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Teleflex Inc. (NYSE:TFX)
Q3 2012 Earnings Call
October 31, 2012 8:00 a.m. ET
Jake Elguicze – Treasurer and VP, IR
Benson Smith – Chairman, President and CEO
Thomas Powell – SVP and CFO
Matt Taylor - Barclays
Jonathan Palmer – CLSA
Lawrence Keusch – Raymond James
John Demchak – Morgan Stanley
Richard Newitter - Leerink Swann
Chris Cooley - Stephens Inc.
Jim Sidoti – Sidoti & Company
Anthony Petrone – Jefferies
Good day ladies and gentlemen and welcome to the third quarter 2012 Teleflex, Incorporated earnings conference call. My name is Stephanie and I will be your coordinator today. (Operator Instructions).
I would now like to turn the presentation over to the host of today Mr. Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed.
Jake Elguicze
Thank you, Operator, and good morning everyone. And welcome to the third quarter of 2012 Teleflex, Incorporated earnings conference call. The press release and slides to accompany this call are available on our website at www.teleflex.com.
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 77519595.
Participating on today's call are Benson Smith, Chairman, President, and Chief Executive Officer, and Thomas Powell, Senior Vice President and Chief Financial Officer. Benson and Tom will make brief prepared remarks and then we'll 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 four. 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.
In addition, during the third quarter of 2012, due to changes in the company's management and internal reporting structure, the company's Latin American operation were moved from the Asia and Latin America segment into the North American segment. As a result of this change, the North American segment is now referred to as the Americas segment and the Asia and Latin America segment is now referred to as the Asia segment.
With that, I'd like to now turn the call over to Benson.
Benson Smith
Thanks Jake and good morning everyone. On today's call, I'll begin with an overview of the results for the third quarter and discuss some strategic highlights. Then Tom will provide you with a more detailed review of our third quarter financial performance, including details of our product line and geographic revenue mix and then finally our outlook for the remainder of 2012. He will then turn the call back to me for some closing remarks, so let's begin with our financial highlights.
Building upon the solid performance from the first half of the year, the third quarter of 2012 was another strong quarter for Teleflex with revenues reaching $368.1 million. This represents an increase 1.5% versus the prior year quarter on an as reported basis. However when you exclude the impact of foreign currency fluctuations, sales increased 6.2% versus the third quarter of 2011. During this past quarter, we once again achieved constant currency sales growth across all of our geographic regions as well as in all of our strategic business unit franchises.
Turning to gross and adjusted operating margins, they were 49.1% and 16.5% respectively. This represents a year-over-year improvement of 70 basis points at the gross margin line but a decline of 50 basis points on the operating margin line. And although Tom will go through the financial results in more detail in his prepared remarks, I want to add that these amounts were in line with our expectations and the guidance we provided on our last earnings conference call.
The year-over-year decline in adjusted operating margins were a result of the four late-stage technology acquisitions that we closed during the second quarter this year. Had we not done these acquisitions, our adjusted operating margins would have approached 17.7%. And finally, adjusted earnings per share for the third quarter of 2012 was $1.04, an increase of 4% over the prior year period.
Now let's move to some of the strategic highlights for the quarter. Beginning with pricing, I am pleased to be able to report that during the third quarter the average selling prices of our products continued to grow. This quarter, our ability to raise prices contributed 120 basis points of revenue growth, marking the fifth consecutive quarter that the company has been able to drive positive pricing. I am certain that all of you who are listening to this call realize this is no small achievement considering the macro environment that we operate in.
And due to a faster than originally anticipated improvement in Europe, the contributions we've seen to date continue to exceed our full year 2012 pricing expectations. For the third quarter in a row, European pricing has been positive, this time generating 47 basis points of growth. In addition to Europe, we had positive pricing in the Asian markets of 329 basis points as well as positive pricing in the Americas market of 114 basis points while our OEM business added approximately 270 basis points of positive pricing.
And while our ability to increase prices over the next few years is clearly important, our future success is also dependent on the development of a robust product pipeline. While we still have work to do in that area, we continue to make strides each and every quarter. Aided by the contribution of the recently completed Semprus, Hotspur, Axiom and EFx acquisitions this past quarter, spending on R&D initiatives was up 20% versus the third quarter of 2011, reaching 4% of revenue.
And while it's easy to spend money on R&D initiatives, our focused efforts are paying off in the form of newly introduced products that clinicians and hospitals find value in. This past quarter, sales of newly introduced products contributed 150 basis points towards our topline growth. This is up sequentially by 56 basis points just from the second quarter of this year.
And before I move on to discuss our recently completed acquisition of LMA international, I would like to spend a few minutes telling you about some of the recent achievements on the product development front that we are particularly excited about.
First, we are quite enthusiastic about the opportunities for Semprus' Sustain surface modification technology which we believe will be valuable on a number of Teleflex medical devices and provide additional OEM capabilities. This technology uses our long-lasting polymer designed to reduce the attachment of platelets and blood proteins at the surface of the medical device, including the internal lumens of even very small diameter catheters. And it provides a long-lasting natural lubricity. This combination results in significant benefits to the patient, the caregiver and the healthcare system from a clinical as well as economic perspective.
During the third quarter, we received the CE certification to market Semprus PICC with the Semprus Sustain technology to European Union. In addition to the CE certification, the Semprus team recently was awarded the initial phase of a $2.3 million research grant from the U.S. Army Telemedicine and Advanced Technology Research Center. This award will support research and development of the surface modified endotracheal tube that combines Semprus' non-fouling sustained technology with the delivery of antimicrobials.
It also builds upon an initial $1 million United States Army grant awarded to Semprus in 2011 to develop the world's first orthopedic devices designed to reduce biofilm formation. With the combined materials approach of Sampras sustained surface technology and antimicrobial drug release, we expect to reduce or eliminate adhering bacteria which should significantly reduce incidences of ventilator associated pneumonia. It should also lead to a decrease in the use of antibiotics and a decrease in the emergence of antibiotic resistant strains of bacteria.
In addition to some exciting things happening with Semprus, we continue to be very encouraged with the adoption of our VasoNova VPS device. During the quarter, another 12 accounts closed their trials and chose this device to use as their targeting system. And in mid-September we received 510(k) clearance from the FDA to market our pressure injectable ARROW PICC preloaded with the VPS Stylet. This preloaded option improves clinician ease of use for vascular navigation and catheter tip positioning and as a result, we are already seeing additional sales of our PICC devices.
We also have some very positive developments in other areas of our product portfolio. This past quarter, our surgical team introduced a full line of access devices, including a broad offering of bladeless access ports as well as the EFx Endo Fascial Closure system. The early indications from our surgical business unit is that the launch of the EFx system has gone quite well and is already being used in over 70 hospitals and more than 3000 procedures.
And finally, in the area of anesthesia product development, during the third quarter we received 510(k) approval for our ARROW FlexBlock continuous peripheral nerve block catheter which is intended for clinicians who use ultrasound guidance when placing continuous peripheral nerve block catheters. In addition, we launched our new Arrow FlexTip Plus multi-port epidural catheter as well as our new Arrow SureBlock spinal anesthesia collection. All the above mentioned items strengthened our regional anesthesia product offering and something that will certainly strengthen the airway management portion of our anesthesia franchise is our recently completed acquisition of LMA.
I'm pleased to report that on October 23, we closed on the LMA acquisition. LMA and certain of its affiliates that we acquired are the global market leader in laryngeal masks. Revenues during 2011 were approximately $132 million and during the course of 2012 LMA's revenue growth rates were in line with our longer-term revenue growth aspirations for all of Teleflex which are in the 5% to 7% range. This acquisition provides us with a market share of leading series of products with gross margins in excess of our longer-term corporate-wide goal of 55%. It also provides us with access to key clinical call points both domestically and internationally and it further strengthens our relationships with United States GPOs.
The acquisition was funded through the use of cash that we had on our balance sheet predominantly outside of US. As a result, we expect this acquisition to be immediately accretive in the area of $0.03 to $0.04 in the fourth quarter of 2012 and between $0.35 to $0.40 in 2013. We also expect additional earnings accretion associated with this acquisition in 2014 and 2015. Currently we expect LMA to contribute an additional $0.10 to $0.15 per year in '14 and '15 on top of what we expected in 2013.
2013 earnings accretion is expected to be driven largely by synergies which we expect to receive in the area of North American operations and consolidation of certain LMA corporate functions. In 2014, we expect the additional earnings accretion to be generated from distributor to direct conversions particularly in Europe, followed by manufacturing consolidations and refinements in 2015.
