HAEMONETICS CORP - Quarter Report: 2010 October (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

HAEMONETICS CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts		04-2882273
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

400 Wood Road, Braintree, MA 02184
(Address of principal executive offices)

Registrant’s telephone number, including area code: (781) 848-7100

Indicate by check mark whether the registrant (1.) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) (2.) has been subject to the filing requirements for at least the past 90 days.

Yes   þ   No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   þ   No   o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

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

Yes   o   No   þ

The number of shares of $.01 par value common stock outstanding as of October 2, 2010:

24,746,788

 

 

HAEMONETICS CORPORATION
INDEX

		PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Consolidated Statements of Income — Three and Six Months Ended October 2, 2010 and September 26, 2009			2
Unaudited Consolidated Balance Sheets — October 2, 2010 and April 3, 2010			3
Unaudited Consolidated Statement of Stockholders’ Equity — Six Months Ended October 2, 2010			4
Unaudited Consolidated Statements of Cash Flows — Six Months Ended October 2, 2010 and September 26, 2009			5
Notes to Unaudited Consolidated Financial Statements			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			34
ITEM 4. Controls and Procedures			36
PART II. OTHER INFORMATION			37
ITEM 1. Legal Proceedings			37
ITEM 1A. Risk Factors			37
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
ITEM 3. Defaults upon Senior Securities			38
ITEM 4. (Removed and Reserved)			38
ITEM 5. Other Information			38
ITEM 6. Exhibits			38
Signatures			39
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

ITEM 1. FINANCIAL STATEMENTS

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited in thousands, except per share data)

		Three months ended								Six months ended
		October 2,				September 26,				October 2,				September 26,
		2010				2009				2010				2009
Net revenues		$	166,833			$	157,070			$	329,872			$	311,158
Cost of goods sold			79,078				76,103				155,655				147,248
Gross profit			87,755				80,967				174,217				163,910
Operating expenses:
Research, development and engineering			7,954				6,475				15,875				13,252
Selling, general and administrative			52,790				47,469				107,144				97,308
Contingent consideration income			(1,894	)			—				(1,894	)			—
Total operating expenses			58,850				53,944				121,125				110,560
Operating income			28,905				27,023				53,092				53,350
Interest expense			(23	)			(255	)			(40	)			(463	)
Interest income			493				103				460				253
Other income/(expense), net			(216	)			(801	)			22				(1,135	)
Income before provision for income taxes			29,159				26,070				53,534				52,005
Provision for income taxes			7,821				8,020				14,277				15,882
Net income		$	21,338			$	18,050			$	39,257			$	36,123
Basic income per common share
Net income		$	0.86			$	0.70			$	1.58			$	1.41
Income per common share assuming dilution
Net income		$	0.85			$	0.69			$	1.54			$	1.37
Weighted average shares outstanding
Basic			24,686				25,685				24,913				25,671
Diluted			25,228				26,321				25,459				26,273

The accompanying notes are an integral part of these consolidated financial statements

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

		October 2, 2010				April 3, 2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	115,049			$	141,562
Accounts receivable, less allowance of $2,068 at October 2, 2010 and $2,554 at April 3, 2010			121,767				118,684
Inventories, net			86,009				79,953
Deferred tax asset, net			13,880				10,985
Prepaid expenses and other current assets			25,517				34,959
Total current assets			362,222				386,143
Property, plant and equipment:
Land, building and building improvements			50,969				49,292
Plant equipment and machinery			126,351				113,534
Office equipment and information technology			80,824				75,235
Haemonetics equipment			211,355				206,267
Total property, plant and equipment			469,499				444,328
Less: accumulated depreciation			(312,202	)			(289,803	)
Net property, plant and equipment			157,297				154,525
Other assets:
Intangible assets, less amortization of $38,977 at October 2, 2010 and $32,693 at April 3, 2010			94,544				97,160
Goodwill			112,383				110,261
Deferred tax asset, long term			1,372				910
Other long-term assets			9,919				9,664
Total other assets			218,218				217,995
Total assets		$	737,737			$	758,663
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt		$	11,702			$	16,062
Accounts payable			21,628				25,590
Accrued payroll and related costs			30,330				39,046
Accrued income taxes			4,679				5,092
Deferred tax liability			1,131				68
Other liabilities			44,281				48,772
Total current liabilities			113,751				134,630
Long-term debt, net of current maturities			4,423				4,589
Long-term deferred tax liability			12,681				13,405
Other long-term liabilities			12,490				12,915
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 24,746,788 shares at October 2, 2010 and 25,440,856 shares at April 3, 2010			248				255
Additional paid-in capital			256,071				252,323
Retained earnings			332,907				334,641
Accumulated other comprehensive income			5,166				5,905
Total stockholders’ equity			594,392				593,124
Total liabilities and stockholders’ equity		$	737,737			$	758,663

The accompanying notes are an integral part of these consolidated financial statements.

