UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    .

Commission file number 1-5353

 

TELEFLEX INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

23-1147939

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. employer
identification no.)

 

550 E. Swedesford Rd., Suite 400, Wayne, PA

 

19087

(Address of principal executive offices)

 

(Zip Code)

(610) 225-6800

(Registrant’s telephone number, including area code)

(None)

(Former Name, Former Address and Former Fiscal Year,

If Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The registrant had 41,396,149 shares of common stock, $1.00 par value, outstanding as of July 21, 2014.

 

 

 

 

 


TELEFLEX INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2014

TABLE OF CONTENTS

 

 

  

Page

PART I — FINANCIAL INFORMATION

  

 

 

 

 

 

 

Item 1:

 

Financial Statements (Unaudited):

  

2

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 29, 2014 and June 30, 2013

  

2

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 29, 2014 and June 30, 2013

  

3

 

 

Condensed Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013

  

4

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2014 and June 30, 2013

  

5

 

 

Condensed Consolidated Statements of Changes in Equity for the six months ended June 29, 2014 and June 30, 2013

  

6

 

 

Notes to Condensed Consolidated Financial Statements

  

7

Item 2:

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

36

Item 3:

 

Quantitative and Qualitative Disclosures About Market Risk

  

46

Item 4:

 

Controls and Procedures

  

46

 

 

 

PART II — OTHER INFORMATION

  

 

 

 

 

 

 

Item 1:

 

Legal Proceedings

  

48

Item 1A:

 

Risk Factors

  

48

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

48

Item 3:

 

Defaults Upon Senior Securities

  

48

Item 5:

 

Other Information

  

48

Item 6:

 

Exhibits

  

49

 

 

 

SIGNATURES

  

50

 

 

 

1


PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 29,

2014

 

 

June 30,

2013

 

 

June 29,

2014

 

 

June 30,

2013

 

 

(Dollars and shares in thousands, except per share)

 

Net revenues

$

468,105

 

 

$

420,059

 

 

$

906,651

 

 

$

831,936

 

Cost of goods sold

 

224,017

 

 

 

210,569

 

 

 

441,404

 

 

 

421,926

 

Gross profit

 

244,088

 

 

 

209,490

 

 

 

465,247

 

 

 

410,010

 

Selling, general and administrative expenses

 

146,843

 

 

 

116,253

 

 

 

287,140

 

 

 

243,203

 

Research and development expenses

 

14,870

 

 

 

16,524

 

 

 

28,932

 

 

 

31,531

 

Restructuring and other impairment charges

 

7,623

 

 

 

12,962

 

 

 

15,403

 

 

 

22,121

 

Income from continuing operations before interest and taxes

 

74,752

 

 

 

63,751

 

 

 

133,772

 

 

 

113,155

 

Interest expense

 

16,062

 

 

 

14,425

 

 

 

31,466

 

 

 

28,618

 

Interest income

 

(146

)

 

 

(157

)

 

 

(333

)

 

 

(314

)

Income from continuing operations before taxes

 

58,836

 

 

 

49,483

 

 

 

102,639

 

 

 

84,851

 

Taxes on income from continuing operations

 

10,006

 

 

 

6,082

 

 

 

18,540

 

 

 

13,749

 

Income from continuing operations

 

48,830

 

 

 

43,401

 

 

 

84,099

 

 

 

71,102

 

Operating loss from discontinued operations

 

(1,594

)

 

 

(1,026

)

 

 

(1,619

)

 

 

(1,784

)

Tax benefit on loss from discontinued operations

 

(469

)

 

 

(260

)

 

 

(369

)

 

 

(556

)

Loss from discontinued operations

 

(1,125

)

 

 

(766

)

 

 

(1,250

)

 

 

(1,228

)

Net income

 

47,705

 

 

 

42,635

 

 

 

82,849

 

 

 

69,874

 

Less: Income from continuing operations attributable to

   noncontrolling interest

 

453

 

 

 

194

 

 

 

639

 

 

 

395

 

Net income attributable to common shareholders

$

47,252

 

 

$

42,441

 

 

$

82,210

 

 

$

69,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share available to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.17

 

 

$

1.05

 

 

$

2.02

 

 

$

1.72

 

Loss from discontinued operations

 

(0.03

)

 

 

(0.02

)

 

 

(0.03

)

 

 

(0.03

)