We will experience some tax to synergy. LMA historically had a very low tax rate and we do not currently anticipate being able to maintain as lower tax rate as they did when they were a separate entity. This tax to synergy is already contemplated in the earnings estimates for LMA that I just referred to.
In addition to completing the LMA acquisition, we also finalized a divestiture of our OEM orthopedic business. Divesting this business is consistent with our strategy of achieving a higher more predictable revenue growth in gross and operating margins. The remaining portion of our OEM business has been doing quite well, and we plan on – on focused on expanding its leadership positions in custom extrusion, catheters and other medical devices.
You may recall that in our second-quarter earnings conference call, I announced that we began to take steps to reduce our operational footprint. The first step in this process was the consolidation of three US-based distribution centers to one centrally based location. I am happy to say that we opened our new distribution center in Olive Branch, Mississippi and have already begun shipping. I also mentioned on the last quarterly earnings call that this was just the first step.
During this past quarter, we also announced the plant closure and relocation of operations of a manufacturing facility in Mount Holly in New Jersey. This will also lead to improved operating efficiencies and will help expand our future gross and operating margins. We do not take these decisions lightly as it impacts our employees. And we would like to take a moment to thank the employees based at Mount Holly for their service.
And before I turn the call over to Tom, I would like to briefly review our accomplishment this past quarter from a GPO and IDN perspective. During the third quarter, Teleflex was awarded five GPO contracts. Of those GPO awards, two were brand-new, including a VasoNova VPS vascular award with Novation as well as a respiratory award with Premier.
On the IDN front this past quarter, Teleflex was awarded two new contracts. One was the IDN SGM alliance in Florida as well as another with the IDN in Loma Linda, California. As I have stated on prior earnings calls, these types of contracts will help position Teleflex to achieve sustainable and profitable growth in the future.
With that, I will now turn the call over to Tom and he can walk you through our recent quarterly financial performance in more detail. Tom?
Thomas Powell
Thanks Benson and good morning everyone. Revenues for the third quarter were $368.1 million, up 1.5% on an as reported basis. When adjusting for currency fluctuations, revenue grew at 6.2%. Growth in constant currency revenue is largely due to higher volume which contributed approximately 3.5% of growth, sales of recently introduced products which contributed another 1.5% of growth and price increases which contributed another 1.2%.
Turning to gross profit and margins, they were $180.6 million or 49.1% in the third quarter of 2012. This compares to $175.6 million or 48.4% in the prior year quarter. The increase in the three months period is primarily due to selective price increases in all segments and lower manufacturing costs in North America.
Moving to adjusted operating expenses, adjusted selling, general and administrative expenses were $105 million during the quarter, up from $101.6 million last year. The current year amount is adjusted to exclude acquisition related costs, including a $7.6 million loss on foreign currency forward exchange contracts which were established to hedge the LMA purchase price and $2.3 million in other transaction related costs.
The increase in adjusted SG&A for the quarter was largely due to approximately $2.6 million of incremental amortization in operating expenses associated with the four late stage technology acquisitions completed in the second quarter of this year and approximately $1.9 million of higher selling costs driven by increased revenues and the support of new product introductions.
Turning to R&D, in the quarter research and development spending was $14.8 million, up from $12.3 million last year. The higher level of R&D spending principally reflects R&D costs associated with the four late stage technology acquisitions and to a lesser degree, increased investments related to vascular access products in North America. The increase in SG&A and R&D was partly offset by favorable foreign currency exchange rates which caused the reduction in operating expenses of approximately $4.2 million.
For the third quarter, adjusted operating margins were 16.5%, a decrease of 50 basis points versus the prior year quarter. The decline in adjusted operating margin was largely due to additional amortization and operating expense associated with the four late stage technology acquisitions completed in the second-quarter of 2012.
Now given the number of acquisition related costs in the quarter, let me summarize our impact in operating margin. As reported, operating margin is 13.5%. Excluding the impact of the currency forward contract and transaction related costs, adjusted operating margin is 16.5%. If we were to further exclude the incremental operating expense from the four late stage technology acquisitions, adjusted operating margin would be approximately 17.7% representing a nice improvement over the recent quarterly adjusted margin.
Moving to interest, third-quarter net interest expense was $18.2 million, a decrease of approximately $700,000. Decrease in interest expense is due to a reduction of approximately $26 million in average debt outstanding and lower interest rates on debt.
Turning to taxes, the GAAP tax expense this quarter was $7.2 million. This compares to $10.1 million in the third quarter of 2011. And finally, adjusted earnings per share for the third quarter was $1.04, an increase of approximately 4% versus the prior year.
Now let's move to a more detailed review of our constant currency product and geographic revenue results. Critical care revenue was $244.1 million, up 4.5% on a constant currency basis. During the quarter, respiratory sales increased 9.4%. Urology sales increased 6.5% while anesthesia and vascular access sales increased 4.3% respectively.
Moving to surgical, revenue was $69.6 million, up 10.1% on a constant currency basis. Growth in surgical products was primarily the result of increased sales of ligation, closure and general surgical instrument products. This was partially offset by a decline in the sale of chest drainage product.
Turning to cardiac, revenue was $17.2 million, up 1.6% on a constant currency basis. The increase in cardiac revenues was primarily due to higher sales of intra-aortic balloon pumps, partially offset by a decline in sales of balloon catheters. And lastly, OEM revenues for the quarter were $36.9 million, up 13%. The increase in OEM revenues was due to higher volume, higher capacity as a result of planned expansions, new products and price increases.
Now I will walk through our top line performance from a geographic perspective. As Jake mentioned at the start of the call, during the third quarter of 2012 due to changes in the company's management and the internal reporting structure, the company's Latin American operations were moved from Asia and Latin America segment into the North American segment. As a result of this change, the North American segment is now referred to as the Americas segment and the Asia and Latin America segment is now referred to as the Asia segment.
Latin America segment was $159.7 million, up 1.7% on a constant currency basis. The increase was primarily due to new products and price increases. This was partly offset by the lower volume. One item impact from lower volumes was the result of a strike in Brazil by the Brazilian government's equivalent department of the United States FDA. As a result of the strike our ability to import products into Brazil was limited. The strike has now been resolved and as a result we have resumed shipments to Brazil.
Moving to Europe, sales were $160 million, up 3.1% on a constant currency basis. The increase in revenue in this part of the world was primarily due to higher volumes, new products and selective price increases. In the Asian markets, sales were $45.5 million, up 32.1%. The increase here was due to higher volumes particularly in China and Singapore as well as price increases.
Before I turn the call over to Benson for some closing remarks, I'd like to provide with you an update regarding our full year 2012 financial outlook. With nine months of actual performance behind us as well as the completion of the LMA acquisition, we are updating our constant currency revenue growth and adjusted earnings per share assumptions for 2012.
We now expect our constant currency revenue growth rate to be between 6% and 7%. This compares to our prior expectation which calls for a constant currency revenue growth between 4% and 6%. Our current assumptions include approximately 1% of additional full year revenue growth coming from LMA. For comparative purposes, if we were to exclude the contribution we expect from LMA for the last two months of the year, our base business revenue projection remains at the higher end of the revenue or the range previously communicated.
In addition, I also want to point out that during the fourth quarter of 2012 we will have five less shipping days as compared to the fourth quarter of 2011. You may recall, we had the offsetting benefit of extra shipping days in the first quarter of 2012. And as far as adjusted earnings per share, we are narrowing our range from our previous guidance of $4.25 to $4.45 per share to our updated guidance of $4.35 to $.4.40 per share.
We are quite pleased with our ability to maintain earnings guidance within the upper end of the range provided at the beginning of the year given the number of negative earnings impacts encountered during the year. As we stated in our last earnings conference call, the strength of our underlying operations and the tax benefit we received in the second quarter have allowed us to offset significant foreign currency headwind, additional unplanned operating expense from the investments in four late stage technology acquisitions and removal of about $0.13 per share associated with the orthopaedic business.
Finally, I should note that our current guidance projections are based upon an assumed U.S. dollar to euro exchange rate of approximately 1.25 for the balance of the year. Additionally we have not yet had the ability to assess the impact hurricane Sandy will have on hospital surgical procedures in our business.
With that, I'd like to turn the call over to Benson for some closing remarks. Benson?
Benson Smith
Thanks Tom. So in closing, I would like to say that our senior leadership team is pleased with Teleflex performance for the first nine months of 2012. I do want to take a moment to thank our employees around the world for their continued hard work and dedication. As a result, each of our franchises in geographic regions continue to perform well and we're continuing the process of creating a platform that will allow for consistent, sustainable and profitable revenue growth and margin expansion for many years to come.
