Feb 25, 2009
Executives
Jake Elguicze - Senior Director, IR Jeff Black - Chairman and CEO Kevin Gordon - EVP and CFO
Analysts
James Lucas - Janney Montgomery Scott Christopher Warren - Caris & Company Paul Mammola - Sidoti & Company Gregory Macosko - Lord Abbett
Operator
Good day, ladies and gentlemen and welcome to the Fourth Quarter 2008 Teleflex Incorporated Earnings Conference Call. My name is Francis and I will be your coordinator for today.
At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.
(Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Jake Elguicze, Senior Director of Investor Relations.
Please proceed.
Jake Elguicze
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 callers 617-801-6888, pass code 14873492.
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 would like to remind you that some of the matters discussed in this conference call will contain forward-looking statements regarding future events as outlined on slide 2. 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 filings with the SEC including our Form 10-K which can be accessed on our website. Now I will turn over the call to Jeff Black.
Jeff Black
Thanks Jake, good morning everyone. We are very pleased to have you join us this morning as we report our results for the fourth quarter and for 2008.
It was a strong year for Teleflex as we achieved good results on our stated goals. The year involved a great deal of transition for our organization as we integrated acquisitions, invested in regulatory and quality programs in connection with the FDA warning letter and invested for growth.
While these efforts were ongoing, we were able to expand our operating margins, generate strong cash flow, achieve the expected operational efficiencies from the changes we have made in our portfolio over the last few years and position the company for future growth. This has not come without a lot of hard work and commitments from our teams and for that we are very grateful for their efforts.
Also yesterday our Board of Directors declared a quarterly dividend of $0.34 per share payable March 17, to holders on record on March 5th, again a consistent trend for our shareholders. Let's begin back at the start of 2008 when in January we provided our outlook for the year.
At that time we established the goals for the company that you can see identified here on slide number 5. We have been focused on the achievement of these goals and have been measuring our results throughout the year.
I am extremely pleased to report the positive results to you today. As you know, in 2007 we made significant changes to our portfolio of businesses.
We did this with a focus on improved margins, reduced cyclicality and to focus our resources on the development of our core businesses. The benefits of these changes were evident in our 2008 results as we improved our segment operating margins before special charges by 210 basis points over 2007.
We also delivered strong adjusted cash flow from operations of $267 million exceeding our original estimate for the year by approximately 7%. Of course the adjustment in the cash flow related to the tax payments made early in the year related to the gain on the sale of automotive and industrial businesses which were completed in December of 2007.
We were able to deliver core revenue growth in both our Medical and Aerospace segments however, with the ever increasing challenges in the economy, our commercial businesses experienced a decline in revenues driven mostly by the significant downturn in our marine business. We set a goal of achieving mid single-digit revenue growth in Medical segment along with the return to 20% adjusted segment operating margins in the year following the Arrow acquisition.
We had a strong fourth quarter with core revenue growth of 7% led by our OEM business in the critical care product lines bringing the core growth rate to 2% for the overall year. As we indicated throughout the year impacts from Arrow FDA warning letter limited some of our actions and placed significant demands on our organization.
We are pleased with the progress in this area and have begun the investment programs in sales and marketing and R&D to improve top-line growth as we entered 2009. We achieved our goal of returning to 20% adjusted operating margins in the medical segment in 2008.
The integration of Arrow was a key contributor as we focused our efforts on improving our manufacturing processes and the overall cost structure. Yet Medical was not the lone focus on increasing operating margins, as we set our sights on improvements in both the Aerospace and Commercial businesses as well.
In Aerospace, operating margins increased 170 basis points to 12.1%, consistent with our guidance of low double digit margins for this segment. We saw improvements in both the engine repairs and cargo businesses with the investments in repairing technologies paying the expected dividends and the increased sales of higher margin spares in the cargo business resulting from servicing of the installed base of the systems we already have flying.
In Commercial, operating margins increased 150 basis points over 2007 to 6.7%. The improvements came in the rigging services business with positive product mix and demand, and in the power systems where we adjusted the cost structure and had reduced warranty costs.
