Teleflex Inc. (TFX) filed Quarterly Report for the period ended 2009-09-27.
Teleflex is a growth-oriented company managed for long-term consistent performance. Their diversified operations manufacture products and provide services for the automotive marine industrial medical and aerospace markets worldwide. They Seek leadership in technical market niches. Maintain balance and diversification among their markets. Emphasize their international activities. Search for new technology in current markets. Teleflex Inc. has a market cap of $2.02 billion; its shares were traded at around $50.86 with a P/E ratio of 13.1 and P/S ratio of 0.8. The dividend yield of Teleflex Inc. stocks is 2.7%. Teleflex Inc. had an annual average earning growth of 6.5% over the past 10 years. GuruFocus rated Teleflex Inc. the business predictability rank of 2-star.
Highlight of Business Operations:
During the third quarter of 2009, we completed the sale of our Power Systems operations to Fuel Systems Solutions, Inc. for $14.5 million and realized a loss of $3.3 million, net of tax. During the second quarter, we recognized a non-cash goodwill impairment charge of $25.1 million to adjust the carrying value of these operations to their estimated fair value. In the third quarter of 2009, we reported the Power Systems operations, including the goodwill impairment charge, as discontinued operations.
On March 20, 2009, we completed the sale of our 51 percent share of Airfoil Technologies International — Singapore Pte. Ltd. (“ATI Singapore”) to GE Pacific Private Limited for $300 million in cash. We recognized a gain of approximately $178 million, net of $98 million of taxes, in discontinued operations. We used $240 million of the proceeds of this transaction to repay long-term debt. We are also party to an agreement with General Electric Company (“GE”) that will permit us to transfer our ownership interest in the remaining ATI business (together with ATI Singapore, the “ATI businesses”) to GE by the end of 2009 for no additional consideration. (See Note 16 to our condensed consolidated financial statements included in this report for discussion of discontinued operations).
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.
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.
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.
TFX is in the portfolios of Robert Olstein of Olstein Financial Alert Fund, David Dreman of Dreman Value Management.
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