**FORM 10-Q**

** **

# **United States**

**Securities and Exchange Commission**

**Washington,D. C. 20549**

 
| **(Mark One)**                                         |
|--------------------------------------------------------|
| **ý**                                             | **Quarterly  Report Pursuant to Section 13 or 15(d)** |
| ** **                                             | **of the  Securities Exchange Act of 1934** |
|                                                   |
| **For the  quarterly period ended: February 28, 2006** |
|                                                   |
| **OR**                                                 |
|                                                   |
| **o**                                                  | **Transition  Report Pursuant to Section 13 or 15(d)** |
| ** **                                             | **of the  Securities Exchange Act of 1934** |

 

**CommissionFile Number: 0-14820**

 

**IMMUCOR, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Georgia**                                             | ** ** | **22-2408354**       |
|---------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                        |       | (I.R.S. Employer     |
| incorporation or  organization)                         |       | Identification  No.) |
|                                                    |       |                 |
| **3130  Gateway Drive P.O. Box 5625 Norcross, Georgia** |       | **30091-5625**       |
| (Address of  principal executive offices)               |       | (Zip Code)           |

 

Registrant’stelephone number:  **(770)441-2051**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes ý        No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

 
| Large accelerated filer  ý |   | Accelerated filer o |   | Non-accelerated filer o |
|---------------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes o       No ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

# As of March 31, 2006:Common Stock, $0.10 Par Value – 45,212,607

 

 

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**IMMUCOR,INC. AND SUBSIDIARIES**

 

**FORM10-Q**

 

**INDEX**

 
| **PART I.     FINANCIAL INFORMATION** |                                                                                                                                                       |
|------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 |                                                                                                                                                       |   |
| **Item 1.**                                          | **Financial Statements**                                                                                                                                   |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | Condensed Consolidated Balance Sheets as of  February 28, 2006 (unaudited) and May 31, 2005                                                                |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | Condensed Consolidated Statements of Income  for the three months and nine months ended February 28, 2006 and 2005  (unaudited)                            |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | Condensed Consolidated Statement of  Shareholders’ Equity and Comprehensive Income for the period June 1, 2005  through February 28, 2006 (unaudited) |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | Condensed Consolidated Statements of Cash Flows for  the nine months ended February 28, 2006 and 2005 (unaudited)                                          |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | Notes to Condensed  Consolidated Financial Statements (unaudited)                                                                                          |   |
|                                                 |                                                                                                                                                       |   |
| **Item 2.**                                          | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                            |   |
|                                                 |                                                                                                                                                       |   |
| **Item 3.**                                          | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                            |   |
|                                                 |                                                                                                                                                       |   |
| **Item 4.**                                          | **Controls and Procedures**                                                                                                                                |   |
|                                                 |                                                                                                                                                       |   |
| **PART II.    OTHER  INFORMATION**    |                                                                                                                                                       |
|                                                 |                                                                                                                                                       |   |
| **Item 1.**                                          | **Legal Proceedings**                                                                                                                                      |   |
|                                                 |                                                                                                                                                       |   |
| **Item 2.**                                          | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                                           |   |
|                                                 |                                                                                                                                                       |   |
| **Item 4.**                                          | **Submission  of Matters to a Vote of Security Holders**                                                                                                   |   |
|                                                 |                                                                                                                                                       |   |
| **Item 6.**                                          | **Exhibits and  Reports on Form 8-K**                                                                                                                      |   |
|                                                 |                                                                                                                                                       |   |
|                                                 | SIGNATURES                                                                                                                                                 |   |

 

2

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**PART1.**

**FINANCIAL INFORMATION**

 

**ITEM1. Financial Statements.**

 

**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

(Amounts in thousands, except share data)

 
| ** **                                                                                                                                                                  | ** ** | **February 28, 2006** | ** ** | **May 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **(Unaudited)**                 | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                  |       |                            |       |                       |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| CURRENT ASSETS:                                                                                                                                                             |       |                            |       |                       |       |
| Cash and cash equivalents                                                                                                                                                   |       | $                               | 38,607     |                       | $          | 37,108 |   |
| Short-term  investments                                                                                                                                                     |       | 1,987                           |       | 1,973                      |       |
| Trade accounts  receivable, net of allowance for doubtful accounts of $2,015 at February 28,  2006 and $1,874 at May 31, 2005                                               |       | 39,837                          |       | 34,630                     |       |
| Inventories                                                                                                                                                                 |       | 20,415                          |       | 21,836                     |       |
| Deferred income  tax assets, current portion                                                                                                                                |       | 1,567                           |       | 1,568                      |       |
| Prepaid expenses  and other current assets                                                                                                                                  |       | 3,787                           |       | 3,767                      |       |
| Total current  assets                                                                                                                                                       |       | 106,200                         |       | 100,882                    |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| PROPERTY AND  EQUIPMENT, Net                                                                                                                                                |       | 23,152                          |       | 23,035                     |       |
| DEFERRED INCOME  TAX ASSETS                                                                                                                                                 |       | 2,284                           |       | 1,845                      |       |
| OTHER ASSETS                                                                                                                                                                |       | 283                             |       | 1,113                      |       |
| DEFERRED  LICENSING COSTS, Net                                                                                                                                              |       | 4,112                           |       | 772                        |       |
| CUSTOMER LISTS,  Net                                                                                                                                                        |       | 2,328                           |       | 1,140                      |       |
| GOODWILL                                                                                                                                                                    |       | 33,997                          |       | 28,826                     |       |
| Total assets                                                                                                                                                                |       | $                               | 172,356    |                       | $          | 157,613 |   |
|                                                                                                                                                                        |       |                            |       |                       |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                              |       |                            |       |                       |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| CURRENT  LIABILITIES:                                                                                                                                                       |       |                            |       |                       |       |
| Current portion  of long-term liabilities                                                                                                                                   |       | $                               | 1,043      |                       | $          | 4,617 |   |
| Accounts payable                                                                                                                                                            |       | 7,407                           |       | 8,028                      |       |
| Accrued expenses  and other current liabilities                                                                                                                             |       | 8,910                           |       | 9,800                      |       |
| Income taxes  payable                                                                                                                                                       |       | 4,634                           |       | 3,448                      |       |
| Deferred revenue  - current portion                                                                                                                                         |       | 5,556                           |       | 4,044                      |       |
| Total current  liabilities                                                                                                                                                  |       | 27,550                          |       | 29,937                     |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| LONG-TERM DEBT                                                                                                                                                              |       | —                          |       | 2,081                      |       |
| ACQUISITION  LIABILITY                                                                                                                                                      |       | 4,014                           |       | —                     |       |
| DEFERRED REVENUE                                                                                                                                                            |       | 7,746                           |       | 3,515                      |       |
| DEFERRED INCOME  TAX LIABILITIES                                                                                                                                            |       | 2,264                           |       | 2,285                      |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                                |       | 1,686                           |       | 2,363                      |       |
| Total  liabilities                                                                                                                                                          |       | 43,260                          |       | 40,181                     |       |
| Commitments and  contingencies (Note 16)                                                                                                                                    |       |                            |       |                       |       |
| SHAREHOLDERS’  EQUITY:                                                                                                                                                 |       |                            |       |                       |       |
| Common stock,  $0.10 par value; authorized 120,000,000 shares, issued and outstanding 45,182,129  and 45,525,592 shares at February 28, 2006 and May 31, 2005, respectively |       | 4,518                           |       | 4,552                      |       |
| Additional  paid-in capital                                                                                                                                                 |       | 16,812                          |       | 32,692                     |       |
| Retained  earnings                                                                                                                                                          |       | 107,638                         |       | 79,857                     |       |
| Accumulated  other comprehensive income                                                                                                                                     |       | 128                             |       | 331                        |       |
| Total  shareholders’ equity                                                                                                                                            |       | 129,096                         |       | 117,432                    |       |
| Total  liabilities and shareholders’ equity                                                                                                                            |       | $                               | 172,356    |                       | $          | 157,613 |   |

 

The accompanying notes are an integralpart of these Condensed Consolidated Financial Statements.

 

3

----

 

**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF INCOME**

(Amounts in thousands, except per sharedata)

(Unaudited)

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **February 28,**            | ** ** | **February 28,**           | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
| ** **                            | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                  |       |                             |       |                            |       |   |   |   |   |
| NET SALES                             |       | $                                | 47,090     |                            | $          | 37,982 |   | $ | 133,550 |   | $ | 102,725 |   |
| COST OF SALES                         |       | 14,956                           |       | 14,005                          |       | 46,179 |   | 42,114 |   |
| GROSS PROFIT                          |       | 32,134                           |       | 23,977                          |       | 87,371 |   | 60,611 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| OPERATING  EXPENSES                   |       |                             |       |                            |       |   |   |   |   |
| Research and  development             |       | 938                              |       | 1,079                           |       | 3,401 |   | 3,321 |   |
| Selling and  marketing                |       | 5,141                            |       | 4,895                           |       | 15,550 |   | 13,172 |   |
| Distribution                          |       | 1,971                            |       | 2,107                           |       | 5,753 |   | 5,999 |   |
| General and  administrative           |       | 4,797                            |       | 5,971                           |       | 15,507 |   | 12,737 |   |
| Restructuring  expense                |       | 122                              |       | —                          |       | 2,579 |   | — |   |
| Amortization  expense and other       |       | 86                               |       | (106                            | )          | 254 |   | 597 |   |
| Total operating  expenses             |       | 13,055                           |       | 13,946                          |       | 43,044 |   | 35,826 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| INCOME FROM  OPERATIONS               |       | 19,079                           |       | 10,031                          |       | 44,327 |   | 24,785 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| OTHER INCOME  (EXPENSE)               |       |                             |       |                            |       |   |   |   |   |
| Interest income                       |       | 182                              |       | 151                             |       | 598 |   | 399 |   |
| Interest expense                      |       | (93                              | )          | (188                            | )          | (435 | ) | (513 | ) |
| Other income  (loss)                  |       | (280                             | )          | 346                             |       | (352 | ) | 627 |   |
| Total other                           |       | (191                             | )          | 309                             |       | (189 | ) | 513 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES           |       | 18,888                           |       | 10,340                          |       | 44,138 |   | 25,298 |   |
| PROVISION FOR  INCOME TAXES           |       | 7,167                            |       | 3,880                           |       | 16,357 |   | 9,679 |   |
| NET INCOME                            |       | $                                | 11,721     |                            | $          | 6,460 |   | $ | 27,781 |   | $ | 15,619 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| Earnings per  share:                  |       |                             |       |                            |       |   |   |   |   |
| Per common share  - basic             |       | $                                | 0.26       |                            | $          | 0.14 |   | $ | 0.61 |   | $ | 0.35 |   |
| Per common share  - assuming dilution |       | $                                | 0.25       |                            | $          | 0.14 |   | $ | 0.58 |   | $ | 0.33 |   |

 

The accompanying notes are an integralpart of these Condensed Consolidated Financial Statements.

 

4

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’EQUITY AND COMPREHENSIVE INCOME**

(Unaudited, amounts in thousands)

 
| ** **                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**  | ** ** |
| ** **                                       | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income**             | ** ** | **Equity** | ** ** |
|                                             |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE, JUNE 1,  2005                           |       | 45,526                |       | $           | 4,552      |           | $          | 32,692            |       | $                      | 79,857     |       | $          | 331 |   | $ | 117,432 |   |
| Exercise of  stock options                       |       | 609                   |       | 61          |       | 961            |       | —            |       | —                 |       | 1,022      |       |
| Expense  recognized on options awarded           |       | —                |       | —      |       | 719            |       | —            |       | —                 |       | 719        |       |
| Stock  repurchases and retirements               |       | (953                  | )          | (95         | )          | (22,159        | )          | —            |       | —                 |       | (22,254    | )          |
| Tax benefits  related to stock options and other |       | —                |       | —      |       | 4,599          |       | —            |       | —                 |       | 4,599      |       |
| Comprehensive  income (net of taxes):            |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| Foreign currency  translation adjustments        |       | —                |       | —      |       | —         |       | —            |       | (213                   | )          | (213       | )          |
| Hedge loss  reclassified into earnings           |       | —                |       | —      |       | —         |       | —            |       | 10                     |       | 10         |       |
| Net income                                       |       | —                |       | —      |       | —         |       | 27,781            |       | —                 |       | 27,781     |       |
| Total  comprehensive income                      |       |                  |       |        |       |           |       |              |       |                   |       | 27,578     |       |
|                                             |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE,  FEBRUARY 28, 2006                      |       | 45,182                |       | $           | 4,518      |           | $          | 16,812            |       | $                      | 107,638    |       | $          | 128 |   | $ | 129,096 |   |

 

Accumulated Other Comprehensive Income balance primarily consistsof foreign currency translation adjustments.

 

The accompanying notes are an integral part of these CondensedConsolidated Financial Statements.