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME
(Unaudited in thousands)

																		Accumulated
										Additional								Other				Total
		Common Stock								Paid-in				Retained				Comprehensive				Stockholders’				Comprehensive
		Shares				$’s				Capital				Earnings				Income / (Loss)				Equity				Income
Balance, April 3, 2010			25,441			$	255			$	252,323			$	334,641			$	5,905			$	593,124
Employee stock purchase plan			36				—				1,645				—				—				1,645
Exercise of stock options and related tax benefit			173				2				7,014				—				—				7,016
Shares repurchased			(907	)			(9	)			(9,000	)			(40,991	)			—				(50,000	)
Issuance of restricted stock, net of cancellations			4				—				—				—				—				—
Stock compensation expense			—				—				4,089				—				—				4,089
Net income			—				—				—				39,257				—				39,257			$	39,257
Net change in minimum pension liability			—				—				—				—				(22	)			(22	)			(22	)
Foreign currency translation adjustment			—				—				—				—				3,234				3,234				3,234
Unrealized loss on hedges, net of tax			—				—				—				—				(4,069	)			(4,069	)			(4,069	)
Reclassification of hedge gain to earnings, net of tax			—				—				—				—				118				118				118
Comprehensive income			—				—				—				—				—				—			$	38,518
Balance, October 2, 2010			24,747			$	248			$	256,071			$	332,907			$	5,166			$	594,392

The accompanying notes are an integral part of these consolidated financial statements.

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)

		Six Months Ended
		October 2,				September 26,
		2010				2009
Cash Flows from Operating Activities:
Net income		$	39,257			$	36,123
Adjustments to reconcile net income to net cash provided by operating activities:
Non cash items:
Depreciation and amortization			24,690				20,699
Stock compensation expense			4,089				4,992
(Gain)/Loss on sales of property, plant and equipment			316				147
Unrealized loss/(gain) from hedging activities			1,133				(2,145	)
Contingent consideration income			(1,894	)			—
(Reversal)/accretion of interest expense on contingent consideration			(493	)			408
Change in operating assets and liabilities:
Decrease in accounts receivable, net			(837	)			1,786
(Increase)/decrease in inventories			(3,900	)			2,071
Decrease in prepaid income taxes			6,849				5,907
Decrease in other assets and other long-term liabilities			(3,727	)			(1,204	)
Tax benefit of exercise of stock options			946				177
Decrease in accounts payable and accrued expenses			(22,143	)			(7,482	)
Net cash provided by operating activities			44,286				61,479
Cash Flows from Investing Activities:
Capital expenditures on property, plant and equipment			(24,088	)			(32,880	)
Proceeds from sale of property, plant and equipment			262				383
Acquisition of SEBRA			—				(12,845	)
Acquisition of Neoteric			—				(6,613	)
Acquisition of Medicell			—				(306	)
Net cash used in investing activities			(23,826	)			(52,261	)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage			(166	)			(369	)
Net (decrease)/increase in short-term loans			(5,249	)			13,578
Employee stock purchase plan			1,645				1,484
Exercise of stock options			5,841				3,388
Excess tax benefit on exercise of stock options			628				157
Share repurchase			(50,000	)			(6,331	)
Net cash (used in)/provided by financing activities			(47,301	)			11,907
Effect of exchange rates on cash and cash equivalents			328				476
Net (Decrease)/Increase in Cash and Cash Equivalents			(26,513	)			21,601
Cash and Cash Equivalents at Beginning of Year			141,562				156,721
Cash and Cash Equivalents at End of Period		$	115,049			$	178,322
Non-cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placements of Haemonetics equipment		$	3,710			$	2,809
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	251			$	283
Income taxes paid		$	6,941			$	6,360

The accompanying notes are an integral part of these consolidated financial statements

HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Our accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany transactions have been eliminated. Certain reclassifications were made to prior year balances to conform with the presentation of the financial statements for the six months ended October 2, 2010. During the second quarter of fiscal year 2011, we received new information related to our Global Med acquisition which we have considered and estimated the effect on the carrying amount of certain assets and liabilities acquired. These adjustments are reflected accordingly in our financial information for the fiscal year ended April 3, 2010 and are discussed further in Note 9. Operating results for the six month period ended October 2, 2010 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 2, 2011, or any other interim period. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and footnotes included in our annual report on Form 10-K for the fiscal year ended April 3, 2010.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated, and these financial statements reflect those material items that arose after the balance sheet date but prior to the issuance of the financial statements that would be considered recognized subsequent events. There were no material recognized subsequent events recorded in the October 2, 2010 consolidated financial statements.

