Refer to "Forward Looking Statements" following the Index and Item 1A "Risk Factors" of this Form 10-K.

Overview

Our Business

We develop, manufacture and sell a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and donor centers in tests performed to detect and identify certain properties of human blood for the purpose of blood transfusion. We have manufacturing facilities in the United States (U.S.) and Canada and sell our products through our direct sales network in the U.S., Canada, Western Europe and Japan as well as through third-party distributors in other markets.

We operate in a highly regulated industry and are subject to continuing compliance with multiple country-specific statutes, regulations and standards. For example, in the U.S. the Food and Drug Administration ("FDA") regulates all aspects of the blood banking industry, including the marketing of reagents and instruments used to detect and identify blood properties.

In the markets of Western Europe, the testing of donor and patient blood for the purpose of transfusion is primarily automated. However, in the U.S., we estimate approximately 70% of blood banks perform this testing manually today. These blood banks are primarily in the small- to medium-sized hospital segment.

Our strategy is to drive automation in the blood bank with the goal of improving the blood bank's operations as well as patient safety. We have introduced several instruments in the past, and we continue to focus on developing new instruments and improving our existing instruments. We received FDA clearance in June 2007 to market our Galileo Echo® ("Echo") instrument. The Echo is a compact bench top, fully-automated walk-away instrument that meets the needs of the small- to medium-sized hospital market as well as integrated delivery networks that want to standardize the operations of their blood banks. Like our high volume Galileo ® instrument, Echo uses Capture® technology, our proprietary reagents, and offers an extensive test menu and significant labor reduction while increasing productivity and patient safety.

In fiscal 2009, we entered the field of molecular immunohematology with our purchase of BioArray Solutions.

BioArray Acquisition

On August 4, 2008, we acquired BioArray Solutions Ltd. ("BioArray"), a privately-held company based in Warren, New Jersey for an aggregate purchase price of $115.2 million in cash, including approximately $2.4 million of acquisition-related transaction costs. We have included the financial results of BioArray in our consolidated financial statements beginning August 4, 2008. BioArray will continue to be based in Warren and operate under the BioArray name.

The transaction costs included a payment of $1.4 million to TM Capital Corp., an investment bank which has represented the Company in a number of financial transactions, including the BioArray acquisition. Michael S. Goldman, one the Company's former directors, is a Managing Director and founding principal of TM Capital Corp. With the receipt of these fees, as of August 4, 2008, Mr. Goldman no longer qualified as an "independent" director of the Company under Nasdaq Stock Market listing standards. As a result, Mr. Goldman resigned his positions as a member of the Compensation Committee and Governance Committee of the Board of Directors as of August 4, 2008 and did not stand for re-election at the 2008 annual meeting of shareholders.

BioArray pioneered the development of molecular diagnostic systems that enable the DNA typing (genotyping) of blood for transfusion donors and recipients. In this transaction, we acquired the broad intellectual

property portfolio BioArray generated through its substantial investments in research and development, including approximately 100 issued or pending patents. Through the development of technologies supported by the patents, BioArray developed a novel and flexible technology platform that allows for a variety of DNA-based testing. The platform combines semiconductor technology, microparticle chemistry and molecular biology to bring a high degree of flexibility and performance to qualitative and quantitative DNA and protein analysis. Using this technology platform, BioArray offers complete assay solutions called the BeadChip™ system.

The BeadChip system includes BeadChips featuring proprietary array designs as well as an automated Array Imaging System with "snapshot" image acquisition and the ImageStudio™ suite of integrated image analysis programs. The resulting integrated assay delivery system enables users to simultaneously perform dozens of customized tests on each patient sample in a semi-automated fashion. We believe this versatility makes the BeadChip format ideally suited to a wide scope of applications. The BeadChip system, which has not yet received FDA approval, is currently installed in a number of leading donor and transfusion centers for research applications.

We believe that molecular immunohematology, or the DNA analysis of blood for the purpose of transfusions, will revolutionize transfusion medicine. We believe that our acquisition of BioArray provides new, strategic growth markets for the Company in both our current market of transfusion through an offering complementary to our current product offerings as well as the potential new market of transplantation. Our leadership in blood banking industry automation and BioArray's leadership in molecular diagnostic systems for specialty transfusion applications should allow us to develop and deliver more precise molecular immunohematology solutions to enhance patient outcomes.