Net income

$

1.14

 

 

$

1.03

 

 

$

1.99

 

 

$

1.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.04

 

 

$

0.99

 

 

$

1.81

 

 

$

1.64

 

Loss from discontinued operations

 

(0.02

)

 

 

(0.01

)

 

 

(0.03

)

 

 

(0.03

)

Net income

$

1.02

 

 

$

0.98

 

 

$

1.78

 

 

$

1.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

$

0.34

 

 

$

0.34

 

 

$

0.68

 

 

$

0.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

41,380

 

 

 

41,115

 

 

 

41,321

 

 

 

41,064

 

Diluted

 

46,392

 

 

 

43,429

 

 

 

46,071

 

 

 

43,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

$

48,377

 

 

$

43,207

 

 

$

83,460

 

 

$

70,707

 

Loss from discontinued operations, net of tax

 

(1,125

)

 

 

(766

)

 

 

(1,250

)

 

 

(1,228

)

Net income

$

47,252

 

 

$

42,441

 

 

$

82,210

 

 

$

69,479

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

2


TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 29, 2014

 

 

June 30, 2013

 

 

June 29, 2014

 

 

June 30, 2013

 

 

(Dollars in thousands)

 

Net income

$

47,705

 

 

$

42,635

 

 

$

82,849

 

 

$

69,874

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax of $(531) and $4,461,  $(3,719) and $(1,353) for the three and six month periods, respectively

 

1,173

 

 

 

(6,100

)

 

 

5,290

 

 

 

(32,805

)

Pension and other postretirement benefit plans adjustment, net of tax of $206, $519, $709 and $1,023 for the three  and six month periods, respectively

 

618

 

 

 

866

 

 

 

1,242

 

 

 

1,956

 

Derivatives qualifying as hedges, net of tax of $40, $(111), $82, and $(7) for the three and six month periods, respectively

 

73

 

 

 

(192

)

 

 

143

 

 

 

(12

)

Other comprehensive income (loss), net of tax:

 

1,864

 

 

 

(5,426

)

 

 

6,675

 

 

 

(30,861

)

Comprehensive income

 

49,569

 

 

 

37,209

 

 

 

89,524

 

 

 

39,013

 

Less: comprehensive income attributable to non-controlling

  interest

 

455

 

 

 

2

 

 

 

707

 

 

 

244

 

Comprehensive income attributable to common shareholders

$

49,114

 

 

$

37,207

 

 

$

88,817

 

 

$

38,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

3


TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

June 29, 2014

 

 

December 31, 2013

 

 

(Dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

237,382

 

 

$

431,984

 

Accounts receivable, net

 

301,720

 

 

 

295,290

 

Inventories, net

 

356,467

 

 

 

333,621

 

Prepaid expenses and other current assets

 

38,386

 

 

 

39,810

 

Prepaid taxes

 

47,641

 

 

 

36,504

 

Deferred tax assets

 

50,497

 

 

 

52,917

 

Assets held for sale

 

9,161

 

 

 

10,428

 

Total current assets

 

1,041,254

 

 

 

1,200,554

 

Property, plant and equipment, net

 

343,408

 

 

 

325,900

 

Goodwill

 

1,373,356

 

 

 

1,354,203

 

Intangible assets, net

 

1,233,905

 

 

 

1,255,597

 

Investments in affiliates

 

1,465

 

 

 

1,715

 

Deferred tax assets

 

944

 

 

 

943

 

Other assets

 

69,501

 

 

 

70,095

 

Total assets

$

4,063,833

 

 

$

4,209,007

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current borrowings

$

362,273

 

 

$

356,287

 

Accounts payable

 

73,533

 

 

 

71,967

 

Accrued expenses

 

80,040

 

 

 

74,868

 

Current portion of contingent consideration

 

2,959

 

 

 

4,131

 

Payroll and benefit-related liabilities

 

66,569

 

 

 

73,090

 

Accrued interest

 

9,991

 

 

 

8,725

 

Income taxes payable

 

21,817

 

 

 

23,821

 

Other current liabilities

 

35,308

 

 

 

22,231

 

Total current liabilities

 

652,490

 

 

 

635,120

 

Long-term borrowings

 

700,000

 

 

 

930,000

 

Deferred tax liabilities

 

517,433

 

 

 

514,715

 

Pension and postretirement benefit liabilities

 

102,194

 

 

