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| TFX > SEC Filings for TFX > Form 10-Q/A on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
The following comparisons exclude the operations of the ATI Business which have been presented in our consolidated financial results as discontinued operations (see Note 17 to our condensed consolidated financial statements included in this report for discussion of discontinued operations).
Revenues
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in millions)
Net revenues $ 483.1 $ 559.7 $ 952.7 $ 1,101.8
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Net revenues for the second quarter of 2009 decreased approximately 14% to
$483.1 million from $559.7 million in 2008. Core revenues for the quarter
declined 8% , and foreign currency translation caused an additional 5% of the
decline in revenue. The disposition of a product line in the Commercial Segment
during the first quarter of 2009 accounted for the remaining 1% of the decline
in revenues. Core revenues were down in the Aerospace Segment (36%), as air
cargo traffic continues to be well below 2008 levels and in the Commercial
Segment (18%), as weak global economic conditions continue to negatively impact
the markets served by our products in this segment. Core revenues in the Medical
Segment were essentially unchanged from the second quarter of 2008 as slightly
higher sales of surgical and cardiac care products were offset by lower sales of
critical care products and orthopedic devices sold to medical original equipment
manufacturers, or OEMs.
Net revenues for the first six months of 2009 decreased approximately 13% to
$952.7 million from $1,101.8 million in 2008. Revenues from core business caused
8% of the decline in revenue, while foreign currency translation caused 5% of
the decline. We experienced declines in core revenue in each of our three
segments, Medical (1%), Aerospace (32%) and Commercial (16%). Weak global
economic conditions have negatively impacted markets served by our Aerospace and
Commercial Segments throughout 2009 and core growth in the Medical Segment was
negatively impacted by distributor inventory reductions in the first quarter of
2009, lower demand for respiratory care products in North America due to a less
severe flu season compared to 2008 and a decline in orthopedic devices sold to
medical OEMs.
Gross profit
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in millions)
Gross profit $ 206.0 $ 234.3 $ 402.1 $ 447.8
Percentage of sales 42.6 % 41.9 % 42.2 % 40.6 %
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Gross profit as a percentage of revenues for second quarter of 2009 increased to
42.6% from 41.9% in 2008. The principal factor impacting the overall increase
was the higher percentage of Medical revenues. Gross profit as a percentage of
revenue was higher in the Medical Segment, but lower in the Aerospace and
Commercial Segments.
Gross profit as a percentage of revenues for the first six months of 2009
increased to 42.2% from 40.6% for the same period in 2008. The principal factor
impacting the overall increase was a higher percentage of Medical revenues and a
$7 million fair value adjustment to inventory in the first quarter of 2008
related to inventory acquired in the Arrow acquisition, which did not recur in
2009. Gross profit as a percentage of revenue for the first six months of 2009
was higher in the Medical Segment, lower in the Commercial Segment and unchanged
in the Aerospace Segment compared to the same period of 2008.
Selling, engineering and administrative
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in millions)
Selling, engineering and administrative $ 134.0 $ 157.4 $ 262.7 $ 305.0
Percentage of sales 27.7 % 28.1 % 27.6 % 27.7 %
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Selling, engineering and administrative expenses (operating expenses) as a
percentage of revenues were 27.7% for the second quarter of 2009 compared to
28.1% for 2008. The reduction in these costs was principally the result of
movements in currency exchange rates of approximately $8 million and cost
reduction initiatives, including restructuring and integration activities in
connection with the Arrow acquisition, which reduced these expenses by
approximately $15 million.
Selling, engineering and administrative expenses as a percentage of revenues
were 27.6% for the first six months of 2009 which is essentially the same
percentage as in the first six months of 2008. The reduction in these costs was
principally the result of movements in currency exchange rates of approximately
$13 million and cost reduction initiatives, including restructuring and
integration activities in connection with the Arrow acquisition and the 2008
Commercial Segment restructuring program, which reduced these expenses by
approximately $29 million.
Interest expense
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in millions)
Interest expense $ 22.0 $ 31.4 $ 47.4 $ 62.5
Average interest rate on debt 5.9 % 6.2 % 5.8 % 6.3 %
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Interest expense decreased in the second quarter of 2009 compared to the same period of 2008 due to a reduction of approximately $375 million in average outstanding debt during the period and lower interest rates. For the first six months of 2009 average outstanding debt was approximately $260 million lower compared to the corresponding period of 2008. Taxes on income from continuing operations
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
Effective income tax rate 51.1 % 33.4 % 34.3 % 37.2 %
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The principal factors affecting comparability of the effective income tax rate for the respective periods are the impairment losses on non-deductible goodwill of $31.9 million taken in the second quarter of 2009 for which there was no income tax benefit, partially offset by (i) a beneficial net impact of discrete tax charges in both the first and second quarters of 2009, including a net reduction in income tax reserves related to the expiration of statutes of limitation for various uncertain tax positions, the settlement of tax audits, and adjustments to previously filed tax returns, and (ii) the impact of 2009 foreign income inclusions which will be immediately taxed in the US.
