e10vk
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008 or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number 1-5353
TELEFLEX INCORPORATED
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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23-1147939
(I.R.S. employer identification
no.)
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155 South Limerick Road, Limerick,
Pennsylvania
(Address of principal executive
offices)
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19468
(Zip Code)
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Registrants telephone number, including area code:
(610) 948-5100
Securities registered pursuant to Section 12(b) of
the Act:
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Name of Each Exchange
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Title of Each Class
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On Which Registered
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Common Stock, par value $1 per share
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New York Stock Exchange
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Preference Stock Purchase Rights
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of
the Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No þ
The aggregate market value of the Common Stock of the registrant
held by non-affiliates of the registrant
(37,416,803 shares) on June 27, 2008 (the last
business day of the registrants most recently completed
fiscal second quarter) was
$2,090,476,784(1).
The aggregate market value was computed by reference to the
closing price of the Common Stock on such date.
The registrant had 39,543,393 Common Shares outstanding as of
February 17, 2009.
Document Incorporated By Reference: certain provisions of the
registrants definitive proxy statement in connection with
its 2009 Annual Meeting of Shareholders, to be filed within
120 days of the close of the registrants fiscal year
are incorporated by reference in Part III hereof.
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(1) |
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For the purposes of this definition
only, the registrant has defined affiliate as
including executive officers and directors of the registrant and
owners of more than five percent of the common stock of the
registrant, without conceding that all such persons are
affiliates for purposes of the federal securities
laws.
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TELEFLEX
INCORPORATED
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE OF
CONTENTS
1
Information
Concerning Forward-Looking Statements
All statements made in this Annual Report on
Form 10-K,
other than statements of historical fact, are forward-looking
statements. The words anticipate,
believe, estimate, expect,
intend, may, plan,
will, would, should,
guidance, potential,
continue, project, forecast,
confident, prospects and similar
expressions typically are used to identify forward-looking
statements. Forward-looking statements are based on the
then-current expectations, beliefs, assumptions, estimates and
forecasts about our business and the industry and markets in
which we operate. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or implied
by these forward-looking statements due to a number of factors,
including changes in business relationships with and purchases
by or from major customers or suppliers, including delays or
cancellations in shipments; demand for and market acceptance of
new and existing products; our ability to integrate acquired
businesses into our operations, particularly Arrow International
Inc., realize planned synergies and operate such businesses
profitably in accordance with expectations; our ability to
effectively execute our restructuring programs; competitive
market conditions and resulting effects on revenues and pricing;
increases in raw material costs that cannot be recovered in
product pricing; global economic factors, including currency
exchange rates and interest rates; difficulties entering new
markets; and general economic conditions. For a further
discussion of the risks that our business is subject to, see
Item 1A. Risk Factors of this Annual Report on
Form 10-K.
We expressly disclaim any intent or obligation to update these
forward-looking statements, except as otherwise specifically
stated by us.
2
PART I
Overview
Teleflex Incorporated (referred to herein as we,
us, our, Teleflex and the
Company) is a diversified company specializing in
the design, manufacture and distribution of quality engineered
products and services. The Company serves a wide range of
customers in segments of the medical, aerospace and commercial
industries. The Companys products include: medical devices
used in critical care and anesthesia applications, surgical
instruments and devices, cardiac assist devices for hospitals
and healthcare providers and instruments and devices delivered
to medical device manufacturers; aerospace engine repair
products and services and cargo-handling systems and equipment
used in commercial aircraft; and marine driver controls, engine
assemblies and drive parts, power and fuel management systems
and rigging products and services for commercial industries.
For more than 65 years, we have provided
specialty-engineered products that help our customers meet their
business requirements. We have grown through an active program
of development of new products, introduction of products into
new geographic or end-markets and through acquisitions of
companies with related market, technology or industry expertise.
We serve a diverse customer base in over 150 countries through
our own operations and through local direct sales and
distribution networks.
We are focused on achieving consistent and sustainable growth
through our internal growth initiatives which include the
development of new products, expansion of market share, moving
existing products into new geographies, and through selected
acquisitions which enhance or expedite our development
initiatives and our ability to grow market share. We continually
evaluate the composition of the portfolio of our businesses to
ensure alignment with our overall objectives.
We strive to maintain a portfolio of businesses that provide
consistency of performance, improved profitability and
sustainable growth. To this end, in 2007 we significantly
changed the composition of our portfolio through acquisitions in
all three business segments and divestitures in both our
Commercial and Aerospace segments. Specifically, in our Medical
Segment, we completed the acquisition of Arrow International, a
medical products company with annual net revenues of over
$500 million, which significantly expanded the segment. We
also completed the acquisition of a small orthopedic device
manufacturer to expand our capability to serve medical device
manufacturers. In our Commercial Segment, we acquired a rigging
services business with annual net revenues of approximately
$25 million. At the end of 2007, we completed the
divestiture of our automotive and industrial businesses
(GMS) with 2007 net revenues of over
$860 million, significantly reducing the size of our
Commercial Segment. In our Aerospace Segment, we acquired a
cargo equipment business with annual net revenues of
approximately $55 million and divested a
precision machined components business with
approximately $130 million in annual net revenues. These
measures were taken to improve margins, reduce cyclicality and
focus our resources on the development of our core businesses.
We continually evaluate the composition of the portfolio of our
businesses to ensure alignment with our overall objectives.
Our Business
Segments
We organize our business into three business
segments Medical, Aerospace and Commercial. For
2008, the percentages of our consolidated net revenues
represented by our segments were as follows: Medical
62 percent, Aerospace 21 percent and
Commercial 17 percent.
Further detail and additional information regarding our segments
and geographic areas is presented in Note 16 to our
consolidated financial statements included in this Annual Report
on
Form 10-K.
3
Discontinued
Operations
At the end of 2007, we completed the sale of our business units
that design and manufacture automotive and industrial driver
controls, motion systems and fluid handling systems to Kongsberg
Automotive Holding ASA for $560 million in cash. On
June 29, 2007, we completed the sale of a
precision-machined components business in our Aerospace Segment
for approximately $134 million in cash and in 2006, we sold
a small medical business.
These businesses met the criteria for reporting discontinued
operations under Statement of Financial Accounting Standards
(SFAS) No. 144. Accounting for the
Impairment or Disposal of Long-Lived Assets. In compliance
with SFAS No. 144, the Company has reported results of
operations, cash flows and gains (losses) on the disposition of
these businesses as discontinued operations for all periods
presented. See Note 17 to our consolidated financial
statements included in this Annual Report on
Form 10-K
for further information regarding divestiture activity and
accounting for discontinued operations.
The following business segment and product category information
reflects businesses in continuing operations as of
December 31, 2008.
Business Segment
Overview
Medical
The businesses in our Medical Segment design, manufacture and
distribute medical products primarily used in critical care,
surgical applications and cardiac care. Additionally, we design,
manufacture and supply devices and instruments for medical
device manufacturers. We are focused on providing disposable or
single use medical products for critical care and surgery that
enhance patient outcomes by providing products that are less
invasive, reduce infection and improve patient safety.
Our products are largely sold and distributed to hospitals and
healthcare providers and are most widely used in the acute care
setting for a range of diagnostic and therapeutic procedures and
in general and specialty surgical applications. Major
manufacturing operations are located in Czech Republic, Germany,
Malaysia, Mexico and the United States. Approximately
50 percent of our segment net revenues are derived from
customers outside the United States.
In the fourth quarter of 2007, we acquired Arrow International,
a leading global supplier of catheter-based medical technology
products used for vascular access and cardiac care. This
acquisition significantly expanded our disposable medical
product offerings for critical care, enhanced our global
footprint and added to our research and development capabilities.
Disposable Medical Products for Critical
Care: This is the largest product category in the
Medical Segment, representing 64 percent of segment net
revenues in 2008. Disposable medical products are used in a wide
range of critical care procedures for vascular access,
respiratory care, anesthesia and airway management, treatment of
urologic conditions, as well as other specialty procedures.
Disposable medical products for critical care are generally
marketed under the brand names of Arrow, Rüsch, HudsonRCI,
Gibeck and Sheridan. The large majority of sales for disposable
medical products are made to the hospital/healthcare provider
market, with a smaller percentage sold to alternate sites.
Vascular Access Products: Our vascular access
products are generally catheter-based products used in a variety
of clinical procedures to facilitate multiple critical care
therapies including the administration of intravenous
medications, other therapies, and the measurement of blood
pressure and taking of blood samples through a single puncture
site.
Vascular access catheters and related devices consist
principally of central venous access catheters (CVC)
such as the following: the
Arrow-Howestm
Multi-Lumen Catheter, a catheter equipped with three or four
channels, or lumens; double-and single-lumen catheters, which
are designed for use in a variety of clinical
4
procedures; the Arrow Pressure Injectable CVC, which gives
clinicians who perform CT scans the option of using an
indwelling pressure injectable Arrow CVC without having to
insert another catheter for their scan; and percutaneous sheath
introducers, which are used as a means for inserting
cardiovascular and other catheterization devices into the
vascular system during critical care procedures.
We also provide a range of peripherally inserted central
catheters, which are soft, flexible catheters inserted in the
upper arm and advanced into the superior vena cava and are
accessed for various types of intravenous medications and
therapies, and radial artery catheters, which are used for
measuring arterial blood pressure and taking blood samples. Our
offerings include a pressure injectable peripherally inserted
catheter which addresses the therapeutic need for a catheter
that can withstand the higher pressures required by the
injection of contrast media for CT scans.
Our vascular access products also include specialty catheters
and related products used in a range of other procedures and
include percutaneous thrombolytic devices, which are designed
for clearance of thrombosed hemodialysis grafts in chronic
hemodialysis patients; and hemodialysis access catheters,
including the
Cannon®
Catheter, which is used to facilitate dialysis treatment.
Many of our vascular access catheters are treated with the
ARROWg+ard®,
or ARROWg+ard Blue
Plus®,
antiseptic surface treatments to reduce the risk of catheter
related infection. ARROWg+ard Blue Plus, is a newer, longer
lasting formulation of ARROWg+ard and provides antimicrobial
treatment of the interior lumens and hubs of each catheter.
