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EX-21 - EX-21 - HAEMONETICS CORPb80592exv21.htm
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EX-32.1 - EX-32.1 - HAEMONETICS CORPb80592exv32w1.htm
EX-32.2 - EX-32.2 - HAEMONETICS CORPb80592exv32w2.htm
EX-31.1 - EX-31.1 - HAEMONETICS CORPb80592exv31w1.htm
EX-31.2 - EX-31.2 - HAEMONETICS CORPb80592exv31w2.htm
EX-10.U - EX-10U - HAEMONETICS CORPb80592exv10wu.htm
EX-23.1 - EX-23.1 - HAEMONETICS CORPb80592exv23w1.htm
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended April 3, 2010
 
Commission file number 1-14041
 
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
 
     
Massachusetts
(State or other jurisdiction of
incorporation or organization)
  04-2882273
(I.R.S. Employer
Identification No.)
     
400 Wood Road
Braintree, Massachusetts 02184-9114
(Address of principal executive offices)
  (781) 848-7100
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common stock, $.01 par value
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (assuming for these purposes that all executive officers and Directors are “affiliates” of the Registrant) as of September 26, 2009, the last business day of the registrant’s most recently completed second fiscal quarter was $1,338,071,042 (based on the closing sale price of the Registrant’s Common Stock on that date as reported on the New York Stock Exchange).
 
The number of shares of the registrant’s common stock, $.01 par value, outstanding as of April 30, 2010 was 25,528,179.
 
Documents Incorporated By Reference
 
Portions of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on July 29, 2010, are incorporated by reference in Part III.
 


 

 
TABLE OF CONTENTS
 
                 
        Page
        Number
 
  Item 1.     Business     1  
        (A) General History of the Business     1  
        (B) Financial Information about Industry Segments     3  
        (C) Narrative Description of the Business     3  
        (D) Financial Information about Foreign and Domestic Operations and Export Sales     14  
  Item 1A.     Risk Factors     14  
  Item 1B.     Unresolved Staff Comments     17  
  Item 2.     Properties     17  
  Item 3.     Legal Proceedings     18  
  Item 4.     Submission of Matters to a Vote of Security Holders     19  
  Item 5.     Market For The Registrant’s Common Equity, Stockholder Matters and Issuer Purchases of Equity Securities     21  
  Item 6.     Selected Consolidated Financial Data     23  
  Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     24  
  Item 7A.     Quantitative and Qualitative Disclosures about Market Risk     46  
  Item 8.     Financial Statements and Supplementary Data     48  
  Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     89  
  Item 9A.     Controls and procedures     89  
  Item 9B.     Other information     91  
  Item 10.     Directors and Executive Officers of the Registrant and Corporate Governance     91  
  Item 11.     Executive Compensation     91  
  Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     91  
  Item 13.     Certain Relationships and Related Transactions and Director Independence     92  
  Item 14.     Principal Accountant Fees and Services     92  
  Item 15.     Exhibits, Financial Statement Schedules     93  
 EX-10S
 EX-10U
 EX-21
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


Table of Contents

Item 1.   Business
 
(A)   General History of the Business
 
Our Company was founded in 1971 and became publicly owned for the first time in 1979. In 1983, American Hospital Supply Corporation (“AHS”) acquired us. When Baxter Travenol Laboratories, Inc. (“Baxter”) acquired AHS in 1985, Baxter divested the Haemonetics business to address antitrust concerns related to the AHS acquisition. As a result, in December 1985, a group of investors that included E. I. du Pont de Nemours and Company and present and former Haemonetics employees purchased us. We were incorporated in Massachusetts in 1985. In May 1991, we completed an initial public offering.
 
Historically, Haemonetics has been a medical device company — a pioneer and market leader in developing and manufacturing automated blood component collection devices and surgical blood salvage devices. Our systems help ensure a safe and adequate blood supply and assist blood banks and hospitals in their efforts to operate efficiently and in compliance with regulatory requirements. Our customers are blood and plasma collectors, hospitals and hospital service providers.
 
Several years ago, we recognized that there was a need for better management of blood to deliver improved quality and clinical outcomes, as well as reduced costs, to hospitals and their patients receiving blood transfusions. We identified specific gaps to be addressed, including the need for information technology platforms that spanned the blood supply chain from blood donation to transfusion, devices that could be integrated with information technology platforms, consulting services that could identify and implement best practices in blood management, and transfusion tracking systems to better assess demand and supply. As a result, Haemonetics set a vision to be the global leader in blood management to address our customers’ needs for better blood management. As the blood supply chain is an integral part of healthcare systems globally and impacts both patient care and healthcare costs, under our blood management solutions vision, our customers are better able to achieve their goal to provide the best patient care at optimal costs. While we continue to be a market leader for blood management devices, our more comprehensive vision for blood management solutions, which incorporates information management and services, is both timely and relevant.
 
To achieve our vision, we embarked on a strategy to expand our markets and product portfolio to offer more comprehensive blood management solutions to our customers. Through internal product development and acquisition, we have significantly expanded our product offerings. We now offer devices and related consumables, information technology platforms, and consulting services. Our product portfolio helps hospitals determine blood demand and individual patient treatments, and then implement best practices for blood usage and distribution which are cost effective. For blood and plasma collectors, our product portfolio supports increasing blood supplies, automating manual business processes, and improving efficiencies. Our devices use single-use, proprietary consumables, and these consumable sales represent 87% of our total revenues. By leveraging information technology platforms and consulting services to better understand our customers’ needs, we plan to drive increased utilization of our devices and consumables, creating a significant, recurring revenue stream.
 
Over the next several years, we will continue to add to our value proposition in blood management to ultimately link the blood supply chain from the donor to the patient.
 
Based on our broadened product portfolio and to give clarity to investors on the results of our business, we report revenues for multiple product lines under four global product families: plasma, blood bank, hospital, and software solutions. “Plasma” markets plasma collection devices and consumables. “Blood bank” markets blood collection and processing devices and consumables. “Hospital” markets surgical blood salvage and blood demand diagnostic devices and consumables, and blood distribution systems. The “software solutions” product family consists of information technology platforms and consulting services for blood and plasma collectors and hospitals.
 
Each of our products, platforms, and services can be marketed individually. However, as our blood management solutions vision is to offer integrated solutions for blood supply chain management, our software solutions — that is, information technology platforms and consulting services — can be integrated with the


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devices and sold through our plasma, blood bank, and hospital sales forces. Our integrated product portfolios are as follows:
 
             
    Plasma Products   Blood Bank Products   Hospital Products
 
Information Management    — eQuetm Automated donor interview system and database
 — eLynx® Donor workflow optimization software
 — DMS Blood component collection donor management
 — CaPS Secure plasma donor payment systems
 — LOGIC Plasma product inventory management solution
 — Business dashboards
   — eDonor® Blood donor scheduling software and services
 — Hemasphere® Blood center process management software
 — SafeTrace® Blood donor information management system
 — eQue platform
 — eLynx platform
 — Sapanettm Laboratory quality management system
 — IMPACTtm Business consulting, advisory services
 — Edgebloodtm Transfusion traceability management system
 — Surroundtm Intelligent laboratory management software
 — El Dorado Donor® Blood collection center management software
   — SafeTrace TX® Transfusion management system and software
 — BloodTrack Managertm Repository for blood unit movement records
 — BloodTrack® Enquiry
 — BloodTrack® Advisor
 — IMPACT Online
 — Edgecelltm Tissue, organ and cell bank management system
 — Edgelabtm Laboratory management system for hospitals
Devices/consumables
   — PCS® Portable plasma collection and processing system
 — Expresstm Plasma collection software enhancement
 — SEBRA® shakers
 — SEBRA® sealers
   — MCS® Mobile collection system
 — Cymbal® Automated blood collection system
 — ACP® Automated cell processing system
 — SEBRA shakers
 — SEBRA sealers
   — Cell Saver® Autologous blood recovery system
 — OrthoPAT® Peri — and post — operative blood salvage system
 — cardioPAT® Blood salvage for cardiovascular surgeries
 — SmartSuction® Surgical suite blood loss management system
 — TEG® Computerized blood testing and analyzing device
 — BloodTrack® Blood and transfusion management software
Consulting Services
   — Six Sigma
 — Lean manufacturing
 — Business solutions
   — Six Sigma
 — Lean manufacturing
 — Donor recruitment
 — Automation Nationtm Consulting services for blood collectors — Collection optimization software Validation
   — Six Sigma
 — Lean manufacturing
 — Blood use optimization software validation
 
Our principal operations are in the United States, Europe, and Japan. Our products are marketed in more than 80 countries around the world via a direct sales force as well as independent distributors and agents.
 
In fiscal year 2010, we remained focused on our blood management solutions vision and executed on our plan to expand our business offerings through internal development and acquisition. We automated our blood management consulting services to enable us to provide these services to more customers at a faster rate. We launched IMPACT Online to give customers a dashboard tool for monitoring and making changes to blood use that improve quality and clinical outcomes and reduce costs. And we continued development of our automated


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whole blood collection system. We also acquired three businesses: (1) Neoteric Technology Ltd., (2) the biological collection and processing division of SEBRA, and (3) Global Med Technologies, Inc. Each acquisition had strategic value to our blood management solutions vision.
 
We also remained focused on core business growth. We launched the Express protocol for our plasma customers. With the rapid growth in the plasma business, collectors are constantly looking for new ways to improve efficiency. The Express protocol speeds up plasma donation times on our PCS system, thereby increasing throughput of donors. We expanded and formalized our consulting service offerings for blood and plasma collectors. We made considerable progress on a next generation Cell Saver system to address the changing business needs of our hospital customers.
 
(B)   Financial Information about Industry Segments
 
Although we address our customer constituents through multiple product lines (plasma, blood bank, hospital, and software solutions), we manage our business as one operating segment. Our chief operating decision maker uses consolidated financial results to make operating and strategic decisions. Design and manufacturing processes, as well as the regulatory environment in which we operate, are largely the same for all product lines.
 
The financial information required for the business segment is included herein in Note 15 of the financial statements, entitled Segment, Geographic and Customer Information.
 
(C)   Narrative Description of the Business
 
    (i)   Products and Solutions
 
We market a full suite of products, including devices and consumables, information technology platforms, and consulting services for plasma collectors, blood collectors, and hospitals to better manage blood supply and demand. Specifically, we develop and market a variety of systems used with plasma and blood donors to automate the collection and processing of blood into its components: plasma, platelets, and red cells. The different components have different clinical applications. For example, plasma can be manufactured into pharmaceuticals to treat a variety of illnesses and hereditary disorders such as hemophilia; red cells treat trauma patients or patients undergoing major surgeries involving high blood loss, such as open heart surgery or organ transplant; and platelets treat cancer patients undergoing chemotherapy. We also develop and market a variety of systems to hospitals that automate the cleaning and reinfusion of a surgical patient’s blood during surgery, automate the tracking and distribution of blood in the hospital, and enhance blood diagnostics. We also market information technology platforms to promote efficient and compliant operations for all of our customer groups. Finally, we market consulting services to support best practices in blood management.
 
As noted in the General History of the Business, we report revenues for multiple product lines: plasma, blood bank, hospital, and software solutions. However, our information technology platforms and consulting services are used in conjunction with our plasma, blood bank, and hospital devices. Therefore, to give better clarity to our markets, the following description of each business includes devices, information technology, and services grouped by customer rather than breaking out our product offerings separately.
 
PLASMA FAMILY OF PRODUCTS AND SOLUTIONS
 
The Plasma Collection Market for Fractionation
 
Automated plasma collection technology allows for the safe and efficient collection of plasma from donors who are often paid a fee for their plasma donation. There are approximately 22 million liters of plasma obtained from automated collections worldwide annually. The plasma collected is processed (“fractionated”) by pharmaceutical companies into therapeutic and diagnostic products that aid in the treatment of immune diseases, coagulation disorders, and blood loss from trauma. Plasma is also used in the manufacture of vaccines and blood testing and quality control reagents. We market plasma collection devices, but our business does not include the actual collection, fractionation, or distribution of plasma-derived pharmaceuticals.


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As a result of efforts by the bio-pharmaceutical companies to vertically integrate, most of these companies also collect and fractionate the plasma required to manufacture their pharmaceuticals. This vertical integration paved the way for highly efficient plasma supply chain management and the plasma industry leverages information technology to manage operations from the point of plasma donation to fractionation of the final product.
 
Haemonetics’ Automated Plasma Collection Systems (reported as plasma product line)
 
Until Haemonetics introduced automated plasma collection technology in the 1980s, plasma for fractionation was collected manually. Manual collection was time-consuming, labor-intensive, produced relatively poor yields, and posed risk to donors. Today, the vast majority of plasma collections worldwide are performed using automated collection technology because it is safe and cost-effective. With automated technology, more plasma can be collected during any one donation event because the other blood components are returned to the donor through a sterile, closed-circuit disposable set used for the blood donation procedure.
 
We offer “one stop shopping” to our plasma collection customers, enabling them to source from us the full range of products necessary for their plasma collection operations. To that end, in addition to marketing our PCS brand plasma collection equipment and consumables, we offer plasma collection containers, intravenous solutions, and tubing sealers necessary for plasma collection and storage. In fiscal year 2010, we introduced an Express protocol for our PCS system that speeds up the donation process, allowing our customers to improve device utilization.
 
We also offer a robust portfolio of information technology platforms for plasma customers to manage their donors, operations, and supply chain. eQue® Automated Interview and Assessment automates the donor interview and qualification process. eLynx® Workflow Optimization streamlines the workflow process in the plasma center. DMS Donor Management System provides plasma collection centers with the controls necessary to continually assess and evaluate donor suitability, determine the release-ability of units collected, and manage unit distribution. The Cash Payment System (CaPS) is an e-commerce application that provides accurate and secure cash dispensation and control for plasma collection centers which pay a fee to their donors. LOGIC is an integrated solution for the warehousing and disposition of plasma products. With our information technology platforms, plasma collectors are better able to manage processes across the plasma supply chain, react quickly to business dynamics, and identify increased opportunities to reduce costs.
 
For consulting services, we offer customers business solutions to support process excellence, donor recruitment, and business design.
 
We market our PCS systems and software solutions to commercial plasma collectors as well as to not-for-profit blood banks and government affiliated plasma collectors worldwide.
 
BLOOD BANK FAMILY OF PRODUCTS AND SOLUTIONS
 
The Blood Collection Market for Transfusion
 
There are millions of blood donations throughout the world every year that produce blood products for transfusion to surgical, trauma, or chronically ill patients. In the U.S. alone, approximately 15 million units of blood are collected each year. Worldwide demand for blood continues to rise as the population ages and more patients have need for and access to medical therapies that require blood transfusions. Furthermore, highly populated countries are advancing their healthcare coverage and as greater numbers of people gain access to more advanced medical treatment, additional demand for blood components, plasma derived drugs and surgical procedures increases directly. This increasing demand for blood is partially offset by the development of less invasive, lower blood loss procedures. Thus, this worldwide market for blood components is growing modestly in the low single digits. Over several years tighter donor eligibility requirements to improve blood safety have decreased the number of donors willing or able to donate blood.
 
Patients requiring blood are rarely transfused with whole blood. Instead, a patient typically receives only the blood component necessary to treat a particular clinical condition: for example, red cells to surgical or trauma patients, platelets to surgical or cancer patients, and plasma to surgical patients.


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Most donations worldwide are non-automated procedures (also referred to as manual or whole blood donations). In a manual donation, a person donates about a pint of whole blood, bleeding by gravity directly into a blood collection bag. After the donation, a laboratory worker manually processes the blood and separates it into its constituent parts: red cells, platelets and plasma. One pint of whole blood contains one transfusible dose of red cells, one-half to one transfusible dose of plasma, and one-fifth to one-eighth transfusible dose of platelets. Haemonetics currently does not sell whole blood collection supplies for the large, non-automated part of the blood collection market for transfusions. Others supply this market with whole blood collection supplies such as needles, plastic blood bags, solutions and tubing.
 
In contrast to manual collections, automated donations eliminate the need to manually separate whole blood at a remote laboratory. Instead, the blood separation process is automated and occurs “real-time” while a person is donating blood. In this separation method, only the specific blood component targeted is collected, and the remaining components are returned to the blood donor. Among other things, automated blood component collection allows significantly more of the targeted blood component to be collected during a donation event. An automated collection system comprises an electromechanical device which is fitted for each collection with a consumable, which is a single-use sterile set of chambers and tubing commonly referred to as a “disposable.’’
 
Our products address what is today the small part of the blood collection market that uses automation to enhance blood collection safety and efficiency, as well as regulatory compliance. In the U.S., automated collection systems are used annually to collect more than 1.6 million red cell units and about 1.8 million platelet units (called “single donor” platelets).
 
In many countries, blood collection is centralized. However, in the U.S. and countries similar to the U.S., it is not. While the American Red Cross collects about 40% of the nation’s blood, it is segregated into 23 regions, and the remainder of the U.S. blood supply is procured from over 100 other blood collection agencies. Adding to this problem is that blood demand comes from over 4,000 hospitals in the U.S. Decentralization of blood collection and the significant number of hospitals using blood makes it difficult to predict blood demand, adequately supply the right blood components, and effectively manage the blood supply chain. Information technology is beginning to have an impact on the management of blood collection centers as blood collectors respond to demands for efficient blood supply chain management, lower costs, and ever-increasing regulatory restrictions.
 
Haemonetics’ Automated Blood Collection Systems (reported as “blood bank” product line)
 
Haemonetics’ automated blood collection systems are used to separate and collect plasma, platelets, and red blood cells at the point of blood collection. Each of these blood components has different therapeutic attributes and markets for its collection and use.
 
Platelet therapy is frequently used to alleviate the effects of bone marrow suppression, a condition in which bone marrow is unable to produce a sufficient quantity of platelets. Bone marrow suppression is most commonly a side effect of chemotherapy. Platelet therapy is also used for patients with bleeding disorders. Physicians who prescribe platelet therapy increasingly turn to “single donor” platelet products (i.e., enough platelets collected from one donor, during an automated collection, to constitute a transfusible dose) to minimize a patient’s exposure to multiple donors and possible blood-borne diseases.
 
We market the MCS brand system for the automation of platelet collection, including improved platelet yields and patient safety. Our MCS brand system is an apheresis system meaning that it has specific blood component collection objectives, returns to the donor the unwanted blood components and replaces the volume of fluids collected with a saline return benefiting the donor. Our automated platelet collection systems collect one or more therapeutic “doses” of platelets during a single donation by a volunteer blood donor. As noted above, platelets derived from a non-automated donation of whole blood (also called a manual collection) must be “pooled” together with platelets from 4-7 other donor’s platelets to make a single therapeutically useful dose because platelets are only a very small portion of whole blood volume.
 
Red cells are frequently transfused to patients to replace blood lost during surgery. Red cells are also transfused to patients with blood disorders, like sickle cell anemia or aplastic anemia. Automated red cell collection, a technology we created, allows for the safe, efficient collection of more red cells from a single


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donor than are collected in a manual, whole blood collection. Most red cells transfused today are derived from manually collected whole blood. This manual procedure involves time-consuming, error-prone secondary handling and processing in a laboratory. Red cell shortages are an occasional problem plaguing healthcare systems worldwide, particularly those in the U.S. Our MCS brand systems help blood collectors address their operational challenges through optimizing the collection possibilities with those donors who present themselves on a collection drive. The system automates the blood separation function, eliminating the need for laboratory processing, and enables the collection of two transfusible doses of red cells from a single donor thus alleviating blood shortages. We call this our two unit protocol or double red cell collection.
 
In addition to the two unit protocol, blood collectors can use the MCS brand system to collect either one unit of red cells and a “jumbo” (double) unit of plasma or one unit of red cells and one unit of platelets from a single donor or they may leukoreduce the two-unit red cell collections. Leukoreduction is the removal of potentially harmful white blood cells from the collected red cells to prevent or mitigate adverse reactions by the patient who eventually receives the product. Leukoreduction has been adopted in many countries worldwide, and an estimated 80% of all red cells in the U.S. are now leukoreduced.
 
The Cymbal brand red cell collection system is an automated device that also collects and processes two units of red cells from a single donor. The Cymbal system is a second generation red cell collection system which is smaller, lighter and more portable than previous red cell collection technologies, such as our MCS system. This mobility, including battery power, allows our customers to more easily use the device on mobile blood drives. Cymbal is currently sold in Europe and the U.S.
 
With our ACP 215 automated cell processing system, blood collectors and hospitals can freeze and thaw red cells so that they can maintain a frozen blood reserve. Red cells can be stored in a refrigerator for up to 42 days. The ACP 215 technology allows blood collectors to safely freeze and thaw red cells. Red cells can be stored frozen for up to 10 years. Blood reserves are often maintained to enable the blood provider to respond adequately to large-scale emergencies where many people require blood transfusions or to treat patients who require transfusions of very rare blood types. Our blood processing systems can also remove plasma from red cells for patients who need specially treated blood.
 
During an automated blood donation, intravenous solutions and other solutions are used. We manufacture these solutions in our facility in Union, South Carolina.
 
Our information technology platforms span blood center operations and automate and track operations from the recruitment of the blood donor to the disposition of the blood product. The EDonor platform is a web based product that manages donor recruitment and retention. The Hemasphere platform supports our customer’s key partners — organizations running blood drives — to manage the mobile blood drive process. The eQue software automates the interview and assessment process prior to a person donating. The eLynx software optimizes the workflow processes in the donor center, SafeTrace and the new El Dorado Donor products are donation and blood unit management systems. A cross-matching and transfusion tracking system and the Surround software support laboratory testing management. We also offer products developed for the European market, Sapanet, a software suite designed for workflow management and quality control in blood centers and laboratories, and Edgeblood, an integrated software application that manages activities of a transfusion center from blood donations to traceability of patient transfusions. Combined, these platforms help blood collectors to improve safety, regulatory compliance, and efficiency and to manage processes across the blood supply chain.
 
Haemonetics offers consulting services that leverage our experience in blood banking, lean manufacturing, and Six Sigma to recommend new approaches to business process excellence. Our internal use of business practice improvement tools spawned requests from our U.S. customer base to seek our training to their selected staff with the intent to develop expertise in problem solving and solution creation skills. Our consulting services address donor recruitment, operations, blood collection, quality control, and more.
 
We market our MCS, Cymbal, and ACP 215 systems and software solutions to not-for-profit blood collection agencies and government sponsored healthcare systems worldwide.
 
In fiscal year 2011, we will launch the IMPACT Online platform version for blood collectors mirroring our late fiscal year 2010 launch of IMPACT Online platform for hospitals. This web based platform compiles data


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from across the blood center’s information systems and provides administrators with a highly intuitive, easy to use dashboard view of operations and key success measurements designed to enable blood centers to improve operating efficiency.
 
HOSPITAL FAMILY OF PRODUCTS AND SOLUTIONS
 
The Transfusion Market for Hospitals
 
Loss of blood is common in open heart, trauma, transplant, vascular, and orthopedic procedures, and the need for transfusion of oxygen-carrying red cells to make up for lost blood volume is routine. Prior to the introduction of our technology, patients were exclusively transfused with blood from volunteer donors. Donor blood (also referred to as “allogeneic blood”) carries various potential risks including (1) risk of transfusion with the wrong blood type (the most common cause of transfusion-related death), (2) risk of transfusion reactions including death, but more commonly chills, fevers or other side effects that can prolong a patient’s recovery, and (3) risk of transfusion of blood with a blood-borne disease or infectious agent.
 
