泰利福醫療 (TFX) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2009 Teleflex Incorporated Earnings Conference Call. (Operator Instructions)

I would like to now hand the call over to Mr. Jake Elguicze, Senior Director of Investor Relations. Please proceed.

Thank you. Good morning, everyone. The press release and slides to accompany this call are available on our website at www.teleflex.com. And as a reminder, this call will be available on our website, and a replay will be available by dialing (888) 286-8010 or, for international calls, (617) 801-6888, pass code 98105977.

Participating on today's call are Jeff Black, Teleflex's Chairman and Chief Executive Officer, and Kevin Gordon, Teleflex's Executive Vice President and Chief Financial Officer. Jeff and Kevin will make brief prepared remarks, and then we will open up the call to questions.

Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events, as outlined on slide two. We wish to caution you that such statements are in fact forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially.

The factors that could cause actual results or events to differ materially include but are not limited to factors made in our press release today, as well as our filing with the SEC, including our Form 10-K, which can be accessed on our website.

Now I'll turn the call over to Jeff.

Thanks, Jake. Good morning, everyone. We're pleased to have you join us this morning as we report our results for the first quarter of 2009. It was a mixed quarter for Teleflex in the face of what was an extremely challenging operating environment as we experienced difficulties in some areas and yet made solid improvements in others.

Kevin will take you through the financial results in much more detail a bit later. However, let me touch on some of the highlights of the quarter.

Coming off of a strong fourth quarter, the first quarter saw many adjustments made by our customers in each of segments, as well as stronger-than-anticipated headwinds from foreign currency. The result was a core revenue decline of 8% in the first quarter of 2009 compared to the first quarter of 2008.

Medical core revenues were down 4% primarily due to the reduced sales of our respiratory products, rebalancing of inventory levels at some of our major North American distributors due to the current economic impacts on their businesses, lower sales of cardiac care products and a decline in orthopedic devices sold to Medical OEMs.

Despite the revenue declines in the first quarter, overall, gross margins, excluding special charges, were 41.8%, up 110 basis points over 2008. And adjusted segment operating margins were up 100 basis points to 14.5%.

The higher mix of revenues from the Medical segment, along with the incremental synergies from the Arrow acquisition and cost containment measures in all the segments, contributed to the overall margin improvement.

Earnings per share excluding special charges were $0.76, up 17% over the prior year. Considering the fact that overall sales for the company, including the impact of foreign currency exchange, were down 13%, we're extremely pleased with our ability to generate such strong EPS growth. This is a testament to our early recognition in the quarter that sales levels were not going to materialize as originally expected and our ability to act quickly to manage our cost structure.

And finally, and this is very unusual for Teleflex, our cash flow from continuing operations was a net use of cash of approximately $4 million for the quarter. Clearly, our customers and suppliers are focused heavily on cash management programs, and we did not manage our working capital to our own expectations. Believe me, action plans have already been put in place, and I assure you that this will improve.

Moving on to some of the strategic things that occurred in the quarter, as of today, we have not been visited by the FDA in connection with the Arrow corporate warning letter. We expect the FDA to begin their inspections any time now and feel good about the preparation that we have in place. We have invested in industry experts to assist us, added internal resources where needed, implemented the necessary process improvements and trained our staff.

We also remain confident that we will achieve the $18 million to $20 million of pretax synergies from the Arrow integration that we outlined in our 2009 outlook call in early January. Keep in mind that the majority of these synergies are manufacture related and are expected to be more additive in the second half of 2009.

In Aerospace, we announced and completed, in the quarter, the sale of our 51% ownership share in Airfoil Technologies Singapore to General Electric, the owner of the remaining 49% for $300 million. This transaction resulted in an after-tax gain of approximately $179 million or $4.48 per diluted share. The divested business, which we had consolidated in previous years, had annual revenues of approximately $250 million and has been included in discontinued operations for all applicable periods.