As part of our ongoing efforts to meet physicians needs
for safety and management of risk of infection in the hospital
setting, we sell a Maximal Barrier Precautions central venous
access kit, which includes a full body drape, a catheter treated
with the ARROWg+ard antimicrobial technology, and other
accessories. The features of this kit were created to address
recent guidelines for reducing catheter-related bloodstream
infections that were set by a variety of health regulatory
agencies, such as the Centers for Disease Control and Prevention
and the Joint Commission on the Accreditation of Healthcare
Organizations, among others.
Related products include custom tubing sets used to connect
central venous catheters to blood pressure monitoring devices
and drug infusion systems, and the Arrow InView portable
ultrasound machine designed to support placement and
administration of vascular access products.
Respiratory Care: Respiratory care products
principally consist of devices used in aerosol and medication
delivery, oxygen therapy and ventilation management. We offer an
extensive range of aerosol therapy products, including the
Micromist®
Nebulizer, the
Neb-U-Mask®
System and the Opti-Neb
Protm
Compressor. We are also a global provider of oxygen supplies,
offering a broad range of products to deliver oxygen therapy
safely and comfortably. These include masks, cannulas, tubing
and humidifiers. The full range of these products are used in a
variety of clinical settings including hospitals, long-term care
facilities, rehabilitation centers and patients homes to
treat respiratory ailments such as chronic lung disease,
pneumonia, cystic fibrosis and asthma.
Our ventilation management solutions promote patient safety and
maximize clinician efficiency. These products include ventilator
circuits with an extended life to support clinical practice
guidelines, high efficiency particulate air (HEPA) filters with
99.9999% efficiency against the transmission of bacteria and
viruses, heat and moisture exchangers that reduce circuit
manipulation and cross-contamination risk, and heated
humidifiers that promote patient compliance to non-invasive
respiratory strategies, like Non-Invasive Ventilation
(NIV) and High Flow Oxygen Therapy.
The
ConchaTherm®
Neptune®
is a heated humidification solution. It is designed to allow the
caregiver to customize patient treatment to meet specific
clinical goals. This results in advanced patient outcomes
without sacrificing clinician efficiency.
Anesthesia and Airway
Management: Anesthesiologists depend on our
highly recognized brands of Hudson, Sheridan and Rüsch
products that include endotracheal tubes, laryngeal masks,
airways and face
5
masks to deliver anesthetic agents and oxygen. To assist in the
placement of endotracheal tubes, we provide a comprehensive and
unique line of laryngoscope blades and handles, including
standard halogen and fiber optic light sources. Fiber optic
light sources offer a high intensity, cool white light without
generating the same level of heat that comes from standard
halogen bulbs.
Regional anesthesia products include epidural and peripheral
nerve block catheters. Nerve blocks provide pain relief after
surgical procedures and help clinicians better manage each
patients pain. We offer the first stimulating continuous
nerve block catheter, the Arrow StimuCath, which confirms the
positive placement of the catheter next to the nerve. The Flex
Tip Plus continuous epidural catheter features a soft, flexible
tip that helps reduce the incidence of complications, such as
transient paresthesia and inadvertent cannulation of blood
vessels or the dura, while improving the clinicians
ability to thread the catheter into the epidural space. Our
Arrow
TheraCath®
epidural catheter, with high compression strength for
direction-ability and enhanced radiopacity, was designed for
pain management procedures where increased steer-ability is
important. Additional integral components create a range of
standard and custom procedural kits.
Urology: Our line of urology products provides
bladder management products for patients in the hospital and
home care markets. Our product portfolio consists principally of
catheters (including Foley, intermittent, external and
suprapubic), urine collectors, catheterization accessories and
products for operative endurology. Teleflex Medical today has
significant market share in Foley catheters in the EMEA markets
(Europe, the Middle East and Africa). The intermittent catheter
market for home care is growing quickly, and Medical Service,
our specialist in intermittent catheterization, has a leading
share of the German healthcare market with Liquick Base and
mobile catheters. Teleflex Medical in Italy has also
significantly increased its sales of intermittent catheters in
the year 2008.
We also design our urine collectors, catheterization accessories
and kits with Teleflex Medicals overall infection
prevention strategy in mind. For example, the Rüsch MMG
Closed System intermittent catheter is used in the treatment of
spinal cord injury patients. Our Teleflex Medical Team in North
America successfully introduced a new version of the MMG H2O to
the market in 2008.
Surgical Instruments and Medical
Devices: Products in this category represented
20 percent of Medical Segment net revenues in 2008. Our
surgical instrument and medical device products include:
ligation and closure products including appliers, clips, and
sutures used in a variety of surgical procedures, hand-held
instruments for general and specialty surgical procedures,
access ports used in minimally invasive surgical procedures
including robotic surgery, and fluid management products used
for chest drainage. In addition, we provide instrument
management services. We market surgical instruments and medical
devices under the Deknatel, Pleur-evac, Pilling, Taut and Weck
brand names.
Hem-o-lok is the worlds only patented locking polymer
ligation clip, and is a growing part of the Weck portfolio.
Hem-o-lok clips have special applications in robotic,
laparoscopic, and cardiovascular surgery, and provide surgeons
with a unique level of security and performance.
In 2009, we plan to introduce the
Taut®
Universal Seal designed for use with the
ADAPttm
line of bladeless laparoscopic access devices. The new Taut seal
eclipses other options by providing surgeons the ability to
perform laparoscopic procedures without flimsy diaphragm seals,
lubricants that can smudge cameras, or the need for reducer
caps. Coupled with the new universal seal, Taut provides a
complete line of ports from 3mm to 15mm, including balloon ports
and bariatric and pediatric versions. Taut ports were designed
around the patented ADAPt asymmetrical dilating access tip that
dilates through tissue without metal or plastic blades. The
ADAPt tip has been shown to produce a fascial defect
58 percent smaller than typical bladed trocars and avoids
exposing any anatomical structures to a blade of any kind.
Devices for Original Equipment Manufacturers
(OEM): Customized medical
instruments, implants and components sold to medical device
manufacturers represented 10 percent of Medical Segment
revenues in 2008. Under the well-regarded brand names of Beere
Medical®,
KMedic®,
Specialized Medical
Devicestm,
Deknatel®
and TFX
OEM®
we provide specialized product development services, which
include design
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engineering, prototyping and testing, manufacturing, assembly
and packaging. Our OEM product development and manufacturing
facilities are located in Germany, Ireland, Mexico and the
United States.
The OEM category includes custom extrusion, catheter
fabrication, introducer systems, sheath/dilator sets, specialty
sutures, resins and performance fibers. We also provide machined
and forged instrumentation for general and specialty procedures,
Ortho-Grip®
instrument handles and fixation devices used primarily for
orthopedic procedures.
Cardiac Care Devices: Cardiac care products
accounted for approximately 5 percent of revenues in fiscal
2008. Products in this category range from diagnostic catheters,
such as thermodilution and wedge pressure catheters, specialized
angiographic catheters, such as Berman and Reverse Berman
catheters, therapeutic delivery catheters, such as temporary
pacing catheters and intra-aortic balloon (IAB) catheters to
capital equipment, such as intra-aortic balloon pump (IABP)
consoles. IABP products are used to augment oxygen delivery to
the cardiac muscle and reduce the oxygen demand after cardiac
surgery, serious heart attack or interventional procedures. The
IAB and IABP product lines feature the AutoCAT 2
WAVE®
console and the
FiberOptixtm
catheter, which together utilize fiber optic technology for
arterial pressure signal acquisition and allow the patented
WAVE®
timing algorithm to support the broadest range of patient heart
rhythms, including severely arrhythmic patients.
The following table sets forth net revenues for 2008, 2007 and
2006 by product category for the Medical Segment.
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2008
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2007
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2006
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(Dollars in thousands)
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Medical Products for Critical Care
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$
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957,129
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$
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578,097
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$
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485,924
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Surgical Instruments and Devices
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$
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295,992
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$
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294,501
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$
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234,964
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Devices for Original Equipment Manufacturers
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$
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158,343
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$
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138,142
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$
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137,788
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Devices for Cardiac Care
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$
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72,871
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$
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18,154
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$
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Other
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$
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14,772
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$
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12,455
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$
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The following table sets forth the percentage of net revenues by
end market for the Medical Segment.
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2008
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2007
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Hospitals / Healthcare Providers
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84
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%
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78
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%
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Medical Device Manufacturers
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10
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%
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13
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%
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Home Health
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6
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%
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9
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%
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Markets for these products are influenced by a number of factors
including demographics, utilization and reimbursement patterns
in the worldwide healthcare markets. Our products are sold
through direct sales or distribution in over 140 countries. The
following table sets forth the percentage of net revenues for
2008 derived from the major geographic areas we serve.
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2008
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2007
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North America
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53
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%
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54
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%
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Europe, Middle East and Africa
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37
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%
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38
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%
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Asia, Latin America
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10
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%
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8
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%
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Sales and Marketing: Medical products are sold
directly to hospitals, healthcare providers, distributors and to
original equipment manufacturers of medical devices through our
own sales forces and through independent representatives and
independent distributor networks.
Backlog: Most of our medical products are sold
to hospitals or healthcare providers on orders calling for
delivery within a few days or weeks with a longer order time for
products sold to medical device manufacturers. Therefore, the
backlog of such orders is not indicative of probable revenues in
any future
12-month
period.
7
Aerospace
Our Aerospace Segment businesses provide engine repair products
and services for flight turbine engines, cargo handling systems
and equipment for wide body and narrow body aircraft, cargo
containment devices for air cargo and passenger baggage, and
actuators for applications in commercial and military aircraft.
Engine repair products and services are provided for all major
engine suppliers and we serve most of the worlds leading
commercial airlines. Our market leading brand names, Airfoil
Technologies International, Telair International, and Nordisk
are well known and respected on a global basis.
Sales to customers in commercial aviation markets represent
99 percent of revenues in this segment. Markets for these
products are influenced by the level of general economic
activity, investment patterns in new aircraft, both passenger
and cargo, cargo market trends, flight hours, and age and type
of engines in use. Major locations for manufacturing and service
are located in Singapore, Germany, Norway, the United States,
the United Kingdom, and Sweden.
