffiliated customers $41,288 $7,636 $5,600 $5,367 $5,954 - $65,845 Affiliates 6,835 291 - 85 139 $(7,350) - Net instrument sales: Unaffiliated customers 2,677 866 - - 50 - 3,593 Affiliates 201 93 - - 67 (361) - --------- ---------- ---------- ---------- --------- ------------ -------------- Total 51,001 8,886 5,600 5,452 6,210 (7,711) 69,438 Depreciation 3,031 299 430 96 373 - 4,229 Amortization 1,263 119 78 267 171 - 1,898 Loss on impairment of goodwill - - - - (3,063) - (3,063) (Loss)income from operations (2,528) 698 248 1,135 (4,812) 1,135 (4,124) Interest expense (3,163) (172) (44) (278) (90) - (3,747) Interest income 28 19 7 - 4 - 58 Income tax (benefit) expense (536) 267 210 426 116 (18) 465 Capital expenditures 3,103 578 975 245 621 - 5,522 Long-lived assets 62,416 3,181 2,427 7,236 2,692 (24,421) 53,531 Identifiable assets 91,463 9,332 10,259 9,819 7,861 (32,921) 95,813 Net assets 38,461 3,953 46 2,461 (2,013) (13,065) 29,843 Year Ended May 31, 2000 --------------------------------------------------------------------------------------------------- U.S. Germany Italy Canada Note 1 Other Eliminations Consolidated Net reagent sales: Unaffiliated customers $39,752 $8,605 $6,317 $5,029 $6,185 - $65,888 Affiliates 6,569 330 - 262 2,626 $(9,787) - Net instrument sales: Unaffiliated customers 8,353 697 339 166 1,098 - 10,653 Affiliates 126 218 - - 37 (381) - --------- ---------- ---------- ---------- --------- ------------ -------------- Total 54,800 9,850 6,656 5,457 9,946 (10,168) 76,541 Depreciation 1,997 184 466 61 229 - 2,937 Amortization 1,155 134 108 293 189 - 1,879 Income from operations 4,303 836 559 1,596 105 (40) 7,359 Interest expense (2,354) (32) (26) (345) (154) - (2,911) Interest income - 4 24 - 3 - 31 Income tax expense 640 470 147 580 78 (17) 1,898 Capital expenditures 1,994 122 811 53 438 - 3,418 Long-lived assets 64,597 3,340 2,415 7,551 4,826 (24,976) 57,753 Identifiable assets 94,406 7,526 10,386 10,052 12,683 (32,278) 102,775 Net assets 43,965 4,482 802 2,284 2,730 (13,344) 40,919 Note 1: Information relating to Spain, Portugal, France, Belgium, and the Netherlands is included in "Other".
During the years ended May 31, 2002, 2001 and 2000, the Company's U.S. operations made net export sales to unaffiliated customers of approximately $5,289,000, $5,782,000, and $6,712,000, respectively. The Company's German operations made net export sales to unaffiliated customers of $2,301,000, $1,093,000 and $1,515,000 for the years ended May 31, 2002, 2001, and 2000, respectively. The Company's Canadian operations made net export sales to unaffiliated customers of $2,102,000, $2,361,000 and $2,224,000 for the years ending May 31, 2001, 2000, and 1999, respectively. Product sales to affiliates are valued at market prices. 14. RETIREMENT PLAN The Company maintains a 401(k) retirement plan covering its domestic employees who meet certain age and length of service requirements, as defined in the Plan document. The Company matches a portion of employee contributions to the plan. During the years ended May 31, 2002, 2001 and 2000, the Company's matching contributions to the plan were approximately $180,000, $284,000 and $184,000, respectively. Vesting in the Company's matching contributions is based on years of continuous service. 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts) Basic Diluted Net Gross Operating Net Earnings (Loss) Earnings (Loss) Sales Margin Income (Loss) Income (Loss) Per Share Per Share --------------- -------------- ---------------- --------------- ---------------- ----------------- FISCAL 2002 First Quarter $18,640 $ 9,262 $ 1,955 $ 1,253 (1) $0.17 $0.17 Second Quarter 20,918 11,825 3,748 2,231 (2) $0.31 $0.30 Third Quarter 21,125 11,926 3,910 2,510 $0.34 $0.32 Fourth Quarter 23,461 13,654 5,428 2,801 $0.38 $0.34 --------------- -------------- ---------------- --------------- $84,144 $46,667 $15,041 $ 8,795 $1.20 $1.15 =============== ============== ================ =============== FISCAL 2001 First Quarter $17,081 $ 8,513 $ 577 $ (215) $(0.03) $(0.03) Second Quarter 16,813 7,974 393 (612) $(0.08) $(0.08) Third Quarter 16,861 7,036 (5,570) (5,834) (3) $(0.80) $(0.80) Fourth Quarter 18,683 7,829 476 (1,388) $(0.19) $(0.19) --------------- -------------- ---------------- --------------- $69,438 $31,352 $(4,124) $(8,049) $(1.10) $(1.10) =============== ============== ================ ===============
(1) includes $1.8 million of income, net of $0.8 million of asset impairment costs from Becton, Dickinson arbitration settlement. (2) includes $0.4 million of income from disgorgement of short-swing trading profits by the Kairos Group. (3) includes a $1.3 million charge for implementation of the cost savings plan and a $3.1 million charge for impairment in value of the goodwill related to the French and Belgian operations. 16. COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss) for the periods ended May 31, 2002, 2001 and 2000 are as follows:
Balance Activity Activity Activity Balance May 31, 1999 FY 2000 FY 2001 FY 2002 May 31, 2002 --------------------- --------------- --------------- -------------- ---------------- Retained earnings/net income (loss) $ 25,498,721 $ 2,812,020 $(8,049,113) $ 8,794,910 $ 29,056,538 Net foreign currency translation (3,140,780) (1,846,179) (1,598,853) 1,263,026 (5,322,786) Cumulative effect of the adoption of SFAS No. 133 on June 1, 2001, net of taxes - - - (102,721) (102,721) Hedge loss reclassified to interest expense - - - 30,809 30,809 --------------------- --------------- --------------- --------------- ---------------- Comprehensive income (loss) $ 22,357,941 $ 965,841 $(9,647,966) $ 9,986,024 $ 23,661,840 ===================== =============== =============== =============== ================