We also believe our proven strength in developing automated instruments combined with our FDA licensing and CE Mark process experience, our established distribution network, our sales and marketing capabilities as well as our financial resources will generate enhanced long-term growth opportunities for the commercialization of BioArray's BeadChip system.

In connection with the transaction, BioArray formed a new company intended to commercialize BioArray's technology in fields outside of blood transfusion and transplantation. The former equity holders of BioArray received an 81% ownership interest in the new company, and Immucor, through BioArray and for no additional consideration, received a 19% ownership interest. In the allocation of the BioArray purchase price, no value was allocated to Immucor's interest in the new company. In April 2009, Immucor bought back the rights to the BioArray technology from the new company for approximately $1.0 million. As part of the liquidation of the new company, Immucor received approximately $140,000 in cash from the net assets, proportional to Immucor's ownership interest.

We are currently working on the next generation molecular immunohematology instrument that will facilitate the further commercialization of this innovative technology. Our current timeline is to have a research use only instrument available in the first half of calendar 2011.

Recent Developments

Two significant recent developments are the acquisition of BioArray and the development of the next generation automated instrument to allow the full scale commercialization of our acquired molecular immunohematology offering, which are discussed above under "BioArray Acquisition." The following discusses other recent developments in our business.

• Continued market penetration of the Echo instrument-We launched our latest instrument, the Echo, in the first quarter of fiscal 2008. Targeted at the small- to medium-sized hospital market, Echo features STAT functionality, exceptional mean time between failures and what we believe is the fastest turnaround time in the industry. We expect Echo to appeal to the small- to medium-sized hospitals, the largest segment of our market, numbering approximately 6,000 worldwide. As of May 31, 2009, we

• Upcoming launch of Galileo Neo™-We are currently developing a new version of the Galileo, named the Galileo Neo, which will be our fourth generation automated instrument. We believe the original Galileo, which was launched in Western Europe in 2002 and in the U.S. in 2004, is approaching its natural replacement cycle of 5-7 years. Galileo Neo, like the original Galileo, will be targeted at high volume customers: large hospitals, donor centers and reference laboratories. We expect the Galileo Neo will have faster turnaround times and a longer mean time between failures than the current Galileo as well as new features such as STAT functionality. We expect FDA clearance towards the end of calendar 2009 and a first calendar quarter 2010 launch for Galileo Neo.

• International Expansion-During fiscal 2009, we took steps to enable us to sell directly to the end users (e.g., hospitals) in the markets of the United Kingdom ("U.K.") and France, where we previously sold our products through distributors. In the U.K., we acquired our distributor in June 2008, and in France, we established our own operations, an effort that began in fiscal 2008. While we have roughly one-third of the worldwide market, approximately 70% of our revenue is derived from the U.S. We believe that through our innovative automation and reagent offerings we can expand our footprint in our overseas markets.

• FDA Administrative Action-On June 26, 2009, we announced that the FDA, in an administrative action based on a January 2009 inspection, issued a notice of intent to revoke our biologics license with respect to our Reagent Red Blood Cells and Anti-E (Monoclonal) Blood Grouping Reagent products. Under this administrative action, we have the opportunity to demonstrate or achieve compliance before the FDA initiates revocation proceedings or takes other action. The FDA did not order the recall of any of our products or restrict us from selling these products. This administrative action was a follow on to a warning letter that we had received in May 2008. We had been working on an FDA-approved remediation plan, submitted after the warning letter, but had failed to make adequate progress at the time of the FDA's follow up January 2009 inspection. During our fiscal third quarter of 2009, we formalized efforts to improve our quality systems through the Quality Process Improvement Project, which is discussed in further detail below. We continue to implement the Project and believe that, in addition to addressing the deficiencies noted by the FDA, we will have a world-class quality system upon its completion. We expect the Project to be completed during our third fiscal quarter of 2010.