Goodwill impairment
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in thousands)
Commercial Segment $ 25,145 $ - $ 25,145 $ -
Aerospace Segment 6,728 - 6,728 -
Goodwill impairment $ 31,873 $ - $ 31,873 $ -
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On July 20, 2009 we announced that we had entered into a definitive agreement to sell our Power Systems operations for $14.5 million which is significantly less than its carrying value on the Company's balance sheet at June 28, 2009. Therefore, considering the guidance of SFAS No. 142 we recognized a non-cash goodwill impairment charge of $25.1 million in the quarter ended June 28, 2009 to adjust the carrying value of these operations to their estimated fair value.
The global recession has had a more significant impact on the Company's Marine
and Cargo Container operations than initially anticipated and it appears
recovery in those sectors will begin later and at a slower rate than previously
believed. As a result of the difficult market conditions in which these
reporting units are currently operating and the significant deterioration in the
operating performance of these reporting units which has accelerated in the
second quarter of 2009, the Company performed an interim review of goodwill and
intangible assets in these two reporting units during the second quarter and
determined that $6.7 million of goodwill in the Cargo Container operations was
impaired.
We will continue to monitor and evaluate the carrying values of our goodwill. If
market and economic conditions or our units' business performance deteriorates
significantly, this could result in our performance of additional interim
impairment reviews in the future quarters. Any such impairment reviews could
result in recognition of a goodwill impairment charge in 2009 or thereafter.
Restructuring and other impairment charges
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
(Dollars in thousands)
2008 Commercial Segment program $ 917 $ - $ 2,055 $ -
2007 Arrow integration program 2,775 2,734 4,100 10,780
2006 restructuring program - (143 ) - 667
Impairment charges 2,474 - 2,474 -
Restructuring and other impairment
charges $ 6,166 $ 2,591 $ 8,629 $ 11,447
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In December 2008, we began certain restructuring initiatives that affect the
Commercial Segment. These initiatives involve the consolidation of operations
and a related reduction in workforce at three of our facilities in Europe and
North America. We determined to undertake these initiatives to improve operating
performance and to better leverage our existing resources in light of expected
continued weakness in the marine and industrial markets. These costs amounted to
approximately $0.9 million and $2.1 million during the three and six months
ended June 28, 2009, respectively. As of June 28, 2009, we have completed the
2008 Commercial Segment restructuring program. We expect to realize annual
pre-tax savings of between $3.5 - $4.5 million in 2010.
In connection with the acquisition of Arrow in 2007, we formulated a plan
related to the future integration of Arrow and our other Medical businesses. The
integration plan focuses on the closure of Arrow corporate functions and the
consolidation of manufacturing, sales, marketing, and distribution functions in
North America, Europe and Asia. Costs related to actions that affect employees
and facilities of Arrow have been included in the allocation of the purchase
price of Arrow. Costs related to actions that affect employees and facilities of
Teleflex are charged to earnings and included in restructuring and impairment
charges within the consolidated statement of operations. These costs amounted to
approximately $2.8 million and $4.1 million during the three and six months
ended June 28, 2009, respectively. As of June 28, 2009, we estimate that, for
the remainder of 2009 and 2010, the aggregate of future restructuring and
impairment charges that we will incur in connection with the Arrow integration
plan are approximately $9.9 - $12.3 million. Of this amount, $3.5 - $4.5 million
relates to employee termination costs, $0.8 - $1.0 million relates to facility
closure costs, $5.5 - $6.5 million relates to contract termination costs
associated with the termination of leases and certain distribution agreements
and $0.1 - $0.3 million relates to other restructuring costs. We also have
incurred restructuring related costs in the Medical Segment which do not qualify
for classification as restructuring costs. In 2009 these costs amounted to
$1.1 million and are reported in the Medical Segment's operating results in
selling, engineering and administrative expenses. We expect to have realized
annual pre-tax savings of between $70 - $75 million in 2010 when these
integration and restructuring actions are complete.
In June 2006, we began certain restructuring initiatives that affected all three
of our operating segments. These initiatives involved the consolidation of
operations and a related reduction in workforce at several of our facilities in
Europe and North America. We took these initiatives as a means to improving
operating performance and to better leverage our existing resources. These
activities are now complete.
During the second quarter of 2009, we recorded a $2.3 million impairment of an
intangible asset in the Commercial Segment.
For additional information regarding our restructuring programs, see Note 4 to our condensed consolidated financial statements included in this report.
Segment Reviews
Three Months Ended Six Months Ended
% %
June 28, June 29, Increase/ June 28, June 29, Increase/
2009 2008 (Decrease) 2009 2008 (Decrease)
(Dollars in thousands)
Medical $ 363,928 $ 384,335 (5 ) $ 704,470 $ 758,392 (7 )
Aerospace 36,961 65,733 (44 ) 80,690 132,021 (39 )
Commercial 82,170 109,610 (25 ) 167,574 211,375 (21 )
Segment net revenues $ 483,059 $ 559,678 (14 ) $ 952,734 $ 1,101,788 (13 )
Medical $ 78,575 $ 70,652 11 $ 148,768 $ 141,564 5
Aerospace 1,020 7,657 (87 ) 4,057 12,585 (68 )
Commercial 3,171 9,460 (66 ) 7,832 12,307 (36 )
Segment operating
profit (1) $ 82,766 $ 87,769 (6 ) $ 160,657 $ 166,456 (3 )
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(1) See Note 16 of our condensed consolidated financial statements for a reconciliation of segment operating profit to income from continuing operations before interest and taxes.