As a result of the adoption of SFAS No. 133 on June 1, 2001, the Company recorded an income tax benefit of $26,220 in fiscal 2002. This income tax benefit was recognized, netted against the cumulative effect, in the accompanying financial statements as a component of comprehensive income. See Note 3. The remaining balance of cumulative unrecognized hedging losses is $71,912 and will be reclassified into earnings at approximately $20,500 per year until the expiration of the loan in December 2005. 17. SUBSEQUENT EVENTS (unaudited) On July 24, 2002, the Board of Directors approved a 3-for-2 stock split, which will be effected in the form of a 50% stock dividend. As of July 31, 2002, the Company had 8,162,393 shares of common stock outstanding. The stock split will increase the number of shares of common stock outstanding to approximately 12,243,560 shares. The expected date of distribution is September 13, 2002 to the shareholders of record at the close of business on August 26, 2002. No adjustments have been recorded in the financial statements to reflect the impact of the split on share information In August 2002, Immucor placed an order, amounting to $3.3 million, for 50 additional ABS2000 to be delivered by February 2003.
IMMUCOR, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 31, 2002, 2001 AND 2000 - -------------------------------------------------------------------------------------------------------- Balance at Charged to Balance Beginning Costs and Deductions at End of Period Expense (Note 1) of Period ---------------------------------------------------------------- 2002: Allowance for doubtful accounts $1,244,488 $819,167 $(579,967) $1,483,688 ========== ======== ========== ========== 2001: Allowance for doubtful accounts $1,164,582 $673,997 $(594,091) $1,244,488 ========== ======== ========== ========== 2000: Allowance for doubtful accounts $804,470 $452,983 $(92,871) $1,164,582 ======== ======== ========= ==========
Note 1: "Deductions" for the "Allowance for doubtful accounts" represent accounts written off during the period less recoveries of accounts previously written off and exchange differences generated. Item 9.--Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10.--Directors and Executive Officers of the Registrant. The information contained under "Proposal One - The Election of Eight Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement related to its 2002 annual meeting of shareholders which the Company will file with the Securities and Exchange Commission no later than September 30, 2002, is incorporated herein by reference. Item 11.--Executive Compensation. The information contained under "Executive Compensation" (except for the Compensation Committee Report and Performance Graph therein) in the Company's definitive proxy statement related to its 2002 annual meeting of shareholders which the Company will file with the Securities and Exchange Commission no later than September 30, 2002, is incorporated herein by reference. Item 12.--Security Ownership of Certain Beneficial Owners and Management. The information contained under "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement related to its 2002 annual meeting of shareholders which the Company will file with the Securities and Exchange Commission no later than September 30, 2002, is incorporated herein by reference. Item 13.--Certain Relationships and Related Transactions. The information contained under "Certain Relationships and Related Transactions" in the Company's definitive proxy statement related to its 2002 annual meeting of shareholders which the Company will file with the Securities and Exchange Commission no later than September 30, 2002, is incorporated herein by reference. PART IV Item 14.--Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents filed as part of this report: 1. Consolidated Financial Statements The Consolidated Financial Statements, Notes thereto, and Report of Independent Auditors thereon are included in Part II, Item 8 of this report. 2. Consolidated Financial Statement Schedule included in Part II, Item 8 of this report Schedule II -- Valuation and Qualifying Accounts Other financial statement schedules are omitted as they are not required or not applicable. 3. Exhibits 3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Immucor, Inc.'s quarterly report on Form 10-Q filed on January 16, 2001). 3.2 Amended and Restated Bylaws (amended and restated as of February 12, 2002) (incorporated by reference to Exhibit 3.2 to Immucor, Inc.'s quarterly report on Form 10-Q filed on April 11, 2002). 4.1 Amended and Restated Shareholder Rights Agreement dated as of November 20, 2001 between Immucor, Inc. and EquiServe Trust Company, N.A. as Rights Agent (incorporated by reference to Exhibit 4.1 to Immucor, Inc.'s quarterly report on Form 10-Q filed on January 14, 2002). 10.1 Standard Industrial Lease, dated July 21, 1982, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.2 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1985). 10.1-1 Lease Amendment dated June 28, 1989, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.1-1 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1989). 10.1-2 Lease Amendment dated November 8, 1991, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.1-1 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1992). 10.1-3 Lease Agreement, dated February 2, 1996, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-3 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1996). 10.1-4 Lease Amendment, dated March 8, 1998, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-4 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 10.1-5 Lease Amendment, dated August 11, 1999, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-5 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.2 Agreement, dated March 11, 1983, between the Company and The Kansas City Group, as amended through January 21, 1985 (incorporated by reference to Exhibit 10.2 to Registration Statement No. 33-16275 on Form S-1). 10.3 Agreement dated August 27, 1987, between the Company and the Kansas City Group amending Exhibit 10.2 (incorporated by reference to Exhibit 10.3 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1989). 