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SMA > SEC Filings for SMA > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for SYMMETRY MEDICAL INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SYMMETRY MEDICAL INC.


9-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

Symmetry Medical Inc. is a leading global source of medical device solutions, including surgical instruments, orthopedic implants, and sterilization cases and trays. We employ over 2,500 teammates around the world who are dedicated to being the trusted global source of innovative medical device solutions and surgical instruments for today's needs and tomorrow's growth.

In our OEM Solutions segment, we offer our original equipment manufacturer (OEM) customers implants, instruments and sterilization cases and trays. Symmetry Surgical, our growing hospital direct medical distribution business is complementary to core competencies, not competitive with our OEM customers, and our salespeople call on hospital personnel in the operating room, materials management and central sterile departments. Our goal is to offer best-in-class quality and regulatory systems as well as customer innovation through Total Solutions® collaborations.

During the first quarter 2013, Symmetry's OEM Solutions business revenue increased $2,689, or 3.6%, compared to the first quarter 2012. This increase was driven by increased customer demand in implants, instruments and cases, reflecting stable customer spending on instruments and cases and improved demand for implants from OEM customers. During the first quarter 2013, our combined five largest OEM customers increased revenue by 4.7% compared to first quarter 2012, primarily driven by an increase in their capital expenditures and increased launch volume. Our overall OEM Solutions revenue in the first quarter 2013 decreased by $1,407 from the fourth quarter 2012.

During the first quarter 2013, Symmetry Surgical revenue decreased $4,510, or 16.9%, compared to the first quarter 2012. This decrease was primarily due to sales disruptions with certain U.S. customers and transitions to distributorships in the rest of the world related to the integration of the Codman surgical instruments business into Symmetry Surgical.

The sluggish U.S. economy, high unemployment rates and lower than historical levels of surgical implant procedure growth continued to adversely impact customer demand. We continue to be optimistic about the long-term future as the larger OEMs are increasingly focused on improving their supply chains and plan to launch new products with large programs over the next three years. We believe this will result in fewer suppliers who in turn will be expected to provide a wider range of services coupled with high quality and reduced overall costs. We believe that we are well positioned to benefit from increased OEM outsourcing and the consolidation of suppliers. In Symmetry Surgical, we plan to continue to expand coverage and product portfolio to serve our hospital direct customers consistent with our strategic principles.

Our strategic plan is focused on four distinct but synergistic areas:

· Being the trusted, industry leading orthopedic OEM supplier positioned to gain share in long-term growth segment;
· Diversifying our revenue base with our strategic, growing hospital direct medical device distribution business;
· Utilizing resources to pursue growth opportunities and acquisitions in appropriate Medical Device OEM adjacencies and add to hospital solutions portfolio; and
· Developing a robust intellectual property portfolio with a dedicated R&D team to drive future growth through innovation.

Using this strategy, we are striving to provide the best possible customer experience by offering superior value; the highest-quality new technology; customized services; superior support; and the combination of our products and services into our Total Solutions® offering. Historically, our growth has been driven organically from our core businesses as well as acquisitions designed to augment select areas of our business with more products, services, and technology.

First Quarter Results of Operations

Revenue. Revenue for the three month period ended March 30, 2013 decreased $1,821, or 1.8%, to $98,864 from $100,685 for the comparable 2012 period. Revenue for each of our segments and principal product categories in these periods was as follows:

                                     Three Months Ended
                                  March 30,      March 31,
Sales by product                     2013           2012
                                         (unaudited)
OEM Solutions Revenue
Instrument                        $   28,167     $   27,034
Implant                               25,967         24,810
Cases                                 16,385         15,850
Other                                  6,161          6,297
Total OEM Solutions Revenue           76,680         73,991