 

109,498

 

Noncurrent liability for uncertain tax provisions

 

56,687

 

 

 

55,152

 

Other liabilities

 

50,650

 

 

 

48,506

 

Total liabilities

 

2,079,454

 

 

 

2,292,991

 

Commitments and contingencies

 

 

 

 

 

 

 

Total common shareholders' equity

 

1,982,277

 

 

 

1,913,527

 

Noncontrolling interest

 

2,102

 

 

 

2,489

 

Total equity

 

1,984,379

 

 

 

1,916,016

 

Total liabilities and equity

$

4,063,833

 

 

$

4,209,007

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

4


TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Six Months Ended

 

 

June 29, 2014

 

 

June 30, 2013

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities of Continuing Operations

 

 

 

 

 

 

 

Net income

$

82,849

 

 

$

69,874

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Loss from discontinued operations

 

1,250

 

 

 

1,228

 

Depreciation expense

 

23,997

 

 

 

19,876

 

Amortization expense of intangible assets

 

32,102

 

 

 

24,551

 

Amortization expense of deferred financing costs and debt discount

 

7,716

 

 

 

7,533

 

Changes in contingent consideration

 

(6,617

)

 

 

(7,926

)

Stock-based compensation

 

5,726

 

 

 

5,766

 

Deferred income taxes, net

 

2,811

 

 

 

(3,351

)

Other

 

(2,142

)

 

 

(8,243

)

Changes in operating assets and liabilities, net of effects of acquisitions and

   disposals:

 

 

 

 

 

 

 

Accounts receivable

 

640

 

 

 

(18,084

)

Inventories

 

(16,385

)

 

 

(29,354

)

Prepaid expenses and other current assets

 

2,407

 

 

 

303

 

Accounts payable and accrued expenses

 

(1,731

)

 

 

1,163

 

Income taxes receivable and payable, net

 

(12,462

)

 

 

(7,093

)

Net cash provided by operating activities from continuing operations

 

120,161

 

 

 

56,243

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities of Continuing Operations:

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

(30,850

)

 

 

(36,897

)

Proceeds from sale of assets and investments

 

4,139

 

 

 

-

 

Payments for businesses and intangibles acquired, net of cash acquired

 

(28,535

)

 

 

(36,954

)

Investment in affiliates

 

(60

)

 

 

(50

)

Net cash used in investing activities from continuing operations

 

(55,306

)

 

 

(73,901

)

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities of Continuing Operations:

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

250,000

 

 

 

-

 

     Repayment of long-term borrowings

 

(480,000

)

 

 

-

 

Debt issuance fees

 

(3,275

)

 

 

-

 

Proceeds from share based compensation plans and the related tax impacts

 

2,391

 

 

 

3,892

 

Payments to noncontrolling interest shareholders

 

(1,094

)

 

 

(736

)

Payments for contingent consideration

 

-

 

 

 

(9,487

)

Dividends

 

(28,093

)

 

 

(27,944

)

Net cash used in financing activities from continuing operations

 

(260,071

)

 

 

(34,275

)

 

 

 

 

 

 

 

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

Net cash used in operating activities

 

(1,531

)

 

 

(1,437

)

Net cash used in discontinued operations

 

(1,531

)

 

 

(1,437

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

2,145

 

 

 

(2,251

)

Net decrease in cash and cash equivalents

 

(194,602

)

 

 

(55,621

)

Cash and cash equivalents at the beginning of the period

 

431,984

 

 

 

337,039

 

Cash and cash equivalents at the end of the period

$

237,382

 

 

$

281,418

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5


TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Total

 

 

Shares

 

 

Dollars

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Shares

 

 

Dollars

 

 

Interest

 

 

Equity

 

 

(Dollars and shares in thousands, except per share)

 

Balance at December 31, 2012

 

43,102

 

 

$

43,102

 

 

$

394,384

 

 

$

1,601,460

 

 

$

(132,048

)

 

 

2,130

 

 

$

(127,948

)

 

$

2,587

 

 

$

1,781,537

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

69,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

395

 

 

 

69,874

 

Cash dividends ($0.68 per

   share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,944

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,944

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,710

)

 

 

 

 

 

 

 

 

 

 

(151

)

 

 

(30,861

)

Distributions to

   noncontrolling interest

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(736

)

 

 

(736

)

Shares issued under

   compensation plans

 

