Haemonetics
Annual Report 2011

Plain-text annual report

2011 A nnuAl report Integrated solutions for blood management Product line diversity Geographic diversity Consumable sales create recurring revenue stream Software Solutions $67M Plasma $227M Platelet $156M Equipment $58M Diagnostics $19M OrthoPAT $36M Surgical $67M Red Cell $47M Software Solutions 10% Equipment 8% Consumables 82% of sales North America $317M Europe $188M Japan $110M Asia $61M Welcome compAny profile Haemonetics began its odyssey of success in 1971 with devices and consumables which changed the way blood was collected and processed at plasma and blood collection centers, as well as in the surgical suite. As we created virtually every market we’ve entered, Haemonetics has earned a reputation for innovation, technical expertise, quality and operational excellence. As industry needs have changed, we have evolved from a medical device company focused on blood processing systems to our current position as The Global Leader in Blood Management Solutions. In our expanded leadership role, Haemonetics helps plasma fractionators, blood collectors, and hospitals improve healthcare and lower costs by optimizing the collection, processing and use of scarce blood resources. The Company’s broad product offerings includes blood collection and separation technologies, surgical blood salvage systems and diagnostic products for enhanced blood management in surgery. The Company also markets information technology platforms and consulting services to help manage the blood supply chain in commercial plasma centers, blood centers, and hospitals as well as to audit and improve blood management practices. Our mission is to leverage our devices, information technology platforms, and consulting services to advance the safety, quality and availability of the world’s blood supply, while improving patient care and lowering healthcare costs. So as healthcare systems around the world seek to ensure the best patient care at optimal cost, our vision for blood management is both timely and relevant. This vision has reinforced our reputation and brand leadership in the transfusion industry. Haemonetics is publicly traded under the symbol “HAE” on the New York Stock Exchange. We employ more than 2,300 people in 21 countries and market in over 80 countries. Over 80% of revenues come from single-use consumables used with our devices. Approximately half our revenues are derived from North America. A legacy of innovation and commitment to our beneficiaries In 1971, Haemonetics founder Jack Latham had a vision to bring together a commitment to quality and customer service with innovation in building a company to produce blood fractionation devices. As Haemonetics celebrates its 40th anniversary, we remember Latham, who died at the age of 95 in 2003, and continue to grow our company based on his key corporate values. Latham began his company by manufacturing and selling one perfectly designed component for a new blood collection device: a centrifuge disposable called the “Latham Bowl” that could automate the separation of blood. He constructed his company’s values on the belief that blood was a medical drug that needed to be respected and missteps in that regard caused considerable harm to patients. At the core of these values was his commitment to protecting patient’s safety. The Latham Bowl technology merged expert engineering with the ground-breaking scientific discoveries of Dr. Edwin Cohn, a protein chemist and Harvard Medical School professor, who in the 1930s, pioneered techniques for fractionating blood to isolate the serum albumin protein from plasma, a discovery that led to a revolution in the blood community. Latham knew the dangers patients can experience with whole blood transfusion, understood the potential of transfused fractionated blood products to help minimize those risks, and trusted his device would make this possible on a large scale for the benefit of patients everywhere. With that drive, he laid the foundation of what would become Haemonetics Corp. “Right from the start we have striven to maintain excellence in the quality of everything we ship,” Latham wrote in an address to employees during the early 1980s. “And we have striven equally hard to maintain excellence in the quality of our service. It will always be imperative that we make and do everything right the first time.” Since the early days of Latham toiling in his workshop, Haemonetics has carried on his legacy with a commitment to innovation and to its customers and their beneficiaries that has grown this company into a $677 million global business that employs 2,300 people worldwide. In the years since Haemonetics’ first devices were manufactured and began changing the lives of patients around the country, the company has experienced three major growth periods. In 1972, looking to expand significantly the customer base of blood banks, then CEO Gordon Kingsley demonstrated an intrepid spirit when he embarked upon a European tour to blood banks in England, Germany, France, Sweden, The Netherlands and Italy. Haemonetics’ global market was launched, and in a very short time, the international division of the company would make up 25 percent of its business. Always focusing on innovation, in 1975, Haemonetics made its next major step in its future direction with the launch of the Cell Saver® product, a device that helped change surgery forever, because it allowed a patient’s own red blood cells, lost during 2006 and 2010 Haemonetics acquired Infonale, Haemoscope, Altivation, Neoteric and Global Med, forever changing its previous device legacy and positioning the company to become THE Global Leader in Blood Management Solutions for its customers. Today, as it enters its fifth decade, Haemonetics is poised to transform the practice of blood management globally. Every stop along the blood supply chain can benefit from enhanced systems that result in improved patient outcomes and reduced costs, all while maintaining the utmost respect and value for this most precious of Today, as it enters its fifth decade, Haemonetics is poised to transform the practice of blood management globally. resources. Cutting-edge, fully integrated technology platforms are driving this evolution along with data-driven analysis and critical strategic thinking, and Haemonetics is at the helm, providing the superior product delivery and expert consultation services to achieve this transformation around the world. “I know this vision is what’s right for this industry,” says current CEO Brian Concannon. “I know it in my heart.” and after surgery, to be cleaned and prepared for transfusion back into the patient. At this juncture, Haemonetics expanded its service beyond selling blood collection devices just to blood banks to selling surgical blood salvage devices to hospitals. This growth into the hospital market expanded Haemonetics’ scope to include the entire continuum of blood—from the arm of the donor to the arm of the patient— which in later years would lead to a major shift in the company’s growth strategy. While the next two decades of Haemonetics were marked by mergers with other corporations and a bold and successful move to buy back the company—a process completed in 1985— these years were also defined by rapid growth and development. A strategic acquisition in 2001 opened a new door into the world of software applications. An integrated solution selling approach working with our commercial plasma customers shed the light on an advanced partnership approach whereby the company began to evolve from a maker and seller of medical devices to one that helped its customers develop comprehensive solutions to improving their overall operations. Between thereby allowing them to choose the solutions that best fit their needs… solutions that Haemonetics can provide. We’ll talk more about this in a moment. For several years now, we have told you about our two strategies: leverage the business to improve profitability and expand the business by leveraging our core competencies. These strategies have served us well and are the compass that continues to guide us today. Despite the economic challenges we faced and the headwind of one additional week in fiscal 10, we saw solid revenue growth of 5% led primarily by acquisitions and growth in the emerging markets. Emerging markets represents a $100 million business that continues to grow double digits. We successfully completed the integration of the four acquisitions we made in fiscal 10, led by the largest acquisition, Global Med Technologies. Our software solutions business at almost $70 million in revenue is an important enabler of our blood management solutions as customers seek ways to access their blood use information. The strategic acquisitions that we have made to build out this important capability are now paying dividends. Haemonetics has developed a unique suite of blood management solutions that can be customized to meet the specific needs of our customers.” Our commitment to improved profitability also remains unchanged. Adjusted gross and operating margins increased 20 and 70 basis points respectively. We leveraged 5% revenue growth to 9% adjusted operating income growth, and $3.27 in adjusted earnings per share, a 15% increase, representing 8 straight years of double digit growth in adjusted earnings per share. Our cash position also remains strong. We drove $93 million in free cash flow in the year before funding $15 million in cash transformation costs. We also completed a $50 million share repurchase. We finished fiscal 11 with nearly $200 million in cash. Our strong cash position provides us with the flexibility to pursue further strategic acquisitions that strengthen our market leading blood management position. 01 Brian Concannon President & CEO Sh a reh o lder le tter The global ouTlook for many of the world economies began to improve in 2010, but this improvement is relative depending on where one sits. For Haemonetics, it is really a tale of two cities. For the second year in a row, we witnessed declines in the demand for blood and blood products, driven by weaker demand for elective surgeries. This clearly had a negative impact on our business. However, our customers continue to look for ways to drive savings in light of this pressure, while improving clinical outcomes for the patients they serve. This had a positive impact on our business because Haemonetics has developed a unique suite of blood management solutions that can be customized to meet the specific needs of our customers. Today, 197 customers have implemented Haemonetics’ IMPACT® program, our branded approach to implementing blood management solutions. As the only company in the world that serves both the demand side of blood— hospitals—and the supply side of blood—blood centers—we are able to serve the entire blood supply chain and address the problems that challenge our customers today. We are well positioned to help our customers understand their blood needs by providing them with better visibility to blood management information, Eight years ago, we began this journey with our number one objective being to create shareholder value. During this time, we have achieved compounded annual growth rates of 9% in revenue, 19% in adjusted operating income, and 18% in adjusted earnings per share. These are impressive trends for any company, especially one leading a transformation of an industry during one of the most turbulent economic times in recent history. We have set high standards for ourselves and our commitment to this objective remains unchanged. Our BlOOd ManageMent VisiOn Our blood management vision was founded in the success of our Plasma business. The acquisition of 5D in December, 2001 provided us with the capability to provide our customers with the software solutions they required to better understand their business and to implement the changes necessary to optimize their operations. Five years ago, Haemonetics Plasma market share was approximately 40%. Today, our market share exceeds 70%. Our success was based on our ability to analyze our customers’ business to better understand their challenges, and to address these challenges by implementing customized solutions using software, services, and devices and disposables in combination. This success led us to believe that we could do the same for our blood center and hospital customers. Clearly, this represents a more complex environment. Undeterred, we set a path to build out the necessary requirements focused on providing our customers with the information technology, devices and disposables, and services that would reduce costs, enhance patient safety, and improve clinical outcomes. This was a bold step forward but worth the effort. Today, we have the broadest portfolio of blood management products available in the industry. We have made great progress with the internal development of products and we will launch our newest cell salvage device, the Cell Saver® Elite,™ in fiscal 12. We have made a number of key, strategic acquisitions that have broadened our portfolio of products, such as the TEG® analyzer and BloodTrack® software suite. And the acquisition of Global Med Technologies provided us with the final pieces necessary to Shareholder let ter Consider a future where blood is stored and maintained at the point of care in hospitals, where the use of that blood is electronically recorded and transmitted to the blood center supplying the blood, and where billing and resupply are based on the electronic exchange of data between the hospital and blood center.” 02 build out the “information highway” between our blood centers and hospitals. our customers in ways that will enhance their business well into the future. Consider a future where blood is stored and The first of these is our Automated Whole maintained at the point of care in hospitals, where the use of that blood is electronically recorded and transmitted to the blood center supplying the blood, and where billing and resupply are based on the electronic exchange of data between the hospital and blood center. Consider as well a donor who is electronically thanked for the donation they provided that saved a life, where that donor is then asked to electronically sign up to donate again at a mobile drive convenient to them, and where the blood products collected at that mobile drive are determined based on the current blood inventories electronically monitored by the blood center for the hospitals they serve. That future is within our grasp and Haemonetics is taking the steps to build these capabilities for our customers today. It is a bold vision! But the end is in sight. We have developed or acquired the necessary pieces to implement our vision. And we will not stop there. Today, we continue to develop additional products and services that will serve Blood Collector, which will be a suite of products designed to automate the current manual collection of whole blood. This is a large market opportunity where we have a minimal presence today. We intend to enter this market late in fiscal 13 with an “entry level” floor automation product suite focused on data capture and enhanced collection, which will impact the work flows and quality of both the data and blood products from mobile collections. Development of our automated whole blood collector is concluding this quarter and it will remain an experimental device until the completion of the NDA of our whole blood disposable in 2014. We will continue to review options that will allow us to bring this suite of products to market as rapidly as possible. We also continue to make good progress with regard to blood typing, the next product under development that will allow us to expand our position in blood management. On the basis of lab results, we now believe that we will be able to achieve our goal of forward and Financial highlights Cash flow from operations strong balance sheet funds growth s n o i l l i m n i s r a l l o D $140 $120 $100 $80 $60 $40 $20 $0 2006 2007 2008 2009 2010 2011 s n o i l l i m n i s r a l l o D $300 $250 $200 $150 $100 $50 $0 2006 2007 2008 2009 2010 2011 debt Cash / short term investments 03 reverse ABO and RhD typing and screening for adverse anti-bodies in less than 10 minutes. A device to demonstrate the accuracy and speed of testing will be completed in July of this year to be used in a definitive feasibility trial in a clinical setting, head to head with existing FDA approved technologies. A read out of our results is planned for early October. As we move from the lab into a clinical setting, we are actively reviewing our options for commercializing this truly revolutionary device. Our BlOOd ManageMent sOlutiOns are WOrking Now that you’ve had a glimpse of the future, let’s take a moment to reflect on what we are doing today to help our customers better manage their blood management needs. At the beginning of fiscal 10, we launched our IMPACT program, which is our branded selling approach to bringing customized blood management solutions to our customers. We have enjoyed great success with this approach over the last two years. At the end of fiscal 11, 197 accounts are engaged in our IMPACT program, and these accounts are enjoying the benefit of reduced costs associated with blood, enhanced patient safety, and improved clinical outcomes. You will see testimonials from some of our customers throughout this report. And Haemonetics has also benefited as well. Of the 197 accounts, 115 are North American Patient accounts and these accounts combined are growing 25% year over year. Clearly this represents a win-win for Haemonetics and our customers. We expanded the IMPACT program into Europe at the beginning of this fiscal year. At the end of fiscal 11, Europe had 62 customers engaged in the IMPACT program with equally impressive results. These 62 accounts grew 14% over prior year. We have also take steps to further automate our IMPACT program with the launch of our web based IMPACT™ Online software in late fiscal 10. IMPACT Online is a web-based business intelligence portal that provides customers access to their own blood use information in a friendly, easy to use format that allows these customers to track and monitor results, ensure efficiency, adjust Shareholder let ter Eight years of growth strong operating and gross margin growth over 8 years 8 Year Compounded annual growth 23% 21% 18% 15% 12% 9% 6% 3% 0% 2003 2011 revenue gross Profit Operating income ePs gross Margin Operating Margin 60% 50% 40% 30% 20% 10% 0% 04 Finally, I want to thank our shareholders and our customers for the support and confidence you have shown in Haemonetics. I also want to thank our Board of Directors for the strong leadership and guidance that they continue to provide. And I want to thank our employees who have shown tremendous courage and willingness to change as we have transformed your company into The Blood Management Company.™ We still have much work left to do but we have the right team in place to get the job done. That is why I believe that our brightest years still lie ahead of us. Sincerely, Brian P. Concannon President & CEO Haemonetics has developed a unique suite of blood management solutions that can be customized to meet the specific needs of our customers.” processes rapidly, and plan for the future. We will also continue to enhance this product. With the release of version 3.0 this past April, the IMPACT Online portal now provides customers with benchmarking dashboards, enhanced drill- down capabilities, and additional infection and complication metrics. We Must COntinue tO innOV ate We have made great progress but there still is much work to do. Our first 40 years have seen us invent new technologies and create new markets in apheresis and cell salvage. We have transformed ourselves from a niche medical device manufacturer to the leading blood management company in the world today. The next phase of our history will see us leverage that strength and experience in working with our customers to further transform their blood management practices. We will focus on the future but we must also take care of our customers’ needs today. In addition to launching the Cell Saver Elite, our next generation cell salvage device, we are also working on enhancements to our OrthoPAT® and cardioPAT® products, several improvements to our Plasma and Platelet platforms, and we are currently implementing and will shortly go live with the first installation of a new donor management software product for community blood banks. While we focus on the future, we will not lose sight of the present and the obligations we have to serve our customers’ needs as they are defined today. As the leader in our space, this is something that we embrace. Our focus on transformation is planned to generate revenue growth rates that will accelerate from mid-single digits today to double digits as we enter the whole blood market. We expect to continue to improve profitability expanding both gross and operating margins over the next five years, giving us confidence that we will enjoy double digit compound average growth rates for operating income and earnings per share in the range of 12-15%. This is consistent with our past performance. Before closing, I want to take this opportunity to welcome Rich Meelia back to our board of directors serving as our Chairman. His exceptional leadership, proven record of driving transformational change in healthcare, and his past experience at Haemonetics makes him the ideal person to lead our board during this important time in our history. 05 Our vision tranSform blood management blood and blood producTs are precious commodities and are often crucial to survival for the patients who need them. Patients who receive blood transfusions or who rely on plasma-derived pharmaceuticals depend on a variety of complex factors all working in concert: availibility of blood donors, effective and efficient collection processes at mobile blood drives and collection centers, and skill in matching the correct blood-type and having the right kind and the right amount of blood available in the hospital when needed. errors or missteps at any juncture in this process can lead to injury and infection or worse, as well as unnecessary costs. the need for expert blood management along the entire blood supply chain is critical to our system of health care delivery. Haemonetics is the industry leader in blood management. For over 40 years, we have led innovation in this field, developing and marketing the very first tools for fractionating blood into its most useable components at the time of donation. in the years since our founding, we have continued to innovate as well as acquire the best in blood devices and technologies to maintain and strengthen our leadership position, continually looking toward how to improve the management of blood on a global basis. in the past two years, we have continued to invest significantly in core technologies and have made several strategic acquisitions that have enabled us to further develop our vision to transform blood management. We work closely with customers to significantly improve 06 We will continue to innovate and develop new technologies to serve our customers’ blood management needs for the future. that’s what they expect from The Blood Management Company…” — Brian P. Concannon, President and CEO Our company firmly believes that blood is a meaningful opportunity and one which hospitals are now rightfully focused. We know that when blood is managed and used effectively, patients have better outcomes and hospitals save money. that is why we are so committed to working with our customers to transform the practice of blood management. 07 the way blood is collected, transported and stored, and ultimately distributed to the patient in the hospital. With the integration of the most advanced blood and plasma collection devices, blood tracking, storage, and management software and hardware, and individually tailored and data-driven consultative services, Haemonetics develops systems and solutions that manage blood and plasma at every step in the blood supply chain, from donor to patient. Our commitment is to improve patient safety and reduce costs for our clients. these are both accomplished simultaneously. good blood management results in improved efficiencies, fewer complications with transfusion and therefore fewer infections and shorter hospital stays, which saves costs while improving quality. achieving our vision integrated Soluti onS aT haemoneTics, we learn from our customers. as our customers integrate our products and services to fundamentally change and improve their businesses, our own understanding of how to transform blood management will evolve to the benefit of our customers. Core to our mission is improving patient safety and reducing health care costs. By working closely with our customers to help them achieve those same goals, we advance our own mission. We accomplish this by listening to what our customers need and then developing powerful integrated solutions to meet those needs. We start with iMPaCt Consulting, a diagnostic approach that analyzes individual data points within a customer’s practice to gauge where improvements can be made. We then develop a tailored solution that aligns directly to those data points and employs the appropriate set of integrated hardware, software, and consultative services that improve and can ultimately transform their blood management processes. in our efforts to fundamentally transform blood management, we are creating an unbroken link from blood donor to patient. We think of this as “arm to arm”® blood management and Haemonetics is the global leader in offering solutions for enhancing and improving every step in this chain. Haemonetics’ suite of powerful tools is creating that link. We have the broadest product offerings in the industry from the MCs® brand system of apheresis that offers protocol flexibility to optimize collections from the ever-shrinking 08 While we focus on the future, we will not lose sight of the present and the obligations we have to serve our customers’ needs as they are defined today.” — Brian P. Concannon President and CEO implemented at several leading hospitals. We also provide our clients with tools to monitor the impact of their implementations and continue to work with them to improve their patient outcomes. With every improvement our customers make in their blood collection, storage, or transfusion processes, we continue to learn and improve our own approaches and thus advance our mission to transform blood management. donor pool to an integrated software platform that uses barcode scanning to track a unit of blood across the entire blood supply chain from collection to the surgical suite to the patient. the result is a blood supply that meets demand without waste, improves patient safety and lowers costs for every participant along the entire blood continuum. Finally, we are continually researching new acquistion opportunities to expand and enhance what we can offer to our customers. We also continue to develop products internally, and to leverage existing products into expanded uses. an example from this past year is the iMPaCt Online portal, a web based information technology platform to track blood use, related outcomes and best practices in blood management that has been successfully 09 maintaining tr uSt Patients prescribed a plasma-derived biopharmaceutical trust their lives to that medicine. these drugs must be of the highest quality and available when patients need them. Haemonetics delivers comprehensive full-service plasma collection solutions that maintain this crucial supply of plasma. our full suiTe of products and services provides robust capabilities to efficiently manage and support the processes employed in the collection of plasma for production of the plasma-derived drugs. incorporating powerful software tools for supply chain management, customer order entry, integrated donor Management systems, along with excellent customer service, Haemonetics helps to ensure an uninterrupted supply of these life-saving blood products. 10 Plasma collectorsPlasma management:Plasma collectorsPlasma management:Our customers trust the integrity of their relationship with Haemonetics. We work together to identify opportunities to improve the collection process and develop solutions that meet their needs today and tomorrow. they can count on us.” — Steve Swenson, Vice President and General Manager, Global Plasma Business Donor Management System (DMS®) Software dMs™ is Haemonetics system of record in plasma collection centers. By linking our Plasma donor Management system to the customer’s enterprise resource planning software, Haemonetics automates the ordering, shipping, inventory management, and payment for the products used by plasma collection companies. Comprehensive solutions PCS®2 with EXPRESS™ software the new standard in plasma donation systems, used to automate separation of plasma from other blood components and return those components to the donor. eXPress is a new software for the PCs2 with an intelligent algorithm that contributes to a reduction in overall donation time and an improved donor experience. GHX® HealthCare Supply Chain Solutions Our use of gHX automates transaction communications with our trading partners to simplify supply chain management. this saves cost, reduces errors, and results in a reliable supply of plasma disposables. 11 optimizing op portuni ty the first stop in the blood supply chain is the blood collection center. developing solutions for these customers has been at the historical core of Haemonetics’ business. Forty years ago, our company was founded on engineering and marketing devices that improved blood collection. Today, we continue to enhance this mainstay of our business. While hospitals are increasingly implementing blood management practices and managing within tightening budgets, blood centers are faced with the challenge of collecting blood products as efficiently and cost-effectively as possible. Haemonetics offers comprehensive solutions to blood collection centers to respond to this changing environment. incorporating iMPaCt Consulting, Haemonetics works closely with blood centers to understand individual needs and concerns. using a wealth of powerful software tools and consulting services, Haemonetics helps blood centers align their collection practices with market demand. this enables blood centers to more effectively collect those blood types that are most needed as well as specific components— such as red cells and platelets. We help centers convert donors from whole blood collection to apheresis collection, which separates whole blood into its useful components directly as the blood donor is connected to the device. We also offer blood centers consulting services that show these customers how to align their collection program with the changing needs of hospital customers, improve their operational efficiency, and contain costs and retain their existing donor base while continuing to attract new donors. throughout our entire history, Haemonetics has understood the fundamental importance of safe and efficient blood collection and is committed to helping blood centers improve and maintain their crucial role in ensuring a safe blood supply. Our mission to transform blood management begins here. 12 Blood collectorsblood ManageMent:We help our blood centers be part of the solution. While the demand for blood is down, we work with our blood centers bringing customized blood management solutions to their hospital customers while also supporting their blood collection optimization.” — Jan Conneely, Vice President, North America Donor Sales improvemenT in acTion in 2010, Haemonetics demonstrated our commitment to enhancing the process of blood collection by helping one of our blood center customers in Billings, Montana execute the transition from conducting mulitple blood drives in remote areas that resulted in a limited number of useable collections to a more effective system of fewer drives in more densely populated areas that yielded more units of blood types that were needed most. this blood center is now operating more effectively and in a manner that delivers a more useable, cost effective product to their area hospitals. integrated solutions IMPACT Consulting Haemonetics is committed to understanding our clients’ needs, developing individually tailored solutions and making blood centers more efficient. MCS Apheresis Haemonetics technology that separates whole blood into blood components. ACP215 Processing an automated cell processing system that enables blood collectors and hospitals to freeze red cells, and then thaw them when needed so that they can maintain a frozen blood reserve. Recruitment Programs Haemonetics offers a broad array of recruitment training programs to help blood centers recruit and retain enthusiastic drive sponsors as well as those donors that have the blood types most in demand. Hemasphere,® eDonor,® Surround,™ ElDorado® Donor, DonorDoc,® and EdgeBlood™ Haemonetics software that blood centers use to optimize blood collection and collection processes, donor management, lab processes, and traceability of patient transfusions. 13 enSuring Safet y Blood Management starts and finishes at the hospital. Our vision transforms supply chain effectiveness along the entire continuum as well blood use practices within the hospital. driven by Two main goals—to improve patient safety and to help our customers save money—Haemonetics offers a range of blood management solutions that significantly improve the hospital’s systems for acquiring blood, storing it in the hospital, and dispensing it efficiently and correctly. Central to this suite of products is the Bloodtrack platform, a highly sophisticated set of hardware and software that incorporates barcode-scanning technology to track a unit of blood throughout the hospital from its arrival to the moment it is transfused into a patient. Bar- coded units are stored in a smart refrigerator in the hospital called a Hemosafe.™ the coded unit is entered into an electronic inventory that monitors the date of its arrival, thus ensuring that each unit’s expiration date is recorded. When a unit is needed for transfusion, it is matched to a barcode on a patient id band around the recipient patient’s wrist. a handheld scanner matches barcodes and signals an alert when there are problems. it also records the transfusion and integrates that information back to the electronic inventory. this continuous electronic checkpoint system has many benefits, most critical being patient safety. With this system, fewer mistakes are made in blood-type matching, which results in better outcomes and fewer complications and infections for patients. Healthier patients have shorter hospital stays, which results in significant costs savings to the hospital. Waste is reduced by precise matching with additional savings realized 14 Hospitalsblood ManageMent:Hospitalsblood ManageMent:through the Bloodtrack suites’ efficiency, as the electronic scanning is much quicker and more accurate than the manual checks it replaces. remote allocation is another benefit of the Bloodtrack system. Bloodtrack software allows for unmatched units of blood to be ordered directly at the point of care, scanned, and distributed on an as-needed basis. this cost-effective process eliminates the practice of surgeons holding multiple units of blood for individual patients just in case they are needed, units that are often then discarded. the result is that less blood is wasted and less time is taken handling units of blood that go unused, creating considerable savings to the hospital. Finally, because Bloodtrack software efficiently and accurately tracks blood units improvemenT in acTion Puget sound Blood Center in seattle, Washington, is using our iMPaCt Program and integrated Bloodtrack system, to transfer blood units to area hospitals more efficiently. With this system, a surgeon orders blood on an as needed basis. this cost- effective process is eliminating the wasteful practice of surgeons putting multiple units of blood on hold for individual patients, units that are then often discarded. to patients, it provides a cross-check for the patient’s record, monitors the number and types of units used in a particular hospital, and provides data that can help inform both the collection practices of the blood center and the acquisition and usage trends of the hospital. this enables both facilities to improve efficiency over time. 15 Improvement In ActIon Five years ago, we were a device-oriented company. since then, we have transformed ourselves into a solutions-oriented company. We want to better understand how we can help our customers.” — Mikael Gordon President, Global Markets integrated solutions IMPACT Program data-driven consulting program to optimize hospital blood management needs. IMPACT Online Our blood management business intelligence web portal. BloodTrack Suite software and hardware that incorporates bar code technology to track blood units through the entire process from hospital inventory management to storage and transport to transfusion. Hemosafe integrated with the Bloodtrack suite, Hemosafe is a blood storage and distribution solution placed in hospitals designed to strictly monitor and record blood units as they are prescribed. TEG 5000 the most complete Hemostatis Management system. Cell Salvage suite of blood salvage solutions designed to meet all pre-, inter-, and post-operation needs. 