Our fiscal year ends on the Saturday closest to the last day of March. Fiscal year 2011 includes 52 weeks with all four quarters each having 13 weeks. Fiscal year 2010 included 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks.

Revenue Recognition

Our revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 605, Revenue Recognition, and ASC Topic 985-605, Software. 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.

Software Solutions Revenues

Our software solutions include software products and support for our plasma, blood bank, and hospital customers. For our blood bank customers, these products span blood center operations and automate and track operations from the recruitment of the blood donor to the disposition of the blood product. For plasma customers, we also provide information technology platforms for managing distribution of plasma from collection centers to plasma fractionation facilities. We offer products to our hospital customers that manage blood product inventory and support patient cross matching and transfusion management. We also offer an analytical tool that monitors and measures a hospital’s blood management practices. Software solution product offerings are sold both as a subscription, where license revenues are generally billed periodically, monthly, or quarterly, and recognized ratably over the term of the subscription, and as a perpetual license, which are billed up front. We recognize revenue from the sale of perpetual licenses when delivered, provided all other revenue recognition criteria are met and we have vendor specific objective evidence of fair value for undelivered elements sold with the license. Additionally, for certain software solutions products, we provide customized implementation services to our customer. For these arrangements, we recognize revenue on a percentage-of-completion basis. We also provide other 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.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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 will adopt the guidance on April 3, 2011, the first day of fiscal year 2012, and is currently assessing the possible impact of this guidance on its financial position and results of operations.

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. The update became effective for our fiscal year 2011 and there was no impact to our consolidated financial statements for the first six months ended October 2, 2010.

3. EARNINGS PER SHARE (“EPS”)

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. Basic EPS is computed by dividing net income by weighted average shares outstanding. Diluted EPS includes the effect of potentially dilutive common shares.

		For the Three Months Ended
		October 2, 2010				September 26, 2009
		(in thousands, except per share amounts)
Basic EPS
Net income		$	21,338			$	18,050
Weighted average shares			24,686				25,685
Basic income per share		$	0.86			$	0.70
Diluted EPS
Net income		$	21,338			$	18,050
Basic weighted average shares			24,686				25,685
Net effect of common stock equivalents			542				636
Diluted weighted average shares			25,228				26,321
Diluted income per share		$	0.85			$	0.69

		For the Six Months Ended
		October 2, 2010				September 26, 2009
		(in thousands, except per share amounts)
Basic EPS
Net income		$	39,257			$	36,123
Weighted average shares			24,913				25,671
Basic income per share		$	1.58			$	1.41
Diluted EPS
Net income		$	39,257			$	36,123
Basic weighted average shares			24,913				25,671
Net effect of common stock equivalents			546				602
Diluted weighted average shares			25,459				26,273
Diluted income per share		$	1.54			$	1.37

Weighted average shares outstanding, assuming dilution, excludes the impact of 1.1 million stock options for both the second quarter and the first six months of fiscal year 2011 and 0.8 million stock options for both the second quarter and the first six months of fiscal year 2010 because these securities were anti-dilutive during the noted periods.

4. STOCK-BASED COMPENSATION

Stock-based compensation expense of $4.1 million and $5.0 million was recognized for the six months ended October 2, 2010 and September 26, 2009, respectively. The related income tax benefit recognized was $1.3 million and $1.5 million for the six months ended October 2, 2010 and September 26, 2009, respectively. We recognize stock-based compensation on a straight line basis.

For a more detailed description of our stock-based compensation plans, see Note 11—Capital Stock to the Company’s consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 3, 2010. Our stock-based compensation plans currently consist of stock options, restricted stock awards, restricted stock units and an employee stock purchase plan. Options become exercisable in the manner specified by the Compensation Committee of our Board of Directors. All options, restricted stock awards, and restricted stock units granted to employees in the six months ended October 2, 2010 vest over a four year period of time and the options expire not more than 7 years from the date of grant, except for options granted to two employees which vest over a five year period.

Cash flows relating to the benefits of tax deductions in excess of compensation cost recognized are reported as a financing cash flow, rather than as an operating cash flow. This excess tax benefit was $0.6 million and $0.2 million for the three months ended October 2, 2010 and September 26, 2009, respectively.