 

5

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

(Unaudited,amounts in thousands)

 
| ** **                                                                          | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **February 28,**           | ** ** | **February 28,** | ** ** |
| ** **                                                                          | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| OPERATING  ACTIVITIES:                                                              |       |                            |       |   |   |
| Net income                                                                          |       | $                               | 27,781     |   | $ | 15,619 |   |
|                                                                                |       |                            |       |   |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:  |       |                            |       |   |   |
| Depreciation and  amortization                                                      |       | 4,950                           |       | 5,142 |   |
| Accretion of  acquisition liabilities                                               |       | 123                             |       | — |   |
| Loss on  retirement of fixed assets                                                 |       | 481                             |       | 587 |   |
| Unrealized  foreign exchange gain                                                   |       | (130                            | )          | — |   |
| Provision for  restructuring expenses                                               |       | 2,574                           |       | — |   |
| Provision for  doubtful accounts                                                    |       | 388                             |       | 495 |   |
| Gain on sale of  long-term investment                                               |       | —                          |       | (530 | ) |
| Deferred tax  provision (benefit)                                                   |       | (301                            | )          | 106 |   |
| Compensation  expense recognized for stock options                                  |       | 719                             |       | 10 |   |
| Other                                                                               |       | —                          |       | 5 |   |
|                                                                                |       |                            |       |   |   |
| Changes in  operating assets and liabilities, net of effects from acquired company: |       |                            |       |   |   |
| Accounts  receivable, trade                                                         |       | (6,022                          | )          | (8,529 | ) |
| Income taxes                                                                        |       | 5,574                           |       | 5,052 |   |
| Inventories                                                                         |       | 1,090                           |       | (1,347 | ) |
| Other current  assets                                                               |       | (129                            | )          | 783 |   |
| Other assets                                                                        |       | 738                             |       | 510 |   |
| Accounts payable                                                                    |       | (567                            | )          | (3,334 | ) |
| Deferred revenue                                                                    |       | 5,952                           |       | 1,570 |   |
| Accrued expenses  and other current liabilities                                     |       | (649                            | )          | 3,306 |   |
| Other long-term  liabilities                                                        |       | (10                             | )          | 68 |   |
| Total  adjustments                                                                  |       | 14,781                          |       | 3,894 |   |
|                                                                                |       |                            |       |   |   |
| Cash provided by  operating activities                                              |       | 42,562                          |       | 19,513 |   |
|                                                                                |       |                            |       |   |   |
| INVESTING  ACTIVITIES:                                                              |       |                            |       |   |   |
| Purchases of  property and equipment                                                |       | (7,304                          | )          | (4,585 | ) |
| Proceeds from  sale of property and equipment                                       |       | —                          |       | 28 |   |
| Payment for net  assets of acquired company                                         |       | (4,734                          | )          | — |   |
| Profit realized  during Japan acquisition negotiations                              |       | 576                             |       | — |   |
| Investments in  held-to-maturity marketable securities                              |       | (15                             | )          | — |   |
| Proceeds from  sale of long-term investment                                         |       | —                          |       | 1,300 |   |
|                                                                                |       |                            |       |   |   |
| Cash used in  investing activities                                                  |       | (11,477                         | )          | (3,257 | ) |
|                                                                                |       |                            |       |   |   |
| FINANCING  ACTIVITIES:                                                              |       |                            |       |   |   |
| Repayments of  line of credit agreements, net                                       |       | (145                            | )          | — |   |
| Repayments of  long-term debt and capital leases                                    |       | (8,074                          | )          | (4,583 | ) |
| Repurchase of  common stock                                                         |       | (22,255                         | )          | (8,028 | ) |
| Payment for fractional  shares resulting from stock split                           |       | —                          |       | (9 | ) |
| Proceeds from  exercise of stock options                                            |       | 1,043                           |       | 1,247 |   |
|                                                                                |       |                            |       |   |   |
| Cash used in  financing activities                                                  |       | (29,431                         | )          | (11,373 | ) |
|                                                                                |       |                            |       |   |   |
| EFFECT OF  EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                              |       | (155                            | )          | 646 |   |
|                                                                                |       |                            |       |   |   |
| INCREASE IN CASH  AND CASH EQUIVALENTS                                              |       | 1,499                           |       | 5,529 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                   |       | 37,108                          |       | 15,697 |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                         |       | $                               | 38,607     |   | $ | 21,226 |   |

 

The accompanying notes are an integralpart of these Condensed Consolidated Financial Statements.

 

6

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**IMMUCOR,INC. AND SUBSIDIARIES**

**Notes to CondensedConsolidated Financial Statements**

(Unaudited)

 

**1.****              NATURE OF BUSINESSAND BASIS OF PRESENTATION**

 

***Natureof Business***

 

Immucor, Inc. (“Immucor”and, together with its wholly owned subsidiaries, the “Company”) is in thebusiness of developing, manufacturing and marketing immunological diagnosticmedical products. The Company operates facilities in the United States, Canada,Europe and Japan. The unaudited condensed consolidated financial statementsinclude the accounts of the Company and all of its subsidiaries.

 

***Basisof Presentation***

 

The accompanyingcondensed consolidated financial statements are unaudited and have beenprepared in accordance with U.S. generally accepted accounting principles (“GAAP”)for interim financial information, and the Security and Exchange Commission’s (“SEC”)instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, theydo not include all of the information and footnotes required by GAAP forcomplete financial statements. In the opinion of management, all adjustments,consisting of normal recurring adjustments, unless otherwise disclosed in aseparate note, considered necessary for a fair presentation of the unaudited,condensed consolidated financial statements present fairly the financialposition and results of operations for the interim periods presented. Theseunaudited, condensed consolidated financial statements should be read inconjunction with the Company’s audited, consolidated financial statements andrelated notes for the year ended May 31, 2005, included in the Company’s AnnualReport on Form 10-K.

 

The accompanyingcondensed consolidated financial statements present results of operations forthe three and nine months ended February 28, 2006. These results are notnecessarily indicative of the results that may be achieved for the year endingMay 31, 2006, or any other period.

 

***Basisof Consolidation***

 

The condensed consolidatedfinancial statements include the accounts of Immucor and its subsidiaries. Allsignificant inter-company balances and transactions have been eliminated inconsolidation. Certain prior periods’ amounts have been reclassified to conformto the presentation of financial statements in this report.

 

**2.****              STOCK-BASEDCOMPENSATION**

 

The Company adopted thedisclosure only provisions for employee stock-based compensation under SFASStatement No. 148, “*Accounting for Stock-BasedCompensation – Transition and Disclosure,”* and continues to accountfor employee stock-based compensation using the intrinsic value method underAccounting Principles Board (“APB”) Opinion No. 25, “*Accountingfor Stock Issued to Employees”.*Accordingly, the Company recognizescompensation expense only if the stock price on the grant measurement dateexceeds the exercise price. In such a case, the intrinsic value of the grant isrecognized as compensation expense over the vesting period of the grant andcredited to equity. Upon exercise, net proceeds, including tax benefitrealized, are credited to equity.

 

Had the Company adoptedthe fair value recognition provisions of SFAS Statement No. 123 “*Accounting for Stock-Based Compensation*”, as amended by SFASStatement No. 148, the effect on the Company’s net income and earnings pershare would have been as follows (in thousands, except per share data):

 

7

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| ** **                                                                                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                         | ** ** | **February 28,**            | ** ** | **February 28,**           | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
| ** **                                                                                                         | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                               |       |                             |       |                            |       |   |   |   |   |
| Net income as  reported                                                                                            |       | $                                | 11,721     |                            | $          | 6,460 |   | $ | 27,781 |   | $ | 15,619 |   |
| Stock based  employee compensation included in reported net income, net of taxes                                   |       | 498                              |       | —                          |       | 562 |   | — |   |
| Stock-based  employee compensation expense determined under fair value based methods for  all awards, net of taxes |       | (2,460                           | )          | (448                            | )          | (3,276 | ) | (1,326 | ) |
| Pro forma net  income                                                                                              |       | $                                | 9,759      |                            | $          | 6,012 |   | $ | 25,067 |   | $ | 14,293 |   |
|                                                                                                               |       |                             |       |                            |       |   |   |   |   |
| Earnings per  share as reported:                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Per common share  - Basic                                                                                          |       | $                                | 0.26       |                            | $          | 0.14 |   | $ | 0.61 |   | $ | 0.35 |   |
| Per common share  - Diluted                                                                                        |       | $                                | 0.25       |                            | $          | 0.14 |   | $ | 0.58 |   | $ | 0.33 |   |
|                                                                                                               |       |                             |       |                            |       |   |   |   |   |
| Pro forma  earnings per share:                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Per common share  - Basic                                                                                          |       | $                                | 0.22       |                            | $          | 0.13 |   | $ | 0.55 |   | $ | 0.32 |   |
| Per common share  - Diluted                                                                                        |       | $                                | 0.21       |                            | $          | 0.13 |   | $ | 0.53 |   | $ | 0.30 |   |

 

***Acceleration of vesting ofcertain options***

 

On January 18, 2006, the Board of Directors ofthe Company approved the acceleration of vesting of certain outstanding stockoptions previously awarded to certain employees (none of whom are directors orexecutive officers) under the Company’s equity compensation plans. As a resultof this action, options to purchase approximately 207,000 shares of the Company’scommon stock, which otherwise would have vested from time to time over the nextfour years, became immediately exercisable.  The accelerated options haveexercise prices ranging from $30.05 to $35.30 per share, which is greater than$26.83, the closing price of the Company’s common stock on the Nasdaq National Marketon January 17, 2006, the day before the Board of Directors’ approved theacceleration. Under the recently issued Financial Accounting Standards BoardStatement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), theCompany will be required to treat unvested stock options as an expensebeginning June 1, 2006. The primary reasons for accelerating the vestingof these options were (i) to reduce the cumulative non-cash compensationexpense that the Company would have otherwise been required to recognize infuture periods as a result of the adoption of SFAS 123R, and (ii) toenhance the perceived value of the accelerated options, all of which wereout-of-the-money at the time of the acceleration, to the employees who holdsuch options.

 

As a result of this decision, during the quarter endedFebruary 28, 2006, the Company recorded compensation expense of approximately $642,000(amount net of taxes - $498,000), which represented the remaining unearnedcompensation for these options and which was being expensed over the vestingperiods of these options.

 

***2005Long-Term Incentive Plan***

 

At an annual meeting ofthe Company’s shareholders held on December 13, 2005, the shareholders approvedestablishment of the Immucor, Inc. 2005 Long-Term Incentive Plan (the “2005Plan”). The 2005 Plan replaces the Company’s preexisting stock option planswhich have been frozen and remain in effect only to the extent of awardsoutstanding under these plans. Under the 2005 Plan, besides stock options, theCompany will be able to award stock appreciation rights, restricted stock,deferred stock, and other performance-based awards as incentive compensation toemployees. The maximum number of shares of the Company’s common stock as towhich awards may be granted under the 2005 Plan is 2,400,000. The maximumnumber of shares that may be used for awards other than stock options is1,200,000, and the maximum number of shares that may be used for grants ofincentive stock options is 1,200,000.

 

**3.****              ACQUISITION**

 

On July 5, 2005, the Company, in an effort to expand its presence in Japan, acquired a 100% interest in Immucor-Kainos, Inc. — a newly-formed company in which Kainos Laboratories, Inc. (“Kainos”), the Company’s former distributor of Immucor products in Japan, spun off its blood-banking division to the newly-formed company. Immucor paid Kainos 459 million Japanese Yen (approximately $4.2 million) in cash on signing of the purchase agreements, and will pay an additional 300 million Japanese Yen (approximately $2.5 

 

8

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million) over three years with payment of 125 million Japanese Yen in each of the first two years and the remaining 50 million Japanese Yen in the third year. A final payment of 441 million Japanese Yen will be made after a three-year transition period ending on June 30, 2008, or earlier upon mutual agreement. The Company has recorded 741 million Japanese Yen (with an approximate present value of $5.1 million, using a discount rate of approximately 3.7% per annum), as a liability. Immucor-Kainos, Inc. has been consolidated as a wholly owned subsidiary in these financial statements.

 

During the second quarterof fiscal year 2006, the Company completed a valuation of the intangible assetsacquired in the transaction. Pursuant to the valuation, the Company allocated150 million Japanese Yen (approximately $ 1.3 million) to the purchase of the customerlist and 400 million Japanese Yen (approximately $3.3 million) to the business licensesand regulatory permits.

 

Besides payment of the purchaseconsideration to Kainos, the Company incurred additional direct cost of $0.5million associated with this acquisition. During the second and third quartersof fiscal year 2006, direct acquisition expenses of 31.4 million Japanese Yen(approximately $0.2 million) were recorded as additional acquisition cost.

 

The following tablesummarizes the allocation of acquisition cost, including professional fees andother related acquisition costs to the assets acquired based on their fairvalues (in thousands):

 
| Tangible assets  acquired   |   | $     | 105    |   |
|-----------------------------|--------|-------|--------|--------|
| Intangible  assets acquired |   | 4,928 |   |
| Goodwill  acquired          |   | 5,695 |   |
| Total  acquisition cost     |   | $     | 10,728 |   |

 

At the time of signing the agreement, the Company paid 519 million Japanese Yen (approximately $4.7 million), including 60 million Japanese Yen for acquisition related expenses. As of February 28, 2006, the Company has paid 97 million Japanese Yen (approximately $0.9 million) of the total acquisition liability of 741 million Japanese Yen.

 

The total purchase price includes a premium based on management’s assessment that the Company will achieve higher future profitability levels in the Japanese market by acquiring direct control and management of marketing the Company’s products with the installation of Immucor personnel in key managerial positions overseeing the operations of the business. The primary purpose of this acquisition is to allow Immucor to directly market and sell its products and expand its presence in Japan. Additionally, in accordance with the terms of the purchase agreement, Kainos has agreed to supply certain services to Immucor-Kainos during the three-year transition period.

 

At February 28, 2006, Immucor-Kainosowed Kainos approximately $1.5 million for products supplied by Kainos, and wasowed approximately $2.0 million from Kainos for products sold by Kainos onbehalf of Immucor-Kainos. Additionally, Kainos owed Immucor approximately $0.2million for products supplied to Kainos from the United States.

 

No pro forma informationof revenue and income for the acquired business is provided as the effect ofthe acquisition on the consolidated financial statements is not material. Theresults of operations of the acquired subsidiary have been included from July5, 2005 onwards, the date of acquisition. See Note 11 for segment information.

