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Symmetry Medical Inc. Reports Operating Results (10-Q)

November 10, 2010 | About:
10qk

10qk

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Symmetry Medical Inc. (SMA) filed Quarterly Report for the period ended 2010-10-02.

Symmetry Medical Inc. has a market cap of $311.2 million; its shares were traded at around $8.66 with a P/E ratio of 24.8 and P/S ratio of 0.8. SMA is in the portfolios of John Rogers of ARIEL CAPITAL MANAGEMENT LLC, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

The $4.3 million, or 5.0%, increase in revenue resulted from increased demand within our cases, implants, and other product lines partially offset by lower instrument demand and unfavorable foreign currency exchange rate fluctuations of $1.7 million. We experienced higher revenues of 6.2% from our five largest OEM customers which drove the overall increase in revenue. Instrument revenue decreased $5.3 million. This decrease was primarily driven by lower revenue from our five largest OEM customers as several large projects for our top customers in the prior year were not repeated. Foreign currency exchange rate fluctuations further impacted instrument revenues with an unfavorable impact of $0.1 million. Implant revenue increased $4.1 million, driven by increased revenue from our five largest OEM customers, partially offset by an unfavorable foreign currency exchange rate fluctuations of $1.0 million. Case revenue increased $5.1 million due to increased revenue from our five largest OEM customers with increases in both the orthopedic and other medical device markets, partially offset by $0.4 million of unfavorable foreign currency exchange rate fluctuations. Other product revenue increased $0.4 million primarily driven by increased customer demand partially offset by unfavorable foreign currency exchange rate fluctuations of $0.2 million.

Facility Closure and Severance Costs. Results of Operations include pre-tax charges of $0.1 million and $0.7 million for the three months ended October 2, 2010 and October 3, 2009, respectively, associated with employee cost reduction and efficiency actions and the consolidation of our Whitman, MA and Auburn, ME facilities into other facilities that produce similar products. For the three month period ended October 2, 2010, these costs are comprised of $0.1 million of severance costs compared to $0.4 million of severance costs in addition to $0.3 million associated with moving costs for the period ended October 3, 2009. Costs charged to operations in the third quarter of 2010 were paid during the third quarter. Included in accrued and other liabilities in the consolidated balance sheet as of October 2, 2010 is $0.1 million of severance costs incurred during fiscal 2009 that have not yet been paid. These costs are all expected to be paid during 2010.

The $24.6 million decrease in revenue resulted from a decline in revenue from our top five OEM customers of 14.3% and unfavorable foreign currency exchange rate fluctuations of $1.2 million. Instrument revenue decreased $31.6 million. This decrease was driven entirely by decreased revenue from our top five OEM customers due to the timing of launch activities and management of inventory levels. Implant revenue increased $1.9 million, driven by increased revenues from our top five OEM customers related to specific product launches and management of inventory levels, partially offset by unfavorable foreign currency exchange rate fluctuations of $0.7 million. Case revenue increased $6.4 million due to increased revenues from our top five OEM customers with increases in both the orthopedic and other medical device markets related to specific product launches and management of inventory levels, partially offset by $0.4 million of unfavorable foreign currency exchange rate fluctuations. Other product revenue decreased $1.3 million driven by a reduction in customer demand of $1.2 million in addition to unfavorable foreign currency exchange rate fluctuations of $0.1 million.

Facility Closure and Severance Costs. Results of Operations include pre-tax charges of $0.9 million and $0.9 million for the nine months ended October 2, 2010 and October 3, 2009, respectively, associated with employee cost reduction and efficiency actions and the consolidation of our Whitman, MA and Auburn, ME facilities into other facilities that produce similar products. For the nine month period ended October 2, 2010, these costs are comprised of $0.6 million of severance costs and an additional $0.3 million of moving expenses compared to $0.6 million of severance costs and an additional $0.3 million of moving expenses for the period ended October 3, 2009. As of October 2, 2010 and January 2, 2010, severance accruals related to these cost reduction and efficiency actions totaled $0.1 and $0.8 million, respectively, and are included in accrued and other liabilities in the condensed consolidated balance sheets. The reduction in the accrual from January 2, 2010 represents payments made during the first three quarters of 2010 of $1.4 million, offset by additional severance costs incurred of $0.6 million. Remaining costs are all expected to be paid during 2010.

Other (Income) Expense. Interest expense for the nine month period ended October 2, 2010 decreased $0.5 million, or 9.6%, to $4.6 million from $5.1 million for the comparable period in 2009. This decrease reflects the reduction in aggregate outstanding indebtedness of $16.7 million, or 15.2% as compared to October 3, 2009. The derivatives gain for the first three quarters of 2010 consists of a gain on interest rate swap valuation of $1.2 million related to our interest rate swap that has not been designated as a hedge as compared to a gain of $0.7 million for the comparable period in 2009. The interest rate swaps are used to convert our variable rate long-term debt to fixed rates. Other expense for the nine month period ended October 2, 2010 increased $0.4 million from the comparable period in 2009, from $0.4 million to $0.8 million, due to unfavorable foreign currency exchange rate fluctuations on transactions denominated in foreign currencies.

As of October 2, 2010, we had an aggregate of $93.5 million of outstanding indebtedness, which consisted of $74.3 million of term loan borrowings outstanding under our Senior Credit Agreement, $11.7 million of borrowings outstanding under our revolving credit facility, $2.1 million of borrowings under our new UK asset-based 24-month term note, $2.4 million of borrowings under our Malaysia short-term credit facility, and $3.0 million of capital lease obligations. We had two outstanding letters of credit as of October 2, 2010 in the amounts of $3.5 million and $0.2 million.

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