In the continuing businesses, we experienced push-outs in the delivery of certain wide-body cargo systems and weaker demand for cargo containers and spares in the face of a declining commercial airline demand. On the narrow-body side, we delivered more units in the first quarter of 2009 than in the comparable quarter of 2008, including continued support of the Boeing 737 program and our first system for the Bombardier CRJ. We remain well positioned with the cargo platforms we support and expect to deliver a larger number of systems in the second half of the year.

In our Commercial segment, we completed the sale of our Marine gauge business during the quarter, a product line that we had planned to exit in the restructuring program, which we announced in December of 2008. This product line had annual revenues of approximately $13 million. On the surface, this may not appear to be a significant transaction. However, it provided continued employment for more than 50 of our valued employees.

And finally, with the net proceeds that we received as a result of the Airfoil Technologies transaction, we were able to pay down approximately $240 million in debt, thereby positioning our balance sheet for future growth opportunities.

When we look at the continuing businesses after the sale of our interest in ATI, we are expecting our EPS before special charges to increase between 4% and 14% in 2009 when compared to 2008. On a comparable basis, our continuing business generated 11% and 34% growth in EPS before special charges in 2008 and 2007 respectively. As the emphasis on the Medical business increases and we see some relief from our current economic malaise, we expect to continue to deliver double-digit growth in EPS before special charges.

Also, yesterday, our Board of Directors declared a quarterly dividend of $0.34 per share payable June 15 to holders of record on May 15. We recognize that by not increasing the dividend this quarter we are breaking a longstanding streak of annual increases. Yet, we believe it is prudent at this time, in light of the significant uncertainty in today's environment, to maintain the quarterly dividend at a constant rate with the last four quarters. The dividend provides a current yield of approximately 3.4%.

With that, let me turn the call over the Kevin, and he can walk you through the financial results in more detail. Kevin?

Thank you, Jeff. Good morning, everyone.

Slide nine provides a summary of results from continuing operations noting the adjustments related to special charges in the respective quarters. Revenues for the first quarter were $469.7 million, down 13% over the first quarter last year, 8% excluding the impact of foreign currency translation.

Adjusted gross margin for the quarter of 41.8% was up 110 basis points over the first quarter last year primarily due to a significant increase in truck APU volume, the first shipments to the US military of the Modern Burner Unit and improvements made in our cargo actuation businesses. This was offset by the impact of a significant decline in Marine volume, a shift in our rigging services business toward additional retail sales and a mix of overall lower ship-set sales within our Aerospace cargo loading system business. Medical adjusted segment gross margins were consistent with the prior-year quarter.

Adjusted operating expenses for the quarter were $128.5 million or 27.4% of sales compared to $147.3 million or 27.2% in the prior year quarter. The decline in operating expenses was due to synergies achieved from the Arrow integration, cost reductions achieved by each of our segments, reduced corporate spending and the positive impact from foreign currency translation on certain business segments with an offset from higher pension and other post-retirement costs.

Operating income before special charges was $68 million, down 7% from $73.1 million in 2008. However, adjusted operating margins of 14.5% reflect an increase of 100 basis points compared to last year.

Pretax special charges in the first quarter of 2009 totaled $5.7 million and related to the Arrow integration program and the Commercial segment restructuring announced in December 2008.

And finally, operating income was $62.3 million, up 9% from the prior year quarter, which included transaction-related charges for the Arrow acquisition.

Slide ten provides a reconciliation to income and earnings per share for income from continuing operations before special charges. Excluding these special charges, income from continuing operations was $30.2 million or $0.76 per diluted share compared to $25.7 million or $0.65 per diluted share in 2008, and increase of 17%.

The first quarter of 2009 included the special charges noted earlier totaling $3.8 million net of tax. Restructuring and impairment costs in the first quarter of 2008 totaled $6 million net of tax and were costs primarily related to the Arrow integration. In that quarter, we also recorded a net-of-tax charge related to the fair market value inventory adjustment of $4.4 million.

