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

Commission File Number: 1-14041

HAEMONETICS CORPORATION

(Exact name of registrant as specified in its charter)

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

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 September 26, 2009: 25,611,257

 

 

HAEMONETICS CORPORATION
INDEX

		PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Consolidated Statements of Income — Three and Six Months Ended September 26, 2009 and September 27, 2008			2
Unaudited Consolidated Balance Sheets — September 26, 2009 and March 28, 2009			3
Unaudited Consolidated Statement of Stockholders’ Equity — Six Months Ended September 26, 2009			4
Unaudited Consolidated Statements of Cash Flows — Six Months Ended September 26, 2009 and September 27, 2008			5
Notes to Unaudited Consolidated Financial Statements			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			34
ITEM 4. Controls and Procedures			35
PART II. OTHER INFORMATION			36
ITEM 6. Exhibits			37
Signatures			38
EX-10.Z 2005 LONG-TERM INCENTIVE COMPENSATION PLAN
EX-31.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
EX-31.2 SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
EX-32.1 SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
EX-32.2 SECTION 906 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

ITEM 1.		FINANCIAL STATEMENTS

HAEMONETICS CORPORATION AND SUBSIDIARIES

		Three months ended								Six months ended
		September 26,				September 27,				September 26,				September 27,
		2009				2008				2009				2008
Net revenues		$	157,070			$	145,919			$	311,158			$	290,035
Cost of goods sold			76,103				71,230				147,248				142,309
Gross profit			80,967				74,689				163,910				147,726
Operating expenses:
Research, development and engineering			6,475				5,217				13,252				11,061
Selling, general and administrative			47,469				45,863				97,308				93,722
Total operating expenses			53,944				51,080				110,560				104,783
Operating income			27,023				23,609				53,350				42,943
Interest expense			(255	)			(16	)			(463	)			(40	)
Interest income			103				506				253				1,160
Other expense, net			(801	)			(1,290	)			(1,135	)			(915	)
Income before provision for income taxes			26,070				22,809				52,005				43,148
Provision for income taxes			8,020				8,002				15,882				14,000
Net income		$	18,050			$	14,807			$	36,123			$	29,148
Basic income per common share
Net income		$	0.70			$	0.59			$	1.41			$	1.15
Income per common share assuming dilution
Net income		$	0.69			$	0.57			$	1.37			$	1.11
Weighted average shares outstanding
Basic			25,685				25,038				25,671				25,323
Diluted			26,321				25,917				26,273				26,218

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

HAEMONETICS CORPORATION AND SUBSIDIARIES

		September 26, 2009				March 28, 2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	178,322			$	156,721
Accounts receivable, less allowance of $2,968 at September 26, 2009 and $2,312 at March 28, 2009			118,668				113,598
Inventories, net			77,136				76,522
Deferred tax asset, net			10,485				7,190
Prepaid expenses and other current assets			21,514				28,362
Total current assets			406,125				382,393
Property, plant and equipment:
Land, building and building improvements			45,009				42,540
Plant equipment and machinery			109,384				108,572
Office equipment and information technology			71,242				52,461
Haemonetics equipment			208,904				194,290
Total property, plant and equipment			434,539				397,863
Less: accumulated depreciation			(281,585	)			(260,056	)
Net property, plant and equipment			152,954				137,807
Other assets:
Other intangibles, less amortization of $29,202 at September 26, 2009 and $25,508 at March 28, 2009			74,872				65,261
Goodwill			72,157				56,426
Deferred tax asset, long term			2,551				3,007
Other long-term assets			5,635				4,799
Total other assets			155,215				129,493
Total assets		$	714,294			$	649,693
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt		$	15,181			$	695
Accounts payable			24,804				20,652
Accrued payroll and related costs			24,197				30,771
Accrued income taxes			7,135				2,833
Deferred tax liability			111				—
Other liabilities			41,395				37,912
Total current liabilities			112,823				92,863
Long-term debt, net of current maturities			4,974				5,343
Long-term deferred tax liability			3,702				3,129
Other long-term liabilities			13,363				8,474
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value; Authorized - 150,000,000 shares; Issued and outstanding— 25,611,257 shares at September 26, 2009 and 25,622,449 shares at March 28, 2009			256				256
Additional paid-in capital			235,792				226,829
Retained earnings			339,323				309,516
Accumulated other comprehensive income			4,061				3,283
Total stockholders’ equity			579,432				539,884
Total liabilities and stockholders’ equity		$	714,294			$	649,693

