UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2010~~2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 001-34473

Talecris Biotherapeutics Holdings Corp.

(Exact name of registrant as specified in its charter)

Delaware		20-2533768
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

P.O. Box 110526

4101 Research Commons

79 T.W. Alexander Drive

Research Triangle Park, North Carolina 27709

(Address of principal executive offices, including Zip Code)

(919) 316-6300

(Registrants telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).* Yes o x No o

*The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ox Accelerated filer o Non-accelerated filer xo Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 125,~~324~~985,~~916~~ 791 shares of Common Stock, $0.01 par value, as of ~~October~~April 2122, ~~2010~~2011

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Talecris Biotherapeutics Holdings Corp.

Form 10-Q

Table of Contents

		Page
Part I- Financial Information
Item 1.	Unaudited Interim Consolidated Financial Statements:	1
	Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	1
	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	1
	Consolidated Income Statements for the Three and Nine Months Ended September 30, 2010 and 2009	2
	Consolidated Income Statements for the Three Months Ended March 31, 2011 and 2010	2
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4738
Item 4.	Controls and Procedures	4839
Part II- Other Information
Item 1.	Legal Proceedings	49
Item 6.	Exhibits	40
Item 1A.	Risk Factors	50
	Signatures	41
Item 6.	Exhibits	54
	Signatures	55

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Talecris Biotherapeutics Holdings Corp.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

	September 30,			December 31,
	March 31,			December 31,
	2010			2009
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	~~150~~185,~~530~~338		$	65197,~~239~~876
Accounts receivable, net of allowances of $2,613 and $3,461, respectively	170,872			136,978
Accounts receivable, net of allowances of $3,504 and $3,253, respectively	151,291			134,842
Inventories	~~672~~703,~~728~~048			~~644~~694,~~054~~499
Deferred income taxes	8896,~~076~~958			8896,~~652~~593
Prepaid expenses and other	3118,~~969~~153			3129,~~466~~662
Total current assets	1,~~114~~154,~~175~~788			~~966~~1,~~389~~153,472
Property, plant, and equipment, net	~~331~~426,~~490~~098			~~267~~382,~~199~~793
Investment in affiliate	23,~~534~~077			12,~~935~~926
Intangible assets	10,880			10,880
Goodwill	172,860			172,860
Deferred income taxes	—			5,848
Other	14,576			15,522
Other	16,804			19,894
Total assets	$	1,782,279		$	1,738,453
Total assets	$	1,648,743		$	1,445,005
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3948,~~715~~432		$	7159,~~046~~975
Accrued expenses and other liabilities	~~198~~242,~~572~~734			~~170~~251,~~533~~726
Current portion of capital lease obligations	~~832~~887			~~740~~860
Total current liabilities	~~239~~292,~~119~~053			~~242~~312,~~319~~561
Long-term debt and capital lease obligations	605,~~383~~213			605,~~267~~301
Deferred income taxes	19,~~552~~382			—14,432
Other	1513,~~348~~308			1511,~~265~~795
Total liabilities	~~879~~929,~~402~~956			~~862~~944,~~851~~089
Commitments and contingencies
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.01 par value; 400,000,000 shares authorized; 124,915,474 and 122,173,274 shares issued and outstanding, respectively	1,246			1,212
Common stock, $0.01 par value; 400,000,000 shares authorized; 125,745,799 and 125,577,877 shares issued and outstanding, respectively	1,257			1,253
Additional paid-in capital	~~805~~815,~~473~~911			~~767~~813,~~032~~783
Accumulated deficit	(37,432		)	(186,446		)
Retained earnings (accumulated deficit)	35,079			(20,378		)
Accumulated other comprehensive income, net of tax	54			356
Accumulated other comprehensive income (loss), net of tax	76			(294		)
Total stockholders’ equity	~~769~~852,~~341~~323			~~582~~794,~~154~~364
Total liabilities and stockholders’ equity	$	1,~~648~~782,~~743~~279		$	1,~~445~~738,~~005~~453

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

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Talecris Biotherapeutics Holdings Corp.

Consolidated Income Statements

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2010			2009			2010			2009
	2011			2010
Net revenue:
Product	$	~~400~~398,~~561~~980		$	~~387~~374,~~898~~615		$	~~1,172,278~~		$	~~1,122,877~~
Other	67,~~440~~683			76,~~833~~346			~~18,510~~			~~20,219~~
Total	~~407~~406,~~001~~663			~~395~~380,~~731~~961			~~1,190,788~~			~~1,143,096~~
Cost of goods sold	~~229~~233,~~908~~619			~~230~~217,~~666~~351			~~670,476~~			~~663,875~~
Gross profit	~~177~~173,~~093~~044			~~165~~163,~~065~~610			~~520,312~~			~~479,221~~
Operating expenses:
Selling, general, and administrative	6162,~~383~~717			7967,~~488~~620			~~205,007~~			~~213,913~~
Research and development	1816,~~673~~532			16,~~167~~271			~~50,832~~			~~51,728~~
Total	8079,~~056~~249			9583,~~655~~891			~~255,839~~			~~265,641~~
Income from operations	9793,~~037~~795			6979,~~410~~719			~~264,473~~			~~213,580~~
Other non-operating (expense) income:
Interest expense, net	(1110,~~529~~750		)	(1911,~~587~~263		)	~~(34,915~~		)	~~(61,445~~		)
Merger termination fee	—			—			—			75,000
Equity in earnings of affiliate	151			147
Equity in earnings of affiliate	273			112			599			296
Total	(10,599		)	(11,116		)
Total	(11,256		)	(19,475		)	(34,316		)	13,851
Income before income taxes	83,196			68,603
Income before income taxes	85,781			49,935			230,157			227,431
Provision for income taxes	(27,739		)	(23,264		)
Provision for income taxes	(29,729		)	(14,125		)	(81,143		)	(74,914		)
Net income	$	55,457		$	45,339
Net income	56,052			35,810			149,014			152,517
Net income per common share:
Less dividends to preferred stockholders	—			(4,012		)	—			(11,744		)
Basic	$	0.44		$	0.37
Net income available to common stockholders	$	56,052		$	31,798		$	149,014		$	140,773
Diluted	$	0.43		$	0.35
Net income per common share:
Basic	$	0.45		$	12.01		$	1.21		$	76.21
Diluted	$	0.43		$	0.38		$	1.16		$	1.62

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

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Talecris Biotherapeutics Holdings Corp.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2010			2009
	2011			2010
Cash flows from operating activities:	$	~~149,014~~		$	~~152,517~~
Net income	$	55,457		$	45,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2610,~~482~~017			218,~~403~~051
Amortization of deferred loan fees and debt discount	31,~~163~~069			21,~~823~~055
Share-based compensation expense	142,~~203~~212			397,~~625~~227
Change in allowance for doubtful receivables	2,629			3,203
Provision for doubtful receivables	570			416
Amortization of deferred compensation	~~1,911~~—			41,~~407~~506
Equity in earnings of affiliate	(~~599~~151		)	(~~296~~147		)
Asset impairment	563			1,010
Loss related to foreign currency hedges	2,621			—
Decrease in deferred tax assets	254,~~976~~950			82,~~409~~884
Excess tax benefits from share-based payment arrangements	(101,~~836~~077		)	(14,~~437~~590		)
Other	~~478~~(60		)	~~710~~(2		)
Changes in assets and liabilities, excluding the effects of business acquisitions:
Changes in assets and liabilities:
Accounts receivable	(3617,~~515~~022		)	(1731,~~289~~252		)
Inventories	(308,~~018~~821		)	(523,~~112~~136		)
Prepaid expenses and other assets	(111,~~723~~340		)	167,~~775~~814
Accounts payable	(3111,~~331~~543		)	4(12,~~825~~386		)
Accrued expenses and other liabilities	30(21,~~600~~552		)	15(3,~~827~~734		)
Interest payable	811,~~523~~624			(111,~~676~~625		)
Net cash provided by operating activities	~~152~~39,~~520~~634			~~198~~30,~~724~~670
Cash flows from investing activities:
Purchases of property, plant, and equipment	(91,691		)	(36,291		)
Purchase of property, plant, and equipment	(53,266		)	(17,690		)
Business acquisitions, net of cash acquired	—			(27,113		)
Other	190			174
Other	507			634
Net cash used in investing activities	(53,076		)	(17,516		)
Net cash used in investing activities	(91,184		)	(62,770		)
Cash flows from financing activities:
Borrowings under Revolving Credit Facility	645			1,090,222
Borrowings under revolving credit facility	302			212
Repayments of borrowings under Revolving Credit Facility	(645		)	(1,202,319		)
Repayments of borrowings under revolving credit facility	(302		)	(212		)
Repayments of borrowings under term loan	—			(5,250		)
Financing transaction costs	—			(78		)
Financing transaction costs	(394		)	—
Repayments of capital lease obligations	(205		)	(176		)
Repayments of capital lease obligations	(553		)	(407		)
Proceeds from exercises of stock options	1,314			2,937
Proceeds from exercises of stock options	19,251			—
Repurchases of common stock	(2,199		)	(4,917		)
Repurchases of common stock from employees	(4,917		)	(4,132		)
Excess tax benefits from share-based payment arrangements	1,077			4,590
Excess tax benefits from share-based payment arrangements	10,836			1,437
Net cash (used in) provided by financing activities	(13		)	2,356
Net cash provided by (used in) financing activities	24,223			(120,449		)
Effect of exchange rate changes on cash and cash equivalents	917			(484		)
Effect of exchange rate changes on cash and cash equivalents	(268		)	465
Net (decrease) increase in cash and cash equivalents	(12,538		)	15,026
Net increase in cash and cash equivalents	85,291			15,970
Cash and cash equivalents at beginning of period	197,876			65,239
Cash and cash equivalents at beginning of period	65,239			16,979
Cash and cash equivalents at end of period	$	185,338		$	80,265
Cash and cash equivalents at end of period	$	150,530		$	32,949

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

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Talecris Biotherapeutics Holdings Corp.

Notes to Unaudited Interim Consolidated Financial Statements

1. Description of Business

We are a biopharmaceutical company that researches, develops, manufactures, markets, and sells protein-based therapies that extend and enhance the lives of individuals who suffer from chronic and acute, often life-threatening, conditions, such as primary immune deficiencies, chronic inflammatory demyelinating polyneuropathy (CIDP), alpha-1 antitrypsin deficiency-related emphysema, bleeding disorders, infectious diseases, and severe trauma. Our primary products have orphan drug designation to serve populations with rare, chronic diseases. Our products are derived from human plasma, the liquid component of blood, which is sourced from our plasma collection centers or purchased from third parties, ~~with plasma collection centers~~ located in the United States. Plasma contains many therapeutic proteins, which we extract through the process of fractionation at our Clayton, North Carolina and Melville, New York facilities. The fractionated intermediates are then purified, formulated into final bulk, and aseptically filled into final containers for sale. We also sell the fractionated intermediate products.

The majority of our sales are concentrated in two key therapeutic areas of the plasma business: Immunology/Neurology, through our intravenous immune globulin (IGIV) product for the treatment of primary immune deficiency and autoimmune diseases, such as CIDP, and Pulmonology, through our alpha-1 proteinase inhibitor (A1PI) product for the treatment of alpha-1 antitrypsin deficiency-related emphysema. These therapeutic areas are served by our ~~branded~~ products: Gamunex, Immune Globulin Intravenous (Human), 10% Caprylate/Chromatography Purified (Gamunex, Gamunex IGIV, Gamunex-C IGIV) and Prolastin Alpha-1 Proteinase Inhibitor (Human) (Prolastin, Prolastin A1PI, Prolastin-C A1PI). InSales ~~March 2010, we launched Prolastin-C A1PI, our next generation A1PI product, in the United States. During the third quarter~~ of ~~2010, we completed the conversion of our existing U.S. Prolastin patients to Prolastin~~Gamunex-C ~~A1PI. During~~/Gamunex ~~the~~IGIV ~~third quarter of 2010, we launched Prolastin-C A1PI in Canada~~ and ~~anticipate full conversion of our existing Canadian~~ Prolastin ~~A1PI patients to Prolastin-C A1PI in the 2010 fourth quarter. Sales of Gamunex and Prolastin~~/Prolastin-C A1PI together comprised 7578.2% and 7276.89% of our net revenue for the three months ended ~~September~~March 3031, ~~2010~~ ~~and~~2011 ~~2009, respectively,~~ and ~~75.7% and 74.3% of our net revenue for the nine months ended September 30,~~ 2010 ~~and 2009~~, respectively. We also have a line of hyperimmune therapies that provides treatment for tetanus, rabies, hepatitis A, hepatitis B, and Rh factor control during pregnancy and at birth. In addition, we provide plasma-derived therapies for critical care/hemostasis, including the treatment of hemophilia, an anti-coagulation factor (Thrombate III), as well as albumin to expand blood volume. ~~Although~~We we sell our products worldwide, ~~the~~but ~~majority~~ 82.0% of our sales ~~are~~were ~~concentrated~~ in the United States and Canada for the first quarter of 2011.

We are headquartered in Research Triangle Park, North Carolina and our primary manufacturing facilities are a short distance away in Clayton, North Carolina. Our Clayton site is one of the world’s largest plasma protein processing facilities whose operations include fractionation, purification, filling, and finishing. We have an integrated plasma collection center platform, which as of ~~September~~March 3031, ~~2010~~2011, consisted of 69 operating centers, of which 6667 were FDA licensed and 3two were unlicensed. ~~Subsequent to September 30, 2010, we received FDA licensure for one of the unlicensed plasma collection centers.~~ In addition to ~~our~~the ~~U.S.~~United ~~operations~~States, we have operations ~~located~~ in Germany and Canada, ~~as well as a team dedicated~~ to ~~the~~support ~~development of~~ our international ~~markets~~sales and marketing activities.

OnAs ~~October 6, 2009, we completed our initial public offering (IPO), which resulted in net primary proceeds to us~~ of ~~$519.7 million. In addition, during October~~March ~~2009~~31, ~~we amended our Revolving Credit Facility and completed the issuance of $600.0 million~~2011, ~~7.75%~~Talecris ~~Unsecured Senior Notes~~Holdings, ~~due~~LLC ~~November 15,~~owned ~~2016,~~approximately ~~at a price of 99~~48.~~321~~6% of ~~par,~~our incommon ~~a private placement to certain qualified institutional buyers~~stock. Talecris ~~The~~Holdings, ~~issuance~~LLC ofis ~~the~~owned ~~notes~~by ~~resulted~~(i) Cerberus-Plasma inHoldings ~~net proceeds to us of $583.9 million. As discussed in Note 9~~LLC, the ~~notes~~managing ~~were~~member ~~subsequently~~of ~~exchanged~~which ~~for notes~~is ~~registered~~Cerberus ~~under the Securities Act of 1933~~Partners, ~~as amended~~L. ~~Proceeds from these transactions were used to repay and terminate our then existing First and Second Lien Term Loans~~P., ~~settle~~ and ~~terminate~~(ii) limited ~~certain~~partnerships ~~interest~~affiliated ~~rate~~with ~~swap~~Ampersand ~~contracts, and repay amounts outstanding under our Revolving Credit Facility~~Ventures. ~~Additional~~Substantially ~~information~~all ~~regarding~~rights ~~our~~of ~~IPO~~management and ~~refinancing~~ ~~transactions~~control isof ~~included~~Talecris inHoldings, ~~our~~LLC ~~Annual~~are ~~Report~~held onby ~~Form 10~~Cerberus-KPlasma ~~for the~~Holdings ~~year ended December 31, 2009 filed with the Securities and Exchange Commission (SEC) on February 23, 2010 (2009 Form 10-K)~~LLC.

As discussed in Note 3, we entered into a definitive merger agreement with Grifols S.A. and Grifols, Inc. (Grifols) on June 6, 2010.

2. Summary of Significant Accounting Policies

Throughout the unaudited interim consolidated financial statements, references to “Talecris Biotherapeutics Holdings Corp.,” “Talecris,” “the Company,” “we,” “us,” and “our” are references to Talecris Biotherapeutics Holdings Corp. and its wholly-owned subsidiaries.

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“Talecris,” “the Company,” “we,” “us,” and “our” are references to Talecris Biotherapeutics Holdings Corp. and its wholly-owned subsidiaries.

All tabular disclosures of dollar amounts are presented in thousands. All share and per share amounts are presented at their actual amounts.

A seven-for-one share dividend on our common stock was paid on September 10, 2009. All share and per-share amounts have been retroactively adjusted to reflect the share dividend.

Interim Financial Statements

We have prepared the accompanying unaudited interim consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (SEC). The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our ~~2009~~Annual Report on Form 10-K~~. In~~ our opinion, the accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our annual audited consolidated financial statements and contain all material adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly our financial condition, results of operations, and cash flows for the ~~periods~~year ~~presented.~~ended ~~The consolidated balance sheet that we have presented as of~~ December 31, ~~2009 has~~2010 ~~been~~filed ~~derived~~with ~~from~~ the ~~audited~~SEC ~~consolidated financial statements~~ on ~~that date~~February 23, ~~but~~2011 ~~does~~(2010 ~~not include all of the information and footnotes required by U~~Form 10-K).~~S. GAAP for complete financial statements.~~

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In our opinion, the accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our annual audited consolidated financial statements and contain all material adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly our financial condition, results of operations, and cash flows for the periods presented. The consolidated balance sheet that we have presented as of December 31, 2010 has been derived from the audited consolidated financial statements on that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Significant Accounting Policies

A detailed description of our significant accounting policies is presented in the footnotes to our annual audited consolidated financial statements included in our ~~2009~~2010 Form 10-K. Our significant accounting policies, estimates, and assumptions have not changed materially since December 31, ~~2009~~ 2010.

Recent Accounting Pronouncements

There were no new accounting pronouncements during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 that are expected to have a material impact on our consolidated financial statements or related disclosures.

3. Definitive Merger Agreement with Grifols S.A. and Grifols, Inc. (Grifols)

We entered into a definitive merger agreement with Grifols on June 6, 2010, as amended by Amendment 1 on November 4, 2010. Under the terms of the agreement, Grifols will acquire, through merger transactions, all of the common stock of Talecris for a combination of $19.00 in cash and 0.6485 (or 0.641 for Talecris directors and Talecris Holdings, LLC) of a newly-issued non-voting Grifols’ (Class B) ordinary share for each outstanding Talecris share (the merger consideration). Under the terms of the agreement, completion of the transaction is subject to obtaining certain regulatory approvals, shareholder approvals, as well as other customary conditions. The 0.641 exchange ratio isand ~~generally~~the ~~fixed~~additional ~~but~~exchange isratio ~~subject~~of ~~to adjustment~~0.0075 to(which atogether ~~lower~~comprise the 0.6485 exchange ratio) toare generally fixed but the ~~extent~~0.641 ~~that~~exchange ~~application~~ratio ofwill be adjusted if the 0.641 exchange ratio would result in Grifols issuing in excess of 86.5 million Grifols non-voting shares inand the ~~transaction~~additional 0.0075 exchange ratio will be adjusted if such additional exchange ratio would result in Grifols issuing in excess of 0.5 million Grifols non-voting shares. The Grifols non-voting shares will be listed on NASDAQ in the form of American Depositary Shares and the Madrid, Barcelona, Bilbao and Valencia stock exchanges and quoted on the Automated Quotation System of the Spanish Stock Exchanges. Grifols non-voting shares will carry the same economic rights as Grifols ordinary shares. Additionally, Talecris share-based compensation, whether vested or unvested, generally will be converted into the right to receive or acquire the merger consideration, or, in the case of employee stock options, the right to acquire the merger consideration, as described in the merger agreement in lieu of Talecris common stock. The merger agreement provides that if the merger agreement is terminated under specified circumstances Grifols will be required to pay Talecris a termination fee of either $100 million or $375 million, depending on the specified circumstances. If the merger agreement is terminated under other specified circumstances, Talecris will be required to pay Grifols a termination fee of $100 million. Generally, except as noted above, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses. We have incurred and will continue to incur significant costs related to investment banking, legal, and accounting activities, as well as retention expenses, related to this merger transaction. The leading shareholders of Grifols have entered into an agreement with us, subject to conditions, to vote their Grifols shares in favor of the transaction and, separately, an affiliate of Cerberus Capital Management, L.P., which owns approximately 49% of the outstanding Talecris common stock, has entered into an agreement with Grifols, subject to conditions, to vote its Talecris shares in favor of the transaction.

On February 14, 2011, we held a special meeting at which holders of a majority of our outstanding common stock approved the adoption of the Agreement and Plan of Merger, dated as of June 6, 2010, among Grifols and Talecris Biotherapeutics, Inc. On March 4, 2011, the “outside date” under the definitive merger agreement for closing the pending transaction was extended to June 30, 2011 (from March 6, 2011). Grifols has extended the financing and financing commitments from its lenders to June 30, 2011 as well. The completion of the transaction is subject to obtaining certain regulatory approvals and other customary conditions.

Under the terms of the definitive merger agreement with Grifols, we are permitted to offer retention amounts up to a total of $15.0 million to employees. As of March 31, 2011, we have offered retention amounts totaling approximately $9.8 million to employees, of which $2.9 million was paid during 2010 and $3.5 million was paid during the first quarter of 2011. The remaining amount of approximately $3.4 million will be paid two months after the Closing Date, or in the event of termination of the definitive merger agreement, the earlier of four months after the termination of the definitive merger agreement or June 3, 2011. We incurred retention expenses, including fringe benefits, of $2.7 million during the three months ended March 31, 2011. The remaining retention amounts of approximately $1.8 million, including fringe benefits, will be recognized during the second quarter of 2011.

We incurred fees of approximately $1.1 million during the first quarter of 2011 related to our definitive merger agreement with Grifols. These fees were primarily related to legal activities. We are obligated to pay additional fees totaling $21.3 million to

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~~Under~~investment ~~the~~bankers ~~terms~~upon ofsuccessful ~~the~~closing ~~definitive merger agreement with Grifols, we are permitted to offer retention amounts up to a total~~ of ~~$15.0 million to employees. As of September 30, 2010, we have offered retention amounts totaling approximately $10.3 million to employees, of which $2.9 million was paid during~~ the ~~three~~merger ~~months ended September 30, 2010 and the remaining amounts are expected to be paid in 2011, subject to the terms of the retention agreements~~transaction. We incurred retention expenses, including fringe benefits, of $3.7 million during the three and nine months ended September 30, 2010. The remaining retention amounts will likely be recognized ratably through the second quarter of 2011.

~~We have entered into agreements with investment bankers related to our definitive merger agreement with Grifols~~4. We incurred fees totaling $2.5 million under these agreements during the nine months ended September 30, 2010. We are obligated to pay additional fees totaling $21.3 million upon successful closing of the merger transaction. During the three and nine months ended September 30, 2010, we also incurred legal, accounting, and other fees of $5.7 million and $11.6 million, respectively, associated with the definitive merger agreement. Inventories

4. Terminated Definitive Merger Agreement with CSL Limited (CSL)

We entered into a definitive merger agreement with CSL on August 12, 2008, which was subject to the receipt of certain regulatory approvals as well as other customary conditions. The U.S. Federal Trade Commission filed an administrative complaint before the Commission challenging the merger and a complaint in Federal district court seeking to enjoin the merger during the administrative process. On June 8, 2009, the merger parties agreed to terminate the definitive merger agreement, and as a result, CSL paid us a merger termination fee of $75.0 million during the 2009 second quarter. The U.S. Federal Trade Commission’s complaints were subsequently dismissed. We incurred retention expenses, including fringe benefits, of $1.6 million and $8.3 million for the three and nine months ended September 30, 2009, respectively, and legal costs associated with the regulatory review process of $6.0 million during the nine months ended September 30, 2009. No amounts were incurred during 2010. All retention amounts were paid during 2009.

5. Inventories and Cost of Goods Sold

Inventories consisted of the following:

	September 30,		December 31,
	March 31,		December 31,
	2010		2009
	2011		2010
Raw material	$	~~168~~198,~~343~~933	$	~~171~~184,~~866~~664
Work-in-process	~~347~~346,~~550~~988		~~312~~346,~~178~~086
Finished goods	~~156~~157,~~835~~127		~~160~~163,~~010~~749
Total inventories	$	~~672~~703,~~728~~048	$	~~644~~694,~~054~~499

Our raw material inventories include unlicensed plasma and related testing costs of $53.46 million and $72.6 million at ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, respectively, which we believe are realizable.

65. Comprehensive Income

The following table includes the components of our comprehensive income:

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2010			2009			2010			2009
	2011			2010
Net income	$	5655,~~052~~457		$	3545,~~810~~339		$	~~149,014~~		$	~~152,517~~
Foreign currency translation adjustments	1,237			376			(302		)	466
Other comprehensive income (loss):
Net unrealized gain on derivative financial instruments, net of tax	—			9			—			5,097
Foreign currency translation adjustments	974			(550		)
Total comprehensive income	$	57,289		$	36,195		$	148,712		$	158,080
Net unrealized loss on cash flow hedges, net of tax	(604		)	—
Total other comprehensive income (loss)	370			(550		)
Total comprehensive income	$	55,827		$	44,789

~~During the fourth quarter of 2009, we settled and terminated our interest rate swap contracts as discussed further in our 2009 Form 10-K~~6. Income Taxes

Our income tax provision was $27.7 million and $23.3 million for the three months ended March 31, 2011 and 2010, respectively, resulting in effective income tax rates of 33.3% and 33.9%, respectively.

For the three months ended March 31, 2011, our effective income tax rate was lower than the U.S. statutory Federal income tax rate, primarily due to a domestic production deduction and Federal research and experimentation and orphan drug clinical testing tax credits for qualifying expenditures. For the three months ended March 31, 2010, our effective income tax rate was lower than the U.S. statutory Federal income tax rate, primarily due to a domestic production deduction, which was statutorily increased to 9% for 2010 and future years and orphan drug clinical testing tax credits for qualifying expenditures, partially offset by state tax expense.

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7. ~~Income Taxes~~Derivative Financial Instruments

~~Our~~We ~~income~~initiated ~~tax~~a ~~provision~~foreign ~~was~~currency ~~$29.7~~hedging ~~million~~program ~~and~~in ~~$14.1~~the ~~million~~first quarter of 2011 for the ~~three~~ ~~months~~purpose ~~ended~~of ~~September 30,~~managing ~~2010~~the ~~and~~economic ~~2009,~~effects ~~respectively,~~of ~~resulting~~the volatility associated with fluctuations in ~~effective~~ ~~income~~euro/U.S. ~~tax~~dollar exchange rates ofon ~~34.7%~~our earnings and ~~28.3%,~~cash ~~respectively~~flows. ~~Our~~We ~~income~~entered ~~tax~~into ~~provision~~forward ~~was~~foreign ~~$81.1~~currency ~~million~~ exchange contracts designed to hedge both known and ~~$74~~forecasted intercompany foreign currency transactions of approximately one year in duration or less.9 We ~~million~~use ~~for~~derivative ~~the~~financial ~~nine~~instruments ~~months~~for ~~ended~~risk ~~September 30,~~management ~~2010~~purposes and ~~2009, respectively,~~do ~~resulting~~not inenter ~~effective~~into ~~income~~derivative ~~tax~~financial ~~rates~~instruments offor 35speculative purposes.3% The ~~and~~terms 32of our forward foreign currency exchange contracts used for hedging purposes are generally consistent with the timing of the transactions being hedged.~~9%, respectively.~~

~~For the~~All ~~three~~derivative ~~months~~financial ~~ended~~instruments ~~September 30,~~are ~~2010,~~recorded on our ~~effective~~consolidated ~~income~~balance ~~tax~~sheets ~~rate is~~as ~~lower~~current ~~than~~assets ~~the~~or Uliabilities due to their short duration, and are measured at fair value.S. Hedges ~~statutory~~are ~~Federal~~designated ~~income~~and ~~tax~~documented ~~rate~~at the inception of ~~35%~~the ~~primarily~~hedge ~~due to~~as either a ~~deduction~~cash ~~for~~flow ~~domestic~~hedge ~~production~~or ~~activities~~a ~~which,~~fair ~~pursuant~~value tohedge. Changes in the ~~Internal~~ ~~Revenue~~fair ~~Code,~~value ~~increased~~of toderivatives 9%that do not qualify for hedge accounting and the ineffective portion of ~~qualified~~cash ~~production~~flow ~~activities income~~hedges are recorded in current earnings. The effective portion of cash flow hedges that qualify for ~~taxable~~hedge ~~years~~accounting ~~beginning~~is recorded in ~~2010~~other ~~from~~comprehensive 6%income (loss) and reclassified into earnings in ~~2009,~~the ~~and~~same toperiod ~~tax~~or ~~credits for~~periods ~~orphan~~in ~~drug~~which ~~clinical~~the ~~testing~~hedged ~~expenditures~~transactions affect earnings. Hedge effectiveness is assessed quarterly.

~~For the~~Additional ~~nine~~information months ended September 30, 2010, our effective income tax rate is higher than the U.S. statutory federal income tax rate, primarily due to the requirement to capitalize transaction costs related to our definitive merger agreement with ~~Grifols and the effects of state taxes. These items were partially offset by the increased deduction allowed with~~ respect to ~~domestic production activities and tax credits for orphan drug clinical testing expenditures. The difference in~~ the ~~effective~~fair ~~income~~value ~~tax rates~~of ~~for~~derivative ~~the~~instruments ~~three months and nine months ended September 30, 2010~~ is ~~attributable~~ toincluded ~~a benefit recognized~~ in ~~the~~Note ~~third~~8, ~~quarter~~“Fair ~~from~~Value ~~higher orphan drug tax credits and domestic production activity deductions reported on the 2009 Federal tax return that exceeded levels estimated in the 2009 financial statements~~Measurement.”

~~For~~Fair ~~the~~Value three and nine months ended September 30, 2009, our effective income tax rate is lower than the U.S. statutory Federal income tax rate, primarily due to credits for Federal Research and Experimentation and orphan drug clinical testing expenditures. For the nine months ended September 30, 2009, our effective income tax rate was also impacted by the deduction of previously capitalized transaction costs related to our terminated merger agreement with CSL. These factors offset the effects of state taxes.Hedges

~~Following~~During the ~~completion~~first quarter of ~~field~~2011, ~~work~~we byentered ~~the~~into ~~Internal~~forward ~~Revenue~~foreign ~~Service examination~~currency ~~team~~exchange ~~(IRS~~contracts ~~Exam)~~to inhedge ~~connection with~~ the ~~audit~~majority of our ~~2005,~~open ~~2006,~~intercompany ~~and 2007~~accounts ~~Federal~~receivable ~~income~~due ~~tax~~from ~~returns~~Talecris, ~~the~~GmbH, ~~audit~~our ~~file~~German ~~was~~subsidiary. ~~sent~~Each tomonth ~~the~~during ~~Joint~~our ~~Committee on~~hedging ~~Taxation~~program, ~~(JCT)~~we inanticipate ~~accordance~~entering ~~with~~into ~~requirements~~a ~~that~~forward ~~the~~foreign ~~JCT~~currency ~~review~~exchange ~~any refunds~~contract ~~in excess of $2 million. The refund was attributable~~ to ~~additional~~hedge ~~tax credits for research and experimental expenditures and orphan drug expenditures claimed during~~ the ~~course~~majority of the ~~audit.~~intercompany ~~The~~accounts ~~JCT~~receivable ~~subsequently~~related ~~returned the audit file~~ to ~~the~~that ~~IRS~~month’s ~~Exam~~intercompany ~~for~~shipments ~~additional~~to ~~fact~~Talecris, ~~finding~~GmbH. In ~~lieu~~These offorward ~~engaging~~contracts ~~with~~are ~~the~~designated ~~company~~as ~~in fact-finding~~hedges ~~efforts, IRS~~of ~~Exam issued a new audit report disallowing~~ the ~~tax~~ ~~credits~~fair ~~for~~value ~~research~~of ~~and~~assets ~~experimental~~at ~~expenditures~~contract ~~and~~inception, ~~orphan drug clinical testing expenditures~~ and ~~issued a 30 Day Letter indicating that IRS Exam and~~ the ~~company~~changes ~~could~~in ~~not~~fair ~~reach~~value ~~agreement~~of on the ~~issue. The~~hedges ~~company~~are ~~has~~recognized ~~filed~~in aSG&A ~~timely~~consistent ~~protest~~with to the ~~adjustments~~ ~~proposed~~underlying byforeign ~~IRS~~currency ~~Exam~~transaction ~~and~~gains ~~expects~~or tolosses ~~favorably~~associated ~~resolve~~with ~~this~~the ~~matter at~~intercompany ~~the~~accounts ~~IRS~~receivable ~~Appeals~~being ~~level~~hedged. We doThe ~~not believe~~non-cash ~~the~~earnings ~~outcome of this matter will have a material adverse~~ impact onfrom ~~our consolidated~~the ~~financial~~remeasurement ~~condition~~of orthese ~~results~~fair ofvalue ~~operation.~~hedges It is ~~reasonably possible~~included ~~that,~~in ~~within~~cash ~~the~~flows ~~next~~from ~~twelve~~operating ~~months,~~activities wein ~~will~~our ~~resolve~~consolidated ~~this~~statements ~~matter~~of ~~with the~~cash ~~IRS~~flows. ~~and~~The ~~JCT,~~gross ~~which~~notional ~~may~~amount ~~increase~~of orour ~~decrease~~fair ~~the~~value ~~unrecognized~~hedges ~~tax~~outstanding ~~benefits for~~at ~~all~~March 31, ~~open~~2011 ~~tax~~was ~~years~~$62. ~~The~~9 ~~favorable resolution of this matter would increase earnings by approximately $4~~(€46.74) million ~~based on current estimates~~. ~~Audit outcomes and the timing of audit settlements are subject to significant uncertainty.~~

~~8. Related Party~~The ~~Transactions~~following table summarizes gains and losses, net, on our derivative financial instruments designated as fair value hedges and the related hedged items for the three months ended March 31, 2011:

Until January 21, 2010, a majority of our outstanding common stock was owned by Talecris Holdings, LLC. Talecris Holdings, LLC is owned by (i) Cerberus-Plasma Holdings LLC, the managing member of which is Cerberus Partners, L.P., and (ii) limited partnerships affiliated with Ampersand Ventures. Substantially all rights of management and control of Talecris Holdings, LLC are held by Cerberus-Plasma Holdings LLC. As of September 30, 2010, Talecris Holdings, LLC owned approximately 49% of our outstanding common stock. We had a management agreement with Cerberus-Plasma Holdings, LLC and an affiliate of Ampersand Ventures, which was terminated as of September 30, 2009 in connection with our IPO. We have a Master Consulting and Advisory Services Agreement with an affiliate of Cerberus to provide certain advisory services to us, for which we incurred no significant costs for the periods presented.