Turning to the segments, in the Medical segment, revenues for the first quarter decreased 9% to $340.5 million. The impact of foreign currency translation was unfavorable by 5% while core revenues declined 4%.

The decline in core revenue was predominantly in the North American Critical Care, Cardiac Care and OEM Orthopedic Instrumentation product groups. Our Critical Care products were down 5% on a constant currency basis. This decline came after a strong fourth quarter of 2008 and was primarily due to lower sales of respiratory products in the North American market due to a weak flu season and distributors reducing inventory from year-end 2008 levels.

Somewhat offsetting the decline in respiratory sales was the core growth achieved across all regions in our Urology product lines and in our Anesthesia products in Europe, Asia and Latin American markets. We've begun to see distributor order rates return, actually, as we begin -- to normal levels, as we exit April.

Moving to surgical, sales were up 1% on a constant currency basis led by sales of closure devices. Surgical core revenue growth was achieved in the European, Asian and Latin American markets during the quarter.

In Cardiac, sales were down 10% on a constant currency basis versus 2008. The decline in sales was due primarily to a voluntary recall of intra-aortic balloon pump catheters that we initiated in early February of this year. The recall was conducted because of a fault in the connector of the pump tubing assembly that could result in the volume setting on the pump defaulting to an improper level.

We notified both domestic and foreign hospitals and distributors in early February when we became aware of this issue. This recall involved the retrieval of unused products, issuance of mitigation instructions for patients and facilities in critical need and a replacement of pump tubing assemblies. There have been no reports of patient injury as a result of this issue. We implemented a design change to correct the issue during the first quarter and have now begun shipping replacement products.

And lastly, from a topline perspective, our OEM sales were down 4% on a constant currency basis versus the first quarter of 2008. During the quarter, the core revenue growth that was achieved in specialty sales was more than offset by a decline in Orthopedic sales as some of our larger customers worked through some inventory adjustments. Keep in mind that our fourth quarter 2008 core growth in OEM was 34%. So we expect this business to rebound in the second half of 2009.

Operating profit excluding special charges was $70.8 million for the quarter compared to $78.1 million in the prior year. The negative impact on adjusted operating profit from lower revenues and a strong US dollar was somewhat offset by lower SG&A costs during the current period as a result of cost reduction initiatives including restructuring and integration activities in connection with the Arrow acquisition.

Adjustment segment operating margins were 20.8%, flat compared to the first quarter of 2008 and up 90 basis points sequentially from the fourth quarter of 2008. Lower spending on our regulatory compliance program, totaling approximately $1.7 million in the first quarter of 2009, had a positive sequential impact on margins.

Now let's review Aerospace. The Aerospace segment results reflect continuing operations for all periods presented. The results in this segment reflect the overall macroeconomic environment and the delays experienced by major aircraft manufacturers.

In this segment, first quarter revenues were $43.7 million, down 34% versus the prior quarter of 2008. This was due to a decline in core revenues of 27% and an unfavorable currency impact of 7%. The decline in core revenues was primarily due to one less wide-body cargo handling system unit shipped during the quarter due to delays in delivery schedules and a lower overall ship-set value of units shipped during the quarter as a result of a mix of aircraft platforms.

In addition, there were a lower number of cargo system conversions in the aftermarket and lower demand for cargo containers and spares from commercial airlines and freight companies due to the current weakness in the Commercial aviation sector. These decreases were somewhat offset by the continued strong sales of the smaller and lower relative-priced narrow-body cargo loading systems Jeff referred to earlier.

Segment operating profit decreased to $3 million from $4.9 million in the first quarter of 2008 principally due to the lower sales volumes including reduced sales of higher-margin spares and the stronger US dollar. Cost reduction efforts within this segment are underway, and we expect segment operating margins to improve in the second half of 2009 with full-year segment operating margins in the upper single-digit range.