16 HospitalsHospitalsblood ManageMent:blood ManageMent:Blood management rea lizi ng a viSion in fiscal year 2011, haemoneTics realized its vision to transform blood management by creating a complete link between blood donor and patient. leveraging powerful, integrated hardware and software tools along with expert consulting and data-driven analysis, Haemonetics provides solutions that enable blood collection centers, plasma collection centers, and hospitals to acquire and manage blood and blood components more effectively resulting in increased patient safety and reduced costs. and This is only The beginning. Haemonetics’ growth and expansion over the past five years from a dedicated device company into a comprehensive blood management solutions company provides the foundation for unlimited growth potential for the future. With demand expanding across asia and in europe, Haemonetics’ proven success will have great appeal. in fiscal year 2011, 53.1% of consolidated net revenues were generated through sales to non-u.s. customers. With improved health care becoming accessible to more people throughout eastern europe, China, russia and other emerging markets the need for blood products is also rising and Haemonetics is responding to these blood management needs. Haemonetics has a vision to be the global leader in blood management solutions. We are realizing that vision with our customers every day. 17 Haemonetics has always aspired to act in the best interests of our customers, employees, shareholders, and communities. as the global leader in blood management solutions, our mission is to enhance the quality of patient care while reducing costs and preserving one of our most precious, natural resources, blood. in alignment with our mission, our culture is one of continuous improvement, quality leadership, and ethical behavior. in essence, corporate social responsibility is already embedded in our mission and our culture. corporate Social reSponSi bility governance and eThics global giving Haemonetics is committed to operating to the highest standards of corporate governance and ethics. We routinely review our governance practices against our peers and other publicly traded companies. Our efforts have taken hold. as shareholders look to “safe haven” companies in which to invest in these volatile markets, Haemonetics gets high marks for governance. While governance metrics are mostly qualitative, shareholders rate governance highly when deciding whether to invest in a company. Corporate philanthropy has been a part of Haemonetics’ business philosophy for years. in 2007, the Company formalized its global giving program with the launch of the Haemonetics’ Charitable Fund. during 2010, a committee consisting of a cross-section of employees from multiple countries and functions coordinated charitable activities on a global basis. Haemonetics’ Charitable Fund is strategically focused on healthcare interests and groups serving the communities where we have offices. We’ve also continued our longstanding program of making matching contributions to employees’ charitable contributions including a recent outpouring of support to Japanese colleagues and customers following the natural disasters. 18 environmenT employee relaTions at Haemonetics we believe that finding ways to conserve resources isn’t just good for the environment, it’s good business. in addition to incorporating mainstream “green” initiatives into our operations, we are committed to investing time and effort into areas where, over time, we can make a meaningful contribution. Our efforts to improve our environment often deliver added benefits: they reduce costs and improve quality. With people as one of our core assets, Haemonetics is committed to providing a safe, respectful work environment that fosters growth. We are a global company that embraces diversity and recognizes the unique strengths of every employee. We were an early adopter of non-traditional work arrangements like telecommuting and job sharing, and our corporate headquarters has an on-site child care program. 19 board of direcTors lawrence Best Chairman, OXO Capital LLC Formerly Executive Vice President and Chief Financial Officer, Boston Scientific Paul Black Formerly Chief Operating Officer, Cerner Corporation Brian Concannon President and Chief Executive Officer, Haemonetics susan Bartlett Foote Retired Professor, University of Minnesota ronald gelbman Formerly Member of Executive Committee and Worldwide Chairman of the Health Systems and Diagnostics Group, Johnson & Johnson Pedro granadillo Formerly Senior Vice President, Eli Lilly Mark kroll, Ph.d. Formerly Senior Vice President and Chief Technology Officer of the Cardiac Rhythm Management Division, St. Jude Medical, Inc. ronald Merriman Formerly Vice Chairman, KPMG richard Meelia Chairman, President and CEO, Covidien Healthcare leaderShip operaTing commiTTee Peter allen Chief Marketing Officer Phillip Brancazio VP, Global Manufacturing remi Corlin President, Asia Pacific Joseph Forish VP, Human Resources Mikael gordon President, Global Markets lionel Hadjadjeba VP and General Manager ELA Distribution susan Hanlon VP, Finance keiko Hattori President, Japan Michael kelly President, North America and Global Plasma Business Christopher lindop CFO and VP, Business Development tom Marcinek President, Haemonetics Software Solutions Warren nighan VP, Worldwide Quality and Regulatory Affairs James O’shaughnessy General Counsel and Chief Compliance Officer stephen swenson VP and General Manager, Global Plasma Business Jonathan White VP, Global Research and Development 20 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 2, 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) 400 Wood Road, Braintree, Massachusetts 02184-9114 (Address of principal executive offices) 04-2882273 (I.R.S. Employer Identification No.) (781) 848-7100 (Registrant’s telephone number) Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) (Name of Exchange on Which Registered) Common stock, $.01 par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¥ No n Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes n No ¥ 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 ¥ No n 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 ¥ No n Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. ¥ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¥ Accelerated filer n Smaller reporting company n Non-accelerated filer n (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes n No ¥ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for these purposes that all executive officers and directors are “affiliates” of the registrant) as of October 2, 2010, the last business day of the registrant’s most recently completed second fiscal quarter was $1,355,592,693 (based on the closing sale price of the registrant’s common stock on that date as reported on the New York Stock Exchange). The number of shares of $.01 par value common stock outstanding as of April 30, 2011 was 25,681,603. Portions of the definitive proxy statement for our Annual Meeting of Shareholders to be held on July 21, 2011 are incorporated by reference in Part III of this report. Documents Incorporated By Reference TABLE OF CONTENTS Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A) General History of the Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (B) Financial Information about Industry Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C) Narrative Description of the Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (D) Financial Information about Foreign and Domestic Operations and Export Sales . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Item 4. (Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Item 9. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A. Control and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page Number 1 1 1 1 13 13 16 16 17 18 20 22 23 46 48 86 86 88 Item 1. Business (A) General History of the Business Haemonetics was founded in 1971 as a medical device company — a pioneer and market leader in developing and manufacturing automated blood component collection devices and surgical blood salvage devices. In 1983, we were acquired by American Hospital Supply Corporation (“AHS”), which was then acquired by Baxter Travenol Laboratories, Inc. (“Baxter”). In December 1985, a group of investors, which included Haemonetics employees, purchased the Company from Baxter. In May 1991, we completed an initial public offering and to this day remain an independent company with products and services marketed in more than 80 countries around the world. Haemonetics devices help ensure a safe and adequate blood supply and assist blood centers and hospitals in their efforts to operate efficiently and in compliance with regulatory requirements. Our customers are blood and plasma collectors, hospitals and health care providers globally. Several years ago, we recognized that devices were not enough. Our customers told us of the varied challenges they were facing. Collection centers needed to attract more donors. Hospitals needed to manage blood more efficiently and effectively. At Haemonetics, we understood immediately that we needed to transform our business to serve these needs. We altered our mission from providing blood collection and salvage devices to delivering blood management solutions. We looked at every step in the process, from what factors attract people to donate to how blood is tracked until it is transfused into a patient. We recognized that our customers needed solutions that helped them run their business more efficiently and that improved donor satisfaction on one end, and patient outcomes on the other. We embarked on a strategy to expand our markets and product portfolio to offer more comprehensive blood management solutions to our customers. Through internal product development and external acquisi- tions, we have significantly expanded our product offerings. We now offer devices and related consumables, information technology software platforms, and consulting services. By better understanding our customers’ needs, we are creating comprehensive blood management solutions for blood collectors and healthcare systems around the world. (B) Financial Information about Industry Segments We report revenues for multiple product lines under four global product categories: plasma, blood center, hospital, and software solutions. “Plasma” markets plasma collection devices and consumables. “Blood center” markets blood collection and processing devices and consumables. “Hospital” markets surgical blood salvage and blood demand diagnostic devices and consumables, and blood distribution systems. The “software solutions” product category consists of information technology platforms and consulting services. Although we address our customer constituents through multiple product lines, we manage our business as one operating segment: the design, manufacture, implementation, support and marketing of blood manage- ment solutions. Our chief operating decision-maker uses consolidated financial results to make operating and strategic decisions. Design and manufacturing processes, as well as economic characteristics and the regulatory environment in which we operate, are largely the same for all product lines. The financial information required for the business segment is included herein in Note 15 of the financial statements, entitled Segment, Geographic and Customer Information. (C) Narrative Description of the Business (i) Products and Solutions Haemonetics is committed to helping our customers create and maintain a safe and efficient blood supply chain. Blood and its components have several vital — frequently life-saving — clinical applications. Plasma is manufactured into pharmaceuticals to treat a variety of illnesses and hereditary disorders such as hemophilia; 1 red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant; and platelets treat cancer patients undergoing chemotherapy. Specifically, we develop and market a wide range of systems used with plasma and blood donors to automate the collection and processing of blood into its components: plasma, platelets, and red cells. We also develop and market a variety of systems to hospitals that automate the cleaning and reinfusion of a surgical patient’s blood during surgery, automate the tracking and distribution of blood in the hospital, and enhance blood diagnostics. We also market information technology platforms to promote efficient and compliant operations for all of our customer groups. Finally, we market consulting services to reduce costs and improve operating efficiencies in blood management. PLASMA CATEGORY OF PRODUCTS AND SOLUTIONS The Plasma Collection Market for Fractionation Human plasma is collected and processed by pharmaceutical companies into therapeutic and diagnostic products that aid in the treatment of immune diseases and coagulation disorders. Plasma is also used to aid patients with extreme blood loss such as trauma victims. Automated plasma collection technology allows for the safe and efficient collection of plasma. There are approximately 22 million liters of plasma obtained from automated collections worldwide annually. We market plasma collection devices, but do not make plasma- derived pharmaceuticals. Many bio-pharmaceutical companies are vertically integrated in all components of their business and thus are now collecting and fractionating the plasma required to manufacture their pharmaceuticals. This vertical integration paved the way for highly efficient plasma supply chain management and the plasma industry leverages information technology to manage operations from the point of plasma donation to fractionation to the production of the final product. Automated Plasma Collection Systems PCS (reported as “plasma” product line) Until Haemonetics introduced automated plasma collection technology in the 1980s, plasma for fraction- ation was collected manually. Manual collection was time-consuming, labor-intensive, produced relatively poor yields, and posed risk to donors. Today, the vast majority of plasma collections worldwide are performed using automated collection technology because it is safer and cost-effective. With PCS brand automated collection technology, more plasma can be collected during any one donation event because the other blood components are returned to the donor through sterile disposable sets used for the blood donation procedure. Haemonetics offers “one stop shopping” to our plasma collection customers, enabling them to source from us the full range of products necessary for their plasma collection operations. We offer consulting services that help our customers develop business solutions to support process excellence, donor recruitment, and business design. To implement those solutions, we offer a full range of products, including PCS brand plasma collection equipment and consumables, plasma collection containers, intravenous solutions, and tubing sealers necessary for plasma collection and storage. We market a protocol for our PCS system that shortens the donation process which allows our customers to improve the efficiency of their collections. We also offer a robust portfolio of integrated information technology platforms for plasma customers to manage their donors, operations, and supply chain. eQue» Automated Interview and Assessment automates the donor interview and qualification process. eLynx» Workflow Optimization streamlines the workflow process in the plasma center. Donor Management System (DMS) provides plasma collection centers with the controls necessary to continually assess and evaluate donor suitability, determine the release-ability of units collected, and manage unit distribution. With our information technology platforms, plasma collectors are better able to manage processes across the plasma supply chain, react quickly to business changes, and identify opportunities to reduce costs. 2 BLOOD CENTER CATEGORY OF PRODUCTS AND SOLUTIONS The Blood Collection Market for Transfusion There are millions of blood donations throughout the world every year that produce blood products for transfusion to surgical, trauma, or chronically ill patients. In the U.S. alone, approximately 15 million units of blood are collected each year. Patients typically receive only blood components necessary to treat a particular clinical condition: for example, red cells to surgical patients, platelets to cancer patients, and plasma to trauma victims. Platelet therapy is frequently used to alleviate the effects of bone marrow suppression, a condition in which bone marrow is unable to produce a sufficient quantity of platelets. Bone marrow suppression is most commonly a side effect of chemotherapy. Platelet therapy is also used for patients with bleeding disorders. Physicians who prescribe platelet therapy will commonly turn to “single donor” platelet products (i.e., enough platelets collected from one donor, during an automated collection, to constitute a transfusible dose) to minimize a patient’s exposure to multiple donors and possible blood-borne diseases. Red cells are frequently transfused to patients to replace blood lost during surgery. Red cells are also transfused to patients with blood disorders, such as sickle cell anemia or aplastic anemia. Plasma, in addition to its role in creating life saving pharmaceuticals, is frequently transfused to trauma victims and to replace blood volume lost during surgery. Worldwide demand for blood is expected to continue to rise modestly as the population ages and more patients have need for and access to medical therapies that require blood transfusions. Furthermore, highly populated emerging markets countries are advancing their healthcare coverage and as greater numbers of people gain access to more advanced medical treatment, additional demand for blood components, plasma- derived drugs and surgical procedures increases directly. This increasing demand for blood is partially offset by the development of less invasive, lower blood loss procedures. Recently, the economy has also had an effect on the demand for blood, as fewer surgeries are performed. We expect the worldwide market for blood components to return to growing modestly in the low single digits. Most donations worldwide are non-automated procedures (also referred to as manual or whole blood donations). In this process, whole blood is collected from the donor and then transported to a central laboratory where it is separated into its constituent parts: red cells, platelets and plasma. Haemonetics has a multi-year strategy to enter the whole blood market with new and differentiated solutions, including an automated whole blood collector. We don’t meaningfully participate in this market today, as we don’t offer collection kits. We do offer blood centers integrated information technology solutions that allow blood centers to effectively manage their operations. Haemonetics is a leader in automated blood collections. While this share of the market is smaller, we believe that today it is a more effective way of collecting and distributing blood products. In this procedure, whole blood does not need to be transferred to a central laboratory for separation. Instead, the blood separation process is automated and occurs in “real-time” while a person is donating blood. In this separation method, only the specific blood component targeted is collected, and the remaining components are returned to the blood donor. Automated blood component collection allows significantly more of the targeted blood component to be collected during a donation event. We believe automation improves blood collection safety and efficiency, as well as regulatory compliance. In the U.S., automated collection systems annually collect more than 1.6 million red cell units and approximately 1.8 million platelet units (called “single donor” platelets). In many countries, blood collection is controlled by a single, usually governmental, organization. However, the United States does not have a single centralized blood collection system. While the American Red Cross collects about 40% of the nation’s blood, the remainder of the U.S. blood supply is procured from more than 100 other blood collection agencies. In addition, blood demand comes from over 4,000 hospitals throughout the United States. This decentralization of blood collection and the significant number of hospitals using blood makes it difficult to predict blood demand, adequately supply the right blood components, and effectively manage the blood supply chain. 3 Integrated information technology and blood management systems like the kind offered by Haemonetics are beginning to have an impact on the management of blood collection centers as blood collectors respond to demands for efficient blood supply chain management, seek to lower costs, and respond to ever-increasing regulatory restrictions. Haemonetics’ Automated Blood Collection Systems (reported as “blood center” product line) We market the MCS» brand apheresis system which collects specific blood components and returns to the donor the unwanted components. The MCS system, as an automated platelet collection system, collects one or more therapeutic “doses” of platelets during a single donation by a volunteer blood donor. As noted above, platelets derived from a non- automated donation of whole blood (also called a manual collection) must be “pooled” together with platelets from 4-7 other donor’s platelets to make a single therapeutically useful dose because platelets are a very small portion of whole blood volume. Our MCS brand system can also help blood collectors optimize the collection of red cells by automating the blood separation function, eliminating the need for laboratory processing, enabling the collection of two transfusible doses of red cells from a single donor thus minimizing red cell shortages. We call this our two-unit protocol or double red cell collection. In addition to the two-unit protocol, blood collectors can use the MCS brand system to collect either one unit of red cells and a “jumbo” (double) unit of plasma or one unit of red cells and one unit of platelets from a single donor, or they may leukoreduce the two-unit red cell collections. Leukoreduction is the removal of potentially harmful white blood cells from the collected red cells to prevent or mitigate adverse reactions by the patient who receives the product. Leukoreduction has been adopted in many countries worldwide and an estimated 80% of all red cells in the U.S. are now leukoreduced. Another Haemonetics system that is helping manage the supply of red cells is the ACP» 215 automated cell processing system, which allows blood collectors and hospitals to freeze and thaw red cells in order to maintain a frozen blood reserve. Red cells can be stored in a refrigerator for up to 42 days and can be stored frozen for up to 10 years. Blood reserves are often maintained to enable a hospital to respond adequately to large-scale emergencies where many people contemporaneously require blood transfusions or to treat patients who require transfusions of very rare blood types. Our blood processing systems can also remove plasma from red cells for patients who need specially treated blood. Better balancing of demand with supply will also mitigate shortages. Our information technology platforms span blood center operations and automate and track operations from the recruitment of the blood donor to the disposition of the blood product. The eDonorTM platform is a web based product that manages donor recruitment and retention. The Hemasphere» platform supports our customers’ key partners — organiza- tions running blood drives — to manage the mobile blood drive process. Our Donor Doc software automates the interview and assessment process prior to a person donating. The eLynx» software optimizes the workflow processes in the donor center. SafeTrace» and the new El Dorado Donor» products are donation and blood unit management systems. The SurroundTM software supports laboratory testing management. We also offer products developed for the European market: SapanetTM, a software suite designed for workflow management and quality control in blood centers and laboratories; and EdgebloodTM and EdgeTrack, integrated software applications that manage activities of a transfusion center from blood donations to traceability of patient transfusions. Combined, these platforms help blood collectors to improve safety, regulatory compliance, and efficiency and to manage processes across the blood supply chain. Haemonetics offers consulting services that leverage our experience in blood banking, lean manufacturing, and Six Sigma to recommend new approaches to business process excellence. Our internal use of business practice improvement tools spawned requests from our U.S. customer base to seek our training of their selected staff with the intent to develop expertise in problem solving and solution creation skills. Our consulting services address donor recruitment, operations, blood collection, quality control, and more. 4 HOSPITAL CATEGORY OF PRODUCTS AND SOLUTIONS The Transfusion Market for Hospitals Loss of blood is common in open heart, trauma, transplant, vascular, and orthopedic procedures, and the need for transfusion of oxygen-carrying red cells to make up for lost blood volume is routine. Prior to the introduction of our technology, patients were exclusively transfused with blood from volunteer donors. Donor blood (also referred to as “allogeneic blood”) carries various potential risks including (1) risk of transfusion with the wrong blood type (the most common cause of transfusion-related death), (2) risk of transfusion reactions including death, but more commonly chills, fevers or other side effects that can prolong a patient’s recovery, and (3) risk of transfusion of blood with a blood-borne disease or infectious agent. As a result of numerous blood safety initiatives, today’s blood transfusions are extremely safe, especially in developed and resourced health care systems. However, transfusions are not risk free. Surgical blood salvage (also known as autotransfusion) reduces or eliminates a patient’s need for blood donated from others and ensures that the patient receives the safest blood possible — his or her own. Surgical blood salvage involves the collection of a patient’s own blood during and after surgery, for reinfusion to that patient. In surgical blood salvage, blood is suctioned from a wound site, processed and washed through a centrifuge-based system which yields concentrated red cells available for transfusion back to the patient. This process occurs in a sterile, closed-circuit, single-use consumable set which is fitted into an electromechanical device. We market our surgical blood salvage products to hospital-based medical specialists, primarily cardiovascular, orthopedic, and trauma surgeons, or to surgical suite service providers. Information technology has become increasingly important in hospital management as administrators strive to provide the best patient care at optimal costs. Despite this trend, there are limited platforms which help hospitals assess and improve blood management practices, track blood within their own hospital systems, or manage the costs of blood. Likewise, there are limited platforms to help hospitals predict demand for their blood suppliers, the blood collection agencies, and link the blood supply chain from donor to patient. As regulations continue to increase and as hospitals struggle with increasing costs, we believe information technology for blood supply chain management will play an important role in hospital administration. Haemonetics’ Hospital Solutions Over the last few years, hospitals have become more aware of their need to control costs and improve patient safety by managing blood more effectively. Our consulting services, products, and integrated technol- ogy platforms help hospitals optimize performance on blood acquisition, storage, and distribution. Our TEG» Thromobelastograph Hemostasis Analyzer is a blood diagnostic instrument which measures a patient’s hemostasis or the ability to form and maintain blood clots. By understanding a patient’s clotting ability, clinicians can better plan for the patient’s care, deciding in advance whether to start or discontinue use of certain drugs or, if a transfusion is likely, whether to use donated blood or surgical blood salvage. Such planning supports the best possible clinical outcome, which can lead to lower hospital costs through reduced adverse transfusion reactions, shorter intensive care unit and hospital stays, and exploratory surgeries. The TEG system is comprised of an electromechanical device, single use containers and reagents. Clinicians may decide to use surgical blood salvage as an alternative to transfusion of donor blood. Our surgical blood salvage systems allow for the recovery, segregation and washing of red cells from blood lost by a patient during or after surgery. These red cells are then available to transfuse back to the patient if needed. The Cell Saver» brand system is a surgical blood salvage system targeted to procedures that involve rapid, high volume blood loss, such as cardiovascular surgeries. It has become the standard of care for high blood- loss surgeries. The newer cardioPAT» brand system is a surgical blood salvage system targeted to open heart surgeries when there is less blood loss at surgery, but where the blood loss continues post-surgery. The system is designed to remain with the patient following surgery, to recover blood and produce a washed red cell product for autotransfusion. We have introduced the Quick-Connect feature for the cardioPAT system, which permits customers to utilize the processing set selectively, depending on the patient’s need. 5 The OrthoPAT» surgical blood salvage system is targeted to procedures, such as orthopedic, that involve slower, lower volume blood loss that often occurs well after surgery. The system is designed to operate both during and after surgery to recover and wash the patient’s red cells to prepare them for reinfusion. We have introduced the Quick-Connect feature for the OrthoPAT system, which permits customers to utilize the processing set selectively, depending on the patient’s need. Also included in our hospital product line is the SmartSuction» product. This product is an advanced suction system for removal of blood and debris from the surgical field. The system is used in conjunction with surgical blood salvage. Our software products help hospitals track and safely deliver stored blood products. SafeTrace TX, a software product which manages blood product inventory, performs patient cross-matching and manages transfusion. In addition, our BloodTrack» suite of solutions manages control of blood products from the hospital blood center through to the transfusion to the patient. “Smart” refrigerators located in operating suites, emergency rooms, and other parts of the hospital dispense blood units with just-in-time control and automated tracking for efficient documentation. With our more robust offerings, hospitals are better able to manage processes across the blood supply chain and identify increased opportunities to reduce costs and enhance processes. Our IMPACTTM Online web-based software platform, which monitors and measures improvements in a hospital’s blood management practices, provides hospitals with a baseline view of their blood management metrics and helps monitor transfusion rates. If needed by a customer, we also offer business consulting solutions to support process excellence, donor recruitment, business design, and blood management efforts. We also provide blood management assessment tools to hospitals that enable our customers to monitor their progress in order to continually improve their performance. Software Solutions Enhancing the power of our products are the integrated software solutions that track and monitor blood units along all points in the supply chain, , including blood drive and donor management, blood processing, blood distribution, and transfusion management. For our plasma customers, we also provide information technology platforms for managing administrative functions and distribution at plasma fractionation facilities. While each Haemonetics information technology platform can be used as a “stand-alone,” the mission to provide ‘arm to arm’ blood management solutions is executed by the integration of these platforms. What’s more, the ability to evaluate data based on the integration of these systems allows customers to continually improve their systems. These systems provide the backbone of Haemonetics overall commitment to improving blood management systems nationally and globally. Through our services group, we offer business consulting solutions to support process excellence, donor recruitment, business design, and blood management efforts. We also provide blood management assessment tools to hospitals. When combining our software solutions with our devices, we meet our goal to give customers powerful tools for improving blood management while driving growth of our consumables. For example, a hospital may use our consulting services to analyze its blood management practices and recommend changes in practice. Then, the hospital can leverage our devices to predict blood demand, manage blood inventory, and reduce demand for donated blood. Finally, the hospital can use our IMPACTTM Online blood management business intelligence portal to monitor the results of its new practices. The positive patient impact and reduced costs from this integrated blood management approach can be significant. Likewise, by understanding best practices, blood demand, and discreet patient needs, hospitals can more frequently deploy our devices to ensure best patient care. Each of our products, platforms, and services can be marketed individually. However, as our blood management solutions vision is to offer integrated closed loop solutions for blood supply chain management, our software solutions — that is, information technology platforms and consulting services — can be integrated with the devices and sold through our plasma, blood center, and hospital sales forces. 6 Our integrated product portfolios are as follows: Plasma Products Blood Center Products Hospital Products Information Management — eQueTM Automated donor interview system and database — eLynx» Donor workflow optimization software — DMS Blood component collection donor management — CaPS Secure plasma donor payment systems — Business dashboards Devices/consumables — PCS» Portable plasma collection and processing system — ExpressTM Plasma collection software enhancement — SEBRA» shakers — SEBRA» sealers Consulting Services — Six Sigma — Lean manufacturing — Business solutions — Donor DocTM Automated donor interview system and database — eDonor» Blood donor scheduling software and services — Hemasphere» Blood center process management software — SafeTrace» Blood donor information management system — eLynx platform — SapanetTM Laboratory quality management system — IMPACTTM Business consulting, advisory services — EdgebloodTM Transfusion traceability management system — SurroundTM Intelligent laboratory management software — El Dorado Donor» Blood collection center management software — MCS» Mobile collection system — Cymbal» Automated blood collection system — ACP» Automated cell processing system — SEBRA shakers — SEBRA sealers — Six Sigma — Lean manufacturing — Donor recruitment — Automation NationTM Consulting services for blood collectors — Collection optimization software validation — SafeTrace TX» Transfusion management system and software — BloodTrack ManagerTM Repository for blood unit movement records — BloodTrack» Enquiry — BloodTrack» Advisor — IMPACTTM Online — EdgecellTM Tissue, organ and cell bank management system — EdgelabTM Laboratory management system for hospitals — Cell Saver» Autologous blood recovery system — OrthoPAT» Peri-and post-operative blood salvage system — cardioPAT» Blood salvage for cardiovascular surgeries — SmartSuction» Surgical suite blood loss management system — TEG» Computerized blood testing and analyzing device — BloodTrack» Blood and transfusion management software — Six Sigma — Lean manufacturing — Blood use optimization software validation (ii) Revenue Detail We discuss our revenues using the following categories: (cid:129) Disposables (also referred to as consumables, these revenues include the sale of single-use collection sets for blood component collection and processing and surgical blood salvage, plus the fees for the use of our equipment); 7 (cid:129) Software solutions (software sales and consulting services), including Haemonetics software solutions business; and (cid:129) Equipment & other (includes the sale of devices, repairs performed under preventive maintenance contracts or emergency service visits, spare parts sales, and various service and training programs). During fiscal year 2011, net revenues increased 4.8% over fiscal year 2010. Excluding the effect of the extra week in fiscal year 2010, net revenues for fiscal year 2011 increased 6.7%. Sales of disposable products accounted for approximately 81.5% of net revenues in fiscal year 2011 and 86.0% of net revenues in fiscal year 2010. Sales of our disposable products were 0.6% lower in fiscal year 2011 than in fiscal year 2010, which were 8.4% higher than in fiscal 2009. Without the effects of foreign exchange, which increased 0.1% and 2.4% during fiscal year 2011 and 2010, respectively, disposable net revenues decreased 0.7% and increased 6.0% during fiscal year 2011 and 2010, respectively. The decrease in fiscal year 2011 is due to reduced collections resulting from slowed growth in plasma, as well as a reduced demand for automated red cell collection and surgical disposable products driven by both competitive pressures and market conditions resulting in fewer surgeries. This decrease was offset by continued strong sales in our emerging markets for platelets and increased revenue resulting from new adoption and continued penetration of our diagnostic product line. These increases to disposable net revenue were primary drivers for the increase during 2010. Software solutions accounted for approximately 9.9% and 5.6% of net revenues in fiscal year 2011 and 2010, respectively. The software solutions increase during fiscal year 2011 was driven primarily by software services revenues associated with the acquisition of Global Med, which occurred on March 31, 2010. Sales of equipment & other accounted for approximately 8.6% of net revenues in fiscal year 2011 and approximately 8.4% of net revenues in fiscal year 2010. The increase in equipment revenue during fiscal year 2011 was driven by acquisition related growth from the SEBRA products, which we acquired in September 2009, and growth in our emerging markets. Irrespective of the increases noted, equipment sales continue to be adversely impacted by restricted hospital capital spending and macro economic trends impacting health care funding across most of our markets. (iii) Marketing/Sales/Distribution We market and sell our products to commercial plasma collectors, blood systems and independent blood centers, hospitals and hospital service providers, and national health organizations through our own direct sales force (including full-time sales representatives and clinical specialists) as well as independent distributors. Sales representatives target the primary decision-makers within each of those organizations. In fiscal year 2011, for the eleventh consecutive year, we received the Omega NorthFace ScoreBoard Award for exemplary service to customers. This award is presented to the highest-ranked organizations based on customer ratings of performance against customer expectations in areas such as phone support, on-site operations, technical services, and training. (iv) United States In fiscal year 2011 and 2010, approximately 46.9% and 47.1%, respectively, of consolidated net revenues were generated in the U.S., where we primarily use a direct sales force to sell our products. (v) Outside the United States In fiscal year 2011 and 2010, approximately 53.1% and 52.9%, respectively, of consolidated net revenues were generated through sales to non-U.S. customers. Our direct sales force in Europe and Asia includes full- time sales representatives and clinical specialists