Unfortunately, we experienced an unprecedented decline in the marine business resulting in reduced margins despite our efforts to continue to reduce the overall operating costs. Combining these efforts, our consolidated segments operating margins excluding special charges were 15.8% for the year right in line with our goal of mid-teens.
The Arrow integration was and continues to be an extremely important program. We set objectives of achieving 2008 of pre-tax synergies of $33 million to $37 million.
We were able to benefit from over $40 million of synergies during the year and are positioned to continue to increase the benefits in 2009. Cash flow and cash management processes remained a high priority as we continue to focus our efforts on reducing debt and generating capital for investment in future growth.
From the $267 million in adjusted cash flow from continuing operations we reduced our debt by nearly $140 million in 2008. This slide shows the consistency of our EPS growth from continuing operations excluding special charges.
Excluding special items, our diluted EPS from continuing operations was up 25% in 2008 to $4.05 per diluted share from $3.24 per diluted share in 2007 which on a comparable basis with 2006 was up 21%. The improvement in the earnings potential of our businesses resulting from the strategic steps we have implemented is reflected in our 2008 results.
Looking at the fourth quarter, we finished the year strong. Overall, the quarter was highlighted by 7% core revenue growth of the Medical segment and 4% core revenue growth overall.
Earnings per diluted share before special charges increased 47% to $1.04 per share. Segment operating margins before special charges increased to over 16% with each segment increasing over the prior year period.
We are pleased with the results for the quarter and with the accomplishments throughout 2008. We look at 2009 with caution as we see greater challenges presenting ourselves in the world each and everyday.
With that I will turn it over to Kevin to provide some more detail on our financial results.
Kevin Gordon
Thanks Jeff. Good morning, everybody.
Slide 13, provides a summary of results from continuing operations noting the adjustments related to special charges in the respective quarters. Revenues for the fourth quarter were $596.5 million, up 2% over the fourth quarter of last year.
Adjusted gross margin for the quarter of 39.4% was inline with the prior year including the impact of the significant decline in Marine volume which was offset by increased sales volume in the Medical segment and an increase in higher margins repairable engine components in the engine repairs business. Adjusted operating expenses for the quarter were $137.6 million or 23.1% of sales compared to $146.7 million or 25.2% in the prior year quarter.
The decline in operating expenses was due to synergies achieved from the Arrow acquisition, cost reductions in the Commercial segment, reduced corporate spending and a favorable impact of foreign currency. These reductions were partially offset by investments in compliance and R&D programs in our Medical segment.
Operating income before special charges was $97.2 million, up 16% from $83.8 million in 2007. Adjusted operating margins of 16.3% reflected increase of 190 basis points compared to last year.
Pre-tax special charges in the fourth quarter of 2008 totaled $16.9 million and related primarily to the Arrow integration program and the Commercial segment restructuring announced in December 2008. And finally, operating income was $80.6 million up significantly from the prior year quarter which included transaction related charges for the Arrow acquisition.
Slide 14 provides a reconciliation to the EPS numbers for income from continuing operations before special charges. Excluding these special charges, income from continuing operations was $41.4 million or $1.04 per diluted share compared with $0.71 per diluted share in 2007.
The fourth quarter of 2008 included the special charges noted earlier totaling $10.5 million net of tax. Also, note that the fourth quarter of 2007 included a number of transaction related charges related to the Arrow acquisition.
We reported an in-process research and development charge of $30 million, charge related to the fair market value adjustment to inventory of $18.6 million net of tax. And an adjustment of $3.4 million net of tax for deferred financing fees as a result of early payment of long-term debt.
Restructuring and impairment cost in the fourth quarter of 2007 totaled $22.4 million net of tax and included intangible assets and goodwill impairment charges in the power systems business, impairments of other minority investments, cost related to the Arrow integration and other restructuring costs. Moving to the year-to-date results, revenues for the full-year 2008 exceeded $2.4 billion, growing 25% compared to the prior year, driven principally by acquisitions.
Adjusted gross margin for the year increased 350 basis points to 40.2%. Adjusted operating expenses of $592.5 million or 24.5% of sales increased over last year, primarily as a result of our portfolio additions.