	(Loss), net, on Derivatives Recognized in Income				Gain, net, on Hedged Items Recognized in Income
	Location	Amount			Location	Amount

Fair value hedges
Foreign exchange contracts	Selling, general, and administrative	$	(2,621	)	Selling, general, and administrative	$	3,072

~~We have~~Cash anFlow equity investment in Centric Health Resources, Inc. (Centric); therefore, we consider Centric to be a related party during the periods presented. Centric provides services in the management of our Prolastin and Gamunex Direct programs. In this capacity, Centric provides warehousing, order fulfillment, distribution, home infusion, and customer relationship services for us primarily related to our U.S. sales of Prolastin/Prolastin-C A1PI. Centric maintains inventory on our behalf which it utilizes to fill customer orders. Centric also provides services to us in collecting accounts receivable for sales made under the Prolastin and Gamunex Direct programs. We provide Centric with a fee for each unit of product provided to patients which escalates with volume.Hedges

During the first quarter of 2011, we entered into forward foreign currency exchange contracts to hedge approximately 50% of forecasted sales to Talecris, GmbH, between February 1, 2011 and June 30, 2011. These forward contracts are designated as cash flow hedges. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of these instruments is reported in other comprehensive income (loss) and reclassified into earnings in the same period or periods in which the hedged transactions affect earnings. The changes in the fair value of the hedges against anticipated intercompany sales will be recognized as an adjustment to revenues when the hedged inventory sells through to third parties, which is estimated to be approximately five months after shipment to Talecris, GmbH. The gross notional amount of these contracts outstanding at March 31, 2011 was $19.9 (€14.6) million

The following table summarizes the unrealized losses, net, recognized in other comprehensive income, on our derivative instruments designated as cash flow hedges for the three months ended March 31, 2011:

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The following table summarizes our related party expenses for the periods presented:

Losses on foreign exchange contracts	$	968
Tax effect	(364		)
Net unrealized losses on foreign exchange contracts	$	604

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Centric (product distribution and other services)	$	5,957	$	5,128	$	11,076	$	15,076
Cerberus/Ampersand (management fees)	$	—	$	1,958	$	—	$	5,715

Hedge ineffectiveness for derivative instruments designated as cash flow hedges is measured by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged item, both of which are based on forward rates. Given the short-term duration of our cash flow hedges, we anticipate that all of the net unrealized losses included in accumulated other comprehensive income at March 31, 2011 will be reclassified into earnings by December 31, 2011. However, the amount ultimately realized in earnings is dependent on the fair value of the contracts on the settlement dates.

~~The~~Counterparty ~~following table summarizes our related party accounts payable balances:~~Risk

	September 30,		December 31,
	2010		2009
Centric (product distribution and other services)	$	6,447	$	5,537

Our derivative financial instruments present certain market and counterparty risks. We seek to manage the counterparty risks associated with these contracts by limiting transactions to counterparties with which we have established banking relationships and limit the duration of the contracts to less than one year. We are exposed to potential losses if a counterparty fails to perform according to the terms of the agreement. We do not require collateral or other security to be furnished by counterparties to our derivative financial instruments. There can be no assurance, however, that our practice effectively mitigates counterparty risk. A number of financial institutions similar to those that serve or may serve as counterparties to our hedging arrangements were adversely affected by the global credit crisis. The failure of any of the counterparties to our hedging arrangements to fulfill their obligations to us could adversely affect our results of operations and cash flows.

98. ~~7.75% Notes~~Fair ~~Exchange~~Value Measurement

OnWe ~~July 19,~~follow ~~2010,~~the weauthoritative ~~exchanged~~guidance ~~all~~on offair ~~our~~value ~~then~~measurements ~~outstanding~~and ~~7.75% Senior~~disclosures, ~~Notes~~with ~~due~~respect ~~2016~~to ~~for~~assets ~~7.75%~~and ~~Senior~~liabilities ~~Notes~~that ~~due~~are ~~2016~~measured ~~that~~at ~~have~~fair ~~been~~value ~~registered under~~on both a recurring and nonrecurring basis. Under the ~~Securities~~authoritative ~~Act~~guidance offor ~~1933~~fair value measurements, fair value is defined as ~~amended~~the ~~(Exchange~~exit ~~Notes).~~price, ~~The~~or ~~exchange offer~~the ~~was~~amount ~~made~~that ~~pursuant~~would tobe ~~the~~received ~~registration~~to ~~rights~~sell ~~agreement~~an ~~that~~asset weor ~~entered into~~paid ~~with~~to ~~the~~transfer ~~initial~~a ~~purchasers~~liability in ~~connection~~an ~~with~~orderly ~~the~~transaction ~~issuance~~between market participants as of the ~~previously~~ ~~outstanding~~measurement ~~notes~~date. The ~~Exchange~~ ~~Notes~~authoritative ~~are~~guidance ~~substantially~~also ~~identical~~establishes toa ~~the~~hierarchy ~~previously~~for ~~outstanding~~inputs ~~notes, except~~used in measuring fair value that maximizes the ~~transfer~~use ~~restrictions,~~of ~~registration~~observable ~~rights,~~inputs and ~~additional interest~~minimizes ~~provisions~~the ~~relating~~use toof unobservable inputs by requiring that the ~~previously~~most ~~outstanding~~observable ~~notes~~inputs ~~will~~be ~~not~~used ~~apply to~~when available. Observable inputs are inputs market participants would use in valuing the ~~Exchange~~asset ~~Notes~~or liability developed based on market data obtained from sources independent to us. ~~This~~ ~~exchange~~Unobservable ~~did not~~inputs ~~impact~~are inputs that reflect our ~~capitalization. Unless stated~~assumptions ~~otherwise~~about the factors market participants would use in valuing the ~~context~~asset ofor ~~discussion,~~liability wedeveloped ~~use~~based upon the ~~term~~best ~~“7.75%~~information ~~Notes”~~available ~~to describe~~in ~~our~~the ~~previously~~circumstances. ~~outstanding~~These ~~notes~~two ~~and~~types of inputs create the ~~Exchange~~following ~~Notes.~~fair value hierarchy:

· Level 1: Quoted market prices in active markets for identical assets or liabilities.

· Level 2: Observable market-based inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-driven valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:

The following table summarizes the fair value of our foreign currency hedges at March 31, 2011:

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	Balance Sheet
	Location	Level 1		Level 2		Level 3		Total

Liabilities:
Cash flow hedges	Accrued expenses and other liabilities	$	—	$	968	$	—	$	968

Fair value hedges	Accrued expenses and other liabilities	—		2,621		—		2,621
Total		$	—	$	3,589	$	—	$	3,589

We determined the fair value of our foreign exchange contracts by considering the estimated amount that we would receive or pay to terminate these agreements at the reporting date and by taking into account observable current and forward spot rates. 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 financial instruments.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

We may also be required, from time to time, to measure certain other financial assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are measured at fair value when there is an indicator of possible impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets and property, plant, and equipment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. No significant impairments of long-lived assets were recorded during the three months ended March 31, 2011 and 2010.

Fair Value of Other Financial Instruments

At March 31, 2011 and December 31, 2010, the estimated fair value of our 7.75% Notes was $659.3 million and $648.8 million, which was calculated by reference to open bid/ask quotations of our 7.75% Notes. We had no amounts outstanding under our variable rate revolving credit facility at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31, 2010, we have notes receivable outstanding, which bear interest at market rates, and consequently, the recorded amounts approximate fair value. The recorded amounts of all other financial instruments, which consist of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and other liabilities, approximate fair value due to the short duration of the instruments.

9. Related Party Transactions

Until January 21, 2010, a majority of our outstanding common stock was owned by Talecris Holdings, LLC. Talecris Holdings, LLC is owned by (i) Cerberus-Plasma Holdings, LLC, the managing member of which is Cerberus Partners, L.P., and (ii) limited partnerships affiliated with Ampersand Ventures. Substantially all rights of management and control of Talecris Holdings, LLC are held by Cerberus-Plasma Holdings LLC. As of March 31, 2011, Talecris Holdings, LLC owned approximately 48.6% of our outstanding common stock.

We have an equity investment in Centric Health Resources, Inc. (Centric); therefore, we consider Centric to be a related party during the periods presented. Centric provides services in the management of our Prolastin and Gamunex Direct programs. In this capacity, Centric provides warehousing, order fulfillment, distribution, home infusion, and customer relationship services for us primarily related to our U.S. sales of Prolastin. Centric maintains inventory on our behalf which it utilizes to fill customer orders. Centric also provides services to us in collecting accounts receivable for sales made under the Prolastin and Gamunex Direct programs. We provide Centric with a fee for each unit of product provided to patients which escalates with volume. The total fees for such services for the three months ended March 31, 2011 and March 31, 2010 were $6.2 million and $5.3 million, respectively, and have been recorded primarily within cost of goods sold in our unaudited interim consolidated income statements. At March 31, 2011 and December 31, 2010, we had $6.7 million and $6.4 million payable to Centric.

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10. Commitments and Contingencies

There have been no significant changes to our commercial commitments during the first quarter of 2011. We have ~~disclosed~~included information regarding our significant commercial commitments in our ~~2009~~2010 Form 10-K. ~~The~~We ~~following summarizes~~have ~~our~~included ~~significant~~information ~~changes~~regarding inour ~~material~~significant ~~commitments~~litigation matters and other contingencies ~~as of September 30, 2010~~below.

Capital Commitments

As discussed in our ~~2009~~2010 Form 10-K, we have embarked on a substantial capital plan ~~to address our manufacturing capacity constraints~~. AsAt ~~of September~~March 3031, ~~2010~~ 2011, we have commitments and open purchase orders for capital spending ~~under this capital program~~ of approximately $~~222~~156.3 million.

Litigation

We are involved in various legal and regulatory proceedings that arise in the ordinary course of business. We record accruals for such contingencies to the extent that we conclude that their occurrence is both probable and estimable. We consider many factors in making these assessments, including the professional judgment of experienced members of management and our legal counsel. We have estimated the likelihood of settlement, unfavorable outcomes, and the amounts of such potential losses. In our opinion, the ultimate outcome of these proceedings and claims is not anticipated to have a material adverse effect on our consolidated financial position, results of operations, or cash flows. However, the ultimate outcome of litigation is unpredictable and actual results could be materially different from our estimates. We record anticipated recoveries under applicable insurance contracts when we are assured of recovery.

Grifols Transaction

Four purported class action lawsuits have been filed by our stockholders challenging the proposed Grifols transaction. Two of the lawsuits were filed in the Court of Chancery of the State of Delaware and have been consolidated under the caption: In re Talecris Biotherapeutics Holdings Shareholder Litigation, Consol. C.A. No. 5614-VCL. The other two lawsuits were filed in the Superior Court of the State of North Carolina and are captioned Rubin v. Charpie, et al., No. 10 CV 004507 (North Carolina Superior Court, Durham County), and Kovary v. Talecris Biotherapeutics Holdings Corp., et al., No. 10 CV 011638 (North Carolina Superior Court, Wake County). The lawsuits name as defendants Talecris, the members of our board of directors, Grifols, S.A. and its subsidiary, Grifols, Inc., and, in the Delaware consolidated action, Talecris Holdings LLC and Stream Merger Sub, Inc, a wholly owned subsidiary of

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Talecris. The two North Carolina actions have been stayed.

All of the lawsuits allege that the individual defendants (and, in the consolidated Delaware action, Talecris Holdings LLC) breached their fiduciary duties to our stockholders in connection with the proposed transaction with Grifols, and that Grifols (and, in one of the North Carolina cases, Talecris, and in the Delaware action, Grifols, Inc.) aided and abetted those breaches. The Delaware complaint alleges, among other things, that the consideration offered to our stockholders pursuant to the proposed transaction is inadequate; that our board of directors failed to take steps to maximize stockholder value; that our IPO and debt refinancing in 2009 were intended to facilitate a sale of Talecris; that Cerberus and Talecris Holdings LLC arranged the proposed merger for the benefit of affiliates of Cerberus Associates, LLC, without regard to the interests of other stockholders; that the voting agreements impermissibly lock up the transaction; that the merger agreement contains terms, including a termination fee, that favor Grifols and deter alternative bids; and that the preliminary Form F-4 filed on August 10, 2010 contains material misstatements and/or omissions, including with respect to the availability of appraisal rights in the merger; the purpose and effects of the Virginia reincorporation merger; the antitrust risks of the proposed transaction; the financial advisors’ analyses regarding the Grifols’ non-voting stock to be issued in connection with the transaction; and the fees to be paid to Morgan Stanley by us and Grifols in connection with the proposed transaction. The Delaware complaint also alleges that our stockholders are entitled to appraisal rights in connection with the transaction pursuant to Section 262 of the Delaware General Corporation Law, and that the transaction violates the Delaware General Corporation Law by failing to provide such rights. The Delaware action seeks equitable and injunctive relief, including a determination that the stockholders have appraisal rights in connection with the merger, and damages. Plaintiffs have filed a motion for a preliminary injunction, which has been scheduled to be heard on November 8, 2010.

We believe that these lawsuits are without merit and intend to defend them vigorously.

National Genetics Institute/Baxter Healthcare Corporation Litigation

In May 2008, Baxter Healthcare Corporation (Baxter) and National Genetics Institute (NGI), a wholly-owned subsidiary of Laboratory Corporation of America, filed a complaint in the U.S. District Court for the Eastern District of North Carolina, alleging that we infringed U.S. Patent Nos. 5,780,222, 6,063,563, and 6,566,052. The patents deal primarily with a method of screening large numbers of biological samples utilizing various pooling and matrix array strategies, and the complaint alleges that the patents are owned by Baxter and exclusively licensed to NGI. In November 2008, we filed our answer to their complaint, asserting anti-trust and other counterclaims, and filed a request for re-examination of the patents with the Patent and Trademark Office (PTO), which was subsequently granted. We filed a motion to stay litigation pending the PTO proceedings. This case was settled effective October 1, 2010, with us receiving a paid-up license to the technology subject to the disputed patents and the parties dismissing their claims and counterclaims.

Plasma Centers of America, LLC and G&M Crandall Limited Family Partnership

~~We had~~On December 13, 2010, a ~~three~~jury ~~year~~in ~~Amended~~the ~~and~~state ~~Restated~~court ~~Plasma~~case ~~Sale/Purchase~~rendered ~~Agreement~~a ~~with~~ verdict in the amount of $37.0 million in favor of Plasma Centers of America, LLC (PCA) ~~under~~against ~~which~~TPR wein ~~were~~a ~~required~~breach toof ~~purchase annual~~contract ~~minimum~~claim, ~~quantities~~which ofwas ~~plasma~~confirmed ~~from~~by ~~plasma~~the ~~collection~~court ~~centers~~in ~~approved~~post ~~by us,~~trial ~~including~~motions. ~~the~~We ~~prepayment~~filed ofan ~~90%~~appeal ~~for~~to ~~unlicensed~~the ~~plasma. We~~North ~~were~~Carolina ~~also~~Court ~~committed~~of Appeals to ~~finance~~review the ~~development of~~judgment upentered toin ~~eight~~this ~~plasma~~case. The ~~collection~~jury ~~centers~~verdict, ~~which~~if ~~were~~sustained, towill bebear ~~used~~simple tointerest ~~source plasma~~at ~~for~~8% ~~us. Under~~per statute from the ~~terms~~date of ~~the agreement~~breach, wewhich ~~had~~totals ~~the~~approximately ~~obligation~~$7.4 tomillion ~~purchase~~at ~~such~~March 31, ~~centers~~2011, ~~under~~of ~~certain conditions~~which ~~for~~$0.7 amillion ~~sum~~was ~~determined~~accrued byduring athe ~~formula~~three ~~set~~months ~~forth~~ended inMarch 31, ~~the~~2011 ~~agreement. We~~and ~~provided~~ $36.27 million inwas ~~financing, including~~ accrued ~~interest,~~during ~~related to~~ the ~~development~~year ofended ~~such centers~~December 31, ~~and~~2010. We ~~we advanced~~have ~~payment~~recorded of$44.4 million and $143.07 million ~~for~~within ~~unlicensed~~accrued ~~plasma. We~~expenses ~~recorded~~and aother ~~provision~~liabilities ~~within~~on ~~SG&A during~~our ~~2008~~consolidated balance sheets at March 31, 2011 and December 31, 2010, respectively, related to ~~these~~the ~~advances~~PCA judgment.

~~In August 2008,~~During wethe ~~notified~~first ~~PCA~~quarter ~~that~~of ~~they~~2011, ~~were~~we insecured ~~breach~~an ofappeal ~~the~~bond ~~Amended~~from ~~and Restated~~a ~~Plasma~~surety ~~Sale/Purchase~~company ~~Agreement. We~~in ~~terminated~~ the ~~agreement~~amount inof ~~September 2008~~$25.0 Inmillion ~~November 2008, TPR filed suit~~ in ~~federal~~regard ~~court~~to inthis ~~Raleigh,~~litigation. In ~~North~~connection ~~Carolina~~with ~~against~~ the ~~G&M Crandall~~issuance ~~Limited~~of ~~Family~~this ~~Partnership~~bond, ~~and~~we ~~its~~issued ~~individual~~a ~~partners~~$6.3 asmillion ~~guarantors of~~letter ~~obligations~~ of ~~PCA.~~credit Weto ~~were~~our ~~served~~surety inas ~~January 2009~~partial incollateral afor ~~parallel~~our ~~state action~~obligation byto ~~PCA,~~reimburse ~~alleging~~the ~~breach~~surety offor ~~contract~~any bypayments ~~TPR.~~made ~~Motions~~in toconnection ~~summary~~with ~~judgment by~~this ~~both parties have been denied~~litigation. The ~~two~~letter ~~cases~~of ~~are~~credit ~~proceeding~~reduces inthe ~~parallel, with~~available ~~trial~~borrowings inunder ~~the~~our ~~state~~revolving ~~action~~credit ~~set for November 2010~~facility.

Foreign Corrupt Practices Act ~~Investigation~~

We are conducting an internal investigation into potential violations of the Foreign Corrupt Practices Act (FCPA) that we became aware of during the conduct of an unrelated review. The FCPA investigation is being conducted by outside counsel under the direction of a special committee of our board of directors. The investigation initially focused on sales to certain Eastern European and Middle Eastern countries, primarily Belarus, Russia, and Iran, but we are also reviewing sales practices in Brazil, Bulgaria, China, Georgia, Libya, Poland, Turkey, Ukraine, and other countries as deemed appropriate.

9In July 2009, we voluntarily contacted the U.S. Department of Justice (DOJ) to advise them of the investigation and to offer our cooperation in any investigation that they want to conduct or they want us to conduct. The DOJ has not indicated what action it may take, if any, against us or any individual, or the extent to which it may conduct its own investigation. Even though we self-disclosed this matter to the DOJ, it or other federal agencies may seek to impose sanctions on us that may include, among other things, debarment, injunctive relief, disgorgement, fines, penalties, appointment of a monitor, appointment of new control staff, or enhancement of existing compliance and training programs. Other countries in which we do business may initiate their own investigations and impose similar penalties. As a result of this investigation, we suspended shipments to some of these countries while we put additional safeguards in place. In some cases, safeguards involved terminating consultants and suspending relations with or terminating distributors in countries under investigation as circumstances warranted. These actions unfavorably affected revenue from these countries during the three months ended March 31, 2011 and 2010. We have resumed sales in countries where we believe we have appropriate safeguards in place and are reallocating product to other countries as necessary. To the extent that we conclude, or the DOJ concludes, that we cannot implement adequate safeguards or otherwise need to change our business practices, distributors, or consultants in affected countries or other countries, this may result in a permanent loss of business from those countries. We expect to complete our internal FCPA investigation and present our findings to the DOJ in 2011. The preliminary findings of our investigation indicate that it is probable that there were FCPA violations by persons associated with us that the DOJ or other regulators may assert

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In July 2009, we voluntarily contacted the U.S. Department of Justice (DOJ) to advise them of the investigation and to offer our cooperation in any investigation that they want to conduct or they want us to conduct. The DOJ has not indicated what action it may take, if any, against us or any individual, or the extent to which it may conduct its own investigation. The DOJ or other federal agencies may seek to impose sanctions on us that may include, among other things, injunctive relief, disgorgement, fines, penalties, appointment of a monitor, appointment of new control staff, or enhancement of existing compliance and training programs. Other countries in which we do business may initiate their own investigations and impose similar penalties. As a result of this investigation, we have suspended shipments to some of these countries while we put additional safeguards in place. In some cases, safeguards involved terminating consultants and suspending relations with or terminating distributors in countries under investigation as circumstances warranted. These actions unfavorably affected revenue from these countries in 2009 and have an ongoing unfavorable impact on revenue in 2010. We have resumed sales in countries where we have appropriate safeguards in place and are ~~reallocating product~~attributable to other countries as necessary. To the extent that we conclude, or the DOJ concludes, that we cannot implement adequate safeguards or otherwise need to change our business practices, distributors, or consultants in affected countries or other countries, this may result in a permanent loss of business from those countries. These sanctions or the loss of business could have a material adverse effect on us ~~or our results of operations~~. Based on the information obtained to date, we have not determined that any potential liability that may result is probable or can be reasonably estimated. Therefore, we have not made any accrual in our unaudited interim consolidated financial statements as of September 30, 2010.

~~Compliance~~Any ~~with~~sanctions ~~Pharmaceutical~~or ~~Pricing~~related ~~Agreement~~loss ~~under~~of business could have a material adverse effect on us or our results of operations. It is possible, however, that any sanctions that DOJ or other federal agencies might otherwise consider imposing would be reduced, if not eliminated, in light of the ~~Public Health~~comprehensive ~~Service~~compliance ~~Program~~measures that we have implemented. Given the preliminary nature of our findings, our continuing investigation and the uncertainties regarding this matter, we are unable to estimate the financial outcome and consequently, we have not accrued any amounts related to the outcome of this matter.

~~In November 2009,~~Compliance ~~we received a letter from the United States Attorney’s Office for the Eastern District of Pennsylvania (USAO). The USAO requested a meeting to review our compliance~~ with ~~the terms of the~~ Pharmaceutical Pricing ~~Agreement~~ (PPA) under the Public Health Service program. Specifically, the USAO asked for information related to the sale of our IGIV product, Gamunex, under that program. In order to have federal financial participation apply to their products under the Medicaid program and to obtain Medicare Part B coverage, manufacturers are required to enter into a PPA. The PPA obligates manufacturers to charge covered entities the Public Health Service price for drugs intended for outpatient use. The Public Health Service price is based on the Medicaid rebate amount. We believe that we have complied with the terms of the PPA and federal law. If the USAO determines that our practices are inconsistent with the terms of the PPA, the USAO has stated that it may file a civil action against us under the Anti-fraud Injunction Act and seek a court order directing the company to comply with the PPA or, potentially, proceed under some other legal theory. We could also be subject to fines, damages, penalties, appointment of a monitor, or enhancement of existing compliance and training programs as a result of government action. We are cooperating with the investigation and intend to respond to information requests from the USAO. Based on the information obtained to date, we have not determined that any potential liability that may result is probable or can be reasonably estimated. Therefore, we have not made any accrual in our unaudited interim consolidated financial statements as of September 30, 2010.Agreement

In November 2009, we received a letter from the United States Attorney’s Office for the Eastern District of Pennsylvania (USAO). The USAO requested a meeting to review our compliance with the terms of the Pharmaceutical Pricing Agreement (PPA) under the Public Health Service program. Specifically, the USAO asked for information related to the sale of our IGIV product, Gamunex, under that program. In order to have federal financial participation apply to their products under the Medicaid program and to obtain Medicare Part B coverage, manufacturers are required to enter into a PPA. The PPA obligates manufacturers to charge covered entities the Public Health Service price for drugs intended for outpatient use. The Public Health Service price is based on the Medicaid rebate amount. We believe that we have complied with the terms of the PPA and federal law. If the USAO determines that our practices are inconsistent with the terms of the PPA, the USAO has stated that it may file a civil action against us under the Anti-fraud Injunction Act and seek a court order directing the company to comply with the PPA or, potentially, proceed under some other legal theory. We could also be subject to fines, damages, penalties, appointment of a monitor, or enhancement of existing compliance and training programs as a result of government action. We are cooperating with the investigation and intend to respond to information requests from the USAO. Based on the information obtained to date, we have not determined that any potential liability that may result is probable or can be reasonably estimated. Therefore, we have not made any accrual in our unaudited interim consolidated financial statements at March 31, 2011.

11. Share-Based Compensation

We have long-term incentive plans, which provide for the grant of awards in the form of incentive stock options, nonqualified stock options, share appreciation rights, restricted stock, restricted stock units (~~RSU’s~~RSUs), unrestricted shares of common stock, deferred share units, and performance share units (~~PSU’s~~PSUs), to eligible employees, directors, and consultants.

Share-based compensation expense for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010 was as follows:

Three Months Ended

~~Nine Months Ended~~

September 30,

March 31,

2010

2009

2010

2009

2011

2010

SG&A

21,~~530~~570

175,~~929~~680

~~10,480~~

~~34,379~~

R&D

~~181~~112

~~513~~538

~~896~~

~~1,692~~

Cost of goods sold

~~908~~530

1,~~012~~009

~~2,827~~

~~3,554~~

Total expense

32,~~619~~212

197,~~454~~227

~~14,203~~

~~39,625~~

Capitalized in inventory

~~483~~1,054

~~868~~2,633

~~1,928~~

~~2,874~~

Amounts capitalized in inventory are ultimately recognized in cost of goods sold in our consolidated income statement primarily within twelve months.

The following table summarizes the estimated remaining unrecognized compensation cost related to our share-based compensation program as of March 31, 2011 and the weighted average period over which the non-cash compensation cost is expected to be recognized:

1011

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compensation program as of September 30, 2010 and the weighted average period over which the non-cash compensation cost is expected to be recognized:

			Weighted-
	Unrecognized		Average
	Compensation		Period
	Cost		(Years)
Stock options	$	3,447	1.85
RSUs	5,957		1.90
PSUs	3,716		2.00
Total	$	13,120

			Weighted-
	Unrecognized		Average
	Compensation		Period
	Cost		(Years)
Stock options	$	4,523	2.35
Restricted share awards	2,163		0.50
RSU’s	7,298		2.41
PSU’s	3,894		2.50
Total	$	17,878

In addition to the unrecognized compensation cost included in the table above, at March 31, 2011, $1.1 million of compensation cost was included in inventory on our unaudited interim consolidated balance sheet, which we expect to be recognized as non-cash compensation expense in our consolidated income statement primarily within the next twelve months. The amount of share-based compensation expense that we will ultimately be required to record could change in the future as a result of additional grants, changes in the fair value of shares for performance-based awards, differences between our anticipated forfeiture rate and the actual forfeiture rate, the probability of achieving targets established for performance award vesting, and other actions by our board of directors or its compensation committee. Future compensation expense with respect to currently outstanding PSUs is based upon an analysis of the probability of achieving the underlying performance conditions. We believe that it is unlikely we will achieve the PSU performance goals for 2011 and 2012. Consequently, we have not recognized share-based compensation expense related to those tranches during the three months ended March 31, 2011.

In addition to the unrecognized compensation cost included in the table above, at September 30, 2010, $1.9 million of compensation cost was included in inventory on our unaudited interim consolidated balance sheet, which we expect to be recognized as non-cash compensation expense in our consolidated income statement primarily within the next twelve months. The amount of share-based compensation expense that we will ultimately be required to record could change in the future as a result of additional grants, changes in the fair value of shares for performance-based awards, differences between our anticipated forfeiture rate and the actual forfeiture rate, the probability of achieving targets established for performance award vesting, and other actions by our board of directors or its compensation committee.

Stock Options

The following is a summary of stock option activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011:

					Weighted
					Average
			Weighted		Remaining
			Average		Contractual	Aggregate
			Exercise		Term	Intrinsic
	Shares		Price		(Years)	Value
Outstanding at December 31, 2009	12,129,438		$	8.40
Outstanding at December 31, 2010	8,527,502		$	9.45
Granted	73,593		$	20.39
Forfeited	(25,578	)	$	12.31
Forfeited	(18,805	)	$	19.00
Exercised	(249,989	)	$	5.26
Exercised	(2,989,023	)	$	6.44
Outstanding at March 31, 2011	8,251,935		$	9.57	5.4	$	142,180
Outstanding at September 30, 2010	9,195,203		$	9.11	6.0	$	126,587
Exercisable at March 31, 2011	7,611,063		$	8.76	4.6	$	137,283
Exercisable at September 30, 2010	8,542,702		$	8.35	5.1	$	124,157
Vested and expected to vest at March 31, 2011	8,217,017		$	9.49	5.4	$	142,245
Vested and expected to vest at September 30, 2010	9,142,593		$	9.00	6.0	$	126,862

The aggregate intrinsic value in the table above represents the difference between the $2226.8880 closing price of our common stock as reported by The NASDAQ Global Select Market on ~~September~~March 3031, ~~2010~~2011 and the weighted average exercise price, multiplied by the number of options outstanding or exercisable. The total cash proceeds to us from stock option exercises during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 were $191.3 million for shares with an estimated intrinsic value of $685.4 million. We do not record the aggregate intrinsic value for financial accounting purposes and the value changes based upon changes in the fair value of our common stock.

The following weighted-average assumptions were used to estimate the fair value of stock options granted during the three months ended March 31, 2010:

	Nine Months Ended
Risk-free interest rate	2.75	%
	September 30,
Expected term	6.0
	2010		2009
Expected volatility	50	%
Risk-free interest rate	2.66	%	2.66	%
Expected dividend yield	0	%
Expected term (years)	5.66		5.96
Expected volatility	50	%	50	%
Expected dividend yield	0	%	0	%

11No stock options were granted during the three months ended March 31, 2011. We generally apply a 3% forfeiture rate to the options granted over the term of the award, representing our estimate of those awards not expected to vest.

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We generally apply a 3% forfeiture rate to the options granted over the term of the award, representing our estimate of those awards not expected to vest.

Restricted Stock

The following is a summary of restricted stock activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011:

			Weighted
			Average
			Grant Date
	Shares		Fair Value
Unvested shares outstanding at December 31, 2009	913,856		$	15.27
Unvested shares outstanding at December 31, 2010	186,600		$	21.25
Vested	(~~727~~186,~~256~~600	)	$	1321.7425
Unvested shares outstanding at September 30, 2010	186,600		$	21.25
Unvested shares outstanding at March 31, 2011	—

During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, we repurchased ~~246~~ 82,~~823~~067 shares of our common stock from employees for $42.92 million to settle their withholding tax obligations upon vesting of ~~727,256 shares of~~ restricted stock. During the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~ 2010, we repurchased ~~248~~246,~~512~~823 shares of our common stock from employees for $4.1 9 million to settle their withholding tax obligations upon vesting of ~~771,744 shares of~~ restricted stock. The total fair value of the restricted stock that vested during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010 was $~~14.~~5.0 million and $1214.82 million, respectively.