based in the United Kingdom, Germany, France, Sweden, the Netherlands, Italy, Austria, Hong Kong, Canada, Japan, Switzerland, Czech Republic, China, Taiwan, and Belgium. We also use various distributors to market our products in Russia, South America, the Middle East, 8 Africa, and the Far East. Additionally, we have established offices with marketing personnel who work with our distributors in Russia, Lebanon, India and Brazil. (vi) Research, Development and Engineering Our research, development and engineering (“RD&E”) centers in the United States and Switzerland ensure that protocol variations are incorporated to closely match local customer requirements. Resulting from the integration of our Global Med Technologies, Inc. acquisition, our Haemonetics Software Solutions operates at El Dorado Hills, California, USA, Global Med’s headquarters, and Limonest, France. In addition, our Haemonetics Software Solutions also maintains development operations in Edmonton, Alberta, Canada. Customer collaboration is also an important part of our technical strength and competitive advantage. These collaboration customers and transfusion experts provide us with ideas for new products and applications, enhanced protocols, and potential test sites as well as objective evaluations and expert opinions regarding technical and performance issues. The development of blood component separation products and extracorporeal blood typing and screening systems has required us to maintain technical expertise in various engineering disciplines, including mechan- ical, electrical, software, and biomedical engineering and material science. Innovations resulting from these various engineering efforts enable us to develop systems that are faster, smaller, and more user-friendly, or that incorporate additional features important to our customer base. Our expenditures for RD&E were $32.7 million for fiscal year 2011 (4.8% of net revenues) and $26.4 million for fiscal year 2010 (4.1% of net revenues). With the exception of the capitalization of software development costs (see Note 17), all RD&E costs are expensed as incurred. We expect to continue to invest resources in RD&E. In fiscal year 2011, RD&E resources were allocated to supporting a next generation surgical blood salvage device, an automated whole blood collection system, and several other projects to enhance our current product portfolio. We also continued to invest in research into nanotechnology applications in the blood typing and screening field. (vii) Manufacturing Our principal manufacturing operations (equipment, disposables, and solutions) are located in Braintree, Massachusetts; Leetsdale, Pennsylvania; Union, South Carolina; Bothwell, Scotland; Niles, Illinois; Signy, Switzerland; and Draper, Utah. In general, our production activities occur in controlled settings or “clean room” environments. Each step of the manufacturing and assembly process is quality checked, qualified, and validated. Critical process steps and materials are documented to ensure that every unit is produced consistently and meets performance requirements. Plastics are the principal component of our disposable products. Contracts with our suppliers help mitigate some of the short-term effects of price volatility in this market. However, increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. Some component sets manufacturing is performed by outside contractors according to our specifications. We maintain important relationships with two Japanese manufacturers that produce finished consumables in Singapore, Japan, and Thailand. Certain parts and components are purchased from various single sources. If necessary, we believe that, in most cases, alternative sources of supply could be identified and developed within a relatively short period of time. Nevertheless, an interruption in supply could temporarily interfere with production schedules and affect our operations. All of our other equipment and disposable manufacturing sites are certified to the ISO 13485 standard and to the Medical Device Directive allowing placement of the CE mark of conformity. Each blood processing machine is designed in-house and assembled from components that are either manufactured by us or by others to our specifications. The completed instruments are programmed, calibrated, 9 and tested to ensure compliance with our engineering and quality assurance specifications. Inspection checks are conducted throughout the manufacturing process to verify proper assembly and functionality. When mechanical and electronic components are sourced from outside vendors, those vendors must meet detailed qualification and process control requirements. (viii) Intellectual Property We consider our intellectual property rights to be important to our business. We rely on patent, trademark, copyright, and trade secret laws, as well as provisions in our agreements with third parties to protect our intellectual property rights. We hold patents in the United States and many international jurisdictions on some of our machines, processes, disposables and related technologies. These patents cover certain elements of our systems, including protocols employed in our equipment and certain aspects of our processing chambers and disposables. Our patents may cover current products, products in markets we plan to enter, or products in markets we plan to license, or the patents may be defensive in that they are directed to technologies not currently embodied in our current products. We also license patent rights from third parties that cover technologies that we use or plan to use in our business. To maintain our competitive position, we rely on the technical expertise and know-how of our personnel and on our patent rights. We pursue an active and formal program of invention disclosure and patent application in both the United States and foreign jurisdictions. We own various trademarks that have been registered in the United States and certain other countries. Our policy is to obtain patent and trademark rights in the U.S. and foreign countries where such rights are available and we believe it is commercially advantageous to do so. However, the standards for international protection of intellectual property vary widely. We cannot assure that pending patent and trademark applications will result in issued patents and registered trademarks, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that our patents will not be found to be invalid. (ix) Competition We created most of our technologies and have established a record of innovation and market leadership in each of the areas in which we compete. Although we compete directly with others, no other company offers the complete range of integrated solutions designed to meet customers’ needs across the entire blood supply chain. To remain competitive, we must continue to develop and acquire cost-effective new products, information technology platforms, and business services. We believe that our ability to maintain a competitive advantage will continue to depend on a combination of factors. Some factors are largely within our control such as reputation, regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product quality, safety and cost effectiveness and continual and rigorous documentation of clinical perfor- mance. Other factors are outside of our control, including regulatory standards, medical standards and the practice of medicine. In the automated plasma collection market, we principally compete with Fenwal, Inc. on the basis of quality, ease of use, services and technical features of systems, and on the long-term cost-effectiveness of equipment and disposables. Fenwal, Inc. is an independent company founded in March 2007 when Texas Pacific Group and Maverick Capital acquired the Transfusion Therapies division of Baxter Healthcare Group. In China, the market is populated by local producers of a product that is intended to be similar to ours. Recently, those competitors have expanded to markets beyond China, including Russia, Cuba, and Iran. In March, 2011, Terumo Medical Corporation, a local competitor company in the Japanese automated plasma and platelet collection markets, announced it would acquire Caridian BCT (formerly Gambro BCT). Caridian BCT is one of our major competitors in automated platelet collection. Another major competitor in this area is Fenwal. In the automated platelet collection business, competition is based on continual performance improvement, as measured by the time and efficiency of platelet collection and the quality of the platelets collected. Each of these companies has taken a different technological approach in designing their systems for automated platelet collection. In the platelet collection market, we also compete with whole blood collections from which pooled platelets are derived. 10 In the automated red cell collection market, we also compete against Caridian BCT and Fenwal. However, it is important to note that only about 5% of the 40 million units of red cells collected worldwide and about 10% of the 15 million units of red cells collected in the U.S. annually are collected via automation today by these three companies combined. So, we more often compete with traditional manual methods of deriving red cells by collecting and separating whole blood. We compete on the basis of total cost, process control, product quality, and inventory management. In the cell processing market, competition is based on level of automation, labor-intensiveness, and system type (open versus closed). Open systems may be weaker in good manufacturing process compliance. Moreover, blood processed through open systems has a 24 hour shelf life. We have an open system cell processor as well as a closed system cell processor which gives blood processed through it a 14 day shelf life. We compete with Caridian BCT’s open systems. Within our hospital business, in the diagnostics market, the TEG Thrombelastograph Hemostasis Analyzer is used primarily in the surgical arena. One direct competitor, Rotem, is a competitor for us in Europe and in the United States. In fiscal year 2011, Rotem received 510(k) clearance for its device and selected reagents in the U.S. Other competitive technologies include standard coagulation tests that measure various aspects of hemostasis. In the high blood loss surgical blood salvage market, competition is based on reliability, ease of use, service, support, and price. Each manufacturer’s technology is similar, and our Cell Saver competes principally with Medtronic, Fresenius, and Sorin Biomedica. Our cardioPAT system is the only washed surgical blood salvage device designed to recover red cells for transfusion where blood loss continues post operatively in heart surgery. In the orthopedic surgical blood salvage market, we compete against non-automated processing systems whose end product is an unwashed red blood cell unit for transfusion to the patient. The OrthoPAT system is the only system that washes the blood and operates perioperatively. It is designed specifically for use in orthopedic surgeries where a patient often bleeds more slowly, bleeds less, and continues to bleed long after surgery. In the software market, we compete with MAK Systems, Mediware, and “home grown” applications. These companies provide software to blood and plasma collectors and to hospitals for managing donors, collections, and blood units. None of these companies competes in other Haemonetics markets. Our technical staff is highly skilled, but many competitors have substantially greater financial resources and larger technical staffs at their disposal. There can be no assurance that competitors will not direct substantial efforts and resources toward the development and marketing of products competitive with those of Haemonetics. (x) Seasonality Net revenues have historically been higher in the second half of our fiscal year, reflecting principally the seasonal buying patterns of our customers. This has proven true in our last five fiscal years. (xi) Significant Customers The Japan Red Cross Society (JRC) represented 14.2% and 14.3% of our net revenues in fiscal year 2011 and 2010, respectively. (xii) Government Regulation The products we manufacture and market are subject to regulation by the Center of Biologics Evaluation and Research (“CBER”) and the Center of Devices and Radiological Health (“CDRH”) of the United States Food and Drug Administration (“FDA”), and other non-United States regulatory bodies. All medical devices introduced to the United States market since 1976 are required by the FDA, as a condition of marketing, to secure either a 510(k) pre-market notification clearance or an approved Pre-market 11 Approval Application (“PMA”). In the United States, software used to automate blood center operations and blood collections and to track those components through the system are considered by FDA to be medical devices, subject to 510(k) pre-market notification. Intravenous solutions (blood anticoagulants and solutions for storage of red blood cells) marketed by us for use with our automated systems requires us to obtain from CBER an approved New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”). A 510(k) pre-market clearance indicates FDA’s agreement with an applicant’s determination that the product for which clearance is sought is substantially equivalent to another legally marketed medical device. The process of obtaining a 510(k) clearance involves the submission of clinical data and supporting information. The process of obtaining NDA approval for solutions is likely to take much longer than 510(k) approvals because the FDA review process is more complicated. The FDA’s Quality System regulations set forth standards for our product design and manufacturing processes, require the maintenance of certain records and provide for inspections of our facilities. There are also certain requirements of state, local and foreign governments that must be complied with in the manufacturing and marketing of our products. We maintain customer complaint files, record all lot numbers of disposable products, and conduct periodic audits to assure compliance with FDA regulations. We place special emphasis on customer training and advise all customers that device operation should be undertaken only by qualified personnel. The FDA can ban certain medical devices; detain or seize adulterated or misbranded medical devices; order repair, replacement or refund of these devices; and require notification of health professionals and others with regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and restrain certain violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical devices, or initiate action for criminal prosecution of such violations. We are also subject to regulation in the countries outside the United States in which we market our products. The member states of the European Union (EU) have adopted the European Medical Device Directives, which create a single set of medical device regulations for all EU member countries. These regulations require companies that wish to manufacture and distribute medical devices in EU member countries to obtain CE Marking for their products. Outside of the EU, many of the regulations applicable to our products are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be registered by those countries before they can be marketed in those countries. We have complied with these regulations and have obtained such registrations. Federal, state and foreign regulations regarding the manufacture and sale of products such as ours are subject to change. We cannot predict what impact, if any, such changes might have on our business. We are also subject to various environmental, health and general safety laws, directives and regulations both in the U.S. and abroad. Our operations, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. We believe that sound environmental, health and safety performance contributes to our competitive strength while benefiting our customers, shareholders and employees. (xiii) Environmental Matters Failure to comply with international, federal and local environmental protection laws or regulations could have an adverse impact upon our business or could require material capital expenditures. We continue to monitor changes in U.S. and international environmental regulations that may present a significant risk to the business, including laws or regulations relating to the manufacture or sale of products using plastics. Action plans are developed to mitigate identified risks. (xiv) Employees As of April 2, 2011, we employed the full-time equivalent of 2,201 persons assigned to the following functional areas: manufacturing, 861; sales and marketing, 452; general and administrative, 372; research, 12 development, and engineering, 246; and quality control and field service, 270. We consider our employee relations to be satisfactory. (xv) Availability of Reports and Other Information All of our corporate governance materials, including the Principles of Corporate Governance, the Business Conduct Policy and the charters of the Audit, Compensation, and Nominating and Governance Committees are published on the Investor Relations section of our website at http://www.haemonetics.com/site/content/ investor/corp_gov.asp. On this web site the public can also access, free of charge, our annual, quarterly and current reports and other documents filed or furnished to the Securities and Exchange Commission, or SEC, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. (D) Financial Information about Foreign and Domestic Operations and Export Sales The financial information required by this item is included herein in Note 15 of the financial statements, entitled Segment, Geographic and Customer Information. Sales to the Japanese Red Cross accounted for 14.2% of net revenues in fiscal year 2011. No other customer accounted for more than 10% of our net revenues. For more information concerning significant customers, see the subheading of Note 2 of the financial statements entitled, Concentration of Credit Risk and Significant Customers. 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, the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate and such other risks described under Item 1A. Risk Factors included in this report. The foregoing list should not be construed as exhaustive. Item 1A. Risk Factors Set forth below are the risks that we believe are material to our investors. This section contains forward- looking statements. You should refer to the explanation of the qualifications and limitations on forward- looking statements beginning on page 13 and 46. If we are unable to successfully expand our product lines through internal research & development and acquisitions, our business may be materially and adversely affected. Continued growth of our business depends on our maintaining a pipeline of profitable new products and successful improvements to our existing products. This requires accurate market analysis and carefully targeted application of intellectual and financial resources toward technological innovation or acquisition of new products. The creation and adoption of technological advances is only one step. We must also efficiently develop the technology into a product which 13 confers a competitive advantage, represents a cost effective solution or provides improved clinical outcomes. The risks of missteps and set backs are an inherent part of the innovation and development processes in the medical device industry. If we are unable to successfully grow our business through marketing partnerships and acquisitions, our business may be materially and adversely affected. Promising partnerships and acquisitions may not be completed for reasons such as competition among prospective partners or buyers, our inability to reach satisfactory terms, or the need for regulatory approvals. Any acquisition that we complete may be dilutive to earnings and require that we invest significant resources. We may not be able to successfully integrate an acquired business into our existing business, make such businesses profitable, or realize anticipated market growth or cost savings. The economic environment may constrain our ability to access the capital needed for acquisitions and other capital investments. As a medical device manufacturer we are subject to a number of laws and regulations. Non-compliance with those laws or regulations could adversely affect our financial condition and results of operations. The manufacture, distribution and marketing of our products are subject to regulation by the FDA and other non-United States regulatory bodies. We must obtain specific regulatory clearance prior to selling any new product or service, a process which is costly and time consuming. Our operations are also subject to continuous review and monitoring by the FDA and other regulatory authorities. Failure to substantially comply with applicable regulations could subject our products to recall or seizure by government authorities, or an order to suspend manufacturing activities. As well, if our products were determined to have design or manufacturing flaws, this could result in their recall or seizure. Either of these situations could also result in the imposition of fines. As a majority of our revenue comes from outside the United States, we are subject to export and import restrictions, local regulatory authorities and the laws and medical practices in foreign jurisdictions. Export of U.S. technology or goods manufactured in the United States to some jurisdictions requires special U.S. export authorization or local market controls that may be influenced by factors, including political dynamics, outside our control. Regulations relating to the use of certain materials in the manufacture of our products could also require us to convert our production to alternate material(s), which may be more costly or less effective. Many of our competitors have significantly greater financial and other resources. Their greater financial resources may allow them to more rapidly develop new technologies and more quickly address changes in customer requirements. Although no one company competes with us across our full line of products, we face competition in each of our product lines. Our ability to remain competitive depends on a combination of factors. Certain factors are within our control such as reputation, regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product quality, safety, cost effectiveness and continued rigorous documentation of clinical performance. Other factors are outside of our control such as regulatory standards, medical standards, reimbursement policies and practices, and the practice of medicine. Loss of a significant customer could adversely affect our business. The Japan Red Cross Society (JRC) is a significant customer that represented 14.2% of our revenues in fiscal year 2011. Because of the size of this relationship we could experience a significant reduction in revenue if the JRC decided to significantly reduce its purchases from us for any reason including a desire to rebalance its purchases between vendors, or if we are unable to obtain and maintain necessary regulatory approvals in Japan. We also have a concentration of credit risk due to our outstanding accounts receivable balances with the JRC. Additionally, certain other markets and industries can expose us to concentration risk. For example, in our commercial plasma business, customers are relatively large in size. Because of the size of the relationship, we could experience a significant reduction in revenue if one or more customers did not renew their contracts. As a global corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations. substantial portion of our operations and we intend to continue expanding our presence in international International revenues and expenses account for a 14 markets. In fiscal year 2011, our international revenues accounted for 53.1% of our total revenues. The exposure to fluctuations in currency exchange rates takes different forms. Reported revenues for sales, as well as manufacturing and operational costs, denominated in foreign currencies by our international businesses, when translated into U.S. dollars for financial reporting purposes, fluctuate due to exchange rate movement. Fluctuations in exchange rates could adversely affect our profitability in U.S. dollars of products and services sold by us into international markets, where payment for our products and services and related manufacturing and operational costs is made in local currencies. We are subject to the risks associated with communicable diseases. A significant outbreak of a disease could reduce the demand for our products and affect our ability to provide our customers with products and services. An eligible donor’s willingness to donate is affected by concerns about their personal health and safety. Concerns about communicable diseases (such as pandemic flu, SARS, or HIV) could reduce the number of donors, and accordingly reduce the demand for our products for a period of time. A significant outbreak of a disease could also affect our employees’ ability to work, which could limit our ability to produce product and service our customers. There is a risk that the Company’s intellectual property may be subject to misappropriation in some countries. Certain countries, particularly China, do not enforce compliance with laws that protect intellectual property (“IP”) rights with the same degree of vigor as is available under the U.S. and European systems of justice. Further, certain of the Company’s IP rights are not registered in China, or if they were, have since expired. This may permit others to produce copies of products in China that are not covered by currently valid patent registrations. There is also a risk that such products may be exported from China to other countries. We sell our products in certain emerging economies. Emerging economies, such as Brazil, Russia, India and China, have less mature product regulatory systems, and can have more volatile financial markets. In addition, government controlled health care systems’ willingness or ability to invest in our products and systems may abruptly change due to changing government priorities or funding capacity. Our ability to sell products in these economies is dependent upon our ability to hire qualified employees or agents to represent our products locally, and our ability to obtain the necessary regulatory approvals in a less mature regulatory environment. If we are unable to retain qualified representatives or maintain the necessary regulatory approvals, we will not be able to continue to sell products in these markets. We are exposed to a higher degree of financial risk, if we extend credit to customers in these economies. In many of the international markets in which we do business, including certain parts of Europe, South America, the Middle East, Russia and Asia, our employees, agents or distributors offer to sell our products in response to public tenders issued by various governmental agencies. There is additional risk in selling our products through agents or distributors, particularly in public tenders. If they misrepresent our products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed, and we could be subject to fines, sanctions or both. We have a complex international supply chain. Any disruption to one or more of our suppliers’ production or delivery of sufficient volumes of subcomponents conforming to our specifications could disrupt or delay our ability to deliver finished products to our customers. For example, we purchase components in Asia for use in manufacturing in the United States and Scotland. We also regularly ship finished goods from Scotland to Europe and Asia. Plastics are the principal component of our disposables, which are the main source of our revenues. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. Increases in the costs of other commodities may affect our procurement costs to a lesser degree. The technologies that cover our products are the subject of active patent prosecution. There is a risk that one or more of our products may be determined to infringe a patent held by another party. If this were to occur we may be subject to an injunction or to payment of royalties, or both, which may adversely affect our ability to market the affected product(s). In addition, competitors may patent technological advances which may give them a competitive advantage or create barriers to entry. 15 Our products are made with materials which are subject to regulation by governmental agencies. Environmental regulations may prohibit the use of certain compounds in products we market and sell into regulated markets. If we are unable to substitute suitable materials into our processes, our manufacturing operations may be disrupted. In addition, we may be obligated to disclose the origin of certain materials used in our products, including but not limited to metals mined from locations which have been the site of human rights violations. We are entrusted with sensitive personal information relating to surgical patients, blood donors, employees and other persons in the course of operating our business and serving our customers. Government agencies require that we implement measures to ensure the integrity and security of such personal data and, in the event of a breach of protocol, that we inform affected individuals. If our systems were not properly designed or implemented, or should suffer a breach of security or an intrusion (e.g., “hacking”) by unauthorized persons, the Company’s reputation could be harmed, and it could incur costs and liabilities to affected persons and enforcement agencies. We operate in an industry susceptible to significant product liability claims. These claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class. In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present time. Item 1B. Unresolved Staff Comments None Item 2. Properties Our main facility, which the Company owns, is located on 14 acres in Braintree, Massachusetts. This facility is located in a light industrial park and was constructed in the 1970s. The building is approximately 180,000 square feet, of which 70,000 square feet are devoted to manufacturing and quality control operations, 35,000 square feet to warehousing, 72,000 square feet for administrative and research, development and engineering activities and 3,000 square feet available for expansion. See Note 8 to the financial statements for details of our mortgage on the Braintree facility. On property adjacent to the Braintree facility the Company leases 43,708 square feet of additional office space. This facility is used for sales, marketing, finance, legal, and other administrative services. Annual lease expense for this facility is $570,025. The Company leases an 81,929 square foot facility in Leetsdale, Pennsylvania. This facility is used for warehousing, distribution and manufacturing operations supporting our plasma business. Annual lease expense is $346,994 for this facility. The Company is also leasing a temporary facility of 28,309 square feet in Leetsdale, Pennsylvania to accommodate expanded distribution until we can manufacture in our new facility in Draper, Utah. The Company leases 99,931 square feet in Draper, Utah. This facility is used for the manufacturing of SEBRA whole blood equipment and the distribution of both SEBRA and plasma disposable products. Beginning in fiscal year 2012, this facility will also manufacture plasma disposables identical to the production in Leetsdale, PA. Annual lease expense is $471,594. The Company owns a facility in Bothwell, Scotland used to manufacture disposable components for European customers. The original facility is approximately 22,200 square feet. An addition of 18,000 square feet was added in early fiscal year 2006. This expansion provided additional office space and 13,500 square feet of warehouse replacing space previously leased for this purpose. The Company leases 26,264 square feet of office space in Signy, Switzerland. This facility is used for sales, marketing, finance and other administrative services. Annual lease expense for this space is $765,420. The Company leases 6,214 square feet of space in Tokyo, Japan for sales, marketing, finance and other administrative offices. Annual lease expense is $820,932. 16 The Company owns a facility in Union, South Carolina. This facility is used for manufacture of sterile solutions to support our blood center and plasma businesses. The facility is approximately 69,300 square feet. The Company also leases a 55,000 square foot facility in Stoughton, Massachusetts. This facility is used for warehousing and distribution of products. The annual lease expense is $261,250. Haemonetics Software Solutions, which develops and markets software for the hospital, blood center, and plasma businesses, retains three leases. The first is 25,856 square feet of office space in Edmonton, Alberta, Canada. Annual lease expense is $317,169. The second is 17,624 square feet of office space in Rosemont, Illinois. Annual lease expense is $436,241. This facility was closed in December 2010. The third is 15,000 square feet of office space in El Dorado Hills, California. Annual lease expense is $204,000. The Company also leases 22,346 square feet of space in Plaisir, France, to warehouse our products. The annual lease expense for this space is $247,514. Arryx Inc., which performs research for the Company, leases 10,830 square feet of office and laboratory space in Chicago, Illinois. Annual lease expense is $207,122. Haemoscope Corporation, which performs research and manufacturing for the Company, leases 16,478 square feet of office and manufacturing space in Niles, Illinois. Annual lease expense is $138,059. The Company also leases sales, marketing, service, and distribution facilities in Japan, Europe (Austria, Belgium, Czech Republic, France, Germany, Italy, Sweden, Switzerland, the Netherlands, and United Kingdom), Lebanon, Russia, China, Hong Kong, Taiwan, and Brazil to support our international business. Item 3. Legal Proceedings We are presently engaged in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe that any such liability will not materially affect our consolidated financial position or our results of operations. Our products are relied upon by medical personnel in connection with the treatment of patients and the collection of blood from donors. In the event that patients or donors sustain injury or death in connection with their condition or treatment, we, along with others, may be sued, and whether or not we are ultimately determined to be liable, we may incur significant legal expenses. In addition, such litigation could damage our reputation and, therefore, impair our ability to market our products or to obtain professional or product liability insurance or cause the premiums for such insurances to increase. We carry product liability coverage. While we believe that the aggregate current coverage is sufficient, there can be no assurance that such coverage will be adequate to cover liabilities which may be incurred. Moreover, we may in the future be unable to obtain product and professional liability coverage in amounts and on terms that we find acceptable, if at all. In order to aggressively protect our intellectual property throughout the world, we have a program of patent disclosures and filings in markets where we conduct significant business. While we believe this program is reasonable and adequate, the risk of loss is inherent in litigation as different legal systems offer different levels of protection to intellectual property, and it is still possible that even patented technologies may not be protected absolutely from infringement. We believe our competitor Fenwal has produced, and continues to produce, a red cell consumable kit which infringes a Haemonetics patent. For the past five years, we have been pursuing a patent infringement lawsuit against Fenwal, the details of which are summarized below. After the Court of Appeals for the Federal Circuit reversed the trial court’s decision on claims construction, vacating the injunction and damages previously awarded to Haemonetics, the case was remanded to the trial court for further proceedings. In December 2005 we filed a lawsuit against Baxter Healthcare SA and Fenwal Inc. in Massachusetts federal district court, seeking an injunction and damages from Baxter’s infringement of a Haemonetics patent, through the sale of Baxter’s ALYX brand automated red cell collection system, a competitor of our automated red cell collection systems. In March 2007, Baxter sold the division which marketed the ALYX product to private investors, TPG, and Maverick Capital, Ltd. The new company which resulted from the sale was renamed Fenwal. 