10.4 United States Department of Health and Human Services Establishment License dated December 28, 1982, for the manufacture of biological products (incorporated by reference to Exhibit 10.12 to Registration Statement No. 33-966 on Form S-1). 10.5 United States Department of Health and Human Services Product License dated December 28, 1982, for the manufacture and sale of reagent red blood cells (incorporated by reference to Exhibit 10.13 to Registration Statement No. 33-966 on Form S-1). 10.6 United States Department of Health and Human Services Product License dated May 20, 1983, for the manufacture and sale of blood grouping sera (incorporated by reference to Exhibit 10.14 to Registration Statement No. 33-966 on Form S-1). 10.7 United States Department of Health and Human Services Product License date November 18, 1983, for the manufacture and sale of anti-human serum (incorporated by reference to Exhibit 10.15 to Registration Statement No. 33-966 on Form S-1). 10.8* Employment Agreement dated October 13, 1998, between the Company and Edward L. Gallup (incorporated by reference to Exhibit 10.8 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.9* Employment Agreement dated October 13, 1998, between the Company and Ralph A. Eatz (incorporated by reference to Exhibit 10.9 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.10* Agreement dated December 31, 1993, between Immucor Italia, S.r.l. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.12 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.11* Agreement dated December 31, 1993, between Immucor Italia, S.r.l. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.13 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.12* Severance Agreement dated October 13, 1998, between Immucor Inc. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.13 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.13* 1998 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 4.4 to Immucor's Registration Statement on Form S-8 as filed on June 14, 2002). 10.14* 1995 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.14 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.15* 1990 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.15 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.16* Description of 1983 Stock Option Plan (incorporated by reference to Exhibit 10.10 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ending May 31, 1985). 10.17* 1986 Incentive Stock Option Plan, amended July 29, 1987, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.9 to Registration Statement No. 33-16275 on Form S-1). 10.18* Employment Agreement dated October 13, 1998, between the Company and Steven C. Ramsey (incorporated by reference to Exhibit 10.20 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.19* Employment Agreement dated October 13, 1998, between the Company and Patrick Waddy (incorporated by reference to Exhibit 10.22 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.20 Loan Agreement among Immucor, Inc., Dominion Biologicals Limited, and Immucor Medizinische Diagnostik GmbH, as borrowers, and Wachovia Bank, National Association, as lender, dated as of February 23, 2001 (incorporated by reference to Exhibit 10.23 to Immucor, Inc.'s quarterly report on Form 10-Q filed April 23, 2001). 10.21 Loan Modification No. 1 dated as of September 11, 2001 between Immucor, Inc., Dominion Biologicals Limited, Immucor Medizinische Diagnostik GmbH and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.21 to Immucor, Inc.'s quarterly report on Form 10-Q filed January 14, 2002). 10.22* Form of indemnification agreement between the Company and certain directors (incorporated by reference to Exhibit 10.22 to Immucor, Inc.'s quarterly report on Form 10-Q filed January 14, 2002). 10.23 Loan Modification No. 2 dated as of July 18, 2002 between Immucor, Inc., Dominion Biologicals Limited, Immucor Medizinische Diagnostik GmbH and Wachovia Bank, National Association. 21 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Denotes a management contract or compensatory plan or arrangement. (b) No current reports on Form 8-K were filed during the quarter ended May 31, 2002. (c) See Exhibits listed under Item 14(a)(3). (d) Not applicable. See Item 14(a)(2). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ EDWARD L. GALLUP -------------------------------------------------------------- Edward L. Gallup, Chairman of the Board of Directors, President and Chief Executive Officer August 29, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ EDWARD L. GALLUP - ----------------------------------------------------------------------- Edward L. Gallup, Director, Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) August 29, 2002 /s/ STEVEN C. RAMSEY - ----------------------------------------------------------------------- Steven C. Ramsey, Vice President - Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) August 29, 2002 /s/RALPH A. EATZ - ----------------------------------------------------------------------- Ralph A. Eatz, Director, Senior Vice President - Operations August 29, 2002 /s/ PATRICK WADDY - ----------------------------------------------------------------------- Patrick Waddy, European Finance Director and President of Dominion Biologicals Limited August 29, 2002 /s/DANIEL T. MCKEITHAN - ----------------------------------------------------------------------- Daniel T. McKeithan, Director August 29, 2002 /s/ROSWELL S. BOWERS - ----------------------------------------------------------------------- Roswell S. Bowers, Director August 29, 2002 /s/ DIDIER L. LANSON - ----------------------------------------------------------------------- Didier L. Lanson, Director August 29, 2002 /s/ DR. GIOACCHINO DE CHIRICO - ----------------------------------------------------------------------- Dr. Gioacchino De Chirico, Director, Director of European Operations and President of Immucor Italia S.r.l. August 29, 2002 /s/ MARK KISHEL - ----------------------------------------------------------------------- Mark Kishel, M.D., Director August 29, 2002 /s/JOSEPH E. ROSEN - ----------------------------------------------------------------------- Joseph E. Rosen, Director August 29, 2002 EXHIBIT INDEX Number Description 3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Immucor, Inc.'s quarterly report on Form 10-Q filed on January 16, 2001). 