Operating income before special charges was $381.3 million, up 44% from $265 million in 2007. Adjusted operating margins of 15.8% represented increase of 210 basis points compared to last year, and include Medical Segment adjusted operating margins of 20%.
Special charges before taxes for 2008 totaled $41.6 million, it related primarily to the integration programs within the Medical segment and the Commercial segment restructuring. Operating income was $340 million compared with $173.7 million in 2007.
We also refined our estimates of the post closing adjustments and recorded a charge for the settlement of a contingency related to the sale of the automotive and industrial businesses in 2007. These amounts along with adjustments for certain tax items related to those businesses have been recorded in discontinued operations.
In 2008, income in EPS excluding special charges increased 25% to $161.2 million or $4.05 per diluted share, from $128.5 million or $3.24 per diluted share in the prior year. The 2008 special charges comprised of cost related to the Arrow integration, Commercial segment restructuring, and the fair market value inventory adjustment related to Arrow recorded in the first quarter of 2008 had a $0.68 per share aggregate impact on diluted EPS.
In addition to the previously discussed fourth quarter 2007 special charges, we also recorded a tax charge of $90 million in the third quarter of 2007 related to cash repatriation. In summarizing 2008 and as Jeff mentioned in his remarks we had a very strong showing we consistently improved performance on the bottom-line and executed well against our financial objectives that we set for the year.
Let's now turn to segment specific performance. Medical segment revenues for the fourth quarter increased 4% to $373.4 million driven by core growth of 7%.
As a reminder core, revenue growth excludes the impact of foreign currency translation. Currency did have an unfavorable impact of 3% in the quarter.
We achieved core revenue growth in every region during the quarter with the strongest growth coming from our OEM business and in sales of our branded products in Europe, Asia and Latin America. Operating profit for this segment excluded acquisition related charges was $74.5 million for the quarter, compared to $69.3 million in the prior year.
Adjusted segment operating margins were 19.9%, a year-on-year improvement of 70 basis points over the 19.2% in the fourth quarter of 2007. Spending on our regulatory compliance program had a negative impact on margins in the quarter as compared to the prior year.
Spending of approximately $6.1 million was slightly less than what we have incurred in the third quarter of 2008. For the full year 2008, spending on these programs totaled approximately $21.5 million.
We also exceeded our initial expectations and achieved over $40 million of pretax synergies from the Arrow acquisition during 2008 with spending to achieve these synergies slightly less than originally planed. On a year-to-date basis, revenues increased to $1.5 billion and Medical segment adjusted operating margins were 20%.
Now looking at the Medical product lines, we achieved core revenue growth in every region and across all of our major product categories during the quarter. With European, Asian, Latin American markets experiencing the highest growth rate in those product lines.
Critical care product lines, Arrow vascular access and regional anesthesia products added approximately $120 million in the quarter. In vascular access, our core growth was led by our central venous catheters.
For Anesthesia and airway management products in North America, we increased sales of regional anesthesia products in the quarter, and we are continuing our efforts to build out our dedicated sales team for a combined regional anesthesia airway management sales to better serve our customers. Our urology revenues are predominantly derived outside the United States, and the growth trends we have seen in earlier quarters continued in the fourth quarter.
We also had modest volume growth in North America. Respiratory care products had year-over-year growth in North America led by our humidification product offerings as our customers, most notably distributors prepared for the Blue Sea.
Excluding the impact of foreign currency, our surgical product sales grew 1% although we experienced a modest year-over-year decline in North America. The overall increase in surgical product sales was driven by instrumentation in chest drainage products.
Finally, on a constant currency basis, sales to medical device OEMs grew 34% compared to the fourth quarter of last year as we saw higher volumes of our specialty sutures and orthopedic instrumentation products. In the Aerospace segment, fourth quarter revenues were $125.5 million, up 4% principally as a result of the contribution from the Nordisk acquisition, which expanded our cargo containers business as well as from core revenue growth of 2%.