As a result of numerous blood safety initiatives, today’s blood transfusions are extremely safe, especially in developed and resourced health care systems. However, transfusions are not risk free. Surgical blood salvage (also known as autotransfusion) reduces or eliminates a patient’s need for blood donated from others and ensures that the patient receives the safest blood possible — his or her own.
 
Surgical blood salvage involves the collection of a patient’s own blood during and after surgery, for reinfusion to that patient. In surgical blood salvage, blood is suctioned from a wound site, processed and washed through a centrifuge-based system which yields concentrated red cells available for transfusion back to the patient. This process occurs in a sterile, closed-circuit, single-use consumable set which is fitted into an electromechanical device. We market our surgical blood salvage products to hospital-based medical specialists, primarily cardiovascular, orthopedic, and trauma surgeons or to surgical suite service providers.
 
Information technology has become increasingly important in hospital management as administrators strive to provide the best patient care at optimal costs. Despite this trend, there are limited platforms which help hospitals assess and improve blood management practices, track blood within their own hospital systems, or manage the costs of blood. Likewise, there are limited platforms to help hospitals predict demand for their blood suppliers, the blood collection agencies, and link the blood supply chain from donor to patient. As regulations continue to increase and as hospitals struggle with increasing costs, information technology for blood supply chain management will play an important role in hospital administration.
 
Haemonetics’ Hospital Product Line
 
Since November 2007, we have marketed the TEG Thromobelastograph Hemostasis Analyzer, a blood diagnostic instrument which measures a patient’s hemostasis or the ability to form and maintain blood clots. By understanding a patient’s clotting ability, clinicians can better plan for the patient’s care, deciding in advance whether to start or discontinue use of certain drugs or, if a transfusion is likely, whether to use donated blood or surgical blood salvage. Such planning supports the best possible clinical outcome, which can lead to lower hospital costs through reduced adverse transfusion reactions, shorter intensive care unit and hospital stays, and fewer exploratory surgeries. The TEG system is comprised of an electromechanical device, single use containers and reagents.
 
Clinicians may decide to use surgical blood salvage as an alternative to transfusion of donor blood. Our surgical blood salvage systems allow for the recovery, segregation and washing of red cells from blood lost by a patient during or after surgery. These red cells are then available to transfuse back to the patient if needed. The Cell Saver brand system is a surgical blood salvage system targeted to procedures that involve rapid, high volume blood loss such as cardiovascular surgeries. It has become the standard of care for high blood-loss surgeries. The newer cardioPAT brand system is a surgical blood salvage system targeted to open heart surgeries when there is less blood loss and the blood loss continues post-surgery. The system is designed to remain with the patient following surgery to recover blood and produce a washed red cell product for


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autotransfusion. We have recently introduced the Quick-Connect cardioPAT feature which permits customers to utilize the processing set selectively, depending on the patient’s need.
 
The OrthoPAT surgical blood salvage system is targeted to orthopedic procedures that involve slower, lower volume blood loss that often occurs well after surgery. The system is designed to operate both during and after surgery to recover and wash the patient’s red cells to prepare them for reinfusion. We have recently introduced the Quick-Connect feature for the OrthoPAT system which permits customers to utilize the processing set selectively, depending on the patient’s need.
 
Also included in our hospital product line is the SmartSuction product. This product is an advanced suction system for removal of blood and debris from the surgical field. The system is used in conjunction with surgical blood salvage.
 
In the past, our information technology platforms have been focused on the blood bank and plasma businesses. This year, we launched the IMPACTtm Online platform which monitors and measures improvements in a hospital’s blood management practices. Where before, data was siloed across multiple information platforms, IMPACT Online compiles data from disparate systems across the hospital, and provides administrators with actionable information.
 
We have recently added SafeTrace TX, a product that manages blood product inventory, performs patient cross-matching and transfusion management systems. In addition, our BloodTrack suite of solutions manages control of blood products from the hospital blood bank through to the transfusion to the patient. “Smart” refrigerators located in operating suites, emergency rooms, and other parts of the hospital dispense blood units with just-in-time control and automated tracking for efficient documentation. With our more robust offerings, hospitals are better able to manage processes across the blood supply chain and identify increased opportunities to reduce costs and enhance processes.
 
For consulting services, we offer peer to peer clinician consulting services that leverage a proprietary database of best practices in transfusion medicine to provide hospitals with a baseline view of their blood management metrics, as well as with recommendations for approaches to transfusion therapy and the avoidance of unnecessary transfusions. Our services then measure key improvements associated with recommended best practices to allow hospital customers to track progress.
 
Software Solutions
 
We provide information technology platforms and technical support for efficient and compliant management of various points along the blood supply chain, including blood drive and donor management, blood processing, blood distribution, and transfusion management. For our plasma customers, we also provide information technology platforms for managing back office functions and distribution at plasma fractionation facilities. While our information technology platforms can be used as “stand-alone,” our goal is to provide connectivity such that the blood supply chain is linked from donor to patient.
 
Through our services group, we offer business consulting solutions to support process excellence, donor recruitment, business design, and blood management efforts. We also provide blood management assessment tools to hospitals.
 
When combining our software solutions with our devices, our goal is to give customers powerful tools for improving blood management while driving growth of our consumables. For example, a hospital may use our consulting services to analyze its blood management practices and recommend changes in practice. Then, the hospital can leverage our devices to predict blood demand, manage blood inventory, and reduce demand for donated blood. Finally, the hospital can use our newly-released IMPACTtm Online blood management business intelligence portal to monitor the results of its new practices. The positive patient impact and reduced costs from this integrated blood management approach can be significant. Likewise, by understanding best practices, blood demand, and discreet patient needs, hospitals can more frequently deploy our devices to ensure best patient care.


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Our software solutions offerings are described more fully in the plasma, blood bank, and hospital product family discussions above.
 
    (ii)   Revenue Detail
 
We discuss our revenues using the following categories:
 
  •  Disposables (also referred to as consumables, these revenues include the sale of single-use collection sets for blood component collection and processing and surgical blood salvage, plus the fees for the use of our equipment);
 
  •  Equipment (the sale of devices), including equipment service contracts; and
 
  •  Software solutions (including Haemonetics software solutions business and consulting services).
 
Sales of disposable products accounted for approximately 86.8% of net revenues in fiscal year 2010 and 86.7% of net revenues in fiscal year 2009. Sales of our disposable products were 8.1% higher in fiscal year 2010 than in fiscal year 2009. The favorable effects of foreign exchange contributed 2.4% of the increase in net sales during fiscal year 2010 with the remaining 5.7% increase resulting primarily from increases in disposable revenues across our plasma and platelet product lines. This increase in revenues is largely related to volume growth (both market and share) and price increases in plasma and penetration of emerging markets in platelets.
 
Sales of equipment accounted for approximately 7.6% of net revenues in fiscal year 2010 and approximately 8.0% of net revenues in fiscal year 2009. The increase in equipment revenue during fiscal year 2010 was primarily the result of the acquisition in September 2009 of the biological collection and processing division of SEBRA, whose revenues are reported as equipment sales.
 
Software solutions accounted for approximately 5.6% and 5.3% of net revenues in fiscal year 2010 and 2009, respectively. The software solutions increase during fiscal year 2010 was driven by underlying growth in the plasma business and acquisitions partially offset by the cancellation of a contract with the U.S. Department of Defense in the fourth quarter of fiscal year 2009.
 
    (iii)   Marketing/Sales/Distribution
 
We market and sell our products to commercial plasma collectors, blood systems and independent blood banks, hospitals and hospital service providers, and national health organizations through our own direct sales force (including full-time sales representatives and clinical specialists) as well as independent distributors. Sales representatives target the primary decision-makers within each of those organizations.
 
In fiscal year 2010, for the tenth consecutive year, we received the Omega NorthFace ScoreBoard Award for exemplary service to customers. This award is presented to the highest-ranked organizations based on customer ratings of performance against customer expectations in areas such as phone support, on-site operations, technical services, and training.
 
    (iv)   United States
 
In fiscal year 2010, approximately 47.1% of consolidated net revenues were generated in the U.S., where we primarily use a direct sales force to sell our products.
 
    (v)   Outside the United States
 
In fiscal year 2010, approximately 52.9% of consolidated net revenues were generated through sales to non-U.S. customers. Our direct sales force in Europe and Asia includes full-time sales representatives and clinical specialists based in the United Kingdom, Germany, France, Sweden, the Netherlands, Italy, Austria, Hong Kong, Canada, Japan, Switzerland, Czech Republic, China, Taiwan, and Belgium. We also use various distributors to market our products in parts of: Europe, including Russia, South America, the Middle East,


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Africa, and the Far East. We have recently established offices with marketing personnel who work with our distributors in Russia, Lebanon, India and Brazil.
 
    (vi)   Research, Development and Engineering
 
Our research, development and engineering (“RD&E”) centers in the United States and Switzerland ensure that protocol variations are incorporated to closely match local customer requirements. In addition, our Haemonetics Software Solutions maintains development operations in Edmonton, Alberta, Canada and Illinois, USA. In April 2010, as part of the integration of the Global Med Technologies, Inc. acquisition, we decided to cease operations in Illinois and move U.S. software solutions development to Global Med’s headquarters in California, USA. With this acquisition we also acquired a software development operation in Limonest, France.
 
Customer collaboration is also an important part of our technical strength and competitive advantage. These collaboration customers and transfusion experts provide us with ideas for new products and applications, enhanced protocols, and potential test sites as well as objective evaluations and expert opinions regarding technical and performance issues.
 
The development of blood component separation products and extracorporeal blood typing and screening systems has required us to maintain technical expertise in various engineering disciplines, including mechanical, electrical, software, and biomedical engineering and material science. Innovations resulting from these various engineering efforts enable us to develop systems that are faster, smaller, and more user-friendly, or that incorporate additional features important to our customer base.
 
Our expenditures for RD&E were $26.4 million for fiscal year 2010 (4.1% of sales) and $23.9 million for fiscal year 2009 (4.0% of sales). With the exception of the capitalization of software development costs (see Note 17), all RD&E costs are expensed as incurred. We expect to continue to invest resources in RD&E.
 
In fiscal year 2010, RD&E resources were allocated to supporting a next generation surgical blood salvage device, an automated whole blood collection system and several projects to enhance our current product portfolio. We also allocated resources to our Arryx subsidiary for on-going research into nanotechnology applications in the blood typing and screening field. At the end of fiscal year 2010, based on a review of ongoing development plans for our next generation platelet apheresis products (Portico), we have abandoned and written off $12.2 million associated with previously capitalized software development costs. Additionally, in connection with the acquisition of Global Med we elected to no longer market the Symphony blood bank donation management system in favor of Global Med’s El Dorado application. As a result we wrote off the carrying value of the Symphony asset totaling approximately $3.5 million.
 
    (vii)   Manufacturing
 
Our principal manufacturing operations (equipment, disposables, and solutions) are located in Braintree, Massachusetts; Leetsdale, Pennsylvania; Union, South Carolina; Bothwell, Scotland; and Niles, Illinois. We are also in the process of building additional plasma disposables manufacturing capabilities at our Draper, Utah facility and expect to be validated for manufacturing late in fiscal year 2011.
 
In general, our production activities occur in controlled settings or “clean room” environments. Each step of the manufacturing and assembly process is quality checked, qualified, and validated. Critical process steps and materials are documented to ensure that every unit is produced consistently and meets performance requirements.
 
Plastics are the principal component of our disposable products. Contracts with our suppliers help mitigate some of the short-term effects of price volatility in this market, however, increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials.
 
Some component manufacturing is performed by outside contractors according to our specifications. We maintain important relationships with two Japanese manufacturers that produce finished consumables in Singapore, Japan, and Thailand. Certain parts and components are purchased from various single sources. If


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necessary, we believe that, in most cases, alternative sources of supply could be identified and developed within a relatively short period of time. Nevertheless, an interruption in supply could temporarily interfere with production schedules and affect our operations. All of our other equipment and disposable manufacturing sites are certified to the ISO 13485 standard and to the Medical Device Directive allowing placement of the CE mark of conformity.
 
Each blood processing machine is designed in-house and assembled from components that are either manufactured by us or by others to our specifications. The completed instruments are programmed, calibrated, and tested to ensure compliance with our engineering and quality assurance specifications. Inspection checks are conducted throughout the manufacturing process to verify proper assembly and functionality. When mechanical and electronic components are sourced from outside vendors, those vendors must meet detailed qualification and process control requirements.
 
    (viii)   Intellectual Property
 
We consider our intellectual property rights to be important to our business. We rely on patent, trademark, copyright, and trade secret laws, as well as provisions in our agreements with third parties to protect our intellectual property rights. We hold patents in the United States and many international jurisdictions on some of our machines, processes, disposables and related technologies. These patents cover certain elements of our systems, including protocols employed in our equipment and certain aspects of our processing chambers and disposables. Our patents may cover current products, products in markets we plan to enter, or products in markets we plan to license, or the patents may be defensive in that they are directed to technologies not currently embodied in our current products. We also license patent rights from third parties that cover technologies that we use or plan to use in our business. To maintain our competitive position, we rely on the technical expertise and know-how of our personnel and on our patent rights. We pursue an active and formal program of invention disclosure and patent application in both the United States and foreign jurisdictions. We own various trademarks that have been registered in the United States and certain other countries.
 
Our policy is to obtain patent and trademark rights in the U.S. and foreign countries where such rights are available and we believe it is commercially advantageous to do so. However, the standards for international protection of intellectual property vary widely. We cannot assure that pending patent and trademark applications will result in issued patents and registered trademarks, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that our patents will not be found to be invalid.
 
    (ix)   Competition
 
We created our technologies and have established a record of innovation and market leadership in each of the areas in which we compete. Although we compete directly with others, no other company offers the complete range of integrated solutions designed to meet customers’ needs across the entire blood supply chain.
 
To remain competitive, we must continue to develop and acquire cost-effective new products, information technology platforms, and business services. We believe that our ability to maintain a competitive advantage will continue to depend on a combination of factors. Some factors are largely within our control such as reputation, regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product quality, safety and cost effectiveness and continual and rigorous documentation of clinical performance. Other factors are outside of our control, including regulatory standards, medical standards and the practice of medicine.
 
In the automated plasma collection markets, we principally compete with Fenwal, Inc. on the basis of quality, ease of use, services and technical features of systems, and on the long-term cost-effectiveness of equipment and disposables. Fenwal, Inc. is an independent company founded in March 2007 when Texas Pacific Group and Maverick Capital, Ltd. acquired the Transfusion Therapies division of Baxter Healthcare Group. In China, the market is populated by local producers of a product that is intended to be similar to ours. Recently, those competitors have expanded to markets beyond China, including Cuba and Iran.


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In the automated platelet collection business, competition is based on continual performance improvement, as measured by the time and efficiency of platelet collection and the quality of the platelets collected. Our major competitors in automated platelet collection are Caridian BCT (formerly Gambro BCT) and Fenwal. Each of these companies has taken a different technological approach in designing their systems for automated platelet collection. In the platelet collection market, we also compete with whole blood collections from which pooled platelets are derived.
 
In the Japanese automated plasma and platelet collection markets, we also compete against a local company, Terumo Medical Corporation.
 
In the automated red cell collection market we also compete against Caridian BCT and Fenwal. However, it is important to note that only about 5% of the forty million units of red cells collected worldwide and about 10% of the 15 million units of red cells collected in the U.S. annually are collected via automation today by these three companies combined. So, we more often compete with traditional manual methods of deriving red cells by collecting and separating a pint of whole blood. We compete on the basis of total cost, process control, product quality, and inventory management.
 
In the cell processing market, competition is based on level of automation, labor-intensiveness, and system type (open versus closed). Open systems may be weaker in good manufacturing process compliance. Moreover, blood processed through open systems has a 24 hour shelf life. We have an open system cell processor as well as a closed system cell processor which gives blood processed through it a 14 day shelf life. We compete with Caridian BCT’s open systems.
 
Within our hospital business, in the diagnostics market, the TEG Thrombelastograph Hemostasis Analyzer is used primarily in the surgical arena. There is one direct competitor, Rotem, with whom we currently compete with in Europe and beginning in fiscal year 2011 in the United States. Rotem recently received 510k clearance for its device and selected reagents in the U.S. Other competitive technologies include standard coagulation tests that measure various aspects of hemostasis.
 
In the high blood loss surgical blood salvage market, competition is based on reliability, ease of use, service, support, and price. Each manufacturer’s technology is similar, and our Cell Saver competes principally with Medtronic, Fresenius, and Sorin Biomedica. Our newly introduced cardioPAT system is the only washed surgical blood salvage device designed to recover red cells for transfusion where blood loss continues post operatively in heart surgery.
 
In the orthopedic surgical blood salvage market we compete against non-automated processing systems whose end product is an unwashed red blood cell unit for transfusion to the patient. The OrthoPAT system is the only system that washes the blood and operates preoperatively. It is designed specifically for use in orthopedic surgeries where a patient often bleeds more slowly, bleeds less, and continues to bleed long after surgery.
 
In the software market, we compete with MAK Systems, Mediware, and “home grown” applications. These companies provide software to blood and plasma collectors and to hospitals for managing donors, collections, and blood units. None of these companies competes in other Haemonetics markets.
 
Our technical staff is highly skilled, but many competitors have substantially greater financial resources and larger technical staffs at their disposal. There can be no assurance that competitors will not direct substantial efforts and resources toward the development and marketing of products competitive with those of Haemonetics.
 
    (x)   Seasonality
 
Net revenues have historically been higher in the second half of our fiscal year, reflecting principally the seasonal buying patterns of our customers. This has proven true in our last five fiscal years.


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    (xi)   Significant Customers
 
The Japan Red Cross Society (JRC) is a significant customer that represented 14.3% of our revenues in fiscal year 2010.
 
    (xii)   Government Regulation
 
The products we manufacture and market are subject to regulation by the Center of Biologics Evaluation and Research (“CBER”) and the Center of Devices and Radiological Health (“CDRH”) of the United States Food and Drug Administration (“FDA”), and other non-United States regulatory bodies.
 
All medical devices introduced to the United States market since 1976 are required by the FDA, as a condition of marketing, to secure either a 510(k) pre-market notification clearance or an approved Pre-market Approval Application (“PMA”). In the United States, software used to automate blood center operations and blood collections and to track those components through the system are considered by FDA to be medical devices, subject to 510(k) pre-market notification. Intravenous solutions (blood anticoagulants and solutions for storage of red blood cells) marketed by us for use with our automated systems requires us to obtain from CBER an approved New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”). A 510(k) pre-market clearance indicates FDA’s agreement with an applicant’s determination that the product for which clearance is sought is substantially equivalent to another legally marketed medical device. The process of obtaining a 510(k) clearance involves the submission of clinical data and supporting information. The process of obtaining NDA approval for solutions is likely to take much longer than 510(k) approvals because the FDA review process is more complicated.
 
We maintain customer complaint files, record all lot numbers of disposable products, and conduct periodic audits to assure compliance with FDA regulations. We place special emphasis on customer training and advise all customers that device operation should be undertaken only by qualified personnel.
 
We are also subject to regulation in the countries outside the United States in which we market our products. Many of the regulations applicable to our products in such countries are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be registered by those countries before they can be marketed in those countries. We have complied with these regulations and have obtained such registrations.
 
Federal, state and foreign regulations regarding the manufacture and sale of products such as ours are subject to change. We cannot predict what impact, if any, such changes might have on our business.
 
    (xiii)   Environmental Matters
 
Compliance with international, federal and local environmental protection laws or regulations could have an adverse impact upon our business or could require material capital expenditures. We continue to monitor changes in U.S. and international environmental regulations that may present a significant risk to the business, including laws or regulations relating to the manufacture or sale of products using plastics. Action plans are developed to mitigate identified risks.
 
    (xiv)   Employees
 
As of April 3, 2010, we employed the full-time equivalent of 2,327 persons assigned to the following functional areas: manufacturing, 913; sales and marketing, 405; general and administrative, 374; research, development, and engineering, 417; and quality control and field service, 218. We consider our employee relations to be satisfactory.
 
    (xv)   Availability of Reports and Other Information
 
All of our corporate governance materials, including the Principles of Corporate Governance, the Business Conduct Policy and the charters of the Audit, Compensation, and Nominating and Governance Committees are published on the Investor Relations section of our website at


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http://www.haemonetics.com/site/content/investor/corp_gov.asp. On this web site the public can also access, free of charge, our annual, quarterly and current reports and other documents filed or furnished to the Securities and Exchange Commission as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
 
(D)   Financial Information about Foreign and Domestic Operations and Export Sales
 
The financial information required by this item is included herein in Note 15 of the financial statements, entitled Segment, Geographic and Customer Information. Sales to the Japanese Red Cross accounted for 14.3% of net revenues in fiscal year 2010. No other customer accounted for more than 10% of our net revenues. For more information concerning significant customers, see subheading of Note 2 of the financial statements, entitled, Concentration of Credit Risk and Significant Customers.
 
Cautionary Statement
 
Statements contained in this report, as well as oral statements we make which are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed,” and similar expressions, are intended to identify forward looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. These statements are based on our current expectations and estimates as to prospective events and circumstances about which we can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. As it is not possible to predict every new factor that may emerge, forward-looking statements should not be relied upon as a prediction of our actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include technological advances in the medical field and our standards for transfusion medicine and our ability to successfully implement products that incorporate such advances and standards, product demand and market acceptance of our products, regulatory uncertainties, the effect of economic and political conditions, the impact of competitive products and pricing, the impact of industry consolidation, foreign currency exchange rates, changes in customers’ ordering patterns, the effect of industry consolidation as seen in the plasma market, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate. The foregoing list should not be construed as exhaustive.
 
Item 1A.   Risk Factors
 
Set forth below are the risks that we believe are material to our investors. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page 15 and 46.
 
If we are unable to successfully expand our business, through internal research and development, marketing partnerships and acquisitions, our business may be materially and adversely affected.  Promising partnerships and acquisitions may not be completed for reasons such as competition among prospective partners or buyers, our inability to reach satisfactory terms, or the need for regulatory approvals. Any acquisition that we complete may be dilutive to earnings and require that we invest significant resources. We may not be able to integrate any acquired businesses successfully into our existing business, make such businesses profitable, or realize anticipated market growth or cost savings. The current economic environment may constrain the company’s ability to access capital that may be needed for acquisitions and other capital investments.
 
If we are unable to successfully keep pace with technological advances in the medical field and the standards for transfusion medicine, our business, financial condition and results of operation could be adversely affected.  The success of our products will depend upon our ability to anticipate and meet the needs of the medical field, particularly those who practice transfusion medicine. Additionally, we must be able to


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manufacture the products in a cost effective manner, with high quality and obtain permission to market and sell the products from various regulatory authorities.
 