3.2 Amended and Restated Bylaws (amended and restated as of February 12, 2002) (incorporated by reference to Exhibit 3.2 to Immucor, Inc.'s quarterly report on Form 10-Q filed on April 11, 2002). 4.1 Amended and Restated Shareholder Rights Agreement dated as of November 20, 2001 between Immucor, Inc. and EquiServe Trust Company, N.A. as Rights Agent (incorporated by reference to Exhibit 4.1 to Immucor, Inc.'s quarterly report on Form 10-Q filed on January 14, 2002). 10.1 Standard Industrial Lease, dated July 21, 1982, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.2 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1985). 10.1-1 Lease Amendment dated June 28, 1989, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.1-1 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1989). 10.1-2 Lease Amendment dated November 8, 1991, between the Company and Colony Center, Ltd. (incorporated by reference to Exhibit 10.1-1 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1992). 10.1-3 Lease Agreement, dated February 2, 1996, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-3 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1996). 10.1-4 Lease Amendment, dated March 8, 1998, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-4 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 10.1-5 Lease Amendment, dated August 11, 1999, between the Company and Connecticut General Life Insurance Company (incorporated by reference to Exhibit 10.1-5 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.2 Agreement, dated March 11, 1983, between the Company and The Kansas City Group, as amended through January 21, 1985 (incorporated by reference to Exhibit 10.2 to Registration Statement No. 33-16275 on Form S-1). 10.3 Agreement dated August 27, 1987, between the Company and the Kansas City Group amending Exhibit 10.2 (incorporated by reference to Exhibit 10.3 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1989). 10.4 United States Department of Health and Human Services Establishment License dated December 28, 1982, for the manufacture of biological products (incorporated by reference to Exhibit 10.12 to Registration Statement No. 33-966 on Form S-1). 10.5 United States Department of Health and Human Services Product License dated December 28, 1982, for the manufacture and sale of reagent red blood cells (incorporated by reference to Exhibit 10.13 to Registration Statement No. 33-966 on Form S-1). 10.6 United States Department of Health and Human Services Product License dated May 20, 1983, for the manufacture and sale of blood grouping sera (incorporated by reference to Exhibit 10.14 to Registration Statement No. 33-966 on Form S-1). 10.7 United States Department of Health and Human Services Product License date November 18, 1983, for the manufacture and sale of anti-human serum (incorporated by reference to Exhibit 10.15 to Registration Statement No. 33-966 on Form S-1). 10.8* Employment Agreement dated October 13, 1998, between the Company and Edward L. Gallup (incorporated by reference to Exhibit 10.8 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.9* Employment Agreement dated October 13, 1998, between the Company and Ralph A. Eatz (incorporated by reference to Exhibit 10.9 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.10* Agreement dated December 31, 1993, between Immucor Italia, S.r.l. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.12 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.11* Agreement dated December 31, 1993, between Immucor Italia, S.r.l. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.13 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.12* Severance Agreement dated October 13, 1998, between Immucor Inc. and Dr. Gioacchino De Chirico (incorporated by reference to Exhibit 10.13 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.13* 1998 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 4.4 to Immucor's Registration Statement on Form S-8 as filed on June 14, 2002). 10.14* 1995 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.14 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). 10.15* 1990 Stock Option Plan, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.15 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1995). . 10.16* Description of 1983 Stock Option Plan (incorporated by reference to Exhibit 10.10 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ending May 31, 1985). 10.17* 1986 Incentive Stock Option Plan, amended July 29, 1987, including form of Stock Option Agreement used thereunder (incorporated by reference to Exhibit 10.9 to Registration Statement No. 33-16275 on Form S-1). 10.18* Employment Agreement dated October 13, 1998, between the Company and Steven C. Ramsey (incorporated by reference to Exhibit 10.20 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.19* Employment Agreement dated October 13, 1998, between the Company and Patrick Waddy (incorporated by reference to Exhibit 10.22 to Immucor, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 31, 1999). 10.20 Loan Agreement among Immucor, Inc., Dominion Biologicals Limited, and Immucor Medizinische Diagnostik GmbH, as borrowers, and Wachovia Bank, National Association, as lender, dated as of February 23, 2001 (incorporated by reference to Exhibit 10.23 to Immucor, Inc.'s quarterly report on Form 10-Q filed April 23, 2001). 10.21 Loan Modification No. 1 dated as of September 11, 2001 between Immucor, Inc., Dominion Biologicals Limited, Immucor Medizinische Diagnostik GmbH and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.21 to Immucor, Inc.'s quarterly report on Form 10-Q filed January 14, 2002). 