• Quality Process Improvement Project-During our third fiscal quarter of 2009, we formalized our efforts to improve the processes and procedures of our quality department through establishing the Quality Process Improvement Project. The Project expanded the role of consultants hired in April 2008. The Project's objective is to deliver on our commitment of maintaining a world-class quality system. During fiscal 2009, we spent approximately $2.4 million on the Project, which was primarily reflected in cost of goods sold. We expect to incur $4.0 million to $4.5 million of Project-related expenses in fiscal 2010. The Project expenses primarily represent the cost of external consultants who are assisting us with the Project. We are targeting to complete the Project during our third fiscal quarter of 2010.

• The U.S. Department of Justice Subpoena-On April 24, 2009, we announced that we had received a subpoena from the U.S. Department of Justice, Antitrust Division related to an investigation of possible violations of the federal criminal antitrust laws in the blood reagents industry. The subpoena requires us to produce documents for the period beginning September 1, 2000 through the present. We are cooperating fully with the Department of Justice.

• Antitrust Lawsuits-Since May 2009, a series of 30 lawsuits have been filed against Immucor, Ortho-Clinical Diagnostics, Inc and Johnson & Johnson Health Care Systems, Inc. alleging that those companies conspired to fix blood reagent prices. These lawsuits are in the preliminary stages.

Instruments

In the past two fiscal years, we continued our focus of increasing market share and, therefore, revenue through the execution of our automation strategy. We have had strong market acceptance of our Echo instrument and have continued executing our pricing strategy to drive automation. We believe innovation is a key competitive advantage we have in the industry. To that end, our development of the next generation Galileo instrument, the Galileo Neo, continues and we expect a first calendar quarter 2010 worldwide launch of our new high volume offering. Additionally, in fiscal 2009, we believe that our acquisition of BioArray positions us as a first mover in the exciting new field of molecular immunohematology. We believe that the DNA typing of blood for transfusion will revolutionize transfusion medicine. We are currently in the process of developing the next generation molecular immunohematology instrument that will help us further commercialize the BioArray technology. Our current timeline is to have a research use only instrument available in the first half of calendar 2011.

Instrument placements are at the core of our automation strategy and we track instrument orders as an indication of our progress. For markets in which we sell directly to the end user (e.g., a hospital), the process is as follows: we receive the order, we schedule installation of the instrument and customer staff training, the customer performs validation testing of the instrument, the instrument begins generating recurring reagent revenue at its expected annualized run rate. As of May 31, 2009, we had received orders for a total of 603 Echo instruments worldwide since the instrument's launch in June 2007, including 121 orders in Europe including distributors, 470 orders in the U.S. and Canada, and 12 orders in Japan. Approximately 360 of these Echo instruments were generating reagent revenue at the expected annualized run rate at the end of fiscal 2009. We believe the market for Echo worldwide is approximately 6,000 hospitals, the largest segment of our market. For Galileo, as of May 31, 2009, we had received a total of 637 Galileo instruments orders worldwide since launch, including 365 orders in Europe (including distributors), 266 orders in the U.S. and Canada, and 6 orders in Japan. Approximately 596 of these Galileo instruments were generating reagent revenues at the expected annualized run rate at the end of fiscal 2009.

Revenue and expenses related to the sale of instruments is accounted for under Emerging Issues Task Force ("EITF") Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 mandates the deferral of certain revenue for sales agreements that have multiple deliverables while also mandating the upfront expensing of the related costs. The reagent contracts that are signed when customers automate typically have reagent price guarantee clauses. In accordance with EITF 00-21, when instruments are sold (versus rented) the instrument costs are expensed when the sale is made and the related instrument revenue is deferred and recorded as income over the term of the underlying reagent contract. If an instrument is rented, then the revenue and expenses are recognized ratably over the contract period. While the overall transaction economics may be similar, this accounting treatment may result in margin improvement or degradation depending on the sales mix of instruments purchased or rented by the end users in the period. Historically, the Galileo is purchased 90% of the time. For the Echo, in fiscal 2009, we experienced a rental rate of more than 75% for new instrument orders in the U.S. As of May 31, 2009 and May 31, 2008, we had deferred revenue of approximately $22.1 million and $24.2 million, respectively, and a major portion of these balances related to the deferral of revenue from sales of instruments.