As a medical device manufacturer we are subject to a number of existing laws and regulations. Non-compliance with those laws or regulations could adversely affect our financial condition and results of operations.  The manufacture, distribution and marketing of our products are subject to regulation by the FDA and other non-United States regulatory bodies. Some regulatory authorities outside the United States may have a bias in favor of locally produced goods that could delay or prevent our achieving regulatory approval to market our products in such geographies. We must obtain specific regulatory clearance prior to selling any new product or service, and our operations are also subject to continuous review and monitoring by the FDA and other regulatory authorities. The process of obtaining approval to market and distribute our products is costly and time-consuming. Export of U.S. technology or goods manufactured in the United States to some jurisdictions requires special U.S. export authorization that may be influenced by factors, including political dynamics, outside our control. Changes in privacy regulations and other developments in human subjects clinical trials could make it more difficult and more expensive to conduct clinical trials necessary for product approval. Regulations about the use of certain materials in the manufacture of our products could also require us to convert our production to alternate material(s), which may be more costly or less effective. The number of eligible blood donors is influenced by government regulations (including travel restrictions, health history, etc.) and other economic and sociological factors. Changes in donation related regulations could have significant immediate effects on the population of eligible donors.
 
We are subject to various actions by government authorities that regulate medical devices including: product recalls, orders to cease manufacturing or distribution activities, and other taxes, sanctions or penalties.  Compliance with these regulations is costly and additional regulation could adversely affect our results of operations. Our customers are also subject to these regulations. Our customers’ compliance with applicable regulations could also affect our results of operations. Our hospital products are used in surgical procedures that are the subject of reimbursement to certain of our customers by third party payors, including governmental programs. Changes in the reimbursement guidelines could affect our product revenues. Marketing practices for these products are strictly regulated and violations may subject the Company to fines and other penalties. Recently, legislation was enacted in the U.S. which imposes a 2.3% excise tax on U.S. sales of medical devices beginning in January 2013.
 
Many of our competitors have significantly greater financial and other resources. Their greater financial resources may allow them to more rapidly develop new technologies and more quickly address changes in customer requirements.  Although no one company competes with us across our full line of products, we face competition in each of our product lines. Our ability to remain competitive depends on a combination of factors, including those within our control (reputation, regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product quality, safety, cost effectiveness and continued rigorous documentation of clinical performance) as well as factors outside of our control (regulatory standards, medical standards, reimbursement policies and practices, and the practice of medicine). Also, sales of unauthorized copies of our products by local competitors in China could affect the demand and price paid for our products.
 
As a global corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.  International revenues account for a substantial portion of our revenues, and we intend to continue expanding our presence in international markets. In fiscal year 2010, our international revenues accounted for 52.9% of our total revenues. The exposure to fluctuations in currency exchange rates takes different forms. Reported revenues for sales made in foreign currencies by our international businesses, when translated into U.S. dollars for financial reporting purposes, fluctuate due to exchange rate movement. Fluctuations in exchange rates could adversely affect our profitability in U.S. dollars of products and services sold by us into international markets, where payment for our products and services is made in local currencies.
 
Plastics are the principal component of our disposables, which are the main source of our revenues.  Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure


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plastic raw materials. Increases in the costs of other commodities may affect our procurement costs to a lesser degree.
 
Loss of a significant customer could adversely affect our business.  The Japan Red Cross Society (JRC) is a significant customer that represented 14.3% of our revenues in fiscal year 2010. Because of the size of this relationship we could experience a significant reduction in revenue if the JRC decided to significantly reduce its purchases from us for any reason including a desire to rebalance its purchases between vendors, or if we are unable to obtain and maintain necessary regulatory approvals in Japan. We also have a concentration of credit risk due to our outstanding accounts receivable balances with the JRC.
 
We are subject to the risks of international economic and political conditions.  Our international operations are subject to risks which are inherent in conducting business overseas and under foreign laws, regulations and customs. These risks include possible nationalization, expropriation, importation limitations, violations of U.S. or local laws, pricing restrictions, and other restrictive governmental actions. Any significant changes in the competitive, political, legal, regulatory, reimbursement or economic environment where we conduct international operations may have a material impact on our business, financial condition or results of operations.
 
We are subject to the risks associated with communicable diseases. A significant outbreak of a disease could reduce the demand for our products and affect our ability to provide our customers with products and services.  An eligible donor’s willingness to donate is affected by concerns about their personal health and safety. Concerns about communicable diseases (such as pandemic flu, SARS, or HIV) could reduce the number of donors, and accordingly reduce the demand for our products for a period of time. A significant outbreak of a disease could also affect our employees’ ability to work, which could limit our ability to produce product and service our customers.
 
We sell our products in certain emerging economies.  Emerging economies have less mature product regulatory systems, and can have more volatile financial markets. In addition, government controlled health care systems’ willingness or ability to invest in our products and systems may abruptly change due to changing government priorities or funding capacity. Our ability to sell products in these economies is dependent upon our ability to hire qualified employees or agents to represent our products locally, and our ability to obtain the necessary regulatory approvals in a less mature regulatory environment. If we are unable to retain qualified representatives or maintain the necessary regulatory approvals, we will not be able to continue to sell products in these markets. We are exposed to a higher degree of financial risk, if we extend credit to customers in these economies.
 
In many of the international markets in which we do business, including certain parts of Europe, Russia and Asia, our employees, agents or distributors offer to sell our products in response to public tenders issued by various governmental agencies.  Selling our products through agents or distributors, particularly in public tenders, can expose the Company to a higher degree of risk. Our agents and distributors are third parties who we retain to work in developing markets. We retain these agents or distributors after completing due diligence on their capabilities and background. However, agents and distributors are independent third parties. If they misrepresent our products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed, and we could be subject to fines, sanctions or both. We also conduct diligent examinations of businesses we have targeted for acquisition or other business combinations. However, confidentiality obligations and compressed timeframes for completing these examinations may constrain our ability to fully discover and resolve all risks attendant to the operation of the target’s business until after closing of the transaction.
 
We have a complex international supply chain.  Any disruption to one or more of our suppliers’ production or delivery of sufficient volumes of subcomponents conforming to our specifications could disrupt or delay our ability to deliver finished products to our customers.
 
There is a risk that the Company’s IP may be subject to misappropriation in some countries.  Certain countries, particularly China, do not enforce compliance with laws that protect intellectual property (“IP”) rights with the same degree of vigor as is available under the U.S. and European systems of justice. Further,


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certain of the Company’s IP rights are not registered in China, or if they were, have since expired. This may permit others to produce copies of products in China that are not covered by currently valid patent registrations. There is also a risk that such products may be exported from China to other countries.
 
The technologies that cover our products are the subject of active patent prosecution.  There is a risk that one or more of our products may be determined to infringe a patent held by another party. If this were to occur we may be subject to an injunction or to payment of royalties, or both, which may adversely affect our ability to market the affected product(s). In addition, competitors may patent technological advances which may give them a competitive advantage or create barriers to entry.
 
Our products are made with materials which are subject to regulation by governmental agencies.  Environmental regulations may prohibit the use of certain compounds in products we market and sell into regulated markets. If we are unable to substitute suitable materials into our processes, our manufacturing operations may be disrupted.
 
We are entrusted with sensitive personal information relating to surgical patients, blood donors, employees and other persons in the course of operating our business and serving our customers, Government agencies require that we implement measures to ensure the integrity and security of such personal data and, in the event of a breach of protocol, that we inform affected individuals. If our systems were not properly implemented, or should suffer a breach of security or an intrusion (e.g., “hacking”) by unauthorized persons, the Company’s reputation could be harmed, and it could incur costs and liabilities to affected persons and enforcement agencies.
 
Item 1B.   Unresolved Staff Comments
 
None
 
Item 2.   Properties
 
Our main facility is located on 14 acres in Braintree, Massachusetts. This facility is located in a light industrial park and was constructed in the 1970s. The building is approximately 180,000 square feet, of which 70,000 square feet are devoted to manufacturing and quality control operations, 35,000 square feet to warehousing, 72,000 square feet for administrative and research, development and engineering activities and 3,000 square feet available for expansion. See Note 8 to the financial statements for details of our mortgage on the Braintree facility.
 
On property adjacent to the Braintree facility the Company leases 43,708 square feet of additional office space. This facility is used for sales, marketing, finance, legal, and other administrative services. Annual lease expense for this facility is $548,171.
 
The Company leases an 81,929 square foot facility in Leetsdale, Pennsylvania. This facility is used for warehousing, distribution and manufacturing operations supporting our plasma business. Annual lease expense is $346,994 for this facility. The Company is also leasing a temporary facility of 28,309 square feet in Leetsdale, Pennsylvania to accommodate expanded distribution until we can manufacture in our new facility in Draper, Utah.
 
The Company leases 99,931 square feet in Draper, Utah. This facility is used for the manufacturing of SEBRA whole blood equipment and the distribution of both SEBRA and plasma disposable products. Beginning in April 2011, this facility will manufacture plasma disposables identical to the production in Leetsdale, PA. Annual lease expense is $471,105.
 
The Company owns a facility in Bothwell, Scotland used to manufacture disposable components for European customers. The original facility is approximately 22,200 square feet. An addition of 18,000 square feet was added in early fiscal year 2006. This expansion provided additional office space and 13,500 square feet of warehouse replacing space previously leased for this purpose.
 
The Company leases 26,264 square feet of office space in Signy, Switzerland. This facility is used for sales, marketing, finance and other administrative services. Annual lease expense for this space is $743,140.


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The Company leases 6,214 square feet of space in Tokyo, Japan for sales, marketing, finance and other administrative offices. Annual lease expense is $567,560.
 
The Company owns a facility in Union, South Carolina. This facility is used for manufacture of sterile solutions to support our blood bank and plasma businesses. The facility is approximately 69,300 square feet.
 
The Company also leases a 55,000 square foot facility in Stoughton, Massachusetts. This facility is used for warehousing and distribution of products. The annual lease expense is $261,250.
 
Haemonetics Software Solutions, which develops and markets software for the blood bank and plasma business, retains two leases. The first is 25,856 square feet of office space in Edmonton, Alberta, Canada. Annual lease expense is $321,192. The second is 17,624 square feet of office space in Rosemont, Illinois. Annual lease expense is $427,430. We expect to close this facility in fiscal year 2011.
 
Arryx Inc., which performs research for the Company, leases 10,830 square feet of office and laboratory space in Chicago, Illinois. Annual lease expense is $201,090.
 
Haemoscope Corporation., which performs research and manufacturing for the Company, leases 16,478 square feet of office and manufacturing space in Niles, Illinois. Annual lease expense is $134,710.
 
The Company also leases sales, marketing, service, and distribution facilities in Japan, Europe (Austria, Belgium, Czech Republic, France, Germany, Italy, Sweden, Switzerland, the Netherlands, and United Kingdom), Lebanon, Russia, China, Hong Kong, Taiwan, and Brazil to support our international business.
 
Item 3.   Legal Proceedings
 
We are presently engaged in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe that any such liability will not materially affect our consolidated financial position or our results of operations.
 
Our products are relied upon by medical personnel in connection with the treatment of patients and the collection of blood from donors. In the event that patients or donors sustain injury or death in connection with their condition or treatment, we, along with others, may be sued, and whether or not we are ultimately determined to be liable, we may incur significant legal expenses. In addition, such litigation could damage our reputation and, therefore, impair our ability to market our products or to obtain professional or product liability insurance or cause the premiums for such insurances to increase. We carry product liability coverage. While we believe that the aggregate current coverage is sufficient, there can be no assurance that such coverage will be adequate to cover liabilities which may be incurred. Moreover, we may in the future be unable to obtain product and professional liability coverage in amounts and on terms that we find acceptable, if at all.
 
In order to aggressively protect our intellectual property throughout the world, we have a program of patent disclosures and filings in markets where we conduct significant business. While we believe this program is reasonable and adequate, the risk of loss is inherent in litigation as different legal systems offer different levels of protection to intellectual property, and it is still possible that even patented technologies may not be protected absolutely from infringement.
 
In December 2005, we filed a lawsuit against Baxter Healthcare SA and Fenwal Inc. in Massachusetts federal district court, seeking an injunction and damages on account of Baxter’s infringement of a Haemonetics patent, through the sale of Baxter’s ALYX brand automated red cell collection system, a competitor of our automated red cell collection systems. In March 2007, Baxter sold the Transfusion Technologies Division (which markets the ALYX product) to private investors, TPG, and Maverick Capital, Ltd. The new company which resulted from the sale was renamed Fenwal. In January 2009, a jury found that the Fenwal ALYX system infringed Haemonetics’ patent and awarded us $15.7 million in damages for past infringement. On June 2, 2009, the court ruled that, in addition to paying the damages awarded by the jury, Fenwal must stop selling the ALYX consumable by December 1, 2010 and must pay Haemonetics a 10% royalty on ALYX consumable net sales from January 30, 2009 until December 1, 2010 when the injunction takes effect. In addition, the court awarded pre-judgment interest at 5% on the unpaid damages awarded. On August 19, 2009, an amended judgment was issued under which Haemonetics was awarded $11.3 million for


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lost profits suffered as a result of the infringement, $4.4 million in royalty damages suffered as a result of the infringement, and prejudgment interest of $2.3 million for a total award of $18.0 million. Fenwal and Baxter have appealed these rulings to the United States Court of Appeals for the Federal Circuit and oral arguments were heard on April 5, 2010. The damages have not been paid and the royalties are being escrowed pending a decision on the appeal. On December 16, 2009, the U.S. Patent Office granted a request by Fenwal for the ex-parte re-examination of the Haemonetics patent, and that re-examination process is proceeding.
 
On December 7, 2009, Fenwal had announced that it began shipping a red cell collection kit with a modified separation chamber, and that it is discontinuing sales of its original ALYX consumable kit. We believe this new collection kit also infringes our patent. On December 14, 2009, we filed a new infringement suit in Massachusetts federal district court seeking an injunction and damages from Fenwal’s sale of this new consumable.
 
In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting contract with a local physician and in pricing products supplied under a tender from a public hospital. In parallel proceedings concluded contemporaneously in Genoa, Italy, the same parties were entirely exonerated of all charges. Both matters involved several other individuals and companies and arose in 2004 and 2005, respectively. When the matters first arose, our Board of Directors commissioned independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel’s report, the Board concluded that no disciplinary action was warranted in either case. All Haemonetics parties appealed the guilty verdicts. On March 3, 2010 the first-level appeals court affirmed these verdicts. We are evaluating this decision and considering our options for further appeal. The Milan ruling, and its affirmation, has not impacted the Company’s business in Italy to date. A third proceeding was referred by the Milan court for hearing in Bergamo, Italy. There have been evidentiary hearings, but no material developments in that case.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.
 
Executive Officers of the Registrant
 
The information concerning our Executive Officers is as follows. Executive officers are elected by and serve at the discretion of our Board of Directors.
 
PETER ALLEN (age 51) joined our Company in 2003 as President, Donor Division. Mr. Allen was appointed Chief Marketing Officer for Haemonetics in 2008. Prior to joining Haemonetics, Mr. Allen was Vice President of The Aethena Group, a private equity firm providing services to the global healthcare industry. From 1998 to 2001, he held various positions including Vice President of Sales and the Oncology Business at Syncor International, a provider of radiopharmaceutical and comprehensive medical imaging services. Previously, he held executive level positions in sales, marketing and operations in DataMedic, Inc., Enterprise Systems, Inc./HBOC, and Robertson Lowstuter, Inc. Mr. Allen has also worked in sales and marketing at American Hospital Supply Corporation and Baxter International, Inc.
 
PHILLIP J. BRANCAZIO (age 57) joined our Company in July 2009 as Vice President, Global Manufacturing. Prior to Haemonetics, Mr. Brancazio was Vice President of Manufacturing for Watson Pharmaceuticals, a generic drug manufacturer from 2004 — 2009. From 1999 to 2003 he worked with DPT Laboratories, a contract manufacturing company, servicing the pharmaceutical industry, as Vice President of Manufacturing. Mr. Brancazio worked for Bristol Myers Squibb from 1976 to 1999. He held positions of increasing responsibility in Quality, Production, and Supply Chain, and Vice President of Manufacturing. Mr. Brancazio has a BS in Microbiology with a Minor in Chemistry from Texas A&M University, and an MBA from University of North Carolina, Greensboro.
 
BRIAN CONCANNON (age 52) joined our Company in 2003 as President, Patient Division and was promoted to President, Global Markets, in 2006. In 2007, Mr. Concannon was promoted to Chief Operating Officer. In April 2009, Mr. Concannon was promoted to President and Chief Executive Officer and elected to the Haemonetics Board of Directors. Immediately prior to joining the Company, Mr. Concannon was President,


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Northeast Region, Cardinal Health Medical Products and Services where he was employed since 1998. From 1985 to 1998, he was employed by American Hospital Supply Corporation, Baxter Healthcare Corp. and Allegiance Healthcare in a series of sales and operations management positions of increasing responsibility.
 
JOSEPH FORISH (age 57) joined our Company in 2005 as Vice President, Human Resources. Prior to joining Haemonetics, Mr. Forish held various global human resources leadership roles, including Vice President, Corporate Human Resources for Rohm and Haas Company. Prior to that, Mr. Forish was Vice President, Human Resources for the ConvaTec Division of Bristol-Myers Squibb Company.
 
MIKAEL GORDON (age 55) joined our Company in 2007 as President, Europe and was promoted to President, Global Markets in February 2009. Prior to joining Haemonetics, Mr. Gordon was Regional Executive Manager North & West Europe for GE Healthcare Clinical Systems. From 1997 to 2007 he held various executive positions as Vice President IT, VP Laboratory Products, VP Strategic Planning and VP Global Sales within Amersham Biosciences until the company was acquired by General Electric in 2004. Mr. Gordon has broad international business experience in the healthcare environment and has lived several years outside his home country. Mr. Gordon has a B.Sc. from the Stockholm School of Economics and is a Swedish national.
 
SUSAN HANLON (age 42) joined our Company in 2002 as Vice President and Corporate Controller. In 2004, she was promoted to Vice President Planning and Control, and in 2008, Ms. Hanlon was promoted to Vice President Finance. She presently has responsibility for Controllership, Financial Planning, Tax, and Treasury. Prior to joining Haemonetics, Ms. Hanlon was a partner with Arthur Andersen LLP in Boston
 
CHRISTOPHER LINDOP (age 52) joined our Company in January of 2007 as Vice President and Chief Financial Officer. In 2007, Mr. Lindop also assumed responsibility for business development. Mr. Lindop is also responsible for our Software Solutions and Arryx businesses. Prior to joining Haemonetics, Mr. Lindop was Chief Financial Officer at Inverness Medical Innovations, a rapidly growing global developer of advanced consumer and professional diagnostic products from 2003 to 2006. Prior to this, he was Partner in the Boston offices of Ernst & Young LLP and Arthur Andersen LLP and was engagement partner to the Haemonetics account at both firms. Mr. Lindop has no continuing relationship with Ernst & Young that would preclude its continued service as our independent auditor. Additionally, there was a sufficient interval between Mr. Lindop’s work for the Company as our engagement partner and his appointment as CFO to comply with all applicable SEC rules and regulations.
 
ALICIA R. LOPEZ (age 55) joined our Company in 1988 as General Counsel and Director of Human Resources. Since 1990, she has served as Secretary to the Board of Directors. In 2000, Ms. Lopez was appointed Senior Vice President. In 2003, Ms. Lopez was named Vice President and General Counsel and in 2004 she was promoted to General Counsel and Vice President of Administration. In 2007, Ms. Lopez was promoted to Vice President, Corporate Affairs. Currently, she has responsibility for world wide legal, quality, regulatory, medical, clinical, environmental health and safety, and public affairs. Prior to joining Haemonetics, Ms. Lopez was employed by the law firm of Sullivan & Worcester, counsel at the time to Haemonetics.
 
BRAD NUTTER (age 58) joined our Company in 2003 as Board Member, President and Chief Executive Officer. In January 2008, Mr. Nutter was named Chairman of the Board. In April 2009, Mr. Nutter stepped down from his position as Chief Executive Officer and assumed his new role as Executive Chairman of the Board. Prior to joining Haemonetics, Mr. Nutter was President and Chief Executive Officer of Gambro Healthcare, an international dialysis provider, a division of Gambro AB. From 1997 to 2000, he was Executive Vice President and Chief Operating Officer of Syncor International, an international provider of radiopharmaceuticals and medical imaging. Previously, Mr. Nutter held senior level positions at American Hospital Supply Corporation and Baxter International, Inc.
 
MICK RUXIN, M.D. (age 64) joined our Company in 2010 as Vice President, Global Software Strategies. In 1995, Dr. Ruxin founded and was the Chairman and CEO of Global Med Technologies. Prior to Global Med, Dr. Ruxin founded and was the Chairman and CEO of National MRO, an international corporation that managed Fortune 500 companies’ drug programs. Dr. Ruxin received his M.D. degree from the University of Southern California and was Chief of two Emergency Departments in Denver, Colorado.
 
DR. JONATHAN WHITE (age 50) joined our Company in 2008 as Vice President, Research and Development. Dr. White joined Haemonetics from Pfizer, where he held a number of roles including Chief Information Officer, and where he was employed from 1998 to 2008. From 1992 to 1998, he was a


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management consultant at McKinsey and Company in New York. Dr. White is a Fellow of the Royal College of Surgery in England. He completed his qualifications as a neurosurgeon and worked in both clinical and academic medical settings. In addition, he holds a Masters degree in Computer Science from Cambridge in England, and a Masters degree in Business Administration from INSEAD in France.
 
PART II
 
Item 5.   Market for the Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our common stock is listed on the New York Stock Exchange under the symbol HAE. The following table sets forth for the periods indicated the high and low sales prices of such common stock, which represent actual transactions as reported by the New York Stock Exchange.
 
                                 
    First
    Second
    Third
    Fourth
 
    Quarter     Quarter     Quarter     Quarter  
 
Fiscal year ended April 3, 2010:
                               
Market price of Common Stock:
                               
High
  $ 58.92     $ 60.23     $ 57.60     $ 59.57  
Low
  $ 46.89     $ 52.01     $ 51.40     $ 52.40  
Fiscal year ended March 28, 2009:
                               
Market price of Common Stock:
                               
High
  $ 61.29     $ 66.97     $ 63.27     $ 65.33  
Low
  $ 51.72     $ 51.18     $ 48.79     $ 50.32  
 
There were approximately 327 holders of record of the Company’s common stock as of April 3, 2010. The Company has never paid cash dividends on shares of its common stock and does not expect to pay cash dividends in the foreseeable future.


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The following graph compares the cumulative 5-year total return provided to shareholders on Haemonetics Corporation’s common stock relative to the cumulative total returns of the S & P 500 index and the S & P Health Care Equipment index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on 3/31/2005 and its relative performance is tracked through 3/31/2010.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Haemonetics Corporation, The S&P 500 Index
And The S&P Health Care Equipment Index
 
(PERFORMANCE GRAPH)
 
 
* $100 invested on 3/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.
 
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
 
                                                             
      3/05     3/06     3/07     3/08     3/09     3/10
Haemonetics Corporation
      100.00         120.42         110.89         141.32         130.65         135.56  
S&P 500
      100.00         111.73         124.95         118.60         73.43         109.97  
S&P Health Care Equipment
      100.00         102.82         111.66         115.55         79.41         110.86  
                                                             
 
The stock price performance included in this graph is not necessarily indicative of future stock price performance.