Restricted Stock Units (~~RSU’s~~RSUs)

The following is a summary of RSU activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011:

					Weighted
					Average
			Weighted		Remaining
			Average		Contractual	Aggregate
			Grant Date		Term	Intrinsic
	Shares		Fair Value		(Years)	value
Outstanding at December 31, 2009	480,024		$	19.00
Outstanding at December 31, 2010	484,558		$	19.10
Granted	36,015		$	20.40
Canceled or forefeited	(4,154	)	$	19.00
Forfeited	(23,703	)	$	19.00
Outstanding at March 31, 2011	480,404		$	19.10	1.9	$	12,875
Outstanding at September 30, 2010	492,336		$	19.10	2.4	$	11,265

~~Performance~~RSUs ~~Share~~are ~~Units~~converted ~~(PSU’s)~~into shares of our common stock upon vesting. Employees are given an option to net settle their tax withholding obligation upon vesting of RSUs. Under the net settlement approach, we withhold a portion of common shares to cover the applicable employee withholding taxes and decrease the shares issued to the employee by a corresponding value. On April 1, 2011, 174,911 RSUs vested. We issued 124,762 shares of common stock to employees and withheld 50,149 shares of common stock to cover the applicable employee withholding taxes.

~~The~~Performance ~~following~~Share isUnits ~~a summary of performance share unit activity for the nine months ended September 30, 2010:~~(PSUs)

			Weighted
			Average
			Grant Date
	Shares		Fair Value
Unvested PSU’s outstanding at December 31, 2009	—		—
Granted	261,327		$	21.51
Forfeited	(1,627	)	$	21.51
Unvested PSU’s outstanding at September 30, 2010	259,700		$	21.51

The following is a summary of performance share unit activity for the three months ended March 31, 2011:

PSU’s are awards that vest based on the achievement of pre-established objective performance goals, which are generally financial in nature. For performance awards, the compensation committee establishes a performance period and the performance targets for each performance measure that must be achieved at the end of the performance period for awards to vest. The number of shares issued upon the vesting of the performance awards varies based on actual performance in a year relative to a defined minimum and maximum financial target for that year. The PSU’s granted on March 8, 2010 will vest annually over a three-year performance period with the potential for 0% to 125% payout, based on the achievement of annual earnings per share targets that were established at the time of grant.

			Weighted
			Average
			Grant Date
	Shares		Fair Value
Unvested PSUs outstanding at December 31, 2010	259,700		$	21.51
Forfeited	(1,162	)	$	21.51
Unvested PSUs outstanding at March 31, 2011	258,538		$	21.51

12PSUs are awards that vest based on the achievement of pre-established objective performance goals, which are generally financial in nature. For performance awards, the compensation committee established a performance period and the performance targets for each performance measure that must be achieved at the end of the performance period for awards to vest. The number of shares issued upon the vesting of the performance awards varies based on actual performance in a year relative to a defined minimum

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and maximum financial target for that year. The PSUs granted on March 8, 2010 vest annually over a three-year performance period, one-third on April 1, 2011, 2012, and 2013, with the potential for 0% to 125% payout, based on the achievement of annual earnings per share targets that were established at the time of the grant.

For the one-third of the PSUs vesting based on the 2010 performance period, the earning per share target was $1.50 per share, with actual adjusted earnings per share of $1.68, providing for a 125% payout under the terms of the awards, resulting in the grant of 21,529 additional awards. PSUs are converted into shares of our common stock upon vesting. Employees are given an option to net settle their tax withholding obligation upon vesting of PSUs. Under the net settlement approach, we withhold a portion of common shares to cover the applicable employee withholding taxes and decrease the shares issued to the employee by a corresponding value. On April 1, 2011, 107,697 PSUs vested. We issued 68,736 shares of common stock to employees and withheld 38,961 shares of common stock to cover the applicable employee withholding taxes as a result of the vesting of these PSUs We believe that it is unlikely we will achieve the PSU performance goals for 2011 and 2012. Consequently, we have not recognized share-based compensation expense related to those tranches during the three months ended March 31, 2011.

Income Taxes

~~In connection~~We ~~with~~recognized ~~stock~~net ~~option~~tax ~~exercises~~benefits of $3.3 million and ~~restricted~~$9.8 ~~stock~~million ~~vesting~~for the three months ended March 31, we 2011 and 2010, respectively, related to share-based compensation. We record income tax benefits realized upon exercise or vesting of an award in excess of that previously recognized ~~net~~in earnings as additional paid-in-capital. We recognized excess tax benefits related to share-based compensation of $121.1 million and $4.6 million for the three months ended March 31, 2011 and 2010, respectively.

$4.7 million for the nine months ended September 30, 2010 and 2009, respectively. We record income tax benefits realized upon exercise or vesting of an award in excess of that previously recognized in earnings as additional paid-in-capital. We recognized excess tax benefits related to share-based compensation of $10.8 million and $1.4 million for the nine months ended September 30, 2010 and 2009, respectively.

12. Segment Reporting

We operate our plasma-derived protein therapeutics business as a single reportable business segment since all operating activities are directed from our North Carolina headquarters and all of our products are derived from a single source and result from a common manufacturing process. All products are manufactured from a single raw material source, human plasma, and are processed in whole, or in part, at our principal manufacturing facilities located in Clayton, North Carolina. Our Melville, New York, facility primarily supplies intermediate plasma fractions to our Clayton facilities. Gamunex-C/Gamunex IGIV and Prolastin/Prolastin-C A1PI constitute the majority of our net revenue. Although we sell our products worldwide, the majority of our net revenue was concentrated in the United States and Canada for the periods presented.

In the following table, we have presented our net revenue by significant product category. Our Immunology/Neurology product category includes the products that are used to provide antibodies to patients who have a genetic or acquired inability to produce these antibodies, as well as a treatment for CIDP, and also products that provide antibodies to counter specific antigens such as rabies. Our Pulmonology product category is comprised of our Prolastin/Prolastin-C A1PI product, which is used to treat patients with a genetic alpha-1 antitrypsin deficiency. Our Critical Care/Hemostasis product category includes products that are used to supplement, restore, or maintain normal plasma parameters such as volume or coagulation values. Other product net revenue primarily consists of sales of PPF powder and intermediate products, such as cryoprecipitate. Other net revenue consists of royalties, ~~and~~ licensing fees, ~~milestones,~~ and revenues related to contracted services performed for third parties at our Melville, New York facility.

Three Months Ended

~~Nine Months Ended~~

September 30,

March 31,

2010

2009

2010

2009

2011

2010

Product net revenue:

Immunology/ Neurology

~~246~~253,~~393~~141

~~237~~233,~~395~~267

~~718,101~~

~~700,938~~

Pulmonology

8988,~~980~~667

80,~~813~~184

~~258,149~~

~~230,193~~

Critical Care/ Hemostasis

4440,~~100~~000

4238,~~434~~366

~~130,818~~

~~119,168~~

Other

2017,~~088~~172

2722,~~256~~798

~~65,210~~

~~72,578~~

Total product net revenue

~~400~~398,~~561~~980

~~387~~374,~~898~~615

~~1,172,278~~

~~1,122,877~~

Other revenue

67,~~440~~683

76,~~833~~346

~~18,510~~

~~20,219~~

Total net revenue

~~407~~406,~~001~~663

~~395~~380,~~731~~961

~~1,190,788~~

~~1,143,096~~

In the following table, we have presented our net revenue by geographic region. Net revenue for each region is based on the geographic location of the customer.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
United States	$	285,912	$	267,411	$	822,808	$	764,500
Canada	47,729		58,227		144,266		162,092
Europe	50,430		45,956		145,077		132,617
Other	22,930		24,137		78,637		83,887
Total net revenue	$	407,001	$	395,731	$	1,190,788	$	1,143,096

WeTable ~~did not maintain significant long-lived assets outside~~ of ~~the United States at September 30, 2010 and December 31, 2009.~~Contents

	Three Months Ended
	March 31,
	2011		2010
United States	$	280,082	$	261,392
Canada	53,326		49,245
Europe	52,510		48,383
Other	20,745		21,941
Total net revenue	$	406,663	$	380,961

We did not maintain significant long-lived assets outside of the United States at March 31, 2011 and December 31, 2010.

13. Earnings per Share

The following table illustrates the calculation of our basic earnings per common share outstanding:

	Three Months Ended
	March 31,
	2011		2010

Net income	$	55,457	$	45,339

Weighted average common shares outstanding	125,592,893		121,638,867

Basic net income per common share:	$	0.44	$	0.37

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.	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
Net income	$	56,052	$	35,810		$	149,014	$	152,517
Less:
Series A convertible preferred stock undeclared dividends	—		(3,280		)	—		(9,602		)
Series B convertible preferred stock undeclared dividends	—		(732		)	—		(2,142		)
Net income available to common stockholders	$	56,052	$	31,798		$	149,014	$	140,773
Weighted average common shares outstanding	123,668,072		2,647,178			122,669,724		1,847,235
Basic net income per common share	$	0.45	$	12.01		$	1.21	$	76.21

The following table illustrates the calculation of our diluted earnings per common share outstanding:

	Three Months Ended				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2010		2009		2010		2009
	2011		2010
Net income	$	5655,~~052~~457	$	3545,~~810~~339	$	~~149,014~~	$	~~152,517~~
Weighted average common shares outstanding	~~123~~125,~~668~~592,~~072~~893		2121,~~647~~638,~~178~~867		~~122,669,724~~		~~1,847,235~~
Plus incremental shares from assumed conversions:
Series A preferred stock	—		71,217,391		—		71,736,264
Stock options and restricted shares	4,289,289		6,544,322
Series B preferred stock	—		13,695,817		—		13,795,601
Dilutive potential common shares	129,882,182		128,183,189
Stock options and restricted shares	5,266,418		6,350,815		5,844,003		6,540,453
Diluted net income per common share	$	0.43	$	0.35
Dilutive potential common shares	128,934,490		93,911,201		128,513,727		93,919,553
Diluted net income per common share	$	0.43	$	0.38	$	1.16	$	1.62

~~Options at~~For the ~~weighted~~three ~~average~~months ~~exercise~~ended ~~prices~~March 31, ~~indicated~~2011 ~~below~~and ~~were~~March 31, ~~outstanding~~2010, ~~but excluded~~22,623 ~~from the computation of diluted earnings per common share because their exercise prices~~ and ~~assumed~~603,733 ~~tax~~stock ~~benefits~~options ~~upon exercise~~ were ~~greater~~excluded ~~than~~from the ~~average~~ ~~market~~calculation ~~price~~of ~~for~~diluted ~~the~~earnings ~~common~~per ~~shares~~share ~~during~~due ~~the~~to ~~periods~~their ~~presented, so including those options would be~~ anti-dilutive effect.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Stock options	602,768		2,053,889		640,636		2,039,807
Weighted average exercise price	$	19.10	$	21.17	$	19.11	$	21.20

14. Other Consolidated Balance Sheet Information

~~14. Fair Value~~Information ofregarding ~~Financial~~other ~~Instruments~~accounts on our consolidated balance sheets is as follows:

At December 31, 2009, we had two interest rate cap contracts with a notional principal amount of $175.0 million outstanding for which the cap rate of 6.00% was significantly higher than prevailing market interest rates; therefore, the fair market value was zero. The interest rate caps matured during February 2010.15

At September 30, 2010 and December 31, 2009, the estimated fair value of our 7.75% Notes was $657.8 million and $607.9 million, respectively. We calculated the fair value by reference to open bid/ask quotations of our 7.75% Notes at each balance sheet date. We had no amounts outstanding under our variable rate Revolving Credit Facility at September 30, 2010 and December 31, 2009. At September 30, 2010 and December 31, 2009, we have notes receivable outstanding, which bear interest at market rates, and consequently, the recorded amounts approximate fair value. The recorded amounts of all other financial instruments, which consists of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and other liabilities, approximate fair value due to the short duration of the instruments.

Table of Contents

	March 31,		December 31,
	2011		2010
Accrued expenses and other liabilities:
Accrued goods and services	$	65,794	$	80,769
Accrued payroll, bonuses, and employee benefits	54,938		80,317
Medicaid, commercial rebates, and chargebacks	31,339		29,744
Interest payable	17,636		6,011
PCA judgment	44,430		43,690
Taxes	10,799		—
Other	17,798		11,195
Total Accrued expenses and other liabilities	$	242,734	$	251,726

15. Condensed Consolidating Financial Information

InOur ~~October 2009, we completed the issuance of our~~ 7.75% ~~Notes. The~~ ~~7.75%~~ Notes are guaranteed on a senior unsecured basis by our existing and future domestic subsidiaries. The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Each of the subsidiary guarantors are 100% owned, directly or indirectly, by us, and all guarantees are full and unconditional and joint and several. Our investments in our consolidated subsidiaries are presented under the equity method of accounting. No significant administrative costs are borne by the Parent. ~~Our unaudited condensed consolidating financial statements are presented below:~~

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Balance Sheets

~~September~~March 3031, ~~2010~~2011

Parent/

Guarantor

Non-Guarantor

Consolidating

Issuer

Subsidiaries

Adjustments

Consolidated

Assets:

Current assets:

Cash

—

~~143~~172,~~327~~667

712,~~203~~671

—

~~150~~185,~~530~~338

Accounts receivable, net

—

~~287~~281,~~799~~268

3840,~~502~~567

(~~155~~170,~~429~~544

)

~~170~~151,~~872~~291

Inventories

—

~~626~~651,~~319~~626

4651,~~409~~422

—

~~672~~703,~~728~~048

Other

—

~~119~~114,~~158~~038

~~887~~1,073

—

~~120~~115,~~045~~111

Total current assets

—

1,~~176~~219,~~603~~599

93105,~~001~~733

(~~155~~170,~~429~~544

)

1,~~114~~154,~~175~~788

Property, plant, and equipment, net

—

~~330~~425,~~355~~085

1,~~135~~013

—

~~331~~426,~~490~~098

Intangible assets

—

10,880

—

10,880

Goodwill

—

172,860

—

172,860

Investment in Subsidiaries

~~809~~880,~~729~~381

(3329,~~839~~600

)

—

(~~775~~850,~~890~~781

)

—

Advances and notes between Parent and Subsidiaries

1,~~400~~411,~~295~~034

~~826~~824,~~572~~691

—

(2,~~226~~235,~~867~~725

)

—

Other

—

1917,~~029~~177

~~309~~476

—

1917,~~338~~653

Total assets

2,~~210~~291,~~024~~415

2,~~502~~640,~~460~~692

94107,~~445~~222

(3,~~158~~257,~~186~~050

)

1,~~648~~782,~~743~~279

Liabilities and Stockholders’ Equity (Deficit):

Current liabilities:

Accounts payable

—

7587,~~963~~880

~~119~~131,~~181~~096

(~~155~~170,~~429~~544

)

3948,~~715~~432

Accrued expenses and other liabilities

17,~~634~~636

~~172~~220,~~558~~563

84,~~380~~535

—

~~198~~242,~~572~~734

Current portion of capital lease obligations

—

~~832~~887

—

~~832~~887

Total current liabilities

17,~~634~~636

~~249~~309,~~353~~330

~~127~~135,~~561~~631

(~~155~~170,~~429~~544

)

~~239~~292,~~119~~053

Long-term debt and capital lease obligations

596,~~477~~765

8,~~906~~448

—

605,~~383~~213

Advances and notes between Parent and Subsidiaries

~~826~~824,~~572~~691

1,~~400~~411,~~295~~034

—

— (2,~~226~~235,~~867~~725

)

—

Other

—

3431,~~177~~499

~~723~~1,191

—

3432,~~900~~690

Total liabilities

1,~~440~~439,~~683~~092

1,~~692~~760,~~731~~311

~~128~~136,~~284~~822

(2,~~382~~406,~~296~~269

)

~~879~~929,~~402~~956

Stockholders’ equity (deficit)

~~769~~852,~~341~~323

~~809~~880,~~729~~381

(3329,~~839~~600

)

(~~775~~850,~~890~~781

)

~~769~~852,~~341~~323

Total liabilities and stockholders’ equity (deficit)

2,~~210~~291,~~024~~415

2,~~502~~640,~~460~~692

94107,~~445~~222

(3,~~158~~257,~~186~~050

)

1,~~648~~782,~~743~~279

1517

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Balance Sheets

December 31, ~~2009~~2010

	Parent/		Guarantor			Non-Guarantor			Consolidating
	Issuer		Subsidiaries			Subsidiaries			Adjustments			Consolidated
Assets:
Current assets:
Cash	$	—	$	58183,~~320~~737		$	614,~~919~~139		$	—		$	65197,~~239~~876
Accounts receivable, net	—		~~222~~248,~~007~~124			6437,~~454~~793			(~~149~~151,~~483~~075		)	~~136~~134,~~978~~842
Inventories	—		~~605~~657,~~324~~493			3837,~~730~~006			—			~~644~~694,~~054~~499
Other	—		~~117~~126,~~670~~684			~~2,448~~(429		)	—			~~120~~126,~~118~~255
Total current assets	—		1,~~003~~216,~~321~~038			~~112~~88,~~551~~509			(~~149~~151,~~483~~075		)	~~966~~1,~~389~~153,472
Property, plant, and equipment, net	—		~~266~~381,~~067~~707			1,~~132~~086			—			~~267~~382,~~199~~793
Intangible assets	—		10,880			—			—			10,880
Intangible assets, net	—		10,880			—			—			10,880
Goodwill	—		172,860			—			—			172,860
Investment in Subsidiaries	~~680~~826,~~459~~782		(2736,~~925~~573		)	—			(~~652~~790,~~534~~209		)	—
Advances and notes between Parent and Subsidiaries	1,~~346~~397,~~520~~133		~~862~~826,~~406~~919			—			(2,~~208~~224,~~926~~052		)	—
Other	—		2718,~~054~~167			~~623~~281			—			2718,~~677~~448
Total assets	$	2,~~026~~223,~~979~~915	$	2,~~314~~589,~~663~~998		$	~~114~~89,~~306~~876		$	(3,~~010~~165,~~943~~336	)	$	1,~~445~~738,~~005~~453
Liabilities and Stockholders’ Equity (Deficit):
Current liabilities:
Accounts payable	$	—	$	~~103~~96,~~460~~503		$	~~117~~114,~~069~~547		$	(~~149~~151,~~483~~075	)	$	7159,~~046~~975
Accrued expenses and other liabilities	—6,011		~~160~~234,~~047~~730			10,~~486~~985			—			~~170~~251,~~533~~726
Current portion of capital lease obligations	—		~~740~~860			—			—			~~740~~860
Total current liabilities	—6,011		~~264~~332,~~247~~093			~~127~~125,~~555~~532			(~~149~~151,~~483~~075		)	~~242~~312,~~319~~561
Long-term debt and capital lease obligations	596,~~046~~621		98,~~221~~680			—			—			605,~~267~~301
Advances and notes between Parent and Subsidiaries	~~848~~826,~~779~~919		1,~~346~~397,~~515~~133			~~13,632~~—			(2,~~208~~224,~~926~~052		)	—
Other	—		1425,~~221~~310			~~1,044~~917			—			1526,~~265~~227
Total liabilities	1,~~444~~429,~~825~~551		1,~~634~~763,~~204~~216			~~142~~126,~~231~~449			(2,~~358~~375,~~409~~127		)	~~862~~944,~~851~~089
Stockholders’ equity (deficit)	~~582~~794,~~154~~364		~~680~~826,~~459~~782			(2736,~~925~~573		)	(~~652~~790,~~534~~209		)	~~582~~794,~~154~~364
Total liabilities and stockholders’ equity (deficit)	$	2,~~026~~223,~~979~~915	$	2,~~314~~589,~~663~~998		$	~~114~~89,~~306~~876		$	(3,~~010~~165,~~943~~336	)	$	1,~~445~~738,~~005~~453

1618

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Income Statements

Three Months Ended ~~September~~March 3031, ~~2010~~2011

	Parent/		Guarantor			Non-Guarantor			Consolidating
	Issuer		Subsidiaries			Subsidiaries			Adjustments			Consolidated
Net revenue	$	—	$	~~367~~361,~~358~~099		$	3945,~~643~~564		$	—		$	~~407~~406,~~001~~663
Cost of goods sold	—		~~196~~203,~~723~~589			3330,~~185~~030			—			~~229~~233,~~908~~619
Gross profit	—		~~170~~157,~~635~~510			615,~~458~~534			—			~~177~~173,~~093~~044
Operating expenses	—		69,~~924~~721			109,~~132~~528			—			8079,~~056~~249
Income from operations	—		100,711			(3,674		)	—			97,037
Income (loss) from operations	—		87,789			6,006			—			93,795
Equity in earnings (losses) of Subsidiaries	5655,~~052~~457		(35,~~667~~999		)	—			(5261,~~385~~456		)	—
Other non-operating (expense) income, net	—		(1110,~~263~~606		)	7			—			(1110,~~256~~599		)
Income (loss) before income taxes	5655,~~052~~457		8583,~~781~~182			(36,~~667~~013		)	(5261,~~385~~456		)	8583,~~781~~196
Provision for income taxes	—		(29,729		)	—			—			(29,729		)
Provision (benefit) for income taxes	—		(27,725		)	(14		)	—			(27,739		)
Net income (loss)	$	5655,~~052~~457	$	5655,~~052~~457		$	(35,~~667~~999	)	$	(5261,~~385~~456	)	$	5655,~~052~~457

Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Income Statements

Three Months Ended ~~September~~March 3031, ~~2009~~2010

	Parent/			Guarantor			Non-Guarantor			Consolidating
	Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Net revenue	$	—		$	~~361~~340,~~028~~585		$	3440,~~703~~376		$	—		$	~~395~~380,~~731~~961
Cost of goods sold	—			~~203~~185,~~424~~750			2731,~~242~~601			—			~~230~~217,~~666~~351
Gross profit	—			~~157~~154,~~604~~835			78,~~461~~775			—			~~165~~163,~~065~~610
Operating expenses	~~1,958~~—			8575,~~494~~420			8,~~203~~471			—			9583,~~655~~891
Income (loss) from operations	~~(1,958~~—		)	7279,~~110~~415			~~(742~~304		)	—			6979,~~410~~719
Equity in earnings (losses) of Subsidiaries	3745,~~083~~339			~~(635~~306		)	—			(3645,~~448~~645		)	—
Other non-operating (expense) income, net	—			(1911,~~476~~118		)	12			—			(1911,~~475~~116		)
Income (loss) before income taxes	3545,~~125~~339			5168,~~999~~603			~~(741~~306		)	(3645,~~448~~645		)	4968,~~935~~603
Benefit (provision) for income taxes	685			(14,916		)	106			—			(14,125		)
Provision (benefit) for income taxes	—			(23,264		)	—			—			(23,264		)
Net income (loss)	$	3545,~~810~~339		$	3745,~~083~~339		$	~~(635~~306	)	$	(3645,~~448~~645	)	$	3545,~~810~~339

1719

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Income Statements

Nine Months Ended September 30, 2010

	Parent/		Guarantor			Non-Guarantor			Consolidating
	Issuer		Subsidiaries			Subsidiaries			Adjustments			Consolidated
Net revenue	$	—	$	1,071,760		$	119,028		$	—		$	1,190,788
Cost of goods sold	—		574,513			95,963			—			670,476
Gross profit	—		497,247			23,065			—			520,312
Operating expenses	—		227,156			28,683			—			255,839
Income from operations	—		270,091			(5,618		)	—			264,473
Equity in earnings (losses) of Subsidiaries	149,014		(5,613		)	—			(143,401		)	—
Other non-operating (expense) income, net	—		(34,329		)	13			—			(34,316		)
Income (loss) before income taxes	149,014		230,149			(5,605		)	(143,401		)	230,157
Provision for income taxes	—		(81,135		)	(8		)	—			(81,143		)
Net income (loss)	$	149,014	$	149,014		$	(5,613	)	$	(143,401	)	$	149,014

Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Income Statements

Nine Months Ended September 30, 2009

	Parent/			Guarantor			Non-Guarantor			Consolidating
	Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Net revenue	$	—		$	1,043,111		$	99,985		$	—		$	1,143,096
Cost of goods sold	—			585,046			78,829			—			663,875
Gross profit	—			458,065			21,156			—			479,221
Operating expenses	5,715			234,861			25,065			—			265,641
Income (loss) from operations	(5,715		)	223,204			(3,909		)	—			213,580
Equity in earnings (losses) of Subsidiaries	107,482			(3,659		)	—			(103,823		)	—
Other non-operating (expense) income, net	75,000			(61,167		)	18			—			13,851
Income (loss) before income taxes	176,767			158,378			(3,891		)	(103,823		)	227,431
(Provision) benefit for income taxes	(24,250		)	(50,896		)	232			—			(74,914		)
Net income (loss)	$	152,517		$	107,482		$	(3,659	)	$	(103,823	)	$	152,517

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Statements of Cash Flows

~~Nine~~Three Months Ended ~~September~~March 3031, ~~2010~~2011

	Parent/			Guarantor			Non-Guarantor			Consolidating
	Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net income (loss)	$	~~149~~55,~~014~~457		$	~~149~~55,~~014~~457		$	(5,~~613~~999	)	$	(~~143~~61,~~401~~456	)	$	~~149~~55,~~014~~457
Undistributed equity in (earnings) losses of Subsidiaries	(~~149~~55,~~014~~457		)	(5,~~613~~999		)	—			~~143~~61,~~401~~456			—
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities	—			(36,329		)	20,096			19,739			3,506
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities	—			(2,714		)	(8,352		)	(4,757		)	(15,823		)
Net cash provided by operating activities	—			118,298			14,483			19,739			152,520
Net cash provided by (used in) operating activities	—			46,744			(2,353		)	(4,757		)	39,634
Cash flows from investing activities:
Purchases of property, plant, and equipment	—			(9153,~~392~~234		)	(~~299~~32		)	—			(9153,~~691~~266		)
Net advances and notes between Parent and Subsidiaries	(25,170		)	—			—			25,170			—
Business acquisitions, net of cash acquired	—			—			—			—			—
Other	—			14,139			(13,632		)	—			507
Net advances and notes between Parent and Subsidiaries	(192		)	—			—			192			—
Net cash (used in) provided by investing activities	(25,170		)	(77,253		)	(13,931		)	25,170			(91,184		)
Other	—			190						—			190
Net cash (used in) provided by investing activities	(192		)	(53,044		)	(32		)	192			(53,076		)
Cash flows from financing activities:
Net advances and notes between Parent and Subsidiaries	—			44,909			—			(44,909		)	—
Net repayments of borrowings	—			—			—			—			—
Other	25,170			(947		)	—			—			24,223
Net advances and notes between Parent and Subsidiaries	—			(4,565		)	—			4,565			—
Net cash provided by (used in) financing activities	25,170			43,962			—			(44,909		)	24,223
Other	192			(205		)	—			—			(13		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(268		)	—			(268		)
Net cash provided by (used in) financing activities	192			(4,770		)	—			4,565			(13		)
Net increase in cash and cash equivalents	—			85,007			284			—			85,291
Effect of exchange rate changes on cash and cash equivalents	—			—			917			—			917
Cash and cash equivalents at beginning of period	—			58,320			6,919			—			65,239
Net increase in cash and cash equivalents	—			(11,070		)	(1,468		)	—			(12,538		)
Cash and cash equivalents at end of period	$	—		$	143,327		$	7,203		$	—		$	150,530
Cash and cash equivalents at beginning of period	—			183,737			14,139			—			197,876
Cash and cash equivalents at end of period	$	—		$	172,667		$	12,671		$	—		$	185,338

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Talecris Biotherapeutics Holdings Corp.

Condensed Consolidating Statements of Cash Flows

~~Nine~~Three Months Ended ~~September~~March 3031, ~~2009~~2010

	Parent/			Guarantor			Non-Guarantor			Consolidating
	Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net income (loss)	$	~~152~~45,~~517~~339		$	~~107~~45,~~482~~339		$	~~(3,659~~306	)	$	(~~103~~45,~~823~~645	)	$	~~152~~45,~~517~~339
Undistributed equity in (earnings) losses of Subsidiaries	(~~107~~45,~~482~~339		)	~~3,659~~(306		)	—			~~103~~45,~~823~~645			—
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities	~~(29~~—		)	36(40,~~002~~724		)	(36,~~266~~087		)	1319,~~500~~968			46(14,~~207~~669		)
Net cash provided by (used in) operating activities	~~45,006~~—			~~147~~4,~~143~~309			(6,~~925~~393		)	1319,~~500~~968			~~198~~30,~~724~~670
Cash flows from investing activities:
Purchases of property, plant, and equipment	—			(3617,~~171~~368		)	(~~120~~322		)	—			(3617,~~291~~690		)
Business acquisitions, net of cash acquired	—			(25,510		)	—			—			(25,510		)
Net advances and notes between Parent and Subsidiaries	(2,610		)	—			—			2,610			—
Net advances and notes between Parent and Subsidiaries	(42,311		)	—			—			42,311			—
Other	—			4,230			(4,056		)	—			174
Other	—			(7,961		)	6,992			—			(969		)
Net cash (used in) provided by investing activities	(2,610		)	(13,138		)	(4,378		)	2,610			(17,516		)
Net cash (used in) provided by investing activities	(42,311		)	(69,642		)	6,872			42,311			(62,770		)
Cash flows from financing activities:
Net repayments of borrowings	—			(117,347		)	—			—			(117,347		)
Net advances and notes between Parent and Subsidiaries	—			22,578			—			(22,578		)	—
Net advances and notes between Parent and Subsidiaries	—			55,811			—			(55,811		)	—
Other	2,610			(254		)	—			—			2,356
Other	(2,695		)	(407		)	—			—			(3,102		)
Net cash provided by (used in) financing activities	2,610			22,324			—			(22,578		)	2,356
Net cash used in financing activities	(2,695		)	(61,943		)	—			(55,811		)	(120,449		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(484		)	—			(484		)
Effect of exchange rate changes on cash and cash equivalents	—			—			465			—			465
Net increase in cash and cash equivalents	—			13,495			1,531			—			15,026
Net increase in cash and cash equivalents	—			15,558			412			—			15,970
Cash and cash equivalents at beginning of period	—			58,320			6,919			—			65,239
Cash and cash equivalents at beginning of period	—			10,727			6,252			—			16,979
Cash and cash equivalents at end of period	$	—		$	71,815		$	8,450		$	—		$	80,265
Cash and cash equivalents at end of period	$	—		$	26,285		$	6,664		$	—		$	32,949

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. Forward-looking statements may be identified by the use of forward-looking terms such as “may,” “will,” “would,” “expects,” “intends,” “believes,” “anticipates,” “plans,” “predicts,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” or the negative of such terms or other variations on such terms or comparable terminology. The forward-looking statements that we make are based upon assumptions about many important risk factors, many of which are beyond our control. Among the factors that could cause actual results to differ materially are the following:

· the impact of the announcement of our definitive merger agreement with Grifols and the potential impact of completion, termination, or delay of the proposed merger with Grifols, including, but not limited to, disruptions from the pending transaction, transaction costs, and the outcome of litigation and regulatory proceedings to which we may be a party;

· fluctuations in the balance between supply and demand with respect to the market for plasma-derived products;

· the unprecedented volatility in the global economy and fluctuations in financial markets;

· our ability to expand our international business;

· changes in economic conditions, political tensions, trade protection measures, licensing requirements, and tax matters in the countries in which we conduct business;

· the impact of competitive products and pricing ~~and competitive actions by competitors~~;

· fluctuations in the balance between supply and demand with respect to the market for plasma-derived products;

· recently enacted and additional proposed U.S. healthcare legislation, regulatory action or legal proceedings affecting, among other things, the U.S. healthcare system, pharmaceutical pricing and reimbursement, including Medicaid, Medicare and the Public Health Service Program and additional legislation and regulatory action now under consideration;

· legislation or regulations in markets outside of the U.S. affecting product pricing, reimbursement, access, or distribution channels;

· our ability to procure adequate quantities of plasma and other materials which are acceptable for use in our manufacturing processes from our own plasma collection centers or from third-party vendors ~~at competitive costs~~;

· our ability to maintain compliance with government regulations and licenses, including those related to plasma collection, production, and marketing;

· our ability to identify growth opportunities for existing products and our ability to identify and develop new product candidates through our research and development activities;

· the timing of, and our ability to, obtain and/or maintain regulatory approvals for new product candidates, the rate and degree of market acceptance, and the clinical utility of our products;

· unexpected shut-downs of our manufacturing and storage facilities or delays in opening new planned facilities;

· our and our suppliers’ ability to adhere to cGMP;

· our ability to manufacture at appropriate scale to meet the market’s demand for our products;

· our ability to resume or replace sales to countries affected by our internal Foreign Corrupt Practices Act (FCPA) investigation;

· ~~availability~~potential ~~and~~sanctions, ~~cost~~if any, that the Department of ~~financing~~ ~~opportunities~~Justice (DOJ) or other federal agencies, may impose on us as a result of our internal FCPA investigation;

~~· the impact of geographic and product mix on our sales and gross profit;~~22

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· ~~interest~~the ~~rate~~impact ~~fluctuations impacting~~of ~~outstanding borrowings under~~ our ~~Revolving~~appeal ~~Credit~~of ~~Facility~~the ~~and foreign~~Plasma ~~currency~~Centers ~~exchange~~of ~~rate~~America, ~~fluctuations~~LLC in(PCA) ~~the international markets in which we operate~~judgment;

· the impact of ~~our substantial~~geographic ~~capital~~and ~~plan~~product ~~over~~mix ~~the~~on ~~next~~our ~~five~~sales ~~years;~~ and gross profit;

· ~~other~~foreign ~~factors~~currency ~~identified elsewhere~~exchange inrate ~~this~~fluctuations ~~Quarterly Report and~~ in ~~our Annual Report on Form 10-K for~~ the ~~year~~international ~~ended~~markets ~~December 31,~~in ~~2009 filed~~which ~~with the~~we ~~Securities and Exchange Commission (SEC) on February 23, 2010 (2009 Form 10-K).~~operate;

· the impact of our substantial capital plan; and

· other factors identified elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC) on February 23, 2011 (2010 Form 10-K).