Core growth in the quarter was due to our engine repairs business, currency negatively impacted our Aerospace segment by 3% in the quarter. Operating profit rose to $15.9 million as compared to the $14.8 million in last year's fourth quarter, resulting in an increase in segment operating margins to 12.6%, up 30 basis points over the fourth quarter of 2007.
In the engine repair business, very similar to prior quarters in 2008, we saw higher mix of repairable engine components generating value-added margin compared with replacement parts. In the cargo systems business, we experienced a slight decline in operating margins versus the fourth quarter of 2007.
We had an increase in wide-body unit shipments in the quarter. However, it was that a lower overall ships that value as a result of the mix of the aircraft platforms.
In addition, our cargo aftermarket spares and repair sales were down approximately $2 million as compared to the prior quarter. These decreases were somewhat offset by continued strong sales of our narrow-body cargo-loading systems.
On a year-to-date basis, revenues were $511.2 million, up 13% over 2007. The growth was principally from the Nordisk acquisition at 2% core growth with stronger growth in cargo systems offset by a reduction in the core containers business.
Segment operating profit increased to $61.8 million, compared to $47 million in 2007. And segment operating margins were 12.1% on a year-to-date basis, a 170 basis point improvement over 2007.
The most significant improvement resulted from the favorable product mix and improved yields in the engine repairs business. Moving to the commercial segment, as expected fourth quarter revenues for this segment declined due to significantly lower volumes in marine as compared to the prior year.
Revenues in the quarter were $97.6 million, compared to $102.5 million in the prior year. The negative sales trend in marine continued in the fourth quarter of 2008, as OEM customers extended shutdowns and continued to cutback production levels.
As stated on our 2009 outlook call in January, we do not see a turnaround in this market in the near-term. We have taken additional actions through the announced restructuring programs.
Somewhat offsetting the marine decline in the quarter was the performance by our power systems business. As expected, we experienced a significant increase in sales of truck and rail auxiliary power units compared to the earlier quarters of this year and the fourth quarter of 2007 in this business, which has proven to be prone to significant order cycles.
The rigging services business once again had a strong quarter. Core revenues increased 13%, principally due to stronger sales to the wholesale customers in the range of industrial and marine transportation markets.
Overall commercial segment operating profit rose in part due to favorable mix in cost containments, but also as a result of favorable currency impact related to the Canadian cost structure of the business as compared to the fourth quarter of 2007. Operating profit increased to $8.1 million from $5 million in the prior year quarter.
Segment operating margins for the fourth quarter were 8.3%, up 340 basis points over prior year. On a year-to-date basis, revenues were $410.6 million, compared to $441.2 million in 2007.
Operating profit of $27.5 million in 2008 increased compared with $23 million in 2007. Adjusted cash flow from continuing operations in the fourth quarter were $79 million, bringing the total to $267 million in 2008 compared with $283 million in 2007.
Free cash flow was $175 million versus $189 million in 2007. From a working capital perspective, we made progress in both receivables and inventory sequentially lowering our days outstanding and inventory on hand from the levels we saw at the end of the third quarter.
We are mindful of the economic conditions and are monitoring our receivable balances closely. Slide 22, depicts the progress in the fourth quarter and for the year on reducing our debt and improving our capital structure.
We exit 2008 with slightly more than $1.5 billion in total debt reduced by nearly $140 million in 2008, approximately 70% of our debt is at fixed interest rates or remaining 30% of that floating rates principally tied to LIBOR. Our weighted average interest rate was 5.7% at the end of 2008.
As we continue to improve this structure, it provides additional opportunities to invest in growth initiatives. Turning to our 2009 outlook, as we look to 2009, we are cautious about the rapidly changing environment and the impact on our businesses.
We, like others, are seeing trends that may negatively impact some of our businesses. However, at this time we continue to expect our 2009 full year diluted EPS from continuing operations excluding special items to be in the range of $4.10 and $4.40 per share.
Special charges which relates entirely to the Arrow integration and recently announced commercial group restructuring are currently forecasted at $0.30 to $0.40 per share. Earnings per share from continuing operations including these charges are expected to be in the range of $3.70 to $4.10 per share at 2009.