10.22* Form of indemnification agreement between the Company and certain directors (incorporated by reference to Exhibit 10.22 to Immucor, Inc.'s quarterly report on Form 10-Q filed January 14, 2002). 10.23 Loan Modification No. 2 dated as of July 18, 2002 between Immucor, Inc., Dominion Biologicals Limited, Immucor Medizinische Diagnostik GmbH and Wachovia Bank, National Association. 21 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Denotes a management contract or compensatory plan or arrangement. EX-10 3 exhibit1023.txt EXH10.23 LOAN AMENDMENT LOAN MODIFICATION AGREEMENT NO. 2 This Loan Modification Agreement No. 2 (this "Agreement"), dated as of July 18, 2002 (the "Effective Date"), is made between IMMUCOR, INC., a Georgia corporation ("U.S. Borrower"), DOMINION BIOLOGICALS LIMITED, the successor by amalgamation to 3000524 Nova Scotia Limited and itself a corporation incorporated under the laws of Canada ("Canadian Borrower"), and IMMUCOR MEDIZINISCHE DIAGNOSTIK GMBH, a corporation incorporated under the laws of the Federal Republic of Germany ("German Borrower"; U.S. Borrower, Canadian Borrower and German Borrower, individually and collectively, "Borrower"), as borrower, and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as lender ("Lender") for the purpose of amending or otherwise modifying the terms of that certain Loan Agreement, dated as of February 23, 2001, heretofore made between Lender and Borrower (which, as it has been, or hereafter may be, modified or amended, is called herein the "Loan Agreement"), as amended by that Loan Modification Agreement No. 1 amongst Borrower and the Lender dated as of September 11, 2001 ("Loan Modification Agreement No. 1"). Background Borrower and Lender previously entered into Loan Modification Agreement No. 1 which waived certain prior defaults by Borrower under the Loan Agreement. Such waivers were conditioned upon, among other things, the receipt prior to December 31, 2001 by the U.S. Borrower of an investment of at least Five Million Dollars ($5,000,000) subordinated to all Obligations of each Credit Party to Lender and which would be applied to reduce the outstanding Obligations (the "Junior Capital Infusion"). The U.S. Borrower has not obtained the Junior Capital Infusion. As a result, (i) U.S. Borrower became liable to Lender for a supplemental waiver fee; (ii) U.S. Borrower became obligated to issue to Lender a warrant to purchase from the U.S. Borrower 750,000 shares of voting common stock (which, in lieu thereof, Lender subsequently agreed to accept certain fees), (iii) certain interest rates under the Loan Documents increased; and (iv) the maturity dates of all existing credit facilities advanced to February 28, 2003. Borrower and Lender make this Loan Modification Agreement No. 2 in order to amend certain terms and conditions of the Loan Agreement, including the maturity dates, the applicable interest rates, and the loan covenants. Now, therefore, in consideration of the mutual promises contained herein and in the Loan Agreement, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower, each intending to be legally bound, agree as follows: 1. Definitions. Capitalized terms used herein, but not expressly defined themselves herein, shall have the meanings given to such terms in the Loan Agreement or in Loan Modification Agreement No. 1. 2. Loan Modifications. Lender and Borrower agree to modify the Loan Agreement as follows: 2.1 Change in Termination Dates. Notwithstanding the failure by Borrower to obtain the Junior Capital Infusion, the termination or maturity dates of the Obligations shall be amended as follows: (a) Revolvers. Commencing on the Effective Date, the Loan Agreement is hereby amended to provided that each of the U.S. Line of Credit, the Canadian Line of Credit, and the German Line of Credit will terminate no later than December 1, 2005. (b) Term Loan A and Term Loan B. Borrower shall make payments of principal and interest under Term Loan A and Term Loan B in accordance with the original payment schedule as provided in the Loan Agreement dated February 23, 2001. Specifically, the principal amount of Term Loan A shall be repaid by the U.S. Borrower in twenty (20) quarterly installments on each Payment Date, commencing on March 1, 2001, the first four (4) of which shall be in the amount of $375,000 each, the next four (4) of which shall be in the amount of $875,000 each and the next twelve (12) of which shall be in the amount of $1,250,000 each; provided, however, that the final such installment, due and payable on December 1, 2005, shall be in such amount as is required to pay in full the unpaid principal balance of Term Loan A, together with all accrued and unpaid interest thereon; and the principal amount of Term Loan B, together with all accrued and unpaid interest thereon, shall be due and payable in full on December 1, 2005. (c) Canadian Term Loan. The outstanding principal balance of the CAD Term Loan shall continue to be repaid by the U.S. Borrower in quarterly installments in accordance with the amortization schedule set forth in the CAD Term Note; provided, however, that the final such installment, which shall be due and payable on September 1, 2002, shall be in such amount as is required to pay in full the unpaid principal balance of the CAD Term Loan, together with all accrued and unpaid interest thereon. 