HAE 2011.12.31 Q3
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
For the quarter ended: December 31, 2011
Commission File Number: 1-14041
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction
of incorporation or organization)
 
04-2882273
(I.R.S. Employer Identification No.)
400 Wood Road, Braintree, 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 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
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 December 31, 2011:
25,141,181



HAEMONETICS CORPORATION
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 5. (Removed and Reserved)
 
 
 
 
 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

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ITEM 1. FINANCIAL STATEMENTS

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
December 31,
2011
 
January 1,
2011
 
December 31,
2011
 
January 1,
2011
Net revenues
$
191,160

 
$
176,789

 
$
541,174

 
$
506,661

Cost of goods sold
95,229

 
83,299

 
266,545

 
238,953

Gross profit
95,931

 
93,490

 
274,629

 
267,708

Operating expenses:
 
 
 
 
 
 
 
Research and development
9,232

 
7,996

 
28,190

 
23,870

Selling, general and administrative
61,376

 
56,935

 
180,221

 
164,079

Contingent consideration income

 

 
(1,580
)
 
(1,894
)
Total operating expenses
70,608

 
64,931

 
206,831

 
186,055

Operating income
25,323

 
28,559

 
67,798

 
81,653

Other income (expense), net
140

 
(585
)
 
370

 
(144
)
Income before provision for income taxes
25,463

 
27,974

 
68,168

 
81,509

Provision for income taxes
7,211

 
8,240

 
19,088

 
22,517

Net income
$
18,252

 
$
19,734

 
$
49,080

 
$
58,992

 
 
 
 
 
 
 
 
Net income per share - basic
$
0.73

 
$
0.79

 
$
1.93

 
$
2.37

 
 
 
 
 
 
 
 
Net income per share - diluted
$
0.72

 
$
0.77

 
$
1.90

 
$
2.32

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
25,077

 
24,973

 
25,409

 
24,933

Diluted
25,438

 
25,517

 
25,833

 
25,477

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


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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
December 31,
2011
 
April 2,
2011
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
205,372

 
$
196,707

Accounts receivable, less allowance of $1,788 at December 31, 2011 and $1,799 at April 2, 2011
127,443

 
127,166

Inventories, net
107,913

 
84,387

Deferred tax asset, net
9,487

 
9,674

Prepaid expenses and other current assets
16,958

 
30,897

Total current assets
467,173

 
448,831

Property, plant and equipment:
 
 
 
Land, building, and building improvements
55,159

 
52,359

Plant equipment and machinery
135,268

 
128,612

Office equipment and information technology
85,894

 
83,258

Haemonetics equipment
220,187

 
211,455

Total property, plant and equipment
496,508

 
475,684

Less: accumulated depreciation
(338,805
)
 
(320,156
)
Net property, plant and equipment
157,703

 
155,528

Other assets:
 
 
 
Intangible assets, less amortization of $52,033 at December 31, 2011 and $43,827 at April 2, 2011
97,060

 
101,789

Goodwill
115,320

 
115,367

Deferred tax asset, long term
757

 
1,291

Other long-term assets
9,760

 
10,458

Total other assets
222,897

 
228,905

Total assets
$
847,773

 
$
833,264

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable and current maturities of long-term debt
$
2,545

 
$
913

Accounts payable
28,891

 
28,323

Accrued payroll and related costs
24,970

 
27,039

Accrued income taxes
7,545

 
6,033

Deferred tax liability
75

 
107

Other liabilities
45,342

 
46,256

Total current liabilities
109,368

 
108,671

Long-term debt, net of current maturities
3,107

 
3,966

Long-term deferred tax liability
16,775

 
18,669

Other long-term liabilities
13,290

 
15,822

Stockholders’ equity:
 
 
 
Common stock, $.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 25,141,181 shares at December 31, 2011 and 25,660,393 shares at April 2, 2011
251

 
256

Additional paid-in capital
312,887

 
302,709

Retained earnings
382,977

 
373,630

Accumulated other comprehensive income
9,118

 
9,541

Total stockholders’ equity
705,233

 
686,136

Total liabilities and stockholders’ equity
$
847,773

 
$
833,264


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

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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
 
Nine Months Ended
 
December 31,
2011
 
January 1,
2011
Cash Flows from Operating Activities:
 
 
 
Net income
$
49,080

 
$
58,992

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Non cash items:
 
 
 
Depreciation and amortization
37,256

 
37,025

Stock compensation expense
6,727

 
8,145

Loss on sales of property, plant and equipment
280

 
119

Unrealized loss from hedging activities
1,365

 
1,562

Contingent consideration income
(1,580
)
 
(1,894
)
Reversal of interest expense on contingent consideration
(574
)
 
(416
)
Change in operating assets and liabilities:
 
 
 
Increase in accounts receivable, net
(1,461
)
 
(240
)
Increase in inventories
(23,047
)
 
(127
)
Decrease in prepaid income taxes
14,949

 
10,569

(Increase)/decrease in other assets and other long-term liabilities
(874
)
 
4,016

Tax benefit of exercise of stock options
1,410

 
4,844

Decrease in accounts payable and accrued expenses
(2,188
)
 
(31,279
)
Net cash provided by operating activities
81,343

 
91,316

Cash Flows from Investing Activities:
 
 
 
Capital expenditures on property, plant and equipment
(36,959
)
 
(34,986
)
Proceeds from sale of property, plant and equipment
517

 
334

Acquisition of ACCS

 
(6,229
)
Acquisition of Global Med Technologies

 
(128
)
Net cash used in investing activities
(36,442
)
 
(41,009
)
Cash Flows from Financing Activities:
 
 
 
Payments on long-term real estate mortgage
(882
)
 
(389
)
Net increase/(decrease) in short-term loans
1,529

 
(8,789
)
Proceeds from employee stock purchase plan
3,722

 
3,683

Proceeds from exercise of stock options
9,076

 
32,163

Excess tax benefit on exercise of stock options
839

 
1,162

Share repurchase
(49,998
)
 
(50,000
)
Net cash used in financing activities
(35,714
)
 
(22,170
)
Effect of exchange rates on cash and cash equivalents
(522
)
 
(161
)
Net increase in Cash and Cash Equivalents
8,665

 
27,976

Cash and Cash Equivalents at Beginning of Year
196,707

 
141,562

Cash and Cash Equivalents at End of Period
$
205,372

 
$
169,538

Non-cash Investing and Financing Activities:
 
 
 
Transfers from inventory to fixed assets for placements of Haemonetics equipment
$
10,912