Results of Operations

Comparison of Years Ended May 31, 2009 and May 31, 2008



                                  For the Year Ended May 31,                 Change
                                  2009                  2008            Amount        %
                                              ($ in thousands)
   Net Sales                  $     300,547        $      261,199      $ 39,348       15%
   Gross profit (1)                 216,011               185,489        30,522       16%
   Gross profit percentage             71.9 %                71.0 %       n/m          1%
   Operating expenses                99,053                77,746        21,307       27%

   Income from Operations           116,958               107,743         9,215        9%
   Non-operating income                  23                 3,925        (3,902 )    -99%

   Income before income tax         116,981               111,668         5,313        5%
   Provision for income tax          40,798                40,214           584        1%

   Net income                 $      76,183        $       71,454      $  4,729        7%

   Earnings per share:
   Per common share-basic     $        1.08        $         1.02      $   0.06         6 %

   Per common share-diluted   $        1.07        $         1.00      $   0.07         7 %

(1) The determination of gross margin is exclusive of amortization expense which is presented separately as an operating expense in the income statement.

Revenue increased by approximately $39.3 million, or approximately 15%, during the year ended May 31, 2009 compared with the prior year. This increase was primarily attributable to approximately $27.3 million from price contributions, which included incremental revenue from both contractual and discretionary sources, and approximately $15.7 million from volume contributions, which included incremental revenue from instrument placements. These increases were offset by a negative currency impact of approximately $3.7 million. Approximately 70% of our fiscal 2009 consolidated revenue is from the U.S. and 30% is from international sales largely denominated in local currency, with the majority of this revenue in Euros, Canadian Dollars, British Pounds and Yen. As a result, our consolidated revenue expressed in dollars benefits when the U.S. dollar weakens and decreases when the U.S. dollar strengthens in relation to other currencies.

For fiscal 2009, our consolidated gross margin increased to 71.9% from 71.0% achieved in fiscal 2008, primarily due to margin improvements in traditional reagents and instruments. During the current fiscal year, we spent approximately $2.4 million on our Quality Process Improvement Project, which was primarily reflected in cost of sales. Operating expenses increased approximately 27%, primarily due to our acquisition of BioArray. Net income increased approximately 7% in fiscal 2009 over the prior year.

Net sales

                                    For the Year Ended May 31,            Change
                                      2009              2008         Amount         %
                                              ($ in thousands)
    Traditional reagents         $      199,277    $      179,088   $ 20,189        11%
    Capture reagents                     64,145            53,372     10,773        20%
    Instruments                          34,672            27,042      7,630        28%
    Molecular immunohematology            2,453                -       2,453       100%
    Collagen                                 -              1,697     (1,697 )    -100%

                                 $      300,547    $      261,199   $ 39,348        15%

Traditional reagent revenue increased by approximately $20.2 million, or approximately 11%, in fiscal 2009 compared with fiscal 2008 primarily due to price contributions, which included incremental revenue from both contractual and discretionary sources. Traditional reagent sales, which accounted for approximately two-thirds of total revenue in fiscal 2009, have historically been a significant portion of our revenue. We expect our revenue mix to change over time as we place more instruments in the market, which results in increased sales of our Capture reagents.

Capture revenue increased by approximately $10.8 million, or approximately 20%, in fiscal 2009 over the prior year primarily due to increased volume. Sales of Capture reagents are largely dependent on the number of installed instruments requiring the use of our proprietary Capture technology. As we continue to place more instruments in the market, we expect revenue from Capture reagents to continue to increase.

Revenue from instruments increased by approximately $7.6 million, or approximately 28% in fiscal 2009 compared with fiscal 2008 due to increased instrument placements. Historically, revenue from instrument sales in the United States has been recognized over the life of the underlying reagent contract when it includes a price guarantee, which is normally five years. In fiscal 2009, approximately $16.9 million of deferred revenue was recognized from previously placed instruments compared to $13.3 million recognized in fiscal 2008. We deferred approximately $14.7 million of instrument and associated service revenues related to instrument placements in fiscal 2009, compared to $17.5 million in fiscal 2008. We had increased rentals of instruments in the current year, which resulted in revenue being recognized over the term of the contract as earned, versus deferred and amortized as in the case of the instrument being sold. As of May 31, 2009 and May 31, 2008, deferred instrument and service revenues totaled approximately $22.1 million and $24.2 million, respectively.

