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| TFX > SEC Filings for TFX > Form 10-Q on 27-Oct-2009 | All Recent SEC Filings |
27-Oct-2009
Quarterly Report
Revenues
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions)
Net revenues $ 461.5 $ 504.0 $ 1,375.1 $ 1,569.5
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Net revenues for the third quarter of 2009 decreased approximately 8% to
$461.5 million from $504.0 million in the third quarter of 2008. Core revenues
for the quarter declined 6%, and foreign currency translation caused an
additional 2% decline in revenue. Core revenues were down in the Aerospace
Segment (23%), as air cargo traffic continues to be well below 2008 levels and
in the Commercial Segment (16%), 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 down 1% from the third quarter of 2008 as
higher sales of critical care products were offset by lower sales of surgical
products and orthopedic devices sold to medical original equipment
manufacturers, or OEMs.
Net revenues for the first nine months of 2009 decreased approximately 12% to
$1,375.1 million from $1,569.5 million in the first nine months of 2008. Reduced
revenues from core business caused 8% of the decline, while foreign currency
translation caused 4% of the decline. We experienced declines in core revenue in
each of our three segments, Medical (1%), Aerospace (29%) and Commercial (21%).
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 Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions)
Gross profit $ 200.6 $ 209.8 $ 594.3 $ 651.7
Percentage of sales 43.5 % 41.6 % 43.2 % 41.5 %
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Gross profit as a percentage of revenues for third quarter of 2009 increased to
43.5% from 41.6% in 2008. While each of our three segments reported higher gross
profit as a percentage of revenues, the overall increase principally reflected a
higher percentage of Medical revenues, synergies from the Arrow acquisition and
manufacturing cost reductions implemented in each of our three segments.
Gross profit as a percentage of revenues for the first nine months of 2009
increased to 43.2% from 41.5% for the same period in 2008. The principal factors
impacting the overall increase were a higher percentage of Medical revenues, 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, synergies from the Arrow acquisition and manufacturing cost reductions
implemented in each of our three segments, partly offset by higher pension
expense because of the decline in value of our pension plan assets at the end of
2008 as a result of losses experienced in the global equity markets. Gross
profit as a percentage of revenue for the first nine months of 2009 was higher
in the Medical and Aerospace segments, and lower in the Commercial Segment
compared to the same period of 2008.
Selling, engineering and administrative
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions)
Selling, engineering and administrative $ 126.2 $ 137.5 $ 381.1 $ 432.8
Percentage of sales 27.3 % 27.3 % 27.7 % 27.6 %
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Selling, engineering and administrative expenses (operating expenses) as a percentage of revenues were 27.3% for the third quarter of 2009 and 2008. The reduction in the dollar amount of these costs was principally the result of cost reduction initiatives throughout the Company, including restructuring and integration activities in connection with the Arrow acquisition, and lower spending on remediation of FDA regulatory issues.
Selling, engineering and administrative expenses as a percentage of revenues
were 27.7% for the first nine months of 2009 which is essentially the same
percentage as in the first nine months of 2008. The reduction in these costs was
principally the result of movements in currency exchange rates of approximately
$12 million, cost reduction initiatives, including restructuring and integration
activities in connection with the Arrow acquisition and the 2008 Commercial
Segment restructuring program, and lower spending on remediation of FDA
regulatory issues. These factors resulted in an aggregate reduction in expenses
of approximately $40 million.
Interest expense
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions )
Interest expense $ 21.1 $ 29.0 $ 68.5 $ 91.4
Average interest rate on debt 5.8 % 6.2 % 5.8 % 6.3 %
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Interest expense decreased in the third quarter of 2009 compared to the same period of 2008 due to a reduction of approximately $315 million in average outstanding debt during the period and lower interest rates. For the first nine months of 2009 average outstanding debt was approximately $275 million lower than in the corresponding period of 2008. Taxes on income from continuing operations
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
Effective income tax rate 28.2 % 31.6 % 23.6 % 33.6 %
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The principal factors affecting the comparability of the effective income tax
rate for the three month period are the beneficial net impact of discrete tax
charges in the third quarter 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, partially offset by the impact of 2009 foreign
income inclusions that will be immediately taxed in the U.S. The principal
factors affecting the comparability of the effective income tax rate for the
nine month period are the beneficial net impact of discrete tax charges in 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, partially offset by
the impact of 2009 foreign income inclusions that will be immediately taxed in
the U.S. and the impairment loss of $6.7 million on non-deductible goodwill for
which there is no income tax benefit.
Goodwill impairment
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions)
Goodwill impairment $ - $ - $ 6.7 $ -
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We performed an interim review of goodwill for our Cargo Container reporting
unit during the second quarter of 2009 as a result of the difficult market
conditions confronting the Cargo Container reporting unit and the significant
deterioration in its operating performance, which accelerated in the second
quarter of 2009. Upon conclusion of this review, we determined that goodwill in
the Cargo Container operations was impaired, and we recorded an impairment
charge of $6.7 million in the second quarter of 2009.
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 Nine Months Ended
September 27, September 28, September 27, September 28,
2009 2008 2009 2008
(Dollars in millions)
2008 Commercial Segment
Restructuring Program $ 0.2 $ - $ 2.2 $ -
2007 Arrow Integration Program 1.3 0.4 5.4 11.2
2006 Restructuring Program - 0.1 - 0.7
Impairment charges - intangibles
and fixed assets 3.3 - 5.8 -
Restructuring and other impairment
charges $ 4.8 $ 0.5 $ 13.4 $ 11.9
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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 initiatives
resulted in costs of approximately $0.2 million and $2.2 million during the
three and nine months ended September 27, 2009, respectively. As of
September 27, 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 as a result of actions taken in connection with this program.