 
$
3,908

Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid
$
322

 
$
373

Income taxes paid
$
6,098

 
$
9,995

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


5

Table of Contents

HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED 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 to the presentation of the financial statements for the nine months ended December 31, 2011. Operating results for the nine month period ended December 31, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2012, 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 2, 2011.
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. As described in Note 10, the Company recognized $3.0 million of insurance recovery receivable that occurred subsequent to December 31, 2011. There were no other material recognized subsequent events recorded in the December 31, 2011 consolidated financial statements.
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal years 2012 and 2011 include 52 weeks with each quarter having 13 weeks.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Update No. 2011-04 updates the accounting guidance related to fair value measurements that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The updated guidance is effective for interim and annual periods beginning after December 15, 2011. ASU 2011-04 is effective in our fourth quarter of fiscal 2012 and should be applied prospectively. We do not currently have level 3 fair value measurements. We do not believe adoption of this standard will have an impact on our consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Update No. 2011-05 updates the disclosure requirements for comprehensive income to include total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The updated guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted and amendments do not require any transition disclosures. We will adopt this standard in the first quarter of fiscal 2013. The adoption of ASU 2011-05 will affect the presentation of comprehensive income but will not impact our financial condition or statement of operations.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles — Goodwill and Other (Topic 350). ASU 2011-08 allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. ASU 2011-08 is effective for our first quarter of fiscal 2013 but is eligible for early adoption. We do not believe adoption of this standard will have an impact on our consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210)-Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. ASU 2011-11 is effective for our first quarter of fiscal 2014. We are currently evaluating the impact of adopting ASU 2011-11, but currently believe there will be no significant impact on our consolidated financial statements.

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Standards Implemented
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, and Accounting Standards Update No. 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software (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 also 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 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. On April 3, 2011, we adopted this guidance, which did not have a material impact on our financial position or results of operations.
In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. Update No. 2010-29 clarifies paragraph 805-10-50-2(h) to require public entities that enter into business combinations that are material on an individual or aggregate basis to disclose pro forma information for such business combinations that occurred in the current reporting period, including pro forma revenue and earnings of the combined entity as though the acquisition date had been as of the beginning of the comparable prior annual reporting period only. We did not complete any business acquisitions during the nine months ended December 31, 2011 thus the disclosure requirements were not applicable for the period.

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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.
 
Three Months Ended
 
December 31,
2011
 
January 1,
2011
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
Net income
$
18,252

 
$
19,734

Weighted average shares
25,077

 
24,973

Basic income per share
$
0.73

 
$
0.79

Diluted EPS
 
 
 
Net income
$
18,252

 
$
19,734

Basic weighted average shares
25,077

 
24,973

Net effect of common stock equivalents
361

 
544

Diluted weighted average shares
25,438

 
25,517

Diluted income per share
$
0.72

 
$
0.77

 
Nine Months Ended
 
December 31,
2011
 
January 1,
2011
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
Net income
$
49,080

 
$
58,992

Weighted average shares
25,409

 
24,933

Basic income per share
$
1.93

 
$
2.37

Diluted EPS
 
 
 
Net income
$
49,080

 
$
58,992

Basic weighted average shares
25,409

 
24,933

Net effect of common stock equivalents
424

 
544

Diluted weighted average shares
25,833

 
25,477

Diluted income per share
$
1.90

 
$
2.32

Weighted average shares outstanding, assuming dilution, excludes the impact of 0.9 million and 0.6 million stock options for the three and nine months ended December 31, 2011, respectively, and 1.0 million and 1.1 million stock options for the three and nine months ended January 1, 2011, respectively, because these securities were anti-dilutive during the noted periods.

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4. STOCK-BASED COMPENSATION
Stock-based compensation expense of $6.7 million and $8.1 million was recognized for the nine months ended December 31, 2011 and January 1, 2011, respectively. The related income tax benefit recognized was $2.0 million and $2.2 million for the nine months ended December 31, 2011 and January 1, 2011, respectively.
The weighted average fair value for our options granted was $16.29 and $15.63 for the nine months ended December 31, 2011 and January 1, 2011, respectively. The assumptions utilized for estimating the fair value of option grants during the periods presented are as follows:
 
Nine Months Ended
 
December 31,
2011
 
January 1,
2011
Stock Options Black-Scholes assumptions (weighted average):
 
 
 
Volatility
27.95
%
 
27.67
%
Expected life (years)
4.9

 
4.9

Risk-free interest rate
1.12
%
 
1.89
%
Dividend yield
%
 
%
During the nine months ended December 31, 2011 and January 1, 2011, there were 77,260 and 78,107 shares, respectively, purchased under the Employee Stock Purchase Plan. They were purchased at $49.15 and $46.04 per share, respectively.
5. 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.
 
Nine Months Ended
(in thousands)
December 31,
2011
 
January 1,
2011
Warranty accrual as of the beginning of the period
$
1,273

 
$
903

Warranty provision
1,897

 
886

Warranty spending
(1,680
)
 
(1,188
)
Warranty accrual as of the end of the period
$
1,490

 
$
601


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6. 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:
 
Three Months Ended
(in thousands)
December 31,
2011
 
January 1,
2011
Net income
$
18,252

 
$
19,734

Other comprehensive income:
 
 

Net change in minimum pension liability, net of tax

 
20

Foreign currency translation
(2,351
)
 
(345
)
Unrealized gain on cash flow hedges, net of tax
2,494

 
925

Reclassifications into earnings of cash flow hedge losses, net of tax
190

 
(45
)
Total comprehensive income
$
18,585

 
$
20,289

 
Nine Months Ended
(in thousands)
December 31,
2011
 
January 1,
2011
Net income
$
49,080

 
$
58,992

Other comprehensive income:
 
 

Net change in minimum pension liability, net of tax
(21
)
 
(2
)
Foreign currency translation
(3,093
)
 
2,889

Unrealized loss on cash flow hedges, net of tax
(395
)
 
(3,144
)
Reclassifications into earnings of cash flow hedge losses, net of tax
3,086

 
73

Total comprehensive income
$
48,657

 
$
58,808

7. 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.
(in thousands)
December 31,
2011
 
April 2,
2011
Raw materials
$
40,321

 
$
26,404

Work-in-process
3,450

 
4,352

Finished goods
64,142

 
53,631

 
$
107,913

 
$
84,387

8. DERIVATIVES AND FAIR VALUE MEASUREMENTS
We manufacture, market and sell our products globally. For the nine months ended December 31, 2011, approximately 51% of our sales were generated outside the U.S. generally 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 foreign currency forward 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.