The weighted average fair value for our options granted in the first six months of fiscal year 2011 and 2010 was $16.89 and $17.54, respectively. The assumptions utilized for estimating the fair value of option grants during the periods presented are as follows:

		Six Months Ended
		October 2, 2010				September 26, 2009
Stock Options Black-Scholes assumptions (weighted average):
Volatility			28.33	%			28.29	%
Expected life (years)			4.9				4.9
Risk-free interest rate			2.43	%			2.71	%
Dividend yield			0.00	%			0.00	%

As of October 2, 2010 and September 26, 2009, there was less than $0.1 million and $0.2 million, respectively, of total unrecognized compensation cost related to non vested restricted stock awards. That cost is expected to be recognized over a weighted average period of 0.6 years and 1.6 years, respectively. The total fair value of restricted stock awards vested was $0.1 million and less than $0.1 million for the six months ended October 2, 2010 and September 26, 2009, respectively.

As of October 2, 2010 and September 26, 2009, there was $3.6 million of total unrecognized compensation cost related to non vested restricted stock units. That cost is expected to be recognized over a weighted average period of 2.2 years and 2.3 years, respectively. The total fair value of shares fully vested was $0.2 million for the six months ended October 2, 2010 and for the same period ended September 26, 2009.

As of October 2, 2010 and September 26, 2009, there was less than $0.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to the Employee Stock Purchase Plan (“ESPP”) shares. That cost is recognized over the remaining purchase period.

During the six months ended October 2, 2010 and September 26, 2009, there were 35,992 and 33,183 shares, respectively, purchased under the ESPP. They were purchased at $45.70 and $43.89 per share, respectively, under the ESPP.

5. ACCOUNTING FOR SHIPPING AND HANDLING COSTS

Shipping and handling costs are included in cost of goods sold with the exception of $2.3 million and $4.6 million for the second quarter and six months ended October 2, 2010, respectively, and $2.9 million and $5.9 million for the same periods ended September 26, 2009 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.

6. PRODUCT WARRANTIES

We generally provide a warranty on parts and labor for one year after the sale and installation of each device. We also warrant our disposables products through their use or expiration. We estimate our potential warranty expense based on our historical warranty experience, and we periodically assess the adequacy of our warranty accrual and make adjustments as necessary.

		For the three months ended
		October 2, 2010				September 26, 2009
		(in thousands)
Warranty accrual as of the beginning of the period		$	879			$	1,875
Warranty provision			264				242
Warranty spending			(481	)			(392	)
Warranty accrual as of the end of the period		$	662			$	1,725

		For the six months ended
		October 2, 2010				September 26, 2009
		(in thousands)
Warranty accrual as of the beginning of the period		$	903			$	1,835
Warranty provision			699				633
Warranty spending			(940	)			(743	)
Warranty accrual as of the end of the period		$	662			$	1,725

7. COMPREHENSIVE INCOME

Comprehensive income is the total of net income and all other non-owner changes in stockholders’ equity. Other non-owner changes are primarily foreign currency translation, the change in our net minimum pension liability, and the changes in fair value of the effective portion of our outstanding cash flow hedge contracts.

A summary of the components of other comprehensive income is as follows:

		For the three months ended
(In thousands)		October 2, 2010				September 26, 2009
Net income		$	21,338			$	18,050
Other comprehensive income:
Net change in minimum pension liability			27				—
Foreign currency translation			7,481				3,424
Unrealized loss on cash flow hedges, net of tax			(4,519	)			(3,255	)
Reclassifications into earnings of cash flow hedge losses, net of tax			149				106
Total comprehensive income		$	24,476			$	18,325

		For the six months ended
(In thousands)		October 2, 2010				September 26, 2009
Net income		$	39,257			$	36,123
Other comprehensive income:
Net change in minimum pension liability			(22	)			—
Foreign currency translation			3,234				6,055
Unrealized loss on cash flow hedges, net of tax			(4,069	)			(4,263	)
Reclassifications into earnings of cash flow hedge losses/(gains), net of tax			118				(1,014	)
Total comprehensive income		$	38,518			$	36,901

8. INVENTORIES

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 method.

		October 2, 2010				April 3, 2010
		(in thousands)
Raw materials		$	31,202			$	25,850
Work-in-process			4,073				3,825
Finished goods			50,734				50,278
		$	86,009			$	79,953

9. GOODWILL, OTHER INTANGIBLE ASSETS, AND ACQUISITIONS

Goodwill

The change in the carrying amount of our goodwill during the six months ended October 2, 2010 is as follows (in thousands):

Carrying amount as of April 3, 2010		$	110,261
SEBRA (a)			163
Altivation (b)			228
Effect of change in rates used for translation			1,731
Carrying amount as of October 2, 2010		$	112,383

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 $60.2 million.

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 preliminary carrying value of the related goodwill may be adjusted accordingly. At October 2, 2010, goodwill recorded after our preliminary purchase price allocation was $39.8 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		$	39,827
Intangible assets subject to amortization			37,019
Trade accounts receivable			5,256
Other assets			10,240
Deferred taxes			(8,957	)
Notes payable			(7,701	)
Deferred revenue			(7,180	)
Other liabilities			(8,325	)
Total		$	60,179

The Company is still in the process of obtaining and 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 received and 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 change. Additionally, estimated intangible asset amortization expense recorded to date may also be adjusted. 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 the second quarter and the first six months of fiscal year 2011.