No assurances can be provided as to any future financial results. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Unless legally required, we do not undertake to update or revise any forward-looking statements, even if events make it clear that any projected results, expressed or implied, will not be realized.

2223

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

The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. You are encouraged to read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim consolidated financial statements and related footnotes included elsewhere in this Quarterly Report. In addition, you are encouraged to refer to a discussion of risk factors included elsewhere in this Quarterly Report, asand ~~well as~~ in our ~~2009~~2010 Form 10-K, that could cause actual results to differ materially from those described or implied by the forward-looking statements contained in the following discussion and analysis. You are also encouraged to refer to our ~~2009~~2010 Form 10-K, which includes additional information regarding our business and industry. See “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report.

All tabular disclosures of dollar amounts, except earnings per common share amounts, are presented in thousands. Percentages and amounts presented herein may not calculate or sum precisely due to rounding.

A seven-for-one share dividend on our common stock was paid on September 10, 2009. All share and per-share amounts have been retroactively adjusted to reflect the share dividend.

BUSINESS OVERVIEW

WeThe ~~are~~majority aof ~~biopharmaceutical~~our ~~company~~sales ~~that~~are ~~researches,~~concentrated ~~develops, manufactures,~~in ~~markets,~~the ~~and~~therapeutic ~~sells~~areas ~~protein-based~~of ~~therapies~~Immunology/Neurology ~~that~~through ~~extend~~our ~~and enhance~~Gamunex, Immune ~~the~~Globulin ~~lives~~Intravenous of(Human), ~~individuals~~10% ~~who~~Caprylate/Chromatography ~~suffer~~Purified ~~from~~product ~~chronic and acute~~(Gamunex, ~~often life~~Gamunex-~~threatening~~C, ~~conditions,~~Gamunex ~~such~~IGIV) asand ~~primary~~Pulmonology ~~immune~~through ~~deficiencies,~~our ~~chronic inflammatory~~Prolastin ~~demyelinating~~Alpha-1 ~~polyneuropathy~~Proteinase Inhibitor (~~CIDP~~Human), ~~alpha-1~~product ~~antitrypsin deficiency-related emphysema~~(Prolastin, ~~bleeding~~Prolastin ~~disorders~~A1PI, ~~infectious~~Prolastin-C ~~diseases, and severe trauma~~A1PI). ~~Our~~Gamunex-C/Gamunex ~~primary~~IGIV ~~products~~and ~~have orphan~~Prolastin/Prolastin-C ~~drug~~A1PI ~~designation~~represented to56.4% ~~serve~~and ~~populations~~21.8%, ~~with rare~~respectively, ~~chronic~~of ~~diseases. Our~~our ~~products~~net ~~are~~revenue ~~derived~~for ~~from human plasma,~~ the ~~liquid~~three ~~component~~months ofended ~~blood~~March 31, ~~which~~2011. isWe ~~sourced~~sell ~~from~~ our ~~plasma~~products ~~collection centers~~worldwide, orbut ~~purchased~~approximately ~~from~~82.0% ~~third~~of ~~parties~~our ~~with~~sales ~~plasma~~were ~~collection~~generated ~~centers located~~ in the United States~~. Plasma~~ ~~contains many therapeutic proteins, which we extract through the process of fractionation at our Clayton, North Carolina~~ and ~~Melville,~~Canada ~~New York facilities. The fractionated intermediates are then purified, formulated into final bulk, and aseptically filled into final containers~~ for ~~sale. We also sell~~ the ~~fractionated~~first ~~intermediate~~quarter ~~products~~of 2011.

~~The~~We ~~majority~~believe ofthat ~~our sales are concentrated in the therapeutic areas of Immunology/Neurology and Pulmonology~~U. ~~Our largest product, representing 53~~S.1% and ~~54.0%~~international ofIGIV ~~our~~demand ~~net~~will ~~revenue~~grow ~~for the~~approximately ~~three~~5% ~~and~~to ~~nine months ended September 30, 2010, Gamunex, Immune Globulin Intravenous (Human), 10~~8% ~~Caprylate/Chromatography~~over ~~Purified~~the ~~(Gamunex~~long-term, ~~Gamunex~~ ~~IGIV),~~which ~~provides~~is aconsistent ~~treatment~~with ~~for~~demand ~~primary~~growth ~~immune~~during ~~deficiency~~the ~~and autoimmune~~first ~~diseases,~~quarter ~~such~~of ~~as CIDP~~2011. ~~Our second largest product~~However, ~~representing 22.1% and 21.7% of our net revenue for the three and nine months ended September~~ ~~30,~~IGIV ~~2010,~~demand ~~Prolastin~~can ~~Alpha-1 Proteinase~~vary ~~Inhibitor~~significantly ~~(Human)~~on ~~(Prolastin, Prolastin A1PI, Prolastin-C A1PI), provides~~ a ~~treatment for alpha~~quarter-~~1 antitrypsin deficiency~~to-~~related~~quarter ~~emphysema~~basis. ~~During~~ ~~the~~We ~~third~~believe ~~quarter~~that ~~of 2010, we completed the conversion of our existing~~ U.S. ~~Prolastin~~IGIV ~~patients~~distribution toincreased ~~Prolastin-C A1PI,~~between ~~our~~6% ~~next~~and ~~generation~~8% ~~A1PI~~during ~~product. During~~ the ~~third~~three ~~quarter~~months ofended ~~2010~~March 31, we2011. We ~~launched~~have ~~Prolastin-C~~seen ~~A1PI~~solid indemand ~~Canada and~~growth ~~anticipate~~for ~~full conversion of our existing Canadian Prolastin A1PI patients to Prolastin~~Gamunex-C/Gamunex ~~A1PI in the 2010 fourth quarter~~IGIV.

~~U.S.~~Our ~~IGIV~~ability ~~distribution~~to ~~increased~~expand ~~between~~our 6%international ~~and~~business 8%has ~~during~~been ~~the~~hampered ~~nine months~~by ~~ended September 30, 2010. This growth represents a recovery in demand in~~ the ~~second~~effects ~~and third quarters~~ of ~~2010~~our ~~after~~internal aForeign ~~slight~~Corrupt ~~decline~~Practices inAct ~~growth~~(FCPA) ininvestigation, ~~the~~our ~~first~~reliance ~~quarter~~on ~~of 2010. Despite~~the ~~solid~~tender ~~demand~~process ~~growth~~ for ~~IGIV,~~ ~~there~~generating ~~has~~business, ~~been~~ increased ~~scrutiny and~~ price sensitivity inof ~~the~~our ~~hospital segment. In addition~~customers, ~~the~~among ~~increase~~other in factors. With the ~~number~~exception of ~~hospitals~~our ~~qualifying~~European ~~for~~business, ~~the~~our ~~340B~~international ~~discounts~~business has ~~effectively reduced~~been ~~demand~~in ~~from~~decline. We ~~GPO’s~~have ~~who~~experienced, ~~are~~and ~~not~~expect ~~permitted~~ to ~~service~~continue ~~this~~to ~~discounted channel~~experience, ~~which~~annual ~~among~~volume ~~other~~declines ~~factors,~~in ~~has~~Canada ~~led~~due us to ~~accept~~Canadian ~~reduced~~Blood ~~volume~~Services’ ~~tiers under~~(CBS) ~~certain~~objective ofto ~~our GPO contracts. We~~ have ~~seen~~multiple ~~solid~~sources ~~demand~~of ~~growth~~supply, ~~for~~which ~~Gamunex~~has ~~with~~impacted ~~most customer segments. We believe that U.S.~~ and ~~international IGIV demand~~ will ~~grow~~continue ~~approximately 6%~~ to 8% ~~over~~impact ~~the~~our ~~long-term,~~overall ~~which~~IGIV isstrategy. CBS ~~consistent~~may ~~with~~further ~~demand~~reduce ~~growth~~volumes ~~during~~to ~~the~~contract ~~nine months~~minimums ~~ended~~and ~~September 30,~~Hema ~~2010. However, IGIV~~Quebec ~~demand~~may ~~can~~adopt ~~vary significantly on~~ a ~~quarter-to-quarter basis~~similar strategy.

~~Our~~One ~~ability~~of ~~to expand~~ our ~~international~~competitors, ~~business~~Octapharma ~~has~~AG, ~~been~~was ~~hampered~~directed by the ~~effects~~European ofMedicines ~~our~~Agency ~~internal~~(EMA) ~~Foreign~~in ~~Corrupt~~the ~~Practices~~fall ~~Act~~of ~~(FCPA)~~2010 ~~investigation and~~to ~~increased~~suspend ~~price~~marketing ~~sensitivities~~ of ~~our~~their ~~customers,~~5% ~~which~~and ~~has~~10% ~~resulted~~IGIV ~~in pricing~~and ~~pressures~~to ~~for~~recall ~~plasma-derived~~all ~~products. Our~~existing ~~business~~product ~~with~~from ~~Iran,~~European ~~one~~Union ofmarkets. At ~~our~~the ~~major~~same ~~international~~time, ~~customers~~Octapharma USA Inc., ~~has been~~a insubsidiary ~~decline~~of Octapharma AG, ~~which~~agreed iswith ~~likely~~the FDA to ~~continue. Our~~voluntarily ~~profitability~~withdraw ~~has~~their ~~and~~5% ~~may~~IGIV ~~continue~~and to besuspend ~~negatively~~marketing ~~impacted~~of ~~by unfavorable~~the ~~euro/~~product in the U.S. ~~dollar~~until ~~exchange~~the ~~rates~~root cause for increased incidence of thromboembolic events could be determined and addressed. On April We14, ~~have experienced~~2011, ~~and~~the ~~expect~~EMA torecommended ~~continue~~lifting tothe ~~experience,~~suspension ~~annual~~on ~~volume declines~~Octapharma’s in5% ~~Canada~~and ~~due~~10% toIGIV. As ~~Canadian~~a ~~Blood~~result, ~~Services~~we ~~(CBS)~~expect ~~objective~~Octapharma to ~~have multiple~~receive ~~sources~~regulatory approval to resume sales and distribution of ~~supply,~~their ~~which~~IGIV ~~has~~in ~~impacted~~Europe ~~and~~in ~~will~~the ~~continue~~near term. Additionally, Octapharma may receive approval to ~~impact~~re-enter ~~our overall~~the ~~IGIV~~U.S. ~~growth~~market sometime in 2011. ~~CBS~~We ~~may~~are ~~further reduce~~uncertain ~~volumes~~as to ~~contract~~how ~~minimums~~Octapharma’s ~~and~~IGIV ~~Hema~~re-entry ~~Quebec~~ may ~~adopt~~impact aEuropean ~~similar strategy~~and U.S. IGIV markets.

23We expect to operate at or near our fractionation capacity over the next few years depending upon the demand for our products, the availability of source plasma, the impact of yield variability, the potential impact of inventory impairments, and normal production shut-downs, among other factors. We plan to utilize most of our available fractionation capacity in the near term, which may result in increased inventory levels in order to attempt to maintain pace with projected future growth in product demand, although we have not been successful in building excess finished goods inventories to date as a result of the factors previously mentioned. Consequently, any disruption in meeting our fractionation and purification plans would most likely result in lower revenue, gross profit, net income, and operating cash flows as well as lower than planned growth given our fractionation and purification constraints. Our fractionation constraints would likely preclude us from participating in greater than estimated overall market demand or higher demand for Gamunex-C/Gamunex IGIV. In response to our capacity constraints, we have embarked on a substantial capital plan which we anticipate to be in the range of $750 million to $800 million on a cumulative basis from 2011 through 2015, excluding capitalized

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We anticipate that we will operate near to or at our fractionation capacity over the next few years depending upon the demand for our products, the availability of source plasma and the impact of variability in yield, among other factors. We plan to utilize most of our available fractionation capacity in the near term, which may result in increased inventory levels in order to attempt to maintain pace with projected future growth in product demand. In response to our capacity constraints, we have embarked on a substantial capital plan, which we anticipate to be in the range of $800 million to $850 million on a cumulative basis over the five year period beginning in 2010. The increase in our capital plan over the next five years from our prior estimates results primarily due to an increase in the anticipated cost for our new fractionation facility which we estimate to be $340 million plus an additional $40 million in capitalized interest. Our estimated cost related to the construction of our new purification facility for Plasmin is $120 million with additional expenditures planned for Koate modernization and albumin purification expansion. The successful execution of our capital plan, which is discussed further in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our 2009 Form 10-K, will be necessary to support our projected future volume growth, particularly with the anticipation that we will reach our fractionation capacity in the near term, launch new product introductions and complete strategic initiatives.

Our integrated plasma collection center platform, Talecris Plasma Resources, Inc. (TPR), consisted of 69 operating centers, of which 66 were FDA licensed and 3 were unlicensed as of September 30, 2010 and provided approximately 73.9% and 69.4% of our plasma during the three and nine months ended September 30, 2010. We will need to significantly increase plasma collections generated from TPR in the near term to offset the expected decrease in plasma supplied by third parties and planned increases in our fractionation to meet anticipated demand. To meet our plasma requirements, we may increase donor fees, increase marketing expense, and expand plasma collection center days and hours of operation, among other initiatives, which may limit our ability to reduce our cost per liter of plasma. Consequently, we expect to continue to produce plasma at a cost per liter which we believe is significantly higher than our competitors. Subsequent to September 30, 2010, we received FDA licensure for one of the unlicensed plasma collection centers.

Our historical comparisons illustrate the substantial reduction in both the collection cost per liter and the amount of excess period costs charged directly to cost of goods sold as a result of the maturation of our plasma collection center platform. Decreasing collection costs and the reduction of excess period costs, combined with leveraging our manufacturing facilities as a result of higher volumes, have contributed to improving our gross margins. Our cost of goods sold reflects $1.5 million and $8.7 million for the three months ended September 30, 2010 and 2009, respectively, and $5.2 million and $34.1 million for the nine months ended September 30, 2010 and 2009, respectively, related to excess period costs associated with TPR. We believe that we have substantially eliminated unabsorbed TPR infrastructure and start-up costs. Consequently, future margin improvements will need to be derived from increases in product pricing and volumes, product mix, improvements in the cost per liter of plasma, manufacturing efficiencies, yield improvements or some combination thereof. We believe that the current environment does not favor near-term price increases and we have limited opportunities to enhance product mix. We have recently experienced and expect to continue to experience higher cost of goods sold due to yield variability, less efficient utilization of each incremental liter of plasma fractionated as we increase Gamunex production, and higher non-capitalizable costs associated with our capital projects, particularly the construction of our new fractionation facility.

The combination of the factors mentioned above, particularly the lower near-term demand growth, competitive pressures, slower than planned reductions in our cost per liter of plasma, yield variability as well inefficient plasma utilization, among other factors, will likely result in lower gross margins in future periods.

2010 HIGHLIGHTS

Our 2010 financial and business highlights are included below.

2010 Financial Highlights

· Total net revenue increased $11.3 million to $407.0 million for the three months ended September 30, 2010 as compared to $395.7 million for the three months ended September 30, 2009. Total net revenue increased $47.7 million to $1,190.8 million for the nine months ended September 30, 2010 as compared to $1,143.1 million for the nine months ended September 30, 2009.

· Gross margin was 43.5% and 41.7% for the three months ended September 30, 2010 and 2009, respectively, and 43.7% and 41.9% for the nine months ended September 30, 2010 and 2009, respectively.

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~~· Operating~~interest. Given ~~margin~~the ~~improved~~nature ~~630~~of ~~basis~~our ~~points~~planned capital projects, we anticipate our capital spending to 23 peak in a range of $250 million to $270 million in 2011, excluding capitalized interest.8% Our ~~for~~most significant capital project is the ~~three~~construction ~~months~~of ~~ended~~our ~~September~~new fractionation facility, which we estimate will cost approximately $340 million, excluding capitalized interest. Through March 3031, ~~2010~~2011, asour ~~compared~~capital spending on this project was approximately $130 million with estimated additional capital spending of $210 million to 17be incurred, excluding capitalized interest.~~5% for~~ Estimated costs related to the ~~three~~construction ~~months~~of ~~ended~~our ~~September 30,~~new ~~2009~~purification facilities for Plasmin is $120 million with additional expenditures planned for Koate modernization and albumin purification expansion. ~~Operating~~The ~~margin~~successful ~~improved~~execution ~~350~~of ~~basis~~this ~~points~~capital ~~to 22.2%~~plan, ~~for~~which is discussed further in the ~~nine~~section ~~months~~titled, ~~ended~~“Management’s ~~September 30~~Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Access to Capital and Capital Resources,” in our 2010 asForm 10-K ~~compared~~will be necessary to ~~18.7% for~~support ~~the~~our ~~nine~~projected ~~months~~future ~~ended~~volume ~~September 30~~growth, ~~2009~~particularly given our current fractionation and purification constraints, launch new products, and complete strategic initiatives.

~~· Net~~We ~~income~~will ~~was~~need ~~$56.1~~to ~~million~~significantly ~~and~~increase ~~$149.0 million~~plasma ~~for~~collections ~~the~~generated ~~three~~from ~~and~~our ~~nine~~wholly-owned ~~months~~subsidiary, ~~ended~~Talecris ~~September 30,~~Plasma ~~2010~~Resources, ~~respectively,~~ Inc. as(TPR) ~~compared~~in tothe ~~$35.8~~near ~~million~~term ~~and~~to ~~$152.5~~offset ~~million for~~ the ~~three~~expected ~~and nine~~decrease ~~months~~in ~~ended~~plasma ~~September 30,~~supplied ~~2009,~~by ~~respectively. Diluted~~third ~~earnings~~parties ~~per~~and ~~common~~planned ~~share~~increases ~~were~~in ~~$0.43 and~~our ~~$0.38~~fractionation ~~for~~to ~~the~~meet ~~three~~anticipated ~~months~~demand. To ~~ended~~meet ~~September 30,~~our ~~2010~~plasma ~~and 2009~~requirements, ~~respectively, and~~we ~~$1.16~~have ~~and~~increased ~~$1.62~~donor ~~for~~fees, ~~the~~increased ~~nine~~marketing ~~months ended September 30~~expenses, ~~2010~~ and ~~2009, respectively. Our~~expanded ~~results~~plasma ~~for~~collection ~~the~~center ~~nine months~~days ~~ended~~and ~~September 30,~~hours ~~2009 include the impact~~ of ~~the~~operations, ~~CSL~~among ~~Limited (CSL)~~other ~~merger~~initiatives, ~~termination~~which ~~fee~~may oflimit ~~$75.0~~our ~~million~~ability ~~(approximately~~to ~~$48.8~~reduce ~~million after tax) and~~ our ~~results~~cost ~~for~~per ~~the~~liter ~~three~~of ~~and~~plasma. Consequently, ~~nine~~we ~~months~~expect ~~ended~~to ~~September 30, 2009~~continue ~~include~~to ~~transaction-related~~produce ~~costs~~plasma ~~associated~~at ~~with~~a ~~the~~cost ~~terminated~~per ~~CSL merger~~liter ~~agreement. Our~~which ~~2010~~we ~~results include~~believe ~~transaction-related~~is ~~costs~~significantly ~~associated~~higher ~~with~~than our ~~definitive~~competitors. ~~merger agreement~~However, ~~with~~TPR ~~Grifols. We~~has ~~believe~~upgraded ~~a meaningful~~its ~~comparison~~plasmapheresis ofmachines ~~our~~to ~~results~~speed ~~for~~plasma ~~the~~collections ~~periods~~and ~~presented~~ is ~~enhanced~~in ~~by a quantified presentation of~~ the ~~impact~~process of ~~the~~installing ~~CSL~~automated ~~merger~~digital ~~termination~~screening ~~fee~~to ~~and~~improve ~~merger-related expenses~~compliance. ~~and~~These ~~the~~measures, ~~Grifols~~in ~~merger-related~~addition ~~expenses. The~~to ~~impacts~~reductions ofin ~~these~~infrastructure ~~items~~support onas ~~our~~the ~~net~~platform ~~income and~~matures, ~~diluted~~are ~~earnings~~expected ~~per~~to ~~share~~improve ~~are~~costs ~~illustrated~~as inwell as the ~~table~~donor ~~below~~experience.

InOur ~~addition,~~historical ~~our~~results ~~2010~~show ~~diluted~~a ~~earnings~~substantial reduction in both the collection cost per ~~share~~liter ~~amounts~~and ~~reflect~~the amount of excess period costs charged directly to cost of goods sold as a ~~significant~~ ~~increase~~result inof the ~~number~~maturation of ~~weighted~~our ~~average~~plasma ~~common~~collection ~~shares~~center ~~used~~platform. Decreasing ~~in our~~collection ~~computation~~costs and the reduction of ~~diluted~~excess ~~earnings~~period ~~per~~costs, ~~share~~combined with leveraging our manufacturing facilities as ~~discussed~~a ~~below~~result of higher volumes, have contributed to improving our gross margins. Consequently, future margin improvements will need to be derived from increases in product pricing and volumes, product mix, improvements in ~~“Management’s Discussion~~the cost per liter of plasma, manufacturing efficiencies, yield improvements or some combination thereof. We believe that we have limited opportunities to increase price as well as enhance product mix. We have recently experienced and ~~Analysis~~expect to continue to experience higher costs of ~~Financial~~goods ~~Condition~~sold due to yield variability, inventory impairment provisions, less efficient utilization of each incremental liter of plasma fractionated as we increase Gamunex-C/Gamunex IGIV production, and ~~Results~~higher non-capitalizable costs associated with our capital projects, particularly the construction of ~~Operations—Matters~~ ~~Affecting~~our ~~Comparability~~new fractionation facility.”

The ~~adjusted~~combination ~~net~~of ~~income~~the ~~and~~factors ~~diluted~~mentioned ~~earnings~~above, ~~per~~particularly ~~share~~competitive ~~amounts~~pressures, inslower ~~the table~~than ~~below~~planned ~~are~~reductions ~~non-GAAP~~in ~~financial~~our ~~measures~~cost ~~and~~per ~~should~~liter ~~not~~of beplasma, ~~considered~~yield ~~a substitute~~variability ~~for~~as ~~any~~well ~~performance~~as ~~measure~~inefficient ~~determined~~plasma inutilization ~~accordance~~and ~~with~~the ~~U.S. GAAP. Additional~~potential ~~information~~impact ~~regarding the~~of ~~use~~inventory ofimpairment ~~non-GAAP~~provisions, ~~financial~~among ~~measures~~other ~~and~~factors, ~~their~~will ~~limitations~~most islikely ~~included~~result in ~~“Management’s Discussion~~lower ~~and~~gross ~~Analysis~~margins ofin ~~Financial~~future ~~Condition and Results of Operations—Non-GAAP Financial Measures~~periods.”

~~Description of Adjustments and Reconciliation of U.S. GAAP to Non-GAAP Financial Measures~~HIGHLIGHTS

										Diluted Earnings
	Pre-Tax			Income Tax						Per Common
	Amount			Effect			Net Income			Share
Three Months Ended September 30, 2010
U.S. GAAP	$	85,781		$	(29,729	)	$	56,052		$	0.43
Grifols merger-related expenses	9,485			(3,680		)	5,805			0.05
Excluding merger-related items	$	95,266		$	(33,409	)	$	61,857		$	0.48
Three Months Ended September 30, 2009
U.S. GAAP	$	49,935		$	(14,125	)	$	35,810		$	0.38
CSL merger-related expenses	1,528			(593		)	935			0.01
Excluding merger-related items	$	51,463		$	(14,718	)	$	36,745		$	0.39
As adjusted for pro forma weighted average number of shares (1)										$	0.29
Nine Months Ended September 30, 2010
U.S. GAAP	$	230,157		$	(81,143	)	$	149,014		$	1.16
Grifols merger-related expenses	17,908			(6,948		)	10,960			0.08
Excluding merger-related items	$	248,065		$	(88,091	)	$	159,974		$	1.24
Nine Months Ended September 30, 2009
U.S. GAAP	$	227,431		$	(74,914	)	$	152,517		$	1.62
CSL merger termination fee	(75,000		)	26,250			(48,750		)	(0.52		)
CSL merger-related expenses	14,282			(5,541		)	8,741			0.10
Excluding merger-related items	$	166,713		$	(54,205	)	$	112,508		$	1.20
As adjusted for pro forma weighted average number of shares (1)										$	0.90

Our 2011 first quarter financial and business highlights are included below.

~~(1) As discussed further in “Management’s Discussion and Analysis of~~ Financial ~~Condition and Results of Operations—Matters Affecting Comparability,” we believe the comparability of our diluted earnings per share between the periods~~ Highlights

· Total net revenue increased $25.7 million to $406.7 million for the three months ended March 31, 2011 as compared to $381.0 million for the three months ended March 31, 2010. We experienced quarter over quarter growth in our U.S. Gamunex-C IGIV and Prolastin-C A1PI net revenue of 6.2% and 14.8%, respectively, driven by higher volumes and pricing. Pull-through sales growth by our distributors exceeded our ex-factory sales growth. Our U.S. Prolastin-C A1PI net revenue benefited from a third quarter 2010 price increase. Our international Gamunex-C/Gamunex IGIV net revenue increased by 12.5% quarter over quarter, driven by higher sales in Germany as a result of an expanded sales force as well as market conditions.

· Gross margin was 42.6% and 42.9% for the three months ended March 31, 2011 and 2010, respectively.

· Operating margin improved 220 basis points to 23.1% for the three months ended March 31, 2011 as compared to 20.9% for the three months ended March 31, 2010.

· Net income improved to $55.5 million, an increase of 22.3%, for the three months ended March 31, 2011 as compared to $45.3 million for the three months ended March 31, 2010. Diluted earnings per share were $0.43 and $0.35 for the three months ended March 31, 2011 and 2010, respectively. Our 2011 results include $4.1 million (approximately $2.6 million

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~~presented~~after istax) ~~enhanced~~in bytransaction-related ~~the~~costs ~~use~~associated ofwith anour ~~adjusted~~definitive ~~share~~merger ~~base~~agreement with Grifols and $0.7 million ($0.5 million after tax) in interest expense related to ~~reflect~~ the ~~impact~~judgment ~~for~~in ~~the~~favor ~~issuance~~of Plasma Centers of ~~common~~America, ~~shares~~LLC to(PCA), ~~convert~~which ~~our~~is ~~Series A~~discussed ~~and~~elsewhere ~~B preferred~~in ~~stock,~~this ~~settle~~Quarterly ~~accrued~~Report. ~~dividends~~We onbelieve ~~the~~that ~~preferred~~a ~~stock,~~meaningful ~~and~~comparison ~~complete~~ of our ~~IPO~~results asfor ifthe ~~these~~periods ~~events~~presented ~~occurred~~is atenhanced by a quantified presentation of the ~~beginning~~impact of ~~2009~~these items on our net income and diluted earnings per share, which is illustrated in the table below.

· Operating cash flows were $~~152~~39.56 million and $~~198~~30.7 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. Capital expenditures were $9153.73 million and $3617.37 million for the ~~nine~~ three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively~~. Operating~~, ~~cash~~the ~~flows~~increase ~~for~~of ~~the~~which ~~2009~~was ~~period included~~driven ~~the~~by ~~impact~~our ofsubstantial ~~the~~capital ~~CSL~~plan ~~merger~~discussed ~~termination~~elsewhere ~~fee~~in this Quarterly Report and in our 2010 Form 10-K.

~~2010~~The ~~Third~~adjusted ~~Quarter~~net income and ~~Subsequent~~diluted ~~Business~~earnings ~~Highlights~~per share amounts in the table below are non-GAAP financial measures and should not be considered a substitute for any performance measure determined in accordance with U.S. GAAP. Additional information regarding the use of non-GAAP financial measures and their limitations are included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations——Non-GAAP Financial Measures.”

· On October 13, 2010, we received approval from the FDA for Gamunex® -C (Immune Globulin Injection [Human], 10% Caprylate/Chromatography Purified) for subcutaneous administration in the treatment of primary immunodeficiency (PI). Gamunex-C is the first and only immune globulin to provide both the intravenous route of administration and a new subcutaneous route of administration. The intravenous delivery mode is approved to treat PI, chronic inflammatory demyelinating polyneuropathy (CIDP), and idiopathic thrombocytopenic purpura (ITP). The subcutaneous mode is approved to treat only PI.

								Diluted Earnings
	Pre-Tax		Income Tax					Per
	Amount		Benefit			Net Income		Common Share
*Three Months Ended March 31, 2011*
U.S. GAAP	$	83,196	$	(27,739	)	$	55,457	$	0.43
Grifols merger-related expenses	4,118		(1,552		)	2,566		0.02
Interest on PCA judgment	740		(289		)	451		—
Excluding specific items	$	88,054	$	(29,580	)	$	58,474	$	0.45

*Three Months Ended March 31, 2010*
U.S. GAAP	$	68,603	$	(23,264	)	$	45,339	$	0.35

~~· In~~Business September 2010, we launched our next generation A1PI product, Prolastin-C, in Canada. We anticipate full conversion of existing Canadian Prolastin A1PI patients to Prolastin-C A1PI during the 2010 fourth quarter.Highlights

· ~~During~~On March 4, 2011, we and Grifols announced that the ~~third~~“outside ~~quarter~~date” ofunder ~~2010,~~our ~~TPR received~~definitive ~~FDA~~merger ~~licensure~~agreement for ~~two~~closing ~~additional~~our ~~plasma~~pending ~~collection~~transaction ~~centers. Subsequent~~has been extended to ~~September~~June 30, ~~2010~~2011 (from March 6, ~~TPR received~~2011). Grifols ~~FDA~~has ~~licensure~~extended ~~for~~the ~~one~~financing ~~additional~~and ~~center.~~financing Ofcommitments ~~our~~from 69its ~~operating~~lenders ~~plasma collection~~to ~~centers~~June 30, 672011, ~~have~~as ~~been~~well. The ~~licensed~~completion byof the ~~FDA~~transaction is subject to obtaining certain regulatory approvals and other customary conditions.

~~HEALTHCARE~~· On ~~REFORM~~March 3, 2011, we were granted orphan drug designation by the European Commission for the development of Plasmin (Human) to treat acute peripheral arterial occlusion (aPAO). We are currently investigating Plasmin in a phase II clinical trial designed to assess its ability to treat aPAO, a condition in which arterial blood flow to the extremities, usually the legs, is blocked by a clot. Through the orphan drug designation, the European Medicines Agency (EMA) will provide us with ten years of marketing exclusivity if the product is the first to be approved in the European Union. In addition, under this designation, EMA will provide us with clinical development assistance and reduced regulatory fees. We received orphan drug designation for Plasmin for aPAO from the U.S. Food and Drug Administration (FDA) in 2009.

~~In March 2010,~~· During ~~healthcare~~the ~~reform~~first ~~legislation~~quarter, ~~was~~Talecris ~~enacted~~converted inall ~~the~~ U.S. ~~This~~ ~~legislation~~sales ~~contains~~from ~~several~~Gamunex ~~provisions~~labeled ~~that~~product ~~impact~~to ~~our business~~Gamunex-C labeled product. Gamunex-C is the first and only immune globulin to provide both the intravenous route of administration and a new subcutaneous route of administration. The intravenous delivery mode is approved to treat primary immunodeficiency (PI), chronic inflammatory demyelinating polyneuropathy (CIDP), and idiopathic thrombocytopenic purpura (ITP). The subcutaneous mode is approved to treat only PI. A required post-marketing study will be initiated in the second half of 2011.

Although many provisions of the new legislation do not take effect immediately, several provisions became effective during 2010. These include (1) an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% of the Average Manufacturer Price (AMP) on our branded prescription drugs, with a limitation of this increase on clotting factors to 17.1% of AMP; (2) the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (3) the expansion of the 340B Public Health Services drug pricing program, which provides hospital outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers. We do not believe that these new provisions will have a material impact on our 2010 financial results.

Beginning in 2011, the new law requires that drug manufacturers provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (commonly called the “donut hole”). Also, beginning in 2011, we will be assessed our share of a new fee assessed on all branded prescription drug manufacturers and importers. This fee will be calculated based upon each organization’s percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare, Medicaid and VA and PHS discount programs) made during the previous year. The aggregated industry wide fee is expected to range from $2.5 billion to $4.1 billion annually between 2011 and 2018 and remain at $2.8 billion in 2019 and subsequent years.