Engine Repair Products and Services: The
largest single product category in the Aerospace Segment, repair
products and services represented 50 percent of Aerospace
Segment revenues in 2008. This category includes engine repair
technologies and services primarily for critical components of
flight turbines, including fan blades, compressors and airfoils.
We utilize advanced reprofiling and adaptive-machining
techniques to improve efficiency of aircraft engine performance
and reduce turnaround time for maintenance and repairs. Our
repair products and services business is conducted through a
consolidated, fifty-one percent owned venture with GE Aircraft
Engines, called Airfoil Technologies International (ATI). In
2007, ATI signed a joint venture and management agreement with
Snecma Services to expand the range of repair services provided
to our customers.
Cargo-handling Systems and Equipment: Products
in this category represented 50 percent of Aerospace
Segment revenues in 2008. Our cargo-handling systems include
on-board cargo-loading systems for wide-body aircraft,
baggage-handling systems for narrow body aircraft, aftermarket
spare parts and repair services. Marketed under the Telair
International brand name, our wide-body cargo-handling systems
are sold to aircraft original equipment manufacturers or to
airlines and air freight carriers as seller
and/or buyer
furnished equipment for original installations or as
retrofits for existing equipment. Cargo-handling systems require
a high degree of engineering sophistication and are often
custom-designed.
In addition to the design and manufacture of cargo systems, we
provide customers with aftermarket spare parts and repair
services for their Telair systems. We also design, manufacture
and repair cargo containers. In November 2007, we acquired
Nordisk Aviation Products, expanding our customer base and
global manufacturing and service capacity for cargo equipment.
All of our cargo containers and pallets are now marketed to
commercial airlines and freight companies under the Nordisk name.
We also manufacture and repair components for our systems and
other related aircraft controls, including canopy and door
actuators, cargo winches and flight controls.
The following table sets forth net revenues for 2008, 2007 and
2006 by product category for the Aerospace Segment.
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2008
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2007
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2006
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(Dollars in thousands)
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Engine Repair Products and Services
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$
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257,428
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$
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253,975
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$
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250,519
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Cargo-handling Systems and Equipment
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$
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253,818
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$
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197,813
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$
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154,853
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The following table sets forth the percentage of net revenues by
end market for the Aerospace Segment.
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2008
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2007
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Commercial Aviation
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99
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%
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97
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%
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Military, Industrial and Other
|
|
|
1
|
%
|
|
|
3
|
%
|
8
Backlog: As of December 31, 2008, our
backlog of firm orders for our Aerospace Segment was
$78 million, of which we expect approximately
91 percent to be filled in 2009. Our backlog for our
Aerospace Segment on December 31, 2007 was
$141 million.
Sales and Marketing: Products sold to the
aerospace market are sold through our own field representatives
and distributors.
Commercial
Our Commercial Segment businesses principally design,
manufacture and distribute driver controls and engine and drive
assemblies for the marine market, power and fuel systems for
truck, rail, automotive and industrial vehicles and rigging
products and services. Our products are used in a range of
markets including: recreational marine, heavy truck, bus,
industrial vehicles, rail, oil and gas, marine transportation
and industrial. Major manufacturing operations are located in
Canada, Europe, Singapore and the United States.
Marine Driver Controls and Engine Assemblies and Drive
Parts: This is the largest single product
category in the Commercial Segment, representing 48 percent
of the Commercial Segment revenues in 2008. Products in this
category include: shift and throttle cables, mechanical and
hydraulic steering systems, throttle controls, instrumentation
and engine drive parts.
We are a leading global provider of both mechanical and
hydraulic steering systems for recreational powerboats. We are
also a leading distributor of engine assemblies and drive parts.
Our marine products are sold to original equipment manufacturers
(OEMs) and to the aftermarket through distributors, dealers and
retail outlets. Our major product brands include Teleflex
Marine, TFXtreme, SeaStar, BayStar, Sierra and Proheat.
Power and Fuel Systems: Products in this
category represented 27 percent of Commercial Segment
revenues in 2008. Our major products in this category include
auxiliary power units used for power in heavy-duty trucks and
locomotives, climate control systems used in trucks, buses and
other industrial vehicles and components and systems for the use
of alternative fuels in industrial vehicles and passenger cars.
These products generally address the need for greater fuel
efficiency, reduced emissions and access to mobile power. Our
major product brands in this category are ComfortPro and
Teleflex GFI.
Rigging Products and Services: Products in
this category represented 25 percent of Commercial Segment
revenues in 2008. Products include heavy-duty cables and
hoisting and rigging equipment used in oil drilling, marine
transportation and other industrial markets. We also help our
customers meet new legislation and safety regulations for
moorings. In 2007, Teleflex Commercial enhanced its offerings
when it acquired Southern Wire Corporation, a prominent
wholesale provider of rigging services.
The following table sets forth net revenues for 2008, 2007 and
2006 by product category for the Commercial Segment.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Marine Driver Controls and Engine and Drive Parts
|
|
$
|
198,987
|
|
|
$
|
240,092
|
|
|
$
|
229,250
|
|
Power and Fuel Systems
|
|
$
|
110,153
|
|
|
$
|
119,026
|
|
|
$
|
129,116
|
|
Rigging Products and Services
|
|
$
|
101,454
|
|
|
$
|
82,077
|
|
|
$
|
68,395
|
|
The following table sets forth the percentage of net revenues by
end market for the Commercial Segment.
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|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Recreational Marine
|
|
|
41
|
%
|
|
|
48
|
%
|
Truck and Rail
|
|
|
9
|
%
|
|
|
15
|
%
|
Automotive and Industrial Vehicle
|
|
|
25
|
%
|
|
|
18
|
%
|
Rigging Products and Services
|
|
|
25
|
%
|
|
|
19
|
%
|
9
Backlog: Standard Commercial segment products
are typically shipped between a few days and three months after
receipt of order. Therefore, the backlog of such orders is not
indicative of probable revenues in any future
12-month
period.
Sales and Marketing: The majority of our
Commercial Segment products are sold through a direct sales
force of field representatives and technical specialists. Marine
driver controls and engine and drive parts are sold directly to
boat builders and engine manufacturers as well as through
distributors, dealers and retail outlets to reach recreational
boaters.
Auxiliary power units are primarily sold in the North American
truck market through an agreement with a distributor and to the
rail market using a direct sales force and distributors. Fuel
systems and components include custom applications sold globally
directly to industrial equipment manufacturers and to the
automotive aftermarket principally in Europe and Latin America.
Rigging products and services includes both a retail business
and a wholesale business, both of which sell through a direct
sales force.
Government
Regulation
Government agencies in a number of countries regulate our
products and the products sold by our customers utilizing our
products. The U.S. Food and Drug Administration and
government agencies in other countries regulate the approval,
manufacturing, and sale and marketing of many of our healthcare
products. The U.S. Federal Aviation Administration and the
European Aviation Safety Agency regulate the manufacture and
sale of some of our aerospace products and license the operation
of our repair stations. For more information, see ITEM 1A.
Risk Factors.
Competition
Given the range and diversity of our products and markets, no
one competitor offers competitive products for all the markets
and customers that we serve. In general, all of our segments and
product lines face significant competition from competitors of
varying sizes, although the number of competitors in each market
tends to be limited. We believe that our competitive position
depends on the technical competence and creative ability of our
engineering personnel, the know-how and skill of our
manufacturing personnel, and the strength and scope of our
sales, service and distribution networks.
Patents and
Trademarks
We own a portfolio of patents, patents pending and trademarks.
We also license various patents and trademarks. Patents for
individual products extend for varying periods according to the
date of patent filing or grant and the legal term of patents in
the various countries where patent protection is obtained.
Trademark rights may potentially extend for longer periods of
time and are dependent upon national laws and use of the marks.
All capitalized product names throughout this document are
trademarks owned by, or licensed to, us or our subsidiaries.
Although these have been of value and are expected to continue
to be of value in the future, we do not consider any single
patent or trademark, except for the Teleflex brand and the Arrow
brand, to be essential to the operation of our business.
Suppliers and
Materials
Materials used in the manufacture of our products are purchased
from a large number of suppliers in diverse geographic
locations. We are not dependent on any single supplier for a
substantial amount of the materials used or components supplied
for our overall operations. Most of the materials and components
we use are available from multiple sources, and where practical,
we attempt to identify alternative suppliers. Volatility in
commodity markets, particularly steel and plastic resins, can
have a significant impact on the cost of producing certain of
our products. We cannot be assured of successfully passing these
cost increases through to all of our customers, particularly
original equipment manufacturers.
10
Seasonality
Portions of our revenues, particularly in the Commercial and
Medical segments, are subject to seasonal fluctuations. Revenues
in the marine aftermarket generally increase in the second
quarter as boat owners prepare their watercraft for the upcoming
season. Incidence of flu and other disease patterns as well as
the frequency of elective medical procedures affect revenues
related to disposable medical products.
Employees
We employed approximately 14,200 full-time and temporary
employees at December 31, 2008. Of these employees,
approximately 4,100 were employed in the United States and
10,100 in countries outside of the United States. Less than
8 percent of our employees in the United States were
covered by union contracts. We have government-mandated
collective-bargaining arrangements or union contracts that cover
employees in other countries. We believe we have good
relationships with our employees.
Investor
Information
We are subject to the informational requirements of the
Securities Exchange Act of 1934. Therefore, we file reports,
proxy statements and other information with the Securities and
Exchange Commission (SEC). Such reports, proxy and information
statements, and other information may be obtained by visiting
the Public Reference Room of the SEC at 100 F Street,
NE, Washington, DC 20549 or by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an Internet site
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding issuers that file electronically.
You can access financial and other information in the Investors
section of our website. The address is www.teleflex.com.
We make available through our website, free of charge, copies of
our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished under
Section 13(a) or 15(d) of the Securities Exchange Act as
soon as reasonably practicable after filing such material
electronically or otherwise furnishing it to the SEC. The
information on our website is not part of this annual report on
Form 10-K.