Finally, we expect cash flow from continuing operations of approximately $280 million to $290 million for the full year, up from $267 million at 2008 excluding the tax payment on a 2007 gain. With that let me turn it back to Jeff.
Jeff Black
Thanks, Kevin. In summary, 2008 was a solid year for the company.
One in which we saw the benefits of the changes we made to our portfolio over the last several years. We executed consistently and delivered strong results on our stated goals and objectives.
In medical, we continue to be committed to providing solutions that help reduce infections and improve patients and provider safety. In Aerospace, we have two market leading niche businesses.
And in commercial, we have businesses that have strong market leading positions with well established brands and technical expertise. As we look forward in 2009 the global economic environment continues to be a challenge.
However, we are a company with strong financial fundamentals and we are focused on investing in areas with long term growth potential and increasing shareholder value. Thanks again for joining us.
With that I will turn it back to Jake and take your questions.
Jake Elguicze
Operator, we are ready for questions now.
Operator
(Operator Instructions) The first question from the line of Jim Lucas with Janney Montgomery Scott, please proceed.
James Lucas - Janney Montgomery Scott
Thanks, good morning guys.
Jeff Black
Good morning Jim.
Kevin Gordon
Good morning Jim.
James Lucas - Janney Montgomery Scott
First question on housekeeping; what are your expectations for CapEx in 2009?
Jeff Black
2009, Jim, I think is in the neighborhood of about $60 million.
James Lucas - Janney Montgomery Scott
Okay because on the year-end cash flow statement, you only had about $40 million of CapEx in '08, so wondering what the increase is going to be for?
Jeff Black
Jim earlier in the year you might recall that actually our estimate for 2008 was higher than the $40 million rates that you have on there.
James Lucas - Janney Montgomery Scott
Right.
Jeff Black
We talked about some facility expansion plans particularly in our Aerospace business that we looked at and I think we mentioned this maybe on the second or third quarter call, alternative ways of funding those through leasing program. So it was about a $10 million to $12 million capital investment around facility expansion that did not occur as a CapEx this year.
So putting that back into the numbers for this year, you are back up into to $50 million to $60 million.
James Lucas - Janney Montgomery Scott
Okay thank you for that clarification, and within Medical, could you give us an idea of where new products as a percent of sales stand and for the full year, what was your R&D within Medical?
Kevin Gordon
Well, R&D let's start there, I think R&D as we said throughout the year ranged in around the 3% range exclusive of some of the RAQA initiatives that also go through that line. That remained consistent throughout the fourth quarter as we continued on those remediation efforts and dedicating resources there.
Our planned goal obviously is to shift some of those resources, when we get into '09 or some of that investment into the R&D and sales and marketing areas.
James Lucas - Janney Montgomery Scott
Okay.
Kevin Gordon
In terms of sales for the new product line, or new products, we have a heavy emphasis there from our OEM business in particular because a lot of the programs that we do there turn out to be new products, new programs and so forth. On the branded product offering from a sales standpoint, I'm trying to give you a number here right now, but for the overall year, my guess is that number is somewhere around 7% to 8% range, Jim.
James Lucas - Janney Montgomery Scott
Okay. And where would you envision that number going to overtime?
Kevin Gordon
You know, in the near-term in 2009, I would not expect that that number's going to significantly increase.
Jeff Black
Yeah. Long term goal.
Kevin Gordon
As we ramp up, we are developing a vitality index. So, I think that’ll allow us to track that more specifically.
Our long term goal, and we have branded products that have longevity, they have been products for many, many years and in some cases, those technologies are not going to change that much. So, we will have a very big base of revenues that continue.
When you look at a growth rate when we want to try to drive the business up into the upper single digit, approaching a double digit if we could get there, but certainly, now getting to the mid-to-upper as opposed to the low-to-mid. We are going to have to drive new product that’s going to be in mid double digits.
James Lucas - Janney Montgomery Scott
Okay. and when you look at the guidance that you have reaffirmed today at $4.10 to $4.40, can you talk about the two or three biggest variables, what would happen to get to the low end, the upper end, because, I mean, clearly when you said in your closing remarks, Jeff, we all know that the level of uncertainty out there appears to grow day after day.
