Note 1. Nature of Business and Summary of Significant Accounting Policies

12 Months Ended

May 31, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business – Founded in 1982, Immucor, Inc., a Georgia corporation (“Immucor” or the “Company”), develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, reference laboratories and donor centers in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood used for blood transfusion.  The Company operates facilities in the U.S., Canada, Western Europe and Japan.

Consolidation Policy – The consolidated financial statements include the accounts of the Company and all its subsidiaries.  All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Share-Based Compensation – The Company records share-based compensation expense in accordance with FASB Accounting Standard Codification™ (“ASC”) 718, “Compensation – Stock Compensation” (“ASC 718”).  The Company values its share-based payment awards using the Black-Scholes option-pricing model based on grant date fair value estimates.  The expense for each share-based payment award is expensed over the vesting period of the award using the straight-line method. See Note 12 of the notes to the consolidated financial statements for a detailed discussion of share-based compensation.

The Company has calculated its additional paid in capital pool (“APIC pool”) based on the actual income tax benefits received from exercises of stock options granted after the effective date of ASC 718 using the long method. The APIC pool is available to absorb future tax deficiencies subsequent to the adoption of ASC 718.

Concentration of Credit Risk – Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. In order to mitigate the concentration of credit risk, the Company places its cash and cash equivalents with multiple financial institutions. Cash and cash equivalents were $302.6 million and $202.6 million at May 31, 2011 and 2010, respectively, with approximately 83% and 80% of it located in the U.S.

Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. At May 31, 2011, 2010 and 2009, no single customer or group of customers represented more than 10% of total consolidated net sales or trade accounts receivable. The Company controls credit risk through credit limits and monitoring procedures. At May 31, 2011 and 2010, the Company’s accounts receivable balances were $63.3 million and $59.6 million, respectively, with about 58% and 50%, respectively, of these accounts being of foreign origin, predominantly European.  Companies and government agencies in some European countries require longer payment terms as a part of doing business.  This may subject the Company to a higher risk of uncollectiblity.  This risk is considered when the allowance for doubtful accounts is evaluated. The Company generally does not require collateral from its customers.

Concentration of Production Facilities and Supplies – Substantially all of the Company’s reagent products are produced in its Norcross, Georgia facility in the U.S., and its reagent production is highly dependent on the uninterrupted and efficient operation of this facility.  Therefore, if a catastrophic event occurred at the Norcross facility, such as a fire or tornado or if there is a production disruption for an extended period for any other reason, many of those products could not be produced until the manufacturing portion of the facility is restored and cleared by the FDA.  The Company maintains a disaster plan to minimize the effects of such a catastrophe, and the Company has obtained insurance to protect against certain business interruption losses. While the Company purchases certain raw materials from a single supplier, the Company has reliable supplies of most raw materials.

Cash and Cash Equivalents – The Company considers deposits that can be redeemed on demand and investments with an original maturity of three months or less when purchased to be cash and cash equivalents. Generally, cash and cash equivalents held at financial institutions are in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. The Company limits its exposure to credit loss by placing its cash and cash equivalents in liquid investments with high quality financial institutions.

Inventories – Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value).  Cost includes material, labor and manufacturing overhead.  The Company also allocates certain production related general and administrative costs to inventory and incurred approximately $2.8 million, $3.3 million, and $3.0 million of such costs in fiscal 2011, 2010 and 2009, respectively. The Company had approximately $0.9 million and $1.2 million of general and administrative costs remaining in inventory as of May 31, 2011 and May 31, 2010, respectively.

The Company uses a standard cost system as a tool to monitor production efficiency.  The standard cost system applies estimated labor and manufacturing overhead factors to inventory based on budgeted production and efficiency levels, staffing levels and costs of operation, based on the experience and judgment of management.  Actual costs and production levels may vary from the standard established, and variances are charged to the consolidated statement of income as a component of cost of sales.  Since U.S. generally accepted accounting principles require that the standard cost approximate actual cost, periodic adjustments are made to the standard rates to approximate actual costs. No material changes have been made to the inventory policy during fiscal 2011, 2010 or 2009.

Fair Value of Financial Instruments – The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate their fair values.

Property, Plant and Equipment – Property, plant and equipment is stated at cost less accumulated depreciation.  Expenditures for replacements are capitalized, and the replaced items are retired.  Normal maintenance and repairs are charged to operations.  Major maintenance and repair activities that significantly enhance the useful life of the asset are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations.  Depreciation is computed using the straight-line method over the estimated lives of the related assets ranging from three to thirty years.  Carrying values of these assets are evaluated if impairment indicators arise.

Goodwill – In accordance with ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”), goodwill and intangible assets with indefinite lives are tested for impairment annually or more frequently if impairment indicators arise.  Intangible assets that have finite lives continue to be amortized over their useful lives.