The reference to our website address is intended to be an
inactive textual reference only.
We are a Delaware corporation organized in 1943. Our executive
offices are located at 155 South Limerick Road, Limerick, PA
19468. Our telephone number is
(610) 948-5100.
EXECUTIVE
OFFICERS
The names and ages of all of our executive officers as of
February 24, 2009 and the positions and offices held by
each such officer are as follows:
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|
|
|
|
|
|
Name
|
|
Age
|
|
Positions and Offices with Company
|
|
Jeffrey P. Black
|
|
|
49
|
|
|
Chairman, Chief Executive Officer and Director
|
Kevin K. Gordon
|
|
|
46
|
|
|
Executive Vice President and Chief Financial Officer
|
Laurence G. Miller
|
|
|
54
|
|
|
Executive Vice President, General Counsel and Secretary
|
R. Ernest Waaser
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|
|
52
|
|
|
President Medical
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John Suddarth
|
|
|
49
|
|
|
President Aerospace
|
Vince Northfield
|
|
|
45
|
|
|
Executive Vice President, Global Operations - Medical
|
Randall P. Gaboriault
|
|
|
39
|
|
|
Senior Vice President and Chief Information Officer
|
11
Mr. Black has been Chairman since May 2006, Chief Executive
Officer since May 2002 and President since December 2000. He has
been a Director since November 2002. Mr. Black was
President of the Teleflex Industrial Group from July 2000 to
December 2000 and President of Teleflex Fluid Systems from
January 1999 to July 2000.
Mr. Gordon has been Executive Vice President and Chief
Financial Officer since March 2007. From June 2005 until March
2007, he was Senior Vice President Corporate
Development. From December 2000 to June 2005, Mr. Gordon
was Vice President Corporate Development. Prior to
December 2000, Mr. Gordon was Director of Business
Development.
Mr. Miller has been Executive Vice President, General
Counsel and Secretary since February 2008. From November 2004 to
February 2008, Mr. Miller was Senior Vice President,
General Counsel and Secretary. From November 2001 until November
2004, he was Senior Vice President and Associate General Counsel
for the Food & Support Services division of Aramark
Corporation, a diversified management services company providing
food, refreshment, facility and other support services for a
variety of organizations. From June 1994 until November 2001,
Mr. Miller was Senior Vice President and General Counsel
for Aramark Uniform Services.
Mr. Waaser has been the President of Teleflex Medical since
October 2006. Prior to joining Teleflex, Mr. Waaser served
as President and Chief Executive Officer of Hill-Rom, Inc., a
manufacturer and provider of products and services for the
healthcare industry, including patient room equipment,
therapeutic wound and pulmonary care products, biomedical
equipment services and communications systems, from 2001 to
2005. Prior to 2001, Mr. Waaser served as Senior Vice
President of AGFA Corporation, a producer of analog and digital
imaging products for medical, industrial, graphics and consumer
applications.
Mr. Suddarth has been the President of Teleflex Aerospace
since July 2004. From 2003 to 2004, Mr. Suddarth was the
President of Techsonic Industries Inc., a former subsidiary of
Teleflex that manufactured underwater sonar and video viewing
equipment which was divested in 2004. Mr. Suddarth was the
Chief Operating Officer of AMF Bowling Products, Inc., a bowling
equipment manufacturer, from 2001 to 2003. Prior to 2001,
Mr. Suddarth was President of Morse Controls, a
manufacturer of performance and control systems and aftermarket
parts for marine and industrial applications, which was acquired
by Teleflex in 2001.
Mr. Northfield has been the Executive Vice President for
Global Operations, Teleflex Medical since September 2008. From
2005 to 2008, Mr. Northfield was the President of Teleflex
Commercial. From 2004 to 2005, Mr. Northfield was the
President of Teleflex Automotive and the Vice President of
Strategic Development. Mr. Northfield held the position of
Vice President of Strategic Development from 2001 to 2004. Prior
to 2001, Mr. Northfield was Vice President and General
Manager of North American operations of Morse Controls, a
manufacturer of performance and control systems and aftermarket
parts for marine and industrial applications, which was acquired
by Teleflex in 2001.
Mr. Gaboriault has been Senior Vice President and Chief
Information Officer since February 2008. From 2005 to 2008, he
was Chief Information and Strategic Development Officer. From
2004 to 2005, he was Chief Information Officer. From 1998 to
2004, Mr. Gaboriault was the Director of Information
Technology.
Our officers are elected annually by the Board of Directors.
Each officer serves at the pleasure of the Board until their
respective successors have been elected.
12
We are subject to certain risks that could adversely affect our
business, financial condition and results of operations. These
risks include, but are not limited to the following:
Our inability to resolve issues related to the FDA corporate
warning letter issued to Arrow could have an adverse impact on
our business, financial condition and results of operations.
On October 11, 2007, Arrow received a corporate warning
letter from the U.S. Food and Drug Administration
(FDA), which expresses concerns with Arrows
quality systems, including complaint handling, corrective and
preventive action, process and design validation and inspection
and training procedures. While we are working with the FDA to
resolve these issues, this work has required and will continue
to require the dedication of significant internal and external
resources. There can be no assurances regarding the length of
time or cost it will take us to resolve these issues to the
satisfaction of the FDA. In addition, if our remedial actions
are not satisfactory to the FDA, we may need to devote
additional financial and human resources to our efforts, and the
FDA may take further regulatory actions against us. These
actions may include seizing our product inventory, obtaining a
court injunction against further marketing of our products,
assessing civil monetary penalties or imposing a consent decree
on us, which could in turn have a material adverse effect on our
business, financial condition and results of operations.
A prolonged global economic recession combined with a
continuation of volatile global credit markets could adversely
impact our operating results, financial condition and
liquidity.
Current global economic and financial market conditions,
including severe disruptions in the credit markets and the
potential for a significant and prolonged global economic
recession, may materially and adversely affect our results of
operations and financial condition. This could include future
charges to recognize impairment in the carrying value of our
goodwill and other intangible assets. The amount of goodwill and
other intangible assets on our consolidated balance sheet have
increased significantly in recent years, primarily as a result
of the acquisition of Arrow International in 2007. These
economic conditions may also materially impact our customers,
suppliers and other parties with which we do business. Economic
and financial market conditions that adversely affect our
customers may cause them to terminate existing purchase orders
or to reduce the volume of products or services they purchase
from us in the future. The impact of the difficult economic
environment was felt mostly in our Commercial segment during
2008, as the markets served by our marine and auxiliary power
unit products were adversely impacted. We expect the marine
market to remain weak for most, if not all, of 2009. In
addition, hospitals in some regions of the United States have
seen a decline in admissions and a reduction in elective
procedures and have limited their capital spending. More than
80 percent of our Medical revenues come from disposable
products used in critical care and surgical applications and our
sales volume could be negatively impacted by declines in
admission. Adverse economic and financial market conditions may
also cause our suppliers to be unable to meet their commitments
to us or may cause suppliers to make changes in the credit terms
they extend to us, such as shortening the required payment
period for outstanding accounts receivable or reducing the
maximum amount of trade credit available to us. Changes of this
type could significantly affect our liquidity and could have a
material adverse effect on our results of operations and
financial condition. If we are unable to successfully anticipate
changing economic and financial market conditions, we may be
unable to effectively plan for and respond to those changes, and
our business could be negatively affected.
We may not be able to successfully complete the integration
of Arrow or to achieve the anticipated benefits of the Arrow
acquisition.
The integration of Arrow into our Medical Segment involves a
number of risks and presents financial, managerial and
operational challenges. In particular, we may have difficulty
with, and may incur unanticipated expenses related to:
|
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|
|
|
consolidating manufacturing and administrative functions;
|
|
|
|
complying with legal requirements applicable to certain aspects
of the integration;
|
13
|
|
|
|
|
retaining key employees;
|
|
|
|
consolidating infrastructures and systems;
|
|
|
|
coordinating sales and marketing functions;
|
|
|
|
preserving our and Arrows customer, supplier and other
important relationships; and
|
|
|
|
minimizing the diversion of managements attention from
ongoing business concerns.
|
The success of the Arrow acquisition will depend, in part, on
our ability to realize the anticipated benefits and cost savings
from successfully combining the businesses of Arrow and of
Teleflex Medical in the time frame we anticipate. If we are not
able to achieve these objectives, the anticipated benefits,
synergies and cost savings of the business combination may not
be realized fully or at all or may take longer to realize than
expected.
Failure to successfully complete the integration of Arrow or
achieve the anticipated benefits of the acquisition of Arrow may
have a material adverse effect on our business, financial
condition and results of operations.
We have substantial debt obligations that could adversely
impact our business, results of operations and financial
condition.
We incurred significant indebtedness to fund a portion of the
consideration for our acquisition of Arrow. As of
December 31, 2008, our outstanding indebtedness was
approximately $1.5 billion. We will be required to use a
significant portion of our operating cash flow to reduce our
indebtedness over the next few years, resulting in a reduction
of the cash flow available to fund working capital, capital
expenditures, acquisitions, investments and dividends. Our
indebtedness may also subject us to greater vulnerability to
general adverse economic and industry conditions and increase
our vulnerability to increases in interest rates because a
portion of our indebtedness bears interest at floating rates.
Our senior credit facility and agreements with the holders of
our senior notes, which we refer to as our senior debt
facilities, impose certain operating and financial covenants
that limit our ability to, among other things:
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|
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incur debt;
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|
create liens;
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|
consolidate, merge or dispose of assets;
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|
make investments;
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|
engage in acquisitions
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|
pay dividends on, repurchase or make distributions in respect of
our capital stock; and
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|
enter into derivative agreements to manage exposure to changes
in interest rates.
|
In addition, the terms of our senior credit facilities require
us to satisfy and maintain specified financial ratios. Our
ability to meet those financial ratios can be affected by events
beyond our control, and in the event of a significant
deterioration of our economic performance, we cannot assure that
we will be able to satisfy those ratios. A breach of any of
these covenants could result in a default under our senior
credit facilities. If we fail to maintain compliance with these
covenants and cannot obtain a waiver from the lenders under the
senior credit facilities, the lenders could elect to declare all
amounts outstanding under the senior secured credit facilities
to be immediately due and payable and terminate all commitments
to extend further credit under such facilities. If the lenders
under the senior credit facilities accelerate the repayment of
borrowings and we are not able to obtain financing to satisfy
this obligation, we likely would have to liquidate significant
assets which nevertheless may not be sufficient to repay our
borrowings.