The percentage decreases in net revenues during the three and six month periods ended June 28, 2009 compared to the same period in 2008 are due to the following factors:
% Increase / (Decrease)
2009 vs. 2008
Medical Aerospace Commercial Total
Three Six Three Six Three Six Three Six
Months Months Months Months Months Months Months Months
Core growth - (1 ) (36 ) (32 ) (18 ) (16 ) (8 ) (8 )
Currency impact (5 ) (6 ) (8 ) (7 ) (3 ) (3 ) (5 ) (5 )
Dispositions - - - - (4 ) (2 ) (1 ) -
Total change (5 ) (7 ) (44 ) (39 ) (25 ) (21 ) (14 ) (13 )
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The following is a discussion of our segment operating results.
Comparison of the three and six month periods ended June 28, 2009 and June 29,
2008
Medical
Medical Segment net revenues declined 5% in the second quarter of 2009 to
$363.9 million, from $384.3 million in the same period last year. Foreign
currency fluctuations caused all the revenue decline as core revenues were
essentially flat compared to the second quarter of 2008. Core revenue was higher
in the North American, European and Asia/Latin American surgical product groups,
but offset by declines in the OEM orthopedic instrumentation product group.
Net revenues for the first six months of 2009 declined 7% compared to the same
period of 2008 to $704.5 million, from $758.4 million in the same period in
2008. Foreign currency fluctuations caused 6% of this decrease while core
revenue declined 1% during the first six months compared to the same period in
2008. The decline in core revenue was predominantly in the North American
critical care market in the first quarter of 2009 and in the OEM orthopedic
instrumentation product group.
Information regarding net sales by product group is provided in the following tables. Certain reclassifications within product groups have been made to 2008 amounts to conform to the current year presentation:
Three Months Ended % Increase/ (Decrease)
June 28, June 29, Core Currency Total
2009 2008 Growth Impact Change
(Dollars in millions)
Critical Care $ 230.9 $ 246.3 - (6 ) (6 )
Surgical 73.1 74.4 5 (7 ) (2 )
Cardiac Care 19.3 19.0 7 (5 ) 2
OEM 37.7 40.8 (6 ) (2 ) (8 )
Other 2.9 3.8 (12 ) (12 ) (24 )
Total net sales $ 363.9 $ 384.3 - (5 ) (5 )
Six Months Ended % Increase/ (Decrease)
June 28, June 29, Core Currency Total
2009 2008 Growth Impact Change
(Dollars in millions)
Critical Care $ 449.0 $ 490.0 (3 ) (5 ) (8 )
Surgical 142.1 147.3 3 (7 ) (4 )
Cardiac Care 34.7 37.2 (1 ) (6 ) (7 )
OEM 71.9 77.1 (5 ) (2 ) (7 )
Other 6.8 6.8 14 (14 ) -
Total net sales $ 704.5 $ 758.4 (1 ) (6 ) (7 )
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Medical Segment net revenues for the six months ended June 28, 2009 and June 29, 2008, respectively, by geographic location were as follows:
2009 2008
North America 54 % 52 %
Europe, Middle East and Africa 36 % 38 %
Asia and Latin America 10 % 10 %
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The decrease in critical care product sales during the second quarter of 2009
compared to the same period in 2008 was entirely due to the 6% decrease in
currency exchange rates as core revenue of critical care products was
essentially unchanged from the same period in 2008. For the first six months of
2009, currency exchange rates caused 5% of the revenue decline and 3% was due to
a decline in core revenue principally due to distributor inventory reductions in
the first quarter of 2009 and, with regards to our respiratory care products, a
less severe flu season in the first quarter of 2009 compared to 2008.
Surgical product core revenue increased approximately 5% during the second
quarter of 2009 in North America, Europe and Asia / Latin America, combined, but
was more than offset by the 7% decline in foreign currency rate movements. For
the first six months of 2009, surgical product core revenue increased 3%
principally due to higher sales in Europe and Asia/Latin America, but was more
than offset by a 7% decline in currency exchange rates.
Sales credits issued to customers and the related delay in shipments of
replacement products in connection with a voluntary recall of certain intra
aortic balloon pump catheters during the first quarter of 2009 was the principal
factor in the lack of growth in sales of cardiac care products during the first
six months of 2009 compared to the same period of 2008.
Sales to OEMs declined 8% in the second quarter of 2009 and 7% for the first six
months of 2009. These declines were largely attributable to lower sales of
orthopedic instrumentation products due to customer inventory rebalancing and a
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