So, just want to get an idea of what is behind your thought process of being able to deliver on this range.
Kevin Gordon
Jim, I will take that one, if you want to try to prioritize unless I want to put it in any priority order, but certainly we are seeing trends as we look at the healthcare business in particularly with the state of that industry with hospitals and so forth being more challenged than cutting people. With unemployment rates going up, we are going to look at hospital admissions that are likely going to be down, elective procedures are down.
So we may if I want to prioritize from a impact to our bottom-line, it's going to be admissions to the hospitals, the flu season that we are experiencing which quite frankly hasn’t been as strong as it was last year from that perspective. Currency will continue to be something that we have to watch closely, that’s going to fluctuate, the euro is a very important currency to us.
I would tell you and I think you heard in our remarks we actually benefited from the strength of the US dollar versus the Canadian dollar from a cost structure standpoint. So, currency we somewhat balanced it out, but we don’t go without risk there.
So, I think it’s really more of a volume driven concern. Given the economic conditions currency would be a big one and we put a ring fence around the pension that we told you would be a bigger expense this year.
James Lucas - Janney Montgomery Scott
Okay, great. Thank you very much.
Operator
Your next question comes from the line of Christopher Warren with Caris & Company. Please proceed.
Christopher Warren - Caris & Company
Hey, thanks. I just wanted to get a quick FDA update, could you let us know if the inspectors have arrived yet at the facility?
Jeff Black
Chris they have not, we would expect them probably within the next 30 to 45 days as you know, as most people know they have some other challenges going on. But our goal is to be prepared for and I think at this point we believe that will be at the end of the first quarter or the beginning of the second quarter.
Christopher Warren - Caris & Company
And following up with that impact, your expectations for potentially resolving the outstanding issues there?
Jeff Black
Yes, I think we feel good about the work we have done from both a process standpoint, but again I think for the time being I don’t want to go too far out, but I think at this point. We have said we would be ready.
We are on-track to be ready for them. And again the process for even once they come and complete their audits I would expect it would be sometime before we get the results back from the FDA.
Christopher Warren - Caris & Company
Okay. Fair enough.
Hey, one other question on the medical OEM business. I know this can be a bit lumpy quarter-to-quarter.
Could you talk to us about the durability of the current sales growth strength that you showed in the fourth quarter? And give us a sense for what the backlog looks like there?
Jeff Black
Okay, Chris, I think even on the outlook call we mentioned we came into the year with some pretty strong backlog, but knowing what you know that some of the orthopedics market and the lumpiness. I would not expect that to sustain a 34% growth rate.
Christopher Warren - Caris & Company
Okay. And then just one other question, on the housekeeping side.
Intermittent catheters in the US getting a bit of a boost from a reimbursement improvement, was there a quantifiable impact on your business in the fourth quarter from that?
Jeff Black
I think on my remarks I have mentioned that actually from our Urology business, we saw a bit of an uptick, but remember that’s a very small part of our revenues. So, it did not have a dramatic impact on the overall growth rate, maybe it’s $1 million or something.
Christopher Warren - Caris & Company
Okay. Well, thank you very much.
I appreciate it.
Jeff Black
Okay.
Operator
(Operator Instructions). The next question is from the line of Paul Mammola from Sidoti & Company.
Please proceed.
Paul Mammola - Sidoti & Company
Hi, good morning. Starting with that sequential uptick in the cardiac care market is 15%, would you say that's indicative of further development of the intra-aortic product there, I guess what's the roadmap going forward?
Kevin Gordon
Well on that side certainly we resolved, you may recall in the third quarter, we talked about some operational issues that we are suffering through, and we expected to have those resolve I think in the third quarter. That did occur, Paul, and as a result of that I think we pushed out some of the backlog that existed in that business.
We had a great quarter on shipping pumps as well as subsequent to that, the balloons the disposable piece of it goes along with the pump. So, we had a really good quarter there, we are seeing some very positive developments in the business.