14
We may incur material losses and costs as a result of product
liability, warranty and recall claims that may be brought
against us.
Our businesses expose us to potential product liability risks
that are inherent in the design, manufacture and marketing of
our products. In particular, our medical device products are
often used in surgical and intensive care settings with
seriously ill patients. Many of these products are designed to
be implanted in the human body for varying periods of time, and
component failures, manufacturing flaws, design defects or
inadequate disclosure of product-related risks with respect to
these or other products we manufacture or sell could result in
an unsafe condition or injury to, or death of, the patient.
Although the Company carries product liability insurance we may
be exposed to product liability and warranty claims in the event
that our products actually or allegedly fail to perform as
expected or the use of our products results, or is alleged to
result, in bodily injury
and/or
property damage. Accordingly, we could experience material
warranty or product liability losses in the future and incur
significant costs to defend these claims. In addition, if any of
our products are, or are alleged to be, defective, we may be
required to participate in a recall of that product if the
defect or the alleged defect relates to safety and experience
lost sales, and be exposed to legal and reputational risk.
Product liability, warranty and recall costs may have a material
adverse effect on our financial condition and results of
operations.
We are subject to risks associated with our
non-U.S. operations.
Although no material concentration of our manufacturing
operations exists in any single country, we have significant
manufacturing operations outside the United States, including
operations conducted through entities that are not wholly-owned
and other alliances. As of, and for the year ended,
December 31, 2008, approximately 44% of our total fixed
assets and 53% of our total net revenues were attributable to
products directly distributed from our operations outside the
U.S. Our international operations are subject to varying
degrees of risk inherent in doing business outside the U.S.,
including:
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|
|
exchange controls, currency restrictions and fluctuations in
currency values;
|
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|
|
trade protection measures;
|
|
|
|
import or export requirements;
|
|
|
|
subsidies or increased access to capital for firms who are
currently or may emerge as competitors in countries in which we
have operations;
|
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|
|
potentially negative consequences from changes in tax laws;
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|
|
|
differing labor regulations;
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|
|
|
differing protection of intellectual property;
|
|
|
|
unsettled political conditions and possible terrorist attacks
against American interests; and
|
|
|
|
regional and national tenders (which may be exclusive).
|
These and other factors may have a material adverse effect on
our international operations or on our business, results of
operations and financial condition generally.
Customers in our Medical Segment depend on third party
reimbursement and the failure of healthcare programs to provide
reimbursement or the reduction in levels of reimbursement for
our medical products could adversely affect our Medical
Segment.
Demand for some of our medical products is impacted by the
reimbursement to our customers of patients medical
expenses by government healthcare programs and private health
insurers in the countries where we do business. Internationally,
medical reimbursement systems vary significantly, with medical
centers in some countries having fixed budgets, regardless of
the level of patient treatment. Other countries require
application for, and approval of, government or third party
reimbursement. Without both favorable coverage
15
determinations by, and the financial support of, government and
third party insurers, the market for some of our medical
products could be adversely impacted.
We cannot be sure that third party payors will maintain the
current level of reimbursement to our customers for use of our
existing products. Adverse coverage determinations or any
reduction in the amount of this reimbursement could harm our
business. In addition, as a result of their purchasing power,
these payors often seek discounts, price reductions or other
incentives from medical products suppliers. Our provision of
such pricing concessions could negatively impact our revenues
and product margins.
Uncertainties regarding future healthcare policy, legislation
and regulations, as well as private market practices, could
affect our ability to sell our products in acceptable quantities
at profitable prices.
Foreign currency exchange rate, commodity price and interest
rate fluctuations may adversely affect our results.
We are exposed to a variety of market risks, including the
effects of changes in foreign currency exchange rates, commodity
prices and interest rates. We expect revenue from products
manufactured in, and sold into,
non-U.S. markets
to continue to represent a significant portion of our net
revenue. Our consolidated financial statements reflect
translation of financial statements denominated in
non-U.S. currencies
to U.S. dollars, our reporting currency. When the
U.S. dollar strengthens or weakens in relation to the
foreign currencies of the countries where we sell or manufacture
our products, such as the euro, our U.S. dollar-reported
revenue and income will fluctuate. Although we have entered into
forward contracts with several major financial institutions to
hedge a portion of projected cash flows in order to reduce the
effects of this fluctuation, changes in the relative values of
currencies may, in some instances, have a significant effect on
our results of operations.
Many of our products have significant steel and plastic resin
content. We also use quantities of other commodities, including
copper and zinc. Although we monitor our exposure to these
commodity price increases as an integral part of our overall
risk management program, volatility in the prices of these
commodities could increase the costs of our products and
services. We may not be able to pass on these costs to our
customers and this could have a material adverse effect on our
results of operations and cash flows.
Our failure to successfully develop new products could
adversely affect our results.
The future success of our business will depend, in part, on our
ability to design and manufacture new competitive products and
to enhance existing products, particularly in the medical device
industry, which is characterized by rapid product development
and technological advances. This product development may require
substantial investment by us. There can be no assurance that
unforeseen problems will not occur with respect to the
development, performance or market acceptance of new
technologies or products, such as the inability to:
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|
identify viable new products;
|
|
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|
obtain adequate intellectual property protection;
|
|
|
|
gain market acceptance of new products; or
|
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|
successfully obtain regulatory approvals.
|
Moreover, we may not otherwise be able to successfully develop
and market new products. Our failure to successfully develop and
market new products could reduce our revenues and margins, which
would have an adverse effect on our business, financial
condition and results of operations.
Our technology is important to our success, and our failure
to protect this technology could put us at a competitive
disadvantage.
Because many of our products rely on proprietary technology, we
believe that the development and protection of these
intellectual property rights is important, though not essential,
to the future success of our business. In addition to relying on
our patents, trademarks and copyrights, we rely on
confidentiality
16
agreements with employees and other measures to protect our
know-how and trade secrets. Despite our efforts to protect
proprietary rights, unauthorized parties or competitors may copy
or otherwise obtain and use these products or technology. The
steps we have taken may not prevent unauthorized use of this
technology, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as in the
U.S. Moreover, there can be no assurance that others will
not independently develop the know-how and trade secrets or
develop better technology than ours or that current and former
employees, contractors and other parties will not breach
confidentiality agreements, misappropriate proprietary
information and copy or otherwise obtain and use our information
and proprietary technology without authorization or otherwise
infringe on our intellectual property rights. Our inability to
protect our proprietary technology could result in competitive
harm that could adversely affect our business.
We depend upon relationships with physicians and other health
care professionals.
The research and development of some of our products is
dependent on our maintaining strong working relationships with
physicians and other health care professionals. We rely on these
professionals to provide us with considerable knowledge and
experience regarding our products and the development of our
products. Physicians assist us as researchers, product
consultants, inventors and as public speakers. If we fail to
maintain our working relationships with physicians and receive
the benefits of their knowledge, advice and input, our products
may not be developed and marketed in line with the needs and
expectations of the professionals who use and support our
products, which could have a material adverse effect on our
business, financial condition and results of operations.
In the course of our business, we are subject to a variety of
litigation that could have a material adverse effect on our
results of operations and financial condition.
We are a party to various lawsuits and claims arising in the
normal course of business. These lawsuits and claims include
actions involving product liability, contracts, intellectual
property, import and export regulations, employment and
environmental matters. The defense of these lawsuits may divert
our managements attention, and we may incur significant
expenses in defending these lawsuits. In addition, we may be
required to pay damage awards or settlements, or become subject
to injunctions or other equitable remedies, that could have a
material adverse effect on our financial condition and results
of operations.
While we do not believe that any litigation in which we are
currently engaged would have such an adverse effect, the outcome
of these legal proceedings may differ from our expectations
because the outcomes of litigation, including regulatory
matters, are often difficult to reliably predict and we cannot
assure that the outcome of pending or future litigation will not
have a material adverse effect on our business, financial
condition and results of operations.
Much of our business is subject to extensive government
regulation, and our failure to comply with those regulations
could have a material adverse effect on our results of
operations and financial condition and we may incur significant
expenses to comply with these regulations.
Numerous national and local government agencies in a number of
countries regulate our products. The FDA and government agencies
in other countries regulate the approval, manufacturing and sale
and marketing of many of our medical products. The
U.S. Federal Aviation Administration and the European
Aviation Safety Agency regulate the manufacture and sale of some
of our aerospace products and licenses the operation of our
repair stations.
Failure to comply with applicable regulations and quality
assurance guidelines could lead to manufacturing shutdowns,
product shortages, delays in product manufacturing, product
seizures, recalls, operating restrictions, withdrawal of
required licenses, prohibitions against exporting of products to
countries outside the United States, importing products from
manufacturing facilities outside the U.S., and civil and
criminal penalties, including exclusion under Medicaid or
Medicare, any one or more of which could have a material adverse
effect on our business, financial condition and results of
operations.
17
The process of obtaining regulatory approvals to market a
medical device, particularly from the FDA and certain foreign
governmental authorities, can be costly and time consuming, and
approvals might not be granted for future products on a timely
basis, if at all, resulting in delayed realization of product
revenues or in substantial additional costs, which could have
material adverse effects on our financial condition and results
of operations. Our Medical Segment facilities are subject to
periodic inspection by the FDA and numerous other federal, state
and foreign governmental authorities, which require
manufacturers of medical devices to adhere to certain
regulations, including testing, quality control and
documentation procedures.
We are also subject to various federal and state laws pertaining
to healthcare pricing and fraud and abuse, including
anti-kickback and false claims laws. Violations of these laws
may be punishable by criminal or civil sanctions, including
substantial fines, imprisonment and exclusion from participation
in federal and state healthcare programs.