17 In January 2009, a jury found that the Fenwal ALYX system infringed Haemonetics’ patent. Ultimately, the trial court awarded us a total of $18 million in damages and ordered Fenwal to stop selling the ALYX consumable by December 1, 2010 and pay Haemonetics a 10% royalty on ALYX consumable net sales from January 30, 2009 until December 1, 2010. Fenwal took three actions in response to this judgment. First, Fenwal appealed these rulings to the United States Court of Appeals for the Federal Circuit. Second, Fenwal modified the ALYX disposable in an effort to avoid the injunction. Third, Fenwal asked the Patent and Trademark Office to re-examine the validity of our patent. On June 2, 2010, the Court of Appeals reversed the trial court’s claim construction and accordingly, vacated the original jury verdict finding infringement, and remanded the case to the trial court for further proceedings. We continue to believe the ALYX consumable kit infringes our patent even under the Court of Appeals’ claim construction. In response to Fenwal’s modification of their disposable, we filed a second related patent infringement action in December 2009 in the same Massachusetts federal trial court as the first case described above. On May 28, 2010 the Patent and Trademark Office reexamined the patent which is the subject of the two cases described above, and determined that the patent is valid, contrary to Fenwal’s assertions. On September 20, 2010, Haemonetics filed a patent infringement action in Germany, against Fenwal and its German subsidiary, for Fenwal’s infringement of a Haemonetics patent related to the Haemonetics patent described above. On December 1, 2010, Fenwal filed an action to invalidate the Haemonetics patent which is the subject of this infringement action. In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting contract with a local physician and in pricing products supplied under a tender from a public hospital. In parallel proceedings concluded contemporaneously in Genoa, Italy, the same parties were entirely exonerated of all charges. Both matters involved several other individuals and companies and arose in 2004 and 2005, respectively. When the matters first arose, our Board of Directors commissioned independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel’s report, the Board concluded that no disciplinary action was warranted in either case. All Haemonetics parties appealed the guilty verdicts. On March 3, 2010 the first-level appeals court affirmed these verdicts. We are evaluating this decision and considering our options for further appeal. The Milan ruling, and its affirmation, has not impacted the Company’s business in Italy to date. A third proceeding was referred by the Milan court for hearing in Bergamo, Italy. There have been evidentiary hearings, but no material developments in that case. Item 4. (Removed and Reserved) Executive Officers of the Registrant The information concerning our Executive Officers is as follows. Executive officers are elected by and serve at the discretion of our Board of Directors. There are no family relationships between any director or executive officer and any other director or executive officer of Haemonetics Corporation. PETER ALLEN (age 52) joined our Company in 2003 as President, Donor Division. Mr. Allen was appointed Chief Marketing Officer for Haemonetics in 2008. Prior to joining Haemonetics, Mr. Allen was Vice President of The Aethena Group, a private equity firm providing services to the global healthcare industry. From 1998 to 2001, he held various positions including Vice President of Sales and the Oncology Business at Syncor International, a provider of radiopharmaceutical and comprehensive medical imaging services. Previously, he held executive level positions in sales, marketing and operations in DataMedic, Inc., Enterprise Systems, Inc./HBOC, and Robertson Lowstuter, Inc. Mr. Allen has also worked in sales and marketing at American Hospital Supply Corporation and Baxter International, Inc. PHILLIP J. BRANCAZIO (age 58) joined our Company in July 2009 as Vice President, Global Manufacturing. Prior to Haemonetics, Mr. Brancazio was Vice President of Manufacturing for Watson Pharmaceuticals, a generic drug manufacturer from 2004 — 2009. From 1999 to 2003 he worked with DPT 18 Laboratories, a contract manufacturing company, servicing the pharmaceutical industry, as Vice President of Manufacturing. Mr. Brancazio worked for Bristol Myers Squibb from 1976 to 1999. He held positions of increasing responsibility in Quality, Production, and Supply Chain, and Vice President of Manufacturing. Mr. Brancazio has a BS in Microbiology with a Minor in Chemistry from Texas A&M University, and an MBA from University of North Carolina, Greensboro. BRIAN CONCANNON (age 53) joined our Company in 2003 as President, Patient Division and was promoted to President, Global Markets, in 2006. In 2007, Mr. Concannon was promoted to Chief Operating Officer. In April 2009, Mr. Concannon was promoted to President and Chief Executive Officer and elected to the Haemonetics Board of Directors. Immediately prior to joining the Company, Mr. Concannon was President, Northeast Region, Cardinal Health Medical Products and Services where he was employed since 1998. From 1985 to 1998, he was employed by American Hospital Supply Corporation, Baxter Healthcare Corp. and Allegiance Healthcare in a series of sales and operations management positions of increasing responsibility. JOSEPH FORISH (age 58) joined our Company in 2005 as Vice President, Human Resources. Prior to joining Haemonetics, Mr. Forish held various global human resources leadership roles, including Vice President, Corporate Human Resources for Rohm and Haas Company. Prior to that, Mr. Forish was Vice President, Human Resources for the ConvaTec Division of Bristol-Myers Squibb Company. MIKAEL GORDON (age 56) joined our Company in 2007 as President, Europe and was promoted to President, Global Markets in February 2009. Prior to joining Haemonetics, Mr. Gordon was Regional Executive Manager North & West Europe for GE Healthcare Clinical Systems. From 1997 to 2007 he held various executive positions as Vice President IT, VP Laboratory Products, VP Strategic Planning and VP Global Sales within Amersham Biosciences until the company was acquired by General Electric in 2004. Mr. Gordon has broad international business experience in the healthcare environment and has lived several years outside his home country. Mr. Gordon has a B.Sc. from the Stockholm School of Economics and is a Swedish national. SUSAN HANLON (age 43) joined our Company in 2002 as Vice President and Corporate Controller. In 2004, she was promoted to Vice President Planning and Control, and in 2008, Ms. Hanlon was promoted to Vice President Finance. She presently has responsibility for Controllership, Financial Planning, Tax, and Treasury. Prior to joining Haemonetics, Ms. Hanlon was a partner with Arthur Andersen LLP in Boston. MICHAEL KELLY (age 47) joined Haemonetics in July of 2010 as President, North America & Global Plasma. Prior to joining Haemonetics, Mr. Kelly was Senior Vice President and General Manager, Infection Prevention, for CareFusion Corporation from 2008 to 2010. From 1999 to 2008, Mr. Kelly served at Cardinal Health in a variety of General Management, Marketing, Business Development, and Sales positions. In 1991, he began his career with Baxter Healthcare as a sales representative. Mr. Kelly graduated from The Ohio State University, Columbus, OH with a Bachelor of Science in Business Administration and an MBA. CHRISTOPHER LINDOP (age 53) joined our Company in January of 2007 as Vice President and Chief Financial Officer. In 2007, Mr. Lindop also assumed responsibility for business development. Mr. Lindop is also responsible for our Software Solutions business. Prior to joining Haemonetics, Mr. Lindop was Chief Financial Officer at Inverness Medical Innovations, a global developer of advanced consumer and professional diagnostic products from 2003 to 2006. Prior to this, he was Partner in the Boston offices of Ernst & Young LLP and Arthur Andersen LLP. WARREN NIGHAN (age 42) joined our Company in November of 2010 as Vice President of Worldwide Quality & Regulatory Affairs. Mr. Nighan previously served as Vice President Quality & Regulatory for St. Jude Medical in Minneapolis, Minnesota from 2009 to 2010. Prior to that, Mr. Nighan was the Worldwide Vice President of Quality for Covidien from 1999 to 2008. Mr. Nighan holds a Bachelors degree in Nursing from Northeastern University. DR. JONATHAN WHITE (age 51) joined our Company in 2008 as Vice President, Research and Development. Dr. White joined Haemonetics from Pfizer, where he held a number of roles including Chief Information Officer, and where he was employed from 1998 to 2008. From 1992 to 1998, he was a management consultant at McKinsey and Company in New York. Dr. White is a Fellow of the Royal College 19 of Surgery in England. He completed his qualifications as a neurosurgeon and worked in both clinical and academic medical settings. In addition, he holds a Masters degree in Computer Science from Cambridge in England, and a Masters degree in Business Administration from INSEAD in France. PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol HAE. The following table sets forth for the periods indicated the high and low sales prices of such common stock, which represent actual transactions as reported by the New York Stock Exchange. First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended April 2, 2011: Market price of Common Stock: High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60.65 $52.58 $59.01 $50.50 $64.83 $53.11 $66.70 $57.73 Fiscal year ended April 3, 2010: Market price of Common Stock: High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58.92 $46.89 $60.23 $52.01 $57.60 $51.40 $59.57 $52.40 There were approximately 308 holders of record of the Company’s common stock as of April 30, 2011. The Company has never paid cash dividends on shares of its common stock and does not expect to pay cash dividends in the foreseeable future. 20 The following graph compares the cumulative 5-year total return provided to shareholders on Haemonetics Corporation’s common stock relative to the cumulative total returns of the S&P 500 index and the S&P Health Care Equipment index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on 3/31/2006 and its relative performance is tracked through 3/31/2011. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Haemonetics Corporation, The S&P 500 Index And The S&P Health Care Equipment Index Haemonetics Corporation S&P 500 S&P Health Care Equipment 200 150 100 50 0 S R A L L O D 3/06 3/07 3/08 3/09 3/10 3/11 * $100 invested on 3/31/06 in stock or index, including reinvestment of dividends. Fiscal year ended March 31. Copyright· 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Haemonetics Corporation 100.00 92.08 117.35 108.49 112.57 129.09 S&P 500 S&P Health Care Equipment 100.00 111.83 106.15 100.00 108.60 112.38 65.72 77.24 98.43 113.83 107.82 109.40 3/06 3/07 3/08 3/09 3/10 3/11 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 21 Item 6. Selected Consolidated Financial Data Haemonetics Corporation and Subsidiaries Five-Year Review 2011 2010 2009 (In thousands, except per share and employee data) 2008 2007 Summary of Operations Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $676,694 321,485 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . $645,430 307,949 $597,879 289,709 $516,440 258,715 $449,607 222,307 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,209 337,481 308,170 257,725 227,300 Operating expenses: Research, development and engineering. . . . . . . Selling, general and administrative . . . . . . . . . . Contingent consideration income. . . . . . . . . . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . Cost to equity. . . . . . . . . . . . . . . . . . . . . . . . . . In process research and development . . . . . . . . . Arbitration & settlement income . . . . . . . . . . . . 32,656 213,899 (1,894) — — — — 26,376 214,483 (2,345) 15,686 — — — Total operating expenses . . . . . . . . . . . . . . . . . . 244,661 254,200 Operating income . . . . . . . . . . . . . . . . . . . . . . . Other income (expense), net . . . . . . . . . . . . . . . Income before provision for income taxes . . . . . Provision for income taxes . . . . . . . . . . . . . . . . 110,548 (467) 110,081 30,101 83,281 (2,010) 81,271 22,901 23,859 198,744 — — — — — 222,603 85,567 (565) 85,002 25,698 24,322 163,116 — — — — — 187,438 70,287 7,015 77,302 25,322 23,884 137,073 — — 225 9,073 (5,700) 164,555 62,745 9,591 72,336 23,227 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,980 $ 58,370 $ 59,304 $ 51,980 $ 49,109 Income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Weighted average number of shares . . . . . . . . . Common stock equivalents . . . . . . . . . . . . . . . . Weighted average number of common and 3.19 3.12 25,077 519 $ $ 2.29 2.24 25,451 612 $ $ 2.34 2.27 25,389 784 $ $ 2.01 1.94 25,824 922 $ $ 1.84 1.78 26,746 903 common equivalent shares. . . . . . . . . . . . . . . 25,596 26,063 26,173 26,746 27,649 2011 2010 2009 2008 2007 Financial and Statistical Data: Working capital . . . . . . . . . . . . . . . . . . . . . . . . $340,160 Current ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Property, plant and equipment, net . . . . . . . . . . $155,528 Capital expenditures . . . . . . . . . . . . . . . . . . . . . $ 46,669 Depreciation and amortization . . . . . . . . . . . . . . $ 48,145 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $833,264 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,879 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . $686,136 Return on average equity . . . . . . . . . . . . . . . . . Debt as a % of stockholders’ equity . . . . . . . . . Employees(a) . . . . . . . . . . . . . . . . . . . . . . . . . . Net revenues per employee . . . . . . . . . . . . . . . . $ 2,201 307 12.5% 0.7% $250,888 2.9 $154,313 $ 56,304 $ 43,236 $760,928 $ 20,520 $593,124 $289,530 4.1 $137,807 $ 56,379 $ 36,462 $649,693 $ 6,038 $539,884 $261,757 3.7 $116,484 $ 57,790 $ 31,197 $608,950 $ 12,363 $494,188 $321,654 4.9 $ 90,775 $ 40,438 $ 27,504 $572,735 $ 28,876 $479,648 10.3% 3.5% 11.5% 1.1% 10.5% 2.5% 10.7% 6.0% 2,327 277 $ 2,016 297 $ 1,875 275 $ 1,826 246 $ (a) Reflects the addition of Global Med employees at the end of fiscal year 2011 and 2010. 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (A) Our Business Our medical device systems automate the collection and processing of donated blood; assess likelihood for blood loss; and salvage and process blood from surgery patients. 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. We also market information technology platforms that are used by blood and plasma collectors to eliminate previously manual functions. These platforms improve the safety and efficiency of blood collection logistics, mobile drive management and donor recruitment, and blood processing and distribution. We market information technology platforms for hospitals to dispense and track blood inventory in the hospital. These platforms improve the efficiency of hospital transfusion systems and automate manual processes. We also market a blood management dashboard that allows hospital customers to mine their own data stored in disparate systems to assess their blood management practices, and implement change quickly. Our business services products include 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: (cid:129) Purchase and consumption of a minimum level of disposables products; (cid:129) Payment of monthly rental fees; and (cid:129) An asset utilization performance metric, such as performing a minimum level of procedures per month per device. Our disposable revenue stream, which includes the sales of disposables and fees for the use of our equipment, accounted for approximately 81.5% of our net revenues for fiscal year 2011, 86.0% of our net revenues for fiscal year 2010, and 85.7% of our net revenues for fiscal year 2009. (B) Product Categories Although we manage our business as one operating segment, we address our customer constituents through four global product categories: plasma, blood center, hospital, and software solutions. Each of our products, platforms, and services can be marketed individually. However, as our blood management solutions vision is to offer integrated closed loop solutions for blood supply chain management, our software solutions — that is, information technology platforms and consulting services — can be integrated with the devices and sold through our plasma, blood center, and hospital sales forces. Our integrated product portfolios are as follows: Plasma Products and Solutions Our plasma products include systems to collect plasma, which is then fractionated and made into bio- pharmaceuticals. Our plasma solutions include information technology platforms and consulting services that support improved operational efficiency and regulatory compliance. We market our plasma products primarily to for-profit global plasma collectors which are frequently owned by large bio-pharmaceutical companies and often pay a fee for donations. In addition, not for profit organizations like the Japan Red Cross utilize our products. 23 Plasma Systems: Our PCS brand systems automate the collection of plasma from donors who are most often paid a fee for their donation. The collected plasma is then processed into therapeutic pharmaceuticals. Automated plasma collection, or plasmapheresis, is a safe and cost-effective procedure. Plasma Solutions: Plasma was the first transfusion market we entered with information technology platforms. As a result, we have a robust portfolio of information technology platforms for plasma customers. Our plasma information technology platforms span the plasma supply chain and include products that manage registration, donor processing, laboratory processing, back office functions, supply chain management, and distribution. Our products include: eQue Automated Interview and Assessment, eLynx Workflow Optimization, DMS Donor Management System, and the CaPS Cash Payment System. With our information technology platforms, plasma collectors are better able to manage processes across the plasma supply chain, react quickly to business dynamics, and identify increased opportunities to reduce costs. For consulting services, we offer customers business solutions to support process excellence, donor recruitment, and business design. Blood Cemter Products and Solutions Our blood center products include systems to collect plasma, platelets and red cells from blood donors. These blood components, including the plasma, are used for transfusion to patients. Our blood center solutions include information technology platforms and consulting services that support improved operational efficiency and regulatory compliance. We market our blood center products primarily to not-for-profit blood collectors or national health agencies. Blood Center Systems: We market two MCS brand systems. The first MCS brand system automates the collection of platelets and other blood components from volunteer donors. The systems enable the donation of a larger number of the donor’s platelets, which are then generally transfused to cancer patients and others with bleeding disorders. Before the advent of our automated platelet collection technology, the “pooling” or combination of platelets from 4 to 7 different donors was the only way to prepare a single therapeutic dose of platelets for transfusion to a patient. Our MCS line of products allows the collection of a sufficient number of platelets from only one donor to produce one or two therapeutic doses. We market another MCS brand system to automate the collection of red cells from volunteer donors. These systems improve the blood collector’s operational efficiency by increasing the number of blood components collected per donation event. Automation allows for a significantly higher number of red cells to be collected than the traditional (non-automated, whole blood) collection method. Automation helps blood collectors address red cell shortages that commonly plague health care systems. The highest sales volume product in the MCS red cell product line is our double red cell collection technology which allows for two units of red cells to be collected from one donor. Specialty protocols enabling the simultaneous collection of a unit of red cells and a unit of plasma or a unit of red cells and a unit of platelets are also available in various parts of the world. Our ACP brand systems automate the process used to freeze, thaw and wash red blood cells which enables blood collectors and the military to store frozen red cells and ultimately better manage blood inventories. The ACP systems can also be used to wash liquid stored red blood cells units to significantly reduce plasma proteins within these units before transfusion to patients with special transfusion requirements. Blood Center Solutions: Through internal product development and acquisition, we have significantly bolstered our blood center information technology offerings over the past three years. Our platforms now span the blood collection supply chain and include products that manage blood drives, donor recruitment and processing, operations, and 24 laboratory processing. Our products include: eQue and Donor Doc Automated Interview and Assessment, Hemasphere, El Dorado Donor, eLynx Workflow Optimization, SafeTrace, Sapanet, Surround, Edgeblood and EdgeTrack. With our information technology platforms, blood collectors are better able to manage processes across the blood supply chain and improve safety, regulatory compliance and efficiency. For consulting services, we offer customers business solutions to support process excellence, quality control, and business design, including resource allocation and utilization. Hospital Products and Solutions Our hospital products include a surgical diagnostic system that measures hemostasis (clotting ability), giving clinicians valuable information to assess the patient’s hemostasis before, during, and after surgery, and systems to collect blood during and after surgery, wash and filter unwanted substances from the blood, and prepare the blood for reinfusion to the surgical patient. Our hospital products also include a system for tracking and dispensing blood in the hospital. Our hospital solutions include IMPACT Online, an information technology platform to track blood use and best practices in blood management, as well as consulting services that assess blood management practices and recommend appropriate changes to ensure quality patient care at optimal costs. We market these hospital products to hospitals and hospital service providers. Hospital Systems: Our TEG Thrombelastograph Hemostasis Analyzer is a blood diagnostic instrument which measures a patient’s hemostasis or the ability for the specific patient to form a clot and for the clot to break down. By understanding a patient’s clotting ability, clinicians can better plan for the patient’s care, deciding in advance whether to start or discontinue use of certain drugs or, if a transfusion is necessary, to provide only the blood component(s) necessary to stop the patient’s bleeding. Such planning supports the best possible clinical outcome, which can lead to lower hospital costs through reduced adverse transfusion reactions, use of fewer blood components, shorter intensive care unit and hospital stays, and fewer needs for exploratory surgery. Our surgical blood salvage systems allow for the recovery, separation and washing of red cells from blood lost by a patient during or after surgery, so that red cells can be made available to transfuse back to the patient if needed. In this way, a surgical patient can receive transfusions of the safest blood possible, his or her own. Our surgical blood salvage systems include: our Cell Saver brand systems for higher blood loss surgeries and trauma; our OrthoPAT brand systems for lower, slower blood loss orthopedic procedures; and our cardioPAT brand system for lower blood loss cardiovascular procedures, like beating heart surgeries, or for use after higher blood cardiovascular surgeries. We also market the SmartSuction system which is used to clear blood and debris from the surgical field in conjunction with surgical blood salvage. Hospital Solutions: Through internal development and acquisition, we have a portfolio of hospital solutions. SafeTrace TX and BloodTrack products can manage blood product inventory, perform patient cross-matching, and manage transfusion. IMPACT Online is a business intelligence web-based portal solution which monitors and measures improvements in a hospital’s blood management practices. Where before, data was siloed across multiple information platforms, IMPACT Online compiles data from across the hospital, and provides administrators with actionable information. With our products, hospitals are better able to manage processes across the blood supply chain and identify opportunities to reduce costs and enhance processes. For consulting services, we offer peer to peer clinician consulting services that leverage a proprietary database of best practices in transfusion medicine to provide hospitals with a baseline view of their blood management metrics, as well as with recommendations for approaches to transfusion therapy and the avoidance of unnecessary transfusions. Our services then measure key improvements associated with recommended best practices to allow hospital customers to track progress. 25 Software Solutions Our software solutions offerings include information technology platforms and consulting services which promote efficiency in blood management. Our software solutions address a universal customer goal — to provide the best patient care at optimal cost. We market our software solutions to plasma and blood collectors as well as to hospitals. While we employ a software solutions sales force, we also leverage our plasma, blood center, and hospital sales force to cross-sell devices with software solutions. Our BloodTrack systems manage control of blood products from the hospital blood center through to the transfusion to the patient. “Smart” refrigerators located in operating suites, emergency rooms, and other parts of the hospital dispense blood units with just-in-time control and automated tracking for efficient documentation. Each of our products, platforms, and services can be marketed individually. However, as our blood management solutions vision is to offer integrated closed loop solutions for blood supply chain management, our software solutions — that is, information technology platforms and consulting services — can be integrated with the devices and sold through our plasma, blood center, and hospital sales forces. Financial Summary Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . % of net revenues . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . % of net revenues . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . Other expense, net . . . . . . . . . . . . . . . . . . . . . Income before taxes. . . . . . . . . . . . . . . . . . . . Provision for income tax . . . . . . . . . . . . . . . . % of pre-tax income. . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . % of net revenues . . . . . . . . . . . . . . . . . . . Earnings per share-diluted . . . . . . . . . . . . . . . April 2, 2011 March 28, 2009 April 3, 2010 (In thousands, except per share data) $645,430 $337,481 $676,694 $355,209 $597,879 $308,170 52.5% 52.3% 51.5% $244,661 $110,548 $254,200 $ 83,281 $222,603 $ 85,567 16.3% (6) $ 384 $ $ (845) $110,081 $ 30,101 12.9% (742) $ $ 399 $ (1,667) $ 81,271 $ 22,901 14.3% (64) $ $ 1,968 $ (2,469) $ 85,002 $ 25,698 27.3% 28.2% 30.2% % Increase/ (Decrease) 11 vs. 10 % Increase/ (Decrease) 10 vs. 09 4.8% 5.3% (3.8)% 32.7% (99.2)% (3.8)% (49.3)% 35.4% 31.4% 8.0% 9.5% 14.2% (2.7)% 1059.4% (79.7)% (32.5)% (4.4)% (10.9)% $ 79,980 $ 58,370 $ 59,304 37.0% (1.6)% 11.8% 3.12 $ 9.0% 2.24 $ 9.9% 2.27 $ 39.3% (1.3)% Our fiscal year ends on the Saturday closest to the last day of March. Fiscal years 2011 and 2009 each includes 52 weeks with all four quarters each having 13 weeks. Fiscal year 2010 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks. For fiscal year 2011, net revenues increased 4.8%. Excluding the effect of the extra week in fiscal year 2010, net revenues for fiscal year 2011 increased 6.7%. Net revenues for fiscal year 2011 increased 4.8% over fiscal year 2010. The effects of foreign exchange accounted for an increase of 0.2% over fiscal year 2010. The increase noted reflects the positive impact of recent acquisitions, which contributed 5.3% to revenue growth for fiscal year 2011, as well as strong revenue growth from emerging markets, notably Russia and Asia. Net revenues for fiscal year 2010 increased 8.0% over fiscal year 2009. The effects of foreign exchange accounted for an increase of 1.9% over fiscal year 2009. The remaining increase of 6.1% is mainly due to increases in our disposables revenue and increased revenues as a result of three acquisitions completed during 26 fiscal year 2010. The increase in disposables revenue resulted primarily from disposable unit increases in the plasma, platelet and diagnostic product lines. Gross profit increased 5.3% during fiscal year 2011. The effects of foreign exchange decreased gross profit by 0.1% over fiscal year 2010. Absent foreign exchange, gross profit increased 5.4%, which was largely driven by higher software sales as a result of the Global Med acquisition and cost improvements in our manufacturing operations. Our gross profit margin percentage improved 20 basis points for fiscal year 2011 as compared to fiscal year 2010. Increased software sales positively impacted gross margin percentage. These increases were partly offset by increased inventory reserves during fiscal year 2011. During fiscal year 2010, gross profit increased 9.5%. Foreign exchange resulted in a 4.5% increase in gross profit from fiscal year 2009. The remaining increase of 5.0% was due primarily to the net increase in sales and the positive impact of cost reductions including the automation process in our Pittsburgh facility. This increase was partly offset by increased spending on quality initiatives. Our gross profit margin percent improved 80 basis points for fiscal year 2010 as compared to fiscal year 2009. Major factors impacting the gross margin percent improvement of 80 basis points included foreign exchange, manufacturing efficiencies, and fixed cost leverage. These improvements were partly offset by changes in product mix driven by higher sales of lower gross margin plasma products and aforementioned increase in spending on quality initiatives. Operating expenses decreased 3.8% during fiscal year 2011 over fiscal year 2010. Foreign exchange accounted for a decrease in operating expenses of 0.1% for fiscal year 2011. Without the effects of foreign exchange, operating expenses decreased 3.7% during fiscal year 2011. Fiscal year 2010 included asset write downs totaling $15.7 million related to the abandonment of our next generation platelet apheresis platform and a blood center donation management software product. No similar write downs were experienced in fiscal 2011. The decreases for fiscal year 2011 also included a reduction in the expense associated with cash bonus incentive compensation for this fiscal year cost. The decreases were offset by higher operating expenses associated with the Global Med acquisition. Operating expenses increased 14.2% in fiscal year 2010 from fiscal year 2009. Foreign exchange accounted for an increase of 0.1% for fiscal year 2010. Without the effects of foreign exchange, operating expenses increased 14.1% during fiscal year 2010. The higher operating expenses in the fiscal year 2010 included the asset write downs noted above as well as costs related to the separation of employees in connection with our transformation plan. During fiscal year 2011, operating income increased 32.7% compared to fiscal year 2010. Foreign exchange resulted in a 0.1% increase in operating income during the fiscal year. Without the effects of foreign currency, operating income increased 32.6% over fiscal year 2010. The growth in revenues from our emerging markets, the acquisition of Global Med and lower cash bonus incentive compensation were significant contributors to the improvement in operating income. Additionally, we incurred significant costs in fiscal year 2010 related to asset write downs, positively impacting operating income growth as no similar costs were incurred in fiscal year 2011. Operating income decreased 2.7% during fiscal year 2010. The effects of foreign exchange accounted for an increase in operating income of 14.8%. Without the effects of foreign exchange, operating income decreased 17.5% during fiscal year 2010. Several items contributed to the reduction in operating income, including the asset write downs noted above, restructuring costs, costs to consummate the acquisition of Global Med, and increased operating expenses related to new business acquisitions, blood management solutions, research and development, and our enterprise resource planning system. These decreases were partially offset by income resulting from the re-measurement of the fair value of contingent consideration from our Neoteric acquisition, the decrease in employee bonus expense, and the increases in gross profit described above. Net income increased 37.0% during fiscal year 2011. Without the effects of foreign exchange, which accounted for an increase of 0.7%, net income increased 36.3% for fiscal year 2011. The increases in operating income and lower foreign exchange losses were the principal reasons for the improvement in net income. 27 Net income decreased 1.6% during fiscal year 2010. The main factors that affected net income were the decrease in operating income described above and an increase in other expense that resulted due to increased interest expense associated with our contingent purchase price liability and reduced interest income due to a significant reduction in the interest rate yields on cash and cash equivalents. Market Trends Plasma Market Changes in demand for plasma-derived pharmaceuticals, particularly immunoglobulin (“IG”), is the key driver of plasma collection volumes in the commercial plasma collection market. Various factors related to the supply of plasma and the production of plasma-derived pharmaceuticals also affect demand, including the following: (cid:129) There has been significant industry consolidation among plasma collectors and fractionators. Industry consolidation impacts us when a collector changes the total number of its collection centers, the total number of collections performed per center or changes the plasma collection system (either Haemonetics or a competitive technology) used to perform some or all of those collections. (cid:129) The supply of source plasma also affects demand for additional collections of source plasma. (cid:129) The newer plasma fractionation facilities are more efficient in their production processes, utilizing less plasma to make similar quantities of pharmaceuticals and vaccines. (cid:129) Reimbursement guidelines affect the demand for end product pharmaceuticals. (cid:129) Newly approved indications and diagnosis of new patients requiring plasma derived therapies increase the demand for plasma. During fiscal year 2011, the supply and demand balance for plasma in the U.S. and Europe experienced a correction after five consecutive years of double digit growth. The relatively flat growth in collections this fiscal year resulted from plasma supply exceeding the demand for fractionation. While global markets for plasmapheresis have been growing, the market in Japan has declined. The Japan Red Cross has shifted some of its plasma for fractionation from plasmapheresis to recovered plasma from whole blood collections. This change has reduced demand for automated plasma collections. Currently, demand for plasma-derived therapies is driving plasma collection growth of approximately 5-7% per year. Blood Center Market In the blood center market, we sell products used in the collection of platelets and red cells. Despite modest increases in the demand for platelets in the United States, Europe, and Japan, improved collection efficiencies that increase the yield of platelets per collection and more efficient use of collected platelets have resulted in a flat market for automated collections and related disposables in these countries. With changes in healthcare and social security systems in emerging markets, a larger number of people get access to state of the art medical treatments, which drives the demand for platelet transfusions and represent a faster growing market. After several years of modest increases in demand for red cell transfusions and a general shortage of volunteer donors, the market in recent years has experienced lower demand for red cells due to fewer elective surgeries and an increase in the number of available donors due to both changes in regulation in our major markets. The reduced demand for red cells adversely impacted our red cell business. We believe that blood collectors’ imperative to improve operating efficiency and regulatory compliance, coupled with increased demand for red cells, will provide growth opportunities for our red cell technology in the future. Hospital Market In the hospital market, we sell cardiovascular surgical blood salvage systems, orthopedic surgical blood salvage systems, and a blood diagnostics instrument. 28 Our Cell Saver brand surgical blood salvage system was designed as a solution for rapid, high volume blood loss procedures, such as cardiovascular surgeries. This part of the surgical blood salvage market is declining and will likely continue to decline due to improved surgical techniques which minimize blood loss and a decrease in the number of surgeries performed because patients are undergoing less invasive procedures before moving to surgeries. The cardioPAT system, a surgical blood salvage system targeted at cardiovascular procedures when there is less blood loss, is designed to meet the market needs created by these improved surgical techniques. The cardioPAT can be used intra-operatively as well as post-operatively when blood loss continues while the patient is in recovery. Our OrthoPAT technology is used to salvage red cells in lower blood loss orthopedic procedures, including hip and knee replacement surgeries. The OrthoPAT is the only system on the market designed to collect, separate and wash a patient’s blood lost during and after surgery. While cell salvage is not yet a standard of care for U.S. orthopedic procedures, we position this device as an effective alternative to patient pre-donation or non-washed autotransfusion systems. Particularly in the United States, hip and knee replacement surgeries are frequently elective surgeries and as a result are subject to economic conditions. Our TEG system is a diagnostic tool which allows an assessment of a patient’s hemostasis so the surgeon can then decide the best blood-related clinical treatment for the individual patient. TEG product line sales further strengthened in fiscal year 2011. This product’s growth is dependent on hospitals adopting this technology as a standard practice in their blood management programs. RESULTS OF OPERATIONS Net Revenues by Geography April 2, 2011 United States . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . $317,355 359,339 April 3, 2010 (In thousands) $303,965 341,465 Net revenues . . . . . . . . . . . . . . . . . . $676,694 $645,430 $597,879 March 28, 2009 % Increase 11 vs. 10 % Increase 10 vs. 09 $279,029 318,850 4.4% 5.2% 4.8% 8.9% 7.1% 8.0% 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 53.1%, 52.9%, and 53.3% of net revenues during fiscal year 2011, 2010, and 2009, respectively. During fiscal year 2011, 2010, and 2009, revenues in Japan accounted for approximately 16.3%, 17.0%, and 16.3%, respectively, of our total revenues. The natural disasters that occurred in Japan in late-March 2011 did not materially affect our operations for fiscal year 2011 and are not expected to have a material impact to our operations in future periods. Revenues from Europe accounted for approximately 27.6%, 28.0%, and 29.5% of our total revenues for fiscal year 2011, 2010, and 2009, 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. For fiscal year 2011 as compared to fiscal year 2010, the effects of foreign exchange resulted in a 0.2% increase in sales. For fiscal year 2010 as compared to fiscal year 2009, the effects of foreign exchange accounted for a 1.9% increase in sales 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. 29 Net Revenues by Product Type April 2, 2011 Disposables. . . . . . . . . . . . . . . . . . $551,836 66,876 Software solutions . . . . . . . . . . . . . 