 

**4.****              INVENTORIES**

 

Inventories are stated atthe lower of cost or market determined on a first-in, first-out basis (in thousands):

 
| ** **                  | ** ** | **February 28, 2006** | ** ** | **May 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------------|------------|----------------------------|------------|
|                        |       |                            |       |                       |       |
| Raw materials  and supplies |       | $                               | 5,090      |                       | $          | 5,710 |   |
| Work in process             |       | 3,129                           |       | 2,946                      |       |
| Finished goods              |       | 12,196                          |       | 13,180                     |       |
|                        |       |                            |       |                       |       |
|                        |       | $                               | 20,415     |                       | $          | 21,836 |   |

 

9

----

 

**5.****              GOODWILL**

 

The $5.2 million increasein goodwill on the consolidated balance sheets from May 31, 2005 to February28, 2006 relates to the acquisition of Immucor-Kainos, Inc. on July 5, 2005. Atthe time of acquisition of Immucor-Kainos, goodwill on the acquisitionamounting to $5.7 million was reduced by $0.6 million of profit generated from thesupply of products from the United States to Kainos during the negotiationperiod from April 2005 to June 2005, and the reversal of a deferred revenue liabilityof $0.3 million relating to the old distribution agreement with Kainos. In thethird quarter of fiscal 2006, the goodwill account was further increased by aforeign exchange translation adjustment of $0.4 million.

 

**6.****              CUSTOMER LIST ANDDEFERRED LICENSING COSTS**

 

The customer listacquired with the acquisition of Immucor-Kainos was valued at $1.3 million witha useful life of 20 years, and the licensing and regulatory permits, which wereassumed to have infinite lives were valued at $3.3 million. The customer listis being amortized over 20 years, and the licensing and regulatory permits willnot be amortized but will be tested for impairment annually at the end of eachfiscal year.

 

Amortization expenserelating to intangible assets for the three-month and nine-month periods ended February28, 2006 was approximately $86,000 and $254,000, respectively, and amortizationexpense relating to intangible assets for the three-month and nine-monthperiods ended February 28, 2005 was approximately $113,000 and $339,000,respectively.

 

Accumulated amortization asof February 28, 2006 and May 31, 2005 was $2.6 million and $2.4 million,respectively.

 

**7.****              RESTRUCTURINGEXPENSES**

 

On October 31, 2005 theBoard of Directors of the Company approved a plan to close the Company’sHouston, Texas manufacturing facility.

 

The decision to close thefacility was driven by a number of factors including, in particular, theexpense of operating two separate FDA licensed manufacturing facilities. Thisclosure, which is subject to certain regulatory approvals, is scheduled to becompleted by December 2007.

 

During the second quarterof fiscal year 2006, the Company recorded a charge of approximately $2.5million in connection with this planned closure, including approximately $2.4million for impairment of long-lived assets based on an independent valuation, andapproximately $0.1 million for severance pay. The Company recorded a charge of approximately$0.1 million in the third quarter of fiscal year 2006. The Company expects toincur approximately $2.0 million of additional costs to close this facility consistingof approximately $0.6 million in costs to consolidate operations, approximately$0.7 million to relocate associated employees and approximately $0.7 million forretention bonuses and other expenses. The costs to consolidate operations and relocateemployees are expensed when incurred and the retention bonuses are expensedover the period of service necessary to receive such bonuses.

 

Total cash outlays forthe restructuring plan are expected to be approximately $2.3 million to be paidout over the next two years.

 

10

----

 

**8.****              BONUS ACCRUAL**

 

The Company recordsmonthly accruals for annual staff bonuses which are declared and paid only if operatingincome and net income targets set in annual budgets are achieved. If, at anytime during a fiscal year, it becomes apparent to the Company’s management thatthe annual targets will not be achieved and no bonuses will be paid, then theprovision is reversed. Management determined, in March 2006, that the Company’srevenues for the fiscal year 2006 were unlikely to be sufficient to achieve thebudgeted targets. Accordingly, in compliance with the provisions of the SFAS No.5, *Accounting for Contingencies*, managementdetermined that the probability of achieving the fiscal year 2006 targets wasremote, and the Company reversed approximately $1.0 million of the bonus provisionin the third quarter of fiscal year 2006 which it had previously accrued in thefirst two quarters of fiscal year 2006.

 

**9.****              SUPPLEMENTAL CASHFLOW INFORMATION**

 
| ** **                                    | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **February 28,**                | ** ** | **February 28,**           | ** ** |
| ** **                                    | ** ** | **2006**                             | ** ** | **2005**                        | ** ** |
| ** **                                    | ** ** | **(Amounts in thousands)** | ** ** |
|                                          |       |                                 |       |                            |       |
| Non-cash  Investing and Financing Activities: |       |                                 |       |                            |       |
| Acquisition  liability assumed                |       | $                                    | 5,123      |                            | $          | — |   |
|                                          |       |                                 |       |                            |       |
| Supplemental  information                     |       |                                 |       |                            |       |
| Taxes Paid                                    |       | $                                    | 11,487     |                            | $          | 11,765 |   |
| Interest paid                                 |       | $                                    | 205        |                            | $          | 442 |   |

 

**10.****       EARNINGS PER SHARE**

 

The following table sets forth the computation ofbasic and diluted earnings per share in accordance with SFAS No. 128, *Earnings per Share*.

 

Basic earnings per common share are calculated bydividing net income by weighted-average common shares outstanding during theperiod. Diluted earnings per common share are calculated by dividing net incomeby weighted-average common shares outstanding during the period plus dilutivepotential common shares, which are determined as follows (in thousands, exceptper share data):

 
| ** **                                                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **February 28,**            | ** ** | **February 28,**           | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
| ** **                                                                          | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                |       |                             |       |                            |       |   |   |   |   |
| Numerator for basic  and diluted earnings per share:                                |       |                             |       |                            |       |   |   |   |   |
| Income available  to common shareholders                                            |       | $                                | 11,721     |                            | $          | 6,460 |   | $ | 27,781 |   | $ | 15,619 |   |
|                                                                                |       |                             |       |                            |       |   |   |   |   |
| Denominator:                                                                        |       |                             |       |                            |       |   |   |   |   |
| For basic  earnings per share - weighted average shares basis                       |       | 44,988                           |       | 45,184                          |       | 45,352 |   | 45,017 |   |
| Effect of  dilutive stock options                                                   |       | 2,111                            |       | 2,397                           |       | 2,208 |   | 2,474 |   |
| Denominator for  diluted earnings per share -adjusted weighted average shares basis |       | 47,099                           |       | 47,581                          |       | 47,560 |   | 47,491 |   |
|                                                                                |       |                             |       |                            |       |   |   |   |   |
| Earnings per  common share – basic                                             |       | $                                | 0.26       |                            | $          | 0.14 |   | $ | 0.61 |   | $ | 0.35 |   |
| Earnings per  common share – diluted                                           |       | $                                | 0.25       |                            | $          | 0.14 |   | $ | 0.58 |   | $ | 0.33 |   |

 

11

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**11.****       SEGMENT AND GEOGRAPHIC INFORMATION**

 

The Company’s operations and segments are organizedaround geographic areas. Immucor’s “Other” segment includes the operations ofBelgium, Portugal and Spain. The foreign locations principally function asdistributors of products developed and manufactured by the Company in theUnited States and Canada. The accounting policies applied in the preparation ofthe Company’s consolidated financial statements are applied consistently acrossthe segments. Intersegment sales are recorded at market price.

 

##### **Segment information for the threeand nine months ended February 28, 2006 and 2005 is summarized below (in thousands).**

 
| ** **                     | ** ** | **For the Three Months Ended February 28, 2006** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                            | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                   | 30,731     |   | $ | 2,729 |   | $ | 3,030 |   | $ | 2,186 |   | $ | 1,837 |   | $ | 2,081 |   | $ | — |   | $ | 42,594 |   |
| Affiliates                     |       | 2,808                                                                               |       | 470 |   | — |   | 35 |   | — |   | 44 |   | (3,357 | ) | — |   |
| Total                          |       | 33,539                                                                              |       | 3,199 |   | 3,030 |   | 2,221 |   | 1,837 |   | 2,125 |   | (3,357 | ) | 42,594 |   |
| Net instrument  revenues:      |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 2,250                                                                               |       | 342 |   | 293 |   | 41 |   | 9 |   | 713 |   | — |   | 3,648 |   |
| Affiliates                     |       | 262                                                                                 |       | 672 |   | — |   | — |   | — |   | — |   | (934 | ) | — |   |
| Total                          |       | 2,512                                                                               |       | 1,014 |   | 293 |   | 41 |   | 9 |   | 713 |   | (934 | ) | 3,648 |   |
| Net collagen  revenues:        |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 848                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 848 |   |
| Affiliates                     |       | —                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 848                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 848 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 36,899                                                                              |       | 4,213 |   | 3,323 |   | 2,262 |   | 1,846 |   | 2,838 |   | (4,291 | ) | 47,090 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 18,240                                                                              |       | 190 |   | 151 |   | 906 |   | (85 | ) | 26 |   | (349 | ) | 19,079 |   |
| Net income  (loss)             |       | 11,410                                                                              |       | 141 |   | 95 |   | 463 |   | (124 | ) | (44 | ) | (220 | ) | 11,721 |   |
|                                |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Three Months Ended February 28, 2005** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                            | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                   | 23,734     |   | $ | 3,102 |   | $ | 2,807 |   | $ | 1,791 |   | $ | — |   | $ | 2,308 |   | $ | — |   | $ | 33,742 |   |
| Affiliates                     |       | 2,612                                                                               |       | 571 |   | — |   | 63 |   | — |   | 43 |   | (3,289 | ) | — |   |
| Total                          |       | 26,346                                                                              |       | 3,673 |   | 2,807 |   | 1,854 |   | — |   | 2,351 |   | (3,289 | ) | 33,742 |   |
| Net instrument  revenues:      |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 1,468                                                                               |       | 896 |   | 330 |   | 122 |   | — |   | 636 |   | — |   | 3,452 |   |
| Affiliates                     |       | 39                                                                                  |       | 985 |   | 1 |   | — |   | — |   | — |   | (1,025 | ) | — |   |
| Total                          |       | 1,507                                                                               |       | 1,881 |   | 331 |   | 122 |   | — |   | 636 |   | (1,025 | ) | 3,452 |   |
| Net collagen  revenues:        |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 788                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 788 |   |
| Affiliates                     |       | —                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 788                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 788 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 28,641                                                                              |       | 5,554 |   | 3,138 |   | 1,976 |   | — |   | 2,987 |   | (4,314 | ) | 37,982 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 6,819                                                                               |       | 2,075 |   | (11 | ) | 734 |   | — |   | 105 |   | 309 |   | 10,031 |   |
| Net income  (loss)             |       | 4,449                                                                               |       | 1,277 |   | 31 |   | 405 |   | — |   | 104 |   | 194 |   | 6,460 |   |
|                                |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

12

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| ** **                     | ** ** | **For the Nine Months Ended February 28, 2006** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                           | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                  | 86,633     |   | $ | 8,050 |   | $ | 8,921 |   | $ | 6,684 |   | $ | 5,224 |   | $ | 6,287 |   | $ | — |   | $ | 121,799 |   |
| Affiliates                     |       | 7,744                                                                              |       | 1,420 |   | — |   | 161 |   | — |   | 136 |   | (9,461 | ) | — |   |
| Total                          |       | 94,377                                                                             |       | 9,470 |   | 8,921 |   | 6,845 |   | 5,224 |   | 6,423 |   | (9,461 | ) | 121,799 |   |
| Net instrument  revenues:      |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 5,204                                                                              |       | 1,182 |   | 893 |   | 217 |   | 12 |   | 1,225 |   | — |   | 8,733 |   |
| Affiliates                     |       | 335                                                                                |       | 1,927 |   | 1 |   | — |   | — |   | — |   | (2,263 | ) | — |   |
| Total                          |       | 5,539                                                                              |       | 3,109 |   | 894 |   | 217 |   | 12 |   | 1,225 |   | (2,263 | ) | 8,733 |   |
| Net collagen  revenues:        |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 3,018                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 3,018 |   |
| Affiliates                     |       | —                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 3,018                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 3,018 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 102,934                                                                            |       | 12,579 |   | 9,815 |   | 7,062 |   | 5,236 |   | 7,648 |   | (11,724 | ) | 133,550 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 40,856                                                                             |       | 305 |   | 594 |   | 2,934 |   | (119 | ) | 428 |   | (670 | ) | 44,327 |   |
| Net income  (loss)             |       | 25,706                                                                             |       | 217 |   | 390 |   | 1,759 |   | (154 | ) | 285 |   | (422 | ) | 27,781 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                   |       | 150,856                                                                            |       | 11,386 |   | 18,865 |   | 13,384 |   | 15,140 |   | 8,885 |   | (46,160 | ) | 172,356 |   |
|                                |            |                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Nine Months Ended February 28, 2005** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                           | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                  | 60,789     |   | $ | 8,938 |   | $ | 8,453 |   | $ | 5,775 |   | $ | — |   | $ | 6,514 |   | $ | — |   | $ | 90,469 |   |
| Affiliates                     |       | 6,998                                                                              |       | 1,726 |   | — |   | 153 |   | — |   | 88 |   | (8,965 | ) | — |   |
| Total                          |       | 67,787                                                                             |       | 10,664 |   | 8,453 |   | 5,928 |   | — |   | 6,602 |   | (8,965 | ) | 90,469 |   |
| Net instrument  revenues:      |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 5,365                                                                              |       | 1,732 |   | 613 |   | 137 |   | — |   | 2,096 |   | — |   | 9,943 |   |
| Affiliates                     |       | 507                                                                                |       | 3,429 |   | 15 |   | — |   | — |   | 2 |   | (3,953 | ) | — |   |
| Total                          |       | 5,872                                                                              |       | 5,161 |   | 628 |   | 137 |   | — |   | 2,098 |   | (3,953 | ) | 9,943 |   |
| Net collagen  revenues:        |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 2,313                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,313 |   |
| Affiliates                     |       | —                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 2,313                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,313 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 75,972                                                                             |       | 15,825 |   | 9,081 |   | 6,065 |   | — |   | 8,700 |   | (12,918 | ) | 102,725 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 20,318                                                                             |       | 1,897 |   | (168 | ) | 2,240 |   | — |   | 295 |   | 203 |   | 24,785 |   |
| Net income  (loss)             |       | 12,965                                                                             |       | 1,163 |   | (296 | ) | 1,372 |   | — |   | 305 |   | 110 |   | 15,619 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                   |       | 123,582                                                                            |       | 16,418 |   | 19,277 |   | 11,249 |   | — |   | 12,395 |   | (41,571 | ) | 141,350 |   |
|                                |            |                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)   Resultsof operations for Japan are included from July 5, 2005 onwards, the date onwhich the Company acquired Immucor-Kainos, Inc.