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, March 28, 2009			25,622			$	256			$	226,829			$	309,516			$	3,283			$	539,884
Employee stock purchase plan			33				—				1,484				—				—				1,484
Exercise of stock options and related tax benefit			95				—				3,750				—				—				3,750
Shares repurchased			(140	)			—				(1,263	)			(6,316	)			—				(7,579	)
Stock Compensation expense			—				—				4,992				—				—				4,992
Net income			—				—				—				36,123				—				36,123			$	36,123
Foreign currency translation adjustment			—				—				—				—				6,055				6,055				6,055
Unrealized loss on hedges, net of tax			—				—				—				—				(4,263	)			(4,263	)			(4,263	)
Reclassification of hedge gain to earnings, net of tax			—				—				—				—				(1,014	)			(1,014	)			(1,014	)
Comprehensive income			—				—				—				—				—				—			$	36,901
Balance, September 26, 2009			25,611			$	256			$	235,792			$	339,323			$	4,061			$	579,432

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

HAEMONETICS CORPORATION AND SUBSIDIARIES

		Six Months Ended
		September 26,				September 27,
		2009				2008
Cash Flows from Operating Activities:
Net income		$	36,123			$	29,148
Adjustments to reconcile net income to net cash provided by operating activities:
Non cash items:
Depreciation and amortization			20,699				18,083
Stock compensation expense			4,992				4,542
Loss on sales of plant, property and equipment			147				1,102
Unrealized (gain)/loss from hedging activities			(2,145	)			3,706
Accretion of interest expense on contingent consideration			408				—
Change in operating assets and liabilities:
Decrease/(increase) in accounts receivable, net			1,786				(7,350	)
Decrease/(increase) in inventories			2,071				(7,847	)
Decrease/(increase) in prepaid income taxes			5,907				(267	)
Increase in other assets and other long-term liabilities			(1,204	)			(11,105	)
Tax benefit of exercise of stock options			177				2,131
(Decrease)/increase in accounts payable and accrued expenses			(7,482	)			9,634
Net cash provided by operating activities			61,479				41,777
Cash Flows from Investing Activities:
Capital expenditures on property, plant and equipment			(32,880	)			(28,775	)
Proceeds from sale of property, plant and equipment			383				2,497
Acquisition of SEBRA			(12,845	)			—
Acquisition of Neoteric			(6,613	)			—
Acquisition of Medicell			(307	)			(2,459	)
Net cash used in investing activities			(52,261	)			(28,737	)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage			(369	)			(340	)
Net increase in short-term revolving credit agreements			13,578				2,100
Employee stock purchase plan			1,484				1,396
Exercise of stock options			3,388				17,598
Excess tax benefit on exercise of stock options			157				5,419
Share repurchase			(6,331	)			(59,998	)
Net cash provided by/(used in) financing activities			11,907				(33,825	)
Effect of exchange rates on cash and cash equivalents			476				(1,437	)
Net Increase/(Decrease) in Cash and Cash Equivalents			21,601				(22,222	)
Cash and Cash Equivalents at Beginning of Year			156,721				133,553
Cash and Cash Equivalents at End of Period		$	178,322			$	111,331
Non-cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placements of Haemonetics equipment		$	2,809			$	4,984
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	283			$	275
Income taxes paid		$	6,360			$	7,394

The accompanying notes are an integral part of these 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 September 26, 2009. Operating results for the six month period ended September 26, 2009 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 3, 2010, 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 March 28, 2009.

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 year 2009 included 52 weeks with all four quarters having 13 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 (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.

Software Solutions 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.