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Designated Foreign Currency Hedge Contracts
All of our designated foreign currency hedge contracts as of December 31, 2011 and April 2, 2011 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 $158.0 million as of December 31, 2011 and $154.8 million as of April 2, 2011.
During the nine months ended December 31, 2011, we recognized net losses of $3.1 million in earnings on our cash flow hedges. For the nine months ended December 31, 2011, $0.4 million of losses, net of tax, were recorded in Accumulated 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 $3.1 million as of January 1, 2011. At December 31, 2011, losses of $0.4 million, net of tax, may be reclassified to earnings within the next twelve months. All currency cash flow hedges outstanding as of December 31, 2011 mature within 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 foreign currency forward contracts as a part of our strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They 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. We had non-designated foreign currency hedge contracts under ASC Topic 815 outstanding in the contract amount of $40.6 million as of December 31, 2011 and $45.9 million as of April 2, 2011.
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 nine months ended December 31, 2011.
Derivative Instruments
Amount of Loss
Recognized
in AOCI
(Effective Portion)
 
Amount of Loss Reclassified
from AOCI into
Earnings
(Effective Portion)
 
Location in
Statement of
Operations
 
Amount of loss
Excluded from
Effectiveness
Testing (*)
 
Location in
Statement of
Operations
(in thousands)
 
 
 
 
 
 
 
 
 
Designated foreign currency hedge contracts
$
(395
)
 
$
(3,086
)
 
Net revenues, COGS, and SG&A
 
$
(195
)
 
Other income (expense), net
Non-designated foreign currency hedge contracts

 

 
 
 
(2,324
)
 
Other income (expense), net
 
$
(395
)
 
$
(3,086
)
 
 
 
$
(2,519
)
 
 
(*)   We exclude the difference between the spot rate and hedge forward rate from our effectiveness testing.
We did not have fair value hedges or net investment hedges outstanding as of December 31, 2011 or April 2, 2011.
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 December 31, 2011, we have classified our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC Topic 815, as discussed below, because these observable inputs are available for substantially the full term of our derivative instruments.



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The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets as of December 31, 2011 by type of contract and whether it is a qualifying hedge under ASC Topic 815.
(in thousands)
 
Location in
Balance Sheet
 
As of December 31, 2011
 
As of April 2, 2011
Derivative Assets:
 
 
 
 
 
 
Designated foreign currency hedge contracts
 
Other current assets
 
$
3,828

 
$
2,563

 
 
 
 
$
3,828

 
$
2,563

Derivative Liabilities:
 
 
 
 
 
 
Designated foreign currency hedge contracts
 
Other current liabilities
 
$
3,131

 
$
4,174

 
 
 
 
$
3,131

 
$
4,174

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 three and the nine months ended December 31, 2011, 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 hedge 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 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. The fair value of our foreign currency hedge contracts is the estimated amount that the Company would receive or pay upon liquidation of the contracts, taking into account the change in currency exchange rates.







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Table of Contents

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 December 31, 2011:
(in thousands)
Quoted Market
Prices for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets
 
 
 
 
 
 
 
Money market funds
$
174,570

 
$

 
$

 
$
174,570

Foreign currency hedge contracts

 
$
3,828

 

 
3,828

 
$
174,570

 
$
3,828

 
$

 
$
178,398

Liabilities
 
 
 
 
 
 
 
Foreign currency hedge contracts
$

 
$
3,131

 
$

 
$
3,131

 
$

 
$
3,131

 
$

 
$
3,131

Release of Neoteric contingent consideration
Under ASC Topic 805, Business Combinations, we established a liability for payments to former shareholders of Neoteric which were contingent on the performance of the Blood Track business in the first three years post acquisition, beginning with fiscal 2010. We have reviewed the expected performance versus the performance thresholds for payment. Because the expected performance thresholds will not be achieved, we recorded an adjustment to the fair value of the contingent consideration liability. This appears as contingent consideration income of $1.6 million in the accompanying consolidated statements of income.
In September 2011, we entered into an agreement to release the Company from the contingent consideration due to the former shareholders of Neoteric. Under the terms of the agreement, the former shareholders of Neoteric received $0.7 million in exchange for releasing the Company from any future claims for contingent consideration. The Company paid the $0.7 million settlement amount during September 2011 and has recorded the associated expense in the selling, general and administrative line item in the accompanying consolidated statements of income.
Other Fair Value Disclosures
The fair value of our real estate mortgage obligation was $3.4 million and $4.1 million at December 31, 2011 and April 2, 2011, respectively.
9. INCOME TAXES
The Company’s reported tax rate was 28.3% and 28.0% for the three and nine month periods ended December 31, 2011, respectively. Our reported tax rate is lower than the federal statutory tax rate in both periods reported primarily due to lower foreign tax rates, including tax benefits associated with our Swiss operations.
We conduct business globally and, as a result, file consolidated federal, 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.
10. 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.
During the first quarter of fiscal 2012, we received customer complaints in Europe regarding a quality issue with our High Separation Core Bowl (“HS Core”), a plasma disposable product used primarily to collect plasma for transfusion. Certain of these customers also made subsequent claims regarding financial losses alleged to have been incurred as a result of this matter. As of October 1, 2011, we had determined that it was probable that we would compensate certain affected customers in order to resolve their claims. Our best estimate of the liability associated with this matter was $2.4 million, and we recorded that amount as an expense within selling, general and administrative expenses.

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Table of Contents

During the three months ended December 31, 2011, we continued to evaluate the submitted claims and ultimately determine their validity. Total aggregate claims submitted to date by customers relating to this issue are approximately $10.1 million. We do not expect any additional material claims from our customers. We believe our ultimate liability will be less than the total claims submitted to date. As of December 31, 2011, our current best estimate of the liability associated with this matter is $7.1 million. The increase compared to the prior quarter is due to enhanced information and legal analysis of the claims. We have also determined that at least $3.0 million of this liability is recoverable under our insurance policies and recorded a corresponding insurance receivable within current assets as of December 31, 2011. Receivables for insurance recoveries for product liability claims are recorded as assets, on an undiscounted basis, when it is probable that a recovery will be realized on a claim by claim basis. We have recorded $4.1 million of expenses, net of insurance recovery, within selling, general and administrative expenses for the nine months ended December 31, 2011.
We are also continuing to determine the extent to which the remaining $4.1 million may be recoverable under our insurance policies and will record additional insurance receivables when we determine that recoverability of these claims is probable.

11. 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 center, hospital, and software solutions.
Our products include devices and the disposable single-use sterile kits used with these devices. Disposables include the plasma, blood center, 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 center 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® and Cell Saver Elite ® autologous blood recovery systems 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 cardiovascular 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 orthopedic 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 blood clotting ability before, during and after surgery).
Disposable kits are marketed in our plasma, blood center, and hospital product businesses. Plasma disposables are used with our PCS®2 devices to perform apheresis for the collection of plasma to be used as a raw material for biologically derived pharmaceuticals (also known as source plasma). Blood center disposables are used with our MCS+ device to collect one or more blood components (principally platelets but also red cells and plasma) for transfusion to patients. The Hospital business consists of disposables used with our Cell Saver® and cardioPAT® devices to recover red cells from blood lost in a surgical procedure so that these may be made available for reinfusion to the patient (“autotransfusion”). OrthoPAT® disposables are used for autotransfusion during and immediately following orthopedic surgeries. Diagnostics products principally reflect sales of diagnostic reagents and the TEG® Thrombelastograph® hemostasis analyzer which profiles a patient’s blood clotting characteristics.
Software solutions include information technology platforms that assist blood centers, plasma centers, and hospitals to more effectively manage regulatory compliance and operational efficiency.