Moving to the Commercial segment, as expected, first quarter revenues in this segment declined due to a 34% shortfall in volume in Marine as compared to the prior year. Revenues for this segment in the quarter were $85.4 million compared to $101.8 million in the prior year. The negative sales trend in Marine continued in the first quarter of 2009, as OEM customers extended plant shutdowns and continued to cutback production levels. We do not foresee a turnaround in this market in the near term. In connection with the commercial restructuring plan announced in December of 2008, we expect to have two Marine plants closed by the end of the second quarter.

In the Power Systems business, we experienced a significant increase in sales of truck auxiliary power units compared to the first quarter of 2008. We currently expect truck APU shipments to be up again in the second quarter of 2009 compared to the second quarter of 2008. However, this business has proven to be prone to significant cycles, and we expect a more challenging second half of the year.

The Rigging Services business had core revenue growth of 1% in the quarter, down from the growth rates that were experienced last year, principally due to a sales mix focused more on retail versus wholesale customers and the overall reduction in oil and gas and material handling markets.

Despite this significant decline in revenue, Commercial segment operating profit rose in part due to the cost containment initiatives we announced in the fourth quarter of 2008, as well as those taken earlier, but also as a result of the favorable currency impact related to the Canadian cost structure of the business as compared to the first quarter of 2008.

Operating profit increased to $4.7 million from $2.8 million in the prior year quarter. Segment operating margins for the first quarter were 5.5%, up 270 basis points over the prior year first quarter.

Moving to cash flow, adjusted cash flow from continuing operations in the first quarter was a net use of cash of approximately $4 million, as compared to a source of cash of approximately $27 million in 2008. Adjusted free cash flow, and please note this is defined as cash flow from continuing operations less capital expenditures, for the first quarter of 2009 was a net use of cash of approximately $11 million compared to a source of cash of approximately $20 million in 2008. We invested $7 million in capital expenditures in the first quarter and expect CapEx to be in the range of $40 million to $45 million for the full year.

The generation of strong cash flow from operations has been a hallmark of Teleflex. This quarter, we were disappointed with the results particularly from a working capital perspective. A contributing factor was the rapid drop in sales from certain businesses, which did not allow us to adjust inventory as quickly as required. We have already implemented action plans in our businesses to more effectively manage our inventories and our customer and supplier relationships in this challenging environment.

We expect our working capital position will improve in the remaining quarters of 2009 and feel confident in our ability to generate strong cash flow from operations for the remainder of the year.

Slide 15 depicts the progress in the first quarter in reducing our debt and improving our capital structure. As a result of completing the sale of our share our ATI during the quarter, we were able to further reduce our total debt by approximately $240 and reduce our net debt-to-capital ratio to 45.3%, a sequential improvement of 830 basis points.

Approximately 80% of our debt is at fixed interest rates, while the remaining 20% is at floating rates principally tied to LIBOR. Our weighted average interest rate was 5.9% at the end of the first quarter. Interest expense net of interest income in the first quarter of 2009 was lower by $4.9 million compared with the comparable quarter in 2008.

As the slide shows, we made tremendous improvements regarding our debt and have shown the ability to de-lever in a very short period of time. We acquired Arrow only 18 months prior to the end of this reported quarter, and since that time we have reduced our total debt by approximately $940 million or 42% and our weighted average borrowing cost by 100 basis points. As we continue to make improvements in this structure, it provides additional opportunities to invest in growth initiatives.

Slide 16 shows the maturity schedule of our remaining debt. From the net proceeds of ATI divestiture, we were able to pay without penalty our next six scheduled principal payments under our term loan agreement, the 2002 private placement notes due in 2012, which carried an interest rate of 7.82%, and the outstanding balance on our revolving line of credit. We currently have no quarterly installments due until September 30, 2010, and have no outstanding borrowings under our $400 million revolving credit agreement. Needless to say, we have made excellent progress reducing our outstanding debt and, in today's environment, are pleased with our current position.

Turning to our 2009 outlook, we, like others, are seeing trends that may negatively impact some of our businesses. However, we expect topline core revenue growth in our Medical segment to improve as we move through the year and the cost containment initiatives that have been put in place in our Aerospace and Commercial segments to continue to pay benefits.