Subsequent Events

The company has evaluated subsequent events through November 4, 2009 (the date the unaudited financial statements were issued) and has determined that there were no recognized and no non-recognized events to be disclosed.

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 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.

In June 2009, the FASB issued requirements under FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification (ASC) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB Statement No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. This statement became effective during our second quarter of fiscal year 2010 and its impact is reflected in our financial position and results of operation for the six months ended September 26, 2009.

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 six months ended September 26, 2009. The Company’s acquisition of L’Attitude Medical Systems, Inc. (“Neoteric”) and asset acquisition of the blood collection and processing business unit (“SEBRA”) of Engineering and Research Associates, Inc. during the first six months of fiscal year 2010 were both accounted for in accordance to the requirements of ASC Topic 805 — see Note 9.

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
		September 26,				September 27,
		2009				2008
		(in thousands, except per share amounts)
Basic EPS
Net income		$	18,050			$	14,807
Weighted average shares			25,685				25,038
Basic income per share		$	0.70			$	0.59
Diluted EPS
Net income		$	18,050			$	14,807
Basic weighted average shares			25,685				25,038
Net effect of common stock equivalents			636				879
Diluted weighted average shares			26,321				25,917
Diluted income per share		$	0.69			$	0.57

		For the Six Months Ended
		September 26,				September 27,
		2009				2008
		(in thousands, except per share amounts)
Basic EPS
Net income		$	36,123			$	29,148
Weighted average shares			25,671				25,323
Basic income per share		$	1.41			$	1.15
Diluted EPS
Net income		$	36,123			$	29,148
Basic weighted average shares			25,671				25,323
Net effect of common stock equivalents			601				895
Diluted weighted average shares			26,273				26,218
Diluted income per share		$	1.37			$	1.11

Weighted average shares outstanding, assuming dilution, excludes the impact of 0.8 million stock options for both the second quarter and first six months of fiscal year 2010 and 0.4 million stock options for both the second quarter and first six months of fiscal year 2009 because these securities were anti-dilutive during the noted periods.

4. STOCK-BASED COMPENSATION

Stock-based compensation expense of $5.0 and $4.5 million was recognized for the six months ended September 26, 2009 and September 27, 2008, respectively. The related income tax benefit recognized was $1.5 and $1.3 million for the six months ended September 26, 2009 and September 27, 2008, 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 March 28, 2009. 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 September 26, 2009 vest over a four year period of time and the options expire not more than 7 years from the date of grant.

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 $0.1 million and $4.1 million for the three months ended September 26, 2009 and September 27, 2008, respectively, and $0.2 million and $5.4 million for the six months ended September 26, 2009 and September 27, 2008, respectively.

A summary of information related to stock options is as follows:

						Weighted				Weighted				Aggregate
						Average				Average				Intrinsic
		Options				Exercise				Remaining				Value
		Outstanding				Price				Life (Years)				($000’s)
Outstanding at March 28, 2009			3,054,724			$	42.54				4.23			$	37,601
Granted			32,845				55.37
Exercised			(32,462	)			28.00
Forfeited			(6,716	)			49.75
Outstanding at June 27, 2009			3,048,391			$	42.82				4.03			$	43,917
Granted			52,594				59.27
Exercised			(62,728	)			39.13
Forfeited			(24,516	)			51.83
Outstanding at September 26, 2009			3,013,741			$	43.11				3.75			$	38,595
Exercisable at September 26, 2009			2,152,545			$	39.05				3.13			$	36,133
Vested or expected to vest at September 26, 2009			2,830,088			$	42.48				3.66			$	38,006

The total intrinsic value of options exercised during the three month periods ended September 26, 2009 and September 27, 2008, was $1.0 million and $16.4 million, respectively, and $1.6 million and $22.6 million for the six month periods ended September 26, 2009 and September 27, 2008, respectively.