57,982 Equipment & other . . . . . . . . . . . . April 3, 2010 (In thousands) $555,226 35,919 54,285 March 28, 2009 $512,230 31,605 54,044 Net revenues . . . . . . . . . . . . . . . . $676,694 $645,430 $597,879 % (Decrease) / Increase 11 vs. 10 % Increase/ (Decrease) 10 vs. 09 (0.6)% 86.2% 6.8% 4.8% 8.4% 13.6% 0.4% 8.0% Disposables Revenues by Product Type April 2, 2011 Plasma disposables . . . . . . . . . . . . $227,209 Blood center disposables Platelet . . . . . . . . . . . . . . . . . . . . . Red cell . . . . . . . . . . . . . . . . . . . . 156,251 46,828 April 3, 2010 (In thousands) $232,378 March 28, 2009 % (Decrease) / Increase 11 vs. 10 % Increase/ (Decrease) 10 vs. 09 $202,165 (2.2)% 14.9% 151,026 48,031 143,423 49,508 Hospital disposables Surgical . . . . . . . . . . . . . . . . . . . . OrthoPAT . . . . . . . . . . . . . . . . . . . Diagnostics . . . . . . . . . . . . . . . . . . 203,079 199,057 192,931 66,503 35,631 19,414 69,942 37,079 16,770 67,697 35,420 14,017 121,548 123,791 117,134 Total disposables revenue . . . . . . $551,836 $555,226 $512,230 3.5% (2.5)% 2.0% (4.9)% (3.9)% 15.8% (1.8)% (0.6)% 5.3% (3.0)% 3.2% 3.3% 4.7% 19.6% 5.7% 8.4% Disposables Revenue Disposables include the Plasma, Blood center, and Hospital product lines. Disposables revenue decreased 0.6% during fiscal year 2011 and increased 8.4% during fiscal year 2010. Foreign exchange resulted in a 0.1% increase and 0.2% decrease for fiscal years 2011 and 2010, respectively. Without the effect of foreign exchange, disposables revenue decreased 0.7% and increased 8.6% for fiscal year 2011 and 2010, respectively. Plasma Plasma disposables revenue decreased 2.2% during fiscal year 2011. Foreign exchange accounted for a decrease of 0.9% over fiscal year 2010. Without the effects of foreign exchange, plasma disposables revenue decreased 1.3% during fiscal year 2011. This decrease was driven by lower apheresis plasma collection volume in Japan as more plasma was sourced by the Japan Red Cross as a byproduct from its whole blood collections, a trend that we expect to continue into the next year. Additionally, one of our significant customers has removed one of its products from the market, which negatively affected our sales in the U.S. and Europe. Finally, our commercial plasma customers have slowed their growth and in some cases reduced collections from last year’s levels in the first half of fiscal year 2011 following several years of significant growth. During fiscal year 2010, plasma disposable revenue increased 14.9%. Foreign exchange resulted in a 2.1% increase over fiscal year 2009. The remaining 12.8% increase was principally due to unit volume increases resulting from both market and share increases as well as price increases. The market increase is due to the demand for plasma derived pharmaceuticals. Demand for source plasma to make collecting pharmaceu- ticals grew strongly earlier in the year and moderated at the end of fiscal year 2010, a trend which continued in fiscal year 2011. 30 Blood Center Blood center consists of disposables used to collect platelets, red cells, and plasma for transfusion. Platelet Platelet disposables revenue increased 3.5% during fiscal year 2011. Foreign exchange accounted for 2.0% of this increase. Without the effect of foreign exchange, platelet disposable revenue increased 1.5% during fiscal year 2011. Sales increased across emerging markets throughout the fiscal year, which is the primary driver of the increase in revenue. Sales declines in our European direct market were attributable to competition and the switch from apheresis platelets to platelets derived from whole blood collections, which is the primary driver for the decline in net revenue in Europe. During fiscal year 2010, platelet disposable revenue increased 5.3%. Foreign exchange resulted in a 4.0% increase in platelet disposable revenue over fiscal year 2009. The remaining 1.3% increase was due to growth in emerging markets. These increases were partially offset by decreases due to loss of market share in Europe. Red Cell Red cell disposables revenue decreased 2.5% during fiscal year 2011. Foreign exchange accounted for a revenue decrease of 0.5% from fiscal year 2010. The remaining decrease of 2.0% was driven by lower demand for red cells as a result of fewer surgeries, resulting in a reduced demand for automated red cell collection. We believe that blood collectors’ efforts to improve operating efficiency and regulatory compliance, coupled with an expected return of donor shortages, will provide important growth opportunities for our red cell products in the future. During fiscal year 2010, red cell disposable revenue decreased 3.0% compared to fiscal year 2009. Foreign exchange accounted for a decrease of 0.3%. Without this effect, disposables revenue decreased 2.7%. Our red cell products are sold primarily to blood collectors, such as blood centers and government agencies. Sales are driven by the total level of red cell collections, the percentage of those collections done with apheresis devices and our market share of those automated collections. During fiscal year 2010, the reduced demand for red cells adversely impacted our red cell business. Hospital Hospital consists of Surgical, OrthoPAT, and Diagnostics products. The hospital product line includes the following brand platforms: the Cell Saver brand, the TEG brand, the OrthoPAT brand, the cardioPAT brand, and the SmartSuction Harmony products. Surgical Surgical disposables revenue consists principally of the Cell Saver and cardioPAT products. Revenues from our surgical disposables decreased 4.9% during fiscal year 2011. Foreign exchange resulted in a decrease of 0.1% in surgical disposables revenue for the fiscal year. Without the effects of foreign currency, the decrease in surgical disposables revenue of 4.8% for the fiscal year was the result of a decrease in demand across our European and North American markets, driven by both competitive pressures and market conditions resulting in fewer surgeries. This decrease was partly offset by strong sales in our emerging markets. During fiscal year 2010, revenues from our surgical disposables increased 3.3%. Surgical disposables revenue consists principally of the Cell Saver, cardioPAT, and Smart Suction Harmony products. Foreign exchange resulted in a 2.3% increase in surgical disposables revenue. Without the effect of currency, surgical disposables revenue increased 1.0%. This growth resulted from continued market share gains in Japan. OrthoPAT Revenues from our OrthoPAT disposables decreased 3.9% during fiscal year 2011. Foreign exchange resulted in a decrease in OrthoPAT disposables revenue of 0.2% over fiscal year 2010. Without the effect of 31 foreign currency, OrthoPAT disposables revenue decreased by 3.7%. The decline in fiscal year 2011 revenue was driven by a decrease in the frequency of use of the OrthoPAT. In April 2011, we announced a voluntary recall of our OrthoPAT devices manufactured prior to 2002. We anticipate spending approximately $10 million of incremental capital equipment expenditures during fiscal 2012 to upgrade our OrthoPAT device in response to the recall, as discussed below within the liquidity and capital resources narrative. We do not currently believe reductions in equipment or disposable sales due to this recall will be material to our fiscal 2012 financial performance. In connection with our voluntary recall of our OrthoPAT devices manufactured prior to 2002, we incurred $0.8 million of expense for repair or replacement of customer-owned OrthoPAT devices during fiscal year 2011. During fiscal year 2010, OrthoPAT disposables revenue increased 4.7% over fiscal year 2009. Foreign exchange resulted in a 0.7% increase in OrthoPAT revenue. Without the effect of currency, OrthoPAT disposables revenue increased 4.0%. Revenue growth accelerated throughout fiscal year 2010, as we worked with more customers using our IMPACT approach, which establishes the value of using the product in a standard of care setting. Diagnostics Diagnostics product revenue consists principally of the TEG products. Revenues from our diagnostics products increased 15.8% during fiscal year 2011. Foreign exchange accounted for an increase of 0.1% during fiscal year 2011. Without the effect of foreign currency, diagnostic product revenues increased by 15.7%. The revenue increase is due to new adoption of this product, particularly in the United States. During fiscal year 2010, diagnostics revenue increased 19.6% over fiscal year 2009. Foreign exchange resulted in a 4.7% increase in diagnostics revenue. Without the effect of currency, diagnostics revenue increased 14.9%. Similar to our OrthoPAT product line, diagnostics revenue growth accelerated throughout fiscal year 2010 as we worked with customers using our IMPACT program to adopt this technology as a key component of their blood management program. Other Revenues April 2, 2011 Software solutions . . . . . . . . . . . . . . . . Equipment and other . . . . . . . . . . . . . . $ 66,876 57,982 April 3, 2010 (In thousands) $35,919 54,285 Net other revenues . . . . . . . . . . . . . . $124,858 $90,204 $85,649 March 28, 2009 % Increase 11 vs. 10 % Increase 10 vs. 09 $31,605 54,044 86.2% 6.8% 38.4% 13.6% 0.4% 5.3% Software Solutions Our software solutions revenues include revenue from software sales which includes per collection or monthly subscription fees for the license and support of the software, as well as hosting services. With the acquisition of Global Med on March 31, 2010, a significant portion of our software sales are perpetual licenses typically accompanied with significant implementation service fees related to software customization, as well as other professional and technical service fees. Software solutions revenues increased 86.2% during fiscal year 2011. Foreign exchange resulted in 2.9% of this increase. The remaining increase of 83.3% during fiscal year 2011 was driven primarily by software revenues associated with the acquisition of Global Med on March 31, 2010 and increased sales of our BloodTrack products. During fiscal year 2010, software solutions revenues increased 13.6% over fiscal year 2009. Foreign exchange had only a minor impact on the results as sales were primarily in U.S. dollars. The acquisition of Altivation and L’Attitude Medical Systems (Neoteric) contributed significantly to the software solutions growth in fiscal year 2010. 32 Equipment & Other Our equipment & other revenues include revenue from equipment sales, repairs performed under preventive maintenance contracts or emergency service visits, spare part sales, and various service and training programs. Equipment & other revenues increased 6.8% during fiscal year 2011. Foreign exchange resulted in a 0.8% decrease during fiscal year 2011. Without the effect of currency exchange, the increase of 7.6% was driven by acquisition related growth from the SEBRA products, which we acquired in September 2009, and growth in our emerging markets. Irrespective of the increases noted, equipment sales continue to be adversely impacted by restricted hospital capital spending and macro economic trends impacting health care funding across most of our markets. During fiscal year 2010, revenue from equipment and other sales increased 0.4% over fiscal year 2009. Foreign exchange resulted in a 2.6% decrease in equipment revenue. Absent the decrease attributable to foreign exchange, revenues increased 3.0% due to the acquisition of the SEBRA product lines and revenues from a license of the Arryx technology. Gross Profit April 2, 2011 Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . $355,209 April 3, 2010 (In thousands) $337,481 March 28, 2009 % Increase 11 vs. 10 % Increase 10 vs. 09 $308,170 5.3% 9.5% % of net revenues . . . . . . . . . . . . . . . . . . . . 52.5% 52.3% 51.5% Gross profit increased 5.3% during fiscal year 2011. The effects of foreign exchange decreased gross profit by 0.1% over fiscal year 2010. Absent foreign exchange, gross profit increased 5.4%, which was largely driven by higher software sales as a result of the Global Med acquisition and cost improvements in our manufacturing operations. Our gross profit margin percentage improved 20 basis points for fiscal year 2011 as compared to fiscal year 2010. Increased software sales positively impacted gross margin percentage. These increases were partly offset by increased inventory reserves during fiscal year 2011. During fiscal year 2010, gross profit increased 9.5%. Foreign exchange resulted in a 4.5% increase in gross profit from fiscal year 2009. The remaining increase of 5.0% was due primarily to the net increase in sales and the positive impact of cost reductions including the automation process in our Pittsburgh facility. This increase was partly offset by increased spending on quality initiatives. Our gross profit margin percent improved 80 basis points for fiscal year 2010 as compared to fiscal year 2009. Major factors impacting the gross margin percent improvement of 80 basis points included foreign exchange, manufacturing efficiencies, and fixed cost leverage. These improvements were partly offset by changes in product mix driven by higher sales of lower gross margin plasma products and aforementioned increase in spending on quality initiatives. 33 Operating Expenses April 2, 2011 Research, development and engineering . . . . . . $ 32,656 April 3, 2010 (In thousands) $ 26,376 March 28, 2009 % Increase 11 vs. 10 % Increase 10 vs. 09 $ 23,859 23.8% 10.5% % of net revenues . . . . . . . . . . . . . . . . . . . . 4.8% 4.1% 4.0% Selling, general and administrative. . . . . . . . . . $213,899 $214,483 $198,744 (0.3)% 7.9% % of net revenues . . . . . . . . . . . . . . . . . . . . 31.6% Contingent consideration income . . . . . . . . . . . $ (1,894) (cid:2)0.3% % of net revenues . . . . . . . . . . . . . . . . . . . . Asset writedowns . . . . . . . . . . . . . . . . . . . . . . $ % of net revenues . . . . . . . . . . . . . . . . . . . . 33.2% $ (2,345) (cid:2)0.4% — $ 15,686 0.0% 2.4% $ $ 33.2% — 0.0% — 0.0% (19.2)% n.m. (100.0)% n.m. Total operating expenses . . . . . . . . . . . . . . . . . $244,661 $254,200 $222,603 (3.8)% 14.2% % of net revenues . . . . . . . . . . . . . . . . . . . . 36.2% 39.4% 37.2% Research, Development and Engineering Research, development and engineering expenses increased 23.8% during fiscal year 2011. Without the increase of 2.3% in foreign exchange effect, the 21.5% increase is primarily related to incremental software development expenditures as a result of our Global Med acquisition on March 31, 2010. During fiscal year 2010, research, development and engineering expenses increased 10.5%. Foreign exchange resulted in a 1.4% increase in research, development and engineering during the year. Without foreign exchange, the increase of 9.1% was attributable to increased new product spending on our automated whole blood collection device, and a new cell salvage system — the Cell Saver EliteTM. Selling, General and Administrative During fiscal year 2011, selling, general and administrative expenses decreased 0.3%. Foreign exchange resulted in an increase of 3.6% in selling, general and administrative expenses. Excluding the impact of foreign exchange, selling, general and administrative expense decreased 3.9% during the fiscal year 2011. The decrease was attributable to a reduction in cash bonus incentive compensation this fiscal year as the Company’s financial results were lower than the financial targets established at the beginning of the year. This decrease was largely offset by expenses associated with newly acquired businesses, SEBRA and Global Med. During fiscal year 2010, selling, general and administrative expenses increased 7.9%. The effect of foreign exchange accounted for an increase of 0.4%. Excluding the impact of foreign exchange, selling, general and administrative expense increased 7.5% for fiscal year 2010 as compared to fiscal year 2009. The increase was due largely to increased costs related to newly acquired businesses, increased marketing spend behind our blood management solutions initiatives including our IMPACT selling approach and related tools, an increase in restructuring costs, and costs to consummate the acquisition of Global Med. The increase also included exit costs related to the separation of employees in connection with our transformation plan. These increases were offset by reductions in performance based compensation expense as we did not offer a special bonus and our financial performance was at a lower payout point against pre-established performance targets than in fiscal year 2009. Contingent Consideration Income Under the accounting rules for 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 year 2010. During each of fiscal year 2011 and 2010, this business did not achieve the necessary revenue growth milestones for the former shareholders to receive additional performance payments. As such, we reduced the contingent liability by 34 $1.9 million and $2.3 million during fiscal year 2011 and 2010, respectively, and recorded the adjustments as contingent consideration income in the consolidated statements of income. Asset Write Downs At the end of fiscal year 2010 we recorded intangible asset write downs totaling $15.7 million. The impairment related to two software assets: the Symphony blood center software system totaling $3.5 million, which we no longer market in favor of the Global Med El Dorado blood center software system we acquired in March 2010, and software for our Portico platelet apheresis device totaling $12.2 million, that we abandoned as we prioritized superior research and development initiatives. Operating Income Operating income . . . . . . . . . . . . . . . % of net revenues . . . . . . . . . . . . . . . April 2, 2011 $110,548 April 3, 2010 (In thousands) $83,281 March 28, 2009 % Decrease 11 vs. 10 % Decrease 10 vs. 09 $85,567 32.7% (2.7)% 16.3% 12.9% 14.3% During fiscal year 2011, operating income increased 32.7% compared to fiscal year 2010. Foreign exchange resulted in a 0.1% increase in operating income during the fiscal year. Without the effects of foreign currency, operating income increased 32.6% over fiscal year 2010. The growth in revenues from our emerging markets, the acquisition of Global Med and lower cash bonus incentive compensation were significant contributors to the improvement in operating income. Additionally, we incurred significant costs in fiscal year 2010 related to asset write downs, positively impacting operating income growth as no similar costs were incurred in fiscal year 2011. Operating income decreased 2.7% during fiscal year 2010. The effects of foreign exchange accounted for an increase in operating income of 14.8%. Without the effects of foreign exchange, operating income decreased 17.5% during fiscal year 2010. Several items contributed to the reduction in operating income, including the asset write downs noted above, restructuring costs, costs to consummate the acquisition of Global Med, and increased operating expenses related to new business acquisitions, blood management solutions, research and development, and our enterprise resource planning system. These decreases were partially offset by income resulting from the re-measurement of the fair value of contingent consideration from our Neoteric acquisition, the decrease in employee bonus expense, and the increases in gross profit described above. Other (expense)/income, net April 2, 2011 April 3, 2010 March 28, 2009 % Decrease 11 vs. 10 % Increase 10 vs. 09 Interest expense . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense, net $ (6) 384 (845) (In thousands) $ (742) 399 (1,667) $ (64) 1,968 (2,469) Total other expense, net . . . . . . . . . . . . $(467) $(2,010) $ (565) (76.8)% H100% The decrease in other expense, net during fiscal year 2011 included a reduction in foreign currency losses on foreign currency assets and lower hedge points on forward contracts. Hedge points on forward contracts are amounts, either expensed or earned, based on the interest rate differential between two foreign currencies in a forward hedge contract. The reversal of interest expense on contingent consideration related to the Neoteric acquisition also contributed to the decrease noted. The main reasons for the increase in other expense, net in fiscal year 2010 is the net of (i) the increase in interest expense due to the accounting relating to the contingent consideration on a recent acquisition, (ii) the 35 decrease in interest income due to significantly reduced investment yields, and (iii) a decrease in hedge points expenses. Taxes Reported income tax rate . . . . . . . . . . . . . 27.3% 28.2% 30.2% (0.9)% (2.0)% April 2, 2011 April 3, 2010 March 28, 2009 % Decrease 11 vs. 10 % Decrease 10 vs. 09 (In thousands) Reported Tax Rate Our reported tax rate includes two principal components: an expected annual tax rate and discrete items resulting in additional provisions or benefits that are recorded in the quarter that an event arises, events or items that give rise to discrete recognition include finalizing audit examinations for open tax years, a statute of limitation’s expiration, or a stock acquisition. The reported tax rate was 27.3% for the current fiscal year. The reported tax rate includes: (cid:129) A 27.2% effective annual rate which reflects tax benefits and expenses from foreign taxes, domestic manufacturing deduction, state provisions, and stock compensation not deductible in all jurisdictions. (cid:129) A $0.8 million benefit due to our eligibility for a reduced Swiss income tax rate. (cid:129) A $1.0 million reversal of previously accrued income taxes because of the expiration of foreign and federal statute of limitations. (cid:129) A $1.9 million increase in tax expense due to potential foreign and federal tax assessment. (cid:129) A $0.7 million increase in tax expense due to finalizing our prior year income tax return. (cid:129) A $0.5 million benefit from the remittance of European dividends. The reported tax rate was 28.2% for the 2010 fiscal year. The reported tax rate includes: (cid:129) A 29.6% effective annual rate which reflects tax benefits and expenses from foreign taxes, domestic manufacturing deduction, state provisions, and stock compensation not deductible in all jurisdictions. (cid:129) A $1.6 million benefit from the remittance of a Japanese dividend before the restructuring of that subsidiary. (cid:129) A $0.5 million increase in tax expense as a determination of our eligibility for a reduced Swiss income tax rate has not been finalized. (cid:129) A $0.3 million reversal of previously accrued income taxes because of the finalization of our federal and state tax returns and the expiration of domestic statutes of limitations. Critical Accounting Policies Our significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates. The accounting policies identified as critical are as follows: Revenue Recognition We recognize revenues from product sales, software and services in accordance with ASC Topic 605, Revenue Recognition and ASC Topic 985-605, Software. These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product delivery, including customer acceptance, has 36 occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. When more than one element such as equipment, disposables and services are contained in a single arrangement, we allocate revenue between the elements based on each element’s relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, which constitutes vendor specific objective evidence as defined under ASC Topic 985-605, or in cases when the item is not sold separately, by other objective evidence as defined in ASC Topic 605. We generally do not allow our customers to return products. We offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the correspond- ing liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned. We recognize revenue from the sale of perpetual licenses on a percentage-of-completion basis which requires us to make reasonable estimates of the extent of progress toward completion of the contract. These arrangements most often include providing customized implementation services to our customer. We also provide other services, including in some instances hosting, technical support, and maintenance, for the payment of periodic, monthly, or quarterly fees. We recognize these fees and charges as earned, typically as these services are provided during the contract period. Inventories Inventories are stated at the lower of the actual cost to purchase and/or manufacture or the current estimated market value of the inventory. On a quarterly basis, inventory quantities on hand are reviewed and an analysis of the provision for excess and obsolete inventory is performed based primarily on our estimates of product demand and production requirements for the next twenty-four months. A change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results. Goodwill and Other Intangible Assets Intangible assets acquired in a business combination, including licensed technology, are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. We amortize our other intangible assets over their useful lives using the estimated economic benefit method, as applicable. Goodwill is not amortized. Instead goodwill is reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles — Goodwill and Other. We perform our annual impairment test in the fiscal fourth quarter for each of our reporting units. The test is based on a discounted cash flow analysis for each reporting unit. The test showed no evidence of impairment to our goodwill and other indefinite lived assets for either fiscal year 2011 or 2010 and demonstrated that the fair value of each reporting unit significantly exceeded the reporting unit’s carrying value in each period. We review our intangible assets, subject to amortization, and their related useful lives periodically to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. Our review includes examination of whether certain conditions exist, including: a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for our products or changes in the size of the market for our products. 37 An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. Fair value is determined using different methodologies depending upon the nature of the underlying asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Property, Plant and Equipment Property, plant and equipment are depreciated over their useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue. Any change in conditions that would cause us to change our estimate as to the useful lives of a group or class of assets may significantly impact our depreciation expense on a prospective basis. Haemonetics’ equipment includes devices that we have placed at our customers under contractual arrangements that allow them to use the device in exchange for rental payments or the purchase of disposables. In addition to periodically reviewing the useful lives of these devices, we also periodically perform reviews to determine if a group of these devices is impaired. To conduct these reviews we must estimate the future amount and timing of demand for these devices. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could have a significant impact on the value of equipment and our reported operating results. Consistent with the impairment tests noted above for intangible assets subject to amortization, we review our property, plant, and equipment assets, subject to depreciation, and their related useful lives at least once a year, or more frequently if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. Capitalized Software Costs Software development costs have been capitalized in accordance with ASC Topic 985-20, Software, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Technological feasibility is established when we have a detailed program design of the software and when research and development activities on the underlying device, if applicable, are completed. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. We review the net realizable value of capitalized software assets periodically to assess the recoverability of amounts capitalized. Income Taxes The income tax provision is calculated for all jurisdictions in which we operate. This process involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and a valuation allowance is established with a corresponding additional income tax provision recorded in our consolidated statements of income if their recovery is not considered likely. The provision for income taxes could also be materially impacted if actual taxes due differ from our earlier estimates. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Uncertain tax positions are unrecognized tax benefits for which reserves have been established. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. We file income tax returns in all jurisdictions in which we operate. We establish reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to permanent differences and interest applicable to both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments are made as events occur that warrant modification. 38 Stock-Based Compensation We use the Black-Scholes option-pricing model to calculate the grant-date fair value of our stock options. The following assumptions, which involve the use of judgment by management, are used in the computation of the grant-date fair value of our stock options: Expected Volatility — We have principally used our historical volatility as a basis to estimate expected volatility in our valuation of stock options. Expected Term — We estimate the expected term of our options using historical exercise and forfeiture data. We believe that this historical data is currently the best estimate of the expected term of our new option grants. Additionally, after determining the fair value of our stock options, we use judgment in establishing an estimated forfeiture rate, to determine the amount of stock based compensation to record each period: Estimated Forfeiture Rate — We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8% to all unvested stock options as of April 2, 2011, which represents the portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for those shares that vest. Valuation of Acquisitions We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their estimated fair values at the dates of acquisition, including acquired identifiable intangible assets, and purchased research and development. We base the estimated fair value of identifiable intangible assets on detailed valuations that use historical and forecasted information and market assumptions based upon the assumptions of a market participant. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated cash flows and discount rates, and alternative estimated useful life assumptions could result in different purchase price allocations, and intangible asset amortization expense in current and future periods. In certain acquisitions, we have earn out arrangements or contingent consideration to provide potential future payments to the seller for achieving certain agreed-upon financial targets. We record the contingent consideration at its fair value at the acquisition date. Generally, we have entered into arrangements with contingent consideration that require payments in cash. As such, we periodically revalue the contingent consideration obligations associated with certain acquisitions to their then fair value and record the change in the fair value as contingent consideration income or expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates, and changes in assumed probability adjustments with respect to regulatory approval. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration income or expense we record in any given period. Liquidity and Capital Resources The following table contains certain key performance indicators we believe depict our liquidity and cash flow position: 39 April 2, 2011 April 3, 2010 (Dollars in thousands) Cash & cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash position(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Days sales outstanding (DSO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposables finished goods inventory turnover . . . . . . . . . . . . . . . . . . . . . . . $196,707 $340,160 4.1 $191,828 68 6.1 $141,562 $250,888 2.9 $120,911 59 5.8 (1) Net cash position is the sum of cash and cash equivalents less total debt. Our primary sources of liquidity include on-hand cash and cash equivalents, cash flow generated from operations and proceeds from stock option exercises. We believe these sources will be sufficient to fund our cash requirements for at least the next 12 months, which are primarily capital expenditures and approximately $50 million of repurchases of our common stock. A primary factor contributing to the increase in days sales outstanding (DSO) for fiscal year 2011 was a result of the additional week of sales in the fourth quarter of fiscal year 2010 which lowered the DSO for the prior year. Additionally, higher final month sales from our emerging markets in the fourth quarter of fiscal year 2011 contributed to the increase in DSO for the current year. In April 2011, we announced a voluntary recall of our OrthoPAT devices manufactured prior to 2002. In the fourth quarter of fiscal year 2011, we recorded $0.8 million of expense based on our current estimate of accruable costs related to remediation efforts associated with the recall. In fiscal year 2012, we anticipate spending approximately $10 million of incremental capital equipment-related expenditures to the upgrade of our OrthoPAT device placed at customer locations. Net cash provided by (used in): Operating activities . . . . . . . . . . . . . . . . . . . Investing activities . . . . . . . . . . . . . . . . . . . . Financing activities . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and cash equivalents(1) . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash April 2, 2011 April 3, 2010 March 28, 2009 (In thousands) (Decrease)/ Increase 11 vs. 10 Increase/ (Decrease) 10 vs. 09 $123,455 (51,558) (18,084) $ 130,668 (132,335) (13,970) $116,364 (60,000) (30,737) $ (7,213) 80,777 (4,114) $ 14,304 (72,335) 16,767 1,332 478 (2,459) 854 2,937 equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,145 $ (15,159) $ 23,168 $70,304 $(38,327) (1) The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dol- lars. 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: The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In comparing spot exchange rates at April 2, 2011 versus April 3, 2010 and at April 3, 2010 versus March 28, 2009, (i) the European currencies, primarily the Euro, strengthened and weakened, respectively, against the U.S. dollar and (ii) the Yen strengthened against the U.S. dollar during both comparison periods. In fiscal year 2011, the Company repurchased approximately 0.9 million shares of its common stock for an aggregate purchase price of $50.0 million. This completed a $50.0 million share repurchase program that was announced in April 2010. 