Beginning in 2012, the new law may require us to issue Internal Revenue Service Forms 1099 to plasma donors whose remuneration exceeds six hundred dollars. The cost of implementing this requirement, as well as its potential impact on plasma donations, are unknown at this time.

Presently, uncertainty exists as many of the specific determinations will be developed as regulatory bodies interpret the law and enact new regulations. For example, determinations as to how the Medicare Part D coverage gap will operate and how the annual fee on branded prescription drugs will be calculated and allocated remain to be clarified. As noted above, these programs will become effective in 2011.

CUSTOMER CONCENTRATION

Our accounts receivable, net, includes amounts due from pharmaceutical wholesalers and distributors, buying groups,

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~~hospitals,~~HEALTHCARE ~~physicians’ offices, patients, and others. Our concentrations with customers that represented more than 10% of our accounts receivable, net were:~~REFORM LEGISLATION

~~· At~~In ~~September~~March 302010, the United States enacted healthcare reform legislation. Important market reforms began in 2010 and will continue through full implementation in 2014. This legislation contains several provisions that became effective during the first quarter of 2010. These included: ~~Amerisource Bergen-~~(1) an 13increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.31%; ~~FFF~~to ~~Enterprise, Inc~~23.-1% 12of the Average Manufacturer Price (AMP) on our branded prescription drugs, with a limitation of this increase on clotting factors to 17.21% of the AMP; (2) the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (3) the expansion of the 340B Public Health Service (PHS) drug pricing program, which provides hospital outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers.

~~· At~~Beginning ~~December 31~~in 2011, ~~2009:~~the ~~FFF~~new ~~Enterprise,~~law requires that drug manufacturers provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part ~~Inc~~D coverage gap (commonly referred to as the donut hole).~~- 14~~ We estimate that the impact of applying this provision during 2011 will be approximately $2.6%0 million, which we will record ratably as a reduction of revenue.

Also, beginning in 2011, we will be assessed our share of a new fee assessed on all branded prescription drug manufacturers and importers. This non-tax deductible fee will be calculated based upon each organization’s percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare, Medicaid, VA, and PHS discount programs) made during the previous year. Sales of orphan drugs are not included in the fee calculation. The aggregated industry wide fee is expected to range from $2.5 billion to $4.1 billion annually between 2011 and 2018 and remain at $2.8 billion in 2019 and subsequent years. We do not anticipate that this provision will have a material impact on our 2011 financial results.

In April 2011, a part of the healthcare reform law that would have required businesses to file a 1099 tax form with the government for every purchase they make over six hundred dollars annually, was repealed.

We are unable to predict the future course of healthcare legislation and regulations. Further, U.S. federal and state governments as well as foreign governments continue to propose other legislative and regulatory measures aimed at reforming their respective healthcare systems, including proposals in the U.S. to permit the federal government to use its purchasing power to negotiate further discounts from pharmaceutical companies under Medicare. The recently enacted healthcare reform legislation and future healthcare reform legislation could decrease the prices we receive for our products or our sales volume and could impose additional taxes or other measures that increase the cost of conducting business. As noted above, promulgation of final regulations and possible legislative changes will continue into 2011 and beyond.

CONCENTRATION OF CREDIT RISK

Customer Concentration

Our accounts receivable, net, includes amounts due from pharmaceutical wholesalers and distributors, buying groups, hospitals, physicians’ offices, patients, and others. Our concentrations with customers that represented more than 10% of our accounts receivable, net, were:

· At March 31, 2011: Amerisource Bergen- 14.5%; FFF Enterprise, Inc.- 13.5%

· At December 31, 2010: Amerisource Bergen- 12.8%

The following table summarizes our concentrations with customers that represented more than 10% of our total net revenue:

	Three Months Ended				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2010		2009		2010		2009
	2011		2010
FFF Enterprise Inc.	12.4	%	13.8	%	14.0	%	14.1	%
FFF Enterprise, Inc.	13.4	%	15.7	%
Amerisource Bergen	1512.64	%	12.1	%	~~13.9~~	%	~~12.8~~	%

~~In the event that any of these customers were to suffer an adverse downturn in their business or a downturn in their supply needs, our business could be materially adversely affected.~~27

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In the event that any of these customers were to suffer an adverse downturn in their business or a downturn in their supply needs, our business could be materially adversely affected. We have included additional information regarding the risks associated with our customer concentrations in the section titled, “Risk Factors——Risks Related to our Business——A substantial portion of our revenue is derived from a small number of customers, and the loss of one or more customers could have a material adverse effect on us,” included in our 2010 Form 10-K.

Counterparty Risk

We initiated a foreign currency hedging program in the first quarter of 2011 for the purpose of managing the economic effects of the volatility associated with short-term changes in euro/U.S. dollar exchange rates on our earnings and cash flows. These derivative financial instruments present certain market and counterparty risks. We seek to manage the counterparty risks associated with these contracts by limiting transactions to counterparties with which we have established banking relationships and limit the duration of the contracts to less than one year. We are exposed to potential losses if a counterparty fails to perform according to the terms of the agreement. We do not require collateral or other security to be furnished by counterparties to our derivative financial instruments. There can be no assurance, however, that our practice effectively mitigates counterparty risk. A number of financial institutions similar to those that serve or may serve as counterparties to our hedging arrangements were adversely affected by the global credit crisis. The failure of any of the counterparties to our hedging arrangements to fulfill their obligations to us could adversely affect our results of operations and cash flow.

BASIS OF PRESENTATION

Our consolidated financial statements include the accounts of Talecris Biotherapeutics Holdings Corp. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. ~~The effects of business acquisitions have been included in our consolidated financial statements from their respective date of acquisition.~~

The comparability of our financial results is impacted by significant events and transactions during the periods presented as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations——Matters Affecting Comparability.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures of contingent assets and liabilities. A detailed description of our significant accounting policies is included in the footnotes to our audited consolidated financial statements included in our ~~2009~~2010 Form 10-K.

There have been no significant changes in our application of our critical accounting policies and estimates during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 as compared to the prior year. We periodically review our critical accounting policies and estimates with the audit committee of our board of directors.

Gross-to-Net Revenue Adjustments

The following table summarizes our gross-to-net revenue adjustments expressed in dollars and percentages:

2728

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	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2010			2009			2010			2009
	2011			2010
Gross product revenue	$	~~422~~423,~~357~~872		$	~~412~~399,~~006~~501		$	~~1,238,352~~		$	~~1,188,010~~
Chargebacks	(7,~~596~~189		)	(76,~~809~~637		)	~~(21,910~~		)	~~(18,488~~		)
Cash discounts	(5,~~194~~310		)	(54,~~013~~921		)	~~(15,162~~		)	~~(14,113~~		)
Rebates and other	(912,~~006~~393		)	(1112,~~286~~958		)	~~(29,002~~		)	~~(32,532~~		)
Product net revenue	$	400,561		$	387,898		$	1,172,278		$	1,122,877
SG&A reimbursements	—			(370		)
Product net revenue	$	398,980		$	374,615

	Three Months Ended				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2010		2009		2010		2009
	2011		2010
Gross product revenue	100.0	%	100.0	%	~~100.0~~	%	~~100.0~~	%
Chargebacks	(1.87	)%	(1.97	)%	~~(1.8~~	)%	~~(1.6~~	)%
Cash discounts	(1.23	)%	(1.2	)%	~~(1.2~~	)%	~~(1.2~~	)%
Rebates and other	(2.19	)%	(23.72	)%	~~(2.3~~	)%	~~(2.7~~	)%
Product net revenue	94.9	%	94.2	%	94.7	%	94.5	%
SG&A reimbursements	—		(0.1	)%
Product net revenue	94.1	%	93.8	%

The following table provides a summary of activity with respect to our allowances:

				Cash			Rebates and
	Chargebacks			Discounts			Other			Total
Balance at December 31, 2009	$	4,262		$	1,274		$	26,427		$	31,963
Balance at December 31, 2010	$	3,425		$	1,180		$	23,817		$	28,422
Provision	217,~~910~~189			155,~~162~~310			2812,~~643~~393			6524,~~715~~892
Credits issued	(226,~~270~~520		)	(144,~~542~~814		)	(2911,~~002~~356		)	(6522,~~814~~690		)
Balance at September 30, 2010	$	3,902		$	1,894		$	26,068		$	31,864
Balance at March 31, 2011	$	4,094		$	1,676		$	24,854		$	30,624

As discussed elsewhere in this Quarterly Report, the recently enacted healthcare reform legislation increased the size of Medicaid rebates paid by drug manufacturers from 15.1% to 23.1% of the AMP, with a limitation of this increase on clotting factors to 17.1% of the AMP. The increase in the provisions for chargebacks during the nine months ended September 30, 2010 as compared to the same prior year period was largely due to increased sales related to government contracts. Rebates and other was also impacted by the reduction of channel inventories during the three and nine months ended September 30, 2010.

MATTERS AFFECTING COMPARABILITY

We believe that the comparability of our financial results between the periods presented is significantly impacted by the following items:

Definitive Merger Agreement with Grifols

We ~~have~~incurred ~~entered~~fees ~~into~~of ~~agreements~~approximately ~~with~~$1.1 ~~investment~~million ~~bankers~~during the first quarter of 2011 related to our definitive merger agreement with Grifols~~. We~~, for which no amounts were incurred ~~fees~~during ~~totaling~~the $2comparable prior year period.5 These ~~million~~fees ~~under~~were ~~these~~primarily ~~agreements~~related ~~during 2010~~to ~~and~~legal activities. We are obligated to pay additional fees totaling $21.3 million to investment bankers upon successful closing of the merger transaction. During the three and nine months ended September 30, 2010, we also incurred legal, accounting, and other fees of $5.7 million and $11.6 million, respectively, associated with the definitive merger agreement.

Under the terms of the definitive merger agreement with Grifols, we are permitted to offer retention amounts up to a total of $15.0 million to employees. As of ~~September~~March 3031, ~~2010~~ 2011, we have offered retention amounts totaling approximately $109.38 million to employees, of which $2.9 million was paid during ~~the~~2010 ~~three~~and ~~months~~$3.5 ~~ended~~million ~~September 30, 2010~~was ~~and~~paid during the first quarter of 2011. The remaining amounts ~~are~~of ~~expected~~approximately to$3.4 million will be paid two months after the Closing Date, or in ~~2011~~the event of termination of the definitive merger agreement, ~~subject~~the toearlier of four months after the ~~terms~~ termination of the ~~retention~~definitive ~~agreements~~merger agreement or June 3, 2011. We incurred retention expenses, including fringe benefits, of $32.7 million during the three months ended ~~September~~March 3031, ~~2010~~2011. The remaining retention amounts ~~will~~of ~~likely~~approximately $1.8 million, including fringe benefits, will be recognized ~~ratably through~~during the second quarter of 2011.

~~Financial~~Additional ~~Impact~~information ofregarding ~~IPO~~our definitive merger agreement with Grifols is included in Note 3, “Definitive Merger Agreement with Grifols S.A. and ~~Refinancing~~Grifols, ~~Transactions~~Inc. (Grifols)” as well as “Business Overview—Business Highlights” above.

~~As discussed in our 2009 Form 10~~Share-K,Based weCompensation completed our IPO and refinancing transactions during the fourth quarter of 2009, which has resulted in lower average borrowings during the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009, and correspondingly lower interest expense during the 2010 periods. For the three months ended September 30, 2010 and 2009, our interest expense was $12.0 million and $19.0 million, respectively, and for the nine months ended September 30, 2010 and 2009, our interest expense was $35.9 million and $59.5 million, respectively.Awards

28We have long-term incentive plans, which provide for the grant of awards in the form of incentive stock options, non-qualified stock options, share appreciation rights, restricted stock, restricted stock units (RSUs), unrestricted shares of common stock, deferred share units, and performance share units (PSUs), to eligible employees, directors, and consultants.

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Comparability of Outstanding Common Shares and Pro Forma Diluted Earnings Per Common Share

As discussed in our 2009 Form 10-K, we completed our IPO and refinancing transactions during the fourth quarter of 2009. Our IPO consisted of 56,000,000 shares of our common stock of which 28,947,368 shares were newly issued and sold by us and 27,052,632 shares were sold by the selling stockholder, Talecris Holdings, LLC. We used the net primary proceeds to us of $519.7 million to repay amounts outstanding under our then existing First and Second Lien Term Loans. In connection with our IPO, we also converted 1,000,000 shares of our Series A preferred stock and 192,310 shares of our Series B preferred stock into 85,846,320 shares of our common stock and issued 2,381,548 shares of our common stock to settle $45.3 million of accrued dividends upon the conversion of our Series A and B preferred stock. The issuance of new common shares has resulted in a significant increase in the number of common shares used in our computation of diluted earnings per common share. The application of the net primary proceeds to us from our IPO to repay our then existing indebtedness has resulted in a significant reduction in interest expense during the three and nine months ended September 30, 2010 as compared to the prior year periods.

We believe that the comparability of our financial results for the periods presented is enhanced by the following pro forma presentation of our diluted earnings per common share. In the tables below, the pro forma diluted earnings per common share computations for the three and nine months ended September 30, 2009 reflect an adjustment to net income for reduced interest expense as if the net primary proceeds to us from our IPO of $519.7 million had been applied to repay our debt at the beginning of 2009, net of interest rate differences from our 7.75% Notes issuance. The pro forma adjustment to the denominator reflects the impacts for the issuance of common shares to convert preferred stock, settle accrued dividends on the preferred stock, and complete the IPO as if these events occurred at the beginning of 2009.

	Three Months Ended September 30,
	2010		2009		2009
	Actual		Actual		Pro forma
Net income	$	56,052	$	35,810	$	35,810
Interest expense reduction due to debt repayment	—		—		1,966
Numerator	$	56,052	$	35,810	$	37,776
Weighted average common shares outstanding	123,668,072		2,647,178		2,647,178
Adjustments:
Stock options and restricted shares	5,266,418		6,350,815		6,350,815
Series A preferred stock	—		71,217,391		71,217,391
Series B preferred stock	—		13,695,817		13,695,817
Shares issued for preferred stock dividend	—		—		2,355,662
Newly issued shares for IPO	—		—		28,947,368
Dilutive potential common shares	128,934,490		93,911,201		125,214,231
Diluted net income per common share	$	0.43	$	0.38	$	0.30

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	Nine Months Ended September 30,
	2010		2009		2009
	Actual		Actual		Pro forma
Net income	$	149,014	$	152,517	$	152,517
Interest expense reduction due to debt repayment	—		—		5,833
Numerator	$	149,014	$	152,517	$	158,350
Weighted average common shares outstanding	122,669,724		1,847,235		1,847,235
Adjustments:
Stock options and restricted shares	5,844,003		6,540,453		6,540,453
Series A preferred stock	—		71,736,264		71,736,264
Series B preferred stock	—		13,795,601		13,795,601
Shares issued for preferred stock dividend	—		—		2,372,824
Newly issued shares for IPO	—		—		28,947,368
Dilutive potential common shares	128,513,727		93,919,553		125,239,745
Diluted net income per common share	$	1.16	$	1.62	$	1.26

The following table summarizes our share-based compensation expense:

Definitive Merger Agreement with CSL

	Three Months Ended
	March 31,
	2011		2010
SG&A	$	1,570	$	5,680
R&D	112		538
Total operating expenses	1,682		6,218
Cost of goods sold	530		1,009
Total expense	$	2,212	$	7,227

WeThe ~~entered~~decrease ~~into~~in ashare-based ~~definitive~~compensation ~~merger~~expense ~~agreement~~period ~~with~~over ~~CSL~~period ~~on August 12, 2008, which~~ was ~~subject~~driven toby the ~~receipt~~final vesting of ~~certain~~awards ~~regulatory~~under ~~approvals as well as other customary conditions. The U.S. Federal Trade Commission filed an administrative complaint before~~ the ~~Commission~~2005 ~~challenging~~Stock ~~the~~Option ~~merger~~ and ~~a complaint~~Incentive inPlan ~~Federal~~on ~~district court seeking to enjoin the merger during the administrative process. On June~~April 81, ~~2009,~~ ~~the~~2010 ~~merger parties agreed to terminate the definitive merger agreement,~~ and ~~as a result, CSL paid us a merger termination fee of $75.0 million during~~ the ~~2009~~majority ~~second quarter. The U.S. Federal Trade Commission’s complaints were subsequently dismissed. We incurred retention expense, including fringe benefits,~~ of ~~$1.6 million and $8.3 million for~~ the ~~three~~awards ~~and~~under ~~nine~~our ~~months ended~~2006 ~~September 30,~~Restricted ~~2009,~~Stock ~~respectively,~~Plan ~~and~~on ~~legal costs associated with the regulatory review process of $6.0 million during the nine months ended September~~March 3031, ~~2009. All~~ ~~retention amounts were paid during 2009~~2010.

Unabsorbed TPR Infrastructure and Start-Up Costs

Our cost of goods sold includes $1.5 million and $8.7 million for the three months ended September 30, 2010 and 2009, respectively, and $5.2 million and $34.1 million for the nine months ended September 30, 2010 and 2009, respectively, related to unabsorbed TPR infrastructure and start-up costs associated with the development of our plasma collection center platform. The reduction in unabsorbed TPR infrastructure and start-up costs resulted primarily from the maturation of our plasma collection center platform. We believe we have substantially eliminated unabsorbed TPR infrastructure and start-up costs and as a result, we expect that the TPR excess period costs will continue to decline in 2010 as compared to prior periods.

Share-Based Compensation Awards

We have long-term incentive plans, which provide for the grant of awards in the form of incentive stock options, non-qualified stock options, share appreciation rights, restricted stock, restricted stock units (RSU’s), unrestricted shares of common stock, deferred share units, and performance share units (PSU’s), to eligible employees, directors, and consultants.

Share-based compensation expense for the three and nine months ended September 30, 2010 and 2009 was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
SG&A	$	2,530	$	17,929	$	10,480	$	34,379
R&D	181		513		896		1,692
Cost of goods sold	908		1,012		2,827		3,554
Total expense	$	3,619	$	19,454	$	14,203	$	39,625
Capitalized in inventory	$	483	$	868	$	1,928	$	2,874

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The decrease in share-based compensation expense during 2010 was primarily driven by the final vesting of awards under the 2005 Stock Option and Incentive Plan on April 1, 2010 and the majority of the awards under our 2006 Restricted Stock Plan on March 31, 2010. In addition, a combination of an adjustment during the 2010 first quarter as a result of actual award forfeitures being higher than initially estimated as well as the acceleration of certain option awards to our Chairman and Chief Executive Officer during the 2009 third quarter further impacted the comparability of share-based compensation expense between the 2010 and 2009 periods.

The following table summarizes the remaining unrecognized compensation cost related to our share-based compensation program as of September 30, 2010 and the weighted-average period over which the non-cash compensation cost is expected to be recognized:

			Weighted-
	Unrecognized		Average
	Compensation		Period
	Cost		(Years)
Stock options	$	4,523	2.35
Restricted share awards	2,163		0.50
RSU’s	7,298		2.41
PSU’s	3,894		2.50
Total	$	17,878

RESULTS OF OPERATIONS

We have included information regarding our results of operations in the following table. The subsequent discussion ~~provides~~and an analysis ofprovides ~~our~~information ~~results~~which ofmanagement ~~operations~~believes ~~for~~is ~~the~~relevant ~~three~~to ~~and nine~~an ~~months~~assessment ~~ended~~and ~~September 30,~~understanding ~~2010~~of asour ~~compared~~consolidated toresults ~~the~~of ~~three and nine months ended September 30, 2009~~operations.

	Three Months Ended
	March 31,						Change
	2011			2010			$			%
Net revenue:
Product	$	398,980		$	374,615		$	24,365		6.5	%
Other	7,683			6,346			1,337			21.1	%
Total	406,663			380,961			25,702			6.7	%
Cost of goods sold	233,619			217,351			(16,268		)	(7.5	)%

Gross profit	173,044			163,610			9,434			5.8	%
Operating expenses:
SG&A	62,717			67,620			4,903			7.3	%
R&D	16,532			16,271			(261		)	(1.6	)%
Total	79,249			83,891			4,642			5.5	%

Income from operations	93,795			79,719			14,076			17.7	%
Other non-operating (expense) income:
Interest expense, net	(10,750		)	(11,263		)	513			4.6	%
Equity in earnings of affiliate	151			147			4			2.7	%
Total	(10,599		)	(11,116		)	517			4.7	%

Income before income taxes	83,196			68,603			14,593			21.3	%
Provision for income taxes	(27,739		)	(23,264		)	(4,475		)	(19.2	)%

Net income	$	55,457		$	45,339		$	10,118		22.3	%

Earnings per common share:
Basic	$	0.44		$	0.37		$	0.07		18.9	%
Diluted	$	0.43		$	0.35		$	0.08		22.9	%

Financial measures:
Gross profit margin	42.6		%	42.9		%
Operating margin	23.1		%	20.9		%
Effective income tax rate	33.3		%	33.9		%

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net revenue:
Product	$	400,561		$	387,898		$	1,172,278		$	1,122,877
Other	6,440			7,833			18,510			20,219
Total	407,001			395,731			1,190,788			1,143,096
Cost of goods sold	229,908			230,666			670,476			663,875
Gross profit	177,093			165,065			520,312			479,221
Operating expenses:
SG&A	61,383			79,488			205,007			213,913
R&D	18,673			16,167			50,832			51,728
Total	80,056			95,655			255,839			265,641
Income from operations	97,037			69,410			264,473			213,580
Other non-operating (expense) income:
Interest expense, net	(11,529		)	(19,587		)	(34,915		)	(61,445		)
Merger termination fee	—			—			—			75,000
Equity in earnings of affiliate	273			112			599			296
Total	(11,256		)	(19,475		)	(34,316		)	13,851
Income before income taxes	85,781			49,935			230,157			227,431
Provision for income taxes	(29,729		)	(14,125		)	(81,143		)	(74,914		)
Net income	$	56,052		$	35,810		$	149,014		$	152,517
Earnings per common share:
Basic	$	0.45		$	12.01		$	1.21		$	76.21
Diluted	$	0.43		$	0.38		$	1.16		$	1.62
Financial measures:
Gross margin	43.5		%	41.7		%	43.7		%	41.9		%
Operating margin	23.8		%	17.5		%	22.2		%	18.7		%
Effective income tax rate	34.7		%	28.3		%	35.3		%	32.9		%

Three Months Ended September 30, 2010 as Compared to Three Months Ended September 30, 2009

The following discussion and analysis contains information regarding our results of operations for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009:

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	Three Months Ended
	September 30,						Change
	2010			2009			$			%
Net revenue:
Product	$	400,561		$	387,898		$	12,663		3.3	%
Other	6,440			7,833			(1,393		)	(17.8	)%
Total	407,001			395,731			11,270			2.8	%
Cost of goods sold	229,908			230,666			758			0.3	%
Gross profit	177,093			165,065			12,028			7.3	%
Operating expenses:
SG&A	61,383			79,488			18,105			22.8	%
R&D	18,673			16,167			(2,506		)	(15.5	)%
Total	80,056			95,655			15,599			16.3	%
Income from operations	97,037			69,410			27,627			39.8	%
Other non-operating (expense) income:
Interest expense, net	(11,529		)	(19,587		)	8,058			41.1	%
Equity in earnings of affiliate	273			112			161			143.8	%
Total	(11,256		)	(19,475		)	8,219			42.2	%
Income before income taxes	85,781			49,935			35,846			71.8	%
Provision for income taxes	(29,729		)	(14,125		)	(15,604		)	(110.5	)%
Net income	$	56,052		$	35,810		$	20,242		56.5	%
Earnings per common share:
Basic	$	0.45		$	12.01		$	(11.56	)	(96.3	)%
Diluted	$	0.43		$	0.38		$	0.05		13.2	%
Financial measures:
Gross profit margin	43.5		%	41.7		%
Operating margin	23.8		%	17.5		%
Effective income tax rate	34.7		%	28.3		%

Net Revenue

The following table contains information regarding our net revenue:

	Three Months Ended
	September 30,				Change
	2010		2009		$			%
Product net revenue:
Gamunex IGIV	$	215,974	$	207,179	$	8,795		4.2	%
Prolastin A1PI	89,980		80,813		9,167			11.3	%
Fraction V (Albumin and Plasmanate)	17,822		22,846		(5,024		)	(22.0	)%
Factor VIII (Koate DVI)	16,488		11,288		5,200			46.1	%
Hyperimmunes	24,793		24,103		690			2.9	%
Other	35,504		41,669		(6,165		)	(14.8	)%
Total product net revenue	400,561		387,898		12,663			3.3	%
Other net revenue	6,440		7,833		(1,393		)	(17.8	)%
Total net revenue	$	407,001	$	395,731	$	11,270		2.8	%

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	Three Months Ended
	September 30,				Change
	March 31,				Change
	2010		2009		$			%
	2011		2010		$			%
U.S. product net revenue:
Product net revenue:
Gamunex IGIV	$	164,968	$	151,066	$	13,902		9.2	%
Gamunex-C/Gamunex IGIV	$	229,152	$	212,795	$	16,357		7.7	%
Prolastin A1PI	60,478		52,632		7,846			14.9	%
Prolastin A1PI/ Prolastin-C A1PI	88,667		80,184		8,483			10.6	%
Factor V (Albumin and Plasmanate)	12,390		11,231		1,159			10.3	%
Fraction V (albumin and Plasmanate)	20,741		21,217		(476		)	(2.2	)%
Factor VIII (Koate DVI)	48,~~418~~742		38,~~414~~571		~~1,004~~171			292.40	%
Hyperimmunes	2117,~~561~~868		2314,~~020~~951		(12,~~459~~917		)	(619.35	)%
Other product net revenue	16,126		18,707		(2,581		)	(13.8	)%
Other	33,810		36,897		(3,087		)	(8.4	)%
Total U.S. product net revenue	$	279,941	$	260,070	$	19,871		7.6	%
Total product net revenue	398,980		374,615		24,365			6.5	%
International product net revenue:
Other net revenue	7,683		6,346		1,337			21.1	%
Gamunex IGIV	$	51,006	$	56,113	$	(5,107	)	(9.1	)%
Total net revenue	$	406,663	$	380,961	$	25,702		6.7	%
Prolastin A1PI	29,502		28,181		1,321			4.7	%
Factor V (Albumin and Plasmanate)	5,432		11,615		(6,183		)	(53.2	)%
Factor VIII (Koate DVI)	12,070		7,874		4,196			53.3	%
Hyperimmunes	3,232		1,083		2,149			198.4	%
Other product net revenue	19,378		22,962		(3,584		)	(15.6	)%
Total international product net revenue	$	120,620	$	127,828	$	(7,208	)	(5.6	)%

Our product net revenue was $400.6 million and $387.9 million for the three months ended September 30, 2010 and 2009, respectively, representing an increase of $12.7 million, or 3.3%. The increase consisted of higher volumes of $13.1 million, partially offset by lower pricing of $0.4 million driven by the effects of unfavorable foreign exchange of $4.0 million.

	Three Months Ended
	March 31,				Change
	2011		2010		$			%
U.S. product net revenue:
Gamunex-C/Gamunex IGIV	$	171,446	$	161,484	$	9,962		6.2	%
Prolastin A1PI/ Prolastin-C A1PI	58,348		50,845		7,503			14.8	%
Fraction V (albumin and Plasmanate)	10,417		12,368		(1,951		)	(15.8	)%
Factor VIII (Koate DVI)	4,828		3,799		1,029			27.1	%
Hyperimmunes	13,374		9,880		3,494			35.4	%
Other product net revenue	14,485		17,162		(2,677		)	(15.6	)%
Total U.S. product net revenue	$	272,898	$	255,538	$	17,360		6.8	%

International product net revenue:
Gamunex-C/Gamunex IGIV	$	57,706	$	51,311	$	6,395		12.5	%
Prolastin A1PI/ Prolastin-C A1PI	30,319		29,339		980			3.3	%
Fraction V (albumin and Plasmanate)	10,324		8,849		1,475			16.7	%
Factor VIII (Koate DVI)	3,914		4,772		(858		)	(18.0	)%
Hyperimmunes	4,494		5,071		(577		)	(11.4	)%
Other product net revenue	19,325		19,735		(410		)	(2.1	)%
Total international product net revenue	$	126,082	$	119,077	$	7,005		5.9	%

~~The~~Our ~~$8.8~~product ~~million increase in our Gamunex~~ net revenue was ~~driven by higher volumes of~~ $9399.20 million~~. We experienced~~ ~~higher~~and ~~Gamunex volumes of~~ $21374.36 million infor the ~~U.S.,~~three ~~Europe,~~months ~~and other~~ended ~~international~~March 31, ~~regions~~2011 ~~which~~and ~~were partially offset by lower volumes of $12.1 million in Canada. Our~~ 2010 ~~Canadian~~, ~~Gamunex volumes were negatively impacted by lower commercial sales to CBS as discussed below. We experienced competitive pressures in Europe during 2009~~respectively, ~~which~~representing ~~negatively~~an ~~impacted~~increase ~~our Gamunex~~of ~~volumes during the prior year period. U.S. and Canadian Gamunex pricing was higher by~~ $224.64 million, ~~during~~or ~~the 2010 period as compared to the prior year period~~6.5%. The ~~benefit~~increase consisted of ~~the~~ higher ~~pricing~~volumes ~~in the U.S. and Canada was offset by lower pricing~~ of $321.01 million ~~in Europe~~ and ~~other international~~higher ~~regions~~pricing ~~resulting from country mix as well as competitive pressures, including unfavorable foreign exchange~~ of $13.03 million. As indicated elsewhere in this Quarterly Report, the recently enacted healthcare reform legislation increased the size of the Medicaid rebates paid by drug manufacturers from 15.1% to 23.1% of the AMP. We have also experienced higher Medicaid utilization and GPO administrative fees during 2010. Although we have experienced a favorable pricing environment in prior periods largely as a result of supply constraints, we expect product pricing to be relatively flat given the current balance of supply and demand.

The $916.24 million increase in ~~our~~Gamunex-C/Gamunex ~~Prolastin~~IGIV net revenue ~~consisted~~was ~~of higher~~primarily ~~volumes~~due ofto ~~$7.9~~higher ~~million~~volumes ~~and improved pricing~~ of $114.31 million~~, including the effects of unfavorable foreign exchange of $2~~.9 ~~million. The~~We ~~increase~~experienced ~~in volumes was driven primarily by~~ higher volumes of $715.73 million in ~~Europe and~~ the U.S., ~~where~~Canada, weand ~~experienced net~~Europe, ~~patient~~which ~~gains~~were ~~during~~partially ~~2010. Prolastin volumes~~offset ~~are~~by ~~largely~~lower avolumes ~~function~~in ofother ~~our~~international ~~ability~~regions. The toincrease ~~identify~~in ~~and~~U.S. ~~enroll~~volumes ~~new patients~~resulted asfrom ~~compared~~higher todemand and the ~~number~~increase ofin ~~patients~~European ~~lost~~volumes ~~due~~resulted toprimarily ~~attrition~~from ~~and competition. Our~~higher ~~ability~~sales toin ~~grow~~Germany ~~our European~~as ~~volumes~~a ~~will~~result ~~also~~of ~~depend~~an onexpanded ~~our~~sales ~~ability~~force toas ~~obtain~~well ~~appropriate reimbursement~~as onfavorable amarket ~~country by country basis~~conditions. The increase in ~~pricing~~volumes in Canada was driven by ~~higher~~the ~~pricing~~timing of ~~$4.6~~shipments ~~million~~during in the ~~U.S.~~first asquarter ~~a result~~ of a2011 ~~price~~as ~~increase~~compared ~~implemented~~to ~~during~~ the ~~2010~~first ~~third~~ quarter~~. The~~ ~~benefit~~ of ~~the favorable pricing in the U~~2010.~~S. was partially offset by lower pricing in Europe primarily due to unfavorable foreign exchange.~~

~~Effective~~The ~~August 1,~~$8.5 ~~2010,~~million ~~legislation~~increase ~~was~~in ~~enacted~~Prolastin inA1PI/Prolastin-C ~~Germany~~A1PI to net revenue consisted of higher volumes of $5.8 million and higher pricing of $2.7 million. The increase ~~rebates~~in ~~paid~~volumes was driven by ~~drug~~higher ~~manufacturers~~volumes ~~from~~of $5.6% tomillion ~~16%~~ in ~~retail pharmacies~~the U.S. and Europe, ~~which~~where ~~impacts~~we experienced net patient gains during the first quarter of 2011. Prolastin volumes are largely a function of our ~~Gamunex~~ability ~~business~~to identify and enroll new patients as compared to the number of patients lost due to attrition and competition. In Our ~~addition,~~ability ~~effective~~to ~~August~~ grow our European volumes will be enhanced by our ability to obtain appropriate reimbursement on a country by country basis. The increase in pricing was driven by higher pricing in the U.S. of $3.1, ~~2010,~~million as a result of a price ~~freeze~~increase onimplemented during the ~~basis~~ third quarter of ~~August 2009~~2010. The ~~prices~~benefit ~~became~~of ~~effective~~the ~~through~~higher ~~2013~~pricing ~~for~~in ~~all~~the ~~products~~U.S. ~~we sell~~was partially offset by lower pricing in ~~Germany~~Europe as a result of country mix.