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Item 6.   Selected Consolidated Financial Data
 
Haemonetics Corporation and Subsidiaries Five-Year Review
 
                                         
    2010     2009     2008     2007     2006(a)  
    (In thousands, except share and employee data)  
 
Summary of Operations
                                       
Net revenues
  $ 645,430     $ 597,879     $ 516,440     $ 449,607     $ 419,733  
Cost of goods sold
  $ 307,949     $ 289,709     $ 258,715     $ 222,307     $ 199,198  
Gross profit
  $ 337,481     $ 308,170     $ 257,725     $ 227,300     $ 220,535  
Operating expenses:
                                       
Research, development and engineering
  $ 26,376     $ 23,859     $ 24,322     $ 23,884     $ 26,516  
Selling, general and administrative
  $ 214,483     $ 198,744     $ 163,116     $ 137,073     $ 121,351  
Contingent consideration income
  $ (2,345 )                        
Asset impairments
  $ 15,686                          
Cost to Equity
                    $ 225     $ 680  
In process research and development
                    $ 9,073        
Arbitration & Settlement Income
                    $ (5,700 )   $ (26,350 )
Total operating expenses
  $ 254,200     $ 222,603     $ 187,438     $ 164,555     $ 122,197  
Operating income
  $ 83,281     $ 85,567     $ 70,287     $ 62,745     $ 98,338  
Other income (expense), net
  $ (2,011 )   $ (565 )   $ 7,015     $ 9,591     $ 7,864  
Income before provision for income taxes
  $ 81,270     $ 85,002     $ 77,302     $ 72,336     $ 106,202  
Provision for income taxes
  $ 22,900     $ 25,698     $ 25,322     $ 23,227     $ 37,806  
Net income
  $ 58,370     $ 59,304     $ 51,980     $ 49,109     $ 68,396  
Income per share:
                                       
Basic
  $ 2.29     $ 2.34     $ 2.01     $ 1.84     $ 2.58  
Diluted
  $ 2.24     $ 2.27     $ 1.94     $ 1.78     $ 2.49  
Weighted average number of shares
    25,451       25,389       25,824       26,746       26,478  
Common stock equivalents
    612       784       922       903       996  
Weighted average number of common and common equivalent shares
    26,063       26,173       26,746       27,649       27,474  
 
 
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods prior to the acquisition.
 
                                         
    2010     2009     2008     2007     2006  
 
Financial and Statistical Data:
                                       
Working capital
  $ 249,646     $ 289,530     $ 261,757     $ 321,654     $ 330,288  
Current ratio
    2.8       4.1       3.7       4.9       4.7  
Property, plant and equipment, net
  $ 153,298     $ 137,807     $ 116,484     $ 90,775     $ 75,266  
Capital expenditures
  $ 56,304     $ 56,379     $ 57,790     $ 40,438     $ 33,774  
Depreciation and amortization
  $ 43,236     $ 36,462     $ 31,197     $ 27,504     $ 25,150  
Total assets
  $ 760,660     $ 649,693     $ 608,950     $ 572,735     $ 545,457  
Total debt
  $ 20,651     $ 6,038     $ 12,363     $ 28,876     $ 39,153  
Stockholders’ equity
  $ 593,124     $ 539,884     $ 494,188     $ 479,648     $ 440,564  
Return on average equity
    10.30 %     11.47 %     10.52 %     10.67 %     17.19 %
Debt as a % of stockholders’ equity
    3.48 %     1.12 %     2.50 %     6.02 %     8.89 %
Employees(b)
    2,327       2,016       1,875       1,826       1,661  
Net revenues per employee
  $ 277     $ 297     $ 275     $ 246     $ 254  
 
 
(b) Reflects the addition of Global Med employees at the end of fiscal year 2010.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
(A)   Our Business
 
Our systems automate the collection and processing of donated blood; assess likelihood for blood loss; salvage and process surgical patient blood; and dispense and track blood inventory in the hospital. These systems include devices and single-use, proprietary disposable sets (“disposables”) that operate only with our specialized devices. Specifically, our plasma and blood bank systems allow users to collect and process only the blood component(s) they target — plasma, platelets, or red blood cells — increasing donor and patient safety as well as collection efficiencies. Our blood diagnostics system assesses hemostasis (a patient’s clotting ability) to aid clinicians in assessing the likelihood of a patient’s blood loss. Our surgical blood salvage systems allow surgeons to collect the blood lost by a patient in surgery, cleanse the blood, and make it available for transfusion back to the patient. Our blood tracking systems automate the distribution of blood products in the hospital.
 
We also market information technology platforms that are used by blood and plasma collectors to eliminate previously manual functions. These platforms improve the safety and efficiency of blood collection logistics, mobile drive management and donor recruitment, and blood processing and distribution. Through our acquisition of Neoteric Technology Ltd. in April 2009 and Global Med Technologies, Inc. in March 2010, we now market information technology platforms for hospitals. These platforms improve the efficiency of hospital transfusion systems and automate manual processes. In fiscal year 2010, we also launched a blood management dashboard that allows hospital customers to mine their own data stored in disparate systems to assess their blood management practices, and implement change quickly.
 
Our business services products include consulting, Six Sigma, and LEAN manufacturing offerings that support our customers’ needs for regulatory compliance and operational efficiency in the blood supply chain.
 
We either sell our devices to customers (resulting in equipment revenue) or place our devices with customers subject to certain conditions. When the device remains our property, the customer has the right to use it for a period of time as long as the customer meets certain conditions we have established, which among other things, generally include one or more of the following:
 
  •  Purchase and consumption of a minimum level of disposables products;
 
  •  Payment of monthly rental fees; and
 
  •  An asset utilization performance metric, such as performing a minimum level of procedures per month per device.
 
Our disposable revenue stream (including sales of disposables and fees for the use of our equipment) accounted for approximately 86.8% of our total revenues for fiscal year 2010, 86.7% of our total revenues for fiscal year 2009, and 86.0% of our total revenues for fiscal year 2008.
 
(B)   Product Families
 
Although we manage our business as one operating segment, we address our customer constituents through four global product families: plasma, blood bank, hospital, and software solutions. Each of our products, platforms, and services can be marketed individually. However, our blood management solutions vision is to offer integrated solutions for blood supply chain management. Therefore, our software solutions — that is, information technology platforms and consulting services — are sold through a discreet sales force, but are also often sold through our plasma, blood bank, and hospital sales forces. Our integrated product portfolios are as follows:
 
Plasma Products and Solutions
 
Our plasma products include systems to collect plasma, which is then fractionated and made into bio-pharmaceuticals. Our plasma solutions include information technology platforms and consulting services that support improved operational efficiency and regulatory compliance. We market our plasma products to for-


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profit plasma collectors which are frequently owned by large bio-pharmaceutical companies and often pay a fee for donations.
 
Plasma Systems:
 
Our PCS brand systems automate the collection of plasma from donors who are most often paid a fee for their donation. The collected plasma is then processed into therapeutic pharmaceuticals. Automated plasma collection is a safe and cost-effective improvement to manual (non-automated) plasma collection which is time-consuming, labor-intensive, produces relatively poor yields, and poses risks to donors. Currently the majority of plasma collections worldwide are automated.
 
Plasma Solutions:
 
Plasma was the first transfusion market we entered with information technology platforms. As a result, we have a robust portfolio of information technology platforms for plasma customers. Our plasma information technology platforms span the plasma supply chain and include products that manage donor processing, laboratory processing, back office functions, supply chain management, and distribution. Our products include: eQue® Automated Interview and Assessment, eLynx® Workflow Optimization, DMS Donor Management System, CaPS Cash Payment System, LOGIC, and a business intelligence dashboard. With our information technology platforms, plasma collectors are better able to manage processes across the plasma supply chain, react quickly to business dynamics, and identify increased opportunities to reduce costs. For consulting services, we offer customers business solutions to support process excellence, donor recruitment, and business design.
 
Blood Bank Products and Solutions
 
Our blood bank products include systems to collect plasma, platelets and red cells from blood donors. These blood components, including the plasma, are used for transfusion to patients. Our blood bank solutions include information technology platforms and consulting services that support improved operational efficiency and regulatory compliance. We market our blood bank products primarily to not-for-profit blood collectors or national health agencies.
 
Blood Bank Systems:
 
We market two MCS brand systems. The first MCS brand system automates the collection of platelets and other blood components from volunteer donors. The systems enable the donation of a larger volume of the donor’s platelets, which are then generally given to cancer patients and others with bleeding disorders. Before the advent of our automated platelet collection technology, the “pooling” or combination of platelets from 4 to 7 different donors was the only way to prepare a single therapeutic dose of platelets for transfusion to a patient. Our MCS line of products allows the collection of a sufficient number of platelets from only one donor to produce one or two therapeutic doses.
 
We market another MCS brand system as well as the Cymbal system to automate the collection of red cells from volunteer donors. These systems improve the blood collector’s operational efficiency by increasing the volume of blood components collected per donation event. Automation allows for a significantly higher number of red cells to be collected than the traditional (non-automated, whole blood) collection method. Automation helps blood collectors address red cell shortages that commonly plague health care systems. The highest sales volume product in the MCS red cell product line is our double red cell collection technology which allows for two units of red cells to be collected from one donor. Specialty protocols enabling the simultaneous collection of a unit of red cells and a unit of plasma or a unit of red cells and a unit of platelets are also available in various parts of the world.
 
Our ACP brand systems automate the process used to freeze, thaw and wash red blood cells which enables blood collectors and the military to store frozen red cells and ultimately better manage blood inventories. The ACP systems can also be used to wash other cellular parts from red blood cells units before transfusion to patients with special transfusion requirements.


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Blood Bank Solutions:
 
Through internal product development and acquisition, we have significantly bolstered our blood bank information technology offerings over the past three years. Our platforms now span the blood collection supply chain and include products that manage blood drives, donor recruitment and processing, operations, and laboratory processing. Our products include: eQue® Automated Interview and Assessment, Hemasphere, El Dorado Donor, eLynx® Workflow Optimization, Sapanet, Surround, and Edgeblood. With our information technology platforms, blood collectors are better able to manage processes across the blood supply chain and improve safety, regulatory compliance and efficiency. For consulting services, we offer customers business solutions to support process excellence, quality control, and business design, including resource allocation and utilization.
 
Hospital Products and Solutions
 
Our hospital products include a surgical diagnostic system that measures hemostasis (clotting ability), giving clinicians valuable information to assess the patient’s hemostasis during surgery, and systems to collect blood during and after surgery, wash and filter unwanted substances from the blood, and prepare the blood for reinfusion to the surgical patient. Our hospital products also include a system for tracking and dispensing blood in the hospital. Our hospital solutions include IMPACT Online, an information technology platform to track blood use and best practices in blood management, as well as consulting services that assess blood management practices and recommend appropriate changes to ensure quality patient care at optimal costs. We market these hospital products to hospitals and hospital service providers.
 
Hospital Systems:
 
Our TEG Thrombelastograph Hemostasis Analyzer is a blood diagnostic instrument which measures a patient’s hemostasis or the ability to form and maintain blood clots. By understanding a patient’s clotting ability, clinicians can better plan for the patient’s care, deciding in advance whether to start or discontinue use of certain drugs or, if a transfusion is likely, whether to use donated blood or surgical blood salvage. Such planning supports the best possible clinical outcome, which can lead to lower hospital costs through reduced adverse transfusion reactions, shorter intensive care unit and hospital stays, and fewer needs for exploratory surgery.
 
Our surgical blood salvage systems allow for the recovery, segregation and washing of red cells from blood lost by a patient during or after surgery, so that red cells can be made available to transfuse back to the patient if needed. In this way, a surgical patient can receive transfusions of the safest blood possible, his or her own. Our surgical blood salvage systems include: our Cell Saver brand systems for higher blood loss surgeries and trauma; our OrthoPAT brand systems for lower, slower blood loss orthopedic procedures; and our cardioPAT brand system for lower blood loss cardiovascular procedures, like beating heart surgeries. We also market the SmartSuction system which is used to clear blood and debris from the surgical field in conjunction with surgical blood salvage.
 
Our BloodTrack systems manage control of blood products from the hospital blood bank through to the transfusion to the patient. “Smart” refrigerators located in operating suites, emergency rooms, and other parts of the hospital dispense blood units with just-in-time control and automated tracking for efficient documentation.
 
Hospital Solutions:
 
In the past, our information technology platforms have been focused on the blood bank and plasma businesses. This year, we launched IMPACTtm Online which monitors and measures improvements in a hospital’s blood management practices. Where before, data was siloed across multiple information platforms, IMPACT Online compiles data from across the hospital, and provides administrators with actionable information. Also, with our recent acquisition of Global Med Technologies, we have added additional information technology offerings for the hospital. The acquisition gives us hospital inventory, cross-matching and transfusion managements systems. With our more robust offerings, hospitals are better able to manage


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processes across the blood supply chain and identify increased opportunities to reduce costs and enhance processes.
 
For consulting services, we offer peer to peer clinician consulting services that leverage a proprietary database of best practices in transfusion medicine to provide hospitals with a baseline view of their blood management metrics, as well as with recommendations for approaches to transfusion therapy and the avoidance of unnecessary transfusions. Our services then measure key improvements associated with recommended best practices to allow hospital customers to track progress.
 
Software Solutions
 
Our software solutions offerings include information technology platforms and consulting services which promote efficiency in blood management. Our software solutions address a universal customer goal — to provide the best patient care at optimal cost. We market our software solutions to plasma and blood collectors as well as to hospitals. While we employ a software solutions sales force, we also leverage our plasma, blood bank, and hospital sales force to cross-sell systems with software solutions.
 
Each of our products, platforms, and services can be marketed individually. However, as our blood management solutions vision is to offer integrated solutions for blood supply chain management, our software solutions — that is, information technology platforms and consulting services — are often integrated with the devices and sold through our plasma, blood bank, and hospital sales forces.
 
Financial Summary
 
                                         
    For the Year Ended     % Increase/
    % Increase/
 
    April 3,
    March 28,
    March 29,
    (Decrease)
    (Decrease)
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
Net revenues
  $ 645,430     $ 597,879     $ 516,440       8.0 %     15.8 %
Gross profit
  $ 337,481     $ 308,170     $ 257,725       9.5 %     19.6 %
     % of net revenues
    52.3 %     51.5 %     49.9 %                
Operating income
  $ 83,281     $ 85,567     $ 70,287       (2.7 )%     21.7 %
     % of net revenues
    12.9 %     14.3 %     13.6 %                
Interest expense
  $ (742 )   $ (64 )   $ (377 )     >100 %     (83.0 )%
Interest income
  $ 399     $ 1,968     $ 5,418       (79.7 )%     (63.7 )%
Other income/(expense), net
  $ (1,668 )   $ (2,469 )   $ 1,974       (32.4 )%     >(100 )%
Income before taxes
  $ 81,270     $ 85,002     $ 77,302       (4.4 )%     10.0 %
Provision for income tax
  $ 22,900     $ 25,698     $ 25,322       (10.9 )%     1.5 %
     % of pre-tax income
    28.2 %     30.2 %     32.8 %                
Net income
  $ 58,370     $ 59,304     $ 51,980       (1.6 )%     14.1 %
     % of net revenues
    9.0 %     9.9 %     10.1 %                
 
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal year 2010 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks. Fiscal years 2009 and 2008 each included 52 weeks with all four quarters having 13 weeks.
 
Net revenues for fiscal year 2010 increased 8.0% over fiscal year 2009. The effects of foreign exchange accounted for an increase of 1.9% over fiscal year 2009. The remaining increase of 6.1% is mainly due to increases in our disposables revenue and increased revenues as a result of acquisitions completed over the course of the year. The increase in disposables revenue resulted primarily from disposable unit increases in the plasma, platelet and diagnostic product lines. The increase in revenues attributable to acquisitions was due to the completion of three acquisitions over the course of the fiscal year, and the completion of one acquisition late in fiscal year 2009.


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Gross profit increased 9.5% over fiscal year 2009. The favorable effects of foreign exchange accounted for an increase of 4.5% over fiscal year 2009. The remaining increase of 5.0% was due to increased sales and cost reductions including the introduction of new automation in our Pittsburgh facility. This increase was partly offset by increased spending on quality initiatives.
 
Operating income decreased 2.7% over fiscal year 2009. The effects of foreign exchange accounted for an increase in operating income of 14.8%. Without the effects of foreign exchange, operating income decreased 17.5% over fiscal year 2009. Several items contributed to the reduction in operating income, including:
 
  •  The impairment of two intangible assets totaling $15.7 million: one the Symphony blood bank software system, which we will no longer market in favor of the recently acquired Global Med El Dorado blood bank software system, and software for our Portico platelet apheresis device that we have abandoned as we prioritize other faster to market initiatives.
 
  •  Restructuring costs, primarily separation benefits totaling $8.6 million, associated with the integration of the Global Med Acquisition (under new accounting rules, costs to separate employees of Global Med are now expensed), and the formulation of a customer solutions implementation group.
 
  •  Costs to consummate the acquisition of Global Med totaling $2.2 million.
 
  •  Increased operating expenses related to new business acquisitions, blood management solutions, research and development, and our enterprise resource planning system.
 
The above items were partially offset by
 
  •  Income totaling $2.3 million resulting from the remeasurement of the fair value of contingent consideration from our Neoteric acquisition.
 
  •  The decrease of $6.1 million in employee bonus expense.
 
  •  The increases in gross profit described above
 
Net income decreased 1.6% over fiscal year 2009. The main factors that affected net income were the decrease in operating income described above and an increase in other expense that resulted due to increased interest expense associated with our contingent purchase price liability and reduced interest income due to a significant reduction in the interest rate yields on cash and cash equivalents.
 
Market Trends
 
Plasma Market
 
The continued increase in demand for plasma derived pharmaceuticals, particularly intravenous immunoglobulin (“IVIG”), is a key driver of increased plasma collections in the worldwide commercial plasma collection markets. Various factors related to the supply of plasma and the production of plasma derived pharmaceuticals also affect the demand, including the following:
 
During fiscal year 2010, the supply and demand balance for plasma in the U.S. and Europe were relatively stable, with slight over-collection early in the fiscal year offset by slightly lower collections in the second half of the year. In Japan, supply and demand remain in balance. However, the Japan Red Cross Society will migrate some of its plasma collections in calendar 2010 to source that plasma from plasma recovered from whole blood collections. This change will modestly reduce demand for automated plasma collections. In Asia, supply and demand remains balanced. Currently, demand for plasma-derived therapies is driving plasma collection growth of about 4-6% per year.
 
Blood Bank Market
 
In the blood bank market, we sell products used in the collection of platelets and red cells.


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Despite modest increases in the demand for platelets in our major markets, improved collection efficiencies that increase the yield of platelets per collection and more efficient use of collected platelets have resulted in a flat market for automated collections and these related disposables.
 
After several years of modest increases in demand for red cell transfusions and a general shortage of volunteer donors, the market in fiscal year 2010 included lower demand for red cells coupled with more available donors due to both changes in regulation and economic conditions. The reduced demand for red cells experienced in fiscal year 2010 adversely impacted our red cell business. While the red cell business did not grow in fiscal year 2010, we believe that blood collectors’ imperative to improve operating efficiency and regulatory compliance, coupled with an expected return of donor shortages, will continue to provide growth opportunities for our red cell technology in the future.
 
Hospital Market
 
In the hospital market, we sell cardiovascular surgical blood salvage systems, orthopedic surgical blood salvage systems, and a blood diagnostics instrument.
 
Our Cell Saver brand surgical blood salvage system is aimed at high blood loss cardiovascular procedures. This part of the surgical blood salvage market is declining and will probably continue to decline due to improved surgical techniques which minimize blood loss and a decrease in the number of open-heart bypass surgeries performed. The cardioPAT system, a surgical blood salvage system targeted at open heart surgeries when there is less blood loss, is designed to meet the market needs created by these improved surgical techniques. The cardioPAT can be used intra-operatively as well as post-operatively while the patient is in recovery.
 
The penetration of our OrthoPAT technology in the lower blood loss orthopedic procedures, including hip and knee replacement surgeries, continues to be an important growth opportunity. The OrthoPAT is the only system on the market designed to collect a patient’s blood lost during and after surgery. While cell salvage is not yet a standard of care for U.S. orthopedic procedures, we are positioning this device as an effective alternative to patient pre-donation or non-washed autotransfusion systems.
 
Another driver of growth in our hospital market is our TEG system. The TEG system is a diagnostic tool which allows surgeons to assess a patient’s hemostasis so the surgeon can then decide the best blood-related clinical treatment for the individual patient. TEG product line sales further strengthened in fiscal year 2010. This product is a promising growth opportunity as Hospitals adopt this technology as a standard practice in their blood management programs.
 
RESULTS OF OPERATIONS
 
Net Revenues by Geography
 
                                         
    April 3,
    March 28,
    March 29,
    % Increase
    % Increase
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
United States
  $ 303,682     $ 279,029     $ 232,865       8.8 %     19.8 %
International
    341,748       318,850       283,575       7.2 %     12.4 %
                                         
Net revenues
  $ 645,430     $ 597,879     $ 516,440       8.0 %     15.8 %
                                         
 
International Operations and the Impact of Foreign Exchange
 
Our principal operations are in the U.S., Europe, Japan and other parts of Asia. Our products are marketed in more than 80 countries around the world via a direct sales force as well as independent distributors.
 
Approximately 52.9%, 53.3%, and 54.9% of our revenues were generated outside the U.S. during fiscal year 2010, 2009, and 2008, respectively. During fiscal years 2010, 2009, and 2008, revenues from Japan accounted for approximately 17.0%, 16.3%, and 17.2% of our total revenues, respectively, and revenues from


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Europe comprised approximately 28.0%, 29.5%, and 30.1% of our total revenues, respectively. These sales are primarily conducted in local currencies, specifically the Japanese Yen and the Euro. Accordingly, our results of operations are significantly affected by changes in the value of the Yen and the Euro relative to the U.S. dollar. For fiscal year 2010 as compared to fiscal year 2009, the favorable effects of foreign exchange accounted for a 1.9% increase in sales. For fiscal year 2009 as compared to fiscal year 2008, the favorable effects of foreign exchange resulted in a 2.8% increase in sales.
 
Please see section entitled “Foreign Exchange” in management’s discussion for a more complete discussion of how foreign currency affects our business and our strategy to manage this exposure.
 
Net Revenues by Product Type
 
                                         
    April 3,
    March 28,
    March 29,
    % Increase
    % Increase
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
Disposables
  $ 560,318     $ 518,101     $ 444,130       8.1 %     16.7 %
Software solutions
    35,919       31,605       24,173       13.7 %     30.7 %
Equipment and other
    49,193       48,173       48,137       2.1 %     0.1 %
                                         
Net revenues
  $ 645,430     $ 597,879     $ 516,440       8.0 %     15.8 %
                                         
 
Disposables Revenue by Product Line
 
                                         
    April 3,
    March 28,
    March 29,
    % Increase
    % Increase
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
Plasma disposables
  $ 232,378     $ 202,176     $ 155,219       14.9 %     30.3 %
Blood bank disposables
                                       
Platelet
    151,026       143,420       136,148       5.3 %     5.3 %
Red Cell
    48,031       49,508       46,377       (3.0 )%     6.8 %
                                         
Subtotal
    199,057       192,928       182,525       3.2 %     5.7 %
                                         
Hospital disposables
                                       
Surgical
    69,942       67,697       66,250       3.3 %     2.2 %
OrthoPAT
    37,079       35,419       34,301       4.7 %     3.3 %
Diagnostic
    21,862       19,881       5,835       10.0 %     >100 %
                                         
      128,883       122,997       106,386       4.8 %     15.6 %
                                         
Total disposables revenue
  $ 560,318     $ 518,101     $ 444,130       8.1 %     16.7 %
                                         
 
Plasma
 
During fiscal year 2010, plasma disposable revenue increased 14.9%. Foreign exchange resulted in a 2.1% increase over fiscal year 2009. The remaining 12.8% increase was principally due to unit volume increases resulting from both market and share increases as well as price increases. The market increase is due to the demand for plasma derived pharmaceuticals. Demand for source plasma to make pharmaceuticals grew strongly earlier in the year and moderated at the end of the year.
 