2.2 Change in Interest Rate. Commencing on the Effective Date, Subsections 2.1(a) and 2.1(b) of the Loan Agreement shall be (a) Applicable Rate. (i) The outstanding principal balance of each Loan (other than Term Loan B), or each outstanding portion thereof, shall bear interest initially at a rate per annum equal to either: (i) the Prime Rate in the case of that portion of such Loan at any time constituting a Prime Borrowing or (ii) subject to the conditions and limitations set forth in subsection (c) below, the LIBOR Rate plus the Applicable Margin in the case of that portion of such Loan at any time constituting a LIBOR Borrowing; subject, however, in each case, to adjustment as provided in subsection (b) below. (ii) The outstanding principal balance of Term Loan B shall bear interest initially at a rate per annum equal to either: (i) the Prime Rate plus one-half of one percent (0.5%), in the case of that portion of such Loan at any time constituting a Prime Borrowing, or (ii) subject to the conditions and limitations set forth in subsection (c) below, the LIBOR Rate plus the Applicable Margin, in the case of that portion of such Loan at any time constituting a LIBOR Borrowing; subject, however, in each case, to adjustment as provided in subsection (b) below. (b) Applicable Margin. The "Applicable Margin" shall mean as of the Effective Date a rate per annum equal to, with respect to Advances under the Lines of Credit, the Term Loan A 200 basis points (2.00%) and, with respect to the Term Loan B, 250 basis points (2.50%), and the Applicable Margin shall be subject to subsequent adjustment, up or down, based on the U.S. Borrower's financial performance, determined by reference to the Funded Debt/EBITDA Ratio, measured quarterly; that is, if the Funded Debt/EBITDA Ratio, measured for each Fiscal Quarter of the U.S. Borrower, commencing with the first Fiscal Quarter ending after the Effective Date, is as described below, the Applicable Margin shall be the margin appearing opposite said Funded Debt/EBITDA Ratio: Applicable Margin ---------------------------------------------------------------------- Funded Debt/ Lines of Credit, Level EBITDA Ratio and Term Loan A Term Loan B ------ ------------------- ------------------ ----------------- I <1.75:1.00 2.00% 2.50% II >1.75:1.00, but 2.50% 3.00% < 2.25:1.00 III >2.25:1.00 2.75% 3.25% Lender shall determine whether any adjustment to the Applicable Margin is to be made quarterly, based on the U.S. Borrower's financial statements for each Fiscal Quarter delivered to Lender pursuant to Section 4.2; provided that if such financial statements are not timely delivered to Lender, then an adjustment to the Applicable Margin shall be made based on an assumed delivery of said financial statements reflecting a Funded Debt/EBITDA Ratio of greater than 2.25:1.0; i.e., Level III above. Each such adjustment to the Applicable Margin shall become effective as of the first day of the calendar month following the date on which such financial statements are delivered (or deemed delivered) to Lender, and shall remain effective unless and until any subsequent adjustment becomes effective in accordance with the terms of this Section 2.2.1(b). Each such adjustment shall apply only to LIBOR Borrowings made (including conversions and continuations) within such period (but not to any then existing). In the event that the annual audited financial statements of the U.S. Borrower for any Fiscal Year shall require restatement of financial statements of the U.S. Borrower and such restatement shall affect the Funded Debt/EBITDA Ratio and would have required a different Applicable Margin to be in effect for prior period(s), then Lender, at its option, may require Borrower to make additional payments of interest for such prior period(s). 2.3 Change in Non-Usage Fee. Subsection 2.2.2(b) of the Loan Agreement shall be amended and restated to read as set forth below: (v) For purposes hereof, the term "Applicable Percentage" shall mean as of the Effective Date, one-quarter of one percent (.25%), and the Applicable Percentage shall be subject to subsequent adjustment, up or down, based on the U.S. Borrower's financial performance, on a quarterly basis, commencing with the first Fiscal Quarter ending after the Effective Date, as set forth in the table below (with references to Levels I through III below corresponding to the same Levels I through III in Section 2.2.1): LEVEL APPLICABLE PERCENTAGE I .250% II .375% III .500% Lender shall determine whether any adjustment to the Applicable Percentage is to be made quarterly, based on the U.S. Borrower's financial statements for each Fiscal Quarter delivered to Lender pursuant to Section 4.2; provided that if such financial statements are not timely delivered to Lender, then an adjustment to the Applicable Percentage shall be made based on an assumed delivery of such financial statements reflecting a Funded Debt/EBITDA Ratio of greater than 2.25:1.00; i.e., Level III above; provided further if any Default Condition shall exist no adjustment downward shall occur. Each such adjustment to the Applicable Percentage shall become effective as of the first day of the calendar month following the date on which such financial statements are delivered (or deemed delivered) to Lender, and shall remain effective unless and until any subsequent adjustment becomes effective in accordance with the terms of this Section 2.2.2(b). In the event that the annual audited financial statements of the U.S. Borrower for any Fiscal Year shall require restatement of financial statements of the U.S. Borrower and such restatements shall affect the Funded Debt/EBITDA Ratio and would have required a different Applicable Percentage to be in effect for prior period(s), then Lender, at its option, may require Borrower to make additional payments of interest for such prior period(s). 