Our Fraction V product category consists of albumin and Plasmanate, with albumin representing the majority of the sales in the category. The $5.0.5 million decrease in our Fraction V net revenue ~~consisted~~resulted offrom lower ~~volumes~~pricing of $42.34 million, ~~and~~partially ~~lower~~offset ~~pricing~~by higher volumes of $01.79 million primarily due to international sales. We experienced lower ~~Fraction~~ Vpricing ~~volumes~~in ofthe $6U.8S. ~~million~~as ina ~~other~~result ~~international~~of ~~regions~~price ~~due~~decreases ~~to opportunistic sales~~ during ~~2009,~~the ~~which~~fourth ~~did~~quarter ~~not~~of ~~recur during~~ 2010, ~~partially offset~~and bywe ~~higher~~experienced ~~volumes~~lower ofpricing ~~$2.5 million~~ in ~~the~~other ~~U.S.,~~international ~~Canada,~~regions ~~and Europe~~ as a result of ~~supply~~unfavorable ~~availability~~country mix.

~~The $5.2 million increase in Factor VIII (Koate DVI) net revenue was primarily driven by higher volumes of $6.0 million in~~31

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~~other international~~The ~~regions~~$2.9 ~~due~~million toincrease ~~supply~~in ~~availability~~hyperimmune ~~and~~net ~~opportunistic~~revenue ~~sales, partially~~was ~~offset~~driven by ~~lower~~an ~~pricing~~increase in net revenue in the U.S. of $13.85 million, inmainly ~~other~~due ~~international regions~~to higher volumes of $2.7 million. The first quarter 2010 U.S. hyperimmune net revenue was negatively impacted by a customer systems issue.

Our other product net revenue consists primarily of ~~revenue related to~~ our contract manufacturing agreements for IGIV and Fraction V with the two Canadian blood ~~system~~systems operators, CBS and Hema Quebec, intermediate products, Thrombate III (human), and contracted PPF powder. The $63.21 million decrease in other product net revenue was driven by ~~lower~~a ~~PPF powder sales of~~ $4.13 million decrease in PPF powder sales and lower intermediate product sales of $21.91 million, partially offset by higher Thrombate III sales of $12.51 million~~. Sales of our contracted PPF powder are expected to decline in accordance with the related agreement and intermediate product revenues are opportunistic and may be lower in subsequent periods.~~

U.S. IGIV distribution increased between 6% and 8% during the nine months ended September 30, 2010. This growth represents a recovery in demand in the second and third quarters of 2010 after a slight decline in growth in the first quarter of 2010. Despite solid demand growth for IGIV, there has been increased scrutiny and price sensitivity in the hospital segment. In addition, the increase in the number of hospitals qualifying for the 340B discounts has effectively reduced demand from GPO’s who are not permitted to service this discounted channel, which among other factors, has led us to accept reduced volume tiers under certain of our GPO contracts. We have seen solid demand growth for Gamunex with most customer segments. We believe that U.S. and international IGIV demand will grow approximately 6% to 8% over the long-term, which is consistent with demand growth during the nine months ended September 30, 2010. However, IGIV demand can vary significantly on a quarter-to-quarter basis.

Our ability to expand our international business has been hampered by the effects of our internal FCPA investigation and increased price sensitivities of our customers which has resulted in pricing pressures for plasma-derived products. Our business with Iran, one of our major international customers, has been in decline which is likely to continue. Our profitability has been, and may continue to, be negatively impacted by unfavorable euro/dollar exchange rates. We have experienced, and expect to continue to experience, annual volume declines in Canada due to CBS’ objective to have multiple sources of supply, which has impacted and will continue to impact our overall IGIV growth. CBS may further reduce volumes to contract minimums and Hema Quebec may adopt a similar strategy. The combination of these factors, among others, may reduce our near term global IGIV growth, relative to our prior expectations.

We are the primary supplier of Canadian IGIV under our five year contracts with CBS and Hema Quebec, which became effective April 1, 2008. These five year contracts provide for escalated pricing, based on inflation, for contract fractionation services and our commercial products, including Gamunex, Plasbumin, and certain hyperimmune products, effective April 1 of each year throughout the term of the agreements. We have experienced, and expect to continue to experience, annual volume declines in Canada as discussed above.

In the current IGIV market with reduced demand growth, we still anticipate that we will operate near to or at our fractionation capacity over the next few years depending upon the demand for our products, the availability of source plasma and the impact of variability in yield, among other factors. We plan to utilize most of our available fractionation capacity in the near term, which may result in increased inventory levels in order to maintain pace with projected future growth in product demand.

Cost of Goods Sold and Gross Profit

Our gross profit was $~~177~~173.10 million and $~~165~~163.16 million for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively, representing gross ~~margin~~ margins of 4342.56% and 4142.79%, respectively. In general, our gross margin and cost of goods sold are impacted by the volume and pricing of our finished products, our raw material costs, production mix, yield, inventory impairment provisions, and cycle times, as well as our production capacities and normal production shut-downs, and the timing and amount of release of finished product.

Our cost of goods sold was $~~229~~233.96 million, or 5657.54% of net revenue, for the three months ended ~~September~~March 3031, ~~2010~~2011, as compared to $~~230~~217.74 million, or 5857.31% of net revenue, for the three months ended ~~September~~March 3031, ~~2009~~ 2010. ~~Our~~We ~~cost~~experienced ofhigher ~~goods~~costs ~~sold~~of ~~benefited from~~$11.5 ~~lower~~million ~~TPR~~associated ~~unabsorbed~~with ~~infrastructure~~increased volumes and ~~start-up~~higher costs of $717.21 million associated with production during the ~~three~~first ~~months~~quarter ~~ended~~of ~~September 30,~~2011 ~~2010~~ as compared to the ~~three months~~same ~~ended~~prior ~~September 30,~~year ~~2009~~period. ~~Our~~ Inventory ~~cost~~impairment ofprovisions, ~~goods~~net ~~sold~~of ~~also~~recoveries, ~~benefited~~were ~~from~~$7.1 ~~lower~~million ~~costs~~and ~~of production of~~ $912.53 million ~~during~~for the ~~2010~~three ~~period~~months ~~primarily~~ended ~~driven~~March 31, by2011 ~~production~~and ~~mix associated~~2010, ~~with~~respectively, ~~the~~a ~~conversion~~decrease toof ~~our~~$5.2 ~~next~~million. ~~generation~~Non-capitalizable ~~A1PI~~project ~~product,~~spending ~~Prolastin-C A1PI,~~during asthe ~~well~~three asmonths ~~source~~ended ~~mix~~March 31, 2011 and ~~lower~~2010 ~~project~~were ~~spending of~~ $05.9 million ~~as compared~~and to$11.7 ~~the~~million, ~~2009~~respectively, ~~period. During~~a ~~the 2010~~decrease ~~and~~of ~~2009~~$5.8 ~~periods,~~million. The ~~our~~decrease in non-capitalizable project spending ~~was~~resulted ~~$8.2~~from ~~million and~~the ~~$9.1~~progression ~~million,~~of ~~respectively. We experienced~~certain ~~higher~~projects ~~costs~~related ofto ~~$6.5~~our ~~million~~new ~~associated~~fractionation ~~with~~facility ~~increased~~to ~~volumes during~~the capital phase of the ~~three~~projects ~~months~~and ~~ended~~the ~~September 30,~~timing ~~2010~~of capital spending, as ~~compared~~well toas the ~~same prior~~conclusion ~~year~~of ~~period. Our~~project ~~cost~~spending offor ~~goods sold~~the ~~was~~Koate ~~negatively~~reengineering ~~impacted~~and byThrombate ~~$17~~III projects.5 Our ~~million~~costs of ~~inventory~~goods ~~impairments~~sold ~~during the~~benefited ~~three~~from ~~months~~lower ~~ended~~TPR ~~September 30,~~unabsorbed ~~2010,~~infrastructure anand ~~increase~~start-up costs of $101.36 million ~~compared~~ toduring the ~~same~~first ~~prior~~quarter ~~year~~of ~~period,~~2011 ~~primarily~~as ~~driven~~a byresult ~~higher~~of ~~provisions for~~the ~~work-in-process~~maturation ~~inventories~~of our plasma collection center platform.

35The largest component of our cost of goods sold is the cost of source plasma, which represented greater than 50% of our cost of goods sold for the periods presented. The overall cost of source plasma is impacted by the fully-loaded collection cost per liter, including donor fees, labor, soft goods, facility costs, testing, and unabsorbed TPR infrastructure and start-up costs, the cost of plasma purchased from third parties, and variability in protein yields, among other factors. Our internal cost per liter of plasma, including unabsorbed TPR infrastructure and start-up costs, declined 12.2% for the three months ended March 31, 2011 as compared to the prior year period, primarily driven by higher TPR plasma collections. Our acquisition cost per liter of third party plasma increased 4.8% during the three months ended March 31, 2011 as compared to the prior year period. Our licensed centers collected approximately 79% of our plasma during the first quarter of 2011. Due to our long manufacturing cycle times, which range from 100 days to in excess of 400 days, the cost of plasma is not expensed through cost of goods sold until a significant period of time subsequent to its acquisition.

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The largest component of our cost of goods sold is the cost of source plasma, which represented greater than 50% of our cost of goods sold for the periods presented. The overall cost of source plasma is impacted by the collection cost per liter, including donor fees, labor, soft goods, facility costs, testing, unabsorbed TPR infrastructure and start-up costs, the cost of plasma purchased from third parties, and variability in protein yields, among other factors. Our internal cost per liter of plasma, including unabsorbed TPR infrastructure and start-up costs, decreased 5.0% for the three months ended September 30, 2010, as compared to the same prior year period, primarily driven by lower unabsorbed TPR infrastructure and start-up costs and higher TPR plasma collections. Our acquisition cost per liter of third party plasma decreased 1.0% during the three months ended September 30, 2010 as compared to the same prior year period. Due to our long manufacturing cycle times, which range from 100 days to in excess of 400 days, the cost of plasma is not expensed through cost of goods sold until a significant period of time subsequent to its acquisition.

We believe that we have substantially eliminated unabsorbed TPR infrastructure and start-up costs. Consequently, future margin improvements will need to be derived from increases in product pricing and volumes, product mix, improvements in the cost per liter of plasma, manufacturing efficiencies, yield improvements or some combination thereof. We believe that the current environment does not favor near-term price increases and we have limited opportunities to enhance product mix. We have recently experienced and expect to continue to experience higher cost of goods sold due to yield variability, less efficient utilization of each incremental liter of plasma fractionated as we increase Gamunex production, and non-capitalizable costs associated with our capital projects, particularly the construction of our new fractionation facility.

The combination of the factors mentioned above, particularly the lower near-term demand growth, competitive pressures, slower than planned reductions in our cost per liter of plasma, and yield variability as well as inefficient plasma utilization, among other factors, will likely result in lower gross margins in future periods.

Operating Expenses

Our SG&A was $6162.47 million and $7967.56 million for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively, a decrease of $184.1 9 million, or 227.83%. ~~The~~Our ~~decrease in~~ SG&A was ~~driven~~positively impacted by lower share-based compensation expense of $~~15.~~4.1 million as ~~discussed~~and ~~previously,~~lower ~~the~~special ~~absence~~recognition ofbonus ~~retention~~ expense of $1.02 million ~~related~~. The todecrease ~~our~~in ~~terminated~~share-based ~~merger~~compensation ~~agreement~~expense ~~with~~in ~~CSL,~~2011 ~~lower~~was ~~donations~~driven ofby ~~$2.3 million,~~the ~~lower~~final ~~legal~~vesting ~~expenses~~ of ~~$2.7~~awards ~~million~~under ~~related~~the to2005 ~~our~~Stock ~~internal~~Option ~~FCPA investigation~~and Incentive Plan on April 1, 2010 and the ~~absence~~majority of ~~$2.0~~the ~~million~~awards ofunder ~~management~~the ~~fees~~2006 toRestricted ~~Talecris Holdings~~Stock ~~LLC~~Plan ason aMarch 31, ~~result~~2010. The offinal payments under the ~~termination~~special ofrecognition ~~the~~bonus ~~management~~program ~~agreement~~were atmade during the ~~time~~ offirst ~~our~~quarter ~~initial~~of ~~public offering~~2010. ~~During~~ Our ~~the~~SG&A ~~three~~for ~~months~~the ~~ended~~first ~~September 30,~~quarter ~~2010,~~of ~~our~~2011 ~~SG&A included~~benefited from $71.43 million of favorable foreign exchange transactions as compared to ~~favorable foreign exchange of~~ $3.19 million ~~during~~of ~~the~~unfavorable ~~three~~foreign ~~months~~exchange ~~ended~~transactions ~~September 30, 2009. These~~for ~~items~~the ~~were~~first ~~partially~~quarter ~~offset by higher sales and marketing expenses~~ of $52010.3 The ~~million~~benefit ~~during~~of the ~~2010~~aforementioned ~~period as~~items awas ~~result~~partially ofoffset ~~our~~by ~~sales~~$3.4 ~~force~~million ~~expansion,~~in ~~marketing~~Grifols ~~of our CIDP indication, Prolastin patient identification efforts, launch of Prolastin~~merger-Crelated ~~A1PI,~~expenses asand ~~well as~~higher ~~support~~sales ~~for~~and ~~other~~marketing ~~products. In addition, within SG&A, we incurred transaction related~~ expenses of $52.7 9 million ~~and~~during ~~retention~~the ~~expenses~~first ~~within~~quarter ~~SG&A~~ of ~~$2.8~~2011 ~~million~~as ~~related~~a toresult of our ~~definitive~~ ~~merger~~sales ~~agreement~~force ~~with Grifols~~expansion.

SGOur R&AD inwas ~~future~~$16.5 ~~periods~~million ~~will~~and be$16.3 ~~impacted~~million byfor ~~additional~~the ~~Grifols merger~~three ~~related~~months ~~transaction~~ended ~~expenses~~March 31, ~~such~~2011 asand ~~legal~~2010, ~~and~~respectively. As ~~accounting~~a ~~costs~~percentage asof ~~well as~~net ~~retention~~revenue, ~~expenses~~R&D aswas ~~discussed~~4.1% ~~further~~and in4.3% for the ~~section~~three ~~titled~~months ended March 31, ~~“Management’s Discussion~~2011 and ~~Analysis~~2010, respectively. R&D expenses are influenced by the timing of ~~Financial~~in-process ~~Condition~~projects and ~~Results~~the nature and extent of ~~Operations—Matters~~ ~~Affecting~~expenses ~~Comparability,”~~associated with these projects. Additional information regarding our research and development projects is included ~~elsewhere~~in our 2010 Form 10-K in ~~this Quarterly~~the ~~Report.~~section titled,

Our R&D was $18.7 million and $16.2 million for the three months ended September 30, 2010 and 2009, respectively. As a percentage of net revenue, R&D was 4.6% and 4.1% for the three months ended September 30, 2010 and 2009, respectively. R&D expenses are influenced by the timing of in-process projects and the nature and extent of expenses associated with these projects. Additional information regarding our research and development projects is included in our 2009 Form 10-K. There have been no significant changes to our new product candidates or life-cycle management projects since December 31, 2009, except that we have decided not to initiate an aerosol trial with plasma-derived Prolastin A1PI. We may resume development in the future of an aerosol formulation of A1PI if warranted with recombinant A1PI. The increase in R&D period over period was primarily driven by Plasmin aPAO Phase II start-up costs. We anticipate that R&D will increase in subsequent periods primarily as a result of increased Plasmin clinical trials related to aPAO and ischemic stroke.32

Our operating margin improved 630 basis points to 23.8% for the three months ended September 30, 2010 as compared to 17.5% for the three months ended September 30, 2009.

Total Other Non-Operating Expense, net

The primary component of our other non-operating expense, net, is interest expense, which amounted to $12.0 million and

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~~$19.0 million~~“Business—Research ~~for the three months ended September 30, 2010~~ and ~~2009, respectively~~Development. ~~Our~~” ~~weighted~~Projects ~~average interest~~related ~~rates~~to on our ~~outstanding~~product ~~debt,~~life-cycle ~~excluding~~management ~~amortization of deferred debt issuance costs~~ and ~~debt~~new ~~discount,~~product ~~were~~candidates ~~7.7%~~have ~~and~~not ~~5.1%~~changed ~~for~~materially ~~the~~since ~~three months ended September~~December 3031, 2010. We ~~and~~anticipate ~~2009,~~that ~~respectively. The~~R&D ~~reduction~~will increase in ~~interest~~subsequent ~~expense~~periods ~~was~~primarily ~~driven~~as bya ~~lower~~result ~~weighted~~of ~~average debt~~clinical ~~levels~~trial ~~during~~activities ~~the~~related ~~2010~~to ~~period. During~~Plasmin ~~the~~aPAO ~~three~~and ~~months~~ischemic ~~ended September 30~~stroke, ~~2010~~ and ~~2009,~~research ~~we capitalized interest costs~~ related to ~~the~~recombinant ~~construction~~product ~~of plant and equipment of $1.4 million and $0.6 million, respectively.~~development

Our operating margin increased 220 basis points to 23.1% for the three months ended March 31, 2011 as compared to 20.9% for the three months ended March 31, 2010.

Total Other Non-Operating Expense, net

The primary component of our other non-operating expense, net, is interest expense, which amounted to $11.8 million and $12.1 million for the three months ended March 31, 2011 and 2010, respectively. Our weighted average interest rates on our outstanding debt, excluding amortization of deferred debt issuance costs and debt discount, were 7.75% and 7.89% for the three months ended March 31, 2011 and 2010, respectively.

As discussed further in Note 10, “Commitments and Contingencies,” on December 13, 2010, a jury in the General Court of Justice, Superior Court Division, Wake County, North Carolina, rendered a verdict in the amount of $37.0 million in favor of PCA against TPR in a breach of contract claim, which was confirmed by the court in post trial motions. The jury verdict, if sustained, bears simple interest at 8% per statute from the date of breach. During the three months ended March 31, 2011, we recorded interest expense of $0.7 million within interest expense, net, in our unaudited interim consolidated income statement related to this judgment. We filed an appeal to the North Carolina Court of Appeals to review the judgment entered in this case.

Provision for Income Taxes

Our income tax provision was $2927.7 million and $1423.13 million for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively, resulting in effective income tax rates of 3433.73% and 2833.39%, respectively.

For the three months ended ~~September~~March 3031, ~~2010~~2011, our effective income tax rate is was lower than the U.S. statutory Federal income tax rate, ~~of 35%~~ primarily due to a ~~deduction for~~ domestic production ~~activities~~deduction ~~which,~~and ~~pursuant~~Federal toresearch ~~the Internal~~and ~~Revenue~~experimentation ~~Code,~~and ~~increased~~orphan todrug 9%clinical oftesting ~~qualified~~tax ~~production~~credits ~~activities income~~ for ~~taxable~~qualifying ~~years~~expenditures. For ~~beginning~~the inthree ~~2010~~months ~~from~~ended 6%March 31, ~~in 2009~~2010, ~~and~~our toeffective income tax ~~credits for~~rate ~~orphan~~was ~~drug~~lower ~~clinical~~than ~~testing~~the ~~expenditures~~U. ~~The~~S. ~~effective~~statutory Federal income tax rate, ~~for~~primarily ~~the~~due ~~three~~to ~~months~~a ~~ended~~domestic ~~September 30~~production deduction, ~~2010~~ ~~also~~which ~~benefited~~was ~~from~~statutorily ~~the~~increased ~~recognition~~to in9% ~~the~~for ~~third~~2010 ~~quarter~~and offuture ~~higher~~years ~~orphan drug tax credits~~ and ~~domestic~~orphan ~~production~~drug ~~activity~~clinical ~~deductions~~testing ~~reported on the 2009 Federal~~ tax ~~return~~credits ~~than~~for ~~estimated~~qualifying inexpenditures, ~~the~~partially ~~2009 financial statements. These reductions are principally~~ offset by state ~~income~~ tax expense.

For the three months ended September 30, 2009, our effective income tax rate is lower than the U.S. statutory Federal income tax rate, primarily due to credits for Federal Research and Experimentation and orphan drug clinical testing expenditures. These factors offset the effects of state taxes.

Following the completion of field work by the Internal Revenue Service examination team (IRS Exam) in connection with the audit of our 2005, 2006, and 2007 Federal income tax returns, the audit file was sent to the Joint Committee on Taxation (JCT) in accordance with requirements that the JCT review any refunds in excess of $2 million. The refund was attributable to additional tax credits for research and experimental expenditures and orphan drug expenditures claimed during the course of the audit. The JCT subsequently returned the audit file to the IRS Exam for additional fact finding. In lieu of engaging with the company in fact-finding efforts, IRS Exam issued a new audit report disallowing the tax credits for research and experimental expenditures and orphan drug clinical testing expenditures and issued a 30 Day Letter indicating that IRS Exam and the company could not reach agreement on the issue. The company has filed a timely protest to the adjustments proposed by IRS Exam and expects to favorably resolve this matter at the IRS Appeals level. We do not believe the outcome of this matter will have a material adverse impact on our consolidated financial condition or results of operations. It is reasonably possible that, within the next twelve months, we will resolve this matter with the IRS and JCT, which may increase or decrease the unrecognized tax benefits for all open tax years. The favorable resolution of this matter would increase earnings by approximately $4.7 million based on current estimates. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

Net Income

Our net income was $5655.15 million and $3545.83 million for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. The significant factors and events contributing to the change in our net income are discussed above.

Nine Months Ended September 30, 2010 as Compared to Nine Months Ended September 30, 2009

The following discussion and analysis contains information regarding our results of operations for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009:

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	Nine Months Ended
	September 30,						Change
	2010			2009			$			%
Net revenue:
Product	$	1,172,278		$	1,122,877		$	49,401		4.4	%
Other	18,510			20,219			(1,709		)	(8.5	)%
Total	1,190,788			1,143,096			47,692			4.2	%
Cost of goods sold	670,476			663,875			(6,601		)	(1.0	)%
Gross profit	520,312			479,221			41,091			8.6	%
Operating expenses:
SG&A	205,007			213,913			8,906			4.2	%
R&D	50,832			51,728			896			1.7	%
Total	255,839			265,641			9,802			3.7	%
Income from operations	264,473			213,580			50,893			23.8	%
Other non-operating (expense) income:
Interest expense, net	(34,915		)	(61,445		)	26,530			43.2	%
Merger termination fee	—			75,000			(75,000		)	100.0	%
Equity in earnings of affiliate	599			296			303			102.4	%
Total	(34,316		)	13,851			(48,167		)	347.8	%
Income before income taxes	230,157			227,431			2,726			1.2	%
Provision for income taxes	(81,143		)	(74,914		)	(6,229		)	(8.3	)%
Net income	$	149,014		$	152,517		$	(3,503	)	(2.3	)%
Earnings per common share:
Basic	$	1.21		$	76.21		$	(75.00	)	(98.4	)%
Diluted	$	1.16		$	1.62		$	(0.46	)	(28.4	)%
Financial measures:
Gross profit margin	43.7		%	41.9		%
Operating margin	22.2		%	18.7		%
Effective income tax rate	35.3		%	32.9		%

Net Revenue

The following table contains information regarding our net revenue:

	Nine Months Ended
	September 30,				Change
	2010		2009		$			%
Product net revenue:
Gamunex IGIV	$	642,693	$	618,637	$	24,056		3.9	%
Prolastin A1PI	258,149		230,193		27,956			12.1	%
Fraction V (Albumin and Plasmanate)	62,175		61,275		900			1.5	%
Factor VIII (Koate DVI)	40,304		31,465		8,839			28.1	%
Hyperimmunes	58,592		61,705		(3,113		)	(5.0	)%
Other	110,365		119,602		(9,237		)	(7.7	)%
Total product net revenue	1,172,278		1,122,877		49,401			4.4	%
Other net revenue	18,510		20,219		(1,709		)	(8.5	)%
Total net revenue	$	1,190,788	$	1,143,096	$	47,692		4.2	%

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	Nine Months Ended
	September 30,				Change
	2010		2009		$			%
U.S. product net revenue:
Gamunex IGIV	$	489,800	$	450,786	$	39,014		8.7	%
Prolastin A1PI	168,747		151,559		17,188			11.3	%
Factor V (Albumin and Plasmanate)	39,445		32,547		6,898			21.2	%
Factor VIII (Koate DVI)	12,629		9,072		3,557			39.2	%
Hyperimmunes	45,588		51,720		(6,132		)	(11.9	)%
Other product net revenue	49,531		50,237		(706		)	(1.4	)%
Total U.S. product net revenue	$	805,740	$	745,921	$	59,819		8.0	%
International product net revenue
Gamunex IGIV	$	152,893	$	167,851	$	(14,958	)	(8.9	)%
Prolastin A1PI	89,402		78,634		10,768			13.7	%
Factor V (Albumin and Plasmanate)	22,730		28,728		(5,998		)	(20.9	)%
Factor VIII (Koate DVI)	27,675		22,393		5,282			23.6	%
Hyperimmunes	13,004		9,985		3,019			30.2	%
Other product net revenue	60,834		69,365		(8,531		)	(12.3	)%
Total international product net revenue	$	366,538	$	376,956	$	(10,418	)	(2.8	)%

Our product net revenue was $1,172.3 million and $1,122.9 million for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $49.4 million, or 4.4%. The increase consisted of higher volumes of $41.8 million and improved pricing of $7.6 million, including the effects of unfavorable foreign exchange of $3.6 million.

The $24.1 million increase in our Gamunex net revenue consisted of higher volumes of $27.4 million, partially offset by lower pricing of $3.3 million, including the effects of unfavorable foreign exchange of $1.0 million. We experienced higher Gamunex volumes of $51.6 million in the U.S. and Europe, which were partially offset by lower volumes of $24.2 million in Canada and other international regions. We experienced competitive pressures in Europe during 2009, which negatively impacted our Gamunex volumes during the prior year period. Our 2010 Canadian volumes were negatively impacted by lower commercial sales to CBS as a result of their multi-source strategy as discussed above. Our 2010 Gamunex volumes in other international regions were negatively impacted by competitive pressures, our ongoing internal investigation related to potential FCPA violations and tensions with Iran, which are discussed elsewhere in this Quarterly Report. We experienced lower pricing of $7.4 million in Europe and other international regions resulting from country mix as well as competitive pressures, partially offset by higher pricing of $4.1 million in the U.S. and Canada. Europe pricing included the effects of unfavorable foreign exchange of $1.0 million. Canadian pricing benefited from the annual price escalation, effective April 1, associated with our commercial contracts with CBS and Hema Quebec. As indicated elsewhere in this Quarterly Report, the recently enacted healthcare reform legislation increased the size of the Medicaid rebates paid by drug manufacturers from 15.1% to 23.1% of the AMP. We have also experienced higher Medicaid utilization and GPO administrative fees during 2010. Although we have experienced a favorable pricing environment in prior periods largely as a result of supply constraints, we expect pricing to be relatively flat given the current balance of supply and demand.

The $28.0 million increase in our Prolastin net revenue consisted of higher volumes of $19.3 million and improved pricing of $8.7 million, including $2.7 million of unfavorable foreign exchange. The increase in volumes was driven by higher volumes of $18.7 million in Europe and the U.S., where we experienced net patient gains during 2010. The increase in pricing was driven by higher pricing of $12.8 million in the U.S. and Canada, partially offset by lower pricing in Europe as a result of the effects of unfavorable foreign exchange. Our U.S. pricing was favorably impacted by price increases implemented in both the third quarter of 2010 and 2009. Our 2009 Canadian pricing was impacted by a negative pricing adjustment of $2.3 million during the 2009 first quarter related to a pricing dispute. Prolastin volumes are largely a function of our ability to identify and enroll new patients as compared to the number of patients lost due to attrition and competition. Our ability to grow our European volumes will also depend on our ability to obtain appropriate reimbursement on a country-by-country basis.

Our Fraction V product category consists of albumin and Plasmanate, with albumin representing the majority of sales in the category. The $0.9 million increase in Fraction V net revenues was driven by higher revenues of $10.1 million in the U.S., Canada, and Europe, partially offset by lower revenues of $9.2 million in other international regions. The reduction in revenues in other international regions resulted from opportunistic sales during 2009, which did not recur during 2010.

The $8.8 million increase in Factor VIII (Koate DVI) net revenue was driven by higher volumes of $12.3 million in the U.S. and other international regions as a result of supply availability and opportunistic sales. The benefit of the higher volumes was

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partially offset by lower pricing of $3.5 million, primarily due to country mix in other international regions. The $3.1 million decrease in hyperimmune revenue was driven by lower volumes of $10.3 million in the U.S. due to a customer systems issue, partially offset by higher U.S. pricing of $4.2 million and increased sales of $3.0 million in Canada and other international regions.

Our other product net revenue consists primarily of revenue related to our contract manufacturing agreements for IGIV and Fraction V with the two Canadian blood system operators, CBS and Hema Quebec, intermediate products, Thrombate III (human), and contracted PPF powder. The $9.2 million decrease in our other product net revenue was primarily driven by lower contract manufacturing IGIV and Fraction V volumes of $5.9 million due to CBS’ multi-source strategy as well as lower intermediate product sales of $2.8 million and lower PPF powder sales of $4.6 million, partially offset by higher Thrombate III sales of $3.5 million. Sales of our contracted PPF powder are expected to continue to decline in accordance with the related agreement and intermediate product revenues are opportunistic and may be lower in subsequent periods.

Additional information regarding our revenue expectations for the remainder of 2010 is included in our quarter over quarter discussion and analysis and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview,” included elsewhere in this Quarterly Report.

Cost of Goods Sold and Gross Profit

Our gross profit was $520.3 million and $479.2 million for the nine months ended September 30, 2010 and 2009, respectively, representing gross margin of 43.7% and 41.9%, respectively. In general, our gross margin and cost of goods sold are impacted by the volume and pricing of our finished products, our raw material costs, production mix, yield, and cycle times, as well as our production capacities and normal production shut-downs, and the timing and amount of release of finished product.

Our cost of goods sold was $670.5 million, or 56.3% of net revenue, for the nine months ended September 30, 2010, as compared to $663.9 million, or 58.1% of net revenue, for the nine months ended September 30, 2009. Our cost of goods sold benefited from lower TPR unabsorbed infrastructure and start-up costs of $28.9 million during the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. Our cost of goods sold also benefited from lower costs of production of $18.0 million during the 2010 period primarily driven by production mix associated with the conversion to our next generation A1PI product, Prolastin-C A1PI, as well as source mix. Our cost of goods sold was negatively impacted by $40.4 million of inventory impairments during the nine months ended September 30, 2010, an increase of $17.1 million compared to the same prior year period, primarily driven by higher provisions for work in process inventories. Project spending during the nine months ended September 30, 2010 was $31.2 million as compared to $22.2 million during the same prior year period, driven by spending related to our new fractionation facility, Koate reengineering, and Thrombate III projects. We experienced higher costs of $27.4 million associated with increased volumes during the nine months ended September 30, 2010 as compared to the same prior year period.

The largest component of our cost of goods sold is the cost of source plasma, which represented greater than 50% of our cost of goods sold for the periods presented. The overall cost of source plasma is impacted by the collection cost per liter, including donor fees, labor, soft goods, facility costs, testing, unabsorbed TPR infrastructure and start-up costs, the cost of plasma purchased from third parties, and variability in protein yields, among other factors. Our internal cost per liter of plasma, including unabsorbed TPR infrastructure and start-up costs decreased 4.1% for the nine months ended September 30, 2010 as compared to the same prior year period, primarily driven by lower unabsorbed TPR infrastructure and start-up costs and higher TPR plasma collections. Our acquisition cost per liter of third party plasma decreased 1.3% during the nine months ended September 30, 2010 as compared to the same prior year period. Due to our long manufacturing cycle times, which range from 100 days to in excess of 400 days, the cost of plasma is not expensed through cost of goods sold until a significant period of time subsequent to its acquisition.

Additional information regarding our gross margin expectations for the remainder of 2010 is included in our quarter over quarter discussion and analysis and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview,” included elsewhere in this Quarterly Report.

Operating Expenses

Our SG&A was $205.0 million and $213.9 million for the nine months ended September 30, 2010 and 2009, respectively, a decrease of $8.9 million, or 4.2%. The decrease in SG&A was driven by lower share-based compensation expense of $23.9 million as discussed previously, the absence of $11.0 million of legal and retention expenses related to our terminated merger agreement with CSL, lower donations of $8.2 million, lower legal expenses of $2.5 million related to our internal FCPA investigation, and the absence of $5.7 million of management fees to Talecris Holdings LLC as a result of the termination of the management agreement at the time of our initial public offering. These items were partially offset by higher sales and marketing expenses of $16.0 million during the

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2010 period as a result of our sales force expansion, marketing of our CIDP indication, Prolastin patient identification efforts, launch of Prolastin-C A1PI, as well as support for other products. In addition, we incurred transaction related expenses of $14.1 million and retention expenses within SG&A of $2.8 million related to our definitive merger agreement with Grifols. During the nine months ended September 30, 2010, our SG&A included $2.9 million of unfavorable foreign exchange as compared to favorable foreign exchange of $3.3 million during the same prior year period. As compared to the nine months ended September 30, 2009, our 2010 SG&A also reflects incremental new public company expenses.