As of September 26, 2009 and September 27, 2008, there was $9.1 million and $11.0 million, respectively, of total unrecognized compensation cost related to non vested stock options. That cost is expected to be recognized over a weighted average period of 2.3 years and 1.9 years, respectively. The total fair value of shares fully vested during the six months ended September 26, 2009 was $18.0 million and during the six months ended September 27, 2008 was $26.6 million.

The weighted average fair value for our options granted in the first six months of fiscal year 2010 and 2009 was $17.54 and $18.07, respectively. The assumptions utilized for option grants during the periods presented are as follows:

		Six Months Ended
		September 26,				September 27,
		2009				2008
Stock Options Black-Scholes assumptions (weighted average):
Volatility			28.29	%			29.07	%
Expected life (years)			4.9				4.9
Risk-free interest rate			2.71	%			3.26	%
Dividend yield			0.00	%			0.00	%

As of September 26, 2009 and September 27, 2008, there was $0.2 and $0.4 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 1.6 years and 2.2 years, respectively. The total fair value of restricted stock awards vested was $0.0 million for the six months ended September 26, 2009 and $0.1 million for the six months ended September 27, 2008.

A summary of information related to restricted stock awards is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Nonvested at March 28, 2009			10,956			$	50.97
Released			(2,500	)		$	48.09
Nonvested at June 27, 2009			8,456			$	51.82
Canceled			(3,456	)		$	57.22
Nonvested at September 26, 2009			5,000			$	48.09

As of September 26, 2009 and September 27, 2008, there was $3.6 million and $2.1 million, respectively, 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 2.3 years and 3.0 years, respectively. The total fair value of shares fully vested was $0.2 million and $0.1 million for the six months ended September 26, 2009 and September 27, 2008, respectively.

A summary of information related to restricted stock units is as follows:

						Weighted
						Average
						Market Value
		Shares				at Grant Date
Nonvested at March 28, 2009			102,302			$	53.48
Granted			2,501			$	54.09
Vested			(289	)		$	52.69
Forfeited			(598	)		$	52.66
Nonvested at June 27, 2009			103,916			$	53.50
Granted			6,716			$	58.98
Vested			(3,324	)		$	59.11
Forfeited			(2,639	)		$	51.89
Nonvested at September 26, 2009			104,669			$	53.88

As of September 26, 2009 and September 27, 2008, there was $0.2 million and $0.3 million, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to the Employee Stock Purchase Plan (“ESPP”) shares. That cost is expected to be recognized over the remainder of fiscal year 2010 and fiscal year 2009, respectively.

During the six months ended September 26, 2009 and September 27, 2008, there were 33,183 and 31,474 shares purchased under the ESPP, respectively. They were purchased at $43.89 and $44.35 per share under the ESPP, respectively.

5. ACCOUNTING FOR SHIPPING AND HANDLING COSTS

Shipping and handling costs are included in cost of goods sold with the exception of $5.9 million and $4.4 million for the six months ended September 26, 2009 and September 27, 2008, respectively, 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 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
		September 26,				September 27,
		2009				2008
		(in thousands)
Warranty accrual as of the beginning of the period		$	1,875			$	960
Warranty provision			242				341
Warranty spending			(392	)			(309	)
Warranty accrual as of the end of the period		$	1,725			$	992

		For the six months ended
		September 26,				September 27,
		2009				2008
		(in thousands)
Warranty accrual as of the beginning of the period		$	1,835			$	929
Warranty provision			633				876
Warranty spending			(743	)			(813	)
Warranty accrual as of the end of the period		$	1,725			$	992

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)		September 26, 2009				September 27, 2008
Net income		$	18,050			$	14,807
Other comprehensive income:
Foreign currency translation			3,424				(4,153	)
Unrealized (loss)/gain on cash flow hedges, net of tax			(3,255	)			1,783
Reclassifications into earnings of cash flow hedge losses, net of tax			106				1,345
Total comprehensive income		$	18,325			$	13,782

		For the six months ended
(In thousands)		September 26, 2009				September 27, 2008
Net income		$	36,123			$	29,148
Other comprehensive income:
Foreign currency translation			6,055				(5,655	)
Unrealized (loss)/gain on cash flow hedges, net of tax			(4,263	)			4,690
Reclassifications into earnings of cash flow hedge (gains)/losses, net of tax			(1,014	)			3,938
Total comprehensive income		$	36,901			$	32,121

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.

