ACQUISITION

On August 1, 2012, we completed the acquisition from Pall Corporation (“Pall”) of substantially all of the assets relating to its blood collection, filtration, processing, storage and re-infusion product lines, and all of the outstanding equity interest in Pall Mexico Manufacturing, S. de R.L. de C.V, a subsidiary of Pall based in Mexico pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) with Pall. We refer to the acquired business as the “whole blood business”.

At the closing of the transaction, we paid Pall $535.1 million in cash consideration subject to typical post-closing adjustments to reflect certain cost allocations, assets and liabilities. We anticipate paying an additional $15 million, upon the replication and delivery of certain manufacturing assets of Pall's filter media business to Haemonetics by 2016. Until that time, Pall will manufacture and sell filter media to Haemonetics under a supply agreement.

We entered into a credit agreement on August 1, 2012 in connection with the transaction which includes a $475 million term loan to fund the majority of the cash paid to Pall. See Note 14 for a detailed description of the key terms and provisions of the credit agreement.

We acquired the whole blood business to provide access to the manual collection and whole blood markets and provide scope for introduction of automated solutions in those markets. The whole blood business manufactures and sells manual blood collection systems and filters and has operations in North America, Europe and Asia Pacific countries. Revenue from the sale of whole blood disposables will be reported within the blood center disposables product line.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:



Asset class		Amount
Inventories	$	52,421
Property, plant and equipment		70,709
Intangible assets		206,750
Other assets		184
Liabilities		(1,986	)
Goodwill		207,066

Fair value of net assets acquired	$	535,144

The allocation of purchase price is preliminary and is based on management's judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets, and preliminary estimates of the fair value of liabilities assumed. The allocation of the purchase price to the assets acquired and liabilities assumed will be completed when the working capital adjustment is finalized, valuation assessments of inventory, property, plant and equipment and intangible assets are completed and estimates of the fair value of liabilities assumed are performed. We expect to complete the valuation of acquired property, plant and equipment and intangible assets during the three months ended December 31, 2012.

The $206.8 million of acquired intangible assets was allocated to acquired technology and customer relationships at estimated fair values of $144.8 million and $62.0 million respectively. We recorded $3.5 million of amortization expense for the three months ended September 29, 2012 based on an estimated useful life of 10 years. As noted earlier, the fair value of the intangible assets is provisional pending receipt of the final valuation of these and other assets.

Preliminary goodwill of $207.1 million represents future economic benefits expected to arise from work force at the various plants and locations and significant technological know-how in filter manufacturing. All of the goodwill is deductible for tax purposes.

Revenue from the whole blood business for the three months ended September 29, 2012 was $28.6 million. The estimated impact to earnings for the three months ended September 29, 2012 was to reduce reported net income by approximately $3.5 million. The estimated impact to earnings includes $8.3 million of costs of goods sold related to the increase in fair value of acquired inventory.

We recognized $0.7 million and $2.8 million of transaction costs related to the whole blood acquisition in the consolidated statements of income for the three and six months ended September 29, 2012, respectively.

The following represents the pro forma consolidated statement of income as if the whole blood business had been included in our consolidated results as if the acquisition occurred on April 3, 2011:



	Six Months Ended
(in thousands)			September 29, 2012			October 1, 2011
Net sales	$		466,586	$		457,914
Net income	27,410			26,946
Basic earnings per share	$	1.07		$	1.05
Diluted earnings per share	$	1.05		$	1.04

The unaudited consolidated pro-forma financial information above includes the following significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on April 3, 2011 as adjusted for the applicable tax impact. As our acquisition of whole blood was completed on August 1, 2012, the pro-forma adjustments for the six months ended September 29, 2012 in the table below only include the required adjustments through August 1, 2012.



(in thousands)	September 29, 2012			October 1, 2011
Transaction costs (1)	$	2,786		$	—
Amortization of inventory fair value adjustment (2)	8,300			(11,067		)
Amortization of acquired intangible assets (3)	(6,892		)	(10,338		)
Interest expense incurred on acquisition financing (4)	(3,173		)	(4,760		)
Selling, general and admin expenses (5)	(3,513		)	(5,270		)


(1)	Eliminated transactions costs as these non-recurring costs were incurred in the first and second quarter of FY 13.

(2)

Added additional expense in the period ended October 1, 2011 to reflect the inventory fair value adjustments which would have been amortized had the transaction been consummated on April 3, 2011 as the corresponding inventory would have been completely sold during the first two quarters of 2011 and deducted the actual inventory fair value adjustment recorded in the six months ended September 2012 to reflect the pro-forma consumption of inventory in 2011.


(3)	Added additional amortization of the acquired whole blood intangible assets recognized at fair value in purchase accounting.


(4)	Added additional interest expense for the debt used to finance the acquisition.

(5)

Additional investments in infrastructure costs to replicate certain support functions performed by division or corporate organizations of Pall that did not transfer in the acquisition. These costs are primarily related to information technology infrastructure and application costs, and personnel costs required to expand regional and corporate administrative and sales support functions. These costs are not intended to be representative of actual costs incurred by Pall Corporation, and represent Haemonetics best estimate of future incremental costs on an annualized basis. Actual incremental investments may differ from these estimates.

Based on our preliminary review of the whole blood business' summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of the whole blood business to conform their accounting policies to those of Haemonetics are not expected to be significant. As such, no pro forma adjustments to conform to accounting policies of the two companies have been reflected in the unaudited pro forma condensed combined financial statements.

Prior to the acquisition, we had purchased filters from whole blood business for inclusion in some of our devices. The volume of transaction between both parties was about $10.0 million which was recorded as a cost of sale. At the acquisition date there were no amounts due to or due from whole blood.