However, we do still have some of those challenges that we work through on the operational side.
Paul Mammola - Sidoti & Company
Okay. And then you talked a little bit about the strength in North America, improving North America.
Do you see that continuing in '09 is that mainly a function of the increased sales force or is there a volume or demand driven there as well?
Jeff Black
Well, I think it's a little bit of both, as you know, we are dedicating regional anesthesia sales force that’s pulling that through. I also think that in the fourth quarter we saw, last year was a record flu season, and some of our distributors got caught short last year with humidification product and so forth.
And I think as we exited 2007, I think there was some preparation and orders for that, so I don't think we are going to see a strong in that segment of our business first quarter as we did before.
Paul Mammola - Sidoti & Company
Okay, that's helpful. And then given that change in reimbursement from October, has there been a meaningful up tick in the maximum barriers gets a demand from them at this point?
Kevin Gordon
No, we really haven't seen anything meaningful, Paul. Again I think that process is still ongoing, both from a billing cycle as well as how hospitals are dealing with them.
Paul Mammola - Sidoti & Company
Okay. And Kevin, do we know how much the R&D tax credit was in the quarter?
Kevin Gordon
Yeah it was right around $1 million dollars.
Paul Mammola - Sidoti & Company
Okay. And finally, do we know the product lines that are being exited as of the consolidation in the marine business yet?
Kevin Gordon
Yes, we do. But I would rather not comment as they are still sensitive employee issues around that.
I think you will note that we are closing as part of that process two facilities and downsizing the third.
Paul Mammola - Sidoti & Company
Okay, fair enough. Thanks for your time.
Kevin Gordon
Okay.
Operator
(Operator Instructions). The next question is from the line of Gregory Macosko from Lord Abbett.
Please proceed.
Gregory Macosko - Lord Abbett
Yes, thank you. Could you talk a little bit about the commercial segment?
Clearly the rigging and the power systems had strong top line. Could you talk about on a comparative basis what we should look forward to looking out into '09?
Kevin Gordon
Well I'll start with the marines. I think we have been pretty clear about it.
I think the marine industry, we continue to see weakness on the OEM side, but we would expect as the boating season kicks in, in basically April and on the aftermarket side we feel that especially with fuel prices where they are that we should at least hold our own there. On the rigging side, again with oil prices where they are, we think that could have an impact on that business.
Yet again, we have diversity in that portfolio and on our wholesale business continue to do fairly well. The power business, one of our big benefits in the fourth quarter was in APUs for both the rail and truck, and we continue to have a backlog for the truck APUs, and we think that business at least as we see it for probably the first and second quarters should hold up fairly well.
Gregory Macosko - Lord Abbett
And what, is fuel efficiency basically driving that APU business? Is that the driver behind it?
Jeff Black
Yeah. It typically is, Greg.
Again, these are typically put on within the first six months after a rig is purchased and it's again very much dependent upon diesel prices as to the market demand.
Gregory Macosko - Lord Abbett
Well, then are you gaining share. Just seems like given new rig sales and it would seem like that there might be some weakness there, but may be.
Jeff Black
There is definitely weakness as a result of that. I think as you may have been following along, the first three quarters of this year were extremely weak.
Gregory Macosko - Lord Abbett
Okay
Jeff Black
Of '08, '09 as I mentioned. The business seems to be relatively prone to a very strong cycle in order patterns and things like that.
And I think right now, we have a very strong view, or had a very strong fourth quarter. Our view to the first half of this year is positive, but beyond that there still may be some concern with fuel prices staying where they are that we would end up in another downward cycle in the second half.
Gregory Macosko - Lord Abbett
I see, okay. Thank you very much.
Jeff Black
Okay.
Operator
(Operator Instructions). At this time there are no other questions in the queue.
I will turn the call back over to Jake Elguicze for closing remarks.
Jake Elguicze
Thank you, everyone for joining us on our call today. And that concludes the Teleflex Incorporated fourth quarter and year end 2008 conference call.
Operator
Thank you all for your participation in today's conference. This concludes the presentation and you may now disconnect.