The Company evaluates the carrying value of goodwill  and intangible assets with indefinite lives at the end of the third quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using primarily the income, or discounted cash flows, approach. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company’s evaluation of goodwill and intangible assets with indefinite lives completed during fiscal years 2011, 2010 and 2009 resulted in no impairment charges.

Deferred Licensing Costs – Deferred licensing costs with finite lives are amortized over their useful lives. In certain situations the deferred licensing costs are considered to have indefinite lives such as in the countries where the law and regulations are such that the barriers to obtaining a new license are very severe and upfront costs are high but, once the licenses are acquired, effort and costs required to maintain such licenses are minimal. The carrying values of assets with indefinite lives are not amortized but they are evaluated annually for impairment or more frequently if any triggering event which may impair the value of the asset occurs. There was no impairment charge related to deferred licensing costs in fiscal years 2011, 2010 or 2009.

Other Intangible Assets – Other intangible assets includes customer lists, developed product technology, trademarks and trade names.   These intangible assets are amortized over their useful lives.  Carrying values of these assets are evaluated when impairment indicators arise.  There was no impairment charge related to other intangible assets in fiscal years 2011, 2010 or 2009.

Net Sales Relating to Foreign Operations – Sales to customers outside the United States were 32%, 28% and 27% of net sales in fiscal 2011, 2010 and 2009, respectively.

Foreign Currency Translation – The financial statements of foreign subsidiaries have been translated into U.S. Dollars in accordance with ASC 830-30, “Translation of Financial Statements” (“ASC 830-30”).  The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. Dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. Foreign currency translation adjustments resulted in gains of $13.9 million in fiscal 2011 and losses of $5.2 million and $4.0 million in fiscal 2010 and 2009, respectively.

Gains and losses that result from foreign currency transactions are included in ”other non-operating income (expense)” in the consolidated statements of income. In fiscal 2011, 2010 and 2009, we incurred net foreign currency transaction losses of $0.3 million, $0.4 million and $1.9 million, respectively.

Revenue Recognition – In accordance with ASC 605, “Revenue Recognition” (“ASC 605”),the Company recognizes revenue when the following four basic criteria have been met:  (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured.

· Reagent sales

Revenue from the sale of the Company’s reagents to end users is primarily recognized upon shipment when both title and risk of loss transfer to the customer, unless there are specific contractual terms to the contrary.  Revenue from the sale of the Company’s reagents to distributors is recognized FOB customs clearance when both title and risk of loss transfer to the customer.

· Instrument sales and rental

Contracts for the sale or rental of our instruments typically have multiple deliverables.  In such cases, we recognize revenue on the sale of instruments in accordance with ASC 605-25 “Revenue Recognition: Multiple-Element Arrangements” (“ASC 605-25”). Our instrument sales contracts with multiple deliverables include the sale or rental of an instrument (including delivery, installation and training), the servicing of the instrument during the first year, and, in many cases, price guarantees for reagents and consumables purchased during the contract period.  We have determined the fair value of certain of these elements, such as training and first year service. We do not believe it is possible to determine the fair value of reagent contracts with price guarantees at the time of sale.

If the contract contains reagent price guarantees, which our contracts typically do, the entire arrangement consideration is deferred and recognized over the related guarantee period.  For contracts without reagent price guarantees, the sales price in excess of the fair values of training and service is allocated to the instrument itself and recognized upon shipment and completion of contractual obligations relating to training and/or installation. The fair value of a training session is recognized as revenue when services are provided.  The fair value of first year service is recognized over the first year of the contract. The allocation of the total consideration, which is based on the estimated fair value of the units of accounting, requires judgment by management.

In revenue deferral situations, the costs related to the instruments are recognized when the instrument is installed and accepted by the customer.

Revenue from the sale of our instruments without multiple deliverables is generally recognized upon shipment and completion of contractual obligations.  Revenue from rentals of our instruments is recognized over the term of the rental agreement.  Instrument service contract revenue is recognized over the term of the service contract.

Instrument rentals are typically operating leases with 60 month terms.  The assets subject to these leases are depreciated over the term of the lease using the straight line method.

Shipping and Handling Charges and Sales Tax – The amounts billed to customers for shipping and handling of orders are classified as revenue and reported in the statements of income as net sales.  The costs of handling and shipping customer orders are reported in the operating expense section of the consolidated statements of income as distribution expense. For the years ended May 31, 2011, 2010 and 2009, these costs were $16.5 million, $14.8 million and $13.7 million, respectively. Sales taxes invoiced to customers and payable to government agencies are recorded on a net basis with the sales tax portion of a sales invoice directly credited to a liability account and the balance of the invoice credited to a revenue account.