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Table of Contents


Revenues from External Customers:
 
Three Months Ended
(in thousands)
December 31,
2011
 
January 1,
2011
Disposable revenues
 
 
 
Plasma disposables
$
69,040

 
$
59,814

Blood center disposables
 
 
 
Platelet
44,383

 
41,056

Red cell
12,162

 
11,676

 
56,545

 
52,732

Hospital disposables
 
 
 
Surgical
17,333

 
17,116

OrthoPAT
7,755

 
9,248

Diagnostics
5,681

 
5,220

 
30,769

 
31,584

Disposables revenue
156,354

 
144,130

Software solutions
15,849

 
16,571

Equipment & other
18,957

 
16,088

Net revenues
$
191,160

 
$
176,789



 
Nine Months Ended
(in thousands)
December 31,
2011
 
January 1,
2011
Disposable revenues
 
 
 
Plasma disposables
$
196,206

 
$
172,245

Blood center disposables
 
 
 
Platelet
123,888

 
117,120

Red cell
35,676

 
34,284

 
159,564

 
151,404

Hospital disposables
 
 
 
Surgical
49,281

 
49,479

OrthoPAT
22,804

 
26,486

Diagnostics
16,955

 
14,575

 
89,040

 
90,540

Disposables revenue
444,810

 
414,189

Software solutions
51,208

 
49,155

Equipment & other
45,156

 
43,317

Net revenues
$
541,174

 
$
506,661


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12. RESTRUCTURING
During the nine months ended December 31, 2011, the Company’s restructuring activities primarily consist of reorganization within our research and development, manufacturing and software operations. Employee-related costs primarily consist of employee severance and benefits. Facility-related costs primarily consist of charges associated with closing facilities, related lease obligations, and other related costs.
For the nine months ended December 31, 2011, the Company incurred $4.9 million of restructuring charges. Restructuring expenses have been primarily included as a component of selling, general and administrative expense in the accompanying statements of income. We anticipate that the Company will incur approximately $1 to $2 million in additional restructuring charges related to these initiatives over the remaining three months of fiscal 2012.
The following summarizes the restructuring activity for the nine months ended December 31, 2011 and January 1, 2011, respectively:
 
Nine Months Ended December 31, 2011
(in thousands)
Balance at April 2, 2011
 
Cost Incurred
 
Payments
 
Restructuring Accrual Balance at December 31, 2011
Employee-related costs
$
2,782

 
$
3,732

 
$
(3,899
)
 
$
2,615

Facility-related costs
889

 
1,127

 
(1,269
)
 
747

 
$
3,671

 
$
4,859

 
$
(5,168
)
 
$
3,362

 
Nine Months Ended January 1, 2011
(in thousands)
Balance at April 3, 2010
 
Cost Incurred
 
Payments
 
Restructuring Accrual Balance at January 1, 2011
Employee-related costs
$
9,761

 
$
2,527

 
$
(7,969
)
 
$
4,319

Facility-related costs

 
843

 

 
843

 
$
9,761

 
$
3,370

 
$
(7,969
)
 
$
5,162

13. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
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 - Costs of Software to be Sold, Leased or Marketed, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers.
The Company capitalized $4.4 million and $5.2 million in software development costs for ongoing initiatives during the nine month periods ended December 31, 2011 and January 1, 2011, respectively. At December 31, 2011 and April 2, 2011, we have a total of $13.8 million and $13.4 million, respectively, of costs capitalized related to in process software development initiatives. During the first quarter of fiscal 2012, $4.1 million of capitalized costs related to one project were placed into service. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with both our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q and our annual consolidated financial statements, notes thereto, and the MD&A contained in our fiscal year 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 26, 2011. The following discussion may contain forward-looking statements and should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Information” beginning on page 26.

Our Business
Haemonetics is a blood management solutions company. Anchored by our 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 medical device systems automate the collection and processing of donated blood, assess likelihood for blood loss, salvage and process blood from surgery patients, 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 center 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 blood management, Six Sigma, and LEAN manufacturing consulting, which 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 82.2% and 81.7% of our total revenues for the nine months ended December 31, 2011 and January 1, 2011, respectively.

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Table of Contents

Financial Summary
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands, except per share data)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Net revenues
$
191,160

 
$
176,789

 
8.1
 %
 
$
541,174

 
$
506,661

 
6.8
 %
Gross profit
$
95,931

 
$
93,490

 
2.6
 %
 
$
274,629

 
$
267,708

 
2.6
 %
% of net revenues
50.2
%
 
52.9
%
 
 
 
50.7
%
 
52.8
%
 
 
Operating expenses
$
70,608

 
$
64,931

 
8.7
 %
 
$
206,831

 
$
186,055

 
11.2
 %
Operating income
$
25,323

 
$
28,559

 
(11.3
)%
 
$
67,798

 
$
81,653

 
(17.0
)%
% of net revenues
13.2
%
 
16.2
%
 
 
 
12.5
%
 
16.1
%
 
 
Other income (expense), net
$
140

 
$
(585
)
 
(123.9
)%
 
$
370

 
$
(144
)
 
(356.9
)%
Income before taxes
$
25,463

 
$
27,974

 
(9.0
)%
 
$
68,168

 
$
81,509

 
(16.4
)%
Provision for income tax
$
7,211

 
$
8,240

 
(12.5
)%
 
$
19,088

 
$
22,517

 
(15.2
)%
% of pre-tax income
28.3
%
 
29.5
%
 
 
 
28.0
%
 
27.6
%
 
 
Net income
$
18,252

 
$
19,734

 
(7.5
)%
 
$
49,080

 
$
58,992

 
(16.8
)%
% of net revenues
9.5
%
 
11.2
%
 
 
 
9.1
%
 
11.6
%
 
 
Earnings per share-diluted
$
0.72

 
$
0.77

 
(6.5
)%
 
$
1.90

 
$
2.32

 
(18.1
)%
Net revenues increased 8.1% and 6.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effects of foreign exchange, net revenues increased 7.1% and 4.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. This increase reflects strong revenue growth from our plasma, blood center and diagnostics businesses and increased equipment sales, offset by declines in our hospital businesses primarily due to a recall of certain of our OrthoPAT devices.
Gross profit amounts increased 2.6% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effects of foreign exchange, gross profit was effectively unchanged for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Our gross profit margin decreased by 210 basis points for the nine months ended December 31, 2011 as compared to the same period of fiscal 2011. The decrease was primarily due to increased product quality costs and lower overall margin associated with lower sales of higher-margin hospital products and higher sales of lower-margin plasma disposables.
Operating expenses increased 8.7% and 11.2% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effects of foreign exchange, operating expenses increased 9.5% and 7.2% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Higher operating expenses include $4.1 million of expenses, net of insurance recovery, associated with European customer claims arising from a quality matter with our High Separation Core Bowl ("HS Core"), increased restructuring costs and increased investment in research and development and sales and marketing.
Operating income decreased 11.3% and 17.0% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effects of foreign exchange, operating income decreased 21.5% and 16.9% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011 as increases in operating expenses more than offset gross profit associated with revenue growth due to higher costs of quality, relatively higher sales of our lower margin products and expenses associated with European customer claims arising from a quality matter with HS Core.
Net income decreased 7.5% and 16.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effects of foreign exchange, net income decreased 18.5% and 16.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. The decrease in net income was attributable to the decline in operating income described above.