During fiscal year 2009, plasma disposable revenue increased 30.3%. Foreign exchange resulted in a 1.9% increase over fiscal year 2008. The main reason for the remaining 28.4% increase was unit volume increases resulting from both market and share increases as well as modest price increases.
 
Platelet
 
During fiscal year 2010, platelet disposable revenue increased 5.3%. Foreign exchange resulted in a 4.0% increase in platelet disposable revenue over fiscal year 2009. The remaining 1.3% increase was due to growth


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in emerging European distribution markets and Asia. These increases were partially offset by decreases due to loss of market share in Europe.
 
During fiscal year 2009, platelet disposable revenue increased 5.3%. Foreign exchange resulted in a 5.6% increase in platelet disposable revenue over fiscal year 2008. Without the effect of currency, platelet revenue decreased 0.3%. This decrease was due to share loss in both Europe and Japan, as well as challenges in South Korea associated with the significant devaluation of South Korea’s currency, the Won. The decrease was partially offset by strength in North American and China and other emerging markets.
 
Red Cell
 
During fiscal year 2010, red cell disposable revenue decreased 3.0% compared to fiscal year 2009. Foreign exchange accounted for a decrease of 0.3%. Without this effect, disposables revenue decreased 2.7%. Our red cell products are sold primarily to blood collectors, such as blood banks and government agencies. Sales are driven by the total level of red cell collections, the percentage of those collections done with apheresis devices and our market share of those automated collections. The reduced demand for red cells experienced in fiscal year 2010 adversely impacted our red cell business. While the red cell business did not grow in fiscal year 2010, we believe that blood collectors imperative to improve operating efficiency and regulatory compliance, coupled with an expected return of donor shortages, will continue to provide important growth opportunities for our red cell technology in the future.
 
During fiscal year 2009, red cell disposable revenue increased 6.8% compared to fiscal year 2008. Foreign exchange accounted for an increase of 0.8%. Without this effect, disposables revenue increased 6.0%. With worldwide blood donation increasing in the low single digits in fiscal year 2009, sales increases were driven primarily by collectors adopting our apheresis technology over manual whole blood collection. The non-currency related increase of 6.0% was primarily due to additional equipment placements in North America and increased direct sales in Europe.
 
Hospital
 
The hospital product line includes the following brand platforms: the Cell Saver brand, the TEG brand, the OrthoPAT brand, the cardioPAT brand, and the SmartSuction Harmony products. During fiscal year 2010, hospital disposables revenue increased 4.8% compared to fiscal year 2009. Foreign exchange resulted in a 2.2% increase over fiscal year 2009. The remaining increase of 2.6% was the result of increases in each of the product lines as discussed below.
 
During fiscal year 2009, hospital disposables revenue increased 15.6% compared to fiscal year 2008. Foreign exchange resulted in a 2.0% increase over fiscal year 2008. The remaining increase of 13.6% was the result of increases in each of the product lines and the acquisition of the TEG products.
 
Surgical
 
During fiscal year 2010, revenues from our surgical disposables increased 3.3%. Surgical disposables revenue consists principally of the Cell Saver, cardioPAT, and Smart Suction Harmony products. Foreign exchange resulted in a 2.3% increase in surgical disposables revenue. Without the effect of currency, surgical disposables revenue increased 1.0%. This growth resulted from continued market share gains in Japan.
 
During fiscal year 2009, revenues from our surgical disposables increased 2.2%. Surgical disposables revenue consists principally of the Cell Saver, cardioPAT, and Smart Suction Harmony products. Foreign exchange resulted in a 2.3% increase in surgical disposables revenue. Without the effect of currency, surgical disposables revenue decreased 0.1%.
 
OrthoPAT
 
During fiscal year 2010, OrthoPAT disposables revenue increased 4.7% over fiscal year 2009. Foreign exchange resulted in a 0.7% increase in OrthoPAT revenue. Without the effect of currency, OrthoPAT disposables revenue increased 4.0%. Presently North America and Europe are the largest markets for the


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OrthoPAT product line. North American OrthoPAT revenues increased 6.5% in fiscal year 2010. Revenue growth accelerated throughout fiscal year 2010, as we worked with more customers using our IMPACT approach which establishes the value of using the product in a standard of care setting.
 
During fiscal year 2009, OrthoPAT disposables revenue increased 3.3% over fiscal year 2008. Foreign exchange resulted in a 1.8% increase in OrthoPAT revenue. Without the effect of currency, OrthoPAT disposables revenue increased 1.5%. The growth was driven by increases in Japan and European markets.
 
Diagnostics
 
During fiscal year 2010, diagnostics revenue increased 10.0% over fiscal year 2009. Foreign exchange resulted in a 4.7% increase in diagnostics revenue. Without the effect of currency, diagnostics revenue increased 5.3%. Similar to our OrthoPAT product line, diagnostics revenue growth accelerated throughout fiscal year 2010 as we worked with customers using our IMPACT program to adopt this technology as a key component of their blood management program.
 
In fiscal year 2009, the growth was driven by the impact of the acquisition of the TEG product line during fiscal year 2008. The TEG product line had sales of $19.8 million in fiscal year 2009 as compared to $5.8 million in fiscal year 2008. The TEG product line was added through its acquisition from Haemoscope Corporation in the third quarter of fiscal year 2008. In the first quarter of fiscal year 2009, Medicell (previously, Haemoscope’s UK distributor) was acquired.
 
Other Revenues
 
                                         
    April 3,
    March 28,
    March 29,
    % Increase
    % Increase
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
Software solutions
  $ 35,919     $ 31,605     $ 24,173       13.7 %     30.7 %
Equipment and other
    49,193       48,173       48,137       2.1 %     0.1 %
                                         
Net revenues
  $ 85,112     $ 79,778     $ 72,310       6.7 %     10.3 %
                                         
 
Our software solutions revenues include revenue from software sales which includes per collection or monthly subscription fees for the license and support of the software as well as hosting services. Equipment and other revenue includes revenues from sales of our devices and services revenues from repairs performed under preventive maintenance contracts or emergency service visits, spare part sales, various services and training programs, and licensed technology.
 
During fiscal year 2010, software solutions revenues increased 13.7% over fiscal year 2009. Foreign exchange had only a minor impact on the results as sales were primarily in U.S. dollars. The acquisition of Altivation and L’Attitude Medical Systems (Neoteric) contributed significantly to the software solutions growth in fiscal year 2010.
 
During fiscal year 2009, software solutions revenues increased 30.7% as compared to fiscal year 2008. Foreign exchange had only a minor impact on the results as sales were primarily in U.S. dollars. The software solutions increase during fiscal year 2009 was driven by three factors: (1) increased sales to commercial plasma customers, (2) increase sales to the U.S. Department of Defense, and (3) the recognition of $2.0 million of revenue, that would otherwise not have been recognizable until fiscal year 2010, in the fourth quarter of fiscal year 2009 as a result of a customer’s decision to forego the option year on a software development contract.
 
During fiscal year 2010, revenue from equipment and other sales increased 2.1% over fiscal year 2009. Foreign exchange resulted in a 2.6% decrease in equipment revenue. Absent the decrease attributable to foreign exchange, revenues increased 4.7% due to the acquisition of the SEBRA product lines, and revenues from a license of the Arryx technology.
 
During fiscal year 2009, revenue from equipment and other sales were consistent with fiscal year 2008.


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Gross Profit
 
                                         
    April 3,
  March 28,
  March 29,
  % Increase
  % Increase
    2010   2009   2008   10 vs. 09   09 vs. 08
    (In thousands)        
 
Gross profit
  $ 337,481     $ 308,170     $ 257,725       9.5 %     19.6 %
 
During fiscal year 2010, gross profit increased 9.5%. Foreign exchange resulted in a 4.5% increase from fiscal year 2009. The remaining increase of 5.0% was due primarily to the net increase in sales and manufacturing efficiencies. This increase was partly offset by increased spending on quality initiatives. Our gross profit margin percent improved 80 basis points for fiscal year 2010 as compared to fiscal year 2009. Major factors impacting the gross margin percent improvement of 80 basis points included foreign exchange, manufacturing efficiencies, and fixed cost leverage. These improvements were partly offset by changes in product mix driven by higher sales of lower gross margin plasma products and aforementioned increase in spending on quality initiatives.
 
During fiscal year 2009, gross profit increased 19.6%. Foreign exchange resulted in a 5.8% increase from fiscal year 2008. The remaining increase of 13.8% was due primarily to the net increase in sales and manufacturing efficiencies. Our gross profit margin percent improved 160 basis points for fiscal year 2009 as compared to fiscal year 2008. Major factors impacting the gross margin percent improvement of 160 basis points included foreign exchange, manufacturing efficiencies, and fixed cost leverage.
 
Operating Expenses
 
                                         
                    % (Decrease)
    April 3,
  March 28,
  March 29,
  % Increase
  /Increase
    2010   2009   2008   10 vs. 09   09 vs. 08
    (In thousands)        
 
Research, development and engineering
  $ 26,376     $ 23,859     $ 24,322       10.5 %     (1.9 )%
     % of net revenues
    4.1 %     4.0 %     4.7 %                
Selling, general and administrative
  $ 227,824     $ 198,744     $ 163,116       14.6 %     21.8 %
     % of net revenues
    35.3 %     33.2 %     31.6 %                
Total operating expense
  $ 254,200     $ 222,603     $ 187,438       14.2 %     18.8 %
     % of net revenues
    39.4 %     37.2 %     36.3 %                
 
Research, Development and Engineering
 
During fiscal year 2010, research, development and engineering expenses increased 10.5%. Foreign exchange resulted in a 1.4% increase in research, development and engineering during the year. The increase in fiscal year 2010 was attributable to increased new product spending on our automated whole blood collection device, and a new cell salvage system — the Cell Saver Elitetm.
 
During fiscal year 2009, research, development and engineering expenses decreased 1.9%. Foreign exchange resulted in a 0.7% decrease in research, development and engineering during the year. The decrease in fiscal year 2009 was attributable to lower spending earlier in the fiscal year, as we rationalized our research and development portfolio.
 
Selling, General and Administrative
 
During fiscal year 2010, selling, general and administrative expenses increased 14.6%. The effect of foreign exchange accounted for an increase of 0.4%. Excluding the impact of foreign exchange, selling, general and administrative expense increased 14.2% for fiscal year 2010 as compared to fiscal year 2009. The increase was due largely to several factors identified below:
 
  •  Increased selling, general and administrative costs of $6.0 million related to newly acquired businesses
 
  •  Increased marketing spending behind our blood management solutions initiatives including our IMPACT selling approach and related tools.


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  •  General selling, marketing and handling costs necessary to support the increase in sales.
 
  •  An increase in restructuring costs of $1.6 million. Restructuring costs, largely employee separation benefits, totaled $8.6 million in fiscal year 2010. These costs were associated with the integration of the Global Med acquisition and the formulation of a customer solutions implementation group.
 
  •  Costs to consummate the acquisition of Global Med which totaled $2.2 million, and included due diligence and legal fees, as well as costs to produce the tender offer document and advertise our offer.
 
  •  These increases were offset by reductions in performance based compensation expense of approximately $6.1 million, as we did not offer a special bonus this year, and our financial performance was at a lower payout point against pre-established performance targets.
 
During fiscal year 2009, selling, general and administrative expenses increased 21.8%. The effect of foreign exchange accounted for an increase of 1.5%. Excluding the impact of foreign exchange, selling, general and administrative expense increased 20.3% for fiscal year 2009 as compared to fiscal year 2008. The increase was due largely to several factors identified below:
 
  •  Increased employee performance based compensation expense of $8.8 million based on several factors, including: strong Company performance versus pre-established targets resulting in formula driven payouts to eligible employees in accordance with the terms of the management bonus plan and a $2.8 million discretionary bonus to company wide employees (excluding executive management) in fiscal year 2009, contrasted with lower than target performance in fiscal year 2008.
 
  •  Increased selling, general and administrative costs of $5.5 million relating to the acquisition of Haemoscope (including Medicell).
 
  •  Legal costs of $2.0 million resulting primarily from a lawsuit that sought an injunction and damages for infringement of a Haemonetics patent. In January 2009, a jury found that our patent was infringed and awarded Haemonetics $15.7 million. The court has not yet ruled on the parties’ post trial motions.
 
  •  General selling, marketing and handling costs necessary to support the 15.8% increase in sales.
 
  •  In fiscal year 2009, we incurred total restructuring and other transformation related costs of approximately $7.0 million at consistent levels with those costs incurred in fiscal year 2008.
 
Contingent Consideration Income
 
Under new accounting rules for business combinations (specifically, ASC Topic 805, Business Combinations (formerly known as Statement No. 141(R), Business Combinations)), we established a liability for payments that we might make in the future to former shareholders of the L’Attitude Medical Systems that are tied to the performance of the Blood Track business for the first three years post acquisition, beginning with fiscal year 2010. During fiscal year 2010, this business did not meet the necessary thresholds of performance for the former shareholders to receive additional performance payments and we recorded an adjustment to the fair value of the contingent consideration as contingent consideration income of $2.3 million.
 
Asset Impairments
 
During fiscal year 2010 we recorded intangible asset write downs totaling $15.7 million. The impairment related to two software assets: the Symphony blood bank software system totaling $3.5 million, which we will no longer market in favor of the recently acquired Global Med El Dorado blood bank software system, and software for our Portico platelet apheresis device totaling $12.2 million, that we have abandoned as we prioritize superior research and development initiatives.


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Operating Income
 
                                         
    April 3,
  March 28,
  March 29,
  % Decrease
  % Increase
    2010   2009   2008   10 vs. 09   09 vs. 08
    (In thousands)        
 
Operating Income
  $ 83,281     $ 85,567     $ 70,287       (2.7 )%     21.7 %
% of net sales
    12.9 %     14.3 %     13.6 %                
 
During fiscal year 2010, operating income decreased 2.7% compared to fiscal year 2009. Foreign exchange resulted in a 14.8% increase in operating income during the fiscal year. Without the effects of foreign currency, operating income decreased 17.5% over fiscal year 2009. Several items contributed to the reduction in operating income, including:
 
  •  The impairment of two intangible assets totaling $15.7 million.
 
  •  Restructuring costs totaling $8.6 million, primarily separation benefits, associated with the integration of the Global Med Acquisition (under new accounting rules costs to separate employees of Global Med are now expensed), and the implementation of a customer solutions implementation group.
 
  •  Costs to consummate the acquisition of Global Med totaling $2.2 million.
 
  •  Increased operating expenses related to new business acquisitions, blood management solutions, research and development, and our enterprise resource planning system.
 
The above items were partially offset by
 
  •  Income totaling $2.3 million resulting from the remeasurement of the fair value of contingent consideration from our Neoteric acquisition.
 
  •  The decrease of $6.1 million in employee bonus expense.
 
  •  The increases in gross profit described above
 
During fiscal year 2009, operating income increased 21.7% compared to fiscal year 2008. Foreign exchange resulted in a 16.7% increase in operating income during the fiscal year. Without the effects of foreign currency, operating income increased 5.0% over fiscal year 2008. The increase is due primarily to sales and gross profit growth, partially offset by increases in operating expenses.
 
Other Income (Expense), Net
 
                                         
                      % Increase
       
    April 3,
    March 28,
    March 29,
    /Decrease
    % Decrease
 
    2010     2009     2008     10 vs. 09     09 vs. 08  
    (In thousands)              
 
Interest expense
  $ (742 )   $ (64 )   $ (377 )     >100 %     (83.0 )%
Interest income
  $ 399     $ 1,968     $ 5,418       (79.7 )%     (63.7 )%
Other (expense)/income, net
  $ (1,668 )   $ (2,469 )   $ 1,974       (32.4 )%     >(100 )%
                                         
Total other (expense)/income, net
  $ (2,011 )   $ (565 )   $ 7,015       >100 %     >(100 )%
                                         
 
During fiscal year 2010, total other expense, net increased by more than 100% as compared to fiscal year 2009. The main reasons for the increase is the net of (i) the increase in interest expense due to the accounting relating to the contingent consideration on a recent acquisition, (ii) the decrease in interest income due to significantly reduced investment yields, and (iii) a decrease in hedge points expenses. Points on forward contracts are amounts, either expensed or earned, based on the interest rate differential between two foreign currencies in a forward hedge contract.
 
During fiscal year 2009, total other expense, net decreased 108.1% as compared to fiscal year 2008 due primarily to a decrease in interest income and a decrease in other income/(expense), net. The decrease in interest income was the result of a lower investment yield. The reduction in other income/(expense), net was


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the result of increased foreign exchange losses on foreign currency denominated assets and lower hedge points on forward contracts.
 
Taxes
 
                                         
                Tax Rate
  Tax Rate
    April 3,
  March 28,
  March 29,
  Decrease
  Decrease
    2010   2009   2008   10 vs. 09   09 vs. 08
 
Reported Tax Rate
    28.2 %     30.2 %     32.8 %     (2.0 )%     (2.6 )%
 
Our reported tax rate includes two principal components: an expected annual tax rate and discrete items resulting in additional provisions or benefits that are recorded in the quarter that an event arises. Events or items that give rise to discrete recognition include finalizing audit examinations for open tax years, a statute of limitation’s expiration, or a stock acquisition.
 
The reported tax rate was 28.2% for the current fiscal year. The reported tax rate includes:
 
  •  A 29.6% effective annual rate which reflects tax benefits and expenses from foreign taxes, domestic manufacturing deduction, state provisions, and stock compensation not deductible in all jurisdictions.
 
  •  A $1.6 million benefit from the remittance of a Japanese dividend before the restructuring of that subsidiary.
 
  •  A $0.5 million increase in tax expense as a determination of our eligibility for a reduced Swiss income tax rate has not been finalized.
 
  •  A $0.3 million reversal of previously accrued income taxes because of the finalization of our federal and state tax returns and the expiration of domestic statutes of limitations.
 
The reported tax rate was 30.2% for the 2009 fiscal year. The reported tax rate includes:
 
  •  A 32.8% effective annual rate which reflects tax benefits from foreign taxes (including our Swiss principal) and a domestic manufacturing deduction, state provision, and stock compensation expenses not deductible in all jurisdictions.
 
  •  A $2.1 million reversal of previously accrued income taxes because of the expiration of foreign and domestic statute of limitations.
 
  •  A $0.8 million benefit from the remittance of a Japanese dividend before the restructuring of that subsidiary.
 
  •  A $0.3 million increase in tax expense due to finalizing our prior year income tax return.
 
  •  A $0.7 million increase in tax expense for potential foreign and state tax assessment.
 
Critical Accounting Policies
 
Our significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates.
 
The accounting policies identified as critical are as follows:
 
Revenue Recognition
 
Our revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 605, Revenue Recognition (formerly known as SAB No. 104, Revenue Recognition, and as EITF 00-21, Revenue Arrangements with Multiple Deliverables), and ASC Topic 985-605, Software (formerly known as Statement of Position 97-2, Software Revenue Recognition, as amended). These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product


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delivery, including customer acceptance, has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. When more than one element such as equipment, disposables and services are contained in a single arrangement, we allocate revenue between the elements based on each element’s relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, which constitutes vendor specific objective evidence as defined under under ASC Topic 985-605, or in cases when the item is not sold separately, by other objective evidence as defined in ASC Topic 605.
 
We generally do not allow our customers to return products. We offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned.
 
Inventories
 
Inventories are stated at the lower of the actual cost to purchase and/or manufacture or the current estimated market value of the inventory. On a quarterly basis, inventory quantities on hand are reviewed and an analysis of the provision for excess and obsolete inventory is performed based primarily on our estimates of product demand and production requirements for the next twenty-four months. A change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results.
 
Goodwill and Other Intangible Assets
 
Intangible assets acquired in a business combination, including licensed technology, are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. We amortize our other intangible assets over their useful lives using the estimated economic benefit method, as applicable.
 
Goodwill and certain other intangible assets, determined to have an indefinite life, are not amortized. Instead these assets are reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles — Goodwill and Other (formerly known as Statement No. 142, Goodwill and Other Intangible Assets). We perform our annual impairment test on the first day of our fiscal fourth quarter. We have three reporting units. The test is based on a discounted cash flow analysis for each reporting unit. The test showed no evidence of impairment to our goodwill and other indefinite lived assets for either fiscal year 2010 or 2009 and demonstrated that the fair value of each reporting unit significantly exceeded the reporting unit’s carrying value in each period.
 
We review our intangible assets, subject to amortization, and their related useful lives at least once a year to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. We conduct more frequent impairment assessments if certain conditions exist, including: a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for our products or changes in the size of the market for our products.
 
An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. Fair value is determined using different methodologies depending upon the nature of the underlying asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life.


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Property, Plant and Equipment
 
Property, plant and equipment are depreciated over their useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue. Any change in conditions that would cause us to change our estimate as to the useful lives of a group or class of assets may significantly impact our depreciation expense on a prospective basis. Haemonetics’ equipment includes devices that we have placed at our customers under contractual arrangements that allow them to use the device in exchange for rental payments or the purchase of disposables. In addition to periodically reviewing the useful lives of these devices, we also periodically perform reviews to determine if a group of these devices is impaired. To conduct these reviews we must estimate the future amount and timing of demand for these devices. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could have a significant impact on the value of equipment and our reported operating results.
 
Consistent with the impairment tests noted above for intangible assets subject to amortization, we review our property, plant, and equipment assets, subject to depreciation, and their related useful lives at least once a year, or more frequently if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. There were no indicators of impairment in either fiscal year 2010 or 2009.
 
Capitalized Software Costs
 
Software development costs have been capitalized in accordance with ASC Topic 985-20, Software (formerly known as SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed), which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Technological feasibility is established when we have a detailed design of the software and when research and development activities on the underlying device, if applicable, are completed. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. We review the net realizable value of capitalized software assets periodically to assess the recoverability of amounts capitalized.
 
At the end of 2010, based on a review of ongoing development plans for our next generation platelet apheresis products (Portico), we abandoned and wrote off $12.2 million associated with previously capitalized software development costs. Additionally, in connection with the acquisition of Global Med we elected to no longer market the Symphony blood bank donation management system in favor of Global Med’s El Dorado application. As a result we wrote off the carrying value totaling approximately $3.5 million.
 