That includes the formal prepared remarks section of the presentation. With that, I would like to turn the call back to the operator for questions. Operator?
Question-and-Answer Session
(Operator Instructions) Your first question comes from the line of Matt Taylor with Barclays.
Matt Taylor - Barclays
I just had two quick ones. One was I guess, now you've closed the LMA, you put out some pretty juicy targets in terms of the expectations for synergies over the next couple of years. Is there anything that's changed since you held the last call in terms of how you think those synergies may progress or where they may come from or anything in general that has changed in terms of your target there?
Benson Smith
The brief answer is really no. We are in obviously initial stages of implementing the programs that are necessary to get the synergies in 2013 and our look at it right now is exactly what we anticipated.
Matt Taylor - Barclays
Great. And you continue to do well on the pricing front, especially in Europe in a difficult environment. Just curious I guess as you look out over the next couple of years certainly you have a little bit of runway left to go to hit your ultimate goal and was just curious as to how you view those efforts evolving as you start to lapse some of these gains that you've made?
Benson Smith
So our original plan was not to try and take all of the pricing differential in one fell swoop but to split it out over several years. That strategy from everything we can see appears to be working and I would say working a little better than we had anticipated when we first laid it out. So based on everything we can see right now Matt, we continue to expect those pricing gains to materialize between the 250 and 300 basis points getting us to our high-five goals.
Your next question comes from the line of Jonathan Palmer with CLSA.
Jonathan Palmer – CLSA
Maybe Benson, can you just elaborate a little bit on LMA and what you have to do over the next 3 to 6 months and then maybe one year plus to really integrate the assets fully into business?
Benson Smith
So the initial phase this year really is consolidating the LMA sales and marketing organization within the United States with our own anesthesia sales and marketing business unit. We are going through a process of looking at the best performers in -- from each company as we re-assign people to sales territories. We expect to have some leftover personnel, if you would, from that process and we are then looking to fill any additional vacancies we have throughout our selling organization in the United States to try and accommodate as much of the folks from our two organizations as we possibly can.
That process is pretty well underway in terms of the planning part of that process. The additional element for 2013 is really the consolidation of the aspects of LMA which were necessary to run a public company and again that is -- will relatively quickly be compressed into our international business unit structure. We deliberately are holding off the move from dealer to direct organizations for a year. We want to get well calibrated in terms of the contributions that the dealers are making. We do have some basic assumptions about what that's going to look like but are proceeding in a very methodical way in terms of making the actual plant distributor by distributor. Our key here really is to keep as much of the business momentum going as possible.
And the third area is, and this is a bit longer range, but LMA had been using essentially an outside manufacturer. We have been engaged in very active discussions with them about their efforts to try and reduce the cost of the products being manufactured. They really had some aggressive programs underway and we are in the short-term tied to some longer-term contracts that were entered into but we expect to see some significant cost improvements in the year 2015. So there is a staged approach to how we're going about this. I think the plans are well-developed for the 2013 synergy targets and at this point, we fully anticipate to hit those targets in 2013.
Jonathan Palmer – CLSA
Appreciate the color. And then two quick ones for Tom. You mentioned the five selling day impact in the fourth quarter. Could you maybe just give a gander in terms of what the percentage impact is going to be, maybe a range there?
Thomas Powell
Yeah, when we spoke about in the first quarter, that was a six-day impact largely because there was an extra day in the year and we estimate that to be in the range of 5% as a result of being lesser – we're expecting this to be about 4% impact for the quarter.
Jonathan Palmer – CLSA
And then I apologize if you mentioned this already, but at some point you're going to release restated results for all the various divestitures and restatements of the segments.
Jake Elguicze
So Jonathan, this is Jake. I think that as we move forward here with the filings, certainly of our 10-K we will issue the restated multi-year Americas segment information. Given the fact that we just made a change here in this quarter moving Latin America from the Asia and Latin America segment to now a newly defined Americas segment, we should have some historical financials out there and probably in conjunction with the filing of our 10-K.
Your next question comes from the line of Lawrence Keusch with Raymond James.
Lawrence Keusch – Raymond James
I guess, Benson, first question, if you could just – if you exclude price just sort of help us understand your thoughts around the current dynamics for utilization demand in Europe and the U.S.
Benson Smith
So I think it's fair to say that we see some uncertainty in some particular European markets at this point. Nevertheless our constant currency growth in Europe for the quarter was 3.5%. It was right in line with what our expectations were and as you know the summer months in Europe were typically somewhat slower than the rest of the year. So it doesn't seem to be having a material effect on our own business lines. I would say as we move to the United States again we don't see the same negative impact that some of our competitors have reported. However, I think we are of the impression that there is a bit of a slowdown in the procedures. Usually that plays itself out in more acute patients showing up at the hospital a few months down the road.
But almost across-the-board we saw positive results in the U.S. So again it's hard to say whether we're just not seeing the results from the slowdown in procedures or is masked by share gains in somebody's product categories. But it's clearly not having the same impact on us that's having on others.
Lawrence Keusch – Raymond James
And then two quicks, on the converts, just can you bring us up to speed on again how we should think about potential dilution going forward and a way that you might help mitigate some of that? And then the second part of the question but I just want to make sure I am understanding this. In terms of the adjusted earnings-per-share you mentioned some forward FX hedge associated with the LMA acquisition, and again I just want to just make sure I understand what exactly that was for?
Benson Smith
Okay. Why don't I start with the forward hedge? So essentially when we entered into the agreement to purchase LMA, we wanted to take the variability out of the cash used to consummate the transaction. So we entered into forward currency contracts to lock in Sing dollars and U.S. dollars required to finish the deal. And as a result of that, I guess when the contract closed out in fact, the euro had appreciated over that period of time resulting in a loss on those hedges. So we essentially entered into them for the economic reason, now taking the variability out, kind of establishing the level of cash, ends up with an accounting charge associated with the hedge.
And then with regard to the dilution from the converts, there is a – perhaps the best way to think about this is at various stock prices what potential dilution would be. So for instance on a $70 stock price dilution would be about 810,000 additional shares or 2% and at $75 of potential dilution of 3%. So that's the estimate of dilution. Now in terms of ways to mitigate that, one of the benefits of the convert is in fact that while there is additional dilution, there is also a benefit from achieving a lower interest rate all the way. We have not taken any other steps beyond that to actually go back and buy back shares or do anything else to offset the convert dilution at this point in time.
Lawrence Keusch – Raymond James
And just to finish that out, so you can't buy back stock if you chose to do so particularly if the share price moved in excess of $75 and the dilution I think starts to get larger, if you move up toward $100. And also I guess it's important to note that I wanted to make sure I am right on that is that, again this is obviously not a cash flow dilutive event, it's a reported EPS dilutive event?
Benson Smith
That's correct.
Your next question comes from the line of David Lewis with Morgan Stanley.
John Demchak – Morgan Stanley
Hello, this is actually John Demchak in for David. Had a quick follow-up on LMA. First of all, appreciated all of the detail about the synergies and timing that you guys stated on the call. But I was wondering if you could give us a little more I guess color of some of the assumptions that might be embedded in those, particularly in the amount of synergies that you might be expecting it driving like COGS and SG&A and also an impact to the synergies?
Benson Smith
Sort of repeat myself a bit, the primary cost savings in the U.S. really comes from the consolidation of what are now two separate business entities into one entity into the United States and the combination of two sales forces into a single sales force. And while that single sales force will be a little larger than our current sales force, it will certainly be smaller than the combined headcount for the two independent sales forces right now. So the primary savings in the U.S. really comes from a reduced headcount associated with the number of people in the sales organization.
John Demchak – Morgan Stanley
On another strategic one, I guess regarding acquisitions as well. When you kind of look at acquisitions that you may be targeting going forward, do you expect them to be more in line with the larger I guess mature company like LMA, or more the late stage technologies that we probably were expecting more of like Hotspur and Semprus? Any color there would be great.
Benson Smith
So just sort of to remind the listeners our progress to date we've done four acquisitions this year that we would put into the late stage technology bucket and one in this sort of larger revenue enhancement category. And I think that ratio is about the right capital allocation strategy for us. It is a bit dependent on what's available and how good of a fit what's available is within our product portfolio. And we are more driven by buying things that meet some particular algorithms we had set up than necessarily a set number every year or set dollar value. We're fortunate now in the sense that there's a lot of activity going on this late stage technology field. So we're quite busy there and I think we're fortunate in the sense that LMA really just hit all the right bells for us overseas cash from existing area of strong business interest for us, a lot of synergies and a global market share. So the hard work here isn't deciding we would like to do more of this, it's actually digging them out and finding them.