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Table of Contents

RESULTS OF OPERATIONS
Net Revenues by Geography
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
United States
$
92,123

 
$
79,844

 
15.4
%
 
$
264,857

 
$
237,892

 
11.3
%
International
99,037

 
96,945

 
2.2
%
 
276,317

 
268,769

 
2.8
%
Net revenues
$
191,160

 
$
176,789

 
8.1
%
 
$
541,174

 
$
506,661

 
6.8
%
International Operations and the Impact of Foreign Exchange
Our principal operations are in the U.S., Europe, Japan and other parts of Asia. Our products are marketed in more than 80 countries around the world through a combination of our direct sales force and independent distributors and agents.
Our revenues generated outside the U.S. approximated 51% and 53% of total net revenues for the nine months ended December 31, 2011 and January 1, 2011, respectively. Revenues in Japan accounted for approximately 16.6% and 16.3% of total net revenues for the nine months ended December 31, 2011 and January 1, 2011, respectively. International sales are generally conducted in local currencies, primarily the Japanese Yen and the Euro. As discussed above, our results of operations are impacted by changes in the value of the Yen and the Euro relative to the U.S. Dollar.
Please see section entitled “Foreign Exchange” in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
Net Revenues by Product Type
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Disposables
$
156,354

 
$
144,130

 
8.5
 %
 
$
444,810

 
$
414,189

 
7.4
%
Software solutions
15,849

 
16,571

 
(4.4
)%
 
51,208

 
49,155

 
4.2
%
Equipment & other
18,957

 
16,088

 
17.8
 %
 
45,156

 
43,317

 
4.2
%
Net revenues
$
191,160

 
$
176,789

 
8.1
 %
 
$
541,174

 
$
506,661

 
6.8
%
Disposable Revenues by Product Type
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Plasma disposables
$
69,040

 
$
59,814

 
15.4
 %
 
$
196,206

 
$
172,245

 
13.9
 %
Blood center disposables
 
 
 
 
 
 
 
 
 
 
 
Platelet
44,383

 
41,056

 
8.1
 %
 
123,888

 
117,120

 
5.8
 %
Red cell
12,162

 
11,676

 
4.2
 %
 
35,676

 
34,284

 
4.1
 %
 
$
56,545

 
$
52,732

 
7.2
 %
 
$
159,564

 
$
151,404

 
5.4
 %
Hospital disposables
 
 
 
 
 
 
 
 
 
 
 
Surgical
17,333

 
17,116

 
1.3
 %
 
49,281

 
49,479

 
(0.4
)%
OrthoPAT
7,755

 
9,248

 
(16.1
)%
 
22,804

 
26,486

 
(13.9
)%
Diagnostics
5,681

 
5,220

 
8.8
 %
 
16,955

 
14,575

 
16.3
 %
 
$
30,769

 
$
31,584

 
(2.6
)%
 
$
89,040

 
$
90,540

 
(1.7
)%
Total disposables revenue
$
156,354

 
$
144,130

 
8.5
 %
 
$
444,810

 
$
414,189

 
7.4
 %
Disposables
Disposables revenue increased 8.5% and 7.4% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, disposables revenue increased 7.0% and 5.2% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011, driven primarily by increases in our plasma business as discussed below.

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Table of Contents

Plasma
Plasma disposables revenue increased 15.4% and 13.9% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, plasma revenue increased 15.4% and 13.1% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011, primarily due to increased plasma collections by our commercial fractionation customers in North America. We expect collection growth rates to moderate in future periods.
Blood Center
Blood center consists of disposables used to collect platelets and red cells. Platelet disposables revenue increased 8.1% and 5.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, platelet disposable revenue increased 3.4% and 0.7% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Sales growth for the three months and nine months ended December 31, 2011 included the benefit of quality issues experienced with a competitor’s device in Japan, and increased sales in emerging markets. We expect platelet disposable sales growth to slow in the fourth quarter of fiscal 2012 as the unique benefits noted in Japan are likely to moderate, and the fourth quarter of fiscal 2011 experienced increased sales associated with the March 2011 earthquake in Japan.
Red cell disposables revenue increased 4.2% and 4.1% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, red cell disposables revenue increased 4.7% and 4.0% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011, driven primarily by increased account penetration at existing customers for red cells in North America.
Hospital
Hospital consists of Surgical, OrthoPAT, and Diagnostics products. Surgical disposables revenue consists principally of the Cell Saver and cardioPAT products. Revenues from our surgical disposables increased 1.3% and decreased 0.4% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, surgical disposables revenue decreased 0.4% and 3.0% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011, due to a decrease in demand across our European and North American markets associated with lower surgical volumes.
Revenues from our OrthoPAT disposables decreased 16.1% and 13.9% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, OrthoPAT disposables revenue decreased by 16.0% and 15.0% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. The voluntary recall of our OrthoPAT devices manufactured prior to 2002 initiated during the first quarter adversely impacted our business. We expect to complete the replacement of devices with our customers in the fourth quarter of fiscal 2012.
Diagnostics product revenue consists principally of the consumable supplies used with the TEG analyzer. Revenues from our diagnostics products increased 8.8% and 16.3% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, diagnostics product revenues increased by 9.4% and 16.8% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. The revenue increase is due to continued adoption of our TEG analyzer, including expansion with North American hospitals and in emerging markets.
Software Solutions
Our software solutions revenues include sales of our information technology software platforms and consulting services. Software revenues decreased 4.4% and increased 4.2% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, software revenues decreased 4.3% and increased 3.1% for the three and nine months ended December 31, 2011, respectively, as compared to the same period of fiscal 2011. The decrease for the three months ended December 31, 2011 as compared to the same period of fiscal 2011 was driven primarily by lower sales in Europe and lower plasma software revenue in North America. The increase for the nine months ended December 31, 2011 as compared to the same period of fiscal 2011 is primarily due to installed base growth in our SafeTraceTX and BloodTrack products.
Equipment & Other
Our equipment and 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. These revenues are primarily composed of equipment sales, which tend to vary from period-to-period more than our disposable business due to the timing of order patterns, particularly in our distribution markets. Equipment and other revenues increased 17.8% and 4.2% for the three

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and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, equipment and other revenues increased 17.8% and 2.5% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011, primarily driven by higher equipment sales in emerging markets and higher service revenue.
Gross Profit
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Gross profit
$
95,931

 
$
93,490

 
2.6
%
 
$
274,629

 
$
267,708

 
2.6
%
% of net revenues
50.2
%
 
52.9
%
 
 

 
50.7
%
 
52.8
%
 
 