After the April 3, 2010 financial statements were issued, we received new information related to the fair value of the assets and liabilities acquired. After considering this new information, we have estimated the effect on the carrying amount of certain assets and liabilities acquired as follows:

	•		Increase of $11.1 million in intangible assets which resulted in a decrease in goodwill
	•		Increase of $3.9 million in deferred taxes resulting in an increase to goodwill
	•		$1.2 million increase in other assets resulting in a decrease in goodwill
	•		$1.9 million decrease in other liabilities which resulted in a decrease to goodwill.

The net effect of these estimated changes resulted in a corresponding net decrease to goodwill of $10.3 million. These estimated changes are reflected accordingly in the purchase price allocation table above.

Accordingly, amortization expense recorded reflects these revised fair value estimates and the present preliminary purchase price allocation.

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 of $12.8 million was 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 $1.1 million, and goodwill of $3.7 million.

Neoteric Acquisition

On April 16, 2009, Haemonetics acquired the outstanding shares of 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 of $5.0 million was allocated to other intangible assets of $5.0 million, deferred tax liabilities of $1.6 million, and goodwill of $8.2 million.

The contingent consideration is based upon estimated annual revenue growth for the three years following the acquisition, at established profitability thresholds, and is not limited. 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 Company is required to reassess the fair value of contingent consideration on a periodic basis. During fiscal year 2010, the Company reassessed the fair value of the contingent consideration as performance outcomes for 2010 were not met, which resulted in a reduction in the estimated liability. During the first six months of fiscal year 2011, the Company continued to reassess the fair value of the contingent consideration and further reduced the estimated liability based upon performance to date and expected performance outcomes for fiscal year 2011. The ending liability balance is $1.9 million at October 2, 2010.

Amortized Intangibles

As of October 2, 2010

										Weighted
		Gross Carrying				Accumulated				Average
		Amount				Amortization				Useful Life
		(in thousands)				(in thousands)				(in years)
Patents		$	12,227			$	6,296				11
Capitalized software			11,001				576				6
Other technology			45,285				17,478				11
Customer contracts and related relationships			59,827				13,827				11
Trade names			5,180				799				6
Total intangibles		$	133,520			$	38,976				10

As of April 3, 2010

										Weighted
		Gross Carrying				Accumulated				Average
		Amount				Amortization				Useful Life
		(in thousands)				(in thousands)				(in years)
Patents		$	11,928			$	5,801				11
Capitalized software			7,642				498				6
Other technology			43,182				14,187				11
Customer contracts and related relationships			61,919				11,549				11
Trade names			5,182				658				7
Total intangibles		$	129,853			$	32,693				10

Amortization expense for amortized intangible assets was $3.3 million and $1.8 million for the second quarter of fiscal year 2011 and 2010, respectively, and $6.5 million and $3.6 million for the six months ended October 2, 2010 and September 26, 2009, respectively. Annual amortization expense is expected to approximate $12.0 million for fiscal year 2011, $11.8 million for fiscal year 2012, $11.7 million for fiscal year 2013, $11.4 million for fiscal year 2014, and $10.2 million for fiscal year 2015.

In addition to the acquisitions of SEBRA, Neoteric, and Global Med discussed above, changes to the net carrying value of our intangible assets from April 3, 2010 to October 2, 2010 reflect the capitalization of software costs associated with our devices and software products (see Note 16), amortization expense and the effect of exchange rate changes in the translation of our intangible assets held by our international subsidiaries.

10. DERIVATIVES AND FAIR VALUE MEASUREMENTS

We manufacture, market and sell our products globally. Approximately 52% 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.

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 a lesser extent the Swiss Franc, 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 Hedge Contracts

All of our designated foreign currency hedge contracts as of October 2, 2010 and April 3, 2010 were cash flow hedges under ASC Topic 815, Derivatives and Hedging. We record the effective portion of any change in the fair value of designated

foreign currency hedge contracts in Other Comprehensive Income in the Statement of Stockholders’ Equity 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 designated foreign currency hedge contracts outstanding in the contract amount of $165.0 million as of October 2, 2010 and $135.4 million as of April 3, 2010.

