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

August 07, 2009 | About:

Symmetry Medical Inc. (SMA) filed Quarterly Report for the period ended 2009-07-04.

Symmetry Medical products and services extend into medical device markets such as orthopedic spinal trauma dental cardiovascular ophthalmology etc. They offer trusted brands Jet Othy PolyVac Thornton and UltreXX. Symmetry Medical Inc. has a market cap of $306.8 million; its shares were traded at around $8.57 with a P/E ratio of 12 and P/S ratio of 0.7.

Highlight of Business Operations:

The $8.8 million decrease in revenue resulted from unfavorable foreign currency exchange rate fluctuations of $5.9 million and reduced sales on a constant currency basis within our case and aerospace product lines, which was only partially offset by increases in instrument and implant product lines. Instrument revenue increased $1.8 million. This increase was driven by an increase in organic customer demand of $2.5 million due to the continuation of several large projects for our top five customers driven primarily by product launches. Foreign currency exchange rate fluctuations partially offset the increases in instrument revenues as they had an unfavorable impact of $0.7 million. Implant revenue decreased $1.3 million driven by unfavorable foreign currency exchange rate fluctuations of $3.0 million, partially offset by organic growth of $1.7 million resulting from general industry growth. Case revenue decreased $4.5 million due to a $3.6 million decrease in customer demand from our non-orthopedic medical customers as they react to the current economic environment and $0.9 million of unfavorable foreign currency exchange rate fluctuations. Other product revenue decreased $4.8 million primarily driven by a reduction of customer demand of $3.5 million due to our largest customer in the aerospace industry reacting to deteriorating market conditions in that sector in addition to unfavorable foreign currency exchange rate fluctuations of $1.3 million.

Other (Income) Expense. Interest expense for the three month period ended July 4, 2009 decreased $1.4 million, or 46.4%, to $1.6 million from $2.9 million for the comparable period in 2008. This decrease reflects the reduction in the interest rate on our debt due to our improved financial ratios, as well as the general decline in the interest rate market in the second quarter 2009 as compared to 2008. Additionally, aggregate outstanding indebtedness has decreased $20.6 million, or 14.2% as compared to June 28, 2008. The net derivatives gain in second quarter 2009 consists of a gain on interest rate swap valuation of $0.2 million related to our interest rate swap that has not been designated as a hedge under SFAS 133 as compared to a gain of $1.4 million for the comparable period in 2008. The interest rate swaps are used to convert our variable rate long-term debt to fixed rates. During 2008, the Corporation also held foreign currency forwards to mitigate fluctuations in foreign currency on the statement of operations. The gain of the foreign currency valuation for fiscal 2008 offset losses on foreign currency fluctuations that were included within other expense.

The $9.2 million decrease in revenue resulted from unfavorable foreign currency exchange rate fluctuations of $13.3 million and decreased cash and other revenue partially offset by increased revenue within our instrument and implant product lines on a constant currency basis. Instrument revenue increased $9.0 million driven by an increase in organic customer demand of $8.4 million due to the continuation of several large projects related to product launches for our top five customers. In addition, 2009 instrument revenue increased $2.2 million from our New Bedford acquisition which was completed at the end of January 2008. Foreign currency exchange rate fluctuations partially offset the increases in instrument revenues as they had an unfavorable impact of $1.6 million. Implant revenue decreased $2.4 million driven by unfavorable foreign currency exchange rate fluctuations of $6.6 million, partially offset by organic growth of $3.7 million resulting from general industry growth and the additional sales from our New Bedford acquisition of $0.5 million. Case revenue decreased $7.5 million due to a $5.8 million decrease in customer demand from our non-orthopedic medical customers as they react to the current economic environment and $1.7 million of unfavorable foreign currency exchange rate fluctuations. Other product revenue decreased $8.3 million driven by both unfavorable foreign currency exchange rate fluctuations of $3.4 million and a reduction in customer demand of $4.9 million due to our largest customer in the aerospace industry reacting to deteriorating market conditions in that sector.

Selling, General and Administrative Expenses. For the six month period ended July 4, 2009, selling, general and administrative expenses (“SG&A”) were $26.6 million compared with the six month period ended June 28, 2008 of $29.3 million. The decrease was primarily driven by a reduction in professional fees and expenses incurred in the first half of 2008 of $3.6 million from the review of accounting irregularities at our Sheffield, UK operating unit. The improvement also reflects a decrease in employee compensation costs, including headcount reductions, driven by lower revenue levels and our continued cost control efforts, partially offset by an increase in non-cash, stock based compensation expense of $1.1 and the additional costs from the acquisition of New Bedford, which was acquired at the end of January 2008.

Other (Income) Expense. Interest expense for the six month period ended July 4, 2009 decreased $2.2 million, or 39.8%, to $3.4 million from $5.6 million for the comparable period in 2008. This decrease reflects the reduction in our interest rate margin above LIBOR due to improved financial ratios, as well as the general decline in the interest rate market in the first half of 2009 as compared to 2008. Additionally, aggregate outstanding indebtedness has decreased $20.6 million, or 14.2% as compared to June 28, 2008. In 2009, the Corporation entered into a forward swap contract to manage interest rate risk related to a portion of its current variable rate senior secured term loan. The Corporation has hedged the future interest payments related to $64.1 million of the total outstanding term loan indebtedness due in 2011 pursuant to this forward swap contract. This swap contract is designated as a cash flow hedge of the future payment of variable rate interest with three-month LIBOR fixed at 1.34% per annum in 2009, 2010 and 2011, respectively. The net derivatives gain for the six month period ended July 4, 2009 consists of a gain on interest rate swap valuation of $0.6 million related to our interest rate swap that has not been designated as a hedge under SFAS 133 as compared to a gain of $0.1 million for the comparable period in 2008. The interest rate swaps are used to convert our variable rate long-term debt to fixed rates. During 2008, the Corporation also held foreign currency forwards to mitigate fluctuations in foreign currency on the statement of operations. The gain of the foreign currency valuation for fiscal 2008 offset losses on foreign currency fluctuations that were included within other expense.

As of July 4, 2009, we had an aggregate of $124.9 million of outstanding indebtedness, which consisted of $98.1 million of term loan borrowings outstanding under our Senior Credit Agreement, $16.0 million of borrowings outstanding under our revolving credit facility, $5.3 million of borrowings under our UK short-term credit facility, $1.8 million of borrowings under our Malaysia short-term credit facility, and $3.8 million of capital lease obligations. We had one outstanding letter of credit as of July 4, 2009 for $3.5 million.

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Rating: 3.0/5 (1 vote)

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