Gross profit amounts increased 2.6% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, gross profit was effectively unchanged for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Our gross profit margin decreased by 270 and 210 basis points for the three and nine month periods ending December 31, 2011, respectively, as compared to the same periods of fiscal 2011.
The decrease was primarily due to increased product quality costs, the mix of sales among our various product lines, and higher freight costs. The increased product quality costs included the sale of a higher cost substitute product for certain European plasma customers affected by the HS Core quality matter. The relatively lower sales of our higher gross margin hospital products and higher sales of our lower gross margin plasma disposables also reduced our overall gross profit. Finally, gross profit margin was negatively impacted during the three months ended December 31, 2011 by higher costs associated with rapid increases in plasma disposable demand. We expect these trends to continue to impact gross profit over the balance of fiscal 2012.
In October 2011, a facility of one of our contract manufacturers was damaged by the recent floods in Thailand. We have worked with the contract manufacturer to transition the manufacturing of the products that were made in this facility to the contract manufacturer’s facility in Japan and our own manufacturing locations. We have incurred minimal costs associated with this transition, and customers have not experienced any material supply disruptions.
Operating Expenses
 
Three Months Ended
 
 

 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Research and development
$
9,232

 
$
7,996

 
15.5
%
 
$
28,190

 
$
23,870

 
18.1
 %
% of net revenues
4.8
%
 
4.5
%
 
 

 
5.2
 %
 
4.7
 %
 
 

Selling, general and administrative
$
61,376

 
$
56,935

 
7.8
%
 
$
180,221

 
$
164,079

 
9.8
 %
% of net revenues
32.1
%
 
32.2
%
 
 

 
33.3
 %
 
32.4
 %
 
 

Contingent consideration
$

 
$

 
%
 
$
(1,580
)
 
$
(1,894
)
 
(16.6
)%
% of net revenues
%
 
%
 
 

 
(0.3
)%
 
(0.4
)%
 
 

Total operating expenses
$
70,608

 
$
64,931

 
8.7
%
 
$
206,831

 
$
186,055

 
11.2
 %
% of net revenues
36.9
%
 
36.7
%
 
 

 
38.2
 %
 
36.7
 %
 
 

Research and Development
Research and development expenses increased 15.5% and 18.1% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, research and development expense increased 14.2% and 10.0% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. These increases were primarily related to the general increase in development programs in support of long-term product plans and near term quality improvements.
Selling, General and Administrative
During the three and nine months ended December 31, 2011, selling, general and administrative expenses increased 7.8% and 9.8%, respectively, as compared to the same periods of fiscal 2011. Without the effect of foreign exchange, selling, general and

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administrative expense increased 8.9% and 6.5% for the three and nine months ended December 31, 2011, respectively, as compared to the same periods of fiscal 2011. These increases were attributable to higher restructuring charges, $4.1 million expenses, net of insurance recovery, associated with European customer claims arising from a quality matter with HS Core, and increased investment in our worldwide sales and marketing organizations.
During the first quarter of fiscal 2012, we received customer complaints in Europe regarding a quality issue with HS Core. Certain of these customers have also made claims regarding financial losses alleged to have been incurred as a result of this matter. Total customer claims submitted to date are approximately $10.1 million and we do not expect any additional material claims. We believe our ultimate liability will be less than the total claims. As of December 31, 2011, our current best estimate of the liability associated with this matter is $7.1 million. We have also determined that at least $3.0 million of this liability is recoverable under our insurance policies and recorded a corresponding insurance receivable within current assets as of December 31, 2011. Receivables for insurance recoveries for product liability claims are recorded as assets, on an undiscounted basis, when it is probable that a recovery will be realized on a claim by claim basis. We have recorded $4.1 million of expenses, net of insurance recovery, within selling, general and administrative expenses for the nine months ended December 31, 2011.
We are also continuing to determine the extent to which the remaining $4.1 million may be recoverable under our insurance policies and will record additional insurance receivables when we determine that recoverability of these claims is probable.
Contingent Consideration Income
Under the accounting rules for business combinations (specifically, ASC Topic 805, Business Combinations), we established a liability for payments that we might make in the future to former shareholders of Neoteric that are tied to the performance of the Blood Track business for the first three years post acquisition, beginning with fiscal 2010. We have reviewed the expected performance versus the necessary thresholds of performance for the former shareholders to receive additional performance payments and we recorded an adjustment to the fair value of the contingent consideration as contingent consideration income of $1.6 million and $1.9 million for the nine months ended December 31, 2011 and January 1, 2011, respectively.
Other Income, Net
Other income, net, increased for the three months and nine months ended December 31, 2011 as compared to the same periods of fiscal 2011, primarily due to lower foreign exchange transactions losses on foreign currency denominated assets.
Income Taxes
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
 
December 31,
2011
 
January 1,
2011
 
% Increase/
(Decrease)
Reported income tax rate
28.3
%
 
29.5
%
 
(1.2
)%
 
28.0
%
 
27.6
%
 
0.4
%
The Company’s reported tax rate was 28.3% and 28.0% for the three and nine months ended December 31, 2011, respectively. Our reported tax rate is lower than the federal statutory tax rate in both periods reported primarily due to lower foreign tax rates, including tax benefits associated with our Swiss operations.

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Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
(dollars in thousands)
December 31,
2011
 
April 2,
2011
Cash & cash equivalents
$
205,372

 
$
196,707

Working capital
$
357,805

 
$
340,160

Current ratio
4.3

 
4.1

Net cash position (1)
$
199,720

 
$
191,828

Days sales outstanding (DSO)
60

 
68

Disposable finished goods inventory turnover
6.4

 
6.1

(1)
Net cash position is the sum of cash and cash equivalents less total debt.
Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, and option exercises. We believe these sources are sufficient to fund our cash requirements over the next twelve months, which are primarily capital expenditures and may include share repurchases under future programs authorized by the Board of Directors at its discretion.
Cash Flows
 
Nine Months Ended
 
 
(in thousands)
December 31,
2011
 
January 1,
2011
 
Increase/
(Decrease)
Net cash provided by (used in):
 
 
 
 
 
Operating activities
$
81,343

 
$
91,316

 
$
(9,973
)
Investing activities
(36,442
)
 
(41,009
)
 
4,567

Financing activities
(35,714
)
 
(22,170
)
 
(13,544
)
Effect of exchange rate changes on cash and cash equivalents (1)
(522
)
 
(161
)
 
(361
)
Net increase (decrease) in cash and cash equivalents
$
8,665

 
$
27,976

 
$
(19,311
)
(1)
The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In accordance with GAAP, we have removed the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents.
Cash Flow Overview:
Nine Month Comparison
Operating Activities:
Net cash provided by operating activities decreased by $10.0 million during the nine months ended December 31, 2011 as compared to the nine months ended January 1, 2011. Cash provided by operations was negatively impacted by higher inventory levels to support plasma growth, launch of our next generation surgical device, the Cell Saver Elite, the replacement of recalled OrthoPAT devices and lower net income, offset by lower bonus payments and lower tax payments.
Investing Activities:
Net cash used in investing activities decreased by $4.6 million during the nine months ended December 31, 2011 as compared to the nine months ended January 1, 2011 due to $6.3 million of expenditures related to the ACCS and Global Med Technology acquisitions during the prior fiscal year, offset by a $2.0 million increase in capital expenditures on property, plant, and equipment. The increase in capital expenditures is the net effect of higher placements of company-owned equipment, primarily in support of increased plasma disposables demand, offset by lower manufacturing capital investments due to completion of construction of our Salt Lake City facility.
Financing Activities:
Net cash used to fund share repurchases under common stock repurchase programs was $50.0 million during the nine months ended December 31, 2011 and January 1, 2011. Net cash used in financing activities increased by $13.5 million during the nine months ended December 31, 2011, as compared to the nine month ended January 1, 2011 due primarily to a $23.0 million decrease in cash flow from the exercise of stock options offset by a $10.3 million increase in net borrowings under short-term

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credit arrangements.

Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. A portion of our trade accounts receivable outside the United States, however, include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies.
We have not incurred significant losses on government receivables. We continually evaluate all government receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
Deteriorating credit and economic conditions in parts of Western Europe, particularly in Italy, may increase the average length of time it takes us to collect our accounts receivable in certain regions within these countries.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. Historically, we believe we have been able to mitigate the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity, and by adjusting the selling prices of products. We continue to monitor inflation pressures generally and raw materials indices that may affect our procurement and production costs. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials.
Foreign Exchange
During the nine months ended December 31, 2011, approximately 51% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S. Dollar. Our primary foreign currency exposures relate to sales denominated in the Euro and the Japanese Yen. We also have foreign currency exposure related to manufacturing and other operational costs denominated in the Swiss Franc, the British Pound, and the Canadian Dollar. The Yen and Euro sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies. Since our foreign currency denominated Yen and Euro sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen or Euro, there is an adverse effect on our results of operations and, conversely, whenever the U.S. dollar weakens relative to the Yen or Euro, there is a positive effect on our results of operations. For the Swiss Franc, the British Pound, and the Canadian Dollar, our primary cash flows relate to product costs or costs and expenses of local operations. Whenever the U.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever the U.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations.
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, 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.
These contracts are designated as cash flow hedges and are intended to lock in the expected cash flows of forecasted foreign currency denominated sales and costs at the available spot rate. Actual spot rate gains and losses on these contracts are recorded in sales and costs, at the same time the underlying transactions being hedged are recorded. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results.

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Presented below are the spot rates for our Euro, Japanese Yen, Canadian Dollar, British Pound, and Swiss Franc cash flow hedges that settled during fiscal years 2010, 2011, and 2012 or are presently outstanding. These hedges cover our long foreign currency positions that result from our sales designated in Euro and the Japanese Yen. These hedges also include our short positions associated with costs incurred in Canadian Dollars, British Pounds, and Swiss Francs. The table also shows how the strengthening or weakening of the spot rates associated with those hedge contracts versus the spot rates in the contracts that settled in the prior comparable period affects our results favorably or unfavorably. The table assumes a consistent notional amount for hedge contracts in each period presented.
 
First
Quarter
 
Favorable /
(Unfavorable)
 
Second
Quarter
 
Favorable /
(Unfavorable)
 
Third
Quarter
 
Favorable /
(Unfavorable)
 
Fourth
Quarter
 
Favorable /
(Unfavorable)
Euro - Hedge Spot Rate (US$ per Euro)
 
 

 
 

 
 

 
 

 
 

 
 

FY10
1.57

 
 

 
1.49

 
 

 
1.32

 
 

 
1.28

 
 

FY11
1.36

 
(13
)%
 
1.41

 
(5
)%
 
1.43

 
8
 %
 
1.35

 
6
 %
FY12
1.24

 
(9
)%
 
1.30

 
(8
)%
 
1.36

 
(5
)%
 
1.37

 
2
 %
FY13
1.43

 
15
 %
 
1.42

 
9
 %
 
1.36

 
 %
 
 

 
 

Japanese Yen - Hedge Spot Rate (JPY per US$)
 
 

 
 

 
 

 
 

 
 

 
 

FY10
105.28

 
 

 
105.11

 
 

 
96.38

 
 

 
93.50

 
 

FY11
98.17

 
7
 %
 
94.91

 
10
 %
 
89.13

 
8
 %
 
89.78

 
4
 %
FY12
88.99

 
9
 %
 
85.65

 
10
 %
 
81.73

 
8
 %
 
82.45

 
8
 %
FY13
79.40

 
11
 %
 
76.65

 
11
 %
 
77.58

 
5
 %
 
 

 
 

Canadian Dollar - Hedge Spot Rate (CAD per US$)
 
 

 
 

 
 

 
 

 
 

FY10
1.14

 
 

 
1.12

 
 

 
1.11

 
 

 
1.09

 
 

FY11
1.10

 
(4
)%
 
1.09

 
(3
)%
 
1.07

 
(4
)%
 
1.03

 
(6
)%
FY12
1.05

 
(5
)%
 
1.03

 
(6
)%
 
1.00

 
(7
)%
 
0.99

 
(4
)%
FY13
0.98

 
(7
)%
 
0.99

 
(5
)%
 
1.02

 
2
 %
 
 

 
 

British Pound - Hedge Spot Rate (US$  per GBP)
 
 

 
 

 
 
 
 

 
 

FY10
1.45

 
 

 
1.44

 
 

 
1.42

 
 

 
1.40

 
 

FY11
1.47

 
(1
)%
 
1.65

 
(15
)%
 
1.63

 
(15
)%
 
1.59

 
(14
)%
FY12
1.50

 
(2
)%
 
1.54

 
7
 %
 
1.57

 
4
 %
 
1.58

 
1
 %
FY13
1.62

 
(8
)%
 
1.63

 
(6
)%
 
1.60

 
(2
)%
 
1.56

 
1
 %
Swiss Franc - Hedge Spot Rate (CHF per US$)
 
 

 
 

 
 

 
 

 
 

FY11
 

 
 

 
1.05

 
 

 
1.04

 
 

 
1.05

 
 

FY12
1.05

 
 

 
1.01

 
(4
)%
 
0.96

 
(8
)%
 
0.92

 
(12
)%
FY13
0.82

 
(22
)%
 
0.85

 
(21
)%
 
0.92

 
(4
)%
 
 

 
 


 
We generally place our cash flow hedge contracts on a rolling twelve month basis
Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Update No. 2011-04 updates the accounting guidance related to fair value measurements that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The updated guidance is effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. ASU 2011-04 is effective in our fourth quarter of fiscal 2012 and should be applied prospectively. We do not currently have level 3 fair value measurements. We do not believe adoption of this standard will have an impact on our consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Update No. 2011-05 updates the disclosure requirements for comprehensive income to include total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not