 

The Company’s U.S.operations made net export sales to unaffiliated customers of approximately $0.9million and $1.5 million for the three months ended February 28, 2006 and 2005,respectively, and approximately $3.4 million and $5.1 million for the ninemonths ended February 28, 2006 and 2005, respectively. The Company’s Germanoperations made net export sales to unaffiliated customers of approximately****$0.9 million and $2.3 million for the three months ended February28, 2006 and 2005, respectively, and approximately****$2.7million and $4.0 million for the nine months ended February 28, 2006 and 2005,respectively. The Company’s Canadian operations made net export sales tounaffiliated customers of approximately****$0.4 million and$0.3 million for the three months ended February 28, 2006 and 2005,respectively, and approximately****$1.5 million and$1.3 million for the nine months ended February 28, 2006 and 2005,respectively.

 

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**12.****       COMPREHENSIVE INCOME**

 

The components of comprehensive income for the three-monthand nine-month periods ended February 28, 2006 and 2005 are as follows (in thousands):

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **February 28,**            | ** ** | **February 28,**           | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
| ** **                                    | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                          |       |                             |       |                            |       |   |   |   |   |
| Net income                                    |       | $                                | 11,721     |                            | $          | 6,460 |   | $ | 27,781 |   | $ | 15,619 |   |
| Net foreign  currency translation adjustments |       | 973                              |       | 202                             |       | (213 | ) | 3,839 |   |
| Hedge loss  reclassified into earnings        |       | —                           |       | 5                               |       | 10 |   | 15 |   |
| Comprehensive  income                         |       | $                                | 12,694     |                            | $          | 6,667 |   | $ | 27,578 |   | $ | 19,473 |   |

 

**13.****       RECENT ACCOUNTING PRONOUNCEMENTS**

 

In November 2004, the FASB issued SFAS No. 151, *Inventory Costs—an amendment of ARB No. 43, Chapter 4* (“SFASNo. 151”)*.*SFAS No. 151 amends the guidance inARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “... . under some circumstances, items such as idle facility expense, excessivespoilage, double freight, and rehandling costs may be so abnormal as to requiretreatment as current period charges. . . ”. SFAS No. 151 requires that thoseitems be recognized as current period charges regardless of whether they meetthe criterion of “so abnormal.” In addition, SFAS No. 151 requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This new standard iseffective for inventory costs incurred during fiscal years beginning after June15, 2005. The Company does not anticipate SFAS No. 151 to have a significantimpact on its financial statements.

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), *Share-Based Payment*(“SFAS No. 123R”), which is arevision of SFAS No. 123,*Accounting forStock-Based Compensation*.  Generally, the approach in SFAS No.123R is similar to the approach described in SFAS No. 123.  However, SFASNo. 123R requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the statement of income based on their fair values. Proforma disclosure is no longer an alternative. Upon issuance, SFAS No. 123Rrequired public companies to apply the provisions of the Statement in the firstinterim or annual reporting period beginning after June 15, 2005. InApril 2005, the Securities and Exchange Commission approved a new rulethat delays the effective date, requiring public companies to apply SFAS No.123R in the first annual period beginning after June 15, 2005. Except forthe deferral of the effective date, the guidance in SFAS No. 123R is unchanged.The Company expects to adopt SFAS No. 123R in its first interim period of its fiscalyear ending May 31, 2007 and has concluded that SFAS No. 123R will have amaterial impact on its financial position and results of operations. Theadoption of this statement should impact net income and earnings per sharesimilar to the pro forma amounts disclosed for the three-month and nine-month periodsended February 28, 2006 and 2005 in Note 2 to the condensed consolidatedfinancial statements. Actual results in future periods, however, may differfrom the pro forma results reflected in Note 2 due to an increase or decreasein grants of employee stock options and/or changes in assumptions, such as theuse of estimated versus actual forfeitures or a change in expected life.

 

In May 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections* (“SFAS No. 154”),which replaces APB Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements-An Amendment of APB Opinion No. 28*.SFAS No. 154 provides guidance on the accounting for and reporting ofaccounting changes and error corrections. It establishes retrospectiveapplication, or the latest practicable date, as the required method forreporting a change in accounting principle and the reporting of a correction ofan error. This statement is effective for the Company’s fiscal year ending May31, 2007.

 

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**14.****       STOCKSPLITS**

 

On June 1,2004, the Board of Directors approved a three-for-two stock split, effected inthe form of a 50% stock dividend, to shareholders of record as of theclose of business on June 30, 2004. The stock split was distributed on July 16,2004 and increased the number of shares outstanding by 10,066,940, net of 326fractional shares for which cash dividends were paid. On November 15, 2004the Board of Directors approved a three-for-two stock split, effected in the form ofa 50% stock dividend, to shareholders of record as of the close of business on November 22,2004. The stock split was distributed on December 13, 2004 and increasedthe number of shares outstanding by 15,061,379, net of 82.5 fractional sharesfor which cash dividends were paid.

 

**15.****       STOCKREPURCHASE PROGRAM**

 

The Company instituted a stock repurchase program in June 1998for up to 4,050,000 shares, of which 3,624,750 shares had been purchased priorto the end of the 2004 fiscal year, leaving 425,250 shares available for repurchase.On June 1, 2004, the Board of Directors authorized the Company torepurchase up to an additional 450,000 shares of its common stock. On August 2,2004, the Board of Directors authorized the Company to repurchase up to anadditional 750,000 shares of its common stock.

 

On December 13,2005, the Board of Directors authorized the Company to repurchase up to anadditional one million shares, increasing to 1,360,150 the shares available forpurchase. During the quarter ended February 28, 2006, the companyrepurchased 310,800 shares at an average per share price of $23.75, bringingthe aggregate number of shares to 5,200,650 repurchased to date under the 1998repurchase program. An aggregate of 1,049,350 shares were available forrepurchase under the program as of February 28, 2006.

 

During the three months and nine months ended February 28,2006, the total amount spent for the shares bought under this program amountedto $7.4 million and $22.3 million, respectively, compared to no amount spent inthe three months ended February 28, 2005 and $8.0 million spent during the ninemonths ended February 28, 2005.

 

**16.****       COMMITMENTSAND CONTINGENCIES**

 

Aspreviously reported, the Company’s Italian subsidiary and Dr. Gioacchino DeChirico, the former President of the subsidiary, have been the subjects of acriminal investigation in Milan, Italy centered on payments by severalcompanies to certain Italian physicians allegedly in exchange for favorablecontract awards by their hospitals. The public prosecutor in Milan hasannounced the completion of his investigation into these payments, and hasalleged that Dr. De Chirico, as the former President of the subsidiary,participated in those payments to gain favorable procurement action at thephysicians’ hospitals. Under Italian law the subsidiary itself can be heldresponsible for the actions allegedly taken by Dr. De Chirico. Dr. De Chiricohas exercised his right to present further evidence to the prosecutor anddispute the allegations. If the prosecutor decides to bring formal charges, hewould present them to a judge and the judge would then decide whether the casewould be sent to trial. The Company believes the prosecutor intends to presentformal charges against the subsidiary and Dr. De Chirico, and that the judge willsend the case to trial. However, the subsidiary and Dr. De Chirico may seek aplea-bargaining agreement with the prosecutor. If Dr. De Chirico and thesubsidiary do not settle this matter, the Company believes it could be up totwo years before the case went to trial.

 

In2005 the Audit Committee of the Company’s of Directors completed an internalinvestigation prompted by the Italian investigation and determined that a €13,500payment to a physician as the organizer and chairman of a convention sponsoredby the Italian subsidiary was not improper, but the invoice for those servicesresulted in a violation of the books and records provisions of the ForeignCorrupt Practices Act. The investigation also concluded that payments toanother physician totaling approximately $47,000 may have been related not onlyto the performance of certain services but also to the introduction of aninstrument system into that physician’s hospital and perhaps other hospitals.The SEC has issued a formal investigative order in these matters, the Companyhas made a number of voluntary submissions to the SEC and the Company continuesto cooperate with the SEC. The SEC has not expressed to the Company anyconclusions about the ultimate outcome of its investigation. No determinationcan yet be made as to whether, in connection with these circumstances, theCompany will become subject to any fines, penalties and/or other chargesimposed by any governmental authority, or any other damages or costs that mayarise in connection with these circumstances.

 

Between August 31 and October 19, 2005, a series often class action lawsuits were filed in the United States District Courtfor the Northern District of Georgia against the Company and certain of itscurrent and former directors and officers alleging violations of the securitieslaws. The Court has consolidated these cases for disposition under the caption *In re Immucor, Inc. Securities Litigation,*File No. 1:05-CV-2276-WSD, designated lead plaintiffs, permitted thefiling of an amended consolidated complaint, and established a schedule forbriefing the Company’s motion to dismiss the claims. The consolidatedcomplaint, brought on behalf of a

 

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putative class of shareholders who purchasedthe Company’s stock between August 16, 2004 and August 29, 2005,alleges that the Company’s stock prices during that period were inflated as aresult of material misrepresentations or omissions in the Company’s financialstatements and other public announcements regarding the Company’s business. On March 7,2006, the Company timely moved to dismiss the consolidated complaint. Discoveryhas not yet begun. The Court made no determination whether any of theplaintiffs’ claims have merit or should be allowed to proceed as a class action.The Company believes the claims are without merit, and intends to vigorouslydefend itself. While the Company does not currently expect these lawsuits tomaterially affect its financial condition or results of operations, there canbe no assurance of any particular outcome.

 

In September 2005, F. Baragano Pharmaceuticalsfiled suit against the Company in the U.S. District Court for the District ofPuerto Rico, alleging that the Company cancelled a distribution contract withoutjust cause, and seeking $350,000 plus interest, costs and attorney fees. TheCompany is defending itself against this lawsuit, which is in the early stagesof discovery. At this time the Company is not able to determine the probabilityof a favorable or unfavorable outcome or an estimate of the amount or range ofpossible loss.

 

The Company’s compliance with its Affirmative ActionPlan is being audited by the US Department of Labor’s Office of FederalContract Compliance Programs (OFCCP) concerning personnel activity from July 1,2003 through June 30, 2004 and July 1, 2004 through February 13,2005. If OFCCP determines that a violation of Federal antidiscriminationstatutes has occurred, it has the power to order remedial action. Due to thepreliminary nature of this matter, the Company is not yet able to determinewhether it will become subject to any such remedial action.

 

Other than as set forth above, the Company is notcurrently subject to any material legal proceedings, nor, to the Company’sknowledge, is any material legal proceeding threatened against the Company.However, from time to time, the Company may become a party to certainlegal proceedings in the ordinary course of business.

 

**17.****       DEFERREDINSTRUMENT COSTS**

 

Incertain limited situations involving third-party leasing arrangements, theCompany enters into a repurchase agreement with the third party whereby if theultimate customer terminates the lease, the Company agrees to repurchase theinstrument for an amount equal to the remaining unpaid lease payments owed tothe third-party leasing company. In these limited situations, the Company defersthe revenue related to the sale and subsequently recognizes the revenue overthe lease term as the lease payments are made to the third-party leasing companyand it is clear that the ultimate customer has not terminated the related lease.In prior periods, the Company also deferred the corresponding cost of theseinstrument sales and recognized the costs over the same period as the relatedrevenue. During the quarter ended February 28, 2005, the Companydetermined that it was more appropriate to recognize the instrument costs inthese deferral situations when the instrument has been installed and writtenacceptance has been received from the customer. Accordingly, for the quarterended February 28, 2005, the Company recorded additional cost of salestotaling approximately $327,000 which related to prior quarters. The Companynow records all such instrument costs at the time the instrument is installedand accepted by the customer and title has been legally transferred to thecustomer.