Trade Accounts Receivable and Allowance for Doubtful Accounts – Trade receivables at May 31, 2011 and May 31, 2010 were $63.3 million and $59.6 million, respectively, and were net of allowances for doubtful accounts of $2.2 million and $2.1 million, respectively.  The allowance for doubtful accounts represents a reserve for estimated losses resulting from the inability of the Company’s customers to pay their debts. The collectibility of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns. If it is determined that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material events impacting its business, a specific allowance for doubtful accounts is recorded to reduce the related receivable to the amount expected to be recovered.

Advertising Costs – Advertising costs are expensed as incurred and are classified as selling and marketing operating expenses in the consolidated statements of income.  Advertising expenses were $0.5 million, $0.6 million and $0.7 million for the years ended May 31, 2011, 2010 and 2009, respectively.

Research and Development costs – Research and development costs are expensed as incurred and are disclosed as a separate line item in the consolidated statements of income.

Loss contingencies – Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company, but which will only be determined and resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss is likely to occur and the amount of the liability can be estimated, then the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not accrued or disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. Legal costs relating to loss contingencies are expensed as incurred.

Income Taxes – The Company’s income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-forwards. The value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in applicable tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company’s consolidated statements of income. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carry-back opportunities, and tax-planning strategies in making this assessment.  Management assesses the need for additional valuation allowances quarterly.

The calculation of income tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. The impact of an uncertain income tax position on an income tax return must be recognized at the largest amount that has a greater than 50% cumulative probability to be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.  This threshold and measurement attribute prescribed by the FASB will continue to require significant judgment by management.

Warranty – Each instrument sale includes a standard one-year service warranty.  An extended warranty is sold separately. The start of the one-year standard service period generally coincides with when the instrument revenue itself is recognized (upon customer acceptance/training, etc.). Standard warranty revenues are thus deferred until the instrument revenues are recognized and are then amortized over a 12-month period. If the instrument revenue is deferred due to a price protection clause, the revenue from warranty is also deferred and recognized over the same period as the revenue from the instrument sale. The price charged for the extended warranty is considered to be the fair market value of a first year warranty built into the consideration arrangement and is in accordance with the guidance provided in ASC 605-25 “Revenue Recognition: Multiple-Element Arrangements.”

Impact of Recently Issued Accounting Standards –

Adopted by the Company in fiscal 2011

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an update to ASC 810, “Consolidation” (“ASC 810”). This update changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This update requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is now required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The update is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009.  The adoption of this update to ASC 810 during the first quarter of fiscal 2011 did not have an impact on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU 2009-16, “Accounting for Transfers of Financial Assets” (“ASU 2009-16”), which is an amendment of ASC 860, “Transfers and Servicing.”  This update requires more information about the transfer of financial assets.  More specifically, ASU 2009-16 eliminates the concept of a “qualified special purpose entity”, changes the requirements for derecognizing financial assets, and enhances the information reported to users of financial statements.  This update is effective for fiscal years beginning on or after November 15, 2009. The adoption of ASU 2009-16 during the first quarter of fiscal 2011 did not have an impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-13, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”), which is an amendment of ASC 718, “Compensation—Stock Compensation.  This update clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years and interim periods beginning on or after December 15, 2010, however, early application was permitted.  The adoption of ASU 2010-13 during the first quarter of fiscal 2011 did not have an impact on the Company’s consolidated financial statements.

Not yet adopted by the Company

In October 2009, the FASB issued ASU 2009-13, “Multiple Deliverables Revenue Arrangements” (“ASU 2009-13”), which is an amendment of ASC 605-25, “Revenue Recognition: Multiple Element Arrangements.”  This update addresses the accounting for multiple-deliverable arrangements to allow the vendor to account for deliverables separately instead of as one combined unit by amending the criteria for separating consideration in multiple-deliverable arrangements.  This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on (a) vendor-specific objective evidence, (b) third-party evidence or (c) best estimate of selling price.  The residual method of allocation has been eliminated and arrangement consideration is now required to be allocated to all deliverables at the inception of the arrangement using the selling price method.  Additionally, expanded disclosures will be required relating to multiple deliverable revenue arrangements.  This update will be effective for fiscal years beginning on or after June 15, 2010, which corresponds to the Company’s first quarter of fiscal 2012.  Early adoption is permitted, however, the Company did not adopt early.  Based on the current mix of instrument acquisition methods, the Company does not expect the adoption of this update to ASC 605-25 to have a material impact on its financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), which was issued to enhance comparability between entities that report under U.S. GAAP and IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, which corresponds to the Company’s first quarter of fiscal 2013. Early adoption of the new guidance is permitted and full retrospective application is required. The Company is currently evaluating the effect that the provisions of this pronouncement will have on its financial statements.