2.4 Annual Commitment Fee. There shall be added to the Loan Agreement the following Subsection 2.2(c): (c) Annual Commitment Fee. Commencing on July 1, 2003, and on each anniversary thereof while Lender has an obligation to lend under any of the Lines of Credit, Borrower shall pay to Lender a fully earned, non-refundable annual commitment fee in an amount equal to the product of (i) one-eighth of one percent (.125%) of the sum of the U.S. Line of Credit Limit plus the Dollar Equivalent of the Canadian Line of Credit Limit plus the Dollar Equivalent of the German Line of Credit Limit outstanding on May 31 of such year, (ii) times the lesser of (x) 1.00 or (y) a fraction, the numerator of which is the number of days from July 1 of such year until December 1, 2005, and the denominator of which is 365 days. 2.5 Roll Forward of Other Fees. There shall be added to the Loan Agreement the following Subsection 2.2(d): (d) Other Fees. To memorialize those fees now owing pursuant to Loan Modification Agreement No. 1 and certain agreements made subsequent thereto in exchange for Lender's waiver of the requirement for delivery of the Warrants described therein, Borrower acknowledges, confirms and agrees that Lender has earned, and Borrower is bound to pay Lender the following fees on the dates prescribed below, provided that upon any acceleration of all Obligations, all such fees then shall become due and payable in full: Restructuring Fee for Missing In Lieu of Date (EOM) Fee 12/31 Deadline Warrant Fee Total 2002 July $62,500 $37,500 $100,000 August $62,500 $37,500 $100,000 September $37,500 $ 75,000 $112,500 October $37,500 $ 75,000 $112,500 November $37,500 $ 75,000 $112,500 December $37,500 $ 75,000 $112,500 2003 January $ 100,000 $100,000 February $ 100,000 $100,000 2.6 Changes in Financial Covenants. (a) Definitions. The definitions of "Fixed Charge Coverage Ratio and "Leverage Ratio" shall be amended and restated to read as follows: "Fixed Charge Coverage Ratio" shall mean, with respect to any Person and for any fiscal period, the ratio of (i) such Person's EBITDA for the consecutive 12-month period ending with such period, minus such Person's Taxes for the consecutive 12-month period ending with such period, to (ii) such Person's Fixed Charges for the consecutive 12-month period ending with such period, all as determined on a consolidated basis; and "Leverage Ratio" shall mean, with respect to any Person and for any fiscal period, the ratio of (i) the sum of such Person's total liabilities (including accrued and deferred income taxes) as at the end of such fiscal period to (ii) such Person's Net Worth as at the end of such fiscal period, all as determined on a consolidated basis. (b) Fixed Charge Coverage Ratio. Section 6.1 of the Loan Agreement shall be amended and restated to read as set forth below: 6.1 Fixed Charge Coverage Ratio. The U.S. Borrower and its Consolidated Subsidiaries shall have for each Fiscal Quarter ending closest to each date set forth below, a Fixed Charge Coverage Ratio of not less than that set forth below for such period: Minimum Fixed Fiscal Quarter Ending: Charge Coverage Ratio: --------------------- --------------------- Quarters ending August 31, 2002 through May 31, 2003 1.20:1.00 Quarters ending August 31, 2003 through May 31, 2004 1.35:1.00 Thereafter 1.45:1.00 (c) Funded Debt to EBITDA. Section 6.2 of the Loan Agreement shall be amended and restated to read as set forth below: 6.2 Funded Debt/EBITDA Ratio. The U.S. Borrower and its Consolidated Subsidiaries shall have for each Fiscal Quarter ending closest to each date set forth below a Funded Debt/EBITDA Ratio of not more than that set forth below for such period: Maximum Funded Fiscal Quarter Ending: Debt/EBITDA Ratio: --------------------- ----------------- Quarters ending August 31, 2002 2.50:1.00 through May 31, 2003 Thereafter 2.00:1.00 Solely for purposes of this Section 6.2, so long as any Debt of the U.S. Borrower or any of its Consolidated Subsidiaries is, by its terms, expressly subordinated to the obligations of such Credit Party to Lender, including, without limitation, all Obligations, on terms and conditions satisfactory to Lender in its sole discretion, and so long as Lender determines, in its sole discretion, that such subordination is and continues to be in all respects valid and enforceable against the holders of such obligations, such subordinated Debt shall not be included as Funded Debt; provided, however, that the foregoing shall not be deemed to be a consent by Lender to the incurrence by any Credit Party of any Debt not otherwise permitted to be incurred pursuant to Section 5.2. (d) Leverage Ratio. Section 6.3 of the Loan Agreement shall be amended and restated to read as set forth below: 6.3 Leverage Ratio. The U.S. Borrower and its Consolidated Subsidiaries shall have for each Fiscal Quarter ending closest to each date set forth below, a Leverage Ratio of not less than that set forth below for such period: Fiscal Quarter Ending: Leverage Ratio: --------------------- -------------- Quarters ending August 31, 2002 through May 31, 2003 1.75:1.00 Quarters ending August 31, 2003 through May 31, 2004 1.50:1.00 Thereafter 1.25:1.00 (e) CAPEX. Section 5.14 of the Loan Agreement shall be amended and restated to read as set forth below: 5.14 Certain Capital Expenditures. The U.S. Borrower and its Subsidiaries shall not make Capital Expenditures to acquire equipment for lease to their customers in an aggregate amount in excess of $3,500,000 during any Fiscal Year. 2.7 Change in Borrowing Base and Borrowing Base Reporting. (a) Definition of "Eligible Accounts." The definition of "Eligible Accounts" shall be amended and restated to mean, collectively, the Eligible Domestic Entity Accounts and the Eligible Foreign Entity Accounts, other than any account receivable generated as a result of selling instruments. (b) Definition of "Borrowing Base." The definition of "Borrowing Base" shall be amended and restated to mean the aggregate of the following amounts: (i) an amount equal to eighty (80%) of the Dollar value of Eligible Domestic Entity Accounts plus (ii) an amount equal to forty-five percent (45%) of the Dollar value of Eligible Foreign Entity Accounts plus (iii) an amount equal to the lesser of (A) fifty percent (50%) of the Dollar value of Eligible Inventory or (B) fifty percent (50%) of the amount of Advances outstanding pursuant to the preceding clauses (i) and (ii) minus (iii) Borrowing Base Reserves. (c) Weekly Delivery of Borrowing Base Certificate. Provided that no Event of Default occurs, and notwithstanding any provision of Section 4.2.10 of the Loan Agreement to the contrary, until May 31, 2003, Borrower shall deliver the Borrowing Base Certificate on a weekly basis, as soon as practicable after the end of each calendar