		September 26, 2009				March 28, 2009
		(in thousands)
Raw materials		$	25,993			$	23,778
Work-in-process			4,902				8,732
Finished goods			46,241				44,012
		$	77,136			$	76,522

9. GOODWILL, OTHER INTANGIBLE ASSETS, AND ACQUISITIONS

Goodwill

The change in the carrying amount of our goodwill during the six months ended September 26, 2009 is as follows (in thousands):

Carrying amount as of March 28, 2009		$	56,426
SEBRA (a)			5,272
L’Attitude Medical Systems Inc. (Neoteric) (b)			8,409
Altivation Software Inc. (c)			523
Medicell Ltd. (d)			583
Effect of change in rates used for translation			944
Carrying amount as of September 26, 2009		$	72,157

Other Intangible Assets

										Weighted
		Gross Carrying				Accumulated				Average
		Amount				Amortization				Useful Life
As of September 26, 2009		(in thousands)				(in thousands)				(in years)
Patents		$	12,107			$	5,455				11
Capitalized software			21,487				749				6
Other technology			39,016				12,729				10
Customer contracts and related relationships			30,350				9,859				12
Trade names			1,114				410				7
Total intangibles		$	104,074			$	29,202				10

									Weighted
		Gross Carrying				Accumulated				Average
		Amount				Amortization				Useful Life
As of March 28, 2009		(in thousands)				(in thousands)				(in years)
Patents		$	12,008			$	4,945				11
Capitalized software			18,994				572				6
Other technology			28,784				11,501				10
Customer contracts and related relationships			29,886				8,240				12
Trade names			1,097				250				7
Total intangibles		$	90,769			$	25,508				11

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 even greater depth to Haemonetics Blood Bank and Plasma product lines. The acquisition will give Haemonetics entry into the whole blood collection market, an important strategic position as Haemonetics prepares to enter this market with an automated whole blood collection system in early calendar 2011. The purchase price was $12.8 million.

The purchase price was allocated to other intangible assets of $5.3 million, trade accounts receivables of $1.0 million, inventory of $1.2 million, and goodwill of $5.3 million. The Company is still in the process of evaluating the information necessary to determine the 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. The results of the SEBRA operations are included in our consolidated results for periods after the 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 $6.7 million plus contingent consideration.

The contingent consideration is based upon 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 future operating performance and is not contractually limited. The purchase price was allocated to other intangible assets of $5.0 million, deferred tax liabilities of $1.6 million, and goodwill of $8.4 million. The Company is still in the process of evaluating the information necessary to determine the 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. The results of the Neoteric operations are included in our consolidated results for periods after the acquisition and $0.4 million of interest expense has been recorded relating to the accretion of the noted contingent consideration for the first six months of fiscal year 2010.

In addition to the acquisition of SEBRA and Neoteric discussed above, changes to the net carrying value of our intangible assets from March 28, 2009 to September 26, 2009, 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.

Amortization expense for amortized intangible assets was $1.8 million and $1.5 million for the three months ended September 26, 2009 and September 27, 2008, respectively, and $3.6 and $3.0 for the six months ended September 26, 2009 and September 27, 2008, respectively. Annual amortization expense is expected to approximate $8.1 million for fiscal year 2010, $8.1 million for fiscal year 2011, $7.6 million for fiscal year 2012, $7.5 million for fiscal year 2013, and $8.1 million for fiscal year 2014.

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 lesser extent the Great 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 September 26, 2009 and March 28, 2009 were cash flow hedges under ASC Topic 815, Derivatives and Hedging (formerly known as FASB Statement No. 133). 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 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 $131.6 million as of September 26, 2009 and $117.4 million as of March 28, 2009.