97

 

 

 

97

 

 

 

7,007

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

2,507

 

 

 

 

 

 

 

9,611

 

Deferred compensation

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

55

 

 

 

 

 

 

 

46

 

Balance at June 30, 2013

 

43,199

 

 

$

43,199

 

 

$

401,382

 

 

$

1,642,995

 

 

$

(162,758

)

 

 

2,078

 

 

$

(125,386

)

 

$

2,095

 

 

$

1,801,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Total

 

 

Shares

 

 

Dollars

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Shares

 

 

Dollars

 

 

Interest

 

 

Equity

 

 

(Dollars and shares in thousands, except per share)

 

Balance at December 31, 2013

 

43,243

 

 

$

43,243

 

 

$

409,338

 

 

$

1,696,424

 

 

$

(110,855

)

 

 

2,064

 

 

$

(124,623

)

 

$

2,489

 

 

$

1,916,016

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

82,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

639

 

 

 

82,849

 

Cash dividends ($0.68 per

   share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,093

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,093

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,607

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

6,675

 

Distributions to

   noncontrolling interest

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,094

)

 

 

(1,094

)

Shares issued under

   compensation plans

 

144

 

 

 

144

 

 

 

5,237

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

2,564

 

 

 

 

 

 

 

7,945

 

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

81

 

 

 

 

 

 

 

81

 

Balance at June 29, 2014

 

43,387

 

 

$

43,387

 

 

$

414,575

 

 

$

1,750,541

 

 

$

(104,248

)

 

 

1,992

 

 

$

(121,978

)

 

$

2,102

 

 

$

1,984,379

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

 

6


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 — Basis of presentation

We prepared the accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated on the same basis as our annual consolidated financial statements.

In the opinion of management, our financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the fair presentation of financial statements for interim periods in accordance with U.S. generally accepted accounting principles (GAAP) and with Rule 10-01 of SEC Regulation S-X, which sets forth the instructions for financial statements included in Form 10-Q. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

In accordance with applicable accounting standards, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in our annual consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but, as permitted by Rule 10-01 of SEC Regulation S-X, does not include all disclosures required by GAAP for complete financial statements. Accordingly, our quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Effective January 1, 2014, the Company realigned its operating segments to reflect changes in the Company’s internal financial reporting structure. See Note 14 for additional information on the Company’s changed reporting structure.

The Company’s share based compensation plan permits employees to elect to have shares withheld by the Company to satisfy their minimum statutory tax withholding obligations arising from the exercise or vesting of share based awards.  The Company then remits, in cash, the withholding taxes to the appropriate tax authorities on behalf of the employee.  For the six months ended June 29, 2014, the Company has classified such payments as a cash outflow from financing activities under the caption “Proceeds from share based compensation plans and the related tax impacts” within the condensed consolidated statement of cash flows.  The Company views the activity as, in effect, a repurchase of the employee’s shares.  The Company’s payments were previously reported as a cash outflow from operating activities; therefore, the Company reclassified the cash outflow for the six months ended June 30, 2013 of $2.3 million to conform to the presentation for the six months ended June 29, 2014 within the condensed consolidated statement of cash flows as well as the condensed consolidating statement of cash flows included in Note 15. The Company’s future filings incorporating financial periods prior to 2014 will also reflect this reclassification.

Additionally, the Company made certain revisions to the prior year condensed consolidating statements of cash flows included in the condensed consolidated guarantor financial information included in Note 15 to correct errors identified in the fourth quarter 2013.

As used in this report, the terms “we,” “us,” “our,” “Teleflex” and the “Company” mean Teleflex Incorporated and its subsidiaries, unless the context indicates otherwise. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.

 

Note 2 — New accounting standards

 

In April 2014, the Financial Accounting Standards Board (FASB) issued guidance for the reporting of discontinued operations. Under the new guidance, only those disposals of components of an entity that represent a strategic shift that has or will have a major effect on an entity's operations and financial results will be reported as discontinued operations in an entity's financial statements. In addition, the new guidance requires additional disclosures for discontinued operations designed to provide users of financial statements with more information about the assets, liabilities, revenues and expenses of discontinued operations. The new guidance also requires disclosures regarding disposals of a significant component of an entity that does not qualify for discontinued operations reporting.This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted. The

7


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Company does not believe the adoption of this guidance will have a material impact on the Company’s results of operations, cash flows or financial position.