We are also well positioned to drive organic Medical revenue growth through investments in Medical R&D. Thus, we continue to expect our 2009 full-year diluted earnings per share from continuing operations, excluding special items, to be in the range of $3.25 to $3.55 per share.

Special charges, which relate entirely to the Arrow integration, the commercial group restructuring announced in December 2008, and the loss on sales in Marine Gauge business in the first quarter are currently forecasted at $0.30 to $0.40 per share.

Earnings per share from continuing operations available to common shareholders, including special charges, are expected to be in a range of $2.85 to $3.25 per share in 2009.

Finally, and as I stated earlier, we expect to make improvements in our working capital throughout the remainder of the year, and we are reaffirming our full-year 2009 adjusted cash flow from continuing operations guidance of $210 million to $220 million.

With that, let me turn it back to Jeff.

Thanks, Kevin.

Well clearly, you can tell that the first quarter of 2009 was a mixed one for Teleflex. Like many companies, we experienced significant headwinds from foreign currency and saw a slowdown in core revenues during the quarter, and we did not execute well on our management of working capital.

That said, we've already taken action here and are progressing in support of the achievement of the guidance that we have provided on this call. We're closing monitoring our costs in all of our businesses and will take further action as necessary.

On a positive front, we generated 17% year-over-year growth in EPS before special charges, continued to leverage our cost structure to maximize profitability, and we made significant reductions in our outstanding debt.

In closing, let me make some comments regarding expectations for each of our segments.

For the full year, we continue to expect Medical to deliver low to mid single-digit core revenue growth and an adjusted operating margin that will exceed 20% for the year. We will also continue to make investments in both R&D and in our sales initiatives. Specifically, our R&D efforts will be focused on expanding the antimicrobial technology across some of our other product lines beginning with our Arrow PICC line first. Investments we plan to make in 2009 will begin to materialize with new product introductions in 2010.

We will not sacrifice the long-term strategic goals of the organization in light of the unprecedented macroeconomic environment in which we're operating in. We continue to see opportunities in the Medical segment as the key driver of our overall business and will allocate the necessary resources to drive revenue growth through investments in R&D, as well as bolt-on acquisitions.

Turning to our Aerospace and Commercial segments, we expect continued revenue challenges due increased uncertainty in several of the end markets served. However, we expect the revenue shortfall to be mitigated through various cost containment initiatives that are already well underway.

And as Kevin stated earlier, we are reaffirming both our expected EPS, excluding special charges, and adjusted cash flow from continuing operation ranges for the full year of 2009.

And finally, I'd be remiss if I didn't take the opportunity to thank all of the employees of our former ATI and Marine Gauge business for all of their hard work and dedication and supporting our shareholders over the years. We wish them continued success with their new companies.

Thank you very much for joining us this morning. With that, I'll turn it back over to Jake for questions.

Operator, we'd like to take questions now.

(Operator Instructions)

Your first question comes from the line of Jim Lucas from Janney Montgomery Scott. Please proceed.

Good morning, guys.

Morning, Jim.

Kevin, two numbers questions first. You gave us a CapEx. What's D&A expectation for the full year?

D&A should be somewhere in the 112 range.

All right. And the improvements you made on the tax rates in the first quarter, since this was our first look at the -- ex ATI, where do you expect that tax rate now to come in for the full year?

Yes, we're expecting to be somewhere in the 30% range.

Okay. And switching gears, if we start on the Aerospace side, just if we could flesh out a little bit more color on the new CRJ, is that an OEM that you were referring to as opposed to an aftermarket conversion?

Yes, it is. It's a -- I mean, the CRJ plane is actually produced by Bombardier, and we delivered -- we developed a narrow-body system for that through our Swedish operation and delivered the first unit with more to come.

Okay. But from an aftermarket conversion, not yet?

Oh, no, it's OEM delivery.