During the second quarter of fiscal year 2010, we recognized net gains of $1.0 million in earnings on our cash flow hedges. All currency cash flow hedges outstanding as of September 26, 2009 mature within twelve months. For the quarter ended September 26, 2009, $4.3 million of losses, net of tax, were recorded in OCI 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 gains of $4.7 million as of September 27, 2008. For the quarter ended September 26, 2009, $4.3 million of losses, 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 Statement No. 133 outstanding in the contract amount of $37.8 million as of September 26, 2009 and $51.6 million as of March 28, 2009.

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 September 26, 2009.

						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		$	(4,263	)		$	1,014			Net revenues				$	410			Other income
Non-designated foreign currency hedge contracts			—				—								(2,385	)		Other expense
		$	(4,263	)		$	1,014							$	(1,975	)

We did not have fair value hedges or net investment hedges outstanding as of September 26, 2009 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 September 26, 2009, 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 September 26, 2009 by type of contract and whether it is a qualifying hedge under Statement No. 133.

		Location in				Balance as of				Balance as of
(in thousands)		Balance Sheet				September 26, 2009				March 28, 2009
Derivative Assets:
Designated foreign currency hedge contracts		Other current assets				$	1,494			$	3,936
						$	1,494			$	3,936
Derivative Liabilities:
Designated foreign currency hedge contracts		Other accrued liabilities				$	7,099			$	2,914
						$	7,099			$	2,914

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 six months ended September 26, 2009, 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 (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 quarter ended September 26, 2009, 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 September 26, 2009:

		Quoted Market				Significant Other				Significant
		Prices for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
(in thousands)		(Level 1)				(Level 2)				(Level 3)				Total
Assets
Money market funds		$	152,376			$	—			$	—			$	152,376
Forward currency exchange contracts			—				1,494				—				1,494
		$	152,376			$	1,494			$	—			$	153,870
Liabilities
Forward currency exchange contracts		$	—			$	7,099			$	—			$	7,099
Other liabilities — contingent consideration			—				—				5,396				5,396
		$	—			$	7,099			$	5,396			$	12,495

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 September 26, 2009.

		Fair Value
		Measurements
		Using Significant
		Unobservable
		Inputs
(in thousands)		(Level 3)
Beginning balance		$	—
Transfers into Level 3			4,988
Change in value			408
Ending balance		$	5,396

Statement No. 159

In February 2007, the FASB issued ASC Topic 825, Financial Instruments (formerly known as FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115) which allows an entity to elect to record financial assets and financial liabilities at fair value upon their initial recognition on a contract-by-contract basis. We adopted ASC Topic 825 as of March 30, 2008 and did not elect the fair value option for our eligible financial assets and financial liabilities.

Other Fair Value Disclosures

The fair value of our long-term debt obligations was $5.6 million and $6.5 million at September 26, 2009 and September 27, 2008, 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. Events or items that give rise to discrete recognition include finalizing audit examinations for open tax years or a statute of limitation’s expiration.

The reported tax rate was 30.8% for the three months ended September 26, 2009. The reported tax rate includes:

•

Our expected annual effective 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; and

The following discrete items:

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

The reported tax rate was 35.1% for the three months ended September 27, 2008. The reported tax rate equaled the expected effective annual tax rate which reflected tax benefits from foreign taxes and a domestic manufacturing deduction, offset in part by the state tax provision, and stock compensation expense not deductible in all jurisdictions.

The reported tax rate was 30.5% for the six months ended September 26, 2009. The reported tax rate includes:

•

Our expected annual effective tax rate of 31.1%, comprised of the U.S. federal statutory 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; and

The following discrete items:

•

A $0.7 million benefit (on an annual basis) from the remittance of Japanese earnings.

•

A $0.1 million cost from foreign tax assessments.

The reported tax rate was 32.4% for the six months ended September 27, 2008. The reported tax rate included:

•

A 35.1% expected effective annual tax rate which reflects tax benefits from foreign taxes and a domestic manufacturing deduction, offset in part by the state tax provision, and stock compensation expenses not deductible in all jurisdictions. The reported tax rate also included a $1.1 million reversal of previously accrued income taxes because of the expiration of the statute of limitations.