The sale of molecular immunohematology products produced by BioArray resulted in $2.5 million in revenue during fiscal 2009. BioArray was acquired on August 4, 2008.

We discontinued manufacturing collagen products in the second quarter of fiscal 2008 when our commitment to a third party expired, which resulted in a revenue decrease of $1.7 million in fiscal 2009.

Gross margin

                                                   For the Year Ended May 31,
                                              2009                            2008                    Change
                                      Amount        Margin %          Amount        Margin %          Amount
                                    (in '000)                       (in '000)                        (in '000)
Traditional reagents (1)            $  155,744          78.2 %      $  139,428          77.9 %      $    16,316
Capture reagents (1)                    54,411          84.8 %          45,568          85.4 %            8,843
Instruments (1)                          5,259          15.2 %             476           1.8 %            4,783
Molecular immunohematology (1)             597          24.3 %              -            0.0 %              597
Collagen (1)                                -            0.0 %              17           1.0 %              (17 )

                                    $  216,011          71.9 %      $  185,489          71.0 %      $    30,522

(1) The determination of gross margin is exclusive of amortization expense which is presented separately as an operating expense in the income statement.

Gross margins on traditional reagents increased to 78.2% in fiscal 2009 from 77.9% in the prior year, primarily due to higher revenue without a proportionate increase in cost of sales. During the current fiscal year, we spent approximately $2.4 million on our Quality Process Improvement Project. These costs were primarily reflected in traditional reagent cost of sales.

For fiscal 2009, Capture product gross margins decreased to 84.8% from 85.4% in the prior year primarily due to foreign currency fluctuations and product sales mix.

Gross margins on instruments increased to 15.2% in fiscal 2009 from 1.8% in the prior year, primarily due to sales mix. In the prior year, more instruments were sold and in the current year more instruments were rented. Where sales contracts have reagent price guarantee clauses (which our automation contracts typically do), instrument costs are expensed when the sale is made, but the related instrument revenue is deferred and recorded as income over the term of the contract. When an instrument is rented, revenue and expenses for the transaction are recognized evenly over the life of the contract. Additionally, current year margins benefited from the recognition of revenue deferred from prior periods. In fiscal 2009, we recognized $3.6 million more deferred revenue than in the prior year.

Operating expenses

                                      For the Year Ended May 31,            Change
                                        2009              2008         Amount         %
                                                ($ in thousands)
  Research and development         $       10,698    $        6,454   $  4,244        66%
  Selling and marketing                    39,191            32,970      6,221        19%
  Distribution                             13,708            11,394      2,314        20%
  General and administrative               31,717            25,925      5,792        22%
  Restructuring expense                        -                646       (646 )    -100%
  Amortization expense and other            3,739               357      3,382       947%

  Total operating expenses         $       99,053    $       77,746   $ 21,307        27%

Research and development expenses increased by approximately $4.2 million in fiscal 2009 over the prior year, primarily due to the acquisition of BioArray, which took place in the first quarter of this fiscal year, and the development activities around the acquired molecular immunohematology offering.

Selling and marketing expenses increased by approximately $6.2 million in fiscal 2009 compared with fiscal 2008, primarily due to the addition of new affiliates in France and the United Kingdom, and the BioArray acquisition.

Distribution expenses rose by approximately $2.3 million in fiscal 2009 over the prior year, primarily due to an increase in freight charges and other general expenses.

General and administrative expenses increased by approximately $5.8 million in fiscal 2009 over the prior year, primarily due to the addition of BioArray and our affiliates in the United Kingdom and France.

Amortization expense increased by approximately $3.4 million in fiscal 2009 compared with fiscal 2008 due to amortization of finite-lived intangibles that were recorded upon the acquisition of BioArray and our affiliate in the United Kingdom. Both acquisitions occurred in the first quarter of this fiscal year.

Non-operating income

For the Year Ended May 31, Change 2009 2008 Amount
. . .