40 In fiscal year 2010, the Company repurchased approximately 0.7 million shares of its common stock for an aggregate purchase price of $40.0 million. This completed a $40.0 million share repurchase program that was announced in May 2009. In fiscal year 2009, the Company repurchased approximately 1.1 million shares of its common stock for an aggregate purchase price of $60.0 million. This completed a $60.0 million share repurchase program that was announced in May 2008. FISCAL YEAR 2011 AS COMPARED TO FISCAL YEAR 2010 Operating Activities: Net cash provided by operating activities was $123.5 million during fiscal year 2011, a decrease of $7.2 million as compared to fiscal year 2010. The decrease noted is driven by an increase in cash payments related to integration, restructuring and other exit costs primarily related to the Global Med acquisition and a lower accrual for cash bonus incentive compensation payments for next fiscal year, offset by the positive impact of net income growth in fiscal 2011. Investing Activities: Net cash used in investing activities decreased by $80.8 million during fiscal year 2011 as compared to fiscal year 2010. The cash paid to acquire businesses in fiscal year 2010 totaled $77.8 million due primarily to $58.1 million paid for the Global Med acquisition. In fiscal year 2011, we completed one acquisition for which we paid $6.2 million for ACCS, a distributor of our TEG product. We also reduced capital expenditures in fiscal 2011 versus the prior year by $9.6 million, consistent with our capital plan. Financing Activities: During fiscal year 2011, cash used in financing activities include: (cid:129) $50.0 million in cash paid out relating to stock repurchases — compared to the $40.0 million paid out during the prior year, (cid:129) $47.7 million in proceeds from stock options, related excess tax benefits from stock option exercises, and the employee stock purchase plan as compared to $20.6 million from the same sources in fiscal year 2010, and (cid:129) $7.7 million in repayment of debt assumed from our acquisition of Global Med. (cid:129) $7.5 million in repayment of outstanding unsecured debt. FISCAL YEAR 2010 AS COMPARED TO FISCAL YEAR 2009 Operating Activities: Net cash provided by operating activities increased $14.3 million in 2010 as compared to 2009 due primarily to: (cid:129) Increased net income after non-cash expenses, (cid:129) $4.4 million decrease in accounts receivable due to increased collections and improvements in days sales outstanding during the fiscal year, (cid:129) $9.6 million decreased investment in inventory, partially offset by: (cid:129) $14.8 million decrease in accounts payable and accrued expenses primarily due to the payment of fiscal year 2009 employee performance bonuses worldwide and a discretionary bonus for extraordinary performance to all employees other than the Chief Executive Officer and certain other executives, 41 (cid:129) $9.5 million increase in other assets and other long-term liabilities, and (cid:129) $2.1 million increase in tax payments. Investing Activities: Net cash used in investing activities increased $72.3 million in 2010 as compared to 2009 due primarily to the $71.8 million cash used for acquisitions during the fiscal year which was $77.8 million in fiscal year 2010 compared to the $6.0 million in fiscal year 2009. Financing Activities: Net cash used by financing activities decreased by $16.8 million due to: (cid:129) $40.0 million used to repurchase shares of Company common stock during fiscal year 2010 as compared to the $60.0 million used in fiscal year 2009. (cid:129) $7.5 million increase in short term notes payable. partially offset by: (cid:129) $8.1 million decrease in exercise of stock options. (cid:129) $7.0 million decrease in tax benefit on exercise of stock options. Contractual Obligations and Contingencies A summary of our contractual and commercial commitments as of April 2, 2011, is as follows (for more information concerning our debt see Note 8 to the consolidated financial statements and for our operating lease obligations see Note 10): Payments Due by Period Total Less than 1 year Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . Purchase commitments* . . . . . . . . . . . . . . . Expected retirement plan benefit payments. . . $ 4,879 $ 18,139 $133,811 $ 3,116 $ 913 $ 6,516 $133,811 152 $ Total contractual obligations . . . . . . . . . . . . $159,945 $141,392 $9,241 $4,456 4-5 years 1-3 years (In thousands) $2,060 $1,906 $2,124 $6,459 $ — $ — $ 426 $ 722 After 5 years $ — $3,040 $ — $1,816 $4,856 * Includes amounts we are committed to spend on purchase orders entered in the normal course of business for capital equipment and for the purpose of manufacturing our products including contract manufacturers, specifically JMS Co. Ltd., and Kawasumi Laboratories, for the manufacture of certain disposable products. The majority of our operating expense spending does not require any advance commitment. The above table does not reflect our long-term liabilities associated with unrecognized tax benefits of $4.9 million recorded in accordance with ASC Topic 740, Income Taxes. Due to the complexity associated with tax uncertainties related to these unrecognized benefits, we cannot reasonably make a reliable estimate of the period in which we expect to settle these long-term liabilities. See Note 9 for more information on our unrecognized tax benefits. Contingent Commitments Contingent Consideration Under the accounting rules for 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 year 2010. During each of fiscal year 2011 and 2010, this business did not achieve the necessary revenue growth milestones for the former 42 shareholders to receive additional performance payments. As such, we reduced the contingent liability by $1.9 million and $2.3 million during fiscal year 2011 and 2010, respectively, and recorded the adjustments as contingent consideration income in the consolidated statements of income. The ending contingent liability for this consideration was $2.3 million and $4.1 million at April 2, 2011 and April 3, 2010, respectively. Legal Proceedings We believe our competitor Fenwal has produced, and continues to produce, a red cell consumable kit which infringes a Haemonetics patent. For the past five years, we have been pursuing a patent infringement lawsuit against Fenwal, the details of which are summarized below. After the Court of Appeals for the Federal Circuit reversed the trial court’s decision on claims construction, vacating the injunction and damages previously awarded to Haemonetics, the case was remanded to the trial court for further proceedings. In December 2005 we filed a lawsuit against Baxter Healthcare SA and Fenwal Inc. in Massachusetts federal district court, seeking an injunction and damages from Baxter’s infringement of a Haemonetics patent, through the sale of Baxter’s ALYX brand automated red cell collection system, a competitor of our automated red cell collection systems. In March 2007, Baxter sold the division which marketed the ALYX product to private investors, TPG, and Maverick Capital, Ltd. The new company which resulted from the sale was renamed Fenwal. In January 2009, a jury found that the Fenwal ALYX system infringed Haemonetics’ patent. Ultimately, the trial court awarded us a total of $18 million in damages and ordered Fenwal to stop selling the ALYX consumable by December 1, 2010 and pay Haemonetics a 10% royalty on ALYX consumable net sales from January 30, 2009 until December 1, 2010. Fenwal took three actions in response to this judgment. First, Fenwal appealed these rulings to the United States Court of Appeals for the Federal Circuit. Second, Fenwal modified the ALYX disposable in an effort to avoid the injunction. Third, Fenwal asked the Patent and Trademark Office to re-examine the validity of our patent. On June 2, 2010, the Court of Appeals reversed the trial court’s claim construction and accordingly, vacated the original jury verdict finding infringement, and remanded the case to the trial court for further proceedings. We continue to believe the ALYX consumable kit infringes our patent even under the Court of Appeals’ claim construction. In response to Fenwal’s modification of their disposable, we filed a second related patent infringement action in December 2009 in the same Massachusetts federal trial court as the first case described above. On May 28, 2010 the Patent and Trademark Office reexamined the patent which is the subject of the two cases described above, and determined that the patent is valid, contrary to Fenwal’s assertions. On September 20, 2010, Haemonetics filed a patent infringement action in Germany, against Fenwal and its German subsidiary, for Fenwal’s infringement of a Haemonetics patent related to the Haemonetics patent described above. On December 1, 2010, Fenwal filed an action to invalidate the Haemonetics patent which is the subject of this infringement action. In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting contract with a local physician and in pricing products supplied under a tender from a public hospital. In parallel proceedings concluded contemporaneously in Genoa, Italy, the same parties were entirely exonerated of all charges. Both matters involved several other individuals and companies and arose in 2004 and 2005, respectively. When the matters first arose, our Board of Directors commissioned independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel’s report, the Board concluded that no disciplinary action was warranted in either case. All Haemonetics parties appealed the guilty verdicts. On March 3, 2010 the first-level appeals court affirmed these verdicts. We are evaluating this decision and considering our options for further appeal. The Milan ruling, and its affirmation, has not impacted the 43 Company’s business in Italy to date. A third proceeding was referred by the Milan court for hearing in Bergamo, Italy. There have been evidentiary hearings, but no material developments in that case. 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 fiscal year 2011, approximately 53.1% 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 affect 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 are 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. 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 2011 and 2010 or are presently outstanding. These hedges cover our long foreign currency positions that result from our sales designated in The 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 44 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) 6.8% 9.4% 1.57 1.36 1.24 (13.4)% (8.5)% 105.11 94.91 85.65 105.28 98.17 88.99 Euro — Hedge Spot Rate (US$ per Euro) 1.49 FY10 . . . 1.41 FY11 . . . FY12 . . . 1.30 Japanese Yen — Hedge Spot Rate (JPY per US$) FY10 . . . FY11 . . . FY12 . . . Canadian Dollar — Hedge Spot Rate (CAD per US$) FY10 . . . FY11 . . . FY12 . . . British Pound — Hedge Spot Rate (US$ per GBP) FY10 . . . FY11 . . . FY12 . . . Swiss Franc — Hedge Spot Rate (CHF per US$) FY11 . . . FY12 . . . (3.9)% (4.2)% (1.6)% (2.0)% 1.12 1.09 1.03 1.14 1.10 1.05 1.44 1.65 1.54 1.45 1.47 1.50 1.05 1.01 1.05 (5.0)% (8.0)% 9.7% 9.8% (3.0)% (5.0)% (14.5)% 6.8% 3.6% 1.32 1.43 1.36 96.38 89.13 81.73 1.11 1.07 1.00 1.42 1.63 1.57 1.04 0.96 8.6% (4.9)% 7.5% 8.3% (4.2)% (5.8)% (14.7)% 3.6% 7.9% 1.28 1.35 1.35 93.50 89.78 82.45 1.09 1.03 1.40 1.59 1.54 1.05 0.95 5.5% 0.1% 4.0% 8.2% (5.5)% (12.9)% 3.2% 9.7% * We generally place our cash flow hedge contracts on a rolling twelve month basis. Recent Accounting Pronouncements In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to FASB ASC topic 605, Revenue Recognition, and Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to FASB ASC subtopic 985-605, Software — Revenue Recognition (the “Updates”). The Updates provide guidance on arrangements that include software elements, including tangible products that have software components that are essential to the functionality of the tangible product and will no longer be within the scope of the software revenue recognition guidance, and software-enabled products that will now be subject to other relevant revenue recognition guidance. The Updates provide authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of fair value for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The Updates also include new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The Updates must be adopted in the same period using the same transition method and are effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is also permitted; however, early adoption during an interim period requires retrospective application from the beginning of the fiscal year. The Company will adopt the guidance on April 3, 2011, the first day of fiscal year 2012, and does not expect that the impact of this guidance on its financial position and results of operations will be material. 45 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, the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate and such other risks described under Item 1A. Risk Factors included in this report. The foregoing list should not be construed as exhaustive. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company’s exposures relative to market risk are due to foreign exchange risk and interest rate risk. Foreign Exchange Risk See the section above 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 and costs. We do not use the financial instruments for speculative or trading activities. At April 2, 2011, we had the following significant foreign exchange contracts to hedge the anticipated foreign currency cash flows outstanding. The contracts have been organized into maturity groups and the related quarter that we expect the hedge contract to affect our earnings. 46 Hedged Currency Euro . . . . . . . . . Euro . . . . . . . . . Euro . . . . . . . . . Euro . . . . . . . . . Japanese Yen . . . Japanese Yen . . . Japanese Yen . . . Japanese Yen . . . GBP . . . . . . . . . GBP . . . . . . . . . GBP . . . . . . . . . GBP . . . . . . . . . GBP . . . . . . . . . CAD. . . . . . . . . CAD. . . . . . . . . CAD. . . . . . . . . CHF . . . . . . . . . CHF . . . . . . . . . CHF . . . . . . . . . CHF . . . . . . . . . (BUY)/SELL Local Currency Weighted Spot Contract Rate Weighted Forward Contract Rate Fair Value Gain/(Loss) Maturity 7,496,474 11,612,400 10,267,000 10,732,156 960,110,424 1,531,130,000 1,490,748,302 1,238,150,398 (824,502) (2,679,632) (2,679,632) (2,679,632) (631,860) (4,039,754) (4,148,622) (2,680,000) (4,023,000) (3,924,000) (3,893,500) (2,396,000) 1.248 1.301 1.362 1.370 88.38per US$ 85.65per US$ 81.73per US$ 82.45per US$ 1.446 1.540 1.574 1.581 1.603 1.050per US$ 1.032per US$ 1.003per US$ 1.054per US$ 1.011per US$ 0.957per US$ 0.946per US$ 1.250 1.300 1.356 1.361 87.84per US$ 85.21per US$ 81.30per US$ 82.05per US$ 1.448 1.538 1.569 1.574 1.593 1.054per US$ 1.040per US$ 1.012per US$ 1.050per US$ 1.007per US$ 0.953per US$ 0.943per US$ $(1,152,825) Apr 2011 - May 2011 Jun 2011 - Aug 2011 $(1,164,269) Sep 2011 - Nov 2011 $ (417,033) $ (332,659) Dec 2011 - Feb 2012 $ (630,376) Apr 2011 - May 2011 Jun 2011 - Aug 2011 $ (476,826) Sep 2011 - Nov 2011 334,704 $ Dec 2011 - Feb 2012 117,940 $ 128,243 $ Apr 2011 170,421 May 2011 - July 2011 $ Aug 2011 - Oct 2011 81,208 $ Nov 2011 - Jan 2012 59,836 $ Feb 2012 716 $ Apr 2011 - Jun 2011 315,231 $ Jul 2011 - Sep 2011 256,689 $ Oct 2011 - Dec 2011 89,331 $ Apr 2011 - Jun 2011 506,358 $ Jul 2011 - Sep 2011 334,066 $ Oct 2011 - Dec 2011 120,238 $ Jan 2012 - Feb 2012 47,967 $ $(1,611,040) Quarter Expected to Affect Earnings Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q1 FY12 Q2 FY12 Q3 FY12 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. dollar relative to all other major currencies. In the event of a 10% strengthening of the U.S. dollar, the change in fair value of all forward contracts would result in a $10.6 million increase in the fair value of the forward contracts; whereas a 10% weakening of the US dollar would result in a $12.3 million decrease in the fair value of the forward contracts. Interest Rate Risk All of our long-term debt is at fixed rates. Accordingly, a change in interest rates has an insignificant effect on our interest expense amounts. The fair value of our long-term debt, however, does change in response to interest rate movements due to its fixed rate nature. These changes reflect the premium (when market interest rates decline below the contract fixed interest rates) or discount (when market interest rates rise above the fixed interest rate) that an investor in these long-term obligations would pay in the market interest rate environment. At April 2, 2011, the fair value of our long-term debt was approximately $0.4 million higher than the value of the debt reflected on our financial statements. This higher fair value is entirely related to the $3.8 million remaining principal balance of the original $10.0 million, 8.41% real estate mortgage due January, 2016. Using scenario analysis, if the interest rate on all long-term maturities changed by 10% from the rate levels that existed at April 2, 2011, the fair value of our long-term debt would change by less than $0.1 million. 47 Item 8. Financial Statements and Supplementary Data HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $676,694 321,485 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 2, 2011 Year Ended April 3, 2010 (In thousands, except per share data) $645,430 307,949 $597,879 289,709 March 28, 2009 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,209 337,481 308,170 Operating expenses: Research, development and engineering . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contingent consideration income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,656 213,899 (1,894) — 26,376 214,483 (2,345) 15,686 23,859 198,744 — — Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,661 254,200 222,603 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,548 (6) 384 (845) 110,081 30,101 83,281 (742) 399 (1,667) 81,271 22,901 85,567 (64) 1,968 (2,469) 85,002 25,698 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,980 $ 58,370 $ 59,304 Basic income per common share Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.19 Income per common share assuming dilution Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.12 $ $ 2.29 2.24 $ $ 2.34 2.27 Weighted average shares outstanding Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,077 25,596 25,451 26,063 25,389 26,173 The accompanying notes are an integral part of these consolidated financial statements. 48 HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) April 2, 2011 April 3, 2010(1) (In thousands, except share data) $ 196,707 $ 141,562 ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, less allowance of $1,799 at April 2, 2011 and $2,554 at April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment: Land, building and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plant equipment and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office equipment and information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haemonetics equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets: 127,166 84,387 9,674 30,897 448,831 52,359 128,612 83,258 211,455 475,684 (320,156) 155,528 Intangible assets, less amortization of $43,827 at April 2, 2011 and $32,693 at April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset, long term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,789 115,367 1,291 10,458 228,905 $ 833,264 Current liabilities: LIABILITIES AND STOCKHOLDERS’ EQUITY Notes payable and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued payroll and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and contingencies (Note 12) $ 913 28,323 27,039 6,033 107 46,256 108,671 3,966 18,669 15,822 Stockholders’ equity: Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 25,660,393 shares at April 2, 2011 and 25,440,856 shares at April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 302,709 373,630 9,541 686,136 $ 833,264 118,580 79,953 10,985 34,862 385,942 49,292 113,534 75,023 206,267 444,116 (289,803) 154,313 100,060 109,988 910 9,715 220,673 $ 760,928 $ 16,062 25,786 39,046 5,092 68 49,000 135,054 4,458 15,377 12,915 255 252,323 334,641 5,905 593,124 $ 760,928 (1) Certain balances were revised to reflect updates to our purchase price allocation of our Global Med acquisi- tion — See Note 3, Acquisitions. The accompanying notes are an integral part of these consolidated financial statements. 49 HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME Common Stock Shares $’s Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Stockholders’ Equity Comprehensive Income Balance, March 29, 2008 . . . . . . . . . . . . . . . 25,695 $256 $186,933 $302,196 $ 4,803 $494,188 Employee stock purchase plan . . . . . . . . . . Exercise of stock options and related tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Shares repurchased . . . . . . . . . . . . . . . . . . Issuance of restricted stock, net of cancellations . . . . . . . . . . . . . . . . . . . . Stock compensation expense . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . Impact of defined benefit plans, net of tax . . Foreign currency translation adjustment . . . . Unrealized gain on hedges, net of tax. . . . . . Reclassification of hedge loss to earnings, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . 59 1 2,658 — 950 (1,100) 10 (11) 35,060 (8,003) — (51,984) 18 — — — — — — — — — — — — — — — — 10,181 — — — — — — — — 59,304 — — — — — — — — — — — (697) (10,045) 4,858 4,364 — 2,659 35,070 (59,998) — 10,181 59,304 (697) (10,045) 4,858 4,364 — Balance, March 28, 2009 . . . . . . . . . . . . . . . 25,622 $256 $226,829 $309,516 $ 3,283 $539,884 Employee stock purchase plan . . . . . . . . . . Exercise of stock options and related tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Shares repurchased . . . . . . . . . . . . . . . . . . Stock compensation expense . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . Impact of defined benefit plans, net of tax . . Foreign currency translation adjustment . . . . Unrealized loss on hedges, net of tax . . . . . . Reclassification of hedge loss to earnings, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . 66 1 2,908 — — 2,909 488 (735) — — — — — — — 5 (7) — — — — — — — 19,067 (6,748) 10,267 — — — — — — — (33,245) — 58,370 — — — — — — — — — (309) 2,599 (477) 809 — 19,072 (40,000) 10,267 58,370 (309) 2,599 (477) 809 — Balance, April 3, 2010 . . . . . . . . . . . . . . . . . 25,441 $255 $252,323 $334,641 $ 5,905 $593,124 Employee stock purchase plan . . . . . . . . . . Exercise of stock options and related tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Shares repurchased . . . . . . . . . . . . . . . . . . Issuance of restricted stock, net of cancellations . . . . . . . . . . . . . . . . . . . . Stock compensation expense . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . Impact of defined benefit plans, net of tax . . Foreign currency translation adjustment . . . . Unrealized loss on hedges, net of tax . . . . . . Reclassification of hedge loss to earnings, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . 78 1,012 (907) 36 — — — — — — — 1 9 (9) — — — — — — — — 3,680 — 44,896 (9,000) — (40,991) — 10,810 — — — — — — — — 79,980 — — — — — — — — — — — 555 6,380 (4,068) 769 — 3,681 44,905 (50,000) — 10,810 79,980 555 6,380 (4,068) 769 — Balance, April 2, 2011 . . . . . . . . . . . . . . . . . 25,660 $256 $302,709 $373,630 $ 9,541 $686,136 $ 59,304 (697) (10,045) 4,858 4,364 $ 57,784 $ 58,370 (309) 2,599 (477) 809 $ 60,992 $ 79,980 555 6,380 (4,068) 769 $ 83,616 The accompanying notes are an integral part of these consolidated financial statements. 50 HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS April 2, 2011 Year Ended April 3, 2010 (In thousands) March 28, 2009 Cash Flows from Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,980 $ 58,370 $ 59,304 Adjustments to reconcile net income to net cash provided by operating activities: Non cash items: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss/(gain) on sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . Unrealized gain from hedging activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contingent consideration income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Reversal)/accretion of interest expense on contingent consideration . . . . . . . . . . . Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in operating assets and liabilities: (Increase)/decrease in accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase)/decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in other assets and other long-term liabilities . . . . . . . . . . . . . . . . . . . . Tax benefit of exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Decrease)/increase in accounts payable and accrued expenses . . . . . . . . . . . . . . Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Investing Activities: Capital expenditures on property, plant and equipment . . . . . . . . . . . . . . . . . . . . Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . Acquisition of ACCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Global Med Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of SEBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Neoteric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Altivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Medicell Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Financing Activities: 48,145 10,810 5,782 674 (614) (1,894) (416) (3,920) (2,560) 1,680 (470) 4,941 (18,683) 123,455 (46,669) 1,468 (6,229) (128) — — — — (51,558) 43,236 10,267 2,592 (435) (1,368) (2,345) 588 15,686 4,364 (1,665) 7,254 (13,809) 2,670 5,263 130,668 (56,304) 1,785 — (58,052) (12,845) (6,613) — (306) (132,335) 36,462 10,181 1,645 (124) 3,812 — — 2 (11,236) (2,913) (4,241) 3,368 20,104 116,364 (56,379) 2,383 — — — — (3,545) (2,459) (60,000) (632) Payments on long-term real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,153) Net (decrease)/increase in short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,681 Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,896 Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,124 Excess tax benefit on exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) Share repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,084) Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332 Effect of exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,145 Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . 141,562 Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . $196,707 (754) 6,184 2,909 17,270 421 (40,000) (13,970) 478 (15,159) 156,721 $ 141,562 (694) (5,580) 2,659 25,406 7,470 (59,998) (30,737) (2,459) 23,168 133,553 $156,721 Non-cash Investing and Financing Activities: Transfers from inventory to fixed assets for placements of Haemonetics equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,069 $ 7,833 $ 6,818 Debt assumed from acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 5,132 Supplemental Disclosures of Cash Flow Information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487 $ 563 $ $ — 545 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,669 $ 21,519 $ 19,391 The accompanying notes are an integral part of these consolidated financial statements 51 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS Haemonetics is a global healthcare company dedicated to providing innovative blood management solutions for our customers — plasma collectors, blood collectors, and hospitals. Anchored by our strong brand name in medical device systems for the transfusion industry, we also provide information technology platforms and valued added services to provide customers with business solutions which support improved clinical outcomes for patients and efficiency in the blood supply chain. Our systems automate the collection and processing of donated blood; perform blood diagnostics; salvage and process surgical patient blood; and dispense blood within the hospital. These systems include devices and single-use, proprietary disposable sets that operate only on our specialized equipment. Our blood processing systems allow users to collect and process only the blood component(s) they target — plasma, platelets, or red blood cells — increasing donor and patient safety as well as collection efficiencies. Our blood diagnostics system assesses the likelihood of a patient’s blood loss allowing clinicians to make informed decisions about a patient’s treatment as it relates to blood loss in surgery. Our surgical blood salvage systems collect blood lost by a patient in surgery, clean the blood, and make it available for reinfusion to the patient, in this way giving the patient the safest blood possible — his or her own. Our blood distribution systems are “smart” refrigerators located throughout hospitals which automate the storage, inventory tracking, and dispositioning of blood in key blood use areas. Our information technology platforms are used by blood and plasma collectors to improve the safety and efficiency of blood collection logistics by eliminating previously manual functions at not-for-profit blood centers and commercial plasma centers. Our platforms are also used by hospitals to enable hospital administrators to monitor and measure blood management practices and to manage processes within transfu- sion services. Our information technology platforms allow all customers to better manage processes across the blood supply chain, comply with regulatory requirements, and identify increased opportunities to reduce costs. Our business services include consulting, Six Sigma, and LEAN manufacturing offerings that support our customers’ needs for regulatory compliance and operational efficiency in the blood supply chain and best practice in blood management. 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS Fiscal Year Our fiscal year ends on the Saturday closest to the last day of March. Fiscal years 2011 and 2009 each includes 52 weeks with all four quarters each having 13 weeks. Fiscal year 2010 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks. Principles of Consolidation The accompanying consolidated financial statements include all accounts including those of our subsidiar- ies. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the amounts derived from our estimates and assumptions. 52 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Reclassifications Certain reclassifications have been made to prior years’ amounts to conform to the current year’s presentation. During fiscal year 2011, we received new information related to our Global Med acquisition which we have considered and estimated the effect on the final purchase price allocation of the assets and liabilities acquired. These adjustments have been reflected in our consolidated balance sheet as of April 3, 2010 and are discussed further in Note 3. Revenue Recognition Our revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 605, Revenue Recognition, and ASC Topic 985-605, Software. These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product delivery, including customer acceptance, has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. When more than one element such as equipment, disposables, and services are contained in a single arrangement, we allocate revenue between the elements based on each element’s relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using vendor specific objective evidenced under ASC Topic 985-605 or other objective evidence as defined in ASC Topic 605. Product Revenues Product sales consist of the sale of our equipment devices and the related disposables used with these devices. On product sales to end customers, revenue is recognized when both the title and risk of loss have transferred to the customer as determined by the shipping terms and all obligations have been completed. For product sales to distributors, we recognize revenue for both equipment and disposables upon shipment of these products to our distributors. Our standard contracts with our distributors state that title to the equipment passes to the distributors at point of shipment to a distributor’s location. The distributors are responsible for shipment to the end customer along with installation, training and acceptance of the equipment by the end customer. All shipments to distributors are at contract prices and payment is not contingent upon resale of the product. Collection of Taxes from Customers We are required to collect sales or valued added taxes in connection with the sale of certain of our products. We report revenues net of these amounts as they are promptly remitted to the relevant taxing authority. Software Solutions and Services Revenues Our software solutions business provides support to our plasma and blood collection customers and hospitals. Through our Haemonetics Software Solutions unit, we provide information technology platforms and technical support for donor recruitment, blood and plasma testing laboratories, and for efficient and compliant operations of blood and plasma collection centers. For plasma customers, we also provide information technology platforms for managing distribution of plasma from collection centers to plasma fractionation facilities. Our software solutions revenues also include revenue from software sales which includes per collection or monthly subscription fees for the license and support of the software as well as hosting services. With the 53 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) acquisition of Global Med, a significant portion of our software sales are perpetual licenses typically accompanied with significant implementation service fees related to software customization as well as other professional and technical service fees. We recognize revenue from the sale of perpetual licenses on a percentage-of-completion basis which requires us to make reasonable estimates of the extent of progress toward completion of the contract. These arrangements most often include providing customized implementation services to our customer. We also provide other services, including in some instances hosting, technical support, and maintenance, for the payment of periodic, monthly, or quarterly fees. We recognize these fees and charges as earned, typically as these services are provided during the contract period. Translation of Foreign Currencies All assets and liabilities of foreign subsidiaries are translated at the rate of exchange at year-end while sales and expenses are translated at an average rate in effect during the year. The net effect of these translation adjustments is shown in the accompanying financial statements as a component of stockholders’ equity. Cash and Cash Equivalents Cash and cash equivalents are recorded at cost, which approximates fair market value. As of April 2, 2011, Haemonetics’ cash and cash equivalents consisted primarily of cash and investments in money market funds invested in United States Government Agency securities. Throughout the year, cash equivalents may include various instruments such as money market funds, U.S. government obligations, and commercial paper with maturities of three months or less at date of acquisition. Allowance for Doubtful Accounts We establish a specific allowance for customers when it is probable that they will not be able to meet their financial obligation. Customer accounts are reviewed individually on a regular basis and appropriate reserves are established as deemed appropriate. We also maintain a general reserve using a percentage that is established based upon the age of our receivables. We establish percentages for balances not yet due and past due accounts based on past experience. Concentration of Credit Risk and Significant Customers Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. Sales to one unaffiliated Japanese customer, the Japanese Red Cross Society, amounted to $95.9 million, $92.6 million, and $87.6 million for 2011, 2010, and 2009, respectively. Accounts receivable balances attributable to this customer accounted for 13.7%, 12.6%, and 17.5% of our consolidated accounts receivable at fiscal year ended 2011, 2010, and 2009. While the accounts receivable related to the Japanese Red Cross Society may be significant, we do not believe the credit loss risk to be significant given the consistent payment history by this customer. Certain other markets and industries can expose us to concentrations of credit risk. For example, in our commercial plasma business, we tend to have only a few customers in total but they are large in size. As a result, our accounts receivable extended to any one of these commercial plasma customers can be somewhat significant at any point in time. 54 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property, Plant and Equipment Property, plant and equipment is recorded at historical cost. We provide for depreciation and amortization by charges to operations using the straight-line method in amounts estimated to recover the cost of the building and improvements, equipment, and furniture and fixtures over their estimated useful lives as follows: Asset Classification Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plant equipment and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office equipment and information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haemonetics equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated Useful Lives 30 Years 5-20 Years 5 Years 3-10 Years 3-9 Years 2-6 Years Depreciation expense was $37.0 million, $35.5 million, and $30.5 million for fiscal year 2011, 2010, and 2009, respectively. Leasehold improvements are amortized over the lesser of their useful lives or the term of the lease. Maintenance and repairs are expensed to operations as incurred. When equipment and improvements are sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts, and the resulting gain or loss, if any, is included in the statements of income. Fully depreciated assets are removed from the accounts when they are no longer in use. Our installed base of devices includes devices owned by us and devices sold to the customer. The asset on our balance sheet entitled Haemonetics equipment consists of medical devices installed at customer sites but owned by Haemonetics. Generally the customer has the right to use it for a period of time as long as they meet the conditions we have established, which among other things, generally include one or more of the following: (cid:129) Purchase and consumption of a certain level of disposable products (cid:129) Payment of monthly rental fees (cid:129) An asset utilization performance metric, such as performing a minimum level of procedures per month per device Consistent with the impairment tests noted for other intangible assets subject to amortization, we review our property, plant, and equipment assets, subject to depreciation, and their related useful lives at least once a year, or more frequently if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. To conduct these reviews we estimate the future amount and timing of demand for these devices. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could impact the value of our devices and our reported operating results. There were no indicators of impairment in either fiscal year 2011 or 2010. Expenditures for normal maintenance and repairs are charged to expense as incurred. Goodwill and Other Intangible Assets Intangible assets acquired in a business combination, including licensed technology, are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. We amortize our other intangible assets over their useful lives using the estimated economic benefit method, as applicable. 55 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Goodwill is not amortized. Instead goodwill is reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles — Goodwill and Other. We perform our annual impairment test in the fiscal fourth quarter for each of our reporting units. The test is based on a discounted cash flow analysis for each reporting unit. The test showed no evidence of impairment to our goodwill and other indefinite lived assets for either fiscal year 2011 or 2010 and demonstrated that the fair value of each reporting unit significantly exceeded the reporting unit’s carrying value in each period. We review our intangible assets, subject to amortization, and their related useful lives periodically to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. Our review includes examination of whether certain conditions exist, including: a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. Fair value is determined using different methodologies depending upon the nature of the underlying asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ASC Topic 985-20, Software, specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Technological feasibility is established when we have a detailed design of the software and when research and development activities on the underlying device, if applicable, are completed. The Company has capitalized $6.9 million and $4.7 million in other software development costs during fiscal year 2011 and 2010 for ongoing initiatives. At April 2, 2011 and April 3, 2010, we had a total of $13.4 million and $6.5 million, respectively, of costs capitalized related to other in process software development initiatives. The costs capitalized for each project are included in intangible assets in the consolidated financial statements. We review the net realizable value of capitalized assets periodically to assess the recoverability of amounts capitalized. At the end of fiscal year 2010, based on a review of ongoing development plans for our next generation platelet apheresis products (Portico), we abandoned and wrote off $12.2 million associated with previously capitalized software development costs. Additionally, in connection with the acquisition of Global Med we elected to no longer market the Symphony blood center donation management system in favor of Global Med’s El Dorado application. As a result, we wrote off the carrying value of the Symphony intangible asset totaling approximately $3.5 million. Other Accrued Liabilities Other accrued liabilities represent items payable within the next twelve months. Other accrued liabilities were $46.3 million and $49.0 million as of April 2, 2011 and April 3, 2010, respectively. 