Okay. And on the Medical side, you alluded to it in the prepared remarks, but the commentary about seeing an improvement in orders, looking at the inventory restocking in the first quarter, could you just maybe flesh out a little more color of what you're seeing on the inventory side with your customers and expand on the order comment.

Yes. I think what we saw a lot in the first quarter, Jim, in particular, and seemed to happen pretty quickly early in the quarter, some of the distributors, particularly on the Respiratory side, had stocked up pretty significantly for what people were hoping would be a better flu season than it was. So I think we saw a lot of inventory there, and we saw a rebalancing of that inventory throughout the first quarter. And as a result of that, that created weakness here in the North American market.

So it was two things. It was the flu season itself, and then it was the inventory build and the restocking at the distributors. But as we've moved through the month of April, we started to see some of those major distributors return to order levels that are more in line with what they've done historically.

And so principally, on the Respiratory line -- any other product lines that you're seeing?

We saw it on Respiratory predominantly and growth in our Critical Care side with some of our Vascular Access products.

Okay. And then, it's ironic to be talking about flu with all the headlines going around these days.

And finally, on the Commercial side, within the APU, how much of that has been demand driven versus just restocking?

I would tell you I think you can -- it's pretty evident by -- when you look a the cycles, Jim, in the business, we seem to be ebbing and flowing here with big numbers. And as fuel prices really escalated high early part of last year, the order rates really came in extremely strong. We delivered a lot of units in the third and fourth quarter last year, principally fourth, and then now the early part of this year. But fuel prices have gone back the other way pretty significantly. So I think you're right in that you'll see some of the distribution channel balance its inventory out again in the second half of the year.

Okay. Great. Thank you.

Your next question comes from the line of Patrick [Crain] from Lazard. Please proceed.

Hey, guys, can you hear me okay?

Yep.

Good morning, Patrick.

Thanks for taking the call.

My first question was on the guidance. If I just use simple math and annualize the $0.76 you posted this quarter, I get to the midpoint of your range, and historically it seems like 1Q has been weak for earnings. Is there -- and you've talked a little bit about things recovering in the back half of the year, particularly in Medical. Could you maybe help bridge us to how you go from $0.76 this quarter through the rest of the year?

Well Patrick, I think it's -- you know we don't actually give quarterly guidance, we give annual guidance, and that's what we've provided to you today. From a bridge standpoint, maybe you can be more clear on what you're actually looking for here.

Well I guess is there any particular part at which we should be looking for, for significant upside, or are we looking at a relatively stable run rate because historically it seems like the first quarter EPS numbers have been considerably lower for seasonal reasons than two, three and 4Q?

Yes, that's really because --.

So do you think that's seasonality this year?

Yes, I think we tried to remark a little bit about that in the scripts. I think, if you looked at the math, I think you said you get to the midpoint of our range. Our range is $3.25 to $3.55. But if you take the first quarter and annualize it, I think you're getting a little bit over $3. So I think that would give you the indication that, as we move to the second half of the year with some of the improvements that we expect to see in the growth rate in the revenue, as well as some of the additive synergies from the second half that we talked about, you're going to see a stronger fourth quarter, a stronger second half definitely, than the early part of the year.

All right. Great. Thanks.

And then, as far as some of the -- you've mentioned a lot of your customers on the Medical side had this new cash preservation mentality, and you highlighted a couple of the areas where you saw quarters returning to historical levels in 2Q. Is that really broadly across the board, or are there areas where you still think that cash management may pressure Medical and Critical Care, in particular, for the rest of the year?

Well I think -- Patrick, I think in our comments, clearly, the Orthopedics were down for the quarter. And again, that's been a fairly lumpy business. But I think the rest of it we feel pretty good about going forward. We also, obviously, talked about a better second half in our Aerospace, especially on the cargo side. So I think if you're going to see some change, that's where it would be.

All right. Great.

And the last question I've got is we're about six months into this CMS reimbursement law change about catheter-based infections. Have you guys seen or heard from any hospitals that have not been paid by CMS that have reported a catheter-based infection?