 

In May 2014, the FASB, in a joint effort with the International Accounting Standards Board, issued new accounting guidance to clarify the principles for recognizing revenue.  The new guidance is designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, and will affect any entity that enters into contracts with customers or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards.  The new guidance establishes principles for reporting information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity's contracts with customers.  The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance is effective prospectively for annual periods beginning after December 15, 2016, and interim periods within those years.  Early application is not permitted. The Company is currently evaluating this guidance to determine the impact on the Company’s results of operations, cash flows, and financial position.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date or, in some cases where early adoption is permitted, in advance of the specified effective date. The Company has assessed the recently issued standards that are not yet effective and, unless otherwise discussed, believes these standards will not have a material impact on the Company’s results of operations, cash flows or financial position.

 

Note 3 — Acquisitions

On February 3, 2014, the Company acquired Mayo Healthcare Pty Limited, (“Mayo Healthcare”), a distributor of medical devices and supplies primarily in the Australian market. The total fair value of consideration for the Mayo Healthcare acquisition was $28.5 million, which included an initial payment of $29.0 million in cash, partially offset by a $0.5 million favorable working capital adjustment. Transaction expenses associated with the acquisition, which are included in selling, general and administrative expenses on the condensed consolidated statements of income were $0.3 million for the six months ended June 29, 2014. The results of operations of the Mayo Healthcare business are included in the condensed consolidated statements of income from the acquisition date. For the three months ended June 29, 2014, the Company recorded revenue and income from continuing operations before taxes related to the Mayo Healthcare business of $9.4 million and $3.2 million, respectively.  For the six months ended June 29, 2014, the Company recorded revenue and income from continuing operations before taxes related to the Mayo Healthcare business of $13.5 million and $3.8 million, respectively. Pro forma information is not presented as the Mayo Healthcare operations are not significant to the overall operations of the Company.

The following table presents the preliminary fair value determination of the assets acquired and liabilities assumed in the Mayo Healthcare acquisition.

 

 

(Dollars in thousands)

 

Assets

 

 

 

Current assets

$

10,393

 

Property, plant and equipment

 

306

 

Customer lists intangible asset

 

9,335

 

Goodwill

 

15,986

 

Total assets acquired

 

36,020

 

Liabilities

 

 

 

Current liabilities

 

4,685

 

Deferred tax liabilities

 

2,800

 

Liabilities assumed

 

7,485

 

Net assets acquired

$

28,535

 

 

The Company is continuing to evaluate the Mayo Healthcare acquisition. Further adjustments to the fair value determination may be necessary as a result of the Company’s assessment of additional information related to the fair values of assets acquired and liabilities assumed, primarily with respect to deferred tax assets and liabilities and goodwill.

8


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Among the acquired assets, customer lists have a useful life of 10 years. The goodwill resulting from the acquisition primarily reflects the synergies expected to be realized from integration of the acquired business. Goodwill and the step-up in basis of the intangible assets in connection with stock acquisitions such as the Mayo Healthcare acquisition are not deductible for tax purposes.

The Company made the following acquisitions during 2013, all of which were accounted for as business combinations:

·

On December 2, 2013, the Company acquired Vidacare Corporation, (“Vidacare”), a provider of intraosseous, or inside the bone, access devices. This acquisition complements the Company’s vascular access and specialty product portfolios.

·

On June 11, 2013, the Company acquired the assets of Ultimate Medical Pty. Ltd. and its affiliates (“Ultimate”), a supplier of airway management devices and related products. This acquisition complements the Company’s anesthesia product portfolio.

·

On June 6, 2013, the Company acquired Eon Surgical, Ltd. (“Eon”), a developer of a minimally invasive microlaparoscopy surgical platform technology designed to enhance a surgeon’s ability to perform scarless surgery while producing better patient outcomes. This technology complements the Company’s surgical product portfolio.

The total fair value of consideration for the 2013 acquisitions is estimated at $307.0 million. The results of operations of the acquired businesses and assets are included in the consolidated statements of income from their respective acquisition dates. Pro forma information is not presented as the operations of the acquired businesses are not significant to the overall operations of the Company.