Total Symmetry Surgical Revenue       22,184         26,694

Total Revenue                     $   98,864     $  100,685

The $2,689 increase in OEM Solutions revenue resulted from increased customer demand within our instruments, implants and cases product lines, offset by decreased demand in our other product line and unfavorable foreign currency exchange rate fluctuations of $116. Overall, we experienced increased revenues of 4.7% from our five largest OEM customers which drove the increase in revenue. OEM Solutions Instrument revenue increased $1,133. This increase was driven primarily by higher revenue from other medical customers as well as a slight increase from our top five largest OEM customers of $237 related to increased customer launches. OEM Solutions Implant revenue increased $1,157 driven by increased revenue from our top five largest OEM customers of $1,145 related primarily to increased capital expenditures. Case revenue increased $535 due primarily to higher revenue from our top five largest OEM customers of $1,057 related primarily to increased customer launch volume offset by soft customer demand across other medical industries. OEM Solutions Other product revenue decreased $136 associated with a slight decrease in demand as well as unfavorable foreign currency exchange rate fluctuations of $54.

The $4,510 decrease in Symmetry Surgical revenue in the first quarter 2013 as compared to 2012 was primarily the result of sales disruptions with certain U.S. customers and transitions to distributorships in the rest of the world related to the integration of the Codman surgical instruments business into Symmetry Surgical.

Gross Profit. Gross profit for the three month period ended March 30, 2013was consistent with the comparable 2012 period. Gross margin as a percentage of revenue increased 0.4%, to 25.4% for the first quarter 2013 from 25.0% for the comparable 2012 period.

                                              Three Months Ended
                                                March 30, 2013
                                                             As a %
                                           Dollars         of Revenue
                                                  (unaudited)

2012 period reported gross profit        $    25,144              25.0 %
Change in organic sales volume and mix        (1,426 )             0.0 %
Foreign currency impact                          (19 )             0.0 %
Manufacturing costs and other                  1,445               0.4 %
2013 period reported gross profit        $    25,144              25.4 %

Gross profit was favorably impacted by decreased manufacturing costs related to improvements in scrap, consumables, and efficiencies resulting from the Corporation's lean initiatives. However, this improvement was unfavorably impacted by a lower percentage of revenue from the Corporation's higher margin Symmetry Surgical segment as compared to the same period last year.

Research and Development Expenses. For the three month period ended March 30, 2013, research and development expenses increased $271 or 30.3% to $1,164 from $893 in the comparable period in 2012, primarily due to increased project expense and costs associated with maintaining patents.

Sales and Marketing Expenses. For the three month period ended March 30, 2013, sales and marketing expenses remained relatively flat to the comparable period in 2012.

General and Administrative Expenses. For the three month period ended March 30, 2013, general and administrative expenses increased $2,166 or 20.3%, to $12,838 from $10,672 in the comparable period in 2012. Significant items which impacted general and administrative expenses included:

                                                                   Three Months Ended
                                                                     March 30, 2013
                                                                                 As a %
                                                               Dollars         of Revenue
                                                                      (unaudited)

2012 period reported General &Administrative expenses        $    10,672               10.6 %
Employee compensation and benefit costs paid in cash                 962
Change in amortization of intangible assets                         (236 )
Medical device excise tax expense                                    335
Other                                                              1,105
2013 period reported General & Administrative expenses       $    12,838               13.0 %

Employee compensation and benefit costs paid in cash increased due to an increase in salaries and benefit expense as well as significant medical claims incurred during the quarter under the Corporation's U.S. based medical plan. Other primarily relates to increased professional service fees for acquisition related expenses, as well as tax planning initiatives and infrastructure costs in the Symmetry Surgical segment.

Facility Consolidation and Severance Costs. Results of Operations include pre-tax charges of $129 and $373 for the three months ended March 30, 2013 and March 31, 2012, respectively, associated with employee cost efficiency actions and employee severance costs. As of March 30, 2013, severance accruals related to these cost reduction and efficiency actions totaled $155 and were included in other accrued liabilities in the consolidated balance sheets.

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