Income Taxes
 
The income tax provision is calculated for all jurisdictions in which we operate. This process involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and a valuation allowance is established with a corresponding additional income tax provision recorded in our consolidated statements of income if their recovery is not considered likely. The provision for income taxes could also be materially impacted if actual taxes due differ from our earlier estimates.
 
We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Uncertain tax positions are unrecognized tax benefits for which reserves have been established. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.
 
We file income tax returns in all jurisdictions in which we operate. We establish reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to


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permanent differences and interest applicable to both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments are made as events occur that warrant modification.
 
Stock-Based Compensation
 
We use the Black-Scholes option-pricing model to calculate the grant-date fair value of our stock options. The following assumptions, which involve the use of judgment by management, are used in the computation of the grant-date fair value of our stock options:
 
Expected Volatility — We have principally used our historical volatility as a basis to estimate expected volatility in our valuation of stock options.
 
Expected Term — We estimate the expected term of our options using historical exercise and forfeiture data. We believe that this historical data is currently the best estimate of the expected term of our new option grants.
 
Additionally, after determining the fair value of our stock options, we use judgment in establishing an estimated forfeiture rate, to determine the amount of stock based compensation to record each period:
 
Estimated Forfeiture Rate — We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8% to all unvested stock options as of April 3, 2010, which represents the portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for those shares that vest.
 
Valuation of Acquisitions
 
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the dates of acquisition, including acquired identifiable intangible assets, and purchased research and development. We base the fair value of identifiable intangible assets on detailed valuations that use historical information and market assumptions based upon the assumptions of a market participant. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated cash flows and discount rates, and alternative estimated useful life assumptions could result in different purchase price allocations, and intangible asset amortization expense in current and future periods.
 
In certain acquisitions, we have earn out arrangements or contingent consideration to provide potential future payments to the seller for achieving certain agreed-upon financial targets. We record the contingent consideration at its fair value at the acquisition date. Generally, we have entered into arrangements with contingent consideration that require payments in cash. As such, each quarter, we revalue the contingent consideration obligations associated with certain acquisitions to their then fair value and record the change in the fair value as contingent consideration income or expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates, and changes in assumed probability adjustments with respect to regulatory approval. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration income or expense we record in any given period.


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Liquidity and Capital Resources
 
The following table contains certain key performance indicators that depict our liquidity and cash flow position:
 
                         
    April 3,
    March 28,
    March 29,
 
    2010     2009     2008  
    (Dollars in thousands)  
 
Cash & cash equivalents
  $ 141,562     $ 156,721     $ 133,553  
Working capital
  $ 249,646     $ 289,530     $ 261,757  
Current ratio
    2.8       4.1       3.7  
Net cash position(1)
  $ 120,911     $ 150,683     $ 121,190  
Days sales outstanding (DSO)
    59       67       78  
Disposables finished goods inventory turnover
    5.4       7.1       6.9  
 
 
(1) Net cash position is the sum of cash and cash equivalents less total debt.
 
Our primary sources of capital include cash and cash equivalents, internally generated cash flows and bank borrowings. We believe these sources to be sufficient to fund our requirements, which are primarily capital expenditures (including enterprise resource planning systems and devices), share repurchases, including a $50.0 million share repurchase program authorized by the Board of Directors in April 2010, acquisitions, new business and product development and working capital for at least the next twelve months.
 
                                         
                      $ Increase/
    $ Increase/
 
    April 3,
    March 28,
    March 29,
    (Decrease)
    (Decrease)
 
    2010     2009     2008     10 vs 09     09 vs 08  
    (In thousands)  
 
Net cash provided by (used in):
                                       
Operating activities
  $ 130,668     $ 116,364     $ 77,669     $ 14,304     $ 38,695  
Investing activities
    (132,335 )     (60,000 )     (102,847 )     72,335       (42,847 )
Financing activities
    (13,970 )     (30,737 )     (73,228 )     (16,767 )     (42,491 )
Effect of exchange rate changes on cash
    478       (2,459 )     2,732       2,937       (5,191 )
                                         
Net increase/(decrease) in cash and cash equivalents:
  $ (15,159 )   $ 23,168     $ (95,674 )   $ (38,327 )   $ 118,842  
                                         
 
Cash Flow Overview:
 
The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In comparing spot exchange rates at April 3, 2010 versus March 28, 2009 and at March 28, 2009 versus March 29, 2008, (i) the European currencies, primarily the Euro, strengthened and weakened, respectively, against the U.S. dollar and (ii) the Yen strengthened against the U.S. dollar during both comparison periods.
 
In fiscal year 2010, the Company repurchased approximately 0.7 million shares of its common stock for an aggregate purchase price of $40.0 million. This completed a $40.0 million share repurchase program that was announced in May 2009.
 
In fiscal year 2009, the Company repurchased approximately 1.1 million shares of its common stock for an aggregate purchase price of $60.0 million. This completed a $60.0 million share repurchase program that was announced in May 2008.
 
In fiscal year 2008, the Company repurchased approximately 1.46 million shares of its common stock for an aggregate purchase price of $75.0 million. This completed a $75.0 million share repurchase that was announced in May 2007.


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The Company reflects stock repurchases in its financial statements on a “trade date” basis and as Authorized Unissued shares (Haemonetics is a Massachusetts company and Massachusetts Law mandates that repurchased shares are to be treated as authorized but unissued).
 
In our April 6, 2010 press release, the Company announced that its Board of Directors approved the repurchase of up to $50.0 million worth of Company shares during fiscal year 2011.
 
FISCAL YEAR 2010 AS COMPARED TO FISCAL YEAR 2009
 
Operating Activities:
 
Net cash provided by operating activities increased $14.3 million in 2010 as compared to 2009 due primarily to:
 
  •  Increased net income after non-cash expenses,
 
  •  $4.4 million decrease in accounts receivable due to increased collections and improvements in days sales outstanding during the fiscal year,
 
  •  $9.6 million decreased investment in inventory,
 
  •  $10.2 million reduction in tax payments,
 
partially offset by:
 
  •  $14.8 million decrease in accounts payable and accrued expenses primarily due to the payment of fiscal year 2009 employee performance bonuses worldwide and discretionary bonus for extraordinary performance to all employees other than the Chief Executive Officer and certain other executives,
 
  •  $9.5 million increase in other assets and other long-term liabilities.
 
Investing Activities:
 
Net cash used in investing activities increased $72.3 million in 2010 as compared to 2009 due primarily to the $71.8 million cash used for acquisitions during the fiscal year which was $77.8 million in fiscal year 2010 compared to the $6.0 million in fiscal year 2009.
 
Financing Activities:
 
Net cash used by financing activities decreased by $16.8 million due to:
 
  •  $40.0 million used to repurchase shares of Company common stock during fiscal year 2010 as compared to the $60.0 million used in fiscal year 2009.
 
  •  $7.5 million increase in short term notes payable.
 
partially offset by:
 
  •  $8.1 million decrease in exercise of stock options.
 
  •  $7.0 million decrease in tax benefit on exercise of stock options.
 
FISCAL YEAR 2009 AS COMPARED TO FISCAL YEAR 2008
 
Operating Activities:
 
Net cash provided by operating activities increased $38.7 million in 2009 as compared to 2008 due primarily to:
 
  •  $7.3 million increase in net income,
 
  •  $15.6 million increase in cash provided by non-cash items,


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  •  $18.2 million reduced investment in accounts receivable due to improvements in days sales outstanding that outpaced business growth,
 
  •  $5.2 million reduced investment in prepaid income taxes,
 
partially offset by
 
  •  $8.4 million increased investment in inventories associated with increased levels of business and preparation for the subsequent implementation phase of our ERP system.
 
Investing Activities:
 
Net cash used in investing activities decreased $42.8 million in 2009 as compared to 2008 due primarily to the $40.9 million decreased investment in acquisitions and the $1.4 million decrease in capital expenditures on property, plant and equipment.
 
Financing Activities:
 
Net cash used by financing activities decreased by $42.5 million in 2009 as compared to 2008 due primarily to:
 
  •  $15.0 million decrease in cash expended relating to stock repurchases,
 
  •  $14.0 million increase in exercise of stock options and tax benefit of stock compensation,
 
  •  $13.1 million decrease in the payments against short-term revolving credit agreements.
 
Contractual Obligations and Contingencies
 
A summary of our contractual and commercial commitments as of April 3, 2010, is as follows (for more information concerning our debt see Note 8 to the consolidated financial statements and for our operating lease obligations see Note 10):
 
                                         
    Payments Due by Period  
    Total     Less Than 1 Year     1-3 Years     4-5 Years     After 5 Years  
    (In thousands)  
 
Debt
  $ 20,651     $ 16,062     $ 1,713     $ 2,025     $ 851  
Operating leases
  $ 21,711     $ 6,930     $ 8,510     $ 2,784     $ 3,487  
Purchase commitments*
  $ 84,331     $ 84,331                    
                                         
Total contractual obligations
  $ 126,693     $ 107,323     $ 10,223     $ 4,809     $ 4,338  
                                         
 
 
* Includes amounts we are committed to spend on purchase orders entered in the normal course of business for capital equipment and for the purpose of manufacturing our products including contract manufacturers, specifically Nova Biomedical, for the purchase of devices and JMS Co. Ltd., and Kawasumi Laboratories for the manufacture of certain disposable products. The majority of our operating expense spending does not require any advance commitment.
 
Contingent Commitments
 
Under new accounting rules for business combinations (specifically, ASC Topic 805, Business Combinations (formerly known as Statement No. 141(R), Business Combinations)), we established a liability for payments that we might make in the future to former shareholders of the L’Attitude Medical Systems that are tied to the performance of the Blood Track business for the first three years post acquisition, beginning with fiscal year 2010. During the fourth quarter of fiscal year 2010, it became evident that the business would not achieve revenue growth milestones for fiscal year 2010. As such, we reduced the contingent liability by $2.3 million and recorded the adjustments as contingent consideration income in the statement of operations. The ending liability balance is $1.8 million at April 3, 2010.


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In December 2005, we filed a lawsuit against Baxter Healthcare SA and Fenwal Inc. in Massachusetts federal district court, seeking an injunction and damages on account of Baxter’s infringement of a Haemonetics patent, through the sale of Baxter’s ALYX brand automated red cell collection system, a competitor of our automated red cell collection systems. In March 2007, Baxter sold the Transfusion Technologies Division (which markets the ALYX product) to private investors, TPG, and Maverick Capital, Ltd. The new company which resulted from the sale was renamed Fenwal. In January 2009, a jury found that the Fenwal ALYX system infringed Haemonetics’ patent and awarded us $15.7 million in damages for past infringement. On June 2, 2009, the court ruled that, in addition to paying the damages awarded by the jury, Fenwal must stop selling the ALYX consumable by December 1, 2010 and must pay Haemonetics a 10% royalty on ALYX consumable net sales from January 30, 2009 until December 1, 2010 when the injunction takes effect. In addition, the court awarded pre-judgment interest at 5% on the unpaid damages awarded. On August 19, 2009, an amended judgment was issued under which Haemonetics was awarded $11.3 million for lost profits suffered as a result of the infringement, $4.4 million in royalty damages suffered as a result of the infringement, and prejudgment interest of $2.3 million for a total award of $18.0 million. Fenwal and Baxter have appealed these rulings to the United States Court of Appeals for the Federal Circuit. The damages have not been paid and the royalties are being escrowed pending a decision on the appeal. On December 16, 2009, the U.S. Patent Office granted a request by Fenwal for the ex-parte re-examination of the Haemonetics patent, and that re-examination process is proceeding.
 
On December 7, 2009, Fenwal had announced that it began shipping a red cell collection kit with a modified separation chamber, and that it is discontinuing sales of its original ALYX consumable kit. We believe this new collection kit also infringes our patent. On December 14, 2009, we filed a new infringement suit in Massachusetts federal district court seeking an injunction and damages from Fenwal’s sale of this new consumable.
 
Inflation
 
We do not believe that inflation had a significant impact on our results of operations for the periods presented. Historically, we believe we have been able to mitigate the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products. We continue to monitor inflation pressures generally and raw materials indices that may affect our procurement and production costs.
 
Foreign Exchange
 
Our revenues generated outside the U.S. in local currencies approximated 52.9% for fiscal year 2010, yet our reporting currency is the U.S. dollar. Foreign exchange risk arises because we engage in business in foreign countries in local currency. Exposure is partially mitigated by producing and sourcing product in local currency and expenses incurred by local sales offices. However, whenever the U.S. dollar strengthens relative to the other major currencies, there is an adverse affect on our results of operations and alternatively, whenever the U.S. dollar weakens relative to the other major currencies there is a positive effect on our results of operations.
 
Our primary foreign currency exposures in relation to the U.S. dollar are the Euro and the Japanese Yen. In response to the sharply increased volatility in the foreign exchange rates, we entered into forward contracts to hedge the anticipated cash flows from forecasted British Pound and Canadian Dollar denominated costs.
 
It is our policy to minimize for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge the anticipated cash flows from forecasted foreign currency denominated sales and costs. Hedging through the use of forward contracts does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year in advance of the foreign currency denominated cash flows, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. We enter into forward contracts that mature one month prior to the anticipated timing of the forecasted foreign currency denominated sales. These contracts are designated as cash flow hedges and are intended to lock in the


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expected cash flows of forecasted foreign currency denominated sales and costs at the available spot rate. Actual spot rate gains and losses on these contracts are recorded in sales and costs, at the same time the underlying transactions being hedged are recorded. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results.
 
Presented below are the spot rates for our Euro and Japanese Yen cash flow hedges that settled in fiscal year 2010 and 2009 or are presently outstanding. These hedges cover our long foreign currency positions that result from our sales in Europe and Japan. The table also shows the relative strengthening or weakening of the spot rates associated with those hedge contracts versus the spot rates in the contracts that settled in the prior comparable period.
 
                                                                 
    First
  Strengthen
  Second
  Strengthen
  Third
  Strengthen
  Fourth
  Strengthen
    Quarter   /(Weaken)   Quarter   /(Weaken)   Quarter   /(Weaken)   Quarter   /(Weaken)
 
Euro — Hedge Spot Rate (US$ per Euro)
FY09
    1.3453               1.3704               1.4396               1.4908          
FY10
    1.5681       16.6 %     1.4890       8.6 %     1.3192       (8.4 )%     1.2812       (14.1 )%
FY11
    1.3582       (13.4 )%     1.4272       (4.2 )%     1.4817       12.3 %     1.3689       6.8 %
Japanese Yen — Hedge Spot Rate (JPY per US$)
FY09
    120.6432               116.7411               112.8810               106.2511          
FY10
    105.2792       12.7 %     105.1132       10.0 %     96.3791       14.6 %     93.4950       12.0 %
FY11
    98.1677       6.8 %     94.9066       9.7 %     89.13       7.5 %     89.7839       4.0 %
 
 
* We generally place our cash flow hedge contracts on a rolling twelve month basis. Accordingly, the only hedge contracts placed for fiscal year 2011 are for the first, second, and third quarters.
 
During the fiscal year ended March 28, 2009, in response to the global economic turmoil and sharply increased volatility in the foreign exchange rates, we added to our hedging program. In addition to hedging the anticipated cash flows from forecasted Japanese Yen and Euro denominated sales, we entered into forward contracts to hedge the anticipated cash flows from forecasted British Pound and Canadian Dollar denominated expenses. The index referenced above does not include the British Pound hedge spot rates.
 
Recent Accounting Pronouncements
 
In February 2010, the FASB issued Accounting Standards Update No. 2010-09, Subsequent Events, an amendment to ASC Topic 855, Subsequent Events. This update addresses practice issues for evaluating and disclosing subsequent events with respect to processes around issuing financial statements and SEC registration requirements. The guidance is effective immediately.
 
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements. This update amends ASC Topic 820, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding fair value measurements. Specifically, the update requires entities to disclose (i) the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, (ii) the reasons for any transfers in or out of Level 3, and (iii) information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosures, the update also amends ASC Topic 820 to clarify certain existing disclosure requirements. The update became effective for our fiscal year 2010 and its impact is reflected in the notes to our consolidated financial statements for the year ended April 3, 2010.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to FASB ASC topic 605, Revenue Recognition, and Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to FASB ASC subtopic 985-605, Software — Revenue Recognition (the “Updates”). The Updates provide guidance on arrangements that include software elements, including tangible products that have software components that are essential to the functionality of the tangible product and will no longer be within the scope of the software revenue recognition guidance, and software-enabled products that will now be subject to other relevant revenue


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recognition guidance. The Updates provide authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of fair value for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The Updates also include new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The Updates must be adopted in the same period using the same transition method and are effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is also permitted; however, early adoption during an interim period requires retrospective application from the beginning of the fiscal year. The Company is currently assessing the timing and method of adoption, as well as the possible impact of this guidance on its financial position and results of operations.
 
Under ASC Topic 805, Business Combinations (formerly known as FASB Statement No. 141(R), Business Combinations), the FASB requires that all business combinations use the acquisition method (formerly the purchase method) and that an acquiring entity be identified in all business combinations. ASC Topic 805 also requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This statement became effective for our fiscal year 2010 and its impact is reflected in our financial position and results of operations for the year ended April 3, 2010. The Company’s acquisition of L’Attitude Medical Systems, Inc. (“Neoteric”), asset acquisition of the blood collection and processing business unit of Engineering and Research Associates, Inc. (“SEBRA”), and stock purchase of Global Med Technoligies, Inc. (“Global Med”) during fiscal year 2010 were accounted for in accordance to the requirements of ASC Topic 805 — see Note 3.
 
In December 2009, the FASB issued Accounting Standards Update No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, an amendment to FASB ASC Topic 810, Consolidations. ASU No. 2009-17 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. ASU No. 2009-17 is effective for fiscal years beginning after November 15, 2009, which is the outset for fiscal year 2011 for the Company. The Company is currently evaluating the impact, if any, that ASU No. 2009-17 may have on the Company’s financial condition and results of operations.
 
Cautionary Statement Regarding Forward-Looking Information
 
Statements contained in this report, as well as oral statements we make which are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed,” and similar expressions, are intended to identify forward looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. These statements are based on our current expectations and estimates as to prospective events and circumstances about which we can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. As it is not possible to predict every new factor that may emerge, forward-looking statements should not be relied upon as a prediction of our actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include technological advances in the medical field and our standards for transfusion medicine and our ability to successfully implement products that incorporate such advances and standards, product demand and market acceptance of our products, regulatory


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uncertainties, the effect of economic and political conditions, the impact of competitive products and pricing, the impact of industry consolidation, foreign currency exchange rates, changes in customers’ ordering patterns, the effect of industry consolidation as seen in the plasma market, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate. The foregoing list should not be construed as exhaustive.
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
The Company’s exposures relative to market risk are due principally to foreign exchange risk and interest rate risk.
 
Foreign Exchange Risk
 
See the section entitled Foreign Exchange for a discussion of how foreign currency affects our business. It is our policy to minimize for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales. We do not use the financial instruments for speculative or trading activities. At April 3, 2010, we held the following significant foreign exchange contracts to hedge the anticipated cash flows from forecasted foreign currency denominated sales outstanding:
 
                                         
          Weighted
    Weighted
             
    (BUY)/SELL
    Spot
    Forward
             
Hedged Currency
  Local Currency     Contract Rate     Contract Rate     Fair Value     Maturity  
 
Euro
    6,633,736       1.371       1.369     $ 183,168       Apr 2010 - May 2010  
Euro
    8,816,747       1.427       1.428     $ 744,964       Jun 2010 - Aug 2010  
Euro
    10,242,532       1.482       1.478     $ 1,348,293       Sep 2010 - Nov 2010  
Euro
    10,370,808       1.369       1.367     $ 255,659       Dec 2010 - Feb 2011  
Japanese Yen
    948,098,509       98.02 per US$       97.31 per US$     $ (466,466 )     Apr 2010 -May 2010  
Japanese Yen
    1,392,004,698       94.91 per US$       94.35 per US$     $ (245,008 )     Jun 2010 -Aug 2010  
Japanese Yen
    1,527,960,999       89.13 per US$       88.77 per US$     $ 698,245       Sep 2010 -Nov 2010  
Japanese Yen
    1,487,690,000       89.78 per US$       89.43 per US$     $ 528,324       Dec 2010 -Feb 2011  
GBP
    (763,689 )     1.579       1.576     $ (53,532 )     Apr 2010  
GBP
    (2,727,724 )     1.653       1.652     $ (393,430 )     May 2010 - Jul 2010  
GBP
    (2,645,949 )     1.632       1.630     $ (320,475 )     Aug 2010 - Oct 2010  
GBP
    (2,602,543 )     1.586       1.582     $ (194,893 )     Nov 2010 - Jan 2011  
GBP
    (796,222 )     1.506       1.503     $ (90 )     Feb 2011  
CAD
    (2,985,642 )     1.096 per US$       1.095 per US$     $ 199,400       Apr 2010 - Jun 2010  
CAD
    (3,475,271 )     1.085 per US$       1.086 per US$     $ 200,582       Jul 2010 - Sep 2010  
CAD
    (3,241,542 )     1.065 per US$       1.067 per US$     $ 126,902       Oct 2010 - Dec 2010  
CAD
    (2,108,438 )     1.048 per US$       1.050 per US$     $ 48,489       Jan 2011 - Feb 2011  
                                         
                            $ 2,660,133          
                                         
 
We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. dollar relative to all other major currencies. In the event of a 10% strengthening of the U.S. dollar, the change in fair value of all forward contracts would result in a $10.2 million increase in the fair value of the forward contracts; whereas a 10% weakening of the U.S. dollar would result in a $11.7 million decrease in the fair value of the forward contracts.
 
Interest Rate Risk
 
All of our long-term debt is at fixed interest rates. Accordingly, a change in interest rates has an insignificant effect on our interest expense amounts. The fair value of our long-term debt, however, does change in response to interest rates movements due to its fixed rate nature. At April 3, 2010, the fair value of


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our long-term debt was approximately $0.5 million higher than the value of the debt reflected on our financial statements. This higher fair market is entirely related to our $4.6 million, 8.41% real estate mortgage.
 
Using scenario analysis, if we changed the interest rate on all long-term maturities by 10% from the rate levels that existed at April 3, 2010 the fair value of our long-term debt would not significantly change from the value reflected on our financial statements.
 
Concentration of Credit Risk and Significant Customers
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, accounts receivable and investment in sales type lease receivables. Sales to one unaffiliated Japanese customer, the Japanese Red Cross Society, amounted to $92.6 million, $87.6 million, and $73.3 million for 2010, 2009, and 2008, respectively. Accounts receivable balances attributable to this customer accounted for 12.6%, 17.5%, and 15.9% of our consolidated accounts receivable at fiscal year ended 2010, 2009, and 2008. While the accounts receivable related to the Japanese Red Cross Society may be significant, we do not believe the credit loss risk to be significant given the consistent payment history by this customer.
 
Certain other markets and industries can expose us to concentrations of credit risk. For example, in our plasma business, we tend to have only a few customers in total but they are large in size. As a result, our accounts receivable extended to any one of these commercial plasma customers can be somewhat significant at any point in time.