week, but not later than the second Business Day of the succeeding calendar week, reflecting weekly updates of the information specified in said Section 4.2.10 for the U.S. Borrower and its Subsidiaries, and monthly updates of such information for the German Borrower and the Canadian Borrower. Subsequent to May 31, 2003, provided that no Event of Default occurs, delivery of the Borrowing Base Certificate shall resume on a monthly basis in accordance with said Section 2.4.10. In addition to the foregoing, the requirement for delivery of weekly Cash Flow projections, prescribed in Section 5 of Loan Modification Agreement No. 1 shall continue without abatement both before and after May 31, 2003. (d) Field Exams. Unless and except to the extent that any Event of Default then exists, the obligation of Borrower to reimburse Lender for field audits conducted by it pursuant to Section 9.6 of the Loan Agreement shall be limited to not more than: (i) one (1) field audit during the remainder of calendar year 2002; (ii) two (2) field audits during calendar year 2003; and (iii) one (1) field audit per calendar year thereafter; it being understood that Lender's standard audit fee has changed from a flat $2,500 per audit plus out-of-pocket expenses to $750 per auditor per diem plus out-of-pocket expenses. 3. Inducing Representations. To induce Lender to enter into this Agreement, Borrower hereby represents and warrants that: (i) Borrower is duly authorized to enter into this Agreement, and this Agreement, upon its execution by Borrower and Lender, will constitute Borrower's legal, valid and binding obligations enforceable in accordance with its terms against Borrower; (ii) after giving effect to this Agreement, no Event of Default exists; (iii) no present right of setoff, counterclaim, recoupment claim, claim, cause or action or defense exists in Borrower's favor in respect of its payment or performance of any Obligations or arising from any action (or inaction) of Lender; and (iv) except as modified by this Agreement, all terms of the Loan Agreement and each Loan Document are in full force and effect as originally stated. 4. Miscellaneous. Except as otherwise expressly provided herein, all modifications to the Loan Agreement set forth herein shall take effect on the Effective Date. Each existing Loan Document (including, particularly, any Note) shall be deemed modified hereby as necessary to conform its terms to the terms of the Loan Agreement, as modified hereby. This Agreement constitutes a Loan Document, and shall be governed and construed accordingly. This Agreement constitutes the entire agreement between Lender and Borrower relative to the subject matter hereof, and supersedes and replaces any prior understandings and agreements, written or oral, in regard thereto. This Amendment shall be binding on, and inure to the benefit of, the successors and assigns of Borrower and Lender. Borrower shall reimburse Lender for all costs which Lender incurs, including reasonable attorneys fees, in the preparation, negotiation, execution and performance of this Agreement, and the recording of any Loan Documents in connection herewith. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. WACHOVIA BANK, NATIONAL ASSOCIATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- (SIGNATURES CONTINUED ON FOLLOWING PAGE) IMMUCOR, INC. By: -------------------------------- Name: Steven C. Ramsey Title: Chief Financial Officer (SIGNATURES CONTINUED ON FOLLOWING PAGE) DOMINION BIOLOGICALS LIMITED By: -------------------------------- Name: Steven C. Ramsey Title: Vice President (SIGNATURES CONTINUED ON FOLLOWING PAGE) IMMUCOR MEDIZINISCHE DIAGNOSTIK GMBH By: -------------------------------- Name: Edward L. Gallup Title: Managing Director EX-21 4 exh21.txt EXH21 SUBSIDIARIES EXHIBIT 21 Subsidiaries of Registrant Subsidiary Jurisdiction of Organization Immucor Medizinische Diagnostik GmbH Federal Republic of Germany Immucor Italia S.r.l. Italy Immucor Portugal, Lda. Portugal Gamma Biologicals, Inc. United States (Texas) Dominion Biologicals Limited Canada Immucor, S.L. Spain Immucor Acquisitions Inc. S.A. Belgium Immucor Belgium S.A. Belgium Immucor France EURL France Immucor Trading Company Barbados BCA Acquisition Company United States (Georgia) The Company owns 100% of the outstanding stock of each of the above. EX-23 5 exh231.txt EXHIBIT 23.1 AUDITOR CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement Nos. 333-78893, 33-35863 and 33-42261 on Form S-3 of Immucor, Inc. and in the related prospectuses and Registration Statement Nos. 33-4636, 33-24199, 33-36554, 33-41406, 33-49882, 33-62097 and 333-90552 on Form S-8 pertaining to the Key Employee Stock Incentive Plan, Salary Reduction Plan, 1983 Stock Incentive Plan and 1986 Incentive Stock Option Plan; 1987 Non-Incentive Stock Option Plan; 1989 Non-Incentive Stock Option Plan; 1990 Stock Option Plan, 1995 Stock Option Plan, and 1998 Stock Option Plan, respectively, of Immucor, Inc., of our report dated July 19, 2002 with respect to the consolidated financial statements and schedule of Immucor, Inc. included in the Annual Report on Form 10-K for the year ended May 31, 2002. /s/ Ernst & Young LLP Ernst & Young LLP Atlanta, Georgia August 23, 2002 EX-99 6 exh991.txt EXH 99.1 CERTIFICATION OF CEO Exhibit 99.1 Certification Pursuant to 18 U.S.C. 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K for the period ended May 31, 2002 (the "Report") of Immucor, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. August 29, 2002 /s/ Edward L. Gallup -------------------- Edward L. Gallup Chief Executive Officer EX-99 7 exh992.txt EXH 99.2 CERTIFICATION OF CFO Exhibit 99.2 Certification Pursuant to 18 U.S.C. 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K for the period ended May 31, 2002 (the "Report") of Immucor, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. August 29, 2002 /s/ Steven C. Ramsey -------------------- Steven C. Ramsey Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----