John Demchak – Morgan Stanley
And one quick last one, kind of as I look at pricing and how it's trended over the past I guess almost 2 years, it looked like you had an initial ramp up to about 800 basis point level starting in 2012 and then now you've I guess been more steady in the I guess 100 to 130 basis point positive pricing. Is this sort of level that we should kind of expect going forward or do you think there could be another incremental step up or alternately do you expect it to maybe step down and set a little lower?
Benson Smith
And so again our plan here was to take an incremental approach to this. We are convinced at this stage that approach is working and therefore it's the right one. So we're not making an effort to try and ramp up pricing beyond the levels. I mentioned on the call that our current performance is a little bit north of our expectations but certainly in the general area of what we expected to see. So I think more of the same is what's baked into our 2013 assumptions.
Your next question comes from the line of Richard Newitter with Leerink Swann.
Richard Newitter - Leerink Swann
I just wanted to go back to – I know you gave a little bit of color around the Asia Pacific performance. That was a very strong number at 32% and I think you were trending in the 10% to 11% in the prior quarter. Can you just maybe tell us a little bit more about what's happening in that region and how you achieved such a high level of growth this quarter?
Benson Smith
So the quarter by quarter comparisons are a little bit difficult to interpret. We did have some events last year as we opened up an Asian distribution center that had some impact on our ability to ship products. And so the comparison from one quarter to another quarter I think gives you a bit of a misleading sense of our trend improvements from second quarter to third quarter this year. However we are focusing I think more attention and more resources on growth in that area. Even though the general economy of China may be slowing, it's not impacting the growth in the healthcare segment at this point in time. And so part of that increase is really just from continued resource expenditure and growth in the region.
Richard Newitter - Leerink Swann
And then I think Benson, earlier you had mentioned utilization environment, maybe you're incrementally more cautious but impacting Teleflex may be a little bit less given share gains. Any – where do you think the share gains are occurring the most and offsetting potential utilization issues? Can you identify that? Is it the surgical division? Is it more in vascular access?
Benson Smith
So we're seeing very good response in vascular access through the VasoNova positioning system. That has not done a lot to move the share needle so far. Now we have expectations as we move into 2013 and 2014 that these early conversions will start to make a much more quantifiable difference as we really start to see a repeatable order pattern developed. In the area of surgery, we are continuing to see good acceptance in our ligation products. That certainly continues to grow and by all indications, particularly the dollar share of the market, our share is increasing there. In respiratory therapy, we had good gains this year, that's a little bit -- that has a little bit to do with comparison of the flu season from one year to the other. But we have gained a number of GPO contracts in the area of respiratory therapy. And so that is certainly helping us with share gains in that product category as well.
Richard Newitter - Leerink Swann
And then maybe if I could just get one last one in there on Europe pricing in particular, any trends or feedback by region specifically whether it's strength versus others that are allowing you to kind of exceed your original expectations, where is the surprise to the upside coming from for you?
Benson Smith
Well, I think a lot of the original presumptions we had in Europe were driven by kind of overall market assessments not just by us but really by a host of competitors and participants in the European market, who reported very in many cases a sluggish sales growth to no sales growth and in many cases negative pricing trends. When we started this effort to improve our pricing, our negative pricing in Europe was almost about 100 basis points a year in the decline. And so we were cautious about what to expect out of that region. We applied the same discipline and strategy that we did in other parts of the globe. We just -- I think we're internally much more cautious about expecting what he ramp of that might look like, because it's a very bid driven economy in general and we just thought it was going to be harder to move the needle in pricing in the right direction.
So this occurred about really two quarters faster into positive territory than we originally planned. But essentially we are employing the same sort of strategy there that we are in the rest of the world.
Your next question comes from the line of Chris Cooley with Stephens.
Chris Cooley - Stephens Inc.
If we could, Benson, could you maybe just walk us through LMA in the past, what do you see there that you can help to drive growth more than that 5% range going forward? They already have about 85% share within that larengeal mass segment. Help us think about kind of maybe geographic expansion, pricing and products and how those contribute to growth? And then I just had another quick follow up. Thanks much.
Benson Smith
So I am going to break that up into two kinds of questions and one is geographic expansion. There certainly China is the single biggest opportunity from a market size and just the original substitution of an LMA type product for an endotracheal tube in shorter duration general anesthesia procedures. We actually spent a lot of time looking at what we thought was going to be the development of those products in China prior to making the acquisition and see that as the principle area for geographic expansion.
The other expansion really relates to the continued use of LMA masks to replace endotracheal tubes in surgical procedures of longer duration. There has been some reluctance in the United States, for example, to go as far as other countries. In the UK, for example, they use an LMA type product and about 50% of the cases in the United States it's about 35% of the cases. This is driven about around some concerns -- about regurgitation during a longer procedure and a lot of the development efforts in the LMA product line are really to address those concerns and minimize the risks associated with its use in longer procedures. We are quite confident that if those developments meet our expectations will be met with an enthusiastic audience because LMA's solved a lot of problems that are created by endotracheal tubes.
So we certainly see some benefit in trying to get to the same usage rate with this current product line that we see in in the UK for example, but I think more of our expectation is around addressing some of those user concerns or issues with some improvements to the product line.
Chris Cooley - Stephens Inc.
And as a quick follow up, in the past in particular as you referenced your domestic – your Americas business now, you have discussed the contribution from both GPOs and IDNs as a percentage of volume in that growth rate. Could you just update us as we think about the Americas in terms of the contribution, maybe in the aggregate from both GPOs and IDNs combined and also where you are in terms of contract wins year to date?
Benson Smith
So we're going to dig out the number, I think, of contract wins year to date. Our current level of sales in the United States is about, 50% of our volume goes to GPO contracts. That has grown a little bit as we have gotten more and more awards in the U.S. but not substantially different from what we reported on our last quarter. The last numbers we looked at showed that our growth rate within that segment of products for the United States was around 6%, which was at least a full two percentage points greater than our average growth rate in non-GPO kinds of products. And again I don't have that specific breakdown yet for the third quarter, but we would expect a continuation of that trend as our GPO awards have only increased from one quarter to another.
Relative to the total number of GPO contracts this year –
Jake Elguicze
Chris, from a GPO perspective on a year to date basis we have won 17 awards through the end of the third quarter. That includes the five additional awards that we won in the third quarter alone. From an IDN perspective we've won 14 awards on a year to date basis through the third quarter. And again that includes the two additional awards that we won in the third quarter.
Your next question comes from the line of Jim Sidoti, Sidoti & Company.
Jim Sidoti – Sidoti & Company
Well, first of all, how did you break out with the storm and how do you expect that to affect operations going forward?
Benson Smith
Thanks for asking. Our corporate headquarters are in Limerick and we obviously have two other locations, one in Reading and one in Mount Holly that were sort of within the path of the storm. As far as we understand right now we did not experience any significant damage to any of our property and we have no reports of any of our employees that were injured. We do have a number of people that had their power interrupted at their homes. We still have some difficulties people just commuting to work because the tree's down on the roadways and some of those issues.
Manufacturing was interrupted at the Mount Holly facility and the Reading facility for a full day. Yesterday at 2:30 manufacturing resumed at Reading and I don't have the immediate details of the resumption of manufacturing in Mount Holly. At this point we would expect the biggest impact likely to come from the delay of procedures and hospitals within the New York, New Jersey area, just trying to get back up and running and deal with their current patient populations. There is within that community that we're looking at about 29, what we would call major health care facilities that look like there will have some impact, and I would say that's 29 out of what we would consider to be 1000 similar major institutions in the United States. So we expect that their procedure rates will be slow for the next several weeks as they regroup.
Jim Sidoti – Sidoti & Company
Well, I am glad to hear everybody is okay, and I can relate to power and commuting issues but all in all, I think we're all pretty lucky.
Benson Smith
We thought that way. It was a lot less impactful here than just the state over.
Jim Sidoti – Sidoti & Company
Right. So now the guidance for revenue for 2012, does that include the contribution from LMA in the last couple months of the year?
Benson Smith
Yes, it does.
Jim Sidoti – Sidoti & Company
And so I am not sure what you broke out of the first quarter because of the divestiture, can you just give us a range assuming currency stays where it is today, where you think revenue will land for the fourth quarter?
Benson Smith
So typically we don't give quarter to quarter revenue projections. We are anticipating again with LMA that the year will end up between that 6% and 7%. LMA constitutes about 1% of that and we were -- our previous range was 4% to 6% and without LMA and we still are estimating that we're going to be at the higher end of that range on a constant currency basis for growth.
Jim Sidoti – Sidoti & Company
What was the revenue in the first quarter excluding the divestiture?