In addition, we are subject to numerous foreign, federal, state
and local environmental protection and health and safety laws
governing, among other things:
|
|
|
|
|
the generation, storage, use and transportation of hazardous
materials;
|
|
|
|
emissions or discharges of substances into the environment; and
|
|
|
|
the health and safety of our employees.
|
These laws and government regulations are complex, change
frequently and have tended to become more stringent over time.
We cannot provide assurance that our costs of complying with
current or future environmental protection and health and safety
laws, or our liabilities arising from past or future releases
of, or exposures to, hazardous substances will not exceed our
estimates or will not adversely affect our financial condition
and results of operations. Moreover, we may be subject to
additional environmental claims, which may include claims for
personal injury or cleanup, in the future based on our past,
present or future business activities, which could also
adversely affect our financial condition and results of
operations.
Our acquisitions and strategic alliances may not meet revenue
or profit expectations.
As part of our strategy for growth, we have made and may
continue to make acquisitions and divestitures and enter into
strategic alliances such as joint ventures and joint development
agreements. However, we may not be able to identify suitable
acquisition candidates, complete acquisitions or integrate
acquisitions successfully, and our strategic alliances may not
prove to be successful. In this regard, acquisitions involve
numerous risks, including difficulties in the integration of the
operations, technologies, services and products of the acquired
companies and the diversion of managements attention from
other business concerns. Although our management will endeavor
to evaluate the risks inherent in any particular transaction,
there can be no assurance that we will properly ascertain all
such risks. In addition, prior acquisitions have resulted, and
future acquisitions could result, in the incurrence of
substantial additional indebtedness and other expenses. Future
acquisitions may also result in potentially dilutive issuances
of equity securities. There can be no assurance that
difficulties encountered with acquisitions will not have a
material adverse effect on our business, financial condition and
results of operations.
Our workforce covered by collective bargaining and similar
agreements could cause interruptions in our provision of
services.
Approximately 17% of our manufacturing net revenues are produced
by operations for which a significant part of our workforce is
covered by collective bargaining agreements and similar
agreements in foreign jurisdictions. It is likely that a portion
of our workforce will remain covered by collective bargaining
and similar agreements for the foreseeable future. Strikes or
work stoppages could occur that would adversely impact our
relationships with our customers and our ability to conduct our
business.
18
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our operations have approximately 134 owned and leased
properties consisting of plants, engineering and research
centers, distribution warehouses, offices and other facilities.
We believe that the properties are maintained in good operating
condition and are suitable for their intended use. In general,
our facilities meet current operating requirements for the
activities currently conducted therein.
Our major facilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
Owned or
|
|
Location
|
|
Footage
|
|
|
Leased
|
|
|
Medical Segment
|
|
|
|
|
|
|
|
|
Haslet, TX
|
|
|
304,000
|
|
|
|
Leased
|
|
Nuevo Laredo, Mexico
|
|
|
277,000
|
|
|
|
Leased
|
|
Asheboro, NC
|
|
|
206,000
|
|
|
|
Owned
|
|
Durham, NC
|
|
|
199,000
|
|
|
|
Leased
|
|
Reading, PA
|
|
|
166,000
|
|
|
|
Owned
|
|
Chihuahua, Mexico
|
|
|
154,000
|
|
|
|
Owned
|
|
Wyomissing, PA
|
|
|
147,000
|
|
|
|
Owned
|
|
Research Triangle Park, NC
|
|
|
147,000
|
|
|
|
Owned
|
|
Kernen, Germany
|
|
|
142,000
|
|
|
|
Leased
|
|
Tongeren, Belgium
|
|
|
131,000
|
|
|
|
Leased
|
|
Zdar nad Sazavou, Czech Republic
|
|
|
108,000
|
|
|
|
Owned
|
|
Kamunting, Malaysia
|
|
|
102,000
|
|
|
|
Owned
|
|
Tecate, Mexico
|
|
|
96,000
|
|
|
|
Leased
|
|
Hradec Kralove, Czech Republic
|
|
|
92,000
|
|
|
|
Owned
|
|
Arlington Heights, IL
|
|
|
86,000
|
|
|
|
Leased
|
|
Kenosha, WI
|
|
|
77,000
|
|
|
|
Owned
|
|
Kamunting, Malaysia
|
|
|
77,000
|
|
|
|
Leased
|
|
Kernen, Germany
|
|
|
73,000
|
|
|
|
Owned
|
|
Wyomissing, PA
|
|
|
66,000
|
|
|
|
Leased
|
|
Jaffrey, NH
|
|
|
65,000
|
|
|
|
Owned
|
|
Everett, MA
|
|
|
61,000
|
|
|
|
Leased
|
|
Betschdorf, France
|
|
|
54,000
|
|
|
|
Owned
|
|
Bad Liebenzell, Germany
|
|
|
53,000
|
|
|
|
Leased
|
|
Commercial Segment
|
|
|
|
|
|
|
|
|
Litchfield, IL
|
|
|
169,000
|
|
|
|
Owned
|
|
Richmond, BC, Canada
|
|
|
161,000
|
|
|
|
Leased
|
|
Singapore
|
|
|
118,000
|
|
|
|
Owned
|
|
Houston, TX
|
|
|
117,000
|
|
|
|
Owned
|
|
Limerick, PA
|
|
|
113,000
|
|
|
|
Owned
|
|
Kitchener, Ont., Canada
|
|
|
104,000
|
|
|
|
Owned
|
|
Gorinchem, Netherlands
|
|
|
87,000
|
|
|
|
Leased
|
|
Sarasota, FL
|
|
|
83,000
|
|
|
|
Owned
|
|
Olive Branch, MS
|
|
|
80,000
|
|
|
|
Leased
|
|
Hagerstown, MD
|
|
|
77,000
|
|
|
|
Leased
|
|
Aerospace Segment
|
|
|
|
|
|
|
|
|
Holmestrand, Norway
|
|
|
171,000
|
|
|
|
Leased
|
|
Simi Valley, CA
|
|
|
122,000
|
|
|
|
Leased
|
|
Singapore
|
|
|
122,000
|
|
|
|
Owned
|
|
Miesbach, Germany
|
|
|
112,000
|
|
|
|
Leased
|
|
Ripley, England
|
|
|
82,000
|
|
|
|
Leased
|
|
19
In addition to the properties listed above, we own or lease
approximately 1.0 million square feet of warehousing,
manufacturing and office space located in the United States,
Canada, Mexico, South America, Europe, Australia, Asia and
Africa. We also own or lease certain properties that are no
longer being used in our operations. We are actively marketing
these properties for sale or sublease. At December 31,
2008, the unused owned properties were classified as held for
sale.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
On October 11, 2007, the Companys subsidiary, Arrow
International, Inc. (Arrow), received a corporate
warning letter from the U.S. Food and Drug Administration
(FDA). The letter cites three site-specific warning letters
issued by the FDA in 2005 and subsequent inspections performed
from June 2005 to February 2007 at Arrows facilities in
the United States. The letter expresses concerns with
Arrows quality systems, including complaint handling,
corrective and preventive action, process and design validation,
inspection and training procedures. It also advises that
Arrows corporate-wide program to evaluate, correct and
prevent quality system issues has been deficient. Limitations on
pre-market approvals and certificates of foreign goods had
previously been imposed on Arrow based on prior inspections and
the corporate warning letter does not impose additional
sanctions that are expected to have a material financial impact
on the Company.
In connection with its acquisition of Arrow, completed on
October 1, 2007, the Company developed an integration plan
that includes the commitment of significant resources to correct
these previously-identified regulatory issues and further
improve overall quality systems. Senior management officials
from the Company have met with FDA representatives, and a
comprehensive written corrective action plan was presented to
FDA in late 2007. The Company has begun implementing its
corrective action plan, which it expects to complete, for most
facilities and procedures, by the end of March 2009.
While the Company believes it can remediate these issues, there
can be no assurances regarding the length of time or
expenditures required to resolve these issues to the
satisfaction of the FDA. If the Companys remedial actions
are not satisfactory to the FDA, the Company may have to devote
additional financial and human resources to its efforts, and the
FDA may take further regulatory actions against the Company,
including, but not limited to, seizing its product inventory,
obtaining a court injunction against further marketing of the
Companys products, assessing civil monetary penalties or
imposing a consent decree on us.
In June 2008, HM Revenue and Customs (HMRC) assessed
Airfoil Technologies International UK Limited
(ATI-UK), a consolidated United Kingdom venture in
which the Company has a 60% economic interest, approximately
$10 million for customs duty for the period from
July 1, 2005 through March 31, 2008. HMRC had
previously assessed ATI-UK approximately $737,000 for customs
duty for the first and second quarters of 2004. Additionally,
for the above periods, ATI-UK was assessed a value added tax
(VAT) of approximately $68 million, for which
HMRC has advised ATI-UK that, to the extent it is due and
payable, it has until March 2010 to fully recover such VAT. The
assessments were imposed because HMRC concluded that ATI-UK did
not provide the necessary documentation for which reliance on
Inland Processing Relief status (duty and VAT) was claimed by
ATI-UK.
ATI-UK has filed appeals and been granted hardship applications
(to avoid payment of the assessment while the appeal is pending)
regarding each of the assessments. ATI-UK provided certain
documentation to HMRC with regard to the first quarter of 2004,
and as a result, the HMRC reduced the assessment for customs
duties for that quarter by 97%, from approximately $17,860 to
$450, and reduced the assessment for VAT for that quarter by
99%, from approximately $117,540 to $1,650, which amounts have
been paid and all VAT recovered. ATI-UK has provided essentially
the same types of supporting documentation to HMRC for the
remaining quarters for which it was assessed. Based on
discussions between ATI-UK and the HMRC inspector with regard to
the assessments for the remaining periods, ATI-UK is hopeful
that it will obtain reductions in the assessments that are
proportionately similar to those obtained for the first quarter
of 2004. However, the Company cannot assure whether or the
extent to which the HMRC will reduce its assessments for these
periods. In the event ATI-UK is not
20
successful in a favorable resolution of the remaining
assessments, such outcome would have a material adverse effect
on the business of ATI-UK. The Company has a net investment in
ATI-UK of approximately $11 million.