 

Note 4 — Restructuring and other impairment charges

 

2014 Manufacturing Footprint Realignment

 

On April 28, 2014, the Board of Directors approved a restructuring plan (the “2014 Manufacturing Footprint Realignment Plan”) involving the consolidation of operations and a related reduction in workforce at certain of the Company’s facilities, and will include the relocation of manufacturing operations from certain higher-cost locations to existing lower-cost locations. These actions commenced in the second quarter ended June 29, 2014 and are expected to be substantially completed by the end of 2017.

 

The Company estimates that it will incur aggregate pre-tax charges in connection with these restructuring activities of approximately $42 to $53 million, most of which are expected to be incurred prior to the end of 2016. In addition, the Company estimates that $32 million to $40 million of the aggregate pre-tax charges will result in future cash outlays, most of which are expected to be incurred prior to the end of 2016.  

 

The following table provides a summary of the Company’s current cost estimates by major type of cost associated with the 2014 Manufacturing Footprint Realignment Plan:

 

 

Type of cost

Total estimated amount expected to be incurred

 

 

Termination benefits

$12 million to $15 million

Facility closure and other exit costs(1)

$2 million to $5 million

Accelerated depreciation charges

$10 million to $12 million

Other (2)

$18 million to $21 million

 

$42 million to $53 million

 

(1)

Includes costs to transfer product lines among facilities and outplacement and employee relocation costs.

(2)

Consists of other costs directly related to the Plan, including project management, legal and regulatory costs.

9


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

The Company recorded expenses of $9.5 million for the three and six month ended June 29, 2014 related to the 2014 Manufacturing Footprint Realignment Plan. Of this amount, $8.6 million related to termination benefits and was recorded as restructuring expense and $0.9 million related to accelerated depreciation and other costs and was recorded as cost of sales. As of June 29, 2014, the Company has a restructuring reserve of $8.6 million in connection with the 2014 Manufacturing Footprint Realignment Plan all of which relates to termination benefits.

 

As the program progresses, management will reevaluate the estimated costs set forth above, and may revise its estimates and the accounting charges relating to these actions, as appropriate, consistent with generally accepted accounting principles.

 

2014 European Restructuring Plan

On February 27, 2014, the Company committed to a restructuring plan (the “2014 European Restructuring Plan”), which impacts certain administrative functions in Europe and involves the consolidation of operations and a related reduction in workforce at certain of the Company’s European facilities.

The Company estimates that it will record pre-tax charges of approximately $8 million to $9 million in connection with implementing the 2014 European Restructuring Plan. The Company anticipates that substantially all of these charges will involve employee termination benefits that will result in future cash outlays. For the three months ended June 29, 2014 the Company reversed $0.6 million of expense after determining certain termination benefit reserves would not be utilized. For the six months ended June 29, 2014, the Company incurred $8.1 million of charges primarily related to termination benefits. As of June 29, 2014, the Company had a reserve of $5.3 million in connection with this project.  The Company expects to complete this program in 2014.

 

2014 Restructuring Charges

In June 2014, the Company initiated programs to consolidate locations in Australia and terminate certain European distributor agreements in an effort to reduce costs. As a result of these actions, the Company estimates that it will incur an aggregate of $2 million to $3 million in restructuring and other impairment charges over the term of these restructuring programs, of which $1.8 million was incurred through June 29, 2014. These programs include costs related to termination benefits, contract termination costs and other exit costs. As of June 29, 2014, the Company has a reserve of $0.4 million in connection with these programs. The Company expects to complete the programs in 2014.

LMA Restructuring Program

In connection with the acquisition of substantially all of the assets of LMA International N.V. (the “LMA business”) in 2012, the Company formulated a plan related to the integration of the LMA business and the Company’s other businesses. The integration plan focuses on the closure of the LMA business’ corporate functions and the consolidation of manufacturing, sales, marketing, and distribution functions in North America, Europe and Asia.

A reconciliation of the changes in accrued liabilities associated with the LMA restructuring program from December 31, 2013 through June 29, 2014 is set forth in the following table:

 

 

Termination Benefits

 

 

Facility Closure Costs

 

 

Contract Termination Costs

 

 

Other Exit Costs

 

 

Total

 

 

(Dollars in thousands)

 

Balance at December 31, 2013

$

552

 

 

$

427

 

 

$

3,686

 

 

$

16

 

 

$

4,681

 

Subsequent accruals (reversals)

 

(29

)

 

 

(112

)

 

 

(3,231

)

 

 

 

 

 

(3,372

)

Cash payments

 

(494

)

 

 

(317

)

 

 

(70

)

 

 

 

 

 

(881

)

Foreign currency translation

 

 

 

 

2

 

 

 

(1

)

 

 

1

 

 

 

2

 

Balance at June 29, 2014

$

29

 

 

$

-

 

 

$

384

 

 

$

17

 

 

$

430

 

10


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

During the six months ended June 29, 2014, the Company reversed approximately $3.2 million in contract termination costs related to the settlement of a terminated distributor agreement.