Thomas Powell
First quarter of 2012 revenues were right at $380 million.
Jim Sidoti – Sidoti & Company
And that's without the OEM divestiture?
Thomas Powell
That's correct. That's first quarter 2012.
Jim Sidoti – Sidoti & Company
Right and then the second quarter you broke that out because of the discontinued operation I believe?
Thomas Powell
Jim Sidoti – Sidoti & Company
And R&D it seems like it's ticked up a little bit in the quarter and it will tick up because of the recent technology acquisitions. Where do you expect that to fall – can you give us a range in the fourth quarter and 2013 just as a percentage?
Benson Smith
Yeah, most of those acquisitions which contribute to that were completed in the second quarter. So the third quarter expenditure represents a pretty good approximation of what the fourth quarter is going to look like.
Jim Sidoti – Sidoti & Company
And then unless there is additional deals around that level of 2013.
Benson Smith
Jim Sidoti – Sidoti & Company
And then just the last question, have you gotten any more clarification on how to account for the medical device tax and do you expect that to kick in at the beginning of the year or do you think there is any chance that gets to push back a couple quarters?
Benson Smith
So at this point, we are planning on it being implemented January 1. There is -- I was just at a CEO meeting for healthcare executives about this a couple weeks ago. There is some increased awareness of the consequences that this tax is going to have in the Senate right now. There are some states and have very significant medical device concentrations in them, New Jersey, Massachusetts, California which normally have Democratic senators, there seems to be some favorable movement in at least recognizing the consequences of this. And some people are of the opinion that they may seriously take up the bill that the House has already voted on.
From our perspective, we have to prepare for the worst and at this point as we look at the impact on 2013, should it go into effect for the full year, which again we're planning on would be about $0.25 a share to us.
Jim Sidoti – Sidoti & Company
And where would all that go in the P&L?
Thomas Powell
That will go into operating expense.
Jim Sidoti – Sidoti & Company
As part of SG&A or
Thomas Powell
Your next question comes from the line of Anthony Petrone with Jefferies Group.
Anthony Petrone – Jefferies
Just a couple on LMA. Can you provide us again with the geographic revenue mix currently and then you alluded to that sort of shifting going out over the next few years? And if you sort of bring that down to the P&L with the tax benefit as to Teleflex today assuming that most of the revenues are generated overseas?
Benson Smith
The revenue mix largely mirrors Teleflex's revenue mix with about half of their sales in the U.S. and about half of their sales outside the U.S. We -- because of the Asian markets we expect the ex-U.S. segment at least over the first year or two to grow a little faster than the U.S. segment and we expect some shift in that as the new products enter into the picture that we think will have more of a home and applicability in the U.S. market.
Anthony Petrone – Jefferies
That will result in a favorable tax benefit if we look toward 2013 or is it just a similar sort of tax structure that we have today?
Thomas Powell
Yeah as we look towards 2013 our expectation is that the tax impact on adjusted EPS is actually about that we expect, actually somewhere in the low 20% range. So that would be a benefit versus where we are currently running at the company excluding LMA.
Anthony Petrone – Jefferies
And then one strategic question for LMA if I may. You have a – the price increase campaign going on across the portfolio and LMA certainly has a large share of the airway management market with larengeal masks. But it sounds like the approach here is to expand that share I guess beyond the 35% of applicable procedures. Does the price increase sort strategy that you have with the remaining portfolio play into the LMA assets that you acquired?
Benson Smith
Not nearly as much so. LMA is already the premium pricer in the market segment. Most of the growth that we expect will come from upgraded versions of the product as opposed to pricing.
With no further questions in queue, I will turn the call over back to Mr. Jake Elguicze for closing remarks. Please proceed.
Jake Elguicze
Thank you, operator. And thanks everyone for joining us today. I'd also like to remind everyone that Teleflex will be holding an analyst day on December 13 in New York City at the New York Palace Hotel. The event will begin at 8 AM and will last approximately 4 hours and we hope that many of you who follow Teleflex will be able to attend. And thanks again for joining us this morning. This concludes the Teleflex Incorporated quarter earnings conference call.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.
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January 16, 1986
UNITED STATES OF AMERICAv.ROCKWELL, ERNEST G., APPELLANT
On appeal from the United States District Court of the Western District of Pennsylvania (D.C. Crim. No. 84-00153)
Before: HUNTER, GARTH, and HIGGINBOTHAM, Circuit Judges.
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
Defendant Ernest Rockwell appeals from his conviction and sentence under 18 U.S.C. App. § 1202(a)*fn1 which prohibits the possession of firearms by a convicted felon. For the reasons set forth below, we will reverse.
Viewed in the light most favorable to the government, the facts shown at trial were as follows: On September 5, 1982 at approximately 1:30 a.m., two Braddock Hills, Pennsylvania police officers observed an automobile operated by appellant Ernest Rockwell being driven erratically. The two officer, Randy Weber and Eugene Colletto, stopped the vehicle. Officer Weber approached the vehicle and asked Rockwell to produce his driver's license and car registration. After noticing signs of intoxication, Officer Weber asked Rockwell to exit the vehicle and began to perform certain ield sobriety tests. In administering the finger-to-nose-test, Officer Weber observed a bulge in Rockwell's right front pocket. According to Officer Weber, he then reached into Rockwell's pocket and pulled out a .22 caliber derringer handgun.
Rockwell was arrested and charged with three state offenses -- driving under the influence, carrying a firearm without a permit, and possession of a firearm by "a former convict."*fn2 App. at 109a. At the state court preliminary hearing on the charges held several weeks later, both police officers asked the Magistrate to withdraw the two firearm charges and proceeded only on the drunk driving charge. App. at 110a, 151a. Sometime thereafter, Agent Roger Greenbank of the Federal Bureau of Investigation, upon reviewing Rockwell's offense record, noticed that there was no disposition listed with respect to the state firearms violations. He then contacted Officer Weber for an explanation and also requested that the gun be turned over to federal custody. Subsequently, on August 30, 1984, a little over a year after the state charges were dropped, Rockwell was arrested and charged with violating 18 U.S.C. App. § 1202(a). Trial commenced in federal court on November 26, 1984 and the jury returned a verdict of guilty on November 27, 1984.
Rockwell's principal contention on appeal*fn3 alleges error in the trial court's instruction to the jury. In particular, Rockwell argues that the instruction to the jury that it need not resolve the conflict between the contradictory testimony from Officer Weber and the Mayor of Braddock Hills, Richard Foster, as to the reasons the state firearm charges were dropped, invaded the province and function of the jury to determine the credibility of Officer Weber's testimony, and was therefore reversible error. We agree.
Throughout the trial in this matter, appellant Rockwell asserted as his only defense that he never at any time possessed the firearm in question. Rockwell maintains that the derringer was a "throw down"*fn4 weapon and thus he was the victim of a false charge concocted by Officer Weber. See App. at 154a-163a. To support this contention, Rockwell sought to cause the jury to have a reasonable doubt as to the credibility of Officer Weber, the government's chief witness. Rockwell relied on a variety of facts established by the evidence to create an inference that he did not in fact possess the weapon. First, although Officer Colletto was present and stood approximately one and one half feet from Rockwell during the search and arrest, he testified that he did not actually see Weber remove the gun from Rockwell's pocket. App. at 112a-13a. Colletto saw the gun for the first time at the police station hours after the arrest. App. at 106a. Moreover, on the evening of the arrest, Colletto urged that Rockwell not be charged with the firearm offenses.
Second, although the police report indicated that appellant "had upon his person a four shot .22 Four Aces" derringer, App. at 183a, no mention was made of Officer Weber having seized the weapon at the time of the arrest. In addition, no fingerprints were found on the gun.
Finally, the state firearm charges were mysteriously dropped at the request of Officers Weber and Colletto. Several months after the dismissal of the charges, Officer Weber took possession of the gun from the Allegheny County Crime Lab where it had been sent for testing. When a federal investigation was initiated Officer Weber was originally unable to produce the weapon. He subsequently located the derringer at his home in a box of Christmas decorations.
During the prosecution's case in chief, Officer Weber testified that he had pulled the gun from Rockwell's pocket after noticing a bulge. On cross examination, Weber testified that he had been approached by the Mayor of Braddock Hills, Richard Foster, who requested that the charges be dropped.*fn5 At the close of the prosecution's case, the defense called Mayor Foster as its first witness. Mayor Foster testified that he did not know Rockwell, had no interest in the case, and had never asked Weber or anyone else to withdraw the state firearm charges filed against Rockwell. Foster's testimony, described by the court at sidebar as the "guts" and "power" of appellant's case, put Weber's general credibility in question. Appellant argued that if Weber lied about his reasons for withdrawing charges as serious as those filed against Rockwell, the most likely explanation was that there never was a gun in Rockwell's possession. Thus, if the jury found Weber's testimony regarding the reasons for dropping the charges incredible, they could conclude that his testimony regarding seizure of the gun was likewise incredible.