56 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The significant items included in the fiscal year end balances were: VAT Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,867 4,174 Forward Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,740 Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,475 All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,802 1,747 19,548 17,903 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,256 $49,000 April 2, 2011 April 3, 2010 (In thousands) Research, Development and Engineering Expenses All research, development and engineering costs are expensed as incurred with the exception of the capitalized software development costs (see Note 17). Advertising Costs All advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statement of income. Advertising expenses were $2.8 million, $1.6 million, and $2.1 million for 2011, 2010, and 2009, respectively. Accounting for Shipping and Handling Costs Shipping and handling costs are included in costs of goods sold with the exception of $9.7 million for fiscal year 2011, $11.2 million for fiscal year 2010, and $11.9 million for fiscal year 2009 that are included in selling, general and administrative expenses. Freight is classified in cost of goods sold when the customer is charged for freight and in selling, general and administration when the customer is not explicitly charged for freight. Income Taxes The income tax provision is calculated for all jurisdictions in which we operate. This process involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and a valuation allowance is established with a corresponding additional income tax provision recorded in our consolidated statements of income if their recovery is not considered likely. The provision for income taxes could also be materially impacted if actual taxes due differ from our earlier estimates. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Uncertain tax positions are unrecognized tax benefits for which reserves have been established. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. We file income tax returns in all jurisdictions in which we operate. We establish reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to permanent differences and interest applicable to both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments are made as events occur that warrant modification. 57 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Foreign Currency We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with ASC Topic 815, Derivatives and Hedging. In accordance with ASC Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. The gains or losses on the forward exchange contracts designated as hedges are recorded in net revenues, cost of goods sold, and operating expenses in our consolidated statements of income when the underlying hedged transaction affects earnings. The cash flows related to the gains and losses are classified in the consolidated statements of cash flows as part of cash flows from operating activities. For those derivative instruments that are not designated as part of a hedging relationship we record the gains or losses in earnings currently. These gains and losses are intended to offset the gains and losses recorded on net monetary assets or liabilities that are denominated in foreign currencies. The Company recorded foreign currency losses of $1.4 million, $2.2 million, and $2.3 million in fiscal year 2011, 2010 and 2009, respectively. Our derivative instruments do not subject our earnings or cash flows to material risk, as gains and losses on these derivatives are intended to offset losses and gains on the item being hedged. We do not enter into derivative transactions for speculative purposes and we do not have any non-derivative instruments that are designated as hedging instruments pursuant to ASC Topic 815. Stock-Based Compensation We use the Black-Scholes option-pricing model to calculate the grant-date fair value of our stock options. The following assumptions, which involve the use of judgment by management, are used in the computation of the grant-date fair value of our stock options: Expected Volatility — We have principally used our historical volatility as a basis to estimate expected volatility in our valuation of stock options. Expected Term — We estimate the expected term of our options using historical exercise and forfeiture data. We believe that this historical data is currently the best estimate of the expected term of our new option grants. Additionally, after determining the fair value of our stock options, we use judgment in establishing an estimated forfeiture rate, to determine the amount of stock based compensation to record each period: Estimated Forfeiture Rate — We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8% to all unvested stock options as of April 2, 2011, which represents the portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for those shares that vest. Valuation of Acquisitions We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their estimated fair values at the dates of acquisition, including acquired identifiable intangible assets, and purchased research and development. We base the estimated fair value of identifiable intangible assets on detailed valuations that use historical information and market assumptions based upon the assumptions of a market participant. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated cash flows and 58 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) discount rates, and alternative estimated useful life assumptions could result in different purchase price allocations, and intangible asset amortization expense in current and future periods. In certain acquisitions, we have earn-out arrangements or contingent consideration to provide potential future payments to the seller for achieving certain agreed-upon financial targets. We record the contingent consideration at its fair value at the acquisition date. Generally, we have entered into arrangements with contingent consideration that require payments in cash. As such, each quarter, we revalue the contingent consideration obligations associated with certain acquisitions to their then fair value and record the change in the fair value as contingent consideration income or expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates, and changes in assumed probability adjustments with respect to regulatory approval. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration income or expense we record in any given period. Recent Accounting Pronouncements In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to FASB ASC topic 605, Revenue Recognition, and Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to FASB ASC subtopic 985-605, Software — Revenue Recognition (the “Updates”). The Updates provide guidance on arrangements that include software elements, including tangible products that have software components that are essential to the functionality of the tangible product and will no longer be within the scope of the software revenue recognition guidance, and software-enabled products that will now be subject to other relevant revenue recognition guidance. The Updates provide authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of fair value for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The Updates also include new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The Updates must be adopted in the same period using the same transition method and are effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is also permitted; however, early adoption during an interim period requires retrospective application from the beginning of the fiscal year. The Company will adopt the guidance on April 3, 2011, the first day of fiscal year 2012, and does not expect that the impact of this guidance on its financial position and results of operations will be material. 3. ACQUISITIONS ACCS Acquisition On December 28, 2010, Haemonetics acquired certain assets of Applied Critical Care Services, Inc. (ACCS) for $6.4 million. ACCS was a manufacturer’s representative for Haemonetics engaged in the selling and servicing of the TEG analyzer product line. The purchase price was initially allocated to customer relationships of $4.3 million, other liabilities of $0.6 million, and goodwill of $2.7 million. The Company is still in the process of obtaining and evaluating the information necessary to determine the allocation of fair value of the assets and liabilities acquired. The preliminary purchase price allocation will be finalized once the Company has received and completed this evaluation, which will occur not later than one year from the acquisition date. When finalized, the purchase price will be more specifically allocated to identifiable intangible assets acquired. Additionally, estimated intangible asset amortization expense recorded to date may also be adjusted. The impact of these adjustments may result in a change in the preliminary value attributed to goodwill. 59 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Global Med Acquisition On March 31, 2010 the Company completed its cash tender offer for the shares of Global Med Technologies, Inc. (“Global Med”). The total acquisition cost for the shares and outstanding warrants of Global Med was approximately $60.4 million. Goodwill was determined by comparing the purchase price with the fair value of the assets and liabilities acquired. The carrying value of the related goodwill has been adjusted to reflect the final purchase price allocation. At April 2, 2011, goodwill recorded after our final purchase price allocation was $39.6 million and is not tax deductible. Global Med has an in-place workforce with extensive knowledge and experience in the development and support of blood management software. The acquisition was a unique strategic fit for the Company given our global presence and customer relationships in blood management. Purchase Price Allocation The following chart summarizes the final purchase price allocation: Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (In thousands) $ 39,554 39,920 6,848 7,639 (10,928) (7,701) (7,180) (7,725) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,427 After the April 3, 2010 financial statements were issued, we received new information related to the fair value of the assets and liabilities acquired. After considering this new information, we estimated the carrying amount of certain assets and liabilities acquired to finalize our purchase price allocation. The impact of these adjustments resulted in a change in the value attributed to goodwill as follows: (cid:129) Increase of $14.0 million in intangible assets which resulted in a decrease in goodwill (cid:129) Increase of $5.9 million in net deferred tax liabilities resulting in an increase to goodwill (cid:129) $0.1 million decrease in trade accounts receivable resulting in an increase in goodwill (cid:129) $1.1 million increase in other assets resulting in a decrease in goodwill (cid:129) $0.9 million decrease in deferred revenue which resulted in a decrease to goodwill (cid:129) $0.6 million decrease in accounts payable and other liabilities resulting in an decrease to goodwill The net effect of these estimated changes resulted in a corresponding net decrease to goodwill of $10.6 million. These estimated changes are reflected accordingly in the purchase price allocation table above. Accordingly, amortization expense recorded reflects these revised fair value estimates and the final purchase price allocation. SEBRA Acquisition On September 4, 2009, Haemonetics acquired the assets of the blood collection and processing business unit (“SEBRA”) of Engineering and Research Associates, Inc., a leading provider of blood and medical 60 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) manufacturing technologies. SEBRA products, which include tubing sealers, blood shakers, sterile connection systems, mobile lounges and ancillary products used in blood collection and processing, complement Haemonetics’ portfolio and add depth to Haemonetics’ blood center and plasma product lines. The purchase price of $12.8 million was allocated to core technology of $2.0 million, customer relationships of $4.6 million, trade name intangible of $0.4 million, trade accounts receivables of $1.0 million, inventory of $1.1 million, and goodwill of $3.7 million. Neoteric Acquisition On April 16, 2009, Haemonetics acquired the outstanding shares of Neoteric. Neoteric is a medical information management company that markets a full end-to-end suite of products to track, allocate, release, and dispense hospital blood units while controlling inventory and recording the disposition of blood. The acquisition strategically broadened Haemonetics’ blood management solutions. The purchase price was $6.6 million plus contingent consideration of $5.0 million was allocated to other intangible assets of $5.0 million, deferred tax liabilities of $1.6 million, and goodwill of $8.2 million. The contingent consideration is based upon estimated annual revenue growth for the three years following the acquisition, at established profitability thresholds, and is not limited. Using projected revenues for fiscal years 2010, 2011, and 2012, an analysis was performed that probability weighted three performance outcomes for the noted years. The performance outcomes are then discounted using a discount rate commensurate with the risks associated with Neoteric to arrive at the fair value of the contingent consideration. The Company is required to reassess the fair value of contingent consideration on a periodic basis. During fiscal year 2011 and 2010, the Company reassessed the fair value of the contingent consideration as performance outcomes for these years were not met, which resulted in a reduction in the estimated liability. The ending liability balance was $2.3 million and $4.1 million at April 2, 2011 and April 3, 2010, respectively. Altivation Software Acquisition On March 27, 2009, the Company acquired Altivation Software (“Altivation”) for approximately $3.5 million in cash plus contingent consideration based upon future operating performance. Altivation is a provider of blood drive and resource management software for blood collectors. The purchase price was principally allocated to intangible assets including goodwill. The results of the Altivation operations are included in our consolidated results for periods after the acquisition date. Medicell Limited Acquisition On April 4, 2008, the Company acquired Medicell Limited (“Medicell”) for approximately $2.5 million in cash plus contingent consideration based upon future operating performance. Medicell was the exclusive distributor in the United Kingdom for the Haemoscope product line since 1998. The purchase price was principally allocated to intangible assets including goodwill. The results of the Medicell operations are included in our consolidated results for periods after the acquisition date. 4. 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 61 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) warranty expense based on our historical warranty experience, and we periodically assess the adequacy of our warranty accrual and make adjustments as necessary. April 2, 2011 April 3, 2010 Warranty accrual as of the beginning of the period . . . . . . . . . . . . . . . . . . . . . . Warranty provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranty spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (In thousands) 903 1,823 (1,453) $ 1,835 1,313 (2,245) Warranty accrual as of the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,273 $ 903 5. 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. April 2, 2011 April 3, 2010 (In thousands) Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,404 4,352 Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,631 Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,850 3,825 50,278 $84,387 $79,953 6. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill for fiscal year 2011, 2010, and 2009 are as follows: Carrying amount as of March 28, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Global Med(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEBRA(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L’Attitude Medical Systems Inc. (Neoteric)(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Altivation Software Inc.(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medicell Ltd.(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of change in foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . (In thousands) $ 56,426 39,554 3,521 8,186 2,110 583 (392) Carrying amount as of April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Altivation Software Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACCS(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of change in foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . $109,988 163 228 2,662 2,326 Carrying amount as of April 2, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,367 (a) See Note 3, Acquisitions, for a full description of the acquisition of Medicell Limited (“Medicell”), which occurred on April 4, 2008. (b) See Note 3, Acquisitions, for a full description of the acquisition of Altivation Software (“Altivation”), which occurred on March 27, 2009. 62 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (c) See Note 3, Acquisitions, for a full description of the acquisition of Global Med Technologies, Inc.(“Glo- bal Med”), which occurred on March 31, 2010. (d) See Note 3, Acquisitions, for a full description of the acquisition of the SEBRA» assets, which occurred on September 4, 2009. (e) See Note 3, Acquisitions, for a full description of the acquisition of L’Attitude Medical Systems, Inc. (“Neoteric”), which occurred on April 16, 2009. (f) See Note 3, Acquisitions, for a full description of the acquisition of Applied Critical Care Services, Inc. (“ACCS”), which occurred on December 28, 2010. Other Intangible Assets Other intangible assets include the value assigned to license rights and other technology, patents, customer contracts and relationships, software technology, and a trade name. The estimated useful lives for all of these intangible assets are 5 to 20 years. Aggregate amortization expense for amortized other intangible assets for fiscal year 2011, 2010, and 2009 was $11.1 million, $7.7 million, and $6.0 million, respectively. Future annual amortization expense on other intangible assets is expected to approximate $11.9 million for fiscal year 2012, $12.8 million for fiscal year 2013, $12.6 million for fiscal year 2014, $11.1 million for fiscal year 2015 and $10.7 million for fiscal year 2016. Amortized Intangibles Gross Carrying Amount (In thousands) Accumulated Amortization (In thousands) Weighted Average Useful Life (In years) As of April 2, 2011 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized software . . . . . . . . . . . . . . . . . . . . . . . Other technology . . . . . . . . . . . . . . . . . . . . . . . . . Customer contracts and related relationships . . . . . Trade names. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,704 14,506 43,244 69,908 5,254 Total intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . $145,616 $ 6,827 656 17,391 17,740 1,213 $43,827 11 6 11 12 10 11 Gross Carrying Amount (In thousands) Accumulated Amortization (In thousands) Weighted Average Useful Life (In years) As of April 3, 2010 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized software . . . . . . . . . . . . . . . . . . . . . . . Other technology . . . . . . . . . . . . . . . . . . . . . . . . . Customer contracts and related relationships . . . . . Trade names. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,928 7,642 43,240 65,011 4,932 Total intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . $132,753 $ 5,801 498 14,187 11,549 658 $32,693 11 6 10 11 7 10 In addition to the acquisitions of SEBRA, Neoteric, Global Med, and ACCS discussed in Note 3, changes to the net carrying value of our intangible assets from April 3, 2010 to April 2, 2011 reflect the capitalization of software costs associated with our devices and software products (see Note 17), amortization expense and 63 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) the effect of exchange rate changes in the translation of our intangible assets held by our international subsidiaries. 7. DERIVATIVES AND FAIR VALUE MEASUREMENTS We manufacture, market and sell our products globally. For the year ended April 2, 2011, approximately 53.1% of our sales were generated outside the U.S. in local currencies. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Accordingly, our earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, our reporting currency. We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize for a period of time, the unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, British Pound Sterling and the Canadian Dollar. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. Designated Foreign Currency Hedge Contracts All of our designated foreign currency hedge contracts as of April 2, 2011 and April 3, 2010 were cash flow hedges under ASC Topic 815, Derivatives and Hedging. We record the effective portion of any change in the fair value of designated foreign currency hedge contracts in Other Comprehensive Income in the Statement of Stockholders’ Equity until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, we would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. We had designated foreign currency hedge contracts outstanding in the contract amount of $154.8 million as of April 2, 2011 and $135.4 million as of April 3, 2010. During fiscal year 2011 and 2010, we recognized net gains of $0.6 million and $1.4 million, respectively, in earnings on our cash flow hedges. All currency cash flow hedges outstanding as of April 2, 2011 mature within twelve months. For the year ended April 2, 2011, $4.1 million of losses, net of tax, were recorded in Other Comprehensive Income to recognize the effective portion of the fair value of any designated foreign currency hedge contracts that are, or previously were, designated as foreign currency cash flow hedges, as compared to net losses of $0.5 million as of April 3, 2010. At April 2, 2011, losses of $0.8 million, net of tax, may be reclassified to earnings within the next twelve months. Non-designated Foreign Currency Contracts We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. We use currency forward contracts as a part of our strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These currency forward contracts are not designated as cash flow or fair value hedges under ASC Topic 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings; and are entered into for periods consistent with currency transaction exposures, generally one month. We had non-designated foreign currency hedge contracts under ASC Topic 815 outstanding in the contract amount of $45.9 million as of April 2, 2011 and $29.6 million as of April 3, 2010. 64 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value of Derivative Instruments The following table presents the effect of our derivative instruments designated as cash flow hedges under ASC Topic 815 in our consolidated statement of income for the year ended April 2, 2011. Derivative Instruments Amount of Loss Recognized in OCI (Effective Portion) Amount of Loss Reclassified from OCI into Earnings (Effective Portion) Designated foreign currency hedge contracts . . . . . . . . . . $(4,068) $(769) Amount Excluded from Effectiveness Testing (*) Location in Statement of Operations $ (513) Other income Location in Statement of Operations (In thousands) Net revenues, COGS, and SG&A Non-designated foreign currency contracts $(4,068) $(769) $2,338 $1,825 Other expense (*) 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 April 2, 2011 or April 3, 2010. ASC Topic 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. In certain instances, we may utilize financial models to measure fair value. Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of April 2, 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. The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets as of April 2, 2011 and April 3, 2010 by type of contract and whether it is a qualifying hedge under ASC Topic 815. Location in Balance Sheet Balance as of April 2, 2011 Balance as of April 3, 2010 (In thousands) Derivative Assets: Designated foreign currency hedge contracts . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets Derivative Liabilities: Designated foreign currency hedge contracts . . . . . . . . . . . . . . . . . . . . . . . . . Other accrued liabilities $2,563 $2,563 $4,407 $4,407 $4,174 $4,174 $1,747 $1,747 65 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 measure- ments. 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 year ended April 2, 2011 and April 3, 2010, we applied the requirements under ASC Topic 820 to our non- financial assets and non-financial liabilities. As we did not have an impairment of any non-financial assets or non-financial liabilities, there was no disclosure required relating to our non-financial assets or non-financial liabilities. On a recurring basis, we measure certain financial assets and financial liabilities at fair value, including our money market funds, foreign currency derivative contracts, and contingent consideration. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We base fair value upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows: (cid:129) Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities. (cid:129) Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs. (cid:129) 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. For the year ended April 2, 2011 and April 3, 2010, we have classified our other liabilities — contingent consideration relating to our acquisition of Neoteric within Level 3 of the fair value hierarchy because the value is determined using significant unobservable inputs. 66 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value Measured on a Recurring Basis Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of April 2, 2011 : Assets Money market funds . . . . . . . . . . . . . . . . . . . Forward currency exchange contracts . . . . . . Liabilities Forward currency exchange contracts . . . . . . Other liabilities — contingent consideration . . Quoted Market Prices for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (In thousands) $148,369 — $148,369 $ $ — — — $ — 2,563 $2,563 $4,174 — $4,174 $ — — $ — $ — 2,284 $2,284 Total $148,369 2,563 $150,932 $ 4,174 2,284 $ 6,458 A description of the methods used to determine the fair value of the Level 3 liabilities (other liabilities — contingent consideration) is included within Note 3, Acquisitions. The table below provides a reconciliation of the beginning and ending Level 3 liabilities for the year ended April 2, 2011. Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of interest expense on contingent consideration, net . . . . . . . . . . . . . . . . . . Contingent consideration income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation adjustment Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) $ 4,101 (416) (1,894) 493 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,284 Other Fair Value Disclosures The fair value of our real estate mortgage obligation was $4.1 million and $5.1 million at April 2, 2011 and April 3, 2010, respectively. 67 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 8. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consisted of the following: April 2, 2011 April 3, 2010 (In thousands) Real estate mortgage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,590 289 Short-term notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Notes payable assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,879 Less-Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 913 $ 5,344 7,475 7,701 $20,520 $16,062 $3,966 $ 4,458 Real Estate Mortgage Agreement In December 2000, we entered into a $10.0 million real estate mortgage agreement (the “Mortgage Agreement”) with an investment firm. The Mortgage Agreement requires principal and interest payments of $0.1 million per month for a period of 180 months, commencing February 1, 2001. The entire balance of the loan may be repaid at any time after February 1, 2006, subject to a prepayment premium, which is calculated based upon the change in the current weekly average yield of Ten (10)-year U.S. Treasury Constant Maturities, the principal balance due and the remaining loan term. The Mortgage Agreement provides for interest to accrue on the unpaid principal balance at a rate of 8.41% per annum. Borrowings under the Mortgage Agreement are secured by the land, building and building improvements at our headquarters and manufactur- ing facility in the U.S. with a carrying value of approximately $4.6 million and $5.3 million as of April 2, 2011 and April 3, 2010, respectively. There are no financial covenants in the terms and conditions of this agreement. Short-Term Notes Payable. Our subsidiary, Haemonetics Japan Co. Ltd., had no outstanding unsecured debt as of April 2, 2011 and $7.5 million outstanding as of April 3, 2010. Notes Payable Assumed in Acquisition As of April 3, 2010, Global Med had $7.8 million outstanding in loan and security agreements. These agreements provided for a revolving line of credit and term loans. Subsequent to April 3, 2010, as part of our integration of Global Med, we paid the outstanding balances under this obligation. The weighted average short-term rates for U.S. and non-U.S. borrowings were 0.51%, 0.54%, and 1.03% as of April 2, 2011, April 3, 2010, and March 28, 2009, respectively. As of April 2, 2011, notes payable and long-term debt matures as follows (in thousands): Fiscal Year Ending 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 913 1,090 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 970 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,055 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,879 68 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 9. INCOME TAXES Domestic and foreign income before provision for income tax is as follows: April 2, 2011 Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,040 $ 52,041 April 3, 2010 (In thousands) $42,259 $39,011 March 28, 2009 $55,240 $29,762 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $110,081 $81,270 $85,002 The income tax provision contains the following components: April 2, 2011 April 3, 2010 (In thousands) March 28, 2009 Current Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,982 2,111 7,226 $10,088 887 9,333 $16,809 1,768 5,476 Total current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,319 $20,308 $24,053 Deferred Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,931 438 413 4,103 259 (1,770) 1,779 (1) (133) Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,782 $ 2,592 $ 1,645 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,101 $22,900 $25,698 Included in the federal income tax provisions for fiscal years 2011, 2010 and 2009 are approximately $10.8 million, $8.1 million and $6.8 million, respectively, provided on foreign source income of approximately $31.0 million, $23.2 million and $19.6 million for fiscal year 2011, 2010 and 2009, respectively, for taxes which are payable in the United States. 69 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Tax affected, significant temporary differences comprising the net deferred tax asset are as follows: April 2, 2011 April 3, 2010 (In thousands) Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,447) (20,597) Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,244 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120 Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950 Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,241 Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,725 Stock Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,583 Tax credit carryforward, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,181) Gross Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,630) $ (8,317) (14,995) 1,169 (1,329) 9,419 6,904 8,226 1,594 2,671 (378) $ Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,811) $ 2,293 As of April 2, 2011, the Company has approximately $9.5 million in U.S. acquisition and approximately $1.2 million in Canada acquisition related net operating loss carry forwards that it believes are more likely than not that they will be realized. The Company has established valuation allowances to reduce the value of tax assets to amounts that it deems to be realizable. The valuation allowance is made up of $0.4 million acquisition-related R&D credits and $3.2 million acquisition-related net operating losses. The net operating loss carry forwards are subject to separate limitations and will expire beginning in 2020. The Company also has $1.5 million in gross federal and state tax credits available to offset future tax. Approximately $143 million of our foreign subsidiary undistributed earnings are deemed to be perma- nently reinvested outside the US. Accordingly we have not provided US income taxes on these earnings. The income tax provision from operations differs from tax provision computed at the 35% U.S. federal statutory income tax rate due to the following: April 2, 2011 April 3, 2010 (In thousands) March 28, 2009 Tax at federal statutory rate. . . . . . . . . . . . . . . . . . . . $38,528 Domestic Manufacturing Deduction and 35.0% $28,444 35.0% $29,751 35.0% Extraterritorial Income Exclusion. . . . . . . . . . . . . . Difference between U.S. and foreign tax . . . . . . . . . . State income taxes net of federal benefit . . . . . . . . . . In Process Research and Dividend repatriation . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,120) (8,610) 1,741 (506) 68 (1.0)% (883) (7.9)% (4,392) 1.6% 764 (0.5)% (1,574) 541 0.1% (1.1)% (1,396) (5.4)% (4,267) 1,461 0.9% (795) (1.9)% 944 0.7% (1.6)% (5.0)% 1.7% (1.0)% 1.1% Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . $30,101 27.3% $22,900 28.2% $25,698 30.2% Unrecognized Tax Benefits Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. As of April 2, 2011, we had $4.7 million of unrecognized tax benefits, of which $4.3 million will impact the effective tax rate, if recognized. As of April 3, 2010, we had $4.6 million of unrecognized tax benefits, of which $4.2 million will impact the effective tax rate, if recognized. 70 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Each year the statute of limitations for income tax returns filed in various jurisdictions closes, sometimes without adjustments. During the year ended April 2, 2011 our unrecognized tax benefits were reduced by $1.6 million as a result of the expiration of the statute of limitations in several jurisdictions and settlements with taxing authorities. This was offset in part by the establishment of reserves of $1.7 million for various matters. Total unrecognized tax benefits on April 2, 2011 were $4.7 million. The following table summarizes the activity related to our gross unrecognized tax benefits for the years ending April 3, 2010 and April 2, 2011: April 2, 2011 April 3, 2010 (In thousands) Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions based upon positions related to the current year . . . . . . . . . . . . . . . . . Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reductions of tax positions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Closure of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,620 20 1,641 (1,042) — (570) $ 3,890 1,722 1,335 — (924) (1,403) Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,669 $ 4,620 As of April 2, 2011 we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $0.3 million in the next twelve months, as a result of closure of various foreign statutes of limitations. Our historic practice has been and continues to be to recognize interest and penalties related to Federal, state and foreign income tax matters in income tax expense. Approximately $0.7 million and $0.6 million was accrued for interest and penalties at April 2, 2011 and April 3, 2010, respectively and is not included in the amounts above. We conduct business globally and, as a result, file consolidated federal and consolidated and separate state and foreign income tax returns in multiple jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world in jurisdictions including the U.S., Japan, Germany, France, the United Kingdom, and Switzerland. With few exceptions, we are no longer subject to U.S. federal, state and local, or foreign income tax examinations for years before 2007. 