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Item 8.   Financial Statements and Supplementary Data
 
HAEMONETICS CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
                         
    Year Ended  
    April 3
    March 28
    March 29
 
    2010     2009     2008  
    (In thousands, except per share data)  
 
Net revenues
  $ 645,430     $ 597,879     $ 516,440  
Cost of goods sold
    307,949       289,709       258,715  
                         
Gross profit
    337,481       308,170       257,725  
                         
Operating expenses:
                       
Research, development, and engineering
    26,376       23,859       24,322  
Selling, general, and administrative
    214,483       198,744       163,116  
Contingent consideration income
    (2,345 )            
Asset impairment
    15,686              
                         
Total operating expenses
    254,200       222,603       187,438  
                         
Operating income
    83,281       85,567       70,287  
Interest expense
    (742 )     (64 )     (377 )
Interest income
    399       1,968       5,418  
Other (expense)/income, net
    (1,668 )     (2,469 )     1,974  
                         
Income before provision for income taxes
    81,270       85,002       77,302  
Provision for income taxes
    22,900       25,698       25,322  
                         
Net income
  $ 58,370     $ 59,304     $ 51,980  
                         
Basic income per common share
                       
Net income
  $ 2.29     $ 2.34     $ 2.01  
Income per common share assuming dilution
                       
Net income
  $ 2.24     $ 2.27     $ 1.94  
Weighted average shares outstanding
                       
Basic
    25,451       25,389       25,824  
Diluted
    26,063       26,173       26,746  
 
The accompanying notes are an integral part of these consolidated financial statements.


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HAEMONETICS CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
    April 3,
    March 28,
 
    2010     2009  
    (In thousands, except share data)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 141,562     $ 156,721  
Accounts receivable, less allowance of $2,554 in 2010 and $2,312 in 2009
    118,684       113,598  
Inventories
    79,953       76,522  
Deferred tax assets
    10,985       7,190  
Prepaid expenses and other current assets
    34,959       28,362  
                 
Total current assets
    386,143       382,393  
                 
Property, plant and equipment
               
Land, building and building & leasehold improvements
    49,292       42,540  
Plant equipment and machinery
    113,534       108,572  
Office equipment and information technology
    74,008       52,461  
Haemonetics equipment
    206,267       194,290  
                 
Total property, plant and equipment
    443,101       397,863  
Less accumulated depreciation
    (289,803 )     (260,056 )
                 
Net property, plant and equipment
    153,298       137,807  
                 
Other assets:
               
Other intangibles, less accumulated amortization of $32,693 in 2010 and $25,508 in 2009
    86,102       65,261  
Goodwill
    120,543       56,426  
Deferred tax assets, long-term
    4,910       3,007  
Other long-term assets
    9,664       4,799  
                 
Total other assets
    221,219       129,493  
                 
Total assets
  $ 760,660     $ 649,693  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Notes payable and current maturities of long-term debt
  $ 16,062     $ 695  
Accounts payable
    25,590       20,652  
Accrued payroll and related costs
    39,046       30,771  
Accrued income taxes
    5,092       2,833  
Deferred tax liability
    68       17  
Other accrued liabilities
    50,639       37,895  
                 
Total current liabilities
    136,497       92,863  
Long-term debt, net of current maturities
    4,589       5,343  
Deferred tax liability, long-term
    13,535       3,129  
Other long-term liabilities
    12,915       8,474  
Commitments and contingencies (Note 10)
               
Stockholders’ equity:
               
Common stock, $.01 par value; Authorized — 150,000,000 shares; Issued 25,440,856 in April 3, 2010 and 25,622,449 in 2009
    255       256  
Additional paid-in capital
    252,323       226,829  
Retained earnings
    334,641       309,516  
Accumulated other comprehensive income
    5,905       3,283  
                 
Total stockholders’ equity
    593,124       539,884  
                 
Total liabilities and stockholders’ equity
  $ 760,660     $ 649,693  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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HAEMONETICS CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
 
                                                         
                            Accumulated
             
    Common
    Additional
          Other
    Total
       
    Stock     Paid-in
    Retained
    Comprehensive
    Stockholders’
    Comprehensive
 
    Shares     $’s     Capital     Earnings     Income/(Loss)     Equity     Income  
    (In thousands)  
 
Balance, March 31, 2007
    26,517     $ 265     $ 163,815     $ 315,767     $ (199 )   $ 479,648          
                                                         
Employee stock purchase plan
    56       1       2,208                   2,209          
Exercise of stock options, release of restricted stock units, vesting of restricted stock award, and related tax benefit
    575       5       20,488                   20,493          
Shares repurchased — Authorized Unissued
    (1,463 )     (15 )     (9,430 )     (65,551 )           (74,996 )        
Issuance of restricted stock, net of cancellations
    10                                        
Stock compensation expense
                9,852                   9,852          
Net income
                      51,980             51,980     $ 51,980  
Impact of defined benefit plans, net of tax
                            276       276       276  
Foreign currency translation adjustment
                            11,748       11,748       11,748  
Unrealized loss on hedges, net of tax
                            (10,055 )     (10,055 )     (10,055 )
Reclassification of hedge loss to earnings
                            3,033       3,033       3,033  
                                                         
Comprehensive income
                                      $ 56,982  
                                                         
Balance, March 29, 2008
    25,695     $ 256     $ 186,933     $ 302,196     $ 4,803     $ 494,188          
                                                         
Employee stock purchase plan
    59       1       2,658                   2,659          
Exercise of stock options, release of restricted stock units, vesting of restricted stock award, and related tax benefit
    950       10       35,060                   35,070          
Shares repurchased — Authorized Unissued
    (1,100 )     (11 )     (8,003 )     (51,984 )           (59,998 )        
Issuance of restricted stock, net of cancellations
    18                                        
Stock compensation expense
                10,181                   10,181          
Net income
                      59,304             59,304     $ 59,304  
Impact of defined benefit plans, net of tax
                            (697 )     (697 )     (697 )
Foreign currency translation adjustment
                            (10,045 )     (10,045 )     (10,045 )
Unrealized gain on hedges, net of tax
                            4,858       4,858       4,858  
Reclassification of hedge loss to earnings
                            4,364       4,364       4,364  
                                                         
Comprehensive income
                                      $ 57,784  
                                                         
Balance, March 28, 2009
    25,622     $ 256     $ 226,829     $ 309,516     $ 3,283     $ 539,884          
                                                         
Employee stock purchase plan
    66       1       2,908                   2,909          
Exercise of stock options, release of restricted stock units, vesting of restricted stock award, and related tax benefit
    488       5       19,067                   19,072          
Shares repurchased — Authorized Unissued
    (735 )     (7 )     (6,748 )     (33,245 )           (40,000 )        
Stock compensation expense
                10,267                   10,267          
Net income
                      58,370             58,370     $ 58,370  
Impact of defined benefit plans, net of tax
                            (309 )     (309 )     (309 )
Foreign currency translation adjustment
                            2,599       2,599       2,599  
Unrealized loss on hedges, net of tax
                            (477 )     (477 )     (477 )
Reclassification of hedge loss to earnings
                            809       809       809  
                                                         
Comprehensive income
                                      $ 60,992  
                                                         
Balance, April 3, 2010
    25,441     $ 255     $ 252,323     $ 334,641     $ 5,905     $ 593,124          
                                                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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HAEMONETICS CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
    Year Ended  
    April 3,
    March 28,
    March 29,
 
    2010     2009     2008  
    (In thousands)  
 
Cash Flows from Operating Activities:
                       
Net income
  $ 58,370     $ 59,304     $ 51,980  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Non cash items:
                       
Depreciation and amortization
    43,236       36,462       31,197  
Stock compensation expense
    10,267       10,181       9,852  
Deferred tax expense/(benefit)
    2,592       1,645       (882 )
(Gain)/Loss on sales of property, plant and equipment
    (435 )     (124 )     222  
Unrealized loss/(gain) from hedging activities
    (1,368 )     3,812       (3,995 )
Contingent consideration income
    (2,345 )            
Accretion of intererst expense on contingent consideration
    588              
Asset impairment
    15,686              
Change in operating assets and liabilities:
                       
Decrease/(Increase) in accounts receivable, net
    4,364       2       (18,229 )
Increase in inventories
    (1,665 )     (11,236 )     (2,874 )
(Increase)/Decrease in prepaid income taxes
    7,254       (2,913 )     (8,082 )
Decrease/(Increase) in other assets and other long-term liabilities
    (13,809 )     (4,241 )     6,439  
Tax benefit of exercise of stock options
    2,670       3,368       1,586  
Increase/(Decrease) in accounts payable and accrued expenses
    5,263       20,104       10,455  
                         
Net cash provided by operating activities
    130,668       116,364       77,669  
Cash Flows from Investing Activities:
                       
Capital expenditures on property, plant and equipment
    (56,304 )     (56,379 )     (57,790 )
Proceeds from sale of property, plant and equipment
    1,785       2,383       1,834  
Acquisition of Global Med Technologies
    (58,052 )            
Acquisition of SEBRA
    (12,845 )            
Acquisition of Neoteric
    (6,613 )            
Acquisition of Altivation
          (3,545 )      
Acquisition of Medicell
    (306 )     (2,459 )      
Acquisition of HaemoScope
                (45,591 )
Acquisition of Infonale
                (1,300 )
                         
Net cash used in investing activities
    (132,335 )     (60,000 )     (102,847 )
Cash Flows from Financing Activities:
                       
Payments on long-term real estate mortgage
    (754 )     (694 )     (638 )
Net decrease in short-term revolving credit agreements
    6,184       (5,580 )     (18,709 )
Employee stock purchase plan
    2,909       2,659       2,209  
Exercise of stock options
    17,270       25,406       17,245  
Excess tax benefit on exercise of stock options
    421       7,470       1,661  
Stock repurchase
    (40,000 )     (59,998 )     (74,996 )
                         
Net cash used in financing activities
    (13,970 )     (30,737 )     (73,228 )
Effect of Exchange Rates on Cash and Cash Equivalents
    478       (2,459 )     2,732  
                         
Net Increase/(Decrease) in Cash and Cash Equivalents
    (15,159 )     23,168       (95,674 )
Cash and Cash Equivalents at Beginning of Year
    156,721       133,553       229,227  
                         
Cash and Cash Equivalents at End of Period
  $ 141,562     $ 156,721     $ 133,553  
                         
Non-cash Investing and Financing Activities:
                       
Transfers from inventory to fixed assets for placements of Haemonetics equipment
  $ 5,132     $ 6,818     $ 1,672  
                         
Debt assumed from acquisition
  $ 7,833     $     $  
                         
Supplemental Disclosures of Cash Flow Information:
                       
Interest paid
  $ 563     $ 545     $ 991  
                         
Income taxes paid
  $ 21,519     $ 19,391     $ 23,851  
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.   DESCRIPTION OF THE BUSINESS
 
Haemonetics is a global healthcare company dedicated to providing innovative blood management solutions for our customers — plasma collectors, blood collectors, and hospitals. Anchored by our strong brand name in medical device systems for the transfusion industry, we also provide information technology platforms and valued added services to provide customers with business solutions which support improved clinical outcomes for patients and efficiency in the blood supply chain.
 
Our systems automate the collection and processing of donated blood; perform blood diagnostics; salvage and process surgical patient blood; and dispense blood within the hospital. These systems include devices and single-use, proprietary disposable sets that operate only on our specialized equipment. Our blood processing systems allow users to collect and process only the blood component(s) they target — plasma, platelets, or red blood cells — increasing donor and patient safety as well as collection efficiencies. Our blood diagnostics system assesses the likelihood of a patient’s blood loss allowing clinicians to make informed decisions about a patient’s treatment as it relates to blood loss in surgery. Our surgical blood salvage systems collect blood lost by a patient in surgery, clean the blood, and make it available for reinfusion to the patient, in this way giving the patient the safest blood possible — his or her own. Our blood distribution systems are “smart” refrigerators located throughout hospitals which automate the storage, inventory tracking, and dispositioning of blood in key blood use areas.
 
Our information technology platforms are used by blood and plasma collectors to improve the safety and efficiency of blood collection logistics by eliminating previously manual functions at not-for-profit blood banks and commercial plasma centers. Our platforms are also used by hospitals to enable hospital administrators to monitor and measure blood management practices and to manage processes within transfusion services. Our information technology platforms allow all customers to better manage processes across the blood supply chain, comply with regulatory requirements, and identify increased opportunities to reduce costs.
 
Our business services include consulting, Six Sigma, and LEAN manufacturing offerings that support our customers’ needs for regulatory compliance and operational efficiency in the blood supply chain and best practice in blood management.
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Fiscal Year
 
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal year 2010 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks. Fiscal years 2009 and 2008 each included 52 weeks with all four quarters having 13 weeks.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include all accounts including those of our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the amounts derived from our estimates and assumptions.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Reclassifications
 
Certain reclassifications have been made to prior years’ amounts to conform to the current year’s presentation.
 
Revenue Recognition
 
Our revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 605, Revenue Recognition (formerly known as SAB No. 104, Revenue Recognition, and as EITF 00-21, Revenue Arrangements with Multiple Deliverables), and ASC Topic 985-605, Software (formerly known as Statement of Position 97-2, Software Revenue Recognition, as amended). These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product delivery, including customer acceptance, has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. When more than one element such as equipment, disposables and services are contained in a single arrangement, we allocate revenue between the elements based on each element’s relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using vendor specific objective evidenced under ASC Topic 985-605 or other objective evidence as defined in ASC Topic 605.
 
Product Revenues
 
Product sales consist of the sale of our equipment devices and the related disposables used with these devices. On product sales to end customers, revenue is recognized when both the title and risk of loss have transferred to the customer as determined by the shipping terms and all obligations have been completed. Examples of common post delivery obligations are installation and training. For product sales to distributors, we recognize revenue for both equipment and disposables upon shipment of these products to our distributors. Our standard contracts with our distributors state that title to the equipment passes to the distributors at point of shipment to a distributor’s location. The distributors are responsible for shipment to the end customer along with installation, training and acceptance of the equipment by the end customer. All shipments to distributors are at contract prices and payment is not contingent upon resale of the product.
 
Collection of Taxes from Customers
 
We are required to collect sales or valued added taxes in connection with the sale of certain of our products. We report revenues net of these amounts as they are promptly remitted to the relevant taxing authority.
 
Software Solutions and Services Revenues
 
At this time, our software solutions business principally provides support to our plasma and blood collection customers and hospitals. Through our Haemonetics Software Solutions unit, we provide information technology platforms and technical support for donor recruitment, blood and plasma testing laboratories, and for efficient and compliant operations of blood and plasma collection centers. For plasma customers, we also provide information technology platforms for managing distribution of plasma from collection centers to plasma fractionation facilities. Software license revenues are generally billed periodically, monthly or quarterly and recognized for the period for which the service is provided. Our software solutions business model includes the provision of services, including in some instances hosting, technical support, and maintenance, for the payment of periodic, monthly or quarterly fees. We recognize these fees and charges as earned, typically as these services are provided during the contract period.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Translation of Foreign Currencies
 
All assets and liabilities of foreign subsidiaries are translated at the rate of exchange at year-end while sales and expenses are translated at an average rate in effect during the year. The net effect of these translation adjustments is shown in the accompanying financial statements as a component of stockholders’ equity.
 
Cash and Cash Equivalents
 
Cash and cash equivalents are recorded at cost, which approximates fair market value. As of April 3, 2010, Haemonetics’ cash and cash equivalents consisted solely of investments in money market funds invested in United States Government Agency securities. Throughout the year, cash equivalents may include various instruments such as money market funds, U.S. government obligations and commercial paper with maturities of three months or less at date of acquisition.
 
Allowance for Doubtful Accounts
 
We establish a specific allowance for customers when it is probable that they will not be able to meet their financial obligation. Customer accounts are reviewed individually on a regular basis and appropriate reserves are established as deemed appropriate. We also maintain a general reserve using a percentage that is established based upon the age of our receivables. We establish percentages for balances not yet due and past due accounts based on past experience.
 
Concentration of Credit Risk and Significant Customers
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. Sales to one unaffiliated Japanese customer, the Japanese Red Cross Society, amounted to $92.6 million, $87.6 million, and $73.3 million for 2010, 2009, and 2008, respectively. Accounts receivable balances attributable to this customer accounted for 12.6%, 17.5%, and 15.9% of our consolidated accounts receivable at fiscal year ended 2010, 2009, and 2008. While the accounts receivable related to the Japanese Red Cross Society may be significant, we do not believe the credit loss risk to be significant given the consistent payment history by this customer.
 
Certain other markets and industries can expose us to concentrations of credit risk. For example, in our commercial plasma business, we tend to have only a few customers in total but they are large in size. As a result, our accounts receivable extended to any one of these commercial plasma customers can be somewhat significant at any point in time.
 
Property, Plant and Equipment
 
Property, Plant and Equipment is recorded at historical cost. We provide for depreciation and amortization by charges to operations using the straight-line method in amounts estimated to recover the cost of the building and improvements, equipment, and furniture and fixtures over their estimated useful lives as follows:
 
         
    Estimated
 
Asset Classification
  Useful Lives  
 
Building
    30 Years  
Building improvements
    5-20 Years  
Leasehold improvements
    5 Years  
Plant equipment and machinery
    3-10 Years  
Office equipment and information technology
    3-9 Years  
Haemonetics equipment
    2-6 Years  


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HAEMONETICS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Depreciation expense was $35.5 million, $30.5 million, and $27.2 million for fiscal years 2010, 2009, and 2008, respectively.
 
Leasehold improvements are amortized over the lesser of their useful lives or the term of the lease. Maintenance and repairs are expensed to operations as incurred. When equipment and improvements are sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts, and the resulting gain or loss, if any, is included in the statements of income. Fully depreciated assets are removed from the accounts when they are no longer in use.
 
Our installed base of devices includes devices owned by us and devices sold to the customer. The asset on our balance sheet entitled Haemonetics equipment consists of medical devices installed at customer sites but owned by Haemonetics (these devices remain our property). Generally the customer has the right to use it for a period of time as long as they meet the conditions we have established, which among other things, generally include one or more of the following:
 
  •  Purchase and consumption of a certain level of disposable products
 
  •  Payment of monthly rental fees
 
  •  An asset utilization performance metric, such as performing a minimum level of procedures per month per device
 
Consistent with the impairment tests noted for goodwill and other intangible assets subject to amortization, we review our property, plant, and equipment assets, subject to depreciation, and their related useful lives at least once a year, or more if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. To conduct these reviews we estimate the future amount and timing of demand for these devices. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could impact the value of our devices and our reported operating results. There were no indicators of impairment in either fiscal year 2010 or 2009. Expenditures for normal maintenance and repairs are charged to expense as incurred.
 
Goodwill and Other Intangible Assets
 
Intangible assets acquired in a business combination, including licensed technology, are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. We amortize our other intangible assets over their useful lives using the estimated economic benefit method, as applicable.
 
Goodwill and certain other intangible assets, determined to have an indefinite life, are not amortized. Instead these assets are reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles — Goodwill and Other (formerly known as Statement No. 142, Goodwill and Other Intangible Assets). We perform our annual impairment test on the first day of our fiscal fourth quarter. We have three reporting units. The test is based on a discounted cash flow analysis for each reporting unit. The test showed no evidence of impairment to our goodwill and other indefinite lived assets for either fiscal year 2010 or 2009.
 
We review our intangible assets, subject to amortization, and their related useful lives at least once a year to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. We conduct more frequent impairment assessments if certain conditions exist, including: a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for our products or changes in the size of the market for our products.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. Fair value is determined using different methodologies depending upon the nature of the underlying asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life.
 
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
 
ASC Topic 985-20, Software (formerly known as SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed), specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Technological feasibility is established when we have a detailed design of the software and when research and development activities on the underlying device, if applicable, are completed. We review the net realizable value of capitalized assets periodically to assess the recoverability of amounts capitalized.
 
At the end of fiscal year 2010, based on a review of ongoing development plans for our next generation platelet apheresis products (Portico), we abandoned and wrote off $12.2 million associated with previously capitalized software development costs. Additionally, in connection with the acquisition of Global Med we elected to no longer market the Symphony blood bank donation management system in favor of Global Med’s El Dorado application. As a result, we wrote off the carrying value of the Symphony intangible asset totaling approximately $3.5 million.
 
Additionally, the Company has capitalized $4.7 million in other software development costs during fiscal year 2010 for ongoing initiatives. At April 3, 2010, we have a total of $7.6 million of costs capitalized related to other in process software development initiatives. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
 
Other Accrued Liabilities
 
Other accrued liabilities represent costs incurred within the current year and payable within the next twelve months. Other accrued liabilities were $50.6 million and $37.9 million as of April 3, 2010 and March 28, 2009, respectively.
 
The significant items included in the fiscal year end balances were:
 
                 
    April 3,
    March 28,
 
    2010     2009  
    (In thousands)  
 
VAT Liabilities
  $ 9,802     $ 6,696  
Forward Contract Loss
    1,747       2,914  
Deferred Revenue
    19,548       10,833  
All Other
    19,542       17,452  
                 
Total
  $ 50,639     $ 37,895  
                 
 
Research, Development and Engineering Expenses
 
All research, development and engineering costs are expensed as incurred with the exception of the capitalization of software development cost (see Note 17). Research, development and engineering expense was $26.4 million for fiscal year 2010, $23.9 million for fiscal year 2009, and $24.3 million for fiscal year 2008.


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HAEMONETICS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Accounting for Shipping and Handling Costs
 
Shipping and handling costs are included in costs of goods sold with the exception of $11.2 million for fiscal year 2010, $11.9 million for fiscal year 2009, and $9.8 million for fiscal year 2008 that are included in selling, general and administrative expenses. Freight is classified in cost of goods sold when the customer is charged for freight and in selling, general and administration when the customer is not explicitly charged for freight.
 
Income Taxes
 
The income tax provision is calculated for all jurisdictions in which we operate. This process involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and a valuation allowance is established with a corresponding additional income tax provision recorded in our consolidated statements of income if their recovery is not considered likely. The provision for income taxes could also be materially impacted if actual taxes due differ from our earlier estimates.
 
We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Uncertain tax positions are unrecognized tax benefits for which reserves have been established. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.
 
We file income tax returns in all jurisdictions in which we operate. We establish reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to permanent differences and interest applicable to both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments are made as events occur that warrant modification.
 
Foreign Currency
 
We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with ASC Topic 815, Derivatives and Hedging (formerly known as FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities). In accordance with ASC Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
 
The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. The gains or losses on the forward exchange contracts designated as hedges are recorded in net revenues in our consolidated statements of income when the underlying hedged transaction affects earnings. The cash flows related to the gains and losses are classified in the consolidated statements of cash flows as part of cash flows from operating activities. For those derivative instruments that are not designated as part of a hedging relationship we record the gains or losses in earnings currently. These gains and losses are intended to offset the gains and losses recorded on net monetary assets or liabilities that are denominated in foreign currencies. The Company recorded foreign currency losses of $2.2 million and $2.3 million in fiscal year 2010 and fiscal year 2009, respectively.
 
Our derivative instruments do not subject our earnings or cash flows to material risk, as gains and losses on these derivatives are intended to offset losses and gains on the item being hedged. We do not enter into derivative transactions for speculative purposes and we do not have any non-derivative instruments that are designated as hedging instruments pursuant to ASC Topic 815.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Stock-Based Compensation
 
We use the Black-Scholes option-pricing model to calculate the grant-date fair value of our stock options. The following assumptions, which involve the use of judgment by management, are used in the computation of the grant-date fair value of our stock options:
 
Expected Volatility — We have principally used our historical volatility as a basis to estimate expected volatility in our valuation of stock options.
 