We conduct business globally and, as a result, file consolidated federal 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 2006.

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
		September 26, 2009				September 27, 2008
		(in thousands)
Service cost		$	124			$	150
Interest cost on benefit obligation			61				66
Expected return on plan assets			(15	)			(19	)
Amortization of unrecognized prior service cost, unrecognized
gain and unrecognized initial obligation			(10	)			(4	)
Net periodic benefit cost		$	160			$	193

		For the six months ended
		September 26, 2009				September 27, 2008
		(in thousands)
Service cost		$	248			$	300
Interest cost on benefit obligation			122				132
Expected return on plan assets			(30	)			(38	)
Amortization of unrecognized prior service cost, unrecognized
gain and unrecognized initial obligation			(20	)			(8	)
Net periodic benefit cost		$	320			$	386

14. SEGMENT INFORMATION

Segment Definition Criteria

We manage our business on the basis of one operating segment: the design, manufacture and marketing of automated blood processing systems. 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 three families of products: (1) disposables, (2) software solutions and (3) equipment & other.

Disposables include the plasma, blood bank, and hospital product lines. Plasma consists of the disposables used to perform apheresis for the separation of whole blood components and subsequent collection of plasma. Blood bank consists of disposables which separate whole blood for the subsequent collection of platelets, red cells, or a combination of red cells and plasma. Hospital consists of surgical disposables (principally the Cell Saver^® autologous blood recovery system and cardioPAT^® cardiovascular perioperative autotransfusion system), OrthoPAT^® orthopedic perioperative autotransfusion system, and diagnostics products (principally the TEG^® Thrombelastograph^® hemostasis analyzer).

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

Equipment & other revenues include revenue from equipment sales, repairs performed under preventive maintenance contracts or emergency service visits, spare part sales, and various service and training programs.

Revenues from External Customers:

		Three Months Ended
		September 26, 2009				September 27, 2008
		(in thousands)
Disposable revenues
Plasma disposables		$	59,423			$	49,924
Blood bank disposables
Platelet			37,250				36,294
Red cell			11,484				11,758
			48,734				48,052
Hospital disposables
Surgical			16,631				15,984
OrthoPAT			8,678				8,393
Diagnostics			4,282				4,763
			29,591				29,140
Disposables revenue			137,748				127,116
Software solutions			9,100				7,079
Equipment & other			10,222				11,724
Total revenues		$	157,070			$	145,919

		Six Months Ended
		September 26, 2009				September 27, 2008
		(in thousands)
Disposable revenues
Plasma disposables		$	118,293			$	96,792
Blood bank disposables
Platelet			71,557				71,953
Red cell			23,263				23,600
			94,820				95,553
Hospital disposables
Surgical			34,056				33,253
OrthoPAT			17,262				17,189
Diagnostics			9,279				9,857
			60,597				60,299
Disposables revenue			273,710				252,644
Software solutions			17,554				14,337
Equipment & other			19,894				23,054
Total revenues		$	311,158			$	290,035

15. REORGANIZATION

During the last two years, the Company has transformed aspects of its international businesses, and more recently, its U.S. domestic Technical Operations organizations. The following summarizes the restructuring activity for the six months ended September 26, 2009 and September 27, 2008, respectively:

		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		$	2,730			$	—			$	(967	)		$	—			$	1,763
Facility related costs			42				—				(42	)			—				—
Other exit & termination costs			78				—				(78	)			—				—
		$	2,850			$	—			$	(1,087	)		$	—			$	1,763

		Six Months Ended September 27, 2008
																		Restructuring
																		Accrual
		Balance at												Asset				Balance at
(Dollars in thousands)		March 29, 2008				Cost Incurred				Payments				Write down				September 27, 2008
Employee-related costs		$	521			$	1,988			$	(1,498	)		$	—			$	1,011
Facility related costs			42				71				(71	)			—				42
Other exit & termination costs			78				—				—				—				78
		$	641			$	2,059			$	(1,569	)		$	—			$	1,131