In addition, we are a party to various lawsuits and claims
arising in the normal course of business. These lawsuits and
claims include actions involving product liability, intellectual
property, import and export regulations, employment and
environmental matters. Based on information currently available,
advice of counsel, established reserves and other resources, we
do not believe that any such actions are likely to be,
individually or in the aggregate, material to our business,
financial condition, results of operations or liquidity.
However, in the event of unexpected further developments, it is
possible that the ultimate resolution of these matters, or other
similar matters, if unfavorable, may be materially adverse to
our business, financial condition, results of operations or
liquidity.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our stockholders during
the quarter ended December 31, 2008.
21
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is listed on the New York Stock Exchange, Inc.
(symbol TFX). Our quarterly high and low stock
prices and dividends for 2008 and 2007 are shown below.
Price Range and
Dividends of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
First Quarter
|
|
$
|
63.60
|
|
|
$
|
47.82
|
|
|
$
|
0.320
|
|
Second Quarter
|
|
$
|
60.18
|
|
|
$
|
47.21
|
|
|
$
|
0.340
|
|
Third Quarter
|
|
$
|
68.23
|
|
|
$
|
51.00
|
|
|
$
|
0.340
|
|
Fourth Quarter
|
|
$
|
65.64
|
|
|
$
|
40.00
|
|
|
$
|
0.340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
First Quarter
|
|
$
|
68.94
|
|
|
$
|
64.01
|
|
|
$
|
0.285
|
|
Second Quarter
|
|
$
|
83.66
|
|
|
$
|
67.59
|
|
|
$
|
0.320
|
|
Third Quarter
|
|
$
|
87.00
|
|
|
$
|
60.74
|
|
|
$
|
0.320
|
|
Fourth Quarter
|
|
$
|
81.17
|
|
|
$
|
56.86
|
|
|
$
|
0.320
|
|
Various senior and term note agreements provide for the
maintenance of certain financial ratios and limit the repurchase
of our stock and payment of cash dividends. Under the most
restrictive of these provisions, on an annual basis
$99 million of retained earnings was available for
dividends and stock repurchases at December 31, 2008. On
February 24, 2009, the Board of Directors declared a
quarterly dividend of $0.34 per share on our common stock, which
is payable on March 17, 2009 to holders of record on
March 5, 2009. As of February 24, 2009, we had
approximately 846 holders of record of our common stock.
On June 14, 2007, the Companys Board of Directors
authorized the repurchase of up to $300 million of
outstanding Company common stock. Repurchases of Company stock
under the program may be made from time to time in the open
market and may include privately-negotiated transactions as
market conditions warrant and subject to regulatory
considerations. The stock repurchase program has no expiration
date and the Companys ability to execute on the program
will depend on, among other factors, cash requirements for
acquisitions, cash generation from operations, debt repayment
obligations, market conditions and regulatory requirements. In
addition, under the senior loan agreements entered into
October 1, 2007, the Company is subject to certain
restrictions relating to its ability to repurchase shares in the
event the Companys consolidated leverage ratio exceeds
certain levels, which further limit the Companys ability
to repurchase shares under this program. Through
December 31, 2008, no shares have been purchased under this
plan.
On July 25, 2005, our Board of Directors authorized the
repurchase of up to $140 million of outstanding Teleflex
common stock over twelve months ended July 2006. In June 2006,
our Board of Directors extended for an additional six months,
until January 2007, its authorization for the repurchase of
shares. Under the Boards authorization, we repurchased a
total of 2,317,347 shares on the open market during 2005
and 2006 for an aggregate purchase price of $140.0 million,
and aggregate fees and commissions of $0.1 million.
22
The following graph provides a comparison of five year
cumulative total stockholder returns of Teleflex common stock,
the Standard & Poor (S&P) 500 Stock Index and the
S&P MidCap 400 Index. We have selected the S&P MidCap
400 Index because, due to the diverse nature of our businesses,
we do not believe that there exists a relevant published
industry or line-of-business index and do not believe we can
reasonably identify a peer group. The annual changes for the
five-year period shown on the graph are based on the assumption
that $100 had been invested in Teleflex common stock and each
index on December 31, 2003 and that all dividends were
reinvested.
MARKET
PERFORMANCE
Comparison of Cumulative Five Year Total Return
23
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected financial data in the following table includes the
results of operations for acquired companies from the respective
date of acquisition, including Arrow International from
October 1, 2007. See note (2) below for a description
of special charges included in the 2007 financial results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Dollars in thousands, except per share)
|
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues(1)
|
|
$
|
2,420,949
|
|
|
$
|
1,934,332
|
|
|
$
|
1,690,809
|
|
|
$
|
1,561,872
|
|
|
$
|
1,469,563
|
|
Income from continuing operations before interest, taxes and
minority interest
|
|
$
|
339,989
|
(2)
|
|
$
|
173,742
|
(2)
|
|
$
|
187,141
|
|
|
$
|
173,947
|
|
|
$
|
77,638
|
|
Income (loss) from continuing operations
|
|
$
|
133,980
|
(2)
|
|
$
|
(42,368
|
)(2)
|
|
$
|
96,088
|
|
|
$
|
87,648
|
|
|
$
|
30,625
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations basic
|
|
$
|
3.38
|
|
|
$
|
(1.08
|
)
|
|
$
|
2.42
|
|
|
$
|
2.16
|
|
|
$
|
.76
|
|
Income (loss) from continuing operations diluted
|
|
$
|
3.36
|
|
|
$
|
(1.08
|
)
|
|
$
|
2.40
|
|
|
$
|
2.14
|
|
|
$
|
.76
|
|
Cash dividends
|
|
$
|
1.34
|
|
|
$
|
1.245
|
|
|
$
|
1.105
|
|
|
$
|
0.97
|
|
|
$
|
0.86
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,926,744
|
|
|
$
|
4,187,997
|
|
|
$
|
2,361,437
|
|
|
$
|
2,403,048
|
|
|
$
|
2,691,734
|
|
Long-term borrowings, less current portion
|
|
$
|
1,437,538
|
|
|
$
|
1,540,902
|
|
|
$
|
487,370
|
|
|
$
|
505,272
|
|
|
$
|
685,912
|
|
Shareholders equity
|
|
$
|
1,246,455
|
|
|
$
|
1,328,843
|
|
|
$
|
1,189,421
|
|
|
$
|
1,142,074
|
|
|
$
|
1,109,733
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing
operations
|
|
$
|
176,788
|
(4)
|
|
$
|
283,088
|
|
|
$
|
198,463
|
|
|
$
|
238,385
|
|
|
$
|
163,400
|
|
Net cash provided by (used in) financing activities from
continuing operations
|
|
$
|
(218,009
|
)
|
|
$
|
1,090,348
|
|
|
$
|
(240,768
|
)
|
|
$
|
(268,244
|
)
|
|
$
|
(266,354
|
)
|
Net cash provided by (used in) investing activities from
continuing operations
|
|
$
|
(39,451
|
)
|
|
$
|
(1,522,491
|
)
|
|
$
|
(77,930
|
)
|
|
$
|
79,079
|
|
|
$
|
(435,660
|
)
|
Free cash
flow(3)
|
|
$
|
84,474
|
|
|
$
|
189,425
|
|
|
$
|
113,595
|
|
|
$
|
160,502
|
|
|
$
|
101,120
|
|
|
|
|
|
|
Certain reclassifications have been made to the prior year
condensed consolidated financial statements to conform to
current period presentation, including the reclassification of
approximately $41.8 million of borrowings under the
revolving credit agreement from current borrowings to
long-term
borrowings at December 31, 2007. Certain financial
information is presented on a rounded basis, which may cause
minor differences. |
24
|
|
|
(1) |
|
Amounts exclude the impact of certain businesses sold or
discontinued, which have been presented in our consolidated
financial results as discontinued operations. |
|
(2) |
|
The table below sets forth unusual items impacting the
Companys results for 2008 and 2007. These are (i) the
write-off of in-process R&D acquired in connection with the
Arrow acquisition, (ii) the write-off of a fair value
adjustment to inventory acquired in the Arrow acquisition,
(iii) a tax adjustment related to repatriation of cash from
foreign subsidiaries and a change in position regarding untaxed
foreign earnings, and (iv) the write-off of deferred
financing costs in connection with the pay-down of long-term
debt. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Impact
|
|
2007 Impact
|
|
|
Income from
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
|
Income from
|
|
|
|
|
Operations
|
|
|
|
Continuing
|
|
|
|
|
Before Interest,
|
|
Income (Loss)
|
|
Operations
|
|
Income (Loss)
|
|
|
Taxes and
|
|
from
|
|
Before Interest,
|
|
from
|
|
|
Minority
|
|
Continuing
|
|
Taxes and
|
|
Continuing
|
|
|
Interest
|
|
Operations
|
|
Minority Interest
|
|
Operations
|
|
|
(In thousands)
|
|
(i) In-process R&D write-off
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
(ii) Write-off of inventory fair value adjustment
|
|
$
|
6,936
|
|
|
$
|
4,449
|
|
|
$
|
28,916
|
|
|
$
|
18,550
|
|
(iii) Tax adjustment related to untaxed unremitted
earnings of foreign subsidiaries
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91,815
|
|
(iv) Write-off of deferred financing costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,803
|
|
|
$
|
3,405
|
|
|
|
|
(3) |
|
Free cash flow is calculated by reducing cash provided by
operating activities from continuing operations by capital
expenditures and dividends. Free cash flow is considered a
non-GAAP financial measure. We use this financial measure for
internal managerial purposes, when publicly providing guidance
on possible future results, and as a means to evaluate
period-to-period comparisons. This financial measure is used in
addition to and in conjunction with results presented in
accordance with GAAP and should not be relied upon to the
exclusion of GAAP financial measures. This financial measure
reflects an additional way of viewing an aspect of our
operations that, when viewed with our GAAP results and the
accompanying reconciliation to the corresponding GAAP financial
measure, provides a more complete understanding of factors and
trends affecting our business. Management believes that free
cash flow is a useful measure to investors because it provides
an indication of the amount of our cash flow currently available
to support our ongoing operations. Management strongly
encourages investors to review our financial statements and
publicly-filed reports in their entirety and to not rely on any
single financial measure. The following is a reconciliation of
free cash flow to the nearest GAAP measure as required under
Securities and Exchange Commission rules. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(Dollars in thousands)
|
|
Free cash flow
|
|
$
|
84,474
|
|
|
$
|
189,425
|
|
|
$
|
113,595
|
|
|
$
|
160,502
|
|
|
$
|
101,120
|
|
Capital expenditures
|
|
|
39,267
|
|
|
|
44,734
|
|
|
|
40,772
|
|
|
|
38,563
|
|
|
|
27,705
|
|
Dividends
|
|
|
53,047
|
|
|
|
48,929
|
|
|
|
44,096
|
|
|
|
39,320
|
|
|
|
34,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing
operations
|
|
$
|
176,788
|
|
|
$
|
283,088
|
|
|
$
|
198,463
|
|
|
$
|
238,385
|
|
|
$
|
163,400
|
|
|
|
|
(4) |
|
The lower cash flow from continuing operations during 2008 is
principally attributable to $90.2 million of estimated tax
payments made in connection with the businesses divested in 2007. |
25
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
Teleflex strives to maintain a portfolio of businesses that
provide consistency of performance, improved profitability and
sustainable growth. To this end, in 2007 we significantly
changed the composition of our portfolio through acquisitions
and divestitures to improve margins, reduce cyclicality and
focus our resources on the development of our core businesses.