During the second quarter of fiscal year 2011, we recognized net losses of $1.1 million in earnings on our cash flow hedges. All currency cash flow hedges outstanding as of October 2, 2010 mature within twelve months. For the quarter ended October 2, 2010, $4.1 million of losses, net of tax, were recorded in Other Comprehensive Income to recognize the effective portion of the fair value of any designated foreign currency hedge contracts that are, or previously were, designated as foreign currency cash flow hedges, as compared to net losses of $4.3 million as of September 26, 2009. At October 2, 2010, gains of $0.1 million, 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 non-designated foreign currency hedge contracts under ASC Topic 815 outstanding in the contract amount of $31.4 million as of October 2, 2010 and $29.6 million as of April 3, 2010.

Fair Value of Derivative Instruments

The following table presents 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 the six months ended October 2, 2010.

						Amount of Gain
		Amount of Loss				Reclassified								Amount
		Recognized				from OCI into				Location in				Excluded from				Location in
		in OCI				Earnings				Statement of				Effectiveness				Statement of
Derivative Instruments		(Effective Portion)				(Effective Portion)				Operations				Testing (*)				Operations
(in thousands)
Designated foreign currency hedge contracts		$	(4,069	)		$	(118	)		Net revenues				$	(247	)		Other income
Non-designated foreign currency hedge contracts			—				—								(365	)		SG&A
		$	(4,069	)		$	(118	)						$	(612	)

We did not have fair value hedges or net investment hedges outstanding as of October 2, 2010 or April 3, 2010.

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, 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 October 2, 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.

The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets as of October 2, 2010 by type of contract and whether it is a qualifying hedge under ASC Topic 815.

		Location in				Balance as of				Balance as of
(in thousands)		Balance Sheet				October 2, 2010				April 3, 2010
Derivative Assets:
Designated foreign currency hedge contracts		Other current assets				$	2,246			$	4,407
						$	2,246			$	4,407
Derivative Liabilities:
Designated foreign currency hedge contracts		Other accrued liabilities				$	5,593			$	1,747
						$	5,593			$	1,747

Other Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, 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 quarter and the six months ended October 2, 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.

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. 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 quarter and first six months ended October 2, 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 October 2, 2010:

						Significant
		Quoted Market				Other				Significant
		Prices for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
(in thousands)		(Level 1)				(Level 2)				(Level 3)				Total
Assets
Money market funds		$	66,012			$	—			$	—			$	66,012
Forward currency exchange contracts			—				2,246				—				2,246
		$	66,012			$	2,246			$	—			$	68,258
Liabilities
Forward currency exchange contracts		$	—			$	5,593			$	—			$	5,593
Other liabilities — contingent consideration			—				—				1,899				1,899
		$	—			$	5,593			$	1,899			$	7,492

A description of the methods used to determine the fair value of the Level 3 liabilities (other liabilities — contingent consideration) is included within Note 9 — Goodwill, Other Intangible Assets, and Acquisitions. The table below provides a reconciliation of the beginning and ending Level 3 liabilities for the six months ended October 2, 2010.

		Fair Value
		Measurements
		Using Significant
		Unobservable
		Inputs
(in thousands)		(Level 3)
Beginning balance		$	4,101
Accretion of interest expense on contingent consideration			(493	)
Contingent consideration income			(1,894	)
Currency translation adjustment			185
Ending balance		$	1,899

Other Fair Value Disclosures

The fair value of our real estate mortgage obligation was $4.7 million and $5.1 million at October 2, 2010 and April 3, 2010, respectively.

11. INCOME TAXES

Our reported tax rate includes two principal components: an expected effective annual tax rate and discrete items resulting in additional provisions or benefits that are recorded in the quarter that an event arises or is resolved. 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 change in the statutory tax rate. The calculated tax rate is without any benefit from the research and development credit that could later become valid for our fiscal year 2011.

The reported tax rate was 26.8% and 26.7% for the second quarter and the six month period ended October 2, 2010, respectively. The reported tax rate includes:

•

our expected effective annual tax rate of 29.8% comprised of the U.S. federal statutory tax rate of 35.0% reduced by tax benefits from foreign taxes (including our Swiss principal) and a domestic manufacturing deduction, plus the state tax provision and stock compensation expenses not deductible in all jurisdictions.

The following net discrete items were realized in the second quarter of fiscal year 2011:

•		a $0.6 million benefit for the contingent consideration income that is not taxable,
•		a $0.3 million benefit from the release of a transfer price reserve after completion of the fiscal year 2010 global transfer price study.

During the first quarter of fiscal year 2011, we recognized a $0.8 million discrete tax benefit from our Swiss principal ruling.

The reported tax rate was 30.8% and 30.5% for the second quarter and the six month period ended September 26, 2009, respectively. The reported tax rate includes:

•

our expected effective annual tax rate of 31.1%, comprised of the U.S. federal statutory tax rate of 35.0% reduced by tax benefits from foreign taxes (including our Swiss principal) and a domestic manufacturing deduction, plus the state tax provision, and stock compensation expenses not deductible in all jurisdictions.