SG&A in future periods will be impacted by additional Grifols merger related transaction expenses such as legal and accounting costs as well as retention expenses as discussed further in the section titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Matters Affecting Comparability,” included elsewhere in this Quarterly Report.

Our R&D was $50.8 million and $51.7 million for the nine months ended September 30, 2010 and 2009, respectively. As a percentage of net revenue, R&D was 4.3% and 4.5% for the nine months ended September 30, 2010 and 2009, respectively. R&D expenses are influenced by the timing of in-process projects and the nature and extent of expenses associated with these projects. Additional information regarding our research and development projects is included in our 2009 Form 10-K. There have been no significant changes to our new product candidates or life-cycle management projects since December 31, 2009, except that we have decided not to initiate an aerosol trial with plasma-derived Prolastin A1PI. We may resume development in the future of an aerosol formulation of A1PI if warranted with recombinant A1PI. We anticipate that R&D will increase in subsequent periods primarily as a result of increased Plasmin clinical trials related to aPAO and ischemic stroke.

Our operating margin increased 350 basis points to 22.2% for the nine months ended September 30, 2010 as compared to 18.7% for the nine months ended September 30, 2009.

Total Other Non-Operating (Expense) Income, net

The primary recurring component of our other non-operating (expense) income, net, is interest expense, which amounted to $35.9 million and $59.5 million for the nine months ended September 30, 2010 and 2009, respectively. The reduction in interest expense was driven by lower weighted average debt levels during the 2010 period. Our weighted average interest rates on our outstanding debt, excluding amortization of deferred debt issuance costs and debt discount, were 7.8% and 5.4% for the nine months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2010 and 2009, we capitalized interest costs related to the construction of plant and equipment of $3.7 million and $1.4 million, respectively.

Our total other non-operating income, net, for the nine months ended September 30, 2009 includes the CSL merger termination fee of $75.0 million as discussed previously.

Provision for Income Taxes

Our income tax provision was $81.1 million and $74.9 million for the nine months ended September 30, 2010 and 2009, respectively, resulting in effective income tax rates of 35.3% and 32.9%, respectively.

For the nine months ended September 30, 2010, our effective income tax rate is higher than the U.S. statutory Federal income tax rate, primarily due to the requirement for income tax purposes to capitalize transaction costs related to our definitive merger agreement with Grifols and the effects of state taxes. These items were partially offset by the increased deduction allowed with respect to domestic production activities and tax credits for orphan drug clinical testing expenditures and a benefit recognized in the third quarter from higher orphan drug tax credits and domestic production activity deductions reported on the 2009 Federal tax return than estimated in the 2009 financial statements.

For the nine months ended September 30, 2009, our effective income tax rate is lower than the U.S. statutory Federal income tax rate, primarily due to credits for Federal Research and Experimentation and orphan drug clinical testing expenditures and the deduction of previously capitalized transaction costs related to our terminated merger agreement with CSL. These factors offset the effects of state taxes.

Net Income

Our net income was $149.0 million and $152.5 million (including the CSL merger termination fee, net of tax, of $48.8 million) for the nine months ended September 30, 2010 and 2009, respectively. The significant factors and events contributing to the

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change in our net income are discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Analysis

The following table and subsequent discussion and analysis contain information regarding our cash flows ~~for the nine months ended September 30, 2010 and 2009~~:

	Nine Months Ended
	September 30,
	2010			2009
Operating activities:
Net income	$	149,014		$	152,517
Non-cash items	63,970			79,857
Changes in operating assets and liabilities, excluding the effects of business acquisitions	(60,464		)	(33,650		)
Net cash provided by operating activities	$	152,520		$	198,724
Investing activities:
Purchases of property, plant, and equipment	$	(91,691	)	$	(36,291	)
Business acquisitions, net of cash acquired	—			(27,113		)
Other	507			634
Net cash used in investing activities	$	(91,184	)	$	(62,770	)
Financing activities:
Repayments under Revolving Credit Facility, net	$	—		$	(112,097	)
Repayments of borrowings under term loan	—			(5,250		)
Repayments of capital lease obligations	(553		)	(407		)
Financing transaction costs	(394		)	—
Proceeds from exercises of stock options	19,251			—
Excess tax benefits from share-based payment arrangements	10,836			1,437
Repurchases of common stock from employees	(4,917		)	(4,132		)
Net cash provided by (used in) financing activities	$	24,223		$	(120,449	)

AtTable September 30, 2010, our cash and cash equivalents totaled $150.5 million. We use our available cash balances to repay amounts outstanding under our Revolving Credit Facility. We deposit any excess cash amounts into an overnight investment account. At September 30, 2010, we had unused available borrowing capacity of ~~$322.6 million under our Revolving Credit Facility.~~Contents

We have financed our operations through a combination of equity funding and debt financing, and through internally generated funds. We expect our cash flows from operations combined with our cash balances and availability of our Revolving Credit Facility to provide sufficient liquidity to fund our current obligations, projected working capital requirements, and capital expenditures for at least the next twelve months.

	Three Months Ended
	March 31,
	2011			2010
Operating activities:
Net income	$	55,457		$	45,339
Non-cash items	20,151			16,400
Changes in operating assets and liabilities	(35,974		)	(31,069		)
Net cash provided by operating activities	$	39,634		$	30,670

Investing activities:
Purchases of property, plant, and equipment	$	(53,266	)	$	(17,690	)
Other	190			174
Net cash used in investing activities	$	(53,076	)	$	(17,516	)

Financing activities:
Repayments of capital lease obligations	(205		)	(176		)
Financing transaction costs	—			(78		)
Proceeds from exercises of stock options	1,314			2,937
Repurchases of common stock from employees	(2,199		)	(4,917		)
Excess tax benefits from share-based payment arrangements	1,077			4,590
Net cash (used in) provided by financing activities	$	(13	)	$	2,356

At March 31, 2011, our cash and cash equivalents, which have primarily been deposited in an overnight investment account, totaled $185.3 million. At March 31, 2011, we had no amounts drawn under our revolving credit facility. At March 31, 2011, $8.7 million was being utilized for standby letters of credit and we had unused available borrowing capacity of $316.3 under our revolving credit facility. Standby letters of credit totaling approximately $2.4 million were being used as security for utilities, insurance, and third party warehousing and a standby letter of credit totaling approximately $6.3 million was issued to our surety as partial collateral for a $25.0 million appeal bond related to the PCA judgment, which is discussed elsewhere in this Quarterly Report.

We expect our cash flows from operations combined with our cash balances to provide sufficient liquidity to fund our current obligations, projected working capital requirements, and capital expenditures for at least the next twelve months. Our current revolving credit facility ends on December 6, 2011. We believe that we will be able to negotiate and enter into a new revolving credit facility with terms and conditions similar to or better than our current facility given our improved credit profile.

Cash Flows from Operating Activities

We generated net cash flows from operating activities of $~~152~~39.56 million for the ~~nine~~three months ended ~~September~~ March 3031, ~~2010~~2011 as compared to $~~198~~30.7 million for the ~~nine~~three months ended ~~September~~ March 3031, ~~2009~~2010. Our net income was $~~149~~55.05 million and $~~152~~45.53 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, respectively. ~~The~~Our ~~net~~ non-cash ~~generated~~operating ~~from~~items ~~our~~were ~~operating~~$20.2 ~~activities~~million ~~during~~and $16.4 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~ ~~includes~~2011 ~~the~~and ~~$75~~2010, respectively.0 The ~~million~~following ~~(approximately~~significant ~~$48.8~~non-cash ~~million~~items ~~after~~impacted ~~tax)~~the ~~payment we~~comparability ~~received~~of ~~from~~the ~~CSL~~net ascash aprovided ~~result~~by ofour ~~the~~operating ~~termination~~activities ofduring the ~~definitive~~periods ~~merger agreement~~presented.

· Our ~~non-cash~~depreciation ~~operating items were $64.0 million~~ and ~~$79.9~~amortization ~~million~~expense for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009,~~2010 ~~respectively~~was $10. ~~The following~~0 ~~significant~~million ~~non-cash~~and ~~items~~$8.1 ~~impacted~~million, ~~the comparability of the net cash provided by our operating activities during the periods presented~~respectively.

· Our ~~depreciation~~share-based ~~and~~compensation ~~amortization~~ expense for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 was $262.52 million and $217.42 million, respectively. The ~~increase~~ decrease in ~~depreciation~~share-based ~~and~~compensation ~~amortization~~in ~~expense~~2011 ~~reflects~~was ~~our~~driven ~~cumulative capital~~by ~~investments,~~the ~~primarily~~final ~~related~~vesting toof ~~our~~awards ~~manufacturing~~under ~~facilities~~the 2005 Stock Option and ~~TPR~~Incentive Plan on April 1, 2010 and the majority of the awards under the 2006 Restricted Stock Plan on March 31, 2010.

· ~~Our~~During ~~share-based~~the ~~compensation~~three ~~expense~~months ~~for~~ended March 31, 2011 and 2010, our deferred income taxes decreased $5.0 million and $2.9 million, respectively. During the ~~nine~~ three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, ~~was~~we recognized excess tax benefits related to share-based compensation of $141.21 million and $4.6 million, respectively.

42· We initiated a foreign currency hedging program in the first quarter of 2011. We recognized a loss of $2.6 million in our unaudited interim consolidated income statement related to fair value hedges during the three months ended March 31, 2011. In addition, we recognized an unrealized loss of approximately $1.0 million ($0.6 million after tax) in other comprehensive income related to cash flow hedges during the three months ended March 31, 2011.

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~~$39.6 million, respectively.~~ The ~~decrease~~changes in ~~share-based~~ ~~compensation~~our ~~expense~~operating ~~during~~assets ~~2010 was primarily driven by the final vesting of awards under the 2005 Stock Option~~ and ~~Incentive Plan on April 1~~liabilities, ~~2010~~ ~~and the majority of the awards under the 2006 Restricted Stock Plan on March 31~~net, ~~2010. In~~ ~~addition,~~were adriven ~~combination~~by ~~of an adjustment during~~ the ~~2010~~following first quarter as a result of actual award forfeitures being higher than initially estimated as well as the acceleration of certain option awards to our Chairman and Chief Executive Officer during the 2009 third quarter further impacted the comparability of share-based compensation expense between the two periods.items:

· ~~Amortization~~Our ~~of deferred~~accounts ~~compensation~~receivable, ~~related~~net, toincreased ~~special recognition bonus awards was~~ $117.9 0 million and $431.43 million ~~for~~during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~ 2010, respectively. WeAccounts ~~made~~receivable, net, balances are influenced by the ~~final special~~timing ~~recognition~~of ~~bonus~~net ~~award~~revenue ~~payments~~and ~~during~~customer collections. Our days sales outstanding (DSO) were 34 and 40 days for the three months ended March 31, 2011 and 2010, respectively. Our international sales terms generally range from 30 to 150 days due to industry and national practices outside of the U.S., which can impact our DSO results. We calculate DSO as our period end accounts receivable, net, divided by our prior three months’ net sales, multiplied by 90 days. Our calculation of DSO may not be consistent with similar calculations performed by other companies.

· ~~During~~Our inventories increased $8.8 million and $3.1 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, ~~our~~respectively. Our ~~deferred~~inventories ~~income~~fluctuate ~~taxes~~based ~~decreased~~upon ~~$26.0~~our ~~million~~plasma collections, production mix and ~~$8.4 million~~cycle times, ~~respectively. During~~production ~~the~~capacities, ~~nine months~~normal ~~ended~~production ~~September 30~~shut-downs, ~~2010~~finished ~~and~~product ~~2009~~releases, wetargeted ~~recognized~~safety ~~excess~~stock ~~tax benefits~~levels, ~~related~~and demand for our products. Our biological manufacturing processes result in relatively long inventory cycle times ranging from 100 days to ~~share-based~~in ~~compensation~~excess of ~~$10.8~~400 ~~million~~days ~~and~~for ~~$1.4~~some ~~million, respectively. The~~specialty ~~decrease~~plasma in ~~the deferred~~addition ~~tax~~to ~~asset~~a ~~during~~required ~~the~~60 ~~2010~~day pre-production holding period isfor ~~primarily~~plasma. Consequently, ~~driven~~we byhave ~~the~~significant ~~effects~~investment in raw material and work-in-process inventories for extended periods, and correspondingly, lower levels of ~~stock~~ ~~option~~finished ~~exercises~~goods inventories on hand.

~~The~~· Our ~~changes~~prepaid inexpenses ~~our operating~~and other assets decreased $11.3 million and ~~liabilities~~$7.8 million during the three months ended March 31, ~~net~~2011 ofand ~~effects~~2010, ~~from~~respectively. The ~~business~~decrease ~~acquisitions~~for the three months ended March 31, ~~were~~ 2011 was primarily driven by ~~the~~a ~~following~~decrease in prepaid income taxes of $14.7 million, partially offset by other items:. The decrease for the three months ended March 31, 2010 was primarily driven by a decrease in prepaid income taxes of $7.4 million.

· Our ~~accounts~~operating ~~receivable,~~liabilities ~~net,~~decreased ~~increased~~ $3621.5 million and $174.35 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, respectively. ~~Accounts receivable,~~Our ~~net,~~liabilities ~~balances~~fluctuate ~~are~~as ~~influenced~~a byresult of our cash management strategies and the ~~timing~~varying due dates of ~~net~~accounts ~~revenue~~payable, accrued expenses, and ~~customer~~ ~~collections~~other obligations. ~~Our~~The ~~days~~decrease ~~sales outstanding~~for ~~(DSO)~~the ~~were~~three 38months ~~days~~ended ~~at both September~~March 3031, ~~2010~~2011 ~~and~~was ~~2009,~~ primarily driven by anlower ~~increase~~accounts inpayable ~~international~~obligations ~~accounts~~of ~~receivable~~$11.5 million, lower accrued payroll, bonuses and ~~timing~~ employee benefits of ~~payments~~$25.4 million primarily due to the payment of accrued 2010 performance bonuses, and lower accrued goods and services of $15.0 million. ~~Our~~These ~~international~~items ~~sales terms~~were ~~generally~~partially ~~range~~offset ~~from~~by 30higher tointerest ~~150~~payable ~~days~~obligations of $11.6 million associated with our 7.75% Notes due to ~~industry~~the timing of contractual payments, higher taxes payable obligations of $10.8 million, and ~~national practices~~other ~~outside~~items of ~~the~~$6.6 Umillion primarily related to our foreign currency derivative liability of $3.S.6 million, which ~~can~~is ~~impact~~discussed ~~our~~elsewhere ~~DSO~~in ~~results~~this Quarterly Report. We The ~~calculate~~decrease ~~DSO~~for asthe ~~our~~three ~~period~~months ~~end~~ended March 31, 2010 was primarily driven by lower accounts ~~receivable~~ payable obligations of $12.4 million and lower accrued payroll, ~~net~~bonuses, ~~divided~~and employee benefits of $23.1 million primarily due to the payment of accrued 2009 performance bonuses. These items were partially offset by an increase in interest payable obligations of $11.6 million associated with our ~~prior~~7.75% ~~three~~Notes ~~months’~~due ~~net~~to ~~sales~~the timing of contractual payments, ~~multiplied~~as bywell ~~90 days~~as higher taxes payable obligations of $5.4 million. ~~Our~~Further, ~~calculation~~our Medicaid, commercial rebates, and chargeback obligations increased $4.0 million during the three months ended March 31, 2010 primarily as a result of ~~DSO~~the ~~may~~healthcare ~~not~~reform ~~be consistent~~legislation ~~with~~which ~~similar~~increased ~~calculations~~the ~~performed~~rate byof ~~other~~AMP ~~companies~~used to compute Medicate rebates charged to drug manufacturers and higher Medicaid utilization.

· Our inventories increased $30.0 million and $52.1 million during the nine months ended September 30, 2010 and 2009, respectively. Our inventories fluctuate based upon our plasma collections, production mix and cycle times, production capacities, normal production shut-downs, finished product releases, targeted safety stock levels, and demand for our products. Our biological manufacturing processes result in relatively long inventory cycle times ranging from 100 days to in excess of 400 days for some specialty plasma in addition to a required 60 day pre-production holding period for plasma. Consequently, we have significant investment in raw material and work-in-process inventories for extended periods.

· Our prepaid expenses and other assets (increased) decreased $(1.7) million and $16.8 million during the nine months ended September 30, 2010 and 2009, respectively. The decrease for the nine months ended September 30, 2009 was primarily driven by a decrease in prepaid income taxes of $8.2 million and prepaid plasma of $10.6 million. The decrease in prepaid plasma resulted from the reclassification of prepaid plasma to raw material inventories as a result of plasma deliveries from International BioResources, L.L.C. and affiliated entities (IBR) upon plasma collection center licensure, for which we subsequently acquired the plasma collection centers.

· Our operating liabilities increased $7.8 million and $19.0 million during the nine months ended September 30, 2010 and 2009, respectively. Our liabilities fluctuate as a result of the varying due dates of accounts payable, accrued expenses, and other obligations. The increase for the nine months ended September 30, 2010 was primarily driven by higher accrued goods and services of $23.3 million primarily as a result of transaction costs related to our definitive merger agreement with Grifols and higher interest payable obligations of $8.6 million associated with our 7.75% Notes due to the timing of contractual payments, among other items. These items were partially offset by lower accounts payable obligations of $31.3 million due to our cash management strategy and lower accrued payroll, bonuses, and employee benefits of $7.3 million primarily due to the payment of accrued 2009 corporate performance bonuses and the final special recognition bonus payment in March 2010. The increase for the nine months ended September 30, 2009 was primarily driven by higher accounts payable obligations of $4.8 million due to our cash management strategies, higher Medicaid, commercial rebates, and chargebacks of $10.7 million, and higher taxes payable of $7.9 million. These items were partially offset by a reduction in the recorded amount of our interest rate swaps and caps of $9.3 million.

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Cash Flows from Investing Activities

Our capital expenditures were $9153.73 million and $3617.37 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, respectively. Our capital expenditures reflect investments in our facilities to support a platform for future growth and efficiency improvements, including compliance enhancements, general infrastructure upgrades, capacity expansions, and new facilities. ~~Our capital expenditures also reflect investments in our TPR infrastructure to support our plasma collection efforts.~~ The increase in ~~our~~ capital ~~spending~~ ~~reflects higher~~ spending ~~related~~period toover ~~reliability/compliance initiatives,~~period aswas ~~well~~driven asby our ~~initial~~capital ~~investments~~spending ~~in our new fractionation strategic~~ program, ~~partially~~which ~~offset by lower TPR spending. Information regarding our strategic capital programs~~ is ~~included~~discussed elsewhere in ~~“Management’s~~this ~~Discussion~~Quarterly ~~and~~Report ~~Analysis of Financial Condition~~ and ~~Results of Operations—Liquidity and Capital Resources”~~ in our ~~2009~~ ~~Form 10-K. We expect that our capital spending over the next five years, beginning in~~ 2010, ~~to be in the range of $800 million to $850 million on a cumulative basis, an increase of $50 million as compared to the range of $750 million to $800 million disclosed in our 2009~~ Form 10-K.

~~Our~~As ~~cash~~indicated ~~flows used~~ in ~~investing~~our ~~activities~~2010 ~~for~~Form 10-K, ~~the~~we ~~nine~~have ~~months~~embarked ~~ended~~on ~~September 30,~~a ~~2009 also~~substantial ~~include~~capital ~~various~~plan, ~~other~~which ~~cash~~we ~~outflows~~anticipate ~~for~~to be in the ~~development~~range of ~~our~~$750 ~~plasma collection~~million ~~center~~to ~~platform,~~$800 ~~including~~million ~~the~~on ~~purchase~~a ~~price~~cumulative ofbasis ~~ten~~from ~~plasma collection~~2011 ~~centers~~through ~~acquired~~2015, ~~from~~excluding ~~IBR~~capitalized ~~and~~interest. Given ~~loans~~the ~~and~~nature ~~other~~of ~~advances~~our ~~made~~capital spending, we anticipate our capital spending to ~~third-party plasma~~peak ~~suppliers,~~to ~~net~~a range of ~~repayments~~$250 million to $270 million in 2011, ~~for~~excluding ~~the~~capitalized ~~development~~interest. Actual ofspending ~~plasma~~will ~~collection centers~~vary ~~for~~based ~~which~~upon wechanges ~~had~~to the ~~option~~timing toand ~~purchase~~scope ~~under~~of ~~certain~~planned ~~conditions. The~~projects, ~~IBR~~including ~~center~~project ~~acquisition~~deferral ~~program~~or ~~was completed~~acceleration, inas ~~December 2009~~well as new opportunities.

Cash Flows from Financing Activities

During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, we received proceeds of $191.3 million from the exercise of 2249,989~~,023~~ stock options. In addition, we repurchased 246,823 shares of our common stock from employees for $4.9 million to settle their withholding tax obligations upon vesting of restricted stock. During the nine months ended September 30, 2010, we recognized excess tax benefits related to share-based compensation of $10.8 million.

During the nine months ended September 30, 2009, we repurchased 248,512 shares of our common stock from employees for $4.1 million to settle their withholding tax obligations upon vesting of restricted stock. In addition, we recognized excess tax benefits related to share-based compensation of $1.4 million. During the nine months ended September 30, 2009, we made contractual principal payments of $5.3 million under our First Lien Term Loan, which was repaid and terminated during the fourth quarter of 2009 with the proceeds from our IPO and refinancing transactions.35

~~Outstanding~~Table ~~amounts~~of ~~under our Revolving Credit Facility fluctuate based upon our business needs.~~Contents

options. In addition, we repurchased 82,067 shares of our common stock from employees for $2.2 million to settle their withholding tax obligations upon vesting of restricted stock. During the three months ended March 31, 2011, we recognized excess tax benefits related to share-based compensation of $1.1 million.

During the three months ended March 31, 2010, we received proceeds of $2.9 million from the exercise of 667,043 stock options. In addition, we repurchased 246,823 shares of our common stock from employees for $4.9 million to settle their withholding tax obligations upon vesting of restricted stock. During the three months ended March 31, 2010, we recognized excess tax benefits related to share-based compensation of $4.6 million.

Outstanding amounts under our revolving credit facility fluctuate based upon our business needs.

Credit Ratings

There were no changes to our credit ratings during the ~~nine~~first ~~months ended~~quarter ~~September 30,~~of ~~2010~~2011. Our credit ratings as of ~~September~~March 3031, ~~2010~~2011 were as follows:

		Standard &
	Moody’s	Poor’s
7.75% Notes	B1	BB
Corporate Family Rating	Ba3	BB

Factors that can affect our credit ratings and outlook include changes in our operating performance, financial position, business strategy, and the overall economic environment for the plasma-derived products business. If a downgrade of our credit ratings or outlook were to occur, it could adversely impact, among other things, our future borrowing costs and access to capital markets.

Off Balance Sheet Arrangements

As of ~~September~~March 3031, ~~2010~~2011, we do not have any off-balance sheet arrangements that are material or reasonably likely to be material to our consolidated financial position or results of operations.

Related Party Transactions

We consider ~~Cerberus~~Centric to be a related party during the periods presented. In addition, ~~Ampersand~~until January 21, ~~and~~2010, ~~Centric~~a majority of our common stock was owned by Talecris Holdings, LLC, therefore, we consider Talecris Holdings, LLC to be a related ~~parties~~party during ~~certain periods~~the ~~presented~~first quarter of 2010. ~~Additional information~~Talecris ~~regarding~~Holdings, ~~transactions~~LLC is owned by (i) Cerberus-Plasma Holdings LLC, the managing member of which is Cerberus Partners L.P., and (ii) limited partnerships affiliated with Ampersand Ventures. Substantially all rights of management and control of Talecris Holdings, LLC are held by Cerberus-Plasma Holdings LLC. As of March 31, 2011, Talecris Holdings, LLC owned approximately 48.6% of our outstanding common stock. Additional information regarding related ~~parties~~party transactions is included in Note 8, 9 “Related Party Transactions,” included elsewhere in this Quarterly Report.

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NON-GAAP FINANCIAL MEASURES

WeIn ~~believe~~the ~~that~~section atitled, ~~meaningful~~“Management’s ~~analysis~~Discussion and Analysis of ~~our~~Financial ~~operating~~Condition ~~performance~~and ~~is enhanced~~Results byof ~~the~~Operations—Highlights,” ~~use~~we have presented adjusted net income and diluted earnings per share amounts. Both of ~~EBITDA,~~these measures are considered to be non-GAAP financial measures. In calculating adjusted ~~EBITDA~~net income and diluted earnings per share amounts for the first quarter of 2011, aswe ~~defined~~have inpresented a quantification of the impact to our ~~Revolving Credit~~financial ~~Facility,~~results for Grifols merger-related expenses and ~~Consolidated~~interest ~~Cash~~expense ~~Flow,~~associated aswith ~~defined~~the judgment in ~~our~~favor 7of PCA.~~75%~~ No ~~Notes~~adjustments were made to the first quarter 2010 U.S. GAAP financial results.

~~Both~~We ~~adjusted~~believe ~~EBITDA and Consolidated Cash Flow are financial measures~~ that ~~are not defined by U.S. GAAP. A non-GAAP financial measure is~~ a ~~numerical~~meaningful ~~measure~~analysis of aour ~~company’s~~operating ~~financial~~ performance ~~that (i) excludes amounts, or~~ is ~~subject~~also toenhanced ~~adjustments~~by ~~that have~~ the ~~effect~~use of ~~excluding amounts~~EBITDA, ~~that~~adjusted ~~are~~EBITDA ~~included in a comparable measure calculated and presented in accordance with U.S. GAAP in the statement of operations, such~~ as ~~net~~defined income, or the statement of cash flows, such as operating cash flow, or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measures so calculated and presented. The non-GAAP financial measures that we use should not be considered a substitute for any performance measure determined in ~~accordance~~ ~~with U.S. GAAP. We do not rely solely on these non-GAAP financial measures and also consider~~ our ~~U.S. GAAP~~revolving ~~results. Because~~credit ~~the non-GAAP financial measures that we use are not calculated in the same manner by all companies~~facility, ~~they may not be comparable to similarly titled measures used by other companies. To properly~~ and ~~prudently~~ ~~evaluate~~Consolidated ~~our~~Cash ~~business,~~Flow we encourage you to also review our U.S. GAAP unaudited interim consolidated financial statements included elsewhere in this Quarterly Report, and not to rely on any single financial measure to evaluate our business. These non-GAAP financial measures have material limitations as ~~analytical~~defined ~~tools and you should not consider these measures~~ in ~~isolation, or as a substitute for analysis of~~ our ~~results~~ ~~as reported under U~~7.S.75% ~~GAAP~~Notes. ~~Additional information regarding our use of non-GAAP financial measures is included in our 2009 Form 10-K.~~

InEBITDA, ~~addition~~adjusted EBITDA, and Consolidated Cash Flow are financial measures that are not defined by U.S. GAAP. A non-GAAP financial measure is a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the ~~adjustments~~effect weof ~~make~~excluding amounts, that are included in ~~computing~~a ~~adjusted~~comparable ~~EBITDA~~measure calculated and ~~Consolidated~~ ~~Cash~~presented ~~Flow~~in accordance with U.S. GAAP in the statement of operations, wesuch ~~also~~as ~~consider~~net income, or the ~~impact~~statement of ~~other~~cash ~~items~~flows, ~~when evaluating~~such ~~our~~as operating ~~performance. Certain~~cash offlow, ~~these~~or ~~items~~(ii) includes amounts, ~~which~~or ~~impact~~is subject to adjustments that have the ~~comparability~~effect of ~~our~~including ~~financial results~~amounts, that are ~~included~~excluded infrom the ~~section~~comparable ~~titled~~measures ~~“Management’s~~so ~~Discussion~~calculated and ~~Analysis~~ ofpresented. The ~~Financial~~non-GAAP ~~Condition~~financial ~~and~~measures ~~Results~~that ofwe ~~Operations—Matters~~use ~~Affecting Comparability.”~~should not be considered a

~~In the following table, we have presented a reconciliation of adjusted EBITDA and Consolidated Cash Flow to the most comparable U.S. GAAP measure, net income:~~36

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net income	$	56,052		$	35,810		$	149,014		$	152,517
Interest expense, net (a)	11,529			19,587			34,915			61,445
Income tax provision (b)	29,729			14,125			81,143			74,914
Depreciation and amortization (c)	9,631			7,482			26,482			21,403
EBITDA	106,941			77,004			291,554			310,279
Management fees (d)	—			1,958			—			5,715
Non-cash share-based compensation expense (e)	3,619			19,454			14,203			39,625
Special recognition bonus expense (f)	203			1,489			2,019			4,852
Equity in earnings of affiliate (g)	(273		)	(112		)	(599		)	(296		)
Merger-related expenses (h)	9,485			1,573			17,908			8,310
Other (i)	883			1,126			1,106			1,903
Adjusted EBITDA/Consolidated Cash Flow as defined (j)	$	120,858		$	102,492		$	326,191		$	370,388

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~~(a) Represents~~substitute ~~interest~~for ~~expense associated~~any ~~with~~performance ~~our~~measure ~~debt~~determined ~~structure~~in accordance with U. ~~During~~S. ~~the~~GAAP. We ~~nine~~do ~~months~~not ~~ended~~rely ~~September 30,~~solely ~~2010,~~on ~~our~~these ~~debt~~non-GAAP ~~structure consisted~~financial ofmeasures and also consider our ~~$600~~U.0S. ~~million~~GAAP 7results.~~75%~~ Because ~~Notes~~the ~~and~~non-GAAP ~~$325.0~~financial ~~million~~measures ~~Revolving~~that ~~Credit Facility. During~~we use are not calculated in the ~~nine~~same ~~months~~manner ~~ended~~by ~~September 30~~all companies, ~~2009,~~ ~~our~~they ~~debt~~may ~~structure~~not ~~consisted~~be ofcomparable ~~facilities~~to ~~totaling~~similarly $1titled measures used by other companies.~~355~~ To ~~billion~~properly and prudently evaluate our business, ~~including~~ we encourage you to also review our ~~$700~~U.0S. ~~million~~GAAP ~~First~~unaudited ~~Lien~~interim ~~Term~~consolidated ~~Loan,~~financial ~~$330.0~~statements ~~million~~included ~~Second~~elsewhere ~~Lien Term~~in ~~Loan~~this Quarterly Report, and ~~$325~~not to rely on any single financial measure to evaluate our business.0 These ~~million~~non-GAAP ~~Revolving~~financial ~~Credit~~measures ~~Facility~~have material limitations as analytical tools and you should not consider these measures in isolation, or as ~~well~~a substitute for analysis of our results as reported under U.S. GAAP. Additional information regarding our ~~interest rate~~use ~~cap~~of ~~and~~non-GAAP ~~swap~~financial ~~contracts~~measures is included in our 2010 Form 10-K.

In addition to the adjustments we make in computing EBITDA, adjusted EBITDA, and Consolidated Cash Flow, we also consider the impact of other items when evaluating our operating performance. Certain of these items, which impact the comparability of our financial results are included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Matters Affecting Comparability.”

In the following table, we have presented a reconciliation of EBITDA, adjusted EBITDA, and Consolidated Cash Flow to the most comparable U.S. GAAP measure, net income:

	Three Months Ended
	March 31,
	2011			2010
Net income	$	55,457		$	45,339
Interest expense, net (a)	10,750			11,263
Income tax provision (b)	27,739			23,264
Depreciation and amortization (c)	10,017			8,051
EBITDA	103,963			87,917
Non-cash share-based compensation expense (d)	2,212			7,227
Special recognition bonus expense (e)	43			1,614
Equity in earnings of affiliate (f)	(151		)	(147		)
Merger-related expenses (g)	4,118			—
Other (h)	(69		)	47
Adjusted EBITDA/Consolidated Cash Flow	$	110,116		$	96,658

(a) Represents interest expense associated with our debt structure and the amortization of debt discount and issuance costs associated with our debt facilities, net of interest income and capitalized interest. During the three months ended March 31, 2011 and 2010, our debt structure consisted of our $600.0 million 7.75% Notes and $325.0 million revolving credit facility. For the three months ended March 31, 2011, interest expense, net, also included interest expense of $0.7 million related to the 2010 PCA judgment, which is discussed elsewhere in this Quarterly Report.

(b) Represents our income tax provision as presented in our unaudited interim consolidated income statements.

(d) Represents ~~the~~our ~~advisory~~non-cash ~~fees paid~~share-based tocompensation ~~Talecris~~expense ~~Holdings,~~associated ~~LLC,~~with ~~under~~stock ~~the~~options, ~~management~~restricted ~~agreement. This~~stock, ~~agreement~~RSUs, ~~was~~and ~~terminated~~ PSUs.