No, we have not. But I will tell you that, again I think as we've talked to investors, we're doing more of these clinical symposiums where, again, infection control is one of the driving forces. But I think what we saw, if you look at last year, as -- 2008 -- clearly the hospital administrators and everyone in the hospital is trying to deal with the new guidelines for infections, I will tell you what we've seen so far in 2009 is hospitals are doing everything they possibly can to save cost. And that is their bottom line.

So I think that's as much an opportunity for us because, literally, we're able to walk in there, and what used to take probably a six to ten-month selling cycle, walking in now into some of these hospitals, we have found them to be much more receptive to our products and, again, more willing to get you in and get you approved, especially if there's some savings for the hospital. So we just see that hospitals are in a survival mode, but infection is still right up there in the forefront but it does come, I would say, right after protecting their bottom line.

Thanks for taking the questions.

Your next question comes from the line of Dave [Tercoli] from FIG. Please proceed.

Thanks. Looking at the gross margin in the quarter, I know you mentioned some of the synergies that you've already gotten from Arrow, do you think we stay in this kind of 42 range looking ahead, or can we see that go even higher?

For the short term, Dave, I think we're probably in the range that you see here. As we mentioned, this synergies that are principally remaining to come from the Arrow acquisition are manufacturing related synergies, which would affect gross margin. But you really don't see those kick in until the end of this year and into '10. So in the short term, I think this overall gross margin rate is pretty reasonable.

Great, and glad to see the cash flow guidance maintained.

But given the first quarter results, your commentary on things put in place for working capital improvements, can you maybe give us a little bit more detail on exactly what that is? I'd have to imagine collecting from customers is even more difficult in this environment. So if we're still looking for 210 at the low end coming -- looking at kind of a negative number here, what specifically are you doing to improve that, or how do we get from kind of where we are today to the big jump we'll need to get to that range for the year?

There're a couple of major issues, and I think Jeff's comments I think just a moment ago in response to the last question, it's not just within healthcare that we had some of the issues. So in healthcare, we talked about -- with some of the drop-offs in sales and the rebalancing of inventories, we just can't shutoff our inventory inflows with lead times that quickly to adjust to those levels. So we will be working through some inventory in a couple of areas, principally in the North American Medical business is one area, as well as in the Aerospace business. With the deferrals in some of these major systems, you can imagine that, if a system sells for $2 million to $2.5 million dollars, the related inventory to that with a deferral to the second half of the year or a little bit later than originally anticipated, and long lead items builds inventory.

So there are definitely inventory programs in place that are going -- to manage that.

In addition, from a receivable perspective, you're absolutely right that it's becoming more and more challenging in this market. Where we saw more of the issues with respect to receivable growth was in markets where we typically would do a fair amount of factoring in some of those European locations and so forth. And we just didn't do that to the extent that we normally would.

So there are some relatively, I think, easier fixes that we can get at quickly, and then there's obviously the more challenging ones of just operating in today's environment. But you will note, when you look at the balance sheet, that a fair amount of the working capital during -- also came out of the liabilities side, which we clearly have a bit more control over in working with our suppliers.

And I did notice that was a big number. The last one for me, FX, what are your -- included in your plans here, what kind of assumption do you make and when does it kind of either become a tailwind instead of a headwind, or how should we look at that for the rest of the year?

Well for the guidance that we gave you, we're assuming the euro, which is the principal one that we've accessed the most here, is in the low 1.30s, so about where it is or slightly higher than maybe where it is today is what's baked into that guidance. And it doesn't become a much easier comp until at least the fourth quarter --.

Thanks at lot.

At that rate. Okay.

(Operator Instructions)

Your next question comes from the line of Paul Mammola from Sidoti & Company. Please proceed.

All right. Good morning, everyone.

Hey, Paul.

How much of the sale decline in Medical in North America is due to price, if any?

At this point, Paul, I would say it's very little if much at all. I think most of the decline is the way we've characterized it in our remarks. It's some of that rebalancing, in particular. But we have not experienced, at least in the first quarter, any significant price issue.