 

**ITEM 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

*Certain statements that the Company may make from time to time, including all statements contained in this report that are not statements of historical fact, 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,” “should” 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, FDA and other regulatory applications and approvals, 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, the Company include the following, some of which are described in greater detail below:  the decision of customers to defer capital spending; the inability of customers to efficiently integrate our instruments into their blood banking operations; increased competition in the sale of instruments and reagents; product development or regulatory obstacles; the ability to hire and*

 

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*retain key managers; changes in interest rates and foreign currency exchange rates; changes in demand for the Company’s human collagen product; the ability of the Company’s Japanese subsidiary to attain expected revenue, gross margin and net income levels; delays in regulatory approvals or other unforeseen delays related to the Company’s plans to move Houston manufacturing operations to another Company facility; higher than expected costs related to the planned closure of the Houston facility; higher than expected manufacturing consolidation costs; problems in efficiently producing products after the consolidation; the outcome of any legal claims known or unknown; 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. The Company cautions that historical results should not be relied upon as indications of future performance. The Company assumes no obligation to update any forward-looking statements.*

 

**CriticalAccounting Policies**

 

*General*

 

Wehave identified the policies below as critical to our business operations andthe understanding of our results of operations. The impact and any associatedrisks related to these policies on our business operations is discussedthroughout Management’s Discussion and Analysis of Financial Condition andResults of Operations where such policies affect our reported and expectedfinancial results. For a detailed discussion on the application of these andother accounting policies, see notes to the Condensed Consolidated Financial Statementsof this Quarterly Report on Form 10-Q and notes to the consolidated financialstatements and the MD&A contained in our 2005 Annual Report on Form 10-Kfor the fiscal year ended May 31, 2005. Note that our preparation of this Form 10-Qrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of our financial statements, and the reported amounts of revenueand expenses during the reporting period. Actual results could differ fromthose estimates, and certain assumptions could prove to be incorrect. Seniormanagement has discussed the development and selection of critical accountingestimates and related disclosure in this Management’s Discussion and Analysisof Financial Condition and Results of Operations disclosure with the AuditCommittee of the Board of Directors.

 

*RevenueRecognition*

 

TheCompany recognizes revenue when the following four basic criteria have beenmet:  (1) persuasive evidence of anarrangement exists; (2) delivery has occurred or services are rendered; (3) thefee is fixed and determinable; and (4) collectibility is reasonablyassured. Should changes in conditions cause management to determine thesecriteria are not met for certain future transactions, revenue recognized forany reporting period could be adversely affected.

 

•                  Reagent sales

 

Revenuefrom the sale of the Company’s reagents in the U.S. market is generallyrecognized upon shipment when both title and risk of loss transfer to thecustomer upon shipment. Revenue from the sale of the Company’s reagents in theexport market is recognized FOB upon customs clearance at which time both titleand risk of loss transfer to the customer.

 

•                  Human collagen and collagen by-productsales

 

Revenuefrom the sale of the Company’s human collagen product and from the sale ofby-products of collagen is recognized upon shipment and either passage of a10-day inspection period (or, for by-products of collagen, passage of a 30-dayinspection period), or upon receipt of notification of customer acceptance. Inaccordance with a revenue-sharing agreement between the Company and the Company’shuman collagen customer, revenue from the sale of by-products is allocated66.7% to the Company and 33.3% to the collagen customer.

 

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•                  Medical instrument sales

 

Revenuefrom the sale of the Company’s medical instruments is generally recognized upondelivery and completion of contractual obligations relating to training and/orinstallation based on terms of the related agreements. Revenue from rentals ofthe Company’s medical instruments is recognized over the life of the rentalagreement. Instrument service contract revenue is recognized over the life ofthe contract.

 

TheCompany recognizes revenue on the sale of medical instruments in accordancewith Emerging Issues Task Force (“EITF”) Issue No. 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables*, for agreements entered into beginning in the secondquarter of fiscal year 2004. The Company’s medical instrument sales contractsinvolve multiple deliverables, including the sale or rental of an instrument(including installation and training), the subsequent servicing of theinstrument during the first year, reagent products provided to the customerduring the validation period and, in some cases, price guarantees forconsumables purchased during the contract period and/or a software interface tobe provided to the customer. The Company has determined the fair value ofcertain of these elements, such as training, validation reagents, and firstyear service. The portion of the instrument sales price applicable to theinstrument itself is recognized upon shipment and completion of contractualobligations relating to training and/or installation based on the terms of therelated agreement. The Company believes it not possible to determine the fairvalue of price guarantees. If the agreement contains price guarantees, theentire sales price is deferred and recognized over the guarantee period. If theagreement does not include any price guarantees, the sales price in excess ofthe fair values of training, validation reagents, and service is allocated tothe instrument itself using the residual method. The fair value of at least onecustomer training session is recognized as revenue when the instrument itselfis recognized, provided the training has been provided. If multiple training sessionsare contractually provided for, and not all training has been complete at thetime the instrument revenue is recognized, additional training revenue isrecognized upon delivery. The fair value of reagent products provided to thecustomer during the validation period is also recognized when the instrumentitself is recognized. The fair value of first year service is deferred andrecognized over the first year of the contract. The allocation of the totalconsideration received based on the estimated fair value of the units ofaccounting requires judgment by management.

 

Incertain limited situations involving third-party leasing arrangements, theCompany enters into a repurchase agreement whereby if the ultimate customerterminates the lease, the Company agrees to repurchase the instrument for anamount equal to the remaining unpaid lease payments owed to the third-partyleasing company. In these limited situations, the Company continues to deferthe revenue related to the sale and subsequently recognizes the revenue overthe lease term as the lease payments are made to the third-party leasingcompany and it is clear that the ultimate customer has not terminated therelated lease. In prior periods, the Company also deferred the correspondingcost of these instrument sales and recognized the costs over the same period asthe related revenue. During the fiscal quarter ended February 28, 2005,the Company determined that it was more appropriate to recognize the instrumentcosts in these deferral situations when the instrument has been installed andwritten acceptance has been received from the customer. Accordingly, during thefiscal quarter ended February 28, 2005, the Company recorded additionalcost of sales totaling approximately $327,000, which was related to priorquarters but which was not material to any single quarter. The Company nowrecords all instrument costs at the time the instrument is installed andaccepted by the customer and title has been legally transferred to thecustomer.

 

•                  Sales subject to a plan offactoring

 

Sales subject to a plan of factoring are recorded attheir net realizable value (defined as gross sales less the annual estimatedcost of factoring the sale). Should the factored sale remain uncollected by thefactor at the end of one year, an estimate of the additional factoring discountis made and recorded monthly as an additional reduction of sales revenue.

 

•                  Shipping and handling charges

 

Theamounts billed to customers for shipping and handling charges are recognized innet sales upon shipment. The associated cost of these shipments is reported inthe operating cost section of the statements of income as distributionexpense as incurred.

 

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*Allowancefor Doubtful Accounts*

 

TheCompany records an allowance for doubtful accounts based on specificallyidentified amounts that it believes to be uncollectible. The Company alsorecords an additional allowance based on certain percentages of its agedreceivables, which are determined based on its experience and assessment of thegeneral financial conditions affecting its customer base. If the Company’sactual collections experience changes, revisions to its allowance may berequired. The Company has a large number of customers with individually smallamounts due at any given balance sheet date. Any unanticipated change in thecreditworthiness of any such customer or other matters affecting thecollectibility of amounts due from such customers would not have a materialeffect on the Company’s results of operations in the period in which suchchanges or events occur. After the Company’s attempts to collect a receivablehave failed, the receivable is written off against the allowance.

 

*Inventory*

 

Inventoriesare stated at the lower of cost or market determined on a first-in, first-out basis.Cost includes material, labor and manufacturing overhead. The Company uses astandard cost system as a tool to monitor production efficiency. The standardcost system applies estimated labor and manufacturing overhead rates toinventory based on budgeted production and efficiency levels, staffing levelsand costs of operation, based on the experience and judgment of management. Actualcosts and production levels may vary from the standard established, andare charged to the consolidated statement of operations as a component of costof sales. Since U.S. generally accepted accounting principles require that thestandard cost approximate actual cost, periodic adjustments are necessary. Theprovision for obsolete inventory is reviewed on a quarterly basis. All finishedgood reagent products due to expire in less than six months are written down tozero in the period in which this expiration threshold is met. Any raw,intermediate, or finished product that has been quarantined because it hasfailed quality control (QC) is written down to zero in the period in which theproduct fails QC testing. Should the product be successfully reworked and passfinal quality control checks, it is then valued at its standard cost. Obsoleteand quarantined inventory is physically segregated from useable and saleableinventory and destroyed according to regulatory and fiscal guidelines. Nomaterial changes have been made to the inventory policy during the nine-monthperiod ended February 28, 2006.

 

*Goodwill,Intangible Assets and Other Long-Lived Assets*

 

Inassessing the recoverability of the Company’s goodwill and other long-livedassets, we must make assumptions regarding estimated future cash flows andother factors to determine the fair value of the respective assets. If theseestimates or their related assumptions change in the future, we may berequired to record impairment charges for these assets not previously recorded.Management analyzes the Company’s goodwill and intangible assets for impairmenton an annual basis or more frequently if impairment indicators arise.

 

*IncomeTaxes*

 

Inaccordance with SFAS No. 109, *Accounting for IncomeTaxes,* the Company records the estimated future tax effects oftemporary differences between the book and tax bases of its assets andliabilities as well as operating loss and tax credit carry-forwards. The valueof our deferred tax assets reflects our belief that it is more likely than notthat we will be able to generate sufficient future taxable income in certaintax jurisdictions, based on estimates and assumptions. If these estimates andrelated assumptions change in the future, we may be required to recordadditional valuation allowances against our deferred tax assets resulting inadditional income tax expense in our consolidated statements of income. Inassessing the realizability of deferred tax assets, we consider whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized. We consider the scheduled reversal of deferred taxliabilities, projected future taxable income, carry-back opportunities, andtax-planning strategies in making this assessment. We evaluate therealizability of the deferred tax assets and assess the need for additionalvaluation allowances quarterly. No material changes have been made to theincome tax policy during the nine-month period ended February 28, 2006.

 

*Stock-Based Employee Compensation*

* *

In December 2002,the FASB issued SFAS No. 148, *Accounting for Stock-BasedCompensation – Transition and Disclosure – an amendment of FASB Statement No. 123.*SFAS No. 148 provides alternative methods of

 

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transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,SFAS No. 148 amends the disclosure requirements of SFAS No. 123 torequire prominent disclosures in both annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used on reported results. We adopted the transitional disclosurerequirements in the period ended May 31, 2003. See Note 2 to the condensedconsolidated financial statements.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004), *Share-Based Payment*(“SFASNo. 123(R)”), which is a revision of SFAS No. 123,*Accounting for Stock-Based Compensation*. Generally,the approach in SFAS No. 123(R) is similar to the approach described inSFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grantsof employee stock options, to be recognized in the statement of income based ontheir fair values. Pro forma disclosure is no longer an alternative. We arerequired to adopt SFAS No. 123(R) in the first interim period of our fiscalyear ending May 31, 2007 and have concluded that SFAS No. 123(R) willhave a material impact on our financial position and results of operations. Theadoption of this statement should impact net income and earnings per sharesimilar to the pro forma amounts disclosed for the three-month and nine-month periodsended February 28, 2006 and 2005 in Note 2 to the condensed consolidatedfinancial statements. Actual results in future periods, however, may differfrom the pro forma results reflected in Note 2 due to an increase or decreasein grants of employee stock options and/or changes in assumptions, such as theuse of estimated versus actual forfeitures or a change in expected life.

 

Wecurrently account for stock option grants in accordance with APB Opinion No. 25,*Accounting for Stock Issued to Employees.*Accordingly,we recognize compensation expense only if the stock price on the grantmeasurement date exceeds the exercise price (i.e. the grant has intrinsicvalue). In such a case, the intrinsic value of the grant is recognized ascompensation expense over the vesting period of the grant. We have recordedcompensation expense totaling approximately $642,000 and $741,000,respectively, for the three-month and nine-month periods ended February 28,2006.

 

On January 18, 2006,our Board of Directors approved the acceleration of vesting of certainoutstanding stock options previously awarded to certain employees (none of whomare directors or executive officers) under our equity compensation plans. As aresult of this action, options to purchase approximately 207,000 shares of ourCompany’s common stock, which otherwise would have vested from time to timeover the next four years, became immediately exercisable. The acceleratedoptions have exercise prices ranging from $30.05 to $35.30 per share, which isgreater than $26.83, the closing price of our Company’s common stock on theNasdaq National Market on January 17, 2006, the day before the Board ofDirectors approved the acceleration. Under the recently issued Financial AccountingStandards Board Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS123R”), we will be required to treat unvested stock options as an expensebeginning June 1, 2006. The primary reasons for accelerating the vestingof these options were (i) to reduce the cumulative non-cash compensationexpense that we would have otherwise been required to recognize in futureperiods as a result of the adoption of SFAS 123R, and (ii) to enhance theperceived value of the accelerated options, all of which were out-of-the-moneyat the time of the acceleration, to the employees who hold such options.

 

As a result of thisdecision, during the quarter ended February 28, 2006, the Company recordedcompensation expense of approximately $642,000, which represented the remainingunearned compensation for these options and which was being expensed over thevesting periods of these options.

 

**Overview**

 

Founded in 1982, Immucor develops,manufactures and sells a complete line of reagents and automated systems usedprimarily by hospitals, clinical laboratories and blood banks in a number oftests performed to detect and identify certain properties of the cell and serumcomponents of human blood prior to blood transfusion. Our strategy is tostrengthen our leadership position in the automation of blood bank testing bycontinuing to expand our base of installed instruments. To facilitateinstrument placements, we offer customers a selection of automated analyzers,which address the various needs of low, medium, and high-volume testingfacilities. We utilize a “razor/razorblade” business model. Our instruments aredesigned to operate with our proprietary reagents. Therefore, once a customerprocures an instrument from us, the customer is likely to continue to purchaseproprietary reagents from us for use with the instrument on a going-forwardbasis. In order to satisfy the broad spectrum of customers’ operational andfinancial criteria, we intend to continue to offer several instrumentprocurement options, including third-party financing leases, direct sales andreagent rentals and to expand the range and price points of our instrumentofferings.