The following discrete items were realized during the first quarter of fiscal year 2010:

•		a $0.7 million benefit (on an annual basis) from the remittance of Japanese earnings,
•		a $0.1 million cost from foreign tax assessments.

We conduct business globally and, as a result, file consolidated federal and consolidated and separate state and foreign income tax returns in multiple jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world in jurisdictions including the U.S., Japan, Germany, France, the United Kingdom, and Switzerland. With few exceptions, we are no longer subject to U.S. federal, state and local, or foreign income tax examinations for years before 2007.

12. COMMITMENTS AND CONTINGENCIES

We are presently engaged in various legal actions, and although ultimate liability cannot be determined at the present time, we believe, based on consultation with counsel, that any such liability will not materially affect our consolidated financial position or our results of operations.

13. DEFINED BENEFIT PENSION PLANS

Certain of the Company’s foreign subsidiaries have defined benefit pension plans covering substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the aggregate include the following components:

		For the three months ended
		October 2, 2010				September 26, 2009
		(in thousands)
Service cost		$	152			$	124
Interest cost on benefit obligation			66				61
Expected return on plan assets			19				(15	)
Amortization of unrecognized prior service cost, unrecognized gain and unrecognized initial obligation			(4	)			(10	)
Net periodic benefit cost		$	233			$	160

		For the six months ended
		October 2, 2010				September 26, 2009
		(in thousands)
Service cost		$	304			$	248
Interest cost on benefit obligation			133				122
Expected return on plan assets			38				(30	)
Amortization of unrecognized prior service cost, unrecognized gain and unrecognized initial obligation			(8	)			(20	)
Net periodic benefit cost		$	467			$	320

14. SEGMENT INFORMATION

Segment Definition Criteria

We manage our business on the basis of one operating segment: the design, manufacture, and marketing of blood management solutions. Our chief operating decision-maker uses consolidated results to make operating and strategic decisions. Manufacturing processes, as well as the regulatory environment in which we operate, are largely the same for all product lines.

Enterprise Wide Disclosures about Product and Services

We have four global product families: plasma, blood bank, hospital, and software solutions.

Our products include equipment devices and the related disposables used with these devices. Disposables include the plasma, blood bank, and hospital product families. Plasma consists of the disposables used to perform apheresis for the separation of whole blood components and subsequent collection of plasma to be used as a raw material for biologically derived pharmaceuticals (also known as source plasma). Blood bank consists of disposables which separate whole blood for the subsequent collection of platelets, plasma, red cells, or a combination of these components for transfusion to patients. Hospital consists of surgical disposables (principally the Cell Saver^® autologous blood recovery system targeted to procedures that involve rapid, high volume blood loss such as cardiovascular surgeries and the cardioPAT^® cardiovascular perioperative autotransfusion system designed to remain with the patient following surgery to recover blood and the patient’s red cells to prepare them for reinfusion), the OrthoPAT^® orthopedic perioperative autotransfusion system designed to operate both during and after surgery to recover and wash the patient’s red cells to prepare them for reinfusion, and diagnostics products (principally the TEG^® Thrombelastograph^® hemostasis analyzer used to help assess a surgical patient’s hemostasis (blood clotting ability) during and after surgery).

Software solutions include information technology platforms that assist blood banks, plasma centers, and hospitals to more effectively manage regulatory compliance and operational efficiency.

Revenues from External Customers:

		Three Months Ended
		October 2, 2010				September 26, 2009
		(in thousands)
Disposable revenues
Plasma disposables		$	56,514			$	59,423
Blood bank disposables
Platelet			39,746				37,250
Red cell			11,294				11,484
			51,040				48,734
Hospital disposables
Surgical			16,011				16,631
OrthoPAT			8,281				8,678
Diagnostics			4,647				3,745
			28,939				29,054
Disposables revenue			136,493				137,211
Software solutions			16,125				9,100
Equipment & other			14,215				10,759
Total revenues		$	166,833			$	157,070

		Six Months Ended
		October 2, 2010				September 26, 2009
		(in thousands)
Disposable revenues
Plasma disposables		$	112,431			$	118,291
Blood bank disposables
Platelet			76,063				71,556
Red cell			22,608				23,263
			98,671				94,819
Hospital disposables
Surgical			32,362				34,056
OrthoPAT			17,238				17,262
Diagnostics			9,355				7,556
			58,955				58,874
Disposables revenue			270,057				271,984
Software solutions			32,585				17,554
Equipment & other			27,230				21,620
Total revenues		$	329,872			$	311,158

15. REORGANIZATION

On April 1, 2010, our Board of Directors approved transformation and restructuring plans, which include the integration of Global Med Technologies, Inc. As part of these plans, in fiscal year 2011, we expect to incur additional cash restructuring costs of $6.4 million for employee matters and facility closures.