45(e) Represents compensation expense associated with special recognition bonus awards granted to certain of our employees and senior executives to reward their past performance. We do not anticipate granting similar awards in the future.

(f) Represents non-operating income associated with our investment in Centric, which we believe are not part of our core operations.

(g) For the three months ended March 31, 2011, the amount represents merger-related expenses associated with our definitive merger agreement with Grifols primarily related to legal fees, as well as retention expenses and other bonuses.

(h) For the three months ended March 31, 2011, the amount represents inventory impairment recoveries. For the three months ended March 31, 2010, the amount represents losses on disposals of equipment.

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in connection with our IPO.

(e) Represents our non-cash share-based compensation expense associated with stock options, restricted stock, RSU’s, and PSU’s.

(f) Represents compensation expense associated with special recognition bonus awards granted to certain of our employees and senior executives to reward their past performance. We made the final payments under the special recognition bonus awards during March 2010. We do not anticipate granting similar awards in the future.

(g) Represents non-operating income associated with our investment in Centric, which we believe are not part of our core operations.

(h) Represents merger-related retention expenses associated with our terminated merger agreement with CSL for the 2009 periods and merger-related expenses associated with our definitive merger agreement with Grifols, including investment banker, legal, accounting, and other costs, as well as retention expenses, for the 2010 periods.

(i) For the three months ended September 30, 2010, the amount includes losses on disposals of equipment of $0.6 million and long-lived asset impairment charges of $0.3 million. For the nine months ended September 30, 2010, the amount includes losses on disposals of equipment of $0.6 million and long-lived asset impairment charges of $0.6 million, partially offset by inventory recoveries of $0.1 million. For the three months ended September 30, 2009, the amount includes long-lived asset impairment charges of $0.6 million and $0.9 million of non-capitalizable IPO costs, partially offset by inventory recoveries of $0.4 million. For the nine months ended September 30, 2009, the amount includes losses on disposals of equipment of $0.9 million, long-lived asset impairment charges of $1.0 million, and $1.1 million of non-capitalizable IPO costs, partially offset by inventory recoveries of $1.1 million.

(j) The computation of Consolidated Cash Flow is not applicable prior to the issuance of the 7.75% Notes on October 21, 2009. Our adjusted EBITDA for the nine months ended September 30, 2009 includes a $75.0 million termination fee received from CSL as a result of the termination of the definitive merger agreement. In addition, we incurred legal and other costs associated with the regulatory review process of our terminated merger agreement with CSL of $6.0 million during the nine months ended September 30, 2009. The termination fee and these expenses were not permitted as adjustments to our adjusted EBITDA as defined in our then existing Revolving Credit Facility or First and Second Lien Term Loans.

In addition to the non-GAAP financial measures of adjusted EBITDA and Consolidated Cash Flow presented above, we have also presented a quantification of the impact to our financial results for the CSL merger termination fee and the CSL and Grifols merger-related expenses in the fourth bullet point of the “2010 Financial Highlights” section presented above. We believe we have further enhanced the comparability of our financial results between the periods presented by using an adjusted share base in the computation of diluted earnings per share for the three and nine months ended September 30, 2009, reflecting the impact for the issuance of common shares to convert our Series A and B preferred stock, settle accrued dividends on the preferred stock, and complete our IPO as if these events occurred at the beginning of 2009.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We operate on a global basis and are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates, foreign exchange, and commodity prices. The overall objective of our financial risk management program has historically been to minimize the impact of these risks through operational means and by using various financial instruments. These practices may change as economic conditions change. AtDuring ~~September 30~~the first quarter of 2011, we initiated a foreign currency hedging program, which is discussed further in Note 7, “Derivative Financial Instruments.” During the first quarter of 2010, we were not a party to any derivative financial instruments.

Interest Rate Risk

At ~~September~~ March 3031, ~~2010~~2011, our long-term debt consisted of our 7.75% Notes ($600.0 million outstanding), which bears a fixed interest rate. In addition, ~~and~~we ~~our~~have a $325.0 million ~~Revolving~~revolving ~~Credit~~credit ~~Facility~~facility, which matures on December 6, 2011. The revolving credit facility bears interest at a rate based upon either ABR or LIBOR, at our option, plus applicable margins based upon borrowing availability. Our exposure to adverse movements in ABR or LIBOR during ~~2010~~the ~~has~~three ~~not~~months ~~been~~ended March 31, 2011 was not significant as a result of minimal average borrowings outstanding under the ~~Revolving~~revolving ~~Credit Facility~~credit facility during the period. Assuming a fully drawn ~~Revolving~~revolving ~~Credit~~credit ~~Facility~~facility and a 100 basis point increase in applicable interest rates, our interest expense, net, would increase by $3.25 million on an annual basis. No amounts were outstanding under our revolving credit facility at March 31, 2011.

At ~~September~~ March 3031, ~~2010~~2011, we had cash and cash equivalents of $~~150~~185.5 3 million~~. We~~, ~~use~~which ~~our~~have ~~available~~primarily ~~cash balances~~been todeposited ~~repay~~in ~~amounts outstanding under our Revolving Credit Facility. We deposit any excess amounts into~~ an overnight investment account, ~~which~~that earns minimal interest. Because our cash and cash equivalents are short-term in duration, we believe that our exposure to interest rate risk is not significant and a 100 basis point movement in market interest rates would not have a significant impact on the carrying value of our cash and cash equivalents. We actively monitor changes in interest rates.

Foreign Currency Risk

WeIn ~~operate~~the ~~internationally~~ordinary ~~and~~course ~~enter~~of ~~into~~business, ~~transactions~~we ~~denominated~~actively in manage our exposure to foreign ~~currencies. As~~currency ~~such,~~exchange ~~our financial~~rate ~~position,~~market ~~results~~risk ofby ~~operations,~~entering ~~cash~~into ~~flows,~~hedging ~~and~~instruments ~~competitive~~for ~~position are~~periods ~~subject~~consistent with our underlying exposures to mitigate the ~~variability~~effect ~~that~~of ~~arises~~foreign ~~from~~currency ~~exchange~~movements ~~rate~~on ~~movements~~transactions denominated in ~~relation~~ toforeign ~~the U~~currencies.~~S. dollar.~~ Our hedging activities involve the use of forward foreign currency ~~exposures~~exchange ~~are~~contracts. ~~primarily~~We ~~limited~~use tothese ~~the~~derivative ~~impact~~financial ~~that~~instruments ~~fluctuations~~only in ~~the euro~~an ~~and~~attempt ~~the~~to ~~Canadian~~limit ~~dollar~~underlying ~~have~~exposures onfrom ~~our~~currency ~~net~~fluctuations ~~revenue~~and to minimize earnings and ~~the~~cash ~~remeasurement~~flow ~~of our~~volatility ~~euro-denominated~~associated ~~accounts~~with ~~receivable.~~foreign currency exchange rate changes and not for

~~Approximately~~trading 29purposes.8% We ~~and~~are ~~30.9%~~exposed ofto ~~our~~foreign ~~net revenue for the three and nine months ended September 30, 2010 was generated outside of the United States. Foreign~~ currency exchange ~~rate fluctuations~~risk inprimarily ~~relation~~related to ~~the U.S. dollar unfavorably impacted our product~~ net revenue ~~by $4.0 million, or 1.0%, for the three months ended September 30, 2010,~~ and unfavorably impacted our product net revenue by $3.6 million, or 0.3%, for nine months ended September 30, 2010. In addition, we incurred transaction gains (losses), net, of $7.4 million and $(2.9) million during the ~~three~~ ~~and nine months ended September 30, 2010, respectively, primarily related to the~~ remeasurement of euro-denominated ~~accounts receivable, which we recorded within SG&A in our unaudited consolidated income statement~~receivables.

~~For~~We ~~the~~enter ~~purpose~~into offorward ~~specific~~foreign ~~risk~~currency ~~analysis,~~exchange wecontracts ~~used~~that achange ~~sensitivity analysis~~in tovalue ~~measure~~as ~~the~~foreign ~~potential~~currency ~~impact~~exchange torates ~~our~~change, ~~unaudited~~to ~~consolidated~~protect ~~income statement~~the ~~for~~value aof ~~hypothetical~~existing ~~10%~~euro-denominated ~~strengthening~~accounts ofreceivable ~~the~~and Uforecasted sales.S. The ~~dollar~~gains ~~compared~~and ~~with the~~losses ~~euro~~on ~~and~~these ~~Canadian~~contracts ~~dollar~~offset ~~for~~changes ~~the~~in ~~three~~market ~~and~~values ~~nine~~of ~~months~~the ~~ended~~related ~~September 30, 2010~~hedged items. ~~Assuming~~Therefore, achanges ~~10%~~in ~~strengthening~~the market values of the ~~U.S.~~hedge ~~dollar,~~instruments ~~our~~are ~~product~~highly ~~net~~correlated ~~revenue~~with ~~would~~changes ~~have~~in ~~been~~market ~~negatively~~values ~~impacted~~of ~~by approximately~~underlying ~~$4.2~~hedged ~~million~~items ~~and~~both ~~$12.5~~at ~~million~~inception ~~for~~of the ~~three~~hedge and ~~nine~~over ~~months ended~~the ~~September 30,~~life ~~2010,~~of ~~respectively~~the hedge. At Our ~~September 30,~~forward ~~2010,~~foreign wecurrency ~~had~~exchange ~~approximately~~contracts ~~€45.1~~are ~~million~~denominated in ~~receivables. An~~ ~~adverse~~euros, ~~movement~~have inmaturities ~~the value~~that ofdo ~~the~~not ~~euro~~exceed intwelve ~~relation~~months, tohave ~~the~~no ~~U.S.~~cash ~~dollar~~requirements ~~could~~until ~~have~~maturity, aand ~~significant impact~~are recorded at fair value on our ~~profitability~~consolidated balance sheet. We Unrealized ~~have not~~gains ~~hedged~~and losses on our ~~exposure~~foreign tocurrency ~~changes~~contracts are recognized immediately in ~~foreign~~earnings ~~currency~~for ~~exchange~~fair ~~rates. Consequently~~value hedges and, wefor ~~could~~cash ~~incur~~flow ~~unanticipated~~ hedges, the related unrealized gains ~~and~~or losses are deferred as a ~~result~~component of ~~changes~~other comprehensive (loss) income in ~~foreign~~our ~~currency~~consolidated ~~exchange~~balance ~~rates~~sheets. Deferred gains and losses are recognized in income in the period in which the underlying anticipated transaction occurs and impacts earnings.

~~Commodity~~At ~~Risk~~March 31, 2011, we had approximately $62.9 (€46.4) million in notional value of fair value hedges against firm commitments and $19.9 (€14.6) million in notional value of cash flow hedges against anticipated future sales. The weighted average strike price on these foreign currency contracts is approximately 1.356 (U.S. dollar/euro). At March 31, 2011, the U.S. dollar/euro spot rate was approximately 1.416. A sensitivity analysis of changes in the U.S. dollar when measured against the euro indicates that, if the U.S. dollar had weakened by 10% to approximately 1.562 (U.S. dollar/euro), the fair value of our derivative liability would have increased by approximately $9.0 million to $12.5 million. Conversely, if the U.S. dollar strengthened by 10% to 1.278 (U.S. dollar/euro), the fair value of our derivative liability would have decreased by $8.4 million to a current asset position of $4.8 million. Any gains or losses on the fair value of derivative contracts would be largely offset by gains and losses on the underlying transactions. These offsetting gains are not considered in the above sensitivity analysis. The table below illustrates this sensitivity analysis.

Plasma is the key raw material used in the production of our products, which we obtain from our plasma collection centers, as well as third party plasma suppliers. As of September 30, 2010, our plasma collection center platform consisted of 69 operating centers, of which 66 were FDA licensed and 3 were unlicensed. These licensed centers collected approximately 73.9% and 69.4% of our plasma during the three and nine months ended September 30, 2010. Subsequent to September 30, 2010, we received FDA 38

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licensure for one of the unlicensed plasma collection centers.

	Spot Rate at March 31, 2011
	Minus 10%		Actual		Plus 10%
	(1.278)		(1.416)		(1.562)
Current assets:
Cash flow hedges	$	2,282	$	—	$	—
Fair value hedges	2,502		—		—
Total	$	4,784	$	—	$	—

Current liabilities:
Cash flow hedges	$	—	$	968	$	4,585
Fair value hedges	—		2,621		7,959
Total	$	—	$	3,589	$	12,544

~~For purposes~~Approximately 31% of ~~specific~~our ~~risk~~net ~~analysis,~~revenue wefor ~~used~~the athree ~~sensitivity~~months ~~analysis~~ended toMarch 31, ~~measure the~~2011 ~~potential~~was ~~impact~~generated tooutside ~~our~~of ~~unaudited~~the ~~consolidated~~United ~~income~~States. Foreign ~~statements~~currency ~~for~~exchange ~~a hypothetical~~rate ~~10%~~fluctuations ~~increase~~ in ~~the~~relation ~~cost of plasma used~~ to ~~produce~~ the ~~products sold~~U.S. ~~during~~dollar ~~the~~did ~~three~~not ~~and~~have ~~nine~~a ~~months~~material ~~ended~~impact ~~September 30,~~to ~~2010. Assuming~~our ~~this~~net ~~10%~~revenue ~~increase~~during in the ~~cost~~first ~~of plasma,~~quarter ~~our cost~~ of ~~goods sold would have increased by $13~~2011.2 For ~~million and $40.9 million for~~ the ~~three~~purpose ~~and~~of ~~nine~~specific ~~months~~risk ~~ended September 30~~analysis, ~~2010, respectively,~~we ~~and~~used ~~our~~a ~~gross~~sensitivity ~~margin~~analysis ~~would~~to ~~have~~measure ~~been~~the ~~negatively~~potential ~~impacted~~impact byto ~~325 basis~~our ~~points~~net ~~and~~revenues ~~344 basis points~~ for ~~the~~a ~~three~~hypothetical ~~and~~10% ~~nine~~strengthening ~~months~~of ~~ended~~the ~~September 30, 2010, respectively~~U. ~~This~~S. ~~sensitivity analysis~~dollar ~~assumes~~compared ~~that~~with ~~we would not be able to pass~~ the ~~hypothetical~~euro ~~cost increase~~and toCanadian ~~our~~dollar. Assuming ~~customers~~a in10% ~~the~~strengthening ~~form~~ of ~~pricing~~the ~~increases~~U. ~~This~~S. ~~sensitivity~~dollar, ~~analysis~~our ~~does~~product ~~not~~net ~~consider the~~revenue ~~fixed~~would ~~pricing~~have ofbeen ~~plasma~~negatively ~~purchased~~impacted ~~from~~by ~~our~~$4.9 ~~third-party~~million, ~~plasma~~or ~~suppliers~~1.2%.

Commodity Risk

Plasma is the key raw material used in the production of our products, which we obtain from our plasma collection centers, as well as third party plasma suppliers. As of March 31, 2011, our plasma collection center platform consisted of 69 operating centers, of which 67 were licensed and two were unlicensed. These licensed centers collected approximately 79% of our plasma during the three months ended March 31, 2011.

For purposes of specific risk analysis, we used a sensitivity analysis to measure the potential impact to our unaudited interim consolidated income statements for a hypothetical 10% increase in the cost of plasma used to produce the products sold during the three months ended March 31, 2011. Assuming this 10% increase in the cost of plasma, our cost of goods sold would have increased by $13.8 million and our gross margin would have been negatively impacted by 340 basis points for the three months ended March 31, 2011. This sensitivity analysis assumes that we would not be able to pass the hypothetical cost increase to our customers in the form of price increases. This sensitivity analysis does not consider the fixed pricing of plasma purchased from our third-party plasma suppliers.

ITEM 4. CONTROLS AND PROCEDURES

~~Evaluation~~Under the supervision and with the participation of ~~Disclosure~~our ~~Controls~~management, including our Chief Executive Officer and ~~Procedures~~Chief Financial Officer, we evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934) and internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2011, and (ii) no change in internal control over financial reporting occurred during the quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods as specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2010, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.39

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Grifols Transaction

Four purported class action lawsuits have been filed by our stockholders challenging the proposed Grifols transaction. Two of the lawsuits were filed in the Court of Chancery of the State of Delaware and have been consolidated under the caption In re Talecris Biotherapeutics Holdings Shareholder Litigation, Consol. C.A. No. 5614-VCL. The other two lawsuits were filed in the Superior Court of the State of North Carolina and are captioned Rubin v. Charpie, et al., No. 10 CV 004507 (North Carolina Superior Court, Durham County), and Kovary v. Talecris Biotherapeutics Holdings Corp., et al., No. 10 CV 011638 (North Carolina Superior Court, Wake County). The lawsuits name as defendants Talecris, the members of our board of directors, Grifols, S.A. and its subsidiary, Grifols, Inc., and, in the Delaware consolidated action, Talecris Holdings LLC and Stream Merger Sub, Inc, a wholly owned subsidiary of Talecris. The two North Carolina actions have been stayed.

We believe that these lawsuits are without merit and intend to defend them vigorously.

National Genetics Institute/Baxter Healthcare Corporation Litigation

Plasma Centers of America, LLC and G&M Crandall Limited Family Partnership

We had a three year Amended and Restated Plasma Sale/Purchase Agreement with Plasma Centers of America, LLC (PCA) under which we were required to purchase annual minimum quantities of plasma from plasma collection centers approved by us, including the prepayment of 90% for unlicensed plasma. We were also committed to finance the development of up to eight plasma collection centers, which were to be used to source plasma for us. Under the terms of the agreement, we had the obligation to purchase such centers under certain conditions for a sum determined by a formula set forth in the agreement. We provided $3.2 million in financing, including accrued interest, related to the development of such centers, and we advanced payment of $1.0 million for unlicensed plasma. We recorded a provision within SG&A during 2008 related to these advances.

In August 2008, we notified PCA that they were in breach of the Amended and Restated Plasma Sale/Purchase Agreement. We terminated the agreement in September 2008. In November 2008, TPR filed suit in federal court in Raleigh, North Carolina against the G&M Crandall Limited Family Partnership and its individual partners as guarantors of obligations of PCA. We were served in

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January 2009 in a parallel state action by PCA, alleging breach of contract by TPR. Motions to summary judgment by both parties have been denied. The two cases are proceeding in parallel, with trial in the state set for November 2010.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2009 Form 10-K, except as noted below.

Risks Related to Proposed Merger

Our proposed merger with Grifols may adversely affect our operations and financial performance.

The announcement of our proposed merger with Grifols may result in the loss of key employees, suppliers, and customers. The demand on management’s time and our resources relating to regulatory approvals and integration planning may interfere with management’s day—to-day oversight of operations. As a result, our operations and financial performance could be adversely affected while we prepare for the merger or in future periods should the merger not occur.

Lawsuits have been filed against us and certain of our officers and directors challenging the merger, and any adverse judgment for monetary damages could have a material adverse effect on the combined company’s operations after the transaction.

Four purported class action lawsuits have been filed by our stockholders challenging the proposed Grifols transaction. Two of the lawsuits were filed in the Court of Chancery of the State of Delaware and have been consolidated under the caption In re Talecris Biotherapeutics Holdings Shareholder Litigation, Consol. C.A. No. 5614-VCL. The other two lawsuits were filed in the Superior Court of the State of North Carolina and are captioned Rubin v. Charpie, et al., No. 10 CV 004507 (North Carolina Superior Court, Durham County), and Kovary v. Talecris Biotherapeutics Holdings Corp., et al., No. 10 CV 011638 (North Carolina Superior Court, Wake County). The lawsuits name as defendants Talecris, the members of our board of directors, Grifols, S.A. and its subsidiary, Grifols, Inc., and, in the Delaware consolidated action, Talecris Holdings LLC and Stream Merger Sub, Inc, a wholly owned subsidiary of Talecris. The two North Carolina actions have been stayed.

One of the conditions to the completion of the transaction is that no temporary restraining order, or preliminary or permanent injunction, or other judgment or order issued by a court or other governmental entity that prohibits or prevents the completion of the Talecris-Grifols merger shall be in effect. A preliminary injunction could delay or jeopardize the completion of the transaction, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the transaction. An adverse judgment for monetary damages could have a material adverse effect on the operations of the combined company after the transaction.

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Risks Related to Healthcare Reform and Reimbursement

We could be adversely affected if the implementation of recently passed healthcare reform legislation or additional legislation under consideration substantially changes the market for medical care or healthcare coverage in the United States.

Substantial changes could be made to the current system for paying for healthcare in the U.S., including changes made in order to extend medical benefits to those who currently lack insurance coverage. Approximately 47 million Americans currently lack health insurance of any kind. Extending coverage to such a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of private payors and government programs (Medicare, Medicaid and State Children’s Health Insurance Program), creation of state-based healthcare insurance exchanges, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs and biopharmaceuticals, such as those produced and marketed by us. If reimbursement for these products is substantially reduced in the future, or rebate obligations associated with them are substantially increased (discussed in more detail below), our business could be materially impacted. Beginning in 2012, the new law may require us to issue Internal Revenue Service Forms 1099 to plasma donors whose remuneration exceeds six hundred dollars. The cost of implementing this requirement, as well as its potential impact on plasma donations, is unknown at this time.

Extending medical benefits to those who currently lack coverage will likely result in substantial cost to the federal government, which may force significant changes to the U.S. healthcare system. Much of the funding for expanded healthcare coverage will be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care. Cost of care could be reduced by reducing the level of reimbursement for medical services or products (including those biopharmaceutical products produced and marketed by us), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for, our products could have a materially adverse impact on our financial performance.

All of the changes discussed above, and others, passed in this legislation are subject to rule-making and implementation timelines that extend for several years. This uncertainty limits our ability to forecast changes that may occur in the future and to manage our business accordingly.

We could be adversely affected if government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements for reimbursement for the purchasers of our products.

We have experienced and expect to continue to experience pricing pressures on our current products and pipeline products from initiatives aimed at reducing healthcare costs by governmental and private third-party payors, the increasing influence of managed care organizations, and regulatory proposals, both in the United States and in foreign markets. Recently enacted healthcare reform in the United States is likely to increase the pressure. This pressure may include the effect of such healthcare reform changes as the introduction of a biosimilar pathway (which will permit companies to obtain FDA approval of generic versions of existing biologics based upon lesser showings of safety and efficacy than is required for the pioneer biologic), the redefinition of the term “single source” product, which plays a key role in determining reimbursements under the Medicare Part B program, and changes to the 340B Public Health Service (PHS) drug pricing program imposing a “must sell” obligation on manufacturers so that they must offer for sale their products to eligible entities at legally-mandated discount prices. Additional legislative changes to current pricing rules are possible. We cannot predict which additional changes, if any, will eventually be adopted, or their impact on us. Certain changes could have a materially adverse impact on our financial performance.

If payors reduce the amount of reimbursement for a product, it may cause groups or individuals dispensing the product to discontinue administration of the product, to administer lower doses, to substitute lower cost products or to seek additional price related concessions. These actions could have a negative effect on our financial results, particularly in cases where we have a product that commands a premium price in the marketplace, or where changes in reimbursement induce a shift in the site of treatment. For example, beginning in 2005, the Medicare drug reimbursement methodology for physician and hospital outpatient payment schedules changed to Average Sales Price (ASP) +6%. This payment was based on a volume-weighted average of all brands under a common billing code. Medicare payments to physicians between the fourth quarter of 2004 and the first quarter of 2005 dropped 14% for both the powder and liquid forms of IGIV. Medicare payments to hospitals fell 45% for powder IGIV and 30% for liquid IGIV between the fourth quarter of 2005 and the first quarter of 2006. The Medicare reimbursement changes resulted in the shift of a significant number of Medicare IGIV patients to hospitals from physicians’ offices beginning in 2005 as many physicians could no longer recover their costs of obtaining and administering IGIV in their offices and clinics. After 2006, some hospitals reportedly began to refuse providing IGIV to Medicare patients due to reimbursement rates that were below their acquisition costs. While subsequent changes have improved some of these Medicare reimbursement issues, on January 1, 2008, the Centers for Medicare & Medicaid Services (CMS)

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reduced the reimbursement for separately covered drugs and biologicals, including IGIV, in the hospital outpatient setting from ASP +6% to ASP +5% using 2006 Medicare claims data as a reference for this reduction. In addition, CMS reduced a hospital add-on payment from $75 to $38 per infusion. Beginning January 1, 2009, CMS further reduced the hospital outpatient reimbursement for separately covered outpatient drugs, including IGIV, to ASP +4%, and eliminated the add-on payment.

Physicians frequently prescribe legally available therapies for uses that are not described in the product’s labeling and that differ from those tested in clinical studies and approved by the FDA or similar regulatory authorities in other countries. These unapproved, or “off-label,” uses are common across medical specialties, and physicians may believe such off-label uses constitute the preferred treatment or treatment of last resort for many patients in varied circumstances. We believe that a significant portion of our IGIV volume may be used to fill physician prescriptions for indications not approved by the FDA or similar regulatory authorities. If reimbursement for off-label uses of our products, including IGIV, is reduced or eliminated by Medicare or other third-party payors, including those in the United States or the European Union, we could be adversely affected.

For example, CMS could initiate an administrative procedure known as a National Coverage Determination (NCD) by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain. High levels of spending on IGIV products, along with increases in IGIV prices, increased IGIV utilization and the high proportion of off-label uses, may increase the risk of regulation of IGIV reimbursement by CMS. On the state level, similar limits could be proposed for therapeutic products covered under Medicaid. Moreover, the Deficit Reduction Act of 2005 incentivizes states to take innovative steps to control healthcare costs, which could include attempts to negotiate limits to, or reductions of, drug prices.

Health care reform established and provided significant funding for the federal government to coordinate and fund Comparative Effectiveness Research (CER). While the stated intent of CER is to develop information to guide providers to the most efficacious therapies, outcomes of CER could influence the reimbursement or coverage for therapies that are determined to be less cost-effective than others. Should any of our products be determined to be less cost-effective than alternative therapies, the levels of reimbursement for these products, or the willingness to reimburse at all, could be impacted, which could materially impact our financial results.

For many payors, including private health insurers and self-insured health plans, as well as Medicare Part D plans and some state Medicaid programs, outpatient pharmaceuticals are often reimbursed based upon a discount calculated off of a pricing benchmark called “Average Wholesale Price,” which is referred to as AWP. AWP is a list price calculated and published by private third-party publishers (such as First DataBank, Thomson Reuters (Red Book) and Wolters Kluwer (Medi-Span)). AWP does not reflect actual transactions in the distribution chain (e.g., the publishers do not base the figure on actual transaction prices, including any prompt pay or other discounts, rebates or price reductions). Often, publishers calculate AWP based upon a standard markup of, for example, 20% over another list price which is reported by drug manufacturers to the publishers. This list price is called “Wholesale Acquisition Cost,” which is referred to as WAC. WAC is generally understood in the industry to be the list price drug manufacturers have for their drug wholesaler customers and, like AWP, is not calculated based on actual transaction prices, including any prompt pay or other discounts, rebates or price reductions. We do not publish an AWP for any of our products, reporting WAC for our products instead. We may be at a competitive disadvantage where providers are reimbursed on an AWP basis and competitors’ products are reimbursed based on a higher AWP than the corresponding AWP for our product.

The use of AWP and WAC as pricing benchmarks has been subject to legal challenge by both government officials and private citizens, often based on claims that the benchmarks were used in a misleading manner, thus defrauding consumers and third-party payors. It is possible that we, as a reporter of WAC, could be challenged on this basis. Additionally, the settlement of class action litigation against First DataBank and others has resulted in the downward revision of certain reported AWP listings (to a level of 20% over WAC). Issues regarding AWP have contributed to suggestions to eliminate its use as a drug pricing benchmark.

Talecris could be adversely affected by other provisions of recently passed United States healthcare reform legislation.

In the United States, Talecris’ products are reimbursed or purchased under several government programs, including, Medicaid, Medicare Parts B and D, the 340B/PHS program, and pursuant to contracts with the Department of Veterans Affairs. In order for a drug manufacturer’s products to be reimbursed by federal funding under Medicaid, the manufacturer must enter into a Medicaid drug rebate agreement with the Secretary of the United States Department of Health and Human Services, and pay certain rebates to the states based on utilization data provided by each state to the manufacturer and to the Centers for Medicare & Medicaid Services, which is referred to as CMS, and pricing data provided by the manufacturer to the federal government. The states have been required to share this savings with the federal government. The rebate amount for most branded drugs was previously equal to a minimum of 15.1% of the Average Manufacturer Price, which is referred to as AMP, or AMP less Best Price, which is referred to as AMP less BP, whichever is greater. The recently enacted healthcare reform legislation generally increases the size of the Medicaid rebates paid by drug manufacturers for single source and innovator multiple source (brand name) drugs from a minimum of 15.1% to 23.1% of the AMP, subject to certain exceptions, for example, for certain clotting factors the increase is limited to a minimum of

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17.1% of the AMP. For non-innovator multiple source (generic) drugs, the rebate percentage is increased from a minimum of 11% of AMP to 13% of AMP. The legislation also extends the rebate obligation to prescription drugs covered by Medicaid managed care organizations. The increase in required rebates, which became effective January 1, 2010, may adversely affect financial performance.

Medicare Part D is a partial, voluntary prescription drug benefit created by the United States federal government primarily for persons 65 years old and over. The Part D drug program is administered through private insurers that contract with CMS. To obtain payments under this program, each of Talecris is required to negotiate prices with private insurers operating pursuant to federal program guidance. These prices may be lower than might otherwise be obtained. In addition, beginning in 2011, the recently enacted healthcare reform legislation generally requires drug manufacturers to provide 50% savings for brand name drugs and biologics provided to Medicare Part D beneficiaries who are in the “donut hole” (or a gap in Medicare Part D coverage for beneficiaries who have expended certain amounts for drugs). The rebate requirement could adversely affect financial performance, particularly if contracts with Part D plans cannot be favorably renegotiated.

The availability of federal funds to pay for Talecris’ products under the United States Medicaid and Medicare Part B programs requires that Talecris extend discounts under the 340B/PHS program. The 340B/PHS program extends discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of certain low income individuals. The PHS price (or “ceiling price”) cannot exceed the AMP (as reported to CMS under the Medicaid drug rebate program) less the Medicaid unit rebate amount. Talecris has entered into a Pharmaceutical Pricing Agreement with the government in which the companies have agreed to participate in the 340B/PHS program by charging eligible entities no more than the PHS ceiling price for drugs intended for outpatient use. Recently enacted healthcare reform legislation imposes a “must sell” obligation on manufacturers so that they must offer for sale their products to eligible entities at legally-mandated discount prices, and expands the number of qualified 340B entities eligible to purchase products for outpatient use. Additional legislation or regulation could require Talecris to allocate even more of their respective products for sale under the 340B/PHS program in order to maintain the availability of federal funds to pay for their respective products under Medicaid and Medicare Part B coverage, which could have a material negative impact on Talecris’ sales and margin given the significant price discount for 340B/PHS products as compared to their commercial prices.

The recently enacted United States healthcare reform legislation imposes a fee on manufacturers of branded drugs and biologics based on their sales to United States government health programs. The fee will first be imposed for 2011 sales. The aggregate fee imposed on all covered entities is $2.5 billion for 2011, $2.8 billion for 2012, $2.8 billion for 2013, $3 billion for 2014, $3 billion for 2015, $3 billion for 2016, $4 billion for 2017, $4.1 billion for 2018 and $2.8 billion for 2019 and following years. The aggregate fee will be allocated among applicable manufacturers and importers based on their relative sales to government health programs, with the caveat that entities with lower sales will have their sales counted at less than 100% in allocating responsibility for the fee. This new fee will increase costs for Talecris. It is not clear that Talecris will be able to pass this increased cost on to its customers.

Risks Related to Our Business

Our ability to export products to Iran requires annual export licenses and the use of intermediate or advisory banks.

In 2009, we had sales of $22.2 million, or approximately 1.4% of our net revenue, to customers located in Iran pursuant to an export license which must be renewed annually. Although the Office of Foreign Asset Control (OFAC) renewed our license to supply humanitarian products, tensions with Iran continue to impede our ability to conduct business in Iran. Our revenues related to our business in Iran have declined in 2010 compared to 2009 and are likely to continue to decline in the future.

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ITEM 6. EXHIBITS

Exhibit Number		Exhibit Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**		XBRL Taxonomy Definition Linkbase Document

* This certification shall not be deemed filed for purposes of Section 18 of the Exchange Act, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

54**XBRL (eXtensible Business Reporting Language) information is furnished and not filed herewith, is not part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to the liability under these sections.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Research Triangle Park, State of North Carolina, on ~~October~~April 2827, ~~2010~~ 2011.

Talecris Biotherapeutics Holdings Corp. By: /Ss/ Lawrence D. Stern Lawrence D. Stern Chairman and Chief Executive Officer By: /Ss/ John M. Hanson John M. Hanson Executive Vice President and Chief Financial Officer

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