 

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Forfiscal 2006, we are continuing to focus on improving gross margins on our productsthrough achieving continued benefits from strategies already implemented priorto May 31, 2005, as well as through the implementation of new strategies. Ourgross margin increased to 68% for the quarter ended February 28, 2006,from 63% for the quarter ended February 28, 2005. Gross margin for the nine-monthperiod ended February 28, 2006 increased as well, from 59% for the prioryear period to 65%.

 

As further discussedbelow under “Results of Operations,” the improvement in revenues and grossmargins during the quarter ended February 28, 2006, as compared to theprior year period, was due primarily to the following:

 

•                  Reagent price increases, attributablein part to the cancellation in January 2005 of supply agreements withtwo group purchasing organizations which annually contributed approximately $25million to our revenues, in order to increase member purchasing prices as wellas reduce administrative fees associated with these contracts;

 

•                  Increased Capture reagent revenues,driven primarily by the kit-to-component marketing changeover implemented inthe third quarter of fiscal 2005, as well as placement of additionalinstruments which require use of Capture reagents; and

 

•                  Increased manufacturing efficienciesdue in part to the continued elimination of a number of redundant productspreviously manufactured at our three manufacturing facilities.

 

Besides the price increases mentioned above, listed below are the keyfactors which we expect will continue to contribute to improving revenues and grossmargins during the remainder of fiscal 2006:

 

•                  Impact ofGalileo increased market penetration

 

We expect Capture reagent revenues to continue toincrease in fiscal 2006 over fiscal 2005, due to the continued impact of fiscal2005 Galileo placements as well as expected new placements in fiscal 2006. Asof February 28, 2006, we had received purchase orders for a total of 339Galileo instruments worldwide (an increase of 41 in the quarter): 222 inEurope, 115 in North America and 2 in Japan. In addition, service revenue isexpected to continue to increase as the service warranty periods for prior yearGalileo placements expire and additional service contracts are purchased bycustomers.

 

•                  Increased Japanese marketpenetration 

 

On July 5,2005, we acquired Immucor-Kainos, Inc. from our former Japanesedistributor, Kainos Laboratories, Inc. (“Kainos”). We believe theacquisition of this business is a key step towards further penetrating theJapanese transfusion diagnostics market, the third largest such market in theworld after Europe and the United States. The results of this subsidiary havebeen included in our consolidated financial statements from July 5, 2005,the date of acquisition.

 

•                  Increased manufacturingefficiencies

 

Weexpect to continue the process of eliminating redundant products currentlymanufactured at our three manufacturing facilities.

 

Additionally, we expect to continue increasing manufacturingefficiencies going into fiscal 2007 through implementation of a ManufacturingExecution System (“MES”), a new sales forecasting system and a new marketingdatabase, the combination of which is expected to drive more accurateforecasting of product demand and resulting material and labor requirements. Thenew marketing database was implemented in June 2005 and the new salesforecasting system was implemented in January 2006. The MES is expected tobe implemented by the end of fiscal year 2007.

 

In addition to the above strategies, we expect to further improve ourcompetitive position going into fiscal 2007 through the launch of our thirdgeneration automated assay instrument, which is currently expected to bereleased in the U.S. and European markets in the third quarter of fiscal 2007.At the American Association for Clinical Chemistry convention held in July 2005,we presented a prototype of our new third generation instrument, the GalileoEchoTM. The Galileo EchoTM is significantly smaller and faster than the ABS2000and, apart from lower throughput, has substantially all of the features ofour larger Galileo product. We believe the new instrument will

 

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appeal to the small- to medium-sized hospital market, the largestsegment of our customers (which number approximately 5,000 to 6,000 worldwide),to which our ABS2000 instrument is currently marketed. Based on the positivecustomer reaction to our planned launch of the Galileo EchoTM in the UnitedStates and Europe in the third quarter of fiscal 2007, we believe we canachieve market share gain and revenue growth through continued Galileoplacements and the launch of the Galileo EchoTM.

 

Additionally, as a resultof the planned closure of the Houston, Texas manufacturing facility scheduledfor December 2007 and the subsequent consolidation of production inNorcross, Georgia and Halifax, Nova Scotia, the Company anticipates asignificant reduction in costs, with the benefits expected to be partiallyrealized in the 2008 fiscal year and fully realized in fiscal 2009 andsubsequent years.

 

**Liquidityand Capital Resources**

 

We have adequate workingcapital and sources of capital to carry on our current business and to meet ourexisting capital requirements. At February 28, 2006, we had workingcapital of $78.7 million, compared to $70.9 million of working capital at May 31,2005. Our cash and cash equivalents were $38.6 million at February 28,2006, as compared to $37.1 million at May 31, 2005. In the first three quartersof fiscal 2006, we paid $4.7 million for the purchase of Immucor-Kainos, repaid$8.1 million long-term debt and spent $22.3 million to repurchase shares of ourcommon stock under the stock repurchase plan. These significant andnon-recurring payments were offset by $42.6 million cash generated throughoperating activities for the nine months ended February 28, 2006, resultingin a marginal improvement in the working capital position and cash and cashequivalents balances.

 

Net cash generated byoperating activities was $42.6 million for the nine months ended February 28,2006, a $23.1 million increase over the $19.5 million generated in the ninemonth period ended February 28, 2005. This increase was primarily driven by$12.2 million, or 78%, increase in net income in fiscal 2006 compared to fiscal2005, net of a non-cash impairment charge and other provisions for closure of theHouston plant amounting to $2.6 million. Positive movement in certaincomponents of working capital further improved the cash generated fromoperating activities; significantly, increase in deferred revenue contributed $6.0million of cash in the first nine months of fiscal 2006 compared to $1.6million in the first nine months of fiscal 2005. A significant portion of ourinstrument sales revenue is deferred. As of February 28, 2006, we had approximately$13.3 million deferred revenue compared to $7.6 million at February 28,2005. Cash from operating activities is affected by level of instrument salesactivity for which revenue is deferred. A significant increase in instrumentsales with deferred revenue tends to have a positive effect on the cashposition even though revenue is not recorded in the same accounting period, anda significant decrease in such sales would have the opposite effect on the cashposition. Another major factor in the increase in the cash generated from the operatingactivities was the improved management of inventory, accounts receivable andaccounts payable; additional capital required for these components of workingcapital during fiscal 2006 was $5.5 million compared to $13.2 million required infiscal 2005.

 

For the nine months endedFebruary 28, 2006, $11.5 million of cash was used in investing activitiesprimarily for the acquisition of Immucor-Kainos, Inc. ($4.7 million) andcapital expenditures ($7.3 million). The $7.3 million in capital expendituresfor the nine-month period ended February 28, 2006 consisted primarily of $1.0million for Galileo and other instruments used for demonstration purposes bythe sales force or placed at customer sites on reagent rental agreements to bedepreciated over the life of the respective agreements, $4.6 million for building,machinery and equipment and furniture additions and upgrades, and $1.7 millionfor computer hardware and software enhancements and replacements. Plannedcapital expenditures for fiscal 2006 total approximately $9.7 million.

 

In July 2005, wepaid Kainos 459 million Japanese Yen (approximately $4.2 million) in cash onsigning of the purchase agreements, and are required to pay an additional 300million Japanese Yen (approximately $2.5 million) over three years with paymentsof 125 million Japanese Yen in each of the first two years and the remaining 50million Japanese Yen in the third year. As of February 28, 2006, we havepaid 97 million Japanese Yen of this liability. In addition, a final payment of441 million Japanese Yen will be made after a three-year transition periodending on June 30, 2008, or earlier upon mutual agreement.

 

Net cash used infinancing activities totaled approximately $29.4 million and $11.4 million for thenine months ended February 28, 2006 and 2005, respectively. We utilized $22.3million to repurchase shares of our common stock and $8.1 million to repay longterm debt. Our cash position and cash generated allowed us to repay all capital

 

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lease obligationsamounting to approximately $1.4 million, and also all of the $6.3 million borrowingsthat were outstanding from financial institutions. We received $1.0 millionfrom the exercise of employee stock options.

 

We instituted a stock repurchase program in June 1998 for up to4,050,000 shares, of which 3,624,750 shares had been purchased prior to the endof the 2004 fiscal year, leaving 425,250 shares available for repurchase. On June 1,2004, the Board of Directors authorized the Company to repurchase up to anadditional 450,000 shares of its common stock. On August 2, 2004, theBoard of Directors authorized the Company to repurchase up to an additional750,000 shares of its common stock. During the quarter ended November 30,2005, the Company repurchased 642,600 shares at an average price per share of$23.07, bringing the aggregate number of shares to 4,889,850 repurchased todate since implementation of the 1998 repurchase program. An aggregate of360,150 shares remained available for repurchase under the program as of November 30,2005. On December 13, 2005, the Board authorized the Company to repurchaseup to additional one million shares, increasing to 1,360,150 shares availablefor repurchase. During the quarter ended February 28, 2006, the companyrepurchased 310,800 shares at an average per share price of $23.75, bringingthe aggregate number of shares repurchased to date under the 1998 repurchaseprogram to 5,200,650. An aggregate of 1,049,350 shares were available forrepurchase under the program as of February 28, 2006.

 

In 2005, we completed an internal investigation into certain events involving our Italian subsidiary. The internal investigation also addressed the underpayment of value added tax (VAT) by our Italian subsidiary. All due but unpaid VAT has now been paid, with required interest, although the Italian tax authorities may impose a penalty for underpayment of VAT. As of February 28, 2006, we had incurred approximately $3.6 million in professional fees associated with this investigation, $1.0 million of which was incurred during the nine-month period ended February 28, 2006. We believe we may incur up to an additional $0.3 million during the remainder of fiscal 2006 in professional fees and/or other costs related to this investigation. As discussed more fully in Note 16 to the Condensed Consolidated Financial Statements, no determination can yet be made as to whether we, in connection with the circumstances surrounding the Italian investigation, will become subject to any fines, penalties and/or other charges imposed by any governmental authority, or any other damages or costs that may arise in connection with these circumstances. Accordingly, no provisions for any liabilities that may result upon closure of this matter have been made in the accompanying financial statements.

 

As discussed in Note 16to the Condensed Consolidated Financial Statements and in Part II, Item 1(Legal Proceedings), certain lawsuits have been filed in the United StatesDistrict Court for the Northern District of Georgia against us and certain ofour current and former directors and officers, alleging violations of thesecurities laws. The court has consolidated these cases for disposition. Webelieve the claims of the plaintiffs in these cases are without merit, andintend to defend the Company vigorously. While we do not currently expect theselawsuits to materially affect our financial condition or results of operations,there can be no assurance of any particular outcome.

 

On October 31, 2005our directors approved a plan to close our Houston, Texas manufacturingfacility. The decision to close the facility was driven by a number of factorsincluding, in particular, the expense of operating two separate FDA licensedmanufacturing facilities. This closure, which is subject to certain regulatoryapprovals, is scheduled to be completed by December 2007. During the secondquarter of fiscal year 2006, we recorded a charge of approximately $2.5million, including approximately $2.4 million for impairment of long-livedassets and approximately $0.1 for severance pay. We recorded a charge ofapproximately $0.1 million in the third quarter of fiscal year 2006. We expectto incur approximately $2.0 million of additional costs to close this facilityconsisting of approximately $0.6 million in costs to consolidate operations,approximately $0.7 million to relocate associated employees and approximately$0.7 million for retention bonuses and other expenses. The costs to consolidateoperations and relocation costs are expensed when incurred and the retentionbonuses are expensed over the period of service necessary to receive such bonuses.

 

We expect that cash andcash equivalents and cash flows from operations will be sufficient to supportoperations and planned capital expenditures for the next 12 months. There areno restrictions on our subsidiaries in the matter of sending dividends, ormaking loans or advances to Immucor.

 

**Resultsof Operations**

 

We generated revenues of$47.1 million and $133.6 million, respectively, for the three-month and nine-monthperiods ended February 28, 2006 compared to $38.0 million and $102.7million, respectively, for the three-month

 

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and nine-month periodsended February 28, 2005. These revenue results represented increases of $9.1million, or 24%, and $30.9 million, or 30%, respectively, over the correspondingfiscal periods in the prior year.

 

Net income for the three-monthand nine-month periods ended February 28, 2006, totaled $11.7 million and$27.8 million, respectively compared to $6.5 million and $15.6 million,respectively for the three-month and nine-month periods ended February 28,2005; the results represented respective increases of $5.2 million, or 81%, and$12.2 million, or 78%, in net income over the corresponding fiscal periods inthe prior year.

 

Diluted earnings pershare were $0.25 for the three-month period ended February 28, 2006compared with diluted earnings per share of $0.14 for the three-month periodended February 28, 2005, an increase of 79%. Diluted earnings per sharewere $0.58 for the nine-month period ended February 28, 2006 compared withdiluted earnings per share of $0.33 for the nine-month period ended February 28,2005, an increase of 76%.

 

For the three-monthperiod ended February 28, 2006, the effect on net sales and gross marginof the change in the Euro exchange rate was an approximate decrease of $0.9million and $0.4 million, respectively, and minimal on net income. For the nine-monthperiod ended February 28, 2006, the effect on net sales and gross marginof the change in the Euro exchange rate was an approximate decrease of $1.4million and $0.6 million, respectively, and minimal on net income.

 

United States operationscontinue to generate a majority of our revenue and operating income. U.S.operations generated 77% and 92%, respectively, of our revenue and operatingincome in the nine months ended February 28, 2006 compared to 74% and 82%,respectively, in the corresponding periods of fiscal year 2005.