In its charge to the jury, the district court stated the following:
It's further your jurisdiction to decide the credibility of the witnesses. That is, their truthfulness or the lack of it. In deciding the credibility of witnesses, you may take into consideration their demeanor and their appearance on the stand, whether they appeared to recollect the facts clearly, whether they appeared to have been shaken on cross examination, whether they have any interest in the outcome of the case, whether they appeared to be prejudiced in any way, and anything else which to you indicates the presence or the absence of credibility. Credibility is entirely within your hands. If you find that any witness testified falsely about any material fact, you may disregard all of his testimony, or you may accept such parts of it as you wish to accept and exclude such parts of it as you wish to exclude.
App. at 289a (emphasis added).
Thus the district court by the above quoted charge granted to the jury the option to implement the concept that traditionally has been categorized as falsus in uno, falsus in omnibus. See 1 E. Devitt & C. Blackmar, Federal Jury Practice And Instructions § 17.08 (3d ed. 1977). Yet in the very next sentence the district court, in effect, abrogated its prior directive which had devolved to the jury the task of determining all issues of credibility by precluding the jury from considering a credibility conflict between two significant witnesses. The district court instructed the jury that "it is not necessary in deciding this case to decide the issue if credibility between Mr. Foster and Mr. Weber. That issue is collateral to the main issue here. That main issue is simply whether the defendant possessed the derringer on the night that you have heard described." App. at 289a-90a. Defense counsel promptly objected. It is this latter instruction that constitutes the primary basis of this appeal.
Reference to Mayor Foster was first made during cross examination of Officer Weber where defense counsel sought to ascertain from Weber the reasons that had prompted him to drop the state firearm charges. Concededly, the only element of the § 1202 offense in dispute was possession of the derringer. Thus, the question why comparable state charges had been dropped is technically collateral to the issue tried, whether Rockwell possessed the derringer on the night in question. Absent objections, however, the trial judge permitted the inquiry. Therefore, defense counsel elicited testimony from Officer Weber that implicated Mayor Foster in the decision not to pursue the state firearm charges filed against Rockwell.
It is well established that the scope and extent of cross examination is within the sound discretion of the trial judge. Alford v. United States, 282 U.S. 687, 694, 75 L. Ed. 624, 51 S. Ct. 218 (1931); United States v. Adams, 759 F.2d 1099, 1110 (3d Cir. 1985); Government of Virgin Islands v. Blyden, 626 F.2d 310, 313 (3d Cir. 1980) and that wide latitude should be afforded where a genuine issue of credibility exists. Harris v. United States, 371 F.2d 365, 367 (9th Cir. 1967). The trial judge must determine the extent to which cross examination may be allowed on collateral matters. United States v. Stoehr, 100 F. Supp. 143, 155 (M.D. Pa. 1951), aff'd, 196 F.2d 276 (3d Cir. 1952). Thus it was well within the trial court's discretion to allow the defense to question Weber about the withdrawal of the charges. Once Weber responded, however, the defense could have been precluded from offering Mayor Foster's testimony or other extrinsic evidence in rebuttal.
Generally, "in federal courts . . . extrinsic evidence is not admissible to rebut cross examination testimony relating to a collateral matter." 2 Wharton Criminal Evidence § 467 (Supp. 1985). See also Tinker v. United States, 135 U.S. App. D.C. 125, 417 F.2d 542 (D.C. Cir.), cert. denied, 396 U.S. 864, 90 S. Ct. 141, 24 L. Ed. 2d 118 (1969); United States v. Corbin, 734 F.2d 643, 655 (11th Cir. 1984). Rather, a party's right to impeach the credibility of the opposing party's witness is limited to the questioning of that witness on cross examination. Corbin, 734 F.2d at 655. Mayor Foster's testimony was presented solely for the purpose of contradiction. Absent Officer Weber's statement implicating Mayor Foster, there was no independent reason for Mayor Foster to testify. Indeed, by his own words, the mayor had no interest in or knowledge of the charges against Ernest Rockwell prior to the indictment. As such Mayor Foster's testimony related to a matter technically collateral to the substantive issues of the case, see United States v. Jarrett, 705 F.2d 198, 207 (7th Cir. 1983), cert. denied, 465 U.S. 1004, 104 S. Ct. 995, 79 L. Ed. 2d 228 (1984), and perhaps could properly have been excluded, see United States v. Agnes, 581 F. Supp. 462, 475-76 (E.D. Pa. 1984). We hasten to add, however, that although trial judges have great latitude in excluding evidence that is clearly collateral, in a criminal prosecution where, as here, the credibility of the witnesses is itself a crucial factor, the trial judge must take care not to impede the truth seeking function of the trial process by prematurely excluding relevant evidence.
At trial, the government did not object to the scope of defense counsel's cross examination of Weber. Nor did they challenge the admissibility of Mayor Foster's testimony as inadmissible extrinsic evidence introduced to contradict a collateral issue. Thus, those issues are not before us now.*fn6 We must decide whether, once admitted, Mayor Foster's testimony and the conflict created thereby presented a credibility issue peculiarly within the province of the jury that was usurped by the trial court's instruction to the jury.
The government contends that the dispute over whether Mayor Foster requested Weber to drop the charges is collateral to the only fact at issue in this case -- whether Rockwell was in possession of the derringer. As such, the government submits that the dispute was immaterial and its resolution inconsequential in that it could not lead a jury to reasonably infer that the real reason the charges were dropped was that Rockwell never possessed the weapon. Thus, any error that may have resulted from the trial court's instructions to the jury was harmless.
Rockwell, on the other hand, argues that based on his defense that the derringer was a "throw down" weapon, the dispute between Weber and Mayor Foster became a "crucial and material factual issue." Proceeding from that premise, Rockwell contends that the trial judge's instruction to the jury deprived him of the benefit of the falsus in uno, falsus in omnibus charge and thus invaded the province of the jury as the arbiter of issues of credibility.
We think that the parties' preoccupation with the collateral/material issue distinction is misplaced. The crucial factor in this case is that Officer Weber was the government's only material witness; without Weber's testimony, on the record before us, the government's case is severely weakened. The Supreme Court has recognized that where the government's case in a criminal prosecution may stand or fall on the jury's belief or disbelief of one witness, that witness's credibility is subject to close scrutiny." United States v. Partin, 493 F.2d 750, 760 (5th Cir. 1974) (citing Gordon v. United States, 344 U.S. 414, 417, 97 L. Ed. 447, 73 S. Ct. 369 (1953)). Once the conflicting testimony of Officer Weber and Mayor Foster was accepted into evidence without objection, a question of fact was presented for the jury that was interrelated to Weber's general credibility. It is well settled that where there is a conflict or contradiction of evidence, the question should be submitted to the jury under proper instructions from the court. "It is the jury, not the court, which is the fact-finding body. It weighs the contradictory evidence and inferences, judges the credibility of witnesses, receives expert instructions, and draws the ultimate conclusion as to the facts." Tennant v. Peoria & P.U. Ry. Co., 321 U.S. 29, 35, 88 L. Ed. 520, 64 S. Ct. 409 (1944); see also United States v. Hill, 449 F.2d 743, 743 n.3 (3d Cir. 1971). The law will not countenance a usurpation by the court of the function of the jury to decide the facts and to assess the credibility of the witnesses.