Expected Term — We estimate the expected term of our options using historical exercise and forfeiture data. We believe that this historical data is currently the best estimate of the expected term of our new option grants.
 
Additionally, after determining the fair value of our stock options, we use judgment in establishing an estimated forfeiture rate, to determine the amount of stock based compensation to record each period:
 
Estimated Forfeiture Rate — We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8% to all unvested stock options as of April 3, 2010, which represents the portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for those shares that vest.
 
Valuation of Acquisitions
 
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the dates of acquisition, including acquired identifiable intangible assets, and purchased research and development. We base the fair value of identifiable intangible assets on detailed valuations that use historical information and market assumptions based upon the assumptions of a market participant. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated cash flows and discount rates, and alternative estimated useful life assumptions could result in different purchase price allocations, and intangible asset amortization expense in current and future periods.
 
In certain acquisitions, we have earn out arrangements or contingent consideration to provide potential future payments to the seller for achieving certain agreed-upon financial targets. We record the contingent consideration at its fair value at the acquisition date. Generally, we have entered into arrangements with contingent consideration that require payments in cash. As such, each quarter, we revalue the contingent consideration obligations associated with certain acquisitions to their then fair value and record the change in the fair value as contingent consideration income or expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates, and changes in assumed probability adjustments with respect to regulatory approval. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration income or expense we record in any given period.
 
Recent Accounting Pronouncements
 
In February 2010, the FASB issued Accounting Standards Update No. 2010-09, Subsequent Events, an amendment to ASC Topic 855, Subsequent Events. This update addresses practice issues for evaluating and disclosing subsequent events with respect to processes around issuing financial statements and SEC registration requirements. The guidance is effective immediately.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements. This update amends ASC Topic 820, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding fair value measurements. Specifically, the update requires entities to disclose (i) the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, (ii) the reasons for any transfers in or out of Level 3, and (iii) information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosures, the update also amends ASC Topic 820 to clarify certain existing disclosure requirements. The update became effective for our fiscal year 2010 and its impact is reflected in the notes to our consolidated financial statements for the year ended April 3, 2010.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to FASB ASC topic 605, Revenue Recognition, and Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to FASB ASC subtopic 985-605, Software — Revenue Recognition (the “Updates”). The Updates provide guidance on arrangements that include software elements, including tangible products that have software components that are essential to the functionality of the tangible product and will no longer be within the scope of the software revenue recognition guidance, and software-enabled products that will now be subject to other relevant revenue recognition guidance. The Updates provide authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of fair value for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The Updates also include new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The Updates must be adopted in the same period using the same transition method and are effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is also permitted; however, early adoption during an interim period requires retrospective application from the beginning of the fiscal year. The Company is currently assessing the timing and method of adoption, as well as the possible impact of this guidance on its financial position and results of operations.
 
Under ASC Topic 805, Business Combinations (formerly known as FASB Statement No. 141(R), Business Combinations), the FASB requires that all business combinations use the acquisition method (formerly the purchase method) and that an acquiring entity be identified in all business combinations. ASC Topic 805 also requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This statement became effective for our fiscal year 2010 and its impact is reflected in our financial position and results of operations for the year ended April 3, 2010. The Company’s acquisition of L’Attitude Medical Systems, Inc. (“Neoteric”), asset acquisition of the blood collection and processing business unit of Engineering and Research Associates, Inc. (“SEBRA”), and stock purchase of Global Med Technologies, Inc. (“Global Med”) during fiscal year 2010 were accounted for in accordance to the requirements of ASC Topic 805 — see Note 3.
 
In December 2009, the FASB issued Accounting Standards Update No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, an amendment to FASB ASC Topic 810, Consolidations. ASU No. 2009-17 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
ASU No. 2009-17 is effective for fiscal years beginning after November 15, 2009, which is the outset for fiscal year 2011 for the Company. The Company is currently evaluating the impact, if any, that ASU No. 2009-17 may have on the Company’s financial condition and results of operations.
 
3.   ACQUISITIONS
 
Haemoscope Corporation Acquisition
 
On November 20, 2007 the Company acquired Haemoscope Corporation’s TEG® Thrombelastograph® Hemostasis Analyzer business for approximately $45.6 million in cash. Haemoscope Corporation is a provider of whole blood hemostasis monitoring systems. The TEG system can assess a patient’s hemostasis. Information which informs blood management, identifies potential thrombotic complications, and facilitates individualized therapy. The results of Haemoscope’s operations have been included in our consolidated financial statements for periods after the acquisition date.
 
Purchase Price
 
The Company has accounted for the acquisition of Haemoscope Corporation as the purchase of a business under U.S. Generally Accepted Accounting Principles. Under the purchase method of accounting, the assets and liabilities of Haemoscope Corporation were recorded as of the acquisition date, at their respective fair values, and consolidated with the Company’s.
 
The purchase price is based upon estimates of the fair value of assets acquired and liabilities assumed. The valuation relies on significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including product revenues, costs and operating expenses and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
 
The purchase price components are as follows:
 
         
    (In thousands)  
 
Consideration for Haemoscope Corporation
       
Cash portion of consideration
  $ 45,080  
Other acquisition-related costs:
       
Acquisition-related costs
  $ 511  
         
Total acquisition related costs
  $ 45,591  
         
 
Purchase Price Allocation
 
The following chart summarizes the purchase price allocation, including the valuation of intangible assets:
 
         
    (In thousands)  
 
Intangible assets subject to amortization
  $ 26,060  
Goodwill
    17,530  
Other assets
    2,876  
Current liabilities
    (875 )
         
Total
  $ 45,591  
         


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The excess of the purchase price over the fair value of net tangible assets acquired was allocated to specific intangible asset categories as follows:
 
                         
            Risk-Adjusted
        Weighted Average
  Discount Rate Used
    Amount
  Amortization
  in Purchase Price
    Assigned   Period   Allocation
    (In thousands)
 
Amortizable intangible assets
                       
Technology — developed
  $ 9,500       12.0 years       23.0 %
Customer relationships
  $ 15,960       11.0 years       23.0 %
Trade names
  $ 600       12.0 years       23.0 %
Goodwill
  $ 17,530                  
 
The Company believes that the estimated intangible assets represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets. The Company used the income approach to determine the fair value of the amortizable intangible assets.
 
Various factors contributed to the establishment of goodwill, including: the value of Haemoscope Corporation’s highly trained work force as of the acquisition date, the expected business plans and associated revenue from future products. The goodwill acquired is deductible for tax purposes.
 
The amount assigned to developed technology acquired represents the value associated with currently marketed product, the TEG system. This system includes a patented device, application software and assays. The system is used by hospitals and laboratories to assess a patient’s hemostatis. We also acquired the customer relationships that Haemoscope developed. Haemoscope conducted the majority of its business on the basis of purchase orders and repeat purchases of consumable supplies, such as reagents necessary for conducting the tests. These customer relationships are predicated on the technology that the customer has invested in, both through the initial purchase of the TEG device, but also the investment in the training and staff development associated with using a technology like the TEG device. The Company used the income approach to estimate the fair value of the developed technology and customer relationships as of the acquisition date. The Company determined that the estimated useful life of the intangible assets ranges from 11-12 years and are amortized over the period of the estimated economic benefit.
 
Infonalé, Inc. Acquisition
 
On July 9, 2007, the Company acquired the assets of Infonalé, Inc. (“Infonalé”) for approximately $1.3 million in cash plus contingent consideration based upon future operating performance. Infonalé was a leading developer of software and consulting services for optimizing hospital blood use and management. The purchase price was principally allocated to intangible assets including other technology and goodwill. The results of the Infonalé operations are included in our consolidated results for periods after the acquisition date.
 
Medicell Limited Acquisition
 
On April 4, 2008, the Company acquired Medicell Limited (“Medicell”) for approximately $2.5 million in cash plus contingent consideration based upon future operating performance. Medicell was the exclusive distributor in the United Kingdom for the Haemoscope product line since 1998. The purchase price was principally allocated to intangible assets including goodwill. The results of the Medicell operations are included in our consolidated results for periods after the acquisition date.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Altivation Software Acquisition
 
On March 27, 2009, the Company acquired Altivation Software (“Altivation”) for approximately $3.5 million in cash plus contingent consideration based upon future operating performance. Altivation is a provider of blood drive and resource management software for blood collectors. The purchase price was principally allocated to intangible assets including goodwill. The results of the Altivation operations are included in our consolidated results for periods after the acquisition date.
 
Neoteric Acquisition
 
On April 16, 2009, Haemonetics acquired the outstanding shares of L’Attitude Medical Systems Inc. (“Neoteric”). Neoteric is a medical information management company that markets a full end-to-end suite of products to track, allocate, release, and dispense hospital blood units while controlling inventory and recording the disposition of blood. The acquisition strategically broadened Haemonetics’ blood management solutions. The purchase price was $6.6 million plus contingent consideration.
 
The contingent consideration is based upon estimated annual revenue growth for the three years following the acquisition, at established profitability thresholds. Using projected revenues for fiscal years 2010, 2011, and 2012, an analysis was performed that probability weighted three performance outcomes for the noted years. The performance outcomes were then discounted using a discount rate commensurate with the risks associated with Neoteric to arrive at a recorded $5.0 million fair value for the contingent consideration.
 
The contingent consideration is based upon estimated future operating performance and is not contractually limited. The purchase price including contingent consideration was allocated to other intangible assets of $5.0 million, deferred tax liabilities of $1.6 million, and goodwill of $8.7 million. Net revenues of the Neoteric operations after the acquisition date are included in our consolidated results for fiscal year 2010. The Company is required to reassess the fair value of contingent consideration on a periodic basis. During the fourth quarter of fiscal year 2010, it became evident that the business would not achieve forecasted revenue growth milestones for fiscal year 2010. As such, we reduced the contingent liability by $2.3 million and recorded the adjustments as contingent consideration income in the statement of operations. The ending liability balance is $4.1 million at April 3, 2010.
 
SEBRA Acquisition
 
On September 4, 2009, Haemonetics acquired the assets of the blood collection and processing business unit (“SEBRA”) of Engineering and Research Associates, Inc., a leading provider of blood and medical manufacturing technologies. SEBRA products, which include tubing sealers, blood shakers, sterile connection systems, mobile lounges and ancillary products used in blood collection and processing, complement Haemonetics’ portfolio and add depth to Haemonetics blood bank and plasma product lines. The purchase price was $12.8 million.
 
The purchase price was preliminarily allocated to core technology of $2.0 million, customer relationships of $4.6 million, trade name intangible of $0.4 million, trade accounts receivables of $1.0 million, inventory of $1.3 million, and goodwill of $3.5 million. The Company is still in the process of evaluating the information necessary to determine the allocation of fair value of the assets and liabilities acquired. The preliminary purchase price allocation will be finalized once the Company has completed this evaluation, which will occur not later than one year from the acquisition date. Net revenues for the SEBRA operations after the acquisition date are included in our consolidated results for fiscal year 2010.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Global Med Acquisition
 
On March 31, 2010 the Company completed its cash tender offer for the shares of Global Med Technologies, Inc. (“Global Med”). The total acquisition cost for the shares and outstanding warrants of Global Med was approximately $60.3 million.
 
Global Med is an international healthcare information technology company which develops regulated and non-regulated products and services for the healthcare industry, including software solutions and services for blood collection, the hospital transfusion center and the patient care environment. Global Med’s subsidiaries and products include Wyndgate Technologies®, a provider of software products and services for donor centers and hospital transfusion services; eDonor®, which offers web-based donor relationship management systems; PeopleMed®, which implements cost-effective software validation, consulting and compliance solutions to hospitals and donor centers, and Hemo-Net®, which offers hosting solutions for those customers wishing to outsource the operation and maintenance of their databases. Global Med’s European subsidiary, Inlog SA, is a leading developer of donor center and transfusion management systems as well as cellular therapy software, laboratory information systems and quality assurance medical software systems internationally.
 
Goodwill was preliminarily determined by comparing the purchase price with the preliminarily determined fair value of the assets and liabilities acquired. Once the purchase price allocation is finalized, the carrying preliminary value of the related goodwill may be adjusted accordingly. At April 3, 2010, goodwill recorded after our preliminary purchase price allocation was $50.1 million and is not tax deductible. Global Med has an in-place workforce with extensive knowledge and experience in the development and support of blood management software. The acquisition was a unique strategic fit for the Company given our global presence and customer relationships in blood management.
 
Preliminary Purchase Price Allocation
 
The following chart summarizes the preliminary purchase price allocation:
 
         
    (In thousands)  
 
Goodwill
  $ 50,109  
Intangible assets subject to amortization
    25,962  
Trade accounts receivable
    6,344  
Other assets
    10,526  
Deferred taxes
    (9,087 )
Notes payable
    (7,833 )
Deferred revenue
    (8,064 )
Other liabilities
    (7,676 )
         
Total
  $ 60,281  
         
 
The Company is still in the process of evaluating the information necessary to determine the allocation of fair value of the assets and liabilities acquired. The preliminary purchase price allocation will be finalized once the Company has completed this evaluation, which will occur not later than one year from the acquisition date. When finalized, the purchase price will be more specifically allocated to identified intangible assets acquired, the value of tangible assets and liabilities acquired may be adjusted, and the value of the tax attributes acquired may be diminished. The impact of these adjustments may result in a change in the preliminary value attributed to goodwill. The results of Global Med’s operations are included in our consolidated financial statements for approximately one week in fiscal year 2010 and are not material to the Company’s fiscal year 2010 operating results.
 
4.   PRODUCT WARRANTIES
 
Generally, we provide a warranty on parts and labor for one year after the sale and installation of each device. We also warrant our disposable products through their use or expiration. We estimate our potential


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
warranty expense based on our historical warranty experience, and we periodically assess the adequacy of our warranty accrual and make adjustments as necessary.
 
                 
    April 3,
    March 28,
 
    2010     2009  
    (In thousands)  
 
Warranty accrual as of the beginning of the period
  $ 1,835     $ 929  
Warranty provision
    1,313       2,155  
Warranty spending
    (2,245 )     (1,249 )
                 
Warranty accrual as of the end of the period
  $ 903     $ 1,835  
                 
 
5.   INVENTORIES, NET
 
Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined on the first-in, first-out basis.
 
Inventories consist of the following:
 
                 
    April 3,
    March 28,
 
    2010     2009  
    (In thousands)  
 
Raw materials
  $ 25,850     $ 23,778  
Work-in-process
    3,825       8,732  
Finished goods
    50,278       44,012  
                 
    $ 79,953     $ 76,522  
                 
 
6.   GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for fiscal year 2009, 2008 and 2007 are as follows:
 
         
    (In thousands)  
 
Carrying amount as of March 29, 2008
  $ 54,222  
Medicell Ltd.(a)
    1,238  
Altivation Software Inc.(b)
    1,690  
Effect of change in rates used for translation
    (724 )
         
Carrying amount as of March 28, 2009
  $ 56,426  
Global Med(c)
    50,109  
SEBRA(d)
    3,521  
L’Attitude Medical Systems Inc. (Neoteric)(e)
    8,672  
Altivation Software Inc.(b)
    2,110  
Medicell Ltd.(a)
    583  
Effect of change in rates used for translation
    (878 )
         
Carrying amount as of April 3, 2010
  $ 120,543  
         
 
 
(a) See Note 3, Acquisitions for a full description of the acquisition of Medicell Limited (“Medicell”), which occurred on April 4, 2008.
 
(b) See Note 3, Acquisitions for a full description of the acquisition of Altivation Software (“Altivation”), which occurred on March 27, 2009.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(c) See Note 3, Acquisitions for a full description of the acquisition of Global Med Technologies, Inc.(“Global Med”), which occurred on March 31, 2010.
 
(d) See Note 3, Acquisitions for a full description of the acquisition of the SEBRA® assets, which occurred on September 4, 2009.
 
(e) See Note 3, Acquisitions for a full description of the acquisition of L’Attitude Medical Systems, Inc. (“Neoteric”), which occurred on April 16, 2009.
 
Other Intangible Assets
 
Other intangible assets include the value assigned to license rights and other technology, patents, customer contracts and relationships, software technology, and a trade name. The estimated useful lives for all of these intangible assets are 5 to 20 years.
 
Aggregate amortization expense for amortized other intangible assets for fiscal year 2010, 2009, and 2008 was $7.7 million, $6.0 million, and $4.1 million, respectively. Future annual amortization expense on other intangible assets is expected to approximate $11.7 million for fiscal year 2011, $11.2 million for fiscal year 2012, $11.1 million for fiscal year 2013, $10.8 million for fiscal year 2014 and $9.6 million for fiscal year 2015.
 
                         
    Gross Carrying
    Accumulated
    Weighted Average
 
    Amount     Amortization     Useful Life  
    (In thousands)     (In thousands)     (In years)  
 
As of April 3, 2010
                       
Amortized Intangibles
                       
Patents
  $ 11,928     $ 5,801       11  
Capitalized software
    7,642       498       6  
Other technology
    51,826       14,187       10  
Customer contracts and related relationships
    45,897       11,549       11  
Trade name
    1,502       658       7  
                         
Total Intangibles
  $ 118,795     $ 32,693       10  
                         
 
                         
    Gross Carrying
    Accumulated
    Weighted Average
 
    Amount     Amortization     Useful Life  
    (In thousands)     (In thousands)     (In years)  
 
As of March 28, 2009
                       
Amortized Intangibles
                       
Patents
  $ 12,008     $ 4,945       11  
Capitalized software
    18,994       572       6  
Other technology
    28,784       11,501       12  
Customer contracts and related relationships
    29,886       8,240       12  
Trade name
    1,097       250       7  
                         
Total Intangibles
  $ 90,769     $ 25,508       11  
                         
 
7.   DERIVATIVES AND FAIR VALUE MEASUREMENTS
 
We manufacture, market and sell our products globally. Approximately 52.9% of our sales are generated outside the U.S. in local currencies. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Accordingly, our earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, our reporting currency.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize for a period of time, the unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to lesser extent the British Pound Sterling and the Canadian Dollar. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.
 
Designated Foreign Currency Hedges
 
All of our designated currency hedge contracts as of April 3, 2010 and March 28, 2009 were cash flow hedges under ASC Topic 815, Derivatives and Hedging (formerly known as FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities). We record the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income (OCI) in the Statement of Stockholders’ Equity and Comprehensive Income until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, we would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. We had currency derivative instruments designated as cash flow hedges outstanding in the contract amount of $135.4 million as of April 3, 2010 and $117.1 million as of March 28, 2009.
 
During fiscal year 2010, we recognized net losses of $3.4 million in earnings on our cash flow hedges. All currency cash flow hedges outstanding as of April 3, 2010 mature within twelve months. As of April 3, 2010, $1.4 million of net gains, net of tax, were recorded in OCI to recognize the effective portion of the fair value of any currency derivative instruments that are, or previously were, designated as foreign currency cash flow hedges, as compared to net gains of $4.9 million as of March 28, 2009. As of April 3, 2010, $1.4 million of net gains, net of tax, may be reclassified to earnings within the next twelve months.
 
Non-designated Foreign Currency Contracts
 
We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. We use currency forward contracts as a part of our strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These currency forward contracts are not designated as cash flow or fair value hedges under ASC Topic 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings; and are entered into for periods consistent with currency transaction exposures, generally one month. We had currency derivative instruments not designated as hedges under ASC Topic 815 outstanding in the contract amount of $29.6 million as of April 3, 2010 and $51.6 million as of March 28, 2009.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Fair Value of Derivative Instruments
 
The following tables present the effect of our derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC Topic 815 in our consolidated statement of income for fiscal year 2010.
 
                                         
                      Amount of Gain
       
                      Recognized in
       
                      Earnings on
       
          Amount of Loss
          Ineffective
       
    Amount of
    Reclassified
          Portion and
       
    Loss
    from OCI into
          Amount
       
    Recognized in
    Earnings
    Location in
    Excluded from
    Location in
 
    OCI (Effective
    (Effective
    Statement of
    Effectiveness
    Statement of
 
Cash Flow Hedges
  Portion)     Portion)     Operations     Testing (*)     Operations  
    (In thousands)  
 
Foreign exchange contracts
  $ (477 )   $ (809 )     Net revenues     $ 529       Other expense  
                                         
    $ (477 )   $ (809 )           $ 529          
                                         
 
 
(*) We exclude the difference between the spot rate and hedge rate from our effectiveness testing.
 
We did not have fair value hedges or net investment hedges outstanding as of April 3, 2010 or March 28, 2009.
 
ASC Topic 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures (formerly known as FASB Statement No. 157, Fair Value Measurements), by considering the estimated amount we would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. In certain instances, we may utilize financial models to measure fair value. Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of April 3, 2010, we have classified our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC Topic 815, as discussed below, because these observable inputs are available for substantially the full term of our derivative instruments.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets as of April 3, 2010 by type of contract and whether it is a qualifying hedge under ASC Topic 815.
 
             
    Location in
  Balance as of
 
    Balance Sheet   April 3, 2010  
    (In thousands)  
 
Derivative Assets:
           
Designated Hedging Instruments
           
Currency Exchange Contracts
  Other current assets   $ 4,407  
             
        $ 4,407  
             
Derivative Liabilities:
           
Designated Hedging Instruments
           
Currency Exchange Contracts
  Other accrued liabilities   $ 1,747  
             
        $ 1,747  
             
 
Other Fair Value Measurements
 
We adopted ASC Topic 820, Fair Value Measurements and Disclosures (formerly known as FASB Statement No. 157, Fair Value Measurement) as of March 30, 2008. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC Topic 820 does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. In accordance with ASC Topic 820, for the fiscal year ended April 3, 2010, we applied the requirements under ASC Topic 820 to our non-financial assets and non-financial liabilities. As we did not have an impairment of any non-financial assets or non-financial liabilities, there was no disclosure required relating to our non-financial assets or non-financial liabilities.
 
On a recurring basis, we measure certain financial assets and financial liabilities at fair value, including our money market funds, foreign currency derivative contracts, and contingent consideration. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We base fair value upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value.
 
ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
 
  •  Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
 
  •  Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
 
  •  Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Our money market funds carried at fair value are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
 
We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with ASC Topic 815, Derivatives and Hedging (formerly known as FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities). We determine the fair value of these instruments using the framework prescribed by ASC Topic 820 by considering the estimated amount we would receive or pay to terminate these agreements at the reporting date and by taking into account current spot rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. We have classified our foreign currency hedge contracts within Level 2 of the fair value hierarchy because these observable inputs are available for substantially the full term of our derivative instruments. For the fiscal year ended April 3, 2010, we have classified our other liabilities — contingent consideration relating to our acquisition of Neoteric within Level 3 of the fair value hierarchy because the value is determined using significant unobservable inputs.
 
Fair Value Measured on a Recurring Basis
 
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of April 3, 2010:
 
                                 
    Quoted
    Significant
             
    Market Prices
    Other
    Significant
       
    for Identical
    Observable
    Unobservable
       
    Assets
    Inputs
    Inputs
       
    (Level 1)     (Level 2)     (Level 3)     Total  
    (In thousands)  
 
Ass