 

Revenues

 

Revenuefor the fiscal third quarter totaled $47.1 million, up 24% from $38.0 millionin the corresponding period in the prior fiscal year. The $9.1 million increasewas primarily the result of price increases. Gross margin improved during thequarter to 68.2%, up from 63.1% in the prior year quarter.

 

Traditionalreagent revenues grew to $34.0 million compared to $25.8 million in the prioryear quarter, a 32% increase. The growth in traditional reagent revenue (i.e.products not utilizing the Company’s patented Capture® technology) occurredmainly as a result of price increases, the effect of which was marginallyoffset (by approximately $1.2 million) by a slight decrease in sales volume inthe United States. For the nine-month period ended February 28, 2006, traditionalreagent revenues increased from $69.5 million to $96.9 million, a 39% increase,over the prior year period. This growth for the year-to-date period wasattributable primarily to the price increases, the effect of which wasmarginally offset (by approximately $1.8 million) by a slight decrease in salesvolume in the United States. Traditional reagent sales have historically beenour primary source of revenue and still constitute a very significant portionof our business. We expect the significance of this line of products to eventuallydecline as we place more instruments in the market and increase sales of our Capture®products.

 

Capture® product saleswere $8.6 million in the three-month period ended February 28, 2006compared to $8.0 million in the three-month period ended February 28, 2005.For the nine-month period ended February 28, 2006, Capture® product saleswere $24.9 million as compared to $21.0 million for the same period in fiscal2005. The increase is primarily attributable to the change of marketingstrategy in January 2005 from selling products in kits to sellingindividual components and to price increases. Sales of Capture® products are largelydependent on the number of active instruments requiring the use of Capture®reagents placed with customers and in operation. As we succeed in placing moreinstruments in the market, we expect revenue from Capture® products to continueto increase.

 

Salesof instruments were $3.6 million in the third quarter of 2006 compared to $3.4million in the third quarter of 2005. Most instrument sales in the UnitedStates are recognized over the life of the underlying reagent contract, whichis normally five years. In the quarter ended February 28, 2006approximately $1.5 million of instrument sales were deferred in this manner. Asof February 28, 2006, deferred instrument revenues, including service revenues,totaled $13.3 million. Instrument revenues for the nine-month period ended February 28,2006 totaled $8.7 million as compared to $9.9 million in the prior year period.This reduction was primarily due to additional deferrals required for the salescontracts which included price guarantees. We expect to put more Galileoinstruments in the market and also expect to begin generating revenues during fiscal2007 from the sale of our new Galileo EchoTMinstruments which will be targeted to small and mediumsize customers.

 

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Humancollagen sales currently form a very small part of our business. Humancollagen sales were $0.8 million, a $0.1 million increase over the prior yearquarter. Human collagen sales were $3.0 million for the nine month period endedFebruary 28, 2006 as compared to $2.3 million for the same period infiscal 2005.

 

Gross Margin

 

Overallgross margin improved during the quarter ended February 28, 2006 to arecord 68%, up from 63% in the prior year quarter. Gross margin on traditionalreagents for the quarter ended February 28, 2006 increased to 72% for thecurrent quarter from 66% for the prior year quarter as a result of the priceincreases discussed above as well as from manufacturing efficiencies. The grossmargin on Capture® products was 83% for the current quarter, a slightimprovement (0.3%) compared to the prior year quarter. The gross margin oninstruments, including the impact of the cost of providing service was 11% forthe current quarter, compared to 6% for the same quarter last year. Instrumentgross margin in the current quarter was negatively impacted by deferral of $1.5million of revenue from 10 instrument sales while the entire cost of sales of $0.8million on those instrument sales was expensed in the current quarter. Thegross margin on human collagen sales was 25% during the quarter compared to 30%in the prior year quarter.

 

Overall gross marginimproved during the nine-month period ended February 28, 2006 to 65%, upfrom 59% in the prior nine-month period ended February 28, 2005. Grossmargin of 70% on traditional reagents for the nine-month period ended February 28,2006 was higher than the 60% achieved in the prior year period, primarily dueto benefits from higher prices and manufacturing efficiencies. The gross marginon Capture® products improved to 81% from 79% in the prior nine-month period. Inthe case of instruments, comparing gross margin percentages from period toperiod can be misleading because of the way revenue and cost for certain typesof instrument sales are recorded. The cost of instruments where sale contracts haveprice guarantee clauses are expensed when a sale is made, but the relatedrevenue is deferred and recorded as income over the term of the agreement. Forthe nine months ended February 28, 2006, the gross margin on instrumentswas a negative 14% as compared to 14% in the nine-month period in the prioryear; the decrease in gross margin was primarily due to an increase in the executionof sales contracts for which revenue is deferred over the term of the contract butfor which the full cost of these instruments is recorded at the time ofexecution. During the nine month period ended February 28, 2006, the costexpensed for these contracts exceeded revenue recognized for instrument sales,resulting in a negative gross margin. The gross margin on human collagen sales of28% during the nine months ended February 28, 2006 remained the same as inthe corresponding prior year period.

 

Operating Expenses

 

Research and development expenses were $0.9 million inthe third quarter, down 13% compared to the prior year quarter. For the nine-monthperiod ended February 28, 2006, we spent $3.4 million on research anddevelopment as compared to $3.3 million in the prior year period. Spending, aswe reached the final phase of development of Galileo EchoTM, for the new thirdgeneration instrument targeted for the small to medium hospital market, was $0.1million and $0.6 million, respectively, for the three-month and nine-monthperiods ended February 28, 2006. In these same periods in the prior year, $0.4million and $1.3 million, respectively, were spent on Galileo EchoTM.

 

Selling and marketingexpenses increased $0.2 million and $2.4 million, respectively, over the three-monthand nine- month periods ended February 28, 2005. The Japanese jointventure, which did not exist in the prior year, added $0.7 million and $2.1million to selling and marketing expenses for the three-month and nine-monthperiods in the current fiscal year.

 

Distributionexpenses decreased by approximately $0.1 million for the three-month period andby approximately $0.2 million for the nine-month period ended February 28,2006 compared to the corresponding periods ended February 28, 2005.

 

General andadministrative expenses decreased by $1.2 million for the third quarter of 2006as compared to the prior year quarter, mainly due to approximately $1.1 millionhigher legal and audit fees associated with the internal investigation relatingto events in Italy incurred in the third quarter of fiscal 2005. For the nine-monthperiod in the current fiscal year, general and administrative expensesincreased by $2.8 million compared to the previous year period with legal andaudit fees and staff costs accounting for approximately $2.6 million of thisincrease.

 

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Our decision toconsolidate our manufacturing operations resulted in restructuring charges of$2.5 million and $0.1 million in the second quarter and third quarter of fiscalyear 2006, respectively. Of the total charge of $2.6 million, $2.4 million wasfor the impairment of long-lived assets at the Houston, Texas facility. Norestructuring charges were recorded in the fiscal year 2005.

 

Amortization expense andother expenses increased approximately $0.2 million for the three-month periodended February 28, 2006, but decreased by approximately $0.3 million forthe nine-month period ended February 28, 2006 over the prior year periodsbecause the prior year periods included a $0.5 million charge related toimproperly recorded transactions on the Company’s Italian subsidiary’s booksdiscovered during the Company’s internal investigation into activities in thatsubsidiary. See Note 16 to the Condensed Consolidated Financial Statements.

 

We record monthlyaccruals for annual staff bonuses which are declared and paid only if operatingincome and net income targets set in annual budgets are achieved. If, at anytime during a fiscal year it becomes apparent to us that the annual targetswill not be achieved and no bonuses will be paid, then the provision isreversed. We determined, in March 2006, that our revenues for fiscal 2006were unlikely to be sufficient to achieve the budgeted targets. Accordingly, incompliance with the provisions of the SFAS No. 5, *Accountingfor Contingencies*, we determined that the probability of achievingthe fiscal year 2006 targets was remote, and reversed approximately $1.0million of the bonus provision in the third quarter of the fiscal year 2006 whichwe had previously accrued in the first two quarters of the fiscal year 2006 withcorresponding credits to Cost of Sales ($0.3 million), Sales and Marketingexpenses ($0.2 million), General and Administrative expenses ($0.3 million) andResearch and Development expenses ($0.2 million).

 

Net Income and Earningsper Share

 

Higher sales, improvedmargins and only a marginal increase in expenses resulted in net income for thethird quarter of $11.7 million, up 81% from $6.5 million for the same quarterlast year. For the nine-month period, the net income was $27.8 million comparedto $15.6 million in the prior year period, an increase of 78%. For the thirdquarter, diluted earnings per share totaled $0.25, up from $0.14 for the sameperiod last year; for the nine-month period, diluted earnings per share were$0.58 per share compared to $0.33 for the same period last year.

 

**ITEM 3. Quantitativeand Qualitative Disclosures about Market Risk.**

 

Therehave been no material changes regarding the Company’s market risk position sincethe filing of its Annual Report on Form 10-K for the fiscal year ended May 31,2005, except for additional foreign currency exchange risks associated with Immucor-Kainos, Inc.,the Company’s new subsidiary. This additional risk relates to potentialvolatility in the exchange rates for the Japanese Yen, the local currency forthis new subsidiary which had total assets of approximately $15.1 million at February 28,2006. Also, future payment obligations totaling $3.5 million related to the acquisitionof Immucor-Kainos are denominated in Japanese Yen, and are therefore subject toforeign currency exchange risk. For further details regarding the quantitativeand qualitative disclosures about market risk, see Item 7A-Quantitative andQualitative Disclosures About Market Risk, contained in the Company’s AnnualReport on Form 10-K.

 

**ITEM 4. Controls and Procedures.**

 

*(a) Evaluationof Disclosure Controls and Procedures*

 

The Company’s newmajority owned subsidiary – Immucor-Kainos, Inc. – was excluded frommanagement’s quarterly evaluation as of August 31, 2005, November 30, 2005and February 28, 2006, due to the subsidiary being only recently acquiredon July 5, 2005. The Company is currently in the process of implementingits computer systems at Immucor-Kainos, Inc. This subsidiary will beincluded in future evaluations of the effectiveness of the Company’s disclosurecontrols and procedures when these systems have been implemented, beginning nolater than the quarter ending August 31, 2006.

 

As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005, the Company carried out an evaluation, under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) under the Exchange Act as of May 31, 2005, the end of its most recent fiscal year. Based upon that evaluation,

 

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the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of May 31, 2005, and identified the following control deficiencies in the Company’s internal control over financial reporting:

 

*RevenueRecognition and Billing Processes.*Management concluded that as of May 31, 2005,material weaknesses existed related to ineffective controls over the Company’srevenue recognition and billing processes resulting from: the lack of controlsover the review of all arrangement documentation in order to properly recordrevenue, the lack of controls over ensuring that all arrangement terms andconditions are known for proper revenue recognition evaluation, and the lack ofpersonnel with sufficient skills and experience to properly record revenue frommulti-element arrangements.

 

*FinancialStatement Close Process.*Management also concluded that as of May 31, 2005, materialweaknesses existed related to the Company’s financial statement close processresulting from: the lack of adequate processes, controls, review and approvalprocedures to ensure that financial statements and disclosures generated forexternal purposes are prepared in accordance with generally accepted accountingprinciples; the lack of personnel with sufficient skills and experience toproperly analyze certain technical accounting issues in accordance withgenerally accepted accounting principles; and the lack of adequate policies andprocedures in certain international locations with respect to preparing journalentries and reconciling certain significant accounts.

 

TheCompany’s management concluded that the control deficiencies described aboveconstitute “material weaknesses” as defined by Section 404 of theSarbanes-Oxley Act of 2002. As a result of these control deficiencies,management was required to record material adjustments to the Company’sfinancial statements during the fiscal year ended May 31, 2005, andmanagement concluded that the Company’s internal control over financialreporting was ineffective as of May 31, 2005. Therefore, Ernst &Young LLP, the Company’s then independent registered public accounting firm,issued an adverse opinion with respect to the Company’s internal control overfinancial reporting in the Company’s Annual Report or Form 10-K for thefiscal year ended May 31, 2005.

 

Therewere no material adjustments to the Company’s interim financial statements forthe periods ended August 31, 2005, November 30, 2005 or February 28,2006 relating to these control deficiencies.

 

Managementhas completed the remediation work on the material weaknesses mentioned above. Thisinvolved the implementation of corrective measures in the following areasidentified as requiring remediation:

 

•                             Formalizing controls around periodicmonitoring of impairment indicators for inventory and long-lived assets;

 

•                             Strengthening the policies and proceduressurrounding fixed assets, including periodic physical counts andreconciliations of significant assets;

 

•                             Strengthening the controls related tostock option grant authorization, accounting and reporting;

 

•                             Strengthening the review and approvalprocess around the Company’s sales contracts to ensure that they meet thecriteria for revenue recognition, and seeking additional internal expertise inthe area of revenue recognition;

 

•                             Expanding review procedures at eachquarter end in support of footnote disclosures through the establishment of astructured disclosure committee that was appointed by the Company’s seniormanagement and met for the first time in connection with the filing of theCompany’s Form 10-Q for the quarter ended February 28, 2006;

 

•                             Strengthening the controls and reviewprocedures relating to income taxes;

 

•                             Further addition of internal audit staffto increase the periodic review of compliance with management’s stated policiesand procedures; and

 

•                             Further addition of accounting staff andexpertise to improve the Company’s control environment and to compensate forthe weaknesses identified.