In the instant appeal, the determination of whether the district court's instructions taken on the whole invaded the province of the jury does not hinge upon the characterization of the dispute between Weber and Mayor Foster. Put otherwise, the fact that the conflict is collateral, as we have found, is not dispositive of this case. Instead, due regard must be accorded to the centrality of Weber's credibility to the judicious resolution of this case. Cf. McConnell v. United States, 393 F.2d 404, 406 (5th Cir. 1968); United States v. Persico, 349 F.2d 6, 8-11 (2d Cir. 1965). Thus, the question here is not whether it was necessary for the jury to resolve a conflict on a collateral issue,*fn7 but rather, whether the jury should be permitted to consider the conflict in assessing the overall credibility of witnesses. Indeed, a jury might reasonably find that Weber, even if deliberately lying about why he dropped the charges, was nonetheless telling the truth about Rockwell's possession of the gun. See United States v. Spain, 536 F.2d 170, 173 (7th Cir.), cert. denied, 429 U.S. 833, 97 S. Ct. 96, 50 L. Ed. 2d 97 (1976); United States v. Tropiano, 418 F.2d 1069, 1074 (2d Cir. 1969). Thus, an instruction to the jury to the effect that a deliberate falsehood as to a collateral matter need not impugn other aspects of a witness' testimony, in itself, would not be erroneous. Here, however, the instructions by the trial judge, taken as a whole, see United States v. Palmeri, 630 F.2d 192, 201 (3d Cir. 1980); Ayoub v. Spencer, 550 F.2d 164, 167 (3d Cir.), cert. denied, 432 U.S. 907, 53 L. Ed. 2d 1079, 97 S. Ct. 2952, (1977), removed all consideration of the conflict as it relates to Weber's credibility from the rightful province of the jury. While first indicating that the jury was to decide the issue of credibility, the district court's charge encouraged the jurors to do so without reference to the conflict that had key credibility implications with regards to Officer Weber and Mayor Foster. In fact, the court's instructions are easily construed as authorizing the jury to reject or accept in whole or in part the testimony of a witness only if the witness had lied on a material issue. If a witness had not testified falsely about a material issue, the jury may have inferred that it was bound to accept the whole of the witness' testimony. The charge thus encroached upon the prerogative of the jury to independently assess the credibility of the witnesses.*fn8
Mayor Foster's testimony was the only evidence offered in direct contradiction of Weber's testimony. The jury had the right, if not the obligation, to consider the Mayor's testimony in determining whether it believed beyond a reasonable doubt that Officer Weber was telling the truth about Rockwell's possession of the derringer. Moreover, Rockwell was entitled to have the jury consider all of the evidence before it in arriving at a verdict. Because the jury could have reasonably construed the instruction to mean that it need not credit Mayor Foster's testimony at all or that it need not consider the conflict in evaluating Officer Weber's testimony, the instruction improperly invaded the province of the jury to determine the facts and to assess the credibility of the witness. We have recently held that "the trial court should be reversed only if the instruction was capable of confusing and thereby misleading the jury." United States v. Fischbach and Moore, Inc., 750 F.2d 1183, 1195 (3d Cir. 1984). We think that the instruction here was sufficiently misleading to deprive Rockwell of a fair trial.
In reversing, we are not unmindful of the conscientious manner in which the trial judge presided. We are also aware that on appeal counsel may magnify issues that at trial seemed to be of marginal or no importance. However, here we cannot conclude that Officer Weber's testimony was of marginal importance, or that defense counsel's efforts to obtain an explanation for the withdrawn state charges was an excursion into trivia. Weber's testimony was the sine qua non of the government's case. His conduct -- retrieving evidence, taking it to his home and losing it among Christmas decorations, allegedly entertaining a bribe from a fellow officer and a request from a Mayor to drop serious firearm charges -- was far from exemplary and was at best unorthodox. Certainly, where such a critical witness' credibility has been challenged it is inappropriate to limit the jury as fact finder in its consideration of all evidence that aids in the enlightened determination of credibility.
Accordingly, the judgment of conviction will be vacated and the case remanded for proceedings consistent with this opinion.
GARTH, Circuit Judge, concurring:
I agree with the result reached by the majority in this matter. This case essentially turns on a matter of credibility between Officer Weber and Rockwell as to whether Rockwell actually possessed a gun at the time of his arrest. This being so, the conflicting testimony between Weber and Mayor Foster regarding the circumstances surrounding the dropping of the state weapons charges bears heavily on Weber's overall credibility. In light of the central importance of Weber's credibility to the determination of Rockwell's guilt or innocence, I agree with the majority that the district court's charge effectively removed critical evidence from the jury. That evidence, i.e., the conflicting stories of Weber and the Mayor, was essential in the jury's performance of its ultimate function.
If the majority had reached that result without resorting to what I regard as an unnecessary and erroneous discussion of the collateral character of this evidence, I would have joined its opinion. The majority, however, did not do so, and it is at that point that I part company with its analysis. I do because of the effect that the majority opinion's gratuitous discussion may have on Rockwell's retrial.
In concluding that the district court's charge improperly withheld the Weber-Foster credibility evidence from jury consideration, the majority went on to discuss the character of the evidence respecting the dropping of the state weapons charges. The majority opinion depicts the evidence as wholly collateral to the issue of whether Rockwell actually possessed a firearm. To be sure, in some aspects that evidence may be collateral to the substantive issue of firearm possession, but in critical aspects it is assuredly not.
I do not regard the credibility issue that surfaced between Officer Weber and Mayor Foster as being in any way collateral to the issue of Rockwell's guilt or innocence. If the jury believed Mayor Foster that he had made no request or suggestion that charges be dropped, then Weber's testimony would be thoroughly suspect. Under a charge of falsus in uno, falsus in omnibus, the jury would then have been entitled to disbelieve part or all of Weber's testimony.
Thus, with respect to credibility, I do not understand how the "dropping of the state firearms charge" evidence could be regarded as collateral and therefore excludable from evidence. To the extent that the majority opinion is read as enabling the trial court to exclude such evidence at Rockwell's new trial. I believe the majority opinion is in error. If such testimony is offered at retrial and excluded, an if Rockwell is convicted, it appears to me that we will once again be called upon to reverse Rockwell's conviction.
I propose therefore that the majority's opinion can only be understood as characterizing the conflict in the "dropping of the state firearms charge" testimony as being collateral to the substantive charges for which Rockwell was standing trial, and not as being collateral to the credibility of Weber. Therefore, this testimony cannot properly be excluded for credibility purposes at Rockwell's retrial.
In addition, in my opinion, reversal is especially required here in light of the testimony which was inadvertently admitted during Officer Weber's direct examination. That testimony had to do with a statement made by Rockwell which was made in violation of his Miranda rights. See Maj. Op. at 4, n.3. During direct examination, Officer Weber alluded to the fact that Rockwell had stated after his arrest, but before being advised of his right to remain silent, that Rockwell did not have a permit for the gun allegedly found in his possession. Thus Weber's testimony implied that Rockwell did in fact have a gun in his possession at that time. However, Rockwell's statement was made before Officer Weber administered the Miranda warnings, and therefore the government had agreed prior to trial that it would not offer that statement during trial. Officer Weber's inadvertent reference to Rockwell's statement went not only to the substantive issue of possession, but also to bolster Weber's version of the incident.
Thus, the improper admission of this evidence, when added to the judge's charge which prevented the jury from considering the conflict in testimony between Weber and the Mayor, unfairly weighed the issue of credibility against Rockwell. Combined, these two errors, neither of which can be regarded as harmless, compel reversed for a new trial.
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The masculine name Okita is used in Japanese. . Okita is not very commonly used baby name for boy. It is not ranked with in the top 1000 names.
Okita is also used as baby girl name in countries Japanese.
Okita Chiba, Okita Mochizuki, Okita Takada, Okita Amano, Okita Tamura
We welcome your suggestions on What Does Name Okita Mean. Suggest Meaning of Name Okita.
If you know people with name Okita or have name Okita, please write down your opinion about "What is the meaning of my name Okita".
was a Japanese economist and government official. Okita graduated from Tokyo Imperial University (now the University of Tokyo). In 1937 he worked as an engineer with the Ministry of Posts. Later on he would hold numerous government positions, including chief of research for the Economic Stabilization Board in 1947, chief of the economic cooperation unit for the Economic Planning Agency in 1953 and later director general of their planning bureau in 1957, and then in 1963 the director general of the EPA development bureau. In each of these positions he played an important role under the economic plan of then prime minister Ikeda Hayato, which greatly helped Japan's postwar economy. In 1964 Okita became the president of the Japan Economic Research Centre, and later served as its chairman from 1973 to 1979. From 1979 to 1980 he served as the minister of foreign affairs, and continued to be one of Japan's foremost academic spokemen.[1] He subsequently held numerous other positions including President Of International University of Japan and as an advisor to the ministry of foreign affairs in 1982, and in 1989 as chairman of the Institute for Domestic and Policy Studies in Tokyo.
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November 20, 1969
GEORGE SCHECK, RESPONDENT,v.CONNIE FRANCIS ET AL., APPELLANTS
Appeal from so much of an order of the Supreme Court at Special Term (Amos Bowman, J.), entered June 23, 1969 in New York County as denied defendants' motion to dismiss the complaint.
Eager, J. Stevens, P. J., Capozzoli, Markewich and Nunez, JJ., concur.