25

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affect how earnings per share is calculated or presented. The updated guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted and amendments do not require any transition disclosures. We will adopt this standard in the first quarter of fiscal 2013. The adoption of ASU 2011-05 will affect the presentation of comprehensive income but will not impact our financial condition or statement of operations.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles — Goodwill and Other (Topic 350). ASU 2011-08 allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. ASU 2011-08 is effective for our first quarter of fiscal 2013 but is eligible for early adoption. We do not believe adoption of this standard will have an impact on our consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210)-Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. ASU 2011-11 is effective for our first quarter of fiscal 2014. We are currently evaluating the impact of adopting ASU 2011-11, but currently believe there will be no significant impact on our consolidated financial statements.
Standards Implemented
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, and Accounting Standards Update No. 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software (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 also 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 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. On April 3, 2011, we adopted this guidance, which did not have a material impact on our financial position and results of operations.
In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. Update No. 2010-29 clarifies paragraph 805-10-50-2(h) to require public entities that enter into business combinations that are material on an individual or aggregate basis to disclose pro forma information for such business combinations that occurred in the current reporting period, including pro forma revenue and earnings of the combined entity as though the acquisition date had been as of the beginning of the comparable prior annual reporting period only. We did not complete any material business acquisitions during the nine months ended December 31, 2011 thus the disclosure requirements were not applicable for the period.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements we make which are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed,” and similar expressions, are intended to identify forward looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. These statements are based on our current expectations and estimates as to prospective events and circumstances about which we can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. As it is not possible to predict every new factor that may emerge, forward-looking statements should not be relied upon as a prediction of our actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include technological advances in the medical field and our standards for transfusion medicine and our ability to successfully implement products that incorporate such advances and standards, product demand and market acceptance of our products, regulatory uncertainties, the effect of economic and political conditions, the impact of competitive products and pricing, the impact of industry consolidation, foreign currency exchange rates, changes in customers’ ordering patterns, the effect of industry consolidation as seen in the plasma market, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate. The foregoing list should not be construed as

26

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exhaustive. See the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as our Annual Report on Form 10-K for the fiscal year ended April 2, 2011.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company’s exposures relative to market risk are due to foreign exchange risk and interest rate risk.
Foreign exchange risk
See the section entitled Foreign Exchange for a discussion of how foreign currency affects our business. It is our policy to minimize for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales. We do not use the financial instruments for speculative or trading activities.
We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. dollar relative to all other major currencies. In the event of a 10% strengthening of the U.S. dollar, the change in fair value of all forward contracts would result in a $9.3 million increase in the fair value of the forward contracts; whereas a 10% weakening of the US dollar would result in a $11.0 million decrease in the fair value of the forward contracts.
Interest Rate Risk
All of our long-term debt is at fixed rates. Accordingly, we do not have any material exposure to interest rates.
ITEM 4. CONTROLS AND PROCEDURES
We conducted an evaluation, as of December 31, 2011, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the Company’s principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of December 31, 2011.
There were no changes in the Company’s internal control over financial reporting which occurred during the nine months ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Fenwal Patent Litigation
For the past five years, we have pursued a patent infringement lawsuit against Fenwal, the details of which are summarized in our Form 10-K for the fiscal year ended April 2, 2011. In January 2010, we were awarded damages and an injunction against Fenwal in connection with this lawsuit.
On June 2, 2010, the United States Court of Appeals reversed the trial court’s claim construction and, accordingly, vacated the injunction and damages previously awarded to Haemonetics, and remanded the case to the trial court for further proceedings. On September 15, 2011, the trial court granted a summary judgment motion which essentially ended the U.S. case in Fenwal’s favor.
We continue to pursue a patent infringement action in Germany against Fenwal, and its European and German subsidiary, for Fenwal’s infringement of Haemonetics’ corresponding European patent to the Haemonetics patent at issue in the United States litigation. Further details related to these proceedings have been disclosed in our Form 10-K for the fiscal year ended April 2, 2011. There has been no material developments related to these proceedings during the current fiscal year.

Haemonetics Italia Matter

In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting contract with a local physician and in pricing products under a tender from a public hospital. The two employees found guilty in this matter are no longer employed by the Company. This matter dates to 2004 and involved other unrelated companies and individuals. On June 14, 2011, the final level appeals court affirmed these verdicts. There are no further appeals available and the convictions are now final. When the matters first arose, our Board of Directors commissioned independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel's report, the Board concluded that no disciplinary action was warranted in either case. Neither the original ruling nor its final affirmation has impacted the Company's business in Italy to date.

Item 1A. Risk Factors
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended April 2, 2011, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the May 2, 2011 press release, the Company announced that its Board of Directors approved the repurchase of up to $50.0 million worth of Company shares during fiscal year 2012. Through December 31, 2011, the Company repurchased 852,410 shares of its common stock for an aggregate purchase price of $50.0 million. We reflect stock repurchases in our financial statements on a “trade date” basis and as Authorized Unissued (Haemonetics is a Massachusetts company and under Massachusetts law repurchased shares are treated as authorized but unissued).
All of the purchases during the quarter were made under the publicly announced program. All purchases were made in the open market.
Period
 
Total Number
of Shares
Repurchased
 
Average Price
Paid per Share
including
Commissions
 
Total Dollar Value
of Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Dollar
Value of Shares that
May Yet be
Purchased Under the
Plans or Programs
August 1, 2011 to December 31, 2011
 
852,410

 
$
58.65

 
$
49,997,524

 
$
2,476

Total
 
852,410

 
$
58.65

 
$
49,997,524

 
$
2,476

Item 3. Defaults upon Senior Securities
Not applicable.

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Item 4. [Removed and Reserved]
Item 5. [Removed and Reserved]

29

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Item 6. Exhibits
31.1
 
Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, of Brian Concannon, President and Chief Executive Officer of the Company
 
 
 
31.2
 
Certification pursuant to Section 302 of Sarbanes-Oxley of 2002, of Christopher Lindop, Chief Financial Officer and Vice President Business Development of the Company
 
 
 
32.1
 
Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Brian Concannon, President and Chief Executive Officer of the Company
 
 
 
32.2
 
Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Christopher Lindop, Chief Financial Officer and Vice President Business Development of the Company
 
 
 
101*
 
The following materials from Haemonetics Corporation on Form 10-Q for the quarter ended December 31, 2011, formatted in Extensible Business Reporting Language (XBRL); (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.
_____________________________
 
In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for the purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HAEMONETICS CORPORATION
 
Date: February 6, 2012
By:  
/s/ Brian Concannon  
 
 
 
Brian Concannon, President and
Chief Executive Officer
 
 
 
(Principal Executive Officer) 
 
 
 
 
 
Date: February 6, 2012
By:  
/s/ Christopher Lindop  
 
 
 
Christopher Lindop, Chief Financial
Officer and Vice President Business Development
 
 
 
(Principal Financial Officer) 
 



31
HAE 2011.12.31 Exh 31.1


EXHIBIT 31.1
CERTIFICATION
I, Brian Concannon, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Haemonetics Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Desi