 

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Theadditional controls described above that have been put in place as a result ofthe remediation work are currently subject to testing and evaluation. It ispossible that these controls may not be assessed as fully effective inaccomplishing all control objectives at all times. The effectiveness of thesecontrols will be assessed by management as at May 31, 2006 in line with Section 404of the Sarbanes-Oxley Act of 2002.

 

*(b)  Changes in Internal Control over FinancialReporting*

 

In August 2005,Steven C. Ramsey resigned as the Company’s Chief Financial Officer and wasreplaced on an interim basis by Patrick D. Waddy, who was subsequentlyappointed as the Company’s Chief Financial Officer on December 16, 2005.

 

Other than in connectionwith the foregoing and the remediation actions described in (a) above,management’s quarterly evaluation as of February 28, 2006 identified nochanges in the Company’s internal control over financial reporting during the thirdfiscal quarter that materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**PART II**

 

**OTHER INFORMATION**

 

**ITEM 1. Legal Proceedings.**

 

As previously reported,our Italian subsidiary and Dr. Gioacchino De Chirico, the former President ofthe subsidiary, have been the subjects of a criminal investigation in Milan,Italy centered on payments by several companies to certain Italian physiciansallegedly in exchange for favorable contract awards by their hospitals. Thepublic prosecutor in Milan has announced the completion of his investigationinto these payments, and has alleged that Dr. De Chirico, as the formerPresident of the subsidiary, participated in those payments to gain favorableprocurement action at the physicians’ hospitals. Under Italian law thesubsidiary itself can be held responsible for the actions allegedly taken byDr. De Chirico. Dr. De Chirico has exercised his right to present furtherevidence to the prosecutor and dispute the allegations. If the prosecutordecides to bring formal charges, he would present them to a judge and the judgewould then decide whether the case would be sent to trial. We believe theprosecutor intends to present formal charges against the subsidiary and Dr. DeChirico, and that the judge will send the case to trial. However, thesubsidiary and Dr. De Chirico may seek a plea-bargaining agreement with theprosecutor. If Dr. De Chirico and the subsidiary do not settle this matter, webelieve it could be up to two years before the case went to trial.

 

In 2005 the AuditCommittee of our Board of Directors completed an internal investigationprompted by the Italian investigation and determined that a €13,500 payment toa physician as the organizer and chairman of a convention sponsored by theItalian subsidiary was not improper, but the invoice for those servicesresulted in a violation of the books and records provisions of the ForeignCorrupt Practices Act. The investigation also concluded that payments toanother physician totaling approximately $47,000 may have been related not onlyto the performance of certain services but also to the introduction of aninstrument system into that physician’s hospital and perhaps other hospitals.The SEC has issued a formal investigative order in these matters, we have madea number of voluntary submissions to the SEC and we continue to cooperate withthe SEC. The SEC has not expressed to us any conclusions about the ultimateoutcome of its investigation. No determination can yet be made as to whether,in connection with these circumstances, we will become subject to any fines,penalties and/or other charges imposed by any governmental authority, or anyother damages or costs that may arise in connection with these circumstances.

 

BetweenAugust 31 and October 19, 2005, a series of ten class-actionlawsuits were filed in the United States District Court for the NorthernDistrict of Georgia against the Company and certain of its current and formerdirectors and officers alleging violations of the securities laws. The Courthas consolidated these cases for disposition under the caption *In re Immucor, Inc. Securities Litigation,*File No. 1:05-CV-2276-WSD, designated lead plaintiffs, permitted thefiling of an amended consolidated complaint, and established a schedule forbriefing our motion to dismiss the claims. The consolidated complaint, broughton behalf of a putative class of shareholders who purchased our stock betweenAugust 16, 2004 and August 29, 2005, alleges that our stock pricesduring that period were inflated as a result of material misrepresentations oromissions in our financial statements and other public announcements regardingour business. On March 7, 2006, we timely moved to dismiss theconsolidated complaint. Discovery has not yet begun. The Court made nodetermination whether any of the plaintiffs’ claims have merit or should beallowed to proceed as a class action. We believe the claims are without merit,and intend to vigorously defend the Company. While we do not currently expectthese lawsuits to materially affect our financial condition or results ofoperations, there can be no assurance of any particular outcome.

 

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InSeptember 2005, F. Baragano Pharmaceuticals filed suit against the Companyin the U.S. District Court for the District of Puerto Rico, alleging that theCompany cancelled a distribution contract without just cause, and is seeking$350,000 plus interest, costs and attorney fees. The Company is defendingitself against this lawsuit, which is in the early stages of discovery. At thistime we are able to determine the probability of a favorable or unfavorableoutcome or an estimate of the amount or range of possible loss.

 

TheCompany’s compliance with its Affirmative Action Plan is being audited by theUS Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP)concerning personnel activity from July 1, 2003 through June 30, 2004and July 1, 2004 through February 13, 2005. If OFCCP determines thata violation of Federal antidiscrimination statutes has occurred, it has thepower to order remedial action. Due to the preliminary nature of this matter,we are not yet able to determine whether the Company will become subject to anysuch remedial action.

 

Otherthan as set forth above, the Company is not currently subject to any materiallegal proceedings, nor, to the Company’s knowledge, is any material legalproceeding threatened against the Company. However, from time to time, theCompany may become a party to certain legal proceedings in the ordinarycourse of business.

 

**ITEM 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

 

The Company repurchased shares of its CommonStock under the Company’s stock repurchase plan during the quarter ended February 28,2006 as indicated in the table below:

 
| ** **                  | ** ** | ** **           | ** ** | ** **        | ** ** | **Shares Purchased as Part** | ** ** | **Maximum # of Shares**   | ** ** |
|-----------------------------|------------|----------------------|------------|-------------------|------------|------------------------------|------------|---------------------------|------------|
| ** **                  | ** ** | ** **           | ** ** | **Average Price** | ** ** | **of Publicly Announced**    | ** ** | **Available to Purchase** | ** ** |
| **Period**                  | ** ** | **Shares Purchased** | ** ** | **Per Share**     | ** ** | **Plan**                     | ** ** | **Under the Plan**        | ** ** |
|                        |       |                 |       |              |       |                         |       |                      |       |
| December 1  - 31, 2005 |       | 310,800              |       | $                 | 23.75      |                         | 5,200,650  |                      | 1,049,350  |   |
| January 1 -  31, 2006  |       | —               |       | $                 | —     |                         | —     |                      | —     |   |
| February 1  - 28, 2006 |       | —               |       | $                 | —     |                         | —     |                      | —     |   |

 

The Company’s stockrepurchase program was first instituted in June 1998 for up to 4,050,000shares, of which 3,624,750 shares had been purchased prior to the end of theCompany’s 2004 fiscal year, leaving 425,250 shares available for repurchase. OnJune 1, 2004, the Company announced that the Board of Directors hadauthorized the repurchase of an additional 450,000 shares under the program,and on August 2, 2004, the Company announced that the Board of Directorshad authorized the repurchase of an additional 750,000 shares under the program.On December 13, 2005, the Board authorized the Company to repurchase up toan additional one million shares, increasing to 1,360,150 the number of sharesavailable for repurchase under the plan. As of February 28, 2006,1,049,350 shares were available for repurchase. The Company’s stock purchaseplan does not have an expiration date.

 

**ITEM 4. Submissionof Matters to a Vote of Security Holders**

 

The Company held itsAnnual Meeting of Shareholders on December 13, 2005. The following is asummary of the matters voted on at that meeting:

 

The shareholders voted onthe election of seven directors, all incumbent directors of the Company, toserve for a one-year term or until their successors are duly elected andqualified. Each of these directors was elected by the affirmative vote of aplurality of the votes cast at the Annual Meeting. The number of shares castfor and the number of shares withheld, with respect to each of these persons,were as follows:

 

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| **Name**                        | ** ** | **Votes For** | ** ** | **Votes  Withheld** | ** ** |
|---------------------------------|------------|--------------------|------------|---------------------|------------|
|                            |       |               |       |                |       |
| Edward L. Gallup                |       | 39,573,045         |       | 3,178,119           |       |
|                            |       |               |       |                |       |
| Dr. Gioacchino  De Chirico |       | 39,173,090         |       | 3,578,074           |       |
|                            |       |               |       |                |       |
| Ralph A. Eatz                   |       | 37,167,504         |       | 5,583,660           |       |
|                            |       |               |       |                |       |
| Joseph E. Rosen                 |       | 40,193,130         |       | 2,558,034           |       |
|                            |       |               |       |                |       |
| Roswell S.  Bowers              |       | 38,139,341         |       | 4,611,823           |       |
|                            |       |               |       |                |       |
| John A. Harris                  |       | 38,140,161         |       | 4,611,003           |       |
|                            |       |               |       |                |       |
| Hiroshi Hoketsu                 |       | 41,715,016         |       | 1,036,148           |       |

 

At the Annual Meeting,the shareholders also voted to approve the Immucor, Inc. 2005 Long TermIncentive Plan. The number of shares cast for, votes cast against, abstentionsand broker non-votes, with respect to this matter, were as follows:

 

| Votes For        |   | 30,366,429 |   |
|------------------|--------|------------|--------|
|             |   |       |   |
| Votes Against    |   | 6,304,983  |   |
|             |   |       |   |
| Abstentions      |   | 243,144    |   |
|             |   |       |   |
| Broker Non-votes |   | 5,836,608  |   |

 

At the Annual Meeting,the shareholders also voted to amend the Company’s Articles of Incorporation toincrease the number of shares of Common Stock, par value $0.10, that theCompany is authorized to issue from 60,000,000 to 120,000,000. The number ofshares cast for, votes cast against, and abstentions with respect to thismatter were as follows:

 

| Votes For     |   | 34,739,834 |   |
|---------------|--------|------------|--------|
|          |   |       |   |
| Votes Against |   | 7,793,198  |   |
|          |   |       |   |
| Abstentions   |   | 218,132    |   |

 

**ITEM 6. Exhibitsand Reports on Form 8-K.**

 

(a)          TheCompany has filed the following exhibits with this report.

 
| 3.1    | Amended and  Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1  to Immucor, Inc.’s Quarterly Report on Form 10-Q filed on January 16,  2001).                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                              |
| 3.2    | Amendment to Amended  and Restated Articles of Incorporation dated November 11, 2004 (incorporated  by reference to Exhibit 3.1 to Immucor, Inc.’s Quarterly Report on Form 10-Q  filed on January 14, 2005). |
|   |                                                                                                                                                                                                                              |
| 3.3    | Amendment to Amended  and Restated Articles of Incorporation dated December 22, 2005.                                                                                                                                             |
|   |                                                                                                                                                                                                                              |
| 3.4    | Amended and  Restated Bylaws (incorporated by reference to Exhibit 3.2 to Immucor, Inc.’s  Annual Report on Form 10-K filed on August 16, 2004).                                                         |
|   |                                                                                                                                                                                                                              |
| 31.1   | Certification of  Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                      |
|   |                                                                                                                                                                                                                              |
| 31.2   | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                      |
|   |                                                                                                                                                                                                                              |
| 32.1   | Certification of  Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                       |
|   |                                                                                                                                                                                                                              |
| 32.2   | Certification of  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                       |

 

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*Thecertifications contained in these exhibits are not “filed” for purposes of Section 18of the Exchange Act [15 U.S.C. 78r], or otherwise subject to the liability ofthat section. Such certifications will not be deemed to be incorporated byreference into any filing under the Securities Act or the Exchange Act, exceptto the extent that the Company specifically incorporates them by reference.

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |                | IMMUCOR, INC.                                            |   |
|--------|---------------------|---------------------------------------------------------------|--------|
|   |                | (Registrant)                                                  |   |
|   |                |                                                          |
|   |                |                                                          |
| Date:  | April 6,  2006 |                                                          | By:    | /s/ Edward L.  Gallup |   |
|   |                | Edward L.  Gallup, Chief Executive Officer                    |
|   |                | (on behalf of  Registrant and as Principal Executive Officer) |
|   |                |                                                          |
|   |                |                                                          |
| Date:  | April 6,  2006 |                                                          | By:    | /s/  Patrick D. Waddy |   |
|   |                | Patrick  D. Waddy, Chief Financial Officer and Secretary      |
|   |                | (Principal  Financial and Accounting Officer)                 |
|        |                     |                                                               |        |  |  |  |

 

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**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        |       | Amendment to Amended and Restated Articles of  Incorporation dated November 11, 2004 (incorporated by reference to Exhibit 3.1  to Immucor, Inc.’s Quarterly Report on Form 10-Q filed on January 14,  2005). |
|       |       |                                                                                                                                                                                                                              |
| 3.3        |       | Amendment to Amended and Restated Articles of  Incorporation dated December 22, 2005.                                                                                                                                             |
|       |       |                                                                                                                                                                                                                              |
| 3.4        |       | Amended and Restated Bylaws (incorporated by  reference to Exhibit 3.2 to Immucor’s Annual Report on Form 10-K  filed on August 16, 2004).                                                                    |
|       |       |                                                                                                                                                                                                                              |
| 31.1       |       | Certification of Principal Executive Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                      |
|       |       |                                                                                                                                                                                                                              |
| 31.2       |       | Certification of Principal Financial Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                      |
|       |       |                                                                                                                                                                                                                              |
| 32.1       |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                        |
|       |       |                                                                                                                                                                                                                              |
| 32.2       |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                        |

 

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*                 Thecertifications contained in these exhibits are not “filed” for purposes of Section 18of the Exchange Act [15 U.S.C. 78r], or otherwise subject to the liability ofthat section. Such certifications will not be deemed to be incorporated byreference into any filing under the Securities Act or the Exchange Act, exceptto the extent that the Company specifically incorporates them by reference.

 

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