The individual defendant is a well-known theatrical performer and she is the sole stockholder of the three corporate defendants which were organized and exist for the purpose of exploiting and carrying on her business interests as a performer. The plaintiff has acted as manager of the individual defendant for many years under a series of written contracts, the latest of which expired on January 4, 1967. Thereafter, the plaintiff did render services for the individual defendant and her corporations and negotiations were carried on between the plaintiff and one Levin, as attorney for the defendants, for the making of a new contract between the parties. Certain proposed contracts were prepared by the attorney but were not signed. Eventually, however, on or about April 1, 1968, an oral agreement was allegedly made between the parties for the employment of the defendant for a period of five years. Thereafter, Mr. Levin prepared four written contracts (one between the plaintiff and each of the four defendants, and on April 15, 1968 he transmitted the contracts as prepared, to the plaintiff with a letter, signed by him, reading:
"Enclosed, in quadruplicate, are the employment agreements between you and GGC Productions Corp., Connie Francis Antigony Music Ltd., and Brookings Music Inc. Please sign all copies, have Connie sign all copies and distribute the copies as follows:
"One set to me
"One set for the office
"One set for you
"One set for Sol Granett [the plaintiff's attorney]
"If you have any questions or comments, please call me."
Following the receipt of the contract forms, the plaintiff signed all four of them and delivered them to the individual defendant. The plaintiff claims that this was done within a few days after he received the papers but the individual defendant testified that she believed that this occurred a number of months after plaintiff received them and after defendant knew that she intended to terminate her relationship with him. In any event, the contracts were never executed by defendants and, in August, 1968, the plaintiff's services were terminated. Thereafter this action was brought against the defendants to recover for breach of an alleged agreement for the employment of plaintiff for a five-year term as provided for in the contract forms enclosed with the attorney's letter.
The defendants urge that the Statute of Frauds is a defense to the action but Special Term has denied a motion made pursuant to CPLR 3211 (subd. [a], pars. 5 and 7), with leave to defendants to assert the statute as a defense in their answer.
The applicable Statute of Frauds is section 5-701 of General Obligations Law which, insofar as relevant, provides:
"Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking:
"1. By its terms is not to be performed within one year from the making thereof".
Briefly stated, the plaintiff contends that the afore-mentioned letter, signed by the attorney for the defendants, and the enclosed unsigned documents, constitute sufficient compliance with the Statute of Frauds. Special Term, in denying the motion to dismiss, held that the applicability of the statute would depend upon the determination of disputed issues, including, "did the writings accurately reflect and contain all of the pertinent terms of the alleged oral agreement of the parties; did the alleged agent [the attorney Levin] have express or apparent authority to bind defendants or any of them; and, if not, are any unauthorized oral agreements presently enforceable by virtue of ratification or estoppel?"
While it is true that, under certain circumstances, unsigned writings may be considered in connection with a signed writing to constitute a memorandum sufficient to satisfy the Statute of Frauds (see Crabtree v. Elizabeth Arden Sales Corp., 305 N. Y. 48), we conclude that this rule does not apply under the present circumstances where the unsigned writings consisted solely of unsigned contracts, as drafted by an attorney, and the signed writing is merely a covering letter, signed by the attorney, that is silent as to the terms of the alleged agreement and expressly requires the plaintiff to obtain signatures on the enclosed contracts. The statute requires that some note or memorandum of the agreement of the parties, expressed in writing, be "subscribed" by the party to be charged or by his lawful agent. In applying the statute, one should not overlook the significance of the use in the statute of the word "subscribed". Certainly, where reference to several writings is required to ascertain the terms of the alleged note or memorandum, the statutory provision for a subscription requires a signature made with an intent to authenticate statements in existing writings as a note or memorandum of the alleged agreement. (See James v. Patten, 6 N. Y. 9, 11, 13; Mesibov, Glinert & Levy v. Cohen Bros. Mfg. Co., 245 N. Y. 305; 300 West End Ave. Corp. v. Warner, 250 N. Y. 221; Clarkson v. Krieger, 254 N. Y. 114; Steinberg v. Universal Machinenfabrik GMBH, 18 N.Y.2d 943, affg. 24 A.D.2d 886; Zipkin v. Roshwald, 219 N. Y. S. 2d 490.)
Although it is not necessary that the party or his agent subscribe or sign each of the several writings, it is essential that at least one of the writings be signed by the party or his agent with the intent, actual or apparent, to authenticate that writing (see Mesibov, Glinert & Levy v. Cohen Bros. Mfg. Co., supra, p. 310) and including the intent to authenticate the existence of a contractual relationship in accordance with terms to be established by reference to properly connected writings, then in existence. "At least one writing, the one establishing a contractual relationship between the parties, must bear the signature of the party to be charged, while the unsigned document must on its face refer to the same transaction as that set forth in the one that was signed" (Crabtree v. Elizabeth Arden Sales Corp., supra, p. 56), and it must appear that the party's signature to the signed writing was made or adopted "with intent to authenticate the information contained therein and that such information does evidence the terms of the contract." (See Crabtree v. Elizabeth Arden Sales Corp., supra, p. 54) Accordingly, where one of the several writings alleged to constitute a note or memorandum of an agreement is a letter, the signature of the party to such letter may not be accepted as a subscription of a note or memorandum in compliance with the statute unless the letter purports in some manner to assume or authenticate a contractual relationship in accordance with terms sufficiently stated therein or sufficiently stated in other existing and properly connected writings. (See decisions, supra. See, also, Clinton Paper Co. v. Mills Paper Co., 83 N. Y. S. 2d 875, 877 [McNally, J.].)
Here, the letter drafted by defendants' attorney, as stated on its face, was intended merely as a means of transmittal to the
[33 A.D.2d 91 Page 95]
--> plaintiff of unexecuted contracts with the request that the plaintiff sign the copies, have the individual defendants sign them for herself and her corporations, and then distribute the copies in the manner set forth therein. The letter was written and signed for a specified limited purpose and we may not infer from the signing and delivery thereof that the defendants intended thereby to establish a contractual relationship or to authenticate the terms of an agreement as set forth in the enclosed unsigned documents. The signatures which would authenticate the existence of the contracts within the meaning of the statute were to be made later after the parties read and approved the terms set forth in the proposed documents. The proof of an agreement for plaintiff's employment and the terms thereof are not established by the writings but proof of a binding agreement requires resort to parol evidence to show that the parties did orally agree to the terms set forth in the unsigned documents; the resort to such evidence is prohibited by the statute. Therefore, it is readily concluded that the signing of the attorney's transmittal letter is not available as a compliance with the Statute of Frauds. (See Brause v. Goldman, 10 A.D.2d 328, affd. 9 N.Y.2d 620; Clinton Paper Co. v. Mills Paper Co., 83 N. Y. S. 2d 875, supra; Singer v. Klebanow, 9 Misc. 2d 1016; Matter of Perera, 3 Misc. 2d 1043, 1046.)
Looking at it another way, attorney Levin's letter may be considered merely as an offer in writing to contract, with specified terms laid down as the basis for the formation of the contract. The letter was merely a proposal to contract -- a proposal that the parties should sign and deliver formal written contracts. Thus, the writing and the signing of the letter by the attorney was but a step looking toward the making of contracts which were to be formed when the parties executed the written documents which were enclosed. (See Dorian Holding & Trading Corp. v. Brunswick Term. & Ry. Securities Co., 230 App. Div. 514, 518.) Inasmuch as the documents were never approved or signed by the defendants and parol evidence is necessary to establish that the defendants had previously agreed to the terms stated in the documents, there was no compliance with the Statute of Frauds.
There are no relevant or material disputed issues requiring a trial. Under the circumstances, it is immaterial whether or not the unsigned contracts enclosed with the letter accurately reflect and contain all of the pertinent terms of a prior alleged oral agreement between the parties. The very purpose of the Statute of Frauds would be thwarted if parol evidence were permitted to establish an oral agreement which does not purport to be authenticated by any signature of the defendants or their agent. Furthermore, inasmuch as it appears as a matter of law that the signature of defendants' attorney Levin to the letter of transmittal did not represent the signing of a note or memorandum within the meaning of the statute, it is immaterial whether or not he had express or apparent authority to confirm the oral agreements allegedly made between the parties or to otherwise bind the defendants. Finally, the affidavits do not present any factual showing which would tend to establish that the defendants effectively ratified the alleged contracts or that they are estopped from denying the same.
The order, entered June 23, 1969, should be reversed, on the law, with costs and disbursements to the defendants, and defendants' motion to dismiss the complaint should be granted.
Order entered June 23, 1969, unanimously reversed, on the law, with $50 costs and disbursements to defendants, and defendants' motion to dismiss the complaint granted; and the Clerk is directed to enter judgment against the plaintiff dismissing the complaint with costs.
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