10. COMMITMENTS AND CONTINGENCIES We lease facilities and certain equipment under operating leases expiring at various dates through fiscal year 2016. Facility leases require us to pay certain insurance expenses, maintenance costs and real estate taxes. Approximate future basic rental commitments under operating leases as of April 2, 2011 are as follows (in thousands): Fiscal Year Ending 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,516 4,313 2,146 1,096 1,028 3,040 $18,139 71 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Rent expense in fiscal year 2011, 2010, and 2009 was $6.6 million, $5.9 million, and $5.2 million, respectively. Under the accounting rules for 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 year 2010. During each of fiscal year 2011 and 2010, this business did not achieve the necessary revenue growth milestones for the former shareholders to receive additional performance payments. As such, we reduced the contingent liability by $1.9 million and $2.3 million during fiscal year 2011 and 2010, respectively, and recorded the adjustments as contingent consideration income in the consolidated statements of income. The ending contingent liability for this consideration was $2.3 million and $4.1 million at April 2, 2011 and April 3, 2010, respectively. We are presently engaged in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe that any such liability will not materially affect our consolidated financial position or our results of operations. We believe our competitor Fenwal has produced, and continues to produce, a red cell consumable kit which infringes a Haemonetics patent. For the past five years, we have been pursuing a patent infringement lawsuit against Fenwal, the details of which are summarized below. After the Court of Appeals for the Federal Circuit reversed the trial court’s decision on claims construction, vacating the injunction and damages previously awarded to Haemonetics, the case was remanded to the trial court for further proceedings. In December 2005 we filed a lawsuit against Baxter Healthcare SA and Fenwal Inc. in Massachusetts federal district court, seeking an injunction and damages from Baxter’s infringement of a Haemonetics patent, through the sale of Baxter’s ALYX brand automated red cell collection system, a competitor of our automated red cell collection systems. In March 2007, Baxter sold the division which marketed the ALYX product to private investors, TPG, and Maverick Capital, Ltd. The new company which resulted from the sale was renamed Fenwal. In January 2009, a jury found that the Fenwal ALYX system infringed Haemonetics’ patent. Ultimately, the trial court awarded us a total of $18 million in damages and ordered Fenwal to stop selling the ALYX consumable by December 1, 2010 and pay Haemonetics a 10% royalty on ALYX consumable net sales from January 30, 2009 until December 1, 2010. Fenwal took three actions in response to this judgment. First, Fenwal appealed these rulings to the United States Court of Appeals for the Federal Circuit. Second, Fenwal modified the ALYX disposable in an effort to avoid the injunction. Third, Fenwal asked the Patent and Trademark Office to re-examine the validity of our patent. On June 2, 2010, the Court of Appeals reversed the trial court’s claim construction and accordingly, vacated the original jury verdict finding infringement, and remanded the case to the trial court for further proceedings. We continue to believe the ALYX consumable kit infringes our patent even under the Court of Appeals’ claim construction. In response to Fenwal’s modification of their disposable, we filed a second related patent infringement action in December 2009 in the same Massachusetts federal trial court as the first case described above. On May 28, 2010 the Patent and Trademark Office reexamined the patent which is the subject of the two cases described above, and determined that the patent is valid, contrary to Fenwal’s assertions. On September 20, 2010, Haemonetics filed a patent infringement action in Germany, against Fenwal and its German subsidiary, for Fenwal’s infringement of a Haemonetics patent related to the Haemonetics patent 72 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) described above. On December 1, 2010, Fenwal filed an action to invalidate the Haemonetics patent which is the subject of this infringement action. In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting contract with a local physician and in pricing products supplied under a tender from a public hospital. In parallel proceedings concluded contemporaneously in Genoa, Italy, the same parties were entirely exonerated of all charges. Both matters involved several other individuals and companies and arose in 2004 and 2005, respectively. When the matters first arose, our Board of Directors commissioned independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel’s report, the Board concluded that no disciplinary action was warranted in either case. All Haemonetics parties appealed the guilty verdicts. On March 3, 2010 the first-level appeals court affirmed these verdicts. We are evaluating this decision and considering our options for further appeal. The Milan ruling, and its affirmation, has not impacted the Company’s business in Italy to date. A third proceeding was referred by the Milan court for hearing in Bergamo, Italy. There have been evidentiary hearings, but no material developments in that case. 11. CAPITAL STOCK Stock Plans The Company has an incentive compensation plan, (the “2005 Incentive Compensation Plan”). The 2005 Incentive Compensation Plan permits the award of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, deferred stock/restricted stock units, other stock units and performance shares to the Company’s key employees, officers and directors. The 2005 Incentive Compensation Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) consisting of three independent members of our Board of Directors. The maximum number of shares available for award under the 2005 Incentive Compensation Plan is 4,575,566. The maximum number of shares that may be issued pursuant to incentive stock options may not exceed 500,000. Any shares that are subject to the award of stock options shall be counted against this limit as one (1) share for every one (1) share issued. Any shares that are subject to awards other than stock options shall be counted against this limit as 2.5 shares for every one (1) share granted. The exercise price for the nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, deferred stock/restricted stock units, other stock units and performance shares granted under the 2005 Incentive Compensation Plan is determined by the Committee, but in no event shall such exercise price be less than the fair market value of the common stock at the time of the grant. Options, Restricted Stock Awards and Restricted Stock Units become exercisable, or in the case of restricted stock, the resale restrictions are released in a manner determined by the Committee, generally over a four year period for employees and one year from grant for non-employee directors, and all options expire not more than 7 years from the date of the grant. At April 2, 2011, there were 2,073,381 shares subject to options, 2,500 shares of restricted stock outstanding and 130,632 shares subject to restricted stock units outstanding under this plan; leaving 864,836 shares available for future grant. The Company had a long-term incentive stock option plan and a non-qualified stock option plan, (the “2000 Long-term Incentive Plan”) which permitted the issuance of a maximum of 3,500,000 shares of our common stock pursuant to incentive and non-qualified stock options granted to key employees, officers and directors. The plan was terminated in connection with the adoption of the 2005 Incentive Compensation Plan. At April 2, 2011, there were 373,462 options outstanding under this plan and no further options will be granted under this plan. The Company had a non-qualified stock option plan under which options were granted to non-employee directors and two previous plans under which options were granted to key employees. At April 2, 2011, there were 0 options outstanding related to these plans. No further options will be granted under these plans. 73 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company has an Employee Stock Purchase Plan (the “Purchase Plan”) under which a maximum of 700,000 shares (subject to adjustment for stock splits and similar changes) of common stock may be purchased by eligible employees. Substantially all of our full-time employees are eligible to participate in the Purchase Plan. The Purchase Plan provides for two “purchase periods” within each of our fiscal years, the first commencing on November 1 of each year and continuing through April 30 of the next calendar year, and the second commencing on May 1 of each year and continuing through October 31 of such year. Shares are purchased through an accumulation of payroll deductions (of not less than 2% nor more than 15% of compensation, as defined) for the number of whole shares determined by dividing the balance in the employee’s account on the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The purchase price for shares is the lower of 85% of the fair market value of the common stock at the beginning of the purchase period, or 85% of such value at the end of the purchase period. Stock-based compensation expense of $10.8 million, $10.3 million, and $10.2 million was recognized under ASC Topic 718, Compensation — Stock Compensation, for the year ended April 2, 2011, April 3, 2010, and March 28, 2009, respectively. The related income tax benefit recognized was $3.7 million, $3.0 million, and $2.9 million for the year ended April 2, 2011, April 3, 2010, and March 28, 2009, respectively. We recognize stock-based compensation on a straight line basis. ASC Topic 718 requires that cash flows relating to the benefits of tax deductions in excess of stock compensation cost recognized be reported as a financing cash flow, rather than as an operating cash flow. This excess tax benefit was $3.1 million, $0.4 million, and $7.5 million for the year ended April 2, 2011, April 3, 2010, and March 28, 2009, respectively. A summary of stock option activity for the year ended April 2, 2011 is as follows: Outstanding at April 3, 2010 . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options Outstanding (shares) 2,895,635 675,607 (1,012,692) (111,707) Outstanding at April 2, 2011 . . . . . . . . . . . . . . 2,446,843 Exercisable at April 2, 2011 . . . . . . . . . . . . . . 1,475,041 Vested or expected to vest at April 2, 2011 . . . 2,324,705 Weighted Average Exercise Price per Share Weighted Average Remaining Life (years) Aggregate Intrinsic Value ($000’s) $44.41 56.02 40.36 52.41 $48.94 $45.08 $48.62 3.73 $35,236 4.09 2.96 3.99 $43,149 $31,704 $41,731 The total intrinsic value of options exercised was $26.5 million, $8.2 million, and $26.6 million during fiscal year 2011, 2010, and 2009, respectively. As of April 2, 2011, there was $10.7 million of total unrecognized compensation cost related to non vested stock options. This cost is expected to be recognized over a weighted average period of 2.8 years. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average of the high and low stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The expected life of the option was estimated with reference to 74 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) historical exercise patterns, the contractual term of the option and the vesting period. The assumptions utilized for option grants during the periods presented are as follows: April 2, 2011 April 3, 2010 March 28, 2009 Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.2% 28.6% 4.9 1.8% 0.0% 4.9 2.4% 0.0% 29.8% 4.9 2.7% 0.0% The weighted average grant date fair value of options granted during 2011, 2010, and 2009 was approximately $15.83, $15.37, and $16.73, respectively. We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8% to all unvested stock options as of April 2, 2011 and April 3, 2010, which represents the portion that we expect will be forfeited each year over the vesting period. The fair values of shares purchased under the Employee Stock Purchase Plan are estimated using the Black-Scholes single option-pricing model with the following weighted average assumptions: Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1% 30.9% 32.8% 6 mos. 6 mos. 6 mos. 0.2% 0.2% 1.4% The weighted average grant date fair value of the six-month option inherent in the Purchase Plan was approximately $11.73, $12.53, and $13.71 during fiscal year 2011, 2010, and 2009, respectively. April 2, 2011 April 3, 2010 March 28, 2009 Restricted Stock Awards As of April 2, 2011, there was less than $0.1 million of total unrecognized compensation cost related to non vested restricted stock awards. This cost is expected to be recognized over a weighted average period of 0.1 years. A summary of restricted stock awards activity for the year ended April 2, 2011 is as follows: Outstanding at April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 (2,500) Outstanding at April 2, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 $48.09 $48.09 $48.09 Weighted Average Grant Date Fair Value Shares Restricted Stock Units As of April 2, 2011, there was $5.1 million of total unrecognized compensation cost related to non vested restricted stock units. This cost is expected to be recognized over a weighted average period of 2.6 years. 75 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A summary of restricted stock units activity for the year ended April 2, 2011 is as follows: Weighted Average Market Value at Grant Date Shares Nonvested at April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,934 77,016 Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,048) Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,270) Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonvested at April 2, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,632 $50.62 $59.81 $61.45 $53.48 $51.72 12. EARNINGS PER SHARE (“EPS”) The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations as required by ASC Topic 260, Earnings Per Share. Basic EPS is computed by dividing net income by weighted average shares outstanding. Diluted EPS includes the effect of potentially dilutive common shares. April 2, April 3, March 28, 2009 2010 2011 (In thousands, except per share amounts) Basic EPS Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $79,980 25,077 $58,370 25,451 $59,304 25,389 Basic income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.19 $ 2.29 $ 2.34 Diluted EPS Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Net effect of common stock equivalents . . . . . . . . . . . . . . . . . . . . Diluted weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $79,980 25,077 519 25,596 $ 3.12 $58,370 25,451 612 26,063 $ 2.24 $59,304 25,389 784 26,173 2.27 $ During 2011, 2010, and 2009, approximately 1.2 million, 0.9 million, and 0.5 million, respectively, potentially dilutive common shares were not included in the computation of diluted earnings per share because the inclusion of these potentially dilutive shares would be anti-dilutive. 13. 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. 76 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A summary of the components of other comprehensive income is as follows: Foreign Currency Translation Unrealized Gain/(Loss) on Derivatives, Net of Tax Impact of Defined Benefit Plans, Net of Tax (In thousands) Balance as of March 28, 2009 . . . . . . . . . . . . $ 2,672 $ 1,122 Changes during the year . . . . . . . . . . . . . . . . 2,599 332 Balance as of April 3, 2010 . . . . . . . . . . . . . . $ 5,271 $ 1,454 Changes during the year . . . . . . . . . . . . . . . . 6,380 (3,299) Balance as of April 2, 2011 . . . . . . . . . . . . . . $11,651 $(1,845) $(511) (309) $(820) 555 $(265) Total $3,283 2,622 $5,905 3,636 $9,541 14. RETIREMENT PLANS Defined Contribution Plans We have a Savings Plus Plan that is a 401(k) plan that allows our U.S. employees to accumulate savings on a pre-tax basis. In addition, matching contributions are made to the Plan based upon pre-established rates. Our matching contributions amounted to approximately $3.3 million in 2011, $3.0 million in 2010, and $2.9 million in 2009. Upon Board approval, additional discretionary contributions can also be made. No discretionary contributions were made for the Savings Plan in fiscal year 2011, 2010, or 2009. Some of our subsidiaries also have defined contribution plans, to which plan both the employee and the employer make contributions. The employer contributions to these plans totaled $1.8 million, $1.7 million, and $1.4 million in fiscal year 2011, 2010, and 2009, respectively, of which $1.5 million, $1.4 million, and $1.2 million in fiscal year 2011, 2010, and 2009, respectively, were contributed for our employees in Switzerland. Defined Benefit Plans ASC Topic 715, Compensation — Retirement Benefits, requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Accordingly, the Company is required to report changes in its funded status in comprehensive income on its Statement of Stockholders’ Equity and Comprehensive Income. Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates which are subject to change. 77 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Some of the Company’s foreign subsidiaries have defined benefit pension plans covering substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the aggregate include the following components: Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost on benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected (return)/loss on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized prior service cost. . . . . . . . . . . . . . . . . Amortization of unrecognized initial obligation . . . . . . . . . . . . . . . . . April 2, 2011 April 3, 2010 March 28, 2009 (In thousands) $ 512 242 (289) 223 (68) 27 $ 539 242 946 (1,028) (41) 26 $ 667 283 (467) (48) 381 30 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 846 $ 647 $ 684 The activity under those defined benefit plans are as follows: April 2, 2011 April 3, 2010 (In thousands) Change in Benefit Obligation: Benefit Obligation, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (loss)/gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,949) (667) (283) 843 102 (674) $(6,721) (512) (242) 217 (558) (133) Benefit obligation, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(8,628) $(7,949) Change in Plan Assets: Fair value of plan assets, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain/(Loss) on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,833 478 (783) 467 454 $ 3,097 471 (176) 288 153 Fair value of Plan Assets, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,449 $ 3,833 Funded Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net actuarial loss/(gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized initial obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,178) 341 (83) 171 $(4,116) 785 (117) 180 Net amount recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,749) $(3,268) One of the benefit plans is funded through assets of the Company. Accordingly that plan has no assets included in the information presented above. The total liability for this plan was $4.1 million and $3.7 million as of April 2, 2011 and April 3, 2010, respectively. The assets of the other plan were greater than the accumulated benefit obligation in fiscal year 2011 and 2010. The accumulated benefit obligation for both plans was $3.9 million and $3.6 million for the year ended April 2, 2011 and April 3, 2010, respectively. 78 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Amounts recognized as a component of other accrued liabilities on the balance sheet as of April 2, 2011 and April 3, 2010, under ASC Topic 715 totaled $3.7 million and $3.3 million, respectively. The components of the change recorded in our accumulated other comprehensive income related to our defined benefit plans, net of tax, are as follows (in thousands): Balance as of March 28, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation at transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance as of April 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation at transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(511) 28 (293) (44) $(820) 574 (50) 31 Balance as of April 2, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(265) The weighted average rates used to determine the net periodic benefit costs were as follows: April 2, 2011 April 3, 2010 March 28, 2009 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of increased salary levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term rate of return on assets . . . . . . . . . . . . . . . . . . . . 5.30% 5.20% 2.60% 2.00% 1.60% 1.60% 4.50% 2.30% 1.90% We have no other material obligation for post-retirement or post-employment benefits. The Company’s investment policy for its pension plans is to balance risk and return through a diversified portfolio to reduce interest rate and market risk. Maturities are managed so that sufficient liquidity exists to meet immediate and future benefit payment requirements. For the Company’s plan with assets, the asset allocation at the end of April 2, 2011 and April 3, 2010 year end by asset category are presented in the following table: April 2, 2011 April 3, 2010 Plan Assets Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.7% 58.3% 41.3% 41.7% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance for reporting and measuring the plan assets of our defined benefit pension plan at fair value as of April 2, 2011. Using the same three- level valuation hierarchy for disclosure of fair value measurements as described in Note 7, the categorization for the assets of the Company’s plan with assets is classified within Level 1 of the fair value hierarchy because the plan assets are primarily local market and global equity securities and local market bonds that are valued using prices quoted on the active market. Expected benefit payments for both plans are estimated using the same assumptions used in determining the company’s benefit obligation at April 2, 2011. Benefit payments will depend on future employment and compensation levels, average years employed and average life spans, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments. 79 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Estimated future benefit payments during the next five years and in the aggregate for the five fiscal years thereafter, are as follows (in thousands): Expected Benefit Payments Fiscal Year 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152 Fiscal Year 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199 Fiscal Year 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 327 Fiscal Year 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196 Fiscal Year 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,242 Fiscal Year 2017-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,116 The Company contributions for fiscal year 2012 are expected to be consistent with our recent historical experience. 15. 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 categories. Enterprise Wide Disclosures about Product and Services We have four global product families: plasma, blood center, hospital, and software solutions. Our products include equipment devices and the related disposables 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» autologous blood recovery system targeted to procedures that involve rapid, high volume blood loss such as cardiovascular surgeries and the cardioPAT» cardiovascular perioperative autotransfusion system designed to remain with the patient following surgery to recover blood and the patient’s red cells to prepare them for reinfusion), the OrthoPAT» orthopedic perioperative autotransfusion system designed to operate both during and after surgery to recover and wash the patient’s red cells to prepare them for reinfusion, and diagnostics products (principally the TEG» Thrombelastograph» hemostasis analyzer used to help assess a surgical patient’s hemostasis (blood clotting ability) during and after surgery). Software solutions include information technology platforms that assist blood centers, plasma centers, and hospitals to more effectively manage regulatory compliance and operational efficiency. 80 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Revenues from External Customers: April 2, 2011 April 3, 2010 (In thousands) March 28, 2009 Disposable revenues Plasma disposables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Blood center disposables $227,209 $232,378 $202,165 Platelet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Red cell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,251 46,828 151,026 48,031 143,423 49,508 203,079 199,057 192,931 Hospital disposables Surgical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OrthoPAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,503 35,631 19,414 69,942 37,079 16,770 67,697 35,420 14,017 121,548 123,791 117,134 Disposables revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment & other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551,836 66,876 57,982 555,226 35,919 54,285 512,230 31,605 54,044 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $676,694 $645,430 $597,879 Enterprise Wide Disclosures about Product and Services Year ended (in thousands) United States Other North America Total North America Japan Other Asia Total Asia Total Europe Total Consolidated Sales. . . . . . . . . . . . . . . . . . $316,447 $ 908 $317,355 $110,263 $61,594 $171,857 $187,482 $676,694 Total Assets . . . . . . . . . . . . $582,733 $15,903 $598,636 $ 47,156 $18,164 $ 65,320 $170,505 $834,461 Long-Lived Assets . . . . . . . $305,305 $12,715 $318,020 $ 12,391 $ 4,181 $ 16,572 $ 38,092 $372,684 United States Other North America Total North America Japan Other Asia Total Asia Total Europe Total Consolidated Sales. . . . . . . . . . . . . . . . . . $301,774 $ 2,191 $303,965 $109,573 $51,324 $160,897 $180,568 $645,430 Total Assets . . . . . . . . . . . . $487,955 $22,941 $510,896 $ 42,438 $20,928 $ 63,366 $190,043 $764,305 Long-Lived Assets . . . . . . . $313,241 $16,800 $330,041 $ 11,230 $ 3,805 $ 15,035 $ 19,285 $364,361 United States Other North America Total North America Japan Other Asia Total Asia Total Europe Total Consolidated Sales . . . . . . . . . . . . . . . . . . . $279,029 $ — $279,029 $97,215 $45,460 $142,675 $176,175 $597,879 Total Assets. . . . . . . . . . . . . . $461,226 $6,756 $467,982 $47,723 $18,557 $ 66,280 $115,431 $649,693 Long-Lived Assets . . . . . . . . $220,531 $5,607 $226,138 $11,121 $ 3,912 $ 15,033 $ 18,323 $259,494 81 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 16. REORGANIZATION On April 1, 2010, our Board of Directors approved transformation and restructuring plans, which include the integration of Global Med Technologies, Inc. During fiscal year 2011, in addition to the costs in the below table and as part of our approved transformation and restructuring plans, we incurred the following expenses: (cid:129) Stock compensation expense of $1.7 million resulting from the acceleration of unvested stock options in accordance to terms of an employment contract for an employee. This expense is included as part of our restructuring charges and reflected in our consolidated statement of income as selling, general and administrative expense for the year ended April 2, 2011. (cid:129) $2.1 million of integration costs related to the Global Med acquisition. During fiscal year 2010, in connection with the transformation plan, we had an asset write down of $15.7 million related to the abandonment of our next generation platelet apheresis platform and our blood center donation management software, as well as $8.6 million in transformation costs related to the separation of employees and reflected in our consolidated statement of income as selling, general and administrative expense. During fiscal year 2009, the Company finalized and implemented aspects of its Technical Operations organization transformation plan to better align our Technical Operations resources with our strategy to be the global leader in blood management solutions for our customers. In accordance with the Company’s revised guidance, we incurred restructuring and other transformation costs of $7.0 million. Additionally, during fiscal year 2009, we finalized the consolidation of our customer support functions in Europe into our European Headquarters in Signy, Switzerland. The consolidated center in Signy now includes finance, legal, human resources, customer and sales support, and logistics, supply chain management and procurement. At March 28, 2009, we recorded pre-tax restructuring costs $6.1 million as selling, general, and administrative costs. Additionally, we incurred other transformation costs relating to the hiring of personnel in our new shared services center in Signy, Switzerland of $0.9 million for the year ended March 28, 2009. The following summarizes the restructuring activity for the year ended April 2, 2011, April 3, 2010, and March 28, 2009, respectively: Balance at April 3, 2010 Cost Incurred Employee-related costs . . . . . . . . . Facility related costs . . . . . . . . . . . $9,761 — $9,761 Balance at March 28, 2009 Cost Incurred Employee-related costs . . . . . . . . Facility related costs . . . . . . . . . Other exit & termination costs . . $2,729 42 78 $2,849 82 Payments (In thousands) $(10,574) — $3,595 889 $4,484 $(10,574) Asset Write down Restructuring Accrual Balance at April 2, 2011 $— — $— $2,782 889 $3,671 Payments (In thousands) $(1,566) (42) (78) Asset Write down $ — — (15,686) $ 8,598 — 15,686 $24,284 $(1,686) $(15,686) Restructuring Accrual Balance at April 3, 2010 $9,761 — — $9,761 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Balance at March 29, 2008 Cost Incurred Payments (In thousands) $(3,868) (72) — $6,076 72 — $6,148 $(3,940) Asset Write down Restructuring Accrual Balance at March 28, 2009 $— — — $— $2,729 42 78 $2,849 Employee-related costs . . . . . . . Facility related costs . . . . . . . . . Other exit & termination costs . . $521 42 78 $641 17. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS The cost of software that is developed or obtained for internal use is accounted for pursuant to ASC Topic 350, Intangibles — Goodwill and Other. Pursuant to ASC Topic 350, the Company capitalizes costs incurred during the application development stage of software developed for internal use, and expenses costs incurred during the preliminary project and the post-implementation operation stages of development. The Company capitalized $2.8 million and $4.9 million in costs incurred for acquisition of the software license and related software development costs for new internal software that was in the application development stage during the year ended April 2, 2011 and April 3, 2010, respectively. The capitalized costs are included as a component of property, plant and equipment in the consolidated financial statements. For costs incurred related to the development of software to be sold, leased, or otherwise marketed, the Company applies the provisions of ASC Topic 985-20, Software, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. The Company capitalized $6.9 million and $4.7 million in software development costs for ongoing initiatives during the year ended April 2, 2011 and April 3, 2010, respectively. At April 2, 2011 and April 3, 2010, we have a total of $13.4 million and $6.5 million, respectively, of costs capitalized related to in process software development initiatives. The costs capitalized for each project are included in intangible assets in the consolidated financial statements. In connection with these development activities, we capitalized interest of $0.1 million in each of the fiscal years 2011 and 2010. We will begin to amortize the remaining costs when the products are released for sale. Subsequent to April 2, 2011, $4.1 million of costs capitalized related to one in-process project were placed into service. During fiscal year 2010, in connection with the change in our technology strategy and restructuring of our Engineering, Research and Development organization, the Company decided to abandon our software development project for our next generation blood center apheresis platform. At April 3, 2010, we had an asset impairment of $12.2 million in total capitalized software development costs of this project in accordance with ASC Topic 985-20, as the net realizable value of the capitalized software was insufficient to recover the asset amount capitalized. Additionally during fiscal year 2010, in connection with our acquisition of Global Med, we had an asset impairment of $3.5 million in capitalized costs of other software development initiatives in accordance with ASC Topic 985-20, as the net realizable value of the capitalized software was insufficient to recover the asset amount capitalized. 83 HAEMONETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 18. SUMMARY OF QUARTERLY DATA (UNAUDITED) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended April 2, 2011: Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,039 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,463 Gross profit Operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,189 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,918 Share data: Net Income: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Fiscal year ended April 3, 2010: Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154,087 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,943 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,327 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,072 Share data: Net Income: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.71 0.70 0.70 0.69 $166,833 $ 87,755 $ 28,905 $ 21,338 $176,789 $ 93,490 $ 28,559 $ 19,734 $170,033 $ 87,501 $ 28,895 $ 20,989 $ $ 0.86 0.85 $ $ 0.79 0.77 $ $ 0.82 0.81 $157,070 $ 80,967 $ 27,023 $ 18,050 $165,169 $ 85,447 $ 25,835 $ 18,286 $169,104 $ 88,124 $ 4,096 $ 3,962 $ $ 0.70 0.69 $ $ 0.72 0.71 $ $ 0.16 0.15 Gross profit declined during the fourth quarter of fiscal year 2011 due to a decline in sales volume and increased inventory reserves. Operating income remained flat during the same period due to a reduction in cash bonus incentive compensation as the Company’s financial results were lower than the financial targets established at the beginning of the year. Operating income decreased by $21.7 million during the fourth quarter of fiscal year 2010 primarily due to: (cid:129) The impairment of two intangible assets totaling $15.7 million, (cid:129) Restructuring costs totaling $8.6 million, primarily separation benefits, associated with the integration of the Global Med Acquisition (under new accounting rules costs to separate employees of Global Med are now expensed), and the implementation of a customer solutions implementation group, (cid:129) Costs to consummate the acquisition of Global Med totaling $1.7 million, partially offset by : (cid:129) Income totaling $2.3 million resulting from the remeasurement of the fair value of contingent consideration from our Neoteric acquisition. 19. SUBSEQUENT EVENTS (UNAUDITED) In a May 2, 2011 press release, we announced that the Board of Directors approved the repurchase of up to $50 million of Company shares during fiscal year 2012. In April 2011, we announced a voluntary recall of our OrthoPAT devices manufactured prior to 2002. In the fourth quarter of fiscal year 2011, we recorded $0.8 million of expense based on our current estimate of accruable costs related to remediation efforts associated with the recall. In fiscal year 2012, we anticipate spending approximately $10 million of incremental capital equipment-related expenditures to the upgrade of our OrthoPAT devices placed at customer locations. 84 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Haemonetics Corporation: We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and subsidiaries as of April 2, 2011 and April 3, 2010 and the related consolidated statements of income, stockholders’ equity and other comprehensive income, and cash flows for each of the three years in the period ended April 2, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibil- ity is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Haemonetics Corporation and subsidiaries at April 2, 2011 and April 3, 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 2, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Haemonetics Corporation and subsidiaries’ internal control over financial reporting as of April 2, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 26, 2011 expressed an unqualified opinion thereon. Boston, Massachusetts May 26, 2011 /s/ Ernst & Young LLP 85 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures A) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our 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 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective. B) Reports on Internal Control Management’s Annual Report on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-a5(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s manage- ment and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of April 2, 2011. In making this assessment, the management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of April 2, 2011, the Company’s internal control over financial reporting is effective based on those criteria. Ernst & Young, LLP, an independent registered public accounting firm, has issued a report on the effectiveness of our internal control over financial reporting. This report, in which they expressed an unqualified opinion, is included below. 86 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Haemonetics Corporation: We have audited Haemonetics Corporation and subsidiaries’ internal control over financial reporting as of April 2, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Haemonetics Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Haemonetics Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of April 2, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Haemonetics Corporation and subsidiaries as of April 2, 2011 and April 3, 2010, and the related consolidated statements of income, stockholders’ equity and other comprehensive income, and cash flows for each of the three years in the period ended April 2, 2011 of Haemonetics Corporation and subsidiaries and our report dated May 26, 2011 expressed an unqualified opinion thereon. Boston, Massachusetts May 26, 2011 /s/ Ernst & Young LLP 87 C) Changes in Internal Controls There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the Company’s most recently completed fiscal year that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. 88 NOTES NOTES Corporate directory Corporate Headquarters 400 Wood Road Braintree, MA 02184 United States of America Phone: 781-848-7100 Fax: 781-356-9935 Web: www.haemonetics.com Asian Operations Haemonetics Hong Kong Ltd. Suite 3301, 33/F Tower One, Lippo Centre 89 Queensway Hong Kong Phone: +852-28689218 Fax: +852-28014380 European Operations Haemonetics S.A. Signy Centre P.O. Box 262 CH-1274 Signy 2 Switzerland Phone: +41-22-363-9011 Fax: +41-22-363-9059 Japan Operations Haemonetics Japan Kyodo Building 16-banchi, Ichibancho Chiyoda-ku, Tokyo 102-0082 Japan Phone: +81-3-3237-7260 Fax: +81-3-3237-7330 Haemonetics also has operations for sales, manufacturing, software solutions, diagnostics, and services in: Alberta, Canada Vancouver, Canada Shanghai, China Plaisir, France Munich, Germany Scotland, UK California, USA Illinois, USA Pennsylvania, USA South Carolina, USA For a complete list of Haemonetics’ locations and addresses, please visit the Company’s website. Haemonetics’ Trademarks The following are trademarks or registered trademarks of Haemonetics Corporation in the United States, other countries, or both: ACP, Altivation, Arm to Arm, Arryx, AutoCard, AutoFile, Automation Nation, AutoPPI, AutoTrack, Bioryx, BloodTrack, BloodTrack Courier, BloodTrack SafeTX, BloodTrack Tx, BloodTrack Suite, Blsys, cardioPAT, Cell Saver, Cell Saver Elite, Cymbal, DonorDoc, DrugTrack, Dynamic Disk, EdgeBlood, EdgeCell, EdgeLab, EdgeTrack, eDonor, ElDorado, ElDorado Donor, ElDorado Donor Doc, ElDorado Control, Elite, eLynx, eLynx Design, eQue, eQue Design, Express, Global Med Technologies, Haemonet, Haemonetics, Haemonetics Cell Saver, Haemonetics MCS, Haemonetics PCS, Haemonex, Hemalogic, Hemasphere, Hemo-Net, IMPACT, IMPACT Online, Inlog, LacTrack, Latham Bowl Design, Life, uninterrupted, MCS, OrthoPAT, PathCollect, PCS, PeopleMed, Poco, Portico, RapidsTEG, SafeTrace, SafeTrace TX, SEBRA, Service 360, SmartSuction, SmartSuction Harmony, Style, Surround, Team 360, Thrombelastograph, TEG, 1-800-Get-a-TEG, THE Blood Management Company, Vein-to-Vein, Wyndgate Technologies Investor information Annual Meeting The Annual Meeting of the Stockhold- ers will be held at the Company’s head- quarters at 400 Wood Road, Braintree, MA, USA on July 21, 2011. Auditors Ernst & Young LLP, Boston, MA, USA Investor Relations Christopher Lindop CFO & VP Business Development E-mail: investor@haemonetics.com Phone: 781-356-9613 NYSE Certification In 2010, Haemonetics submitted to the New York Stock Exchange the required annual CEO certification stating that the CEO was not aware of any violation by the Company of the NYSE corporate governance listing standards. Stock Listing The Company’s stock is traded on the New York Stock Exchange under HAE. Transfer Agent and Registrar Inquiries concerning the transfer of shares, lost stock certificates, duplicate mailings or change of address should be directed to: Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016, USA Phone: 800-368-5948 E-mail: info@rtco.com Copyright © Haemonetics Corporation. June 2011 USA. 

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