Okay. And on the material side, was there a raw material benefit in 1Q, and what should be the expectation for 2Q? I would expect it's incremental if anything.

Yes, I would expect -- I mean, 2Q is not going to be any more incremental than the first quarter. Compared to last year, there was a bit of an upside in the [resin] stuff in that.

Okay. You talked a little bit about the FDA remediation. Given that that has been delayed, am I clear that the back half -- or your expectations for the back half have not been altered by that delay up until this point?

That's correct.

Okay. How much in percentage terms do you think is left to gain from converting Arrow sales to direct rather than through distribution?

Well we've still got a ways to go, Paul. I would say I think we still expect to see a lot of those synergies in 2010. So I think we're still a long ways from seeing those drop into the synergies.

Okay. And then, finally, it may be early, but do you have any thoughts at this point as to what a domestic medical reform would do to pricing in the one-time use space?

Well clearly, it's going to put pricing pressure on the entire system. Again, if you take a look at where our products fall, we're probably pretty far down on a bill of materials in a procedure. But there's no question that we would anticipate there will be pricing pressure. But again, when that take effect on -- the offset to that is if the President, all of a sudden, insures 46 million more Americans, we think that would drive up procedures.

So some of this is volume versus price. It's really too early for us to get our model out and be too definitive, Paul.

Okay. Thanks for your time.

Yes, and thank you.

Your next question comes from the line of Christopher Warren from Caris & Company. Please proceed.

Hey, thanks for taking them. I had a question on the Arrow Guard Central Venous Catheter Line. Was that revenue growth in the quarter above, in line with or below the segment in which it gets reported?

Just the Arrow Guard itself, the coated catheter itself?

Yes, please.

I will tell you that -- I will just give you the overall Vascular Access Component, Chris, and that's the best way I can do it. I don't really have it by product line. But it was actually slightly better than the overall Medical, Critical Care rate.

And are you seeing, in that, any potential incremental uptake of the anti-infective coating?

We have. I think you'll recall that, probably when we started talking about Arrow, we talked about a penetration rate on the coated catheters in North America being about the 60% rate. And today, we think that penetration rate is closer to the 70% rate. So we are seeing much more a shift or some shift that's driving that market share penetration rate up by almost ten percentage points.

Okay. Thanks. That's very helpful.

I wanted to ask, also, on the intra-aortic balloon pump side, are the adjustments that you've made associated with the voluntary recall pretty much in the rearview, or should we expect maybe some dislocation going forward?

Well we certainly took what we thought we need to take as of the first quarter. And that's what we're required to do, and we did that. We are still working on having some product come back from the market. We don't have total visibility to exactly what was out there in the market, but we're running the program the way we think we need to.

So to the extent that there is product that comes back, Chris, I think it'll be more of a replacement issue than anything else. But clearly, with the size of the product line, we do not expect it to have a real material impact from a financial standpoint.

Thanks.

And one last question on the Medical side, just looking at your OEM business, is there a way you could help us understand how the spinal part of that business grew relative to the overall?

On the Orthopedic side?

Yes, please.

That business is principally spine related. So to the extent that we were down the 4% that we talked about in our remarks, it was principally related in the spine area.

But I think, Chris, we commented in the fourth quarter of a 34% growth rate that we were surprised that a lot of that growth was in the Ortho space. So again, I think it's indicative of being an OEM supplier. You're going to get bulges, and you're going to get pretty deep valleys.

But you wouldn't use this quarter's results to suggest that maybe there was a slowdown in the end market for the spinal procedures, correct?

No, we would not.

No, I wouldn't do that.

Okay. Thank you very much. I appreciate it.

You're welcome.

(Operator Instructions)

At this time, I'm showing you have no further questions. I'd like to now hand the call back over to Mr. Jake Elguicze. Please proceed.

Thank you. And thank you, everyone, for joining us today. This concludes the Teleflex Incorporated First Quarter 2009 Conference Call.

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.