In connection with the acquisition of Arrow in 2007, we formulated a plan
related to the 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. During the third quarter of 2009 we reassessed
the plan and decided to retain certain functions in Europe and maintain certain
distributor relationships in 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 condensed consolidated statement of operations.
These costs amounted to approximately $1.3 million and $5.4 million during the
three and nine months ended September 27, 2009, respectively. As of
September 27, 2009, we estimate that, for the remainder of 2009 and for 2010,
the aggregate of future restructuring and impairment charges that we will incur
in connection with the Arrow integration plan are approximately $2.9 -
$4.7 million. Of this amount, $1.5 - $2.5 million relates to employee
termination costs, $0.2 - $0.4 million relates to facility closure costs, $0.5 -
$0.8 million relates to contract termination costs associated with the
termination of leases and certain distribution agreements and $0.7 - $1.0
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
$1.8 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 after these
integration and restructuring actions are complete.
For additional information regarding our restructuring programs, see Note 4 to
our condensed consolidated financial statements included in this report.
During the second quarter of 2009, we recorded a $2.3 million impairment charge
related to an intangible asset in the Commercial Segment. In 2004, we
contributed property and other assets that had been part of one of our former
manufacturing sites to a real estate venture in California. During the third
quarter of 2009, based on continued deterioration in the California real estate
market, we concluded that our investment was not recoverable and recorded $3.3
million in impairment charges to fully write-off our investment in this venture.
See Note 5 to our condensed consolidated financial statements included in this
report for further information.
Segment Reviews
Three Months Ended Nine Months Ended
% %
September 27, September 28, Increase/ September 27, September 28, Increase/
2009 2008 (Decrease) 2009 2008 (Decrease)
(Dollars in millions)
Medical $ 355.9 $ 367.3 (3 ) $ 1,060.3 $ 1,125.7 (6 )
Aerospace 45.8 62.1 (26 ) 126.6 194.1 (35 )
Commercial 59.8 74.6 (20 ) 188.2 249.7 (25 )
Segment net revenues $ 461.5 $ 504.0 (8 ) $ 1,375.1 $ 1,569.5 (12 )
Medical $ 73.8 $ 71.4 3 $ 222.6 $ 213.0 5
Aerospace 4.6 7.3 (38 ) 8.6 19.9 (57 )
Commercial 4.6 4.9 (4 ) 11.5 21.3 (46 )
Segment operating profit (1) $ 83.0 $ 83.6 (1 ) $ 242.7 $ 254.2 (5 )
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(1) See Note 15 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 nine month periods ended September 27, 2009 compared to the same period in 2008 are due to the following factors:
% Decrease
2009 vs. 2008
Medical Aerospace Commercial Total
Three Nine Three Nine Three Nine Three Nine
Months Months Months Months Months Months Months Months
Core growth 1 1 23 29 16 21 6 8
Currency impact 2 5 3 6 - 1 2 4
Dispositions - - - - 4 3 - -
Total change 3 6 26 35 20 25 8 12
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The following is a discussion of our segment operating results.
Comparison of the three and nine month periods ended September 27, 2009 and
September 28, 2008
Medical
Medical Segment net revenues declined 3% in the third quarter of 2009 to
$355.9 million, from $367.3 million in the same period last year. Foreign
currency fluctuations caused 2% of the revenue decline and core revenues
declined 1% compared to the third quarter of 2008. Core revenue increases in the
North American, European and Asia/Latin American critical care product groups
were offset by declines in OEM orthopedic instrumentation products and in North
American and European surgical products.
Net revenues for the first nine months of 2009 declined 6% to $1,060.3 million
compared to $1,125.7 million in the same period of 2008. Foreign currency
fluctuations caused 5% of this decrease while core revenue declined 1% during
the first nine 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, in cardiac care in the first quarter of 2009 due to a
voluntary product recall and in the OEM orthopedic instrumentation product group
for the nine month period.
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)
September 27, September 28, Core Currency Total
2009 2008 Growth Impact Change
(Dollars in millions)
Critical Care $ 231.6 $ 230.4 3 (2 ) 1
Surgical 66.7 75.8 (10 ) (2 ) (12 )
Cardiac Care 16.9 17.3 1 (3 ) (2 )
OEM 37.6 39.4 (4 ) (1 ) (5 )
Other 3.1 4.4 (24 ) (6 ) (30 )
Total net sales $ 355.9 $ 367.3 (1 ) (2 ) (3 )
Nine Months Ended % Increase/(Decrease)
September 27, September 28, Core Currency Total
2009 2008 Growth Impact Change
(Dollars in millions)
Critical Care $ 680.7 $ 720.4 (1 ) (5 ) (6 )
Surgical 208.8 223.1 (1 ) (5 ) (6 )
Cardiac Care 51.6 54.5 (1 ) (4 ) (5 )
OEM 109.4 116.5 (5 ) (1 ) (6 )
Other 9.8 11.2 (3 ) (9 ) (12 )
Total net sales $ 1,060.3 $ 1,125.7 (1 ) (5 ) (6 )
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Medical Segment net revenues for the nine months ended September 27, 2009 and September 28, 2008, respectively, by geographic location were as follows:
2009 2008
North America 54 % 53 %
Europe, Middle East and Africa 35 % 37 %
Asia and Latin America 11 % 10 %
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