The Company does not expect to incur additional costs associated with this program. The Company expects to complete the program in 2015.

2013 Restructuring Charges

In 2013, the Company initiated programs to consolidate manufacturing facilities in North America and warehouse facilities in Europe and terminate certain European distributor agreements in an effort to reduce costs. As a result of these actions, the Company estimates that it will incur an aggregate of up to $11.0 million in restructuring and other impairment charges over the term of these restructuring programs, of which $10.8 million was incurred through June 29, 2014. These programs entail costs related to termination benefits, contract termination costs and charges related to post-closing obligations associated with its acquired businesses. As of June 29, 2014, the Company has a reserve of $1.6 million in connection with these programs. The Company expects to complete the programs in 2015.

2012 Restructuring Charges

In 2012, the Company identified opportunities to improve its supply chain strategy by consolidating its three North American warehouses into one centralized warehouse; and lower costs and improve operating efficiencies through the termination of certain distributor agreements in Europe, the closure of certain North American facilities and workforce reductions. Aside from nominal facility closure costs anticipated in 2014, the Company does not expect to incur additional costs associated with this program. As of June 29, 2014, the Company has a reserve of $0.6 million in connection with these projects. The Company expects to complete this program in 2015.

  Impairment Charges

In the first quarter 2013, the Company recorded a $4.5 million in-process research and development (IPR&D) charge pertaining to a research and development project associated with the acquisition of the assets of Axiom Technology Partners LLP because technological feasibility had not yet been achieved and the Company determined that the subject technology had no future alternative use.

There were no impairment charges recorded for the three and six months ended June 29, 2014 or for the three months ended June 30, 2013.

The restructuring and other impairment charges recognized for the three and six months ended June 29, 2014 and June 30, 2013 consisted of the following:

 

 

Three Months Ended June 29, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Termination Benefits

 

 

Facility

Closure

Costs

 

 

Contract Termination Costs

 

 

Other Exit Costs

 

 

Total

 

2014 Manufacturing footprint realignment

$

8,577

 

 

$

 

 

$

 

 

$

 

 

$

8,577

 

2014 European restructuring plan

 

(566

)

 

 

 

 

 

305

 

 

 

49

 

 

 

(212

)

2014 Restructuring charges

 

476

 

 

 

 

 

 

1,174

 

 

 

131

 

 

 

1,781

 

LMA restructuring program

 

(29

)

 

 

(154

)

 

 

(2,759

)

 

 

 

 

 

(2,942

)

2013 Restructuring charges

 

317

 

 

 

 

 

 

57

 

 

 

22

 

 

 

396

 

2012 Restructuring charges

 

(9

)

 

 

34

 

 

 

 

 

 

 

 

 

25

 

2011 Restructuring plan

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Total restructuring and other impairment charges

$

8,766

 

 

$

(122

)

 

$

(1,223

)

 

$

202

 

 

$

7,623

 

 

 

 

 

 

11


TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

Three Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Termination Benefits

 

 

Facility

Closure

Costs

 

 

Contract Termination Costs

 

 

Other Exit Costs

 

 

Total

 

LMA restructuring program

$

802

 

 

$

293

 

 

$

2,839

 

 

$

7

 

 

$

3,941

 

2013 Restructuring charges

 

1,131

 

 

 

 

 

 

3,391

 

 

 

2,828

 

 

 

7,350

 

2012 Restructuring charges

 

1,216

 

 

 

102

 

 

 

293

 

 

 

5

 

 

 

1,616

 

2011 Restructuring plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007 Arrow integration program

 

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Total restructuring and other impairment charges

$

3,149

 

 

$

450

 

 

$

6,523

 

 

$

2,840

 

 

$

12,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 29, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Termination Benefits

 

 

Facility

Closure

Costs

 

 

Contract Termination Costs

 

 

Other Exit Costs

 

 

Total