The following summarizes the restructuring activity for the six months ended October 2, 2010 and September 26, 2009, respectively:

		Six Months Ended October 2, 2010
																		Restructuring
																		Accrual
		Balance at												Asset				Balance at
(Dollars in thousands)		April 3, 2010				Cost Incurred				Payments				Write down				October 2, 2010
Employee-related costs		$	9,761			$	1,400			$	(5,529	)		$	—			$	5,632
		$	9,761			$	1,400			$	(5,529	)		$	—			$	5,632

		Six Months Ended September 26, 2009
																		Restructuring
																		Accrual
		Balance at												Asset				Balance at
(Dollars in thousands)		March 28, 2009				Cost Incurred				Payments				Write down				September 26, 2009
Employee-related costs		$	2,729			$	—			$	(483	)		$	—			$	2,246
Facility related costs			42				—				(42	)			—				—
Other exit & termination costs			78				—				(78	)			—				—
		$	2,849			$	—			$	(603	)		$	—			$	2,246

Additionally, we expect to incur approximately $2.0 million of integration costs. For the six months ended October 2, 2010, we incurred $1.4 million of integration costs related to Global Med.

16. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS

The cost of software that is developed or obtained for internal use is accounted for pursuant to ASC Topic 350, Intangibles — Goodwill and Other. Pursuant to ASC Topic 350, the Company capitalizes costs incurred during the application development stage of software developed for internal use, and expenses costs incurred during the preliminary project and the post-implementation operation stages of development. The Company capitalized $1.6 million and $4.9 million in costs incurred for acquisition of the software license and related software development costs for new internal software that was in the application development stage during the six month period ended October 2, 2010 and September 26, 2009, respectively. The capitalized costs are included as a component of property, plant and equipment in the consolidated financial statements.

For costs incurred related to the development of software to be sold, leased, or otherwise marketed, the Company applies the provisions of ASC Topic 985-20, Software, 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. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers.

The Company capitalized $3.4 million and $2.5 million in software development costs for ongoing initiatives during the six month period ended October 2, 2010 and September 26, 2009, respectively. At October 2, 2010 and April 3, 2010, we have a total of $9.9 million and $7.6 million, respectively, 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. We will begin to amortize these costs when the products are released for sale.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

Haemonetics is a blood management solutions company for our customers. Anchored by our reputable medical device systems, we also provide information technology platforms and value 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; 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 cause of bleeding resulting in overall reductions in blood product usage. 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.

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 disposables revenue stream, which includes the sales of disposables and fees for the use of our equipment, accounted for approximately 81.9% and 87.4% of our total revenues for the first six months of fiscal year 2011 and 2010, respectively.

The following table provides an overview of our financial results for the three and six months ended October 2, 2010 and the comparable three and six month periods in our prior fiscal year.

Financial Summary

		For the three months ended												For the six months ended
		October 2,				September 26,				% Increase/				October 2,				September 26,				% Increase/
(in thousands, except per share data)		2010				2009				(Decrease)				2010				2009				(Decrease)
Net revenues		$	166,833			$	157,070				6.2	%		$	329,872			$	311,158				6.0	%
Gross profit		$	87,755			$	80,967				8.4	%		$	174,217			$	163,910				6.3	%
% of net revenues			52.6	%			51.5	%							52.8	%			52.7	%
Operating expenses		$	58,850			$	53,944				9.1	%		$	121,125			$	110,560				9.6	%
Operating income		$	28,905			$	27,023				7.0	%		$	53,092			$	53,350				(0.5	%)
% of net revenues			17.3	%			17.2	%							16.1	%			17.1	%
Interest expense		$	(23	)		$	(255	)			(91.0	%)		$	(40	)		$	(463	)			(91.4	%)
Interest income		$	493			$	103				378.6	%		$	460			$	253				81.8	%
Other income, net		$	(216	)		$	(801	)			(73.0	%)		$	22			$	(1,135	)			(101.9	%)
Income before taxes		$	29,159			$	26,070				11.8	%		$	53,534			$	52,005				2.9	%
Provision for income tax		$	7,821			$	8,020				(2.5	%)		$	14,277			$	15,882				(10.1	%)
% of pre-tax income			26.8	%			30.8	%							26.7	%			30.5	%
Net income		$	21,338			$	18,050				18.2	%		$	39,257			$	36,123				8.7	%
% of net revenues			12.8	%			11.5	%							11.9	%			11.6	%
Earnings per share-diluted		$	0.85			$	0.69				23.2	%		$	1.54			$	1.37				12.4	%