We continually evaluate the composition of the portfolio of our
businesses to ensure alignment with our overall objectives.
We are focused on achieving consistent and sustainable growth
through our internal growth initiatives which include the
development of new products, expansion of market share, moving
existing products into new geographies, and through selected
acquisitions which enhance or expedite our development
initiatives and our ability to grow market share.
In 2007, the Company completed acquisitions in all three
business segments and significant divestitures in both
Commercial and Aerospace. These portfolio actions resulted in a
significant expansion of our Medical Segment operations and a
significant reduction in our Commercial Segment operations. The
following bullet points summarize our more significant
acquisitions and divestitures in 2007, and the results for the
acquired businesses are included in the respective segments. See
Notes 3 and 17 to our consolidated financial statements
included in this Annual Report on
Form 10-K
for additional information regarding our significant
acquisitions and divestitures.
|
|
|
|
|
October 2007 Acquired Arrow International,
Inc., a leading global supplier of catheter-based medical
technology products used for vascular access and cardiac care,
with annual revenues of over $500 million, for
approximately $2.1 billion.
|
|
|
|
April 2007 Acquired substantially all of the
assets of HDJ Company, Inc., providers of engineering and
manufacturing services to medical device manufacturers with
annual revenues of approximately $15 million, for
approximately $25 million.
|
|
|
|
|
|
December 2007 Divested business units that
design and manufacture automotive and industrial driver
controls, motion systems and fluid handling systems (the
GMS Businesses with 2007 revenues of over
$860 million, for $560 million in cash.
|
|
|
|
April 2007 Acquired substantially all of the
assets of Southern Wire Corporation, a wholesale distributor of
wire rope cables and related hardware with annual revenues of
approximately $25 million, for approximately
$20 million.
|
|
|
|
|
|
November 2007 Acquired Nordisk Aviation
Products A/S, a global leader in developing, manufacturing, and
servicing containers and pallets for air cargo with annual
revenues of approximately $55 million, for approximately
$32 million.
|
|
|
|
June 2007 Divested Teleflex Aerospace
Manufacturing Group (TAMG), precision-machined
components business with annual revenues of approximately
$130 million, for approximately $134 million in cash.
|
We incurred significant indebtedness to fund a portion of the
consideration for our October 2007 acquisition of Arrow. As of
December 31, 2008, our outstanding indebtedness was
approximately $1.5 billion,
26
down from $1.7 billion as of December 31, 2007. For
additional information regarding our indebtedness, please see
Liquidity and Capital Resources below and
Note 8 to our consolidated financial statements included in
this Annual Report on
Form 10-K.
|
|
|
Global Economic
Conditions
|
We operated in an increasingly challenging global economic
environment in 2008. Recent unprecedented turbulence in the
global financial and commodities markets and the downturn in the
business cycle have had an adverse impact on market activities
including, among other things, failure of financial
institutions, falling asset values, diminished liquidity, and
reduced demand for products and services, particularly in the
fourth quarter of 2008. The impact of the difficult economic
environment was felt mostly in the Commercial Segment during
2008 and we adjusted production levels and took new
restructuring actions in response to the current environment.
Although, on a consolidated basis, the economic conditions have
not had a significant adverse impact to our financial position,
results of operations or liquidity during 2008, the continuation
of the broad economic trends could adversely affect our
operations in the future, as described, below. The potential
effect of these factors on our current and future liquidity is
discussed in Liquidity and Capital Resources in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
|
|
|
Medical Our Medical Segment serves a
diverse base of hospitals and healthcare providers in more than
140 countries. Healthcare policies and practice trends vary by
country and the impact of the global economic downturn appears
to have been limited in 2008. However reimbursement changes and
cost pressures created by the economic slowdown could adversely
effect the financial health of some of our hospital customers in
2009.
|
Hospitals in some regions of the United States have seen a
decline in admissions and a reduction in elective procedures and
have limited their capital spending. More than 80 percent
of our Medical revenues come from disposable products used in
critical care and surgical applications and our sales volume
could be negatively impacted by declines in admissions. In
addition, a small percentage of our revenues could be impacted
by changes in capital spending or a decline in elective
procedures.
At the same time, future changes in government funding patterns
or regulation could have an impact on our business. In the
United States, a number of states have enacted or proposed
reduced funding for Medicaid programs and higher rates of
unemployment are increasing the percentage of uninsured patients
who do not have the ability to pay for care. This could create
further cost pressure on hospitals and consequently on our
business. Our business could also be impacted by healthcare
reform legislation enacted by Congress. Although the impact of
the economic downturn on hospitals outside the United States has
been less pronounced to date, funding to these healthcare
institutions could be affected in the future as governments make
further spending adjustments.
|
|
|
|
|
Aerospace Sudden and significant
increases in fuel costs in mid-2008 resulted in reductions in
capacity for passenger and cargo traffic, and accelerated
retirement of older, less fuel efficient aircraft. These trends
have continued even though fuel prices have decreased from these
record levels. The sharp drop in fuel costs toward the end of
2008 has been a positive development for airlines as it has
offset somewhat the recession related drop in revenues for both
passenger and cargo traffic. Lower traffic overall makes it more
difficult to sell cargo containment equipment due to reduced
demand, but new aircraft and weight and greenhouse gas reduction
objectives create some opportunities in these markets. Lower
overall aircraft utilization will reduce demand for spare parts
for our installed base of equipment and for our jet engine
component repair services. Nevertheless, we are well positioned
on certain new Airbus and Boeing airframes and deliveries of
cargo handling systems are expected to continue at previously
expected levels overall, albeit on a slightly longer time
horizon from earlier forecasts.
|
27
|
|
|
|
|
Commercial The markets served by our
Commercial Segment are largely affected by the general state of
the economy and by consumer confidence. Factors such as housing
starts, home values, fuel costs, transportation, environmental
and other regulatory matters all affect the market outlook for
the businesses in this segment. In 2008, our Commercial Segment
experienced a significant decrease in sales of recreational
marine products and auxiliary power units sold into the North
American truck market due to softness in these markets caused by
a weak economic environment during 2008. We expect that growth
will be a challenge in our Commercial Segment until there is
improvement in consumer confidence and there is a return to
global economic growth.
|
Results of
Operations
Discussion of growth from acquisitions reflects the impact of a
purchased company for up to twelve months beyond the date of
acquisition. Activity beyond the initial twelve months is
considered core growth. Core growth excludes the impact of
translating the results of international subsidiaries at
different currency exchange rates from year to year and the
comparable activity of divested companies within the most recent
twelve-month period.
The following comparisons exclude the impact of the operations
of TAMG, the GMS Businesses, and a small medical business which
have been presented in our consolidated financial results as
discontinued operations (see Note 17 to our consolidated
financial statements included in this Annual Report on
Form 10-K
for discussion of discontinued operations).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net revenues
|
|
$
|
2,420.9
|
|
|
$
|
1,934.3
|
|
|
$
|
1,690.8
|
|
Net revenues increased approximately 25% to $2.42 billion
from $1.93 billion in 2007. Businesses acquired in the past
twelve months accounted for all of this increase in revenues as
foreign currency translation contributed 1% to revenue growth,
while revenues from core business declined 1% compared to 2007.
Core revenue growth in the Medical Segment (2%) and Aerospace
(2%) was offset by a 9% decline in core revenues in the
Commercial Segment, which was primarily due to a significant
decrease in sales of recreational marine products and auxiliary
power units sold into the North American truck market due to
softness in these markets caused by a weak economic environment
during 2008.
Revenues increased 14% in 2007 to $1.93 billion from
$1.69 billion in 2006, entirely due to acquisitions and
foreign currency movements. Overall, there was no core revenue
growth in 2007 as compared to 2006. Core growth in our Aerospace
Segment was 7%, and our Medical and Commercial segments declined
1% and 5%, respectively year over year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Gross profit
|
|
$
|
964.2
|
|
|
$
|
680.4
|
|
|
$
|
585.2
|
|
Percentage of sales
|
|
|
39.8
|
%
|
|
|
35.2
|
%
|
|
|
34.6
|
%
|
Gross profit as a percentage of revenues increased to 39.8% in
2008 from 35.2% in 2007. This trend is driven by increases in
the Medical and Aerospace segments as the gross profit
percentage in the Commercial Segment was unchanged from 2007.
Improved margins in the Medical Segment were largely due to the
inclusion of higher margin Arrow critical care product lines for
the full year in 2008 compared to only the fourth quarter in
2007 and volume related manufacturing efficiencies in the
Medical OEM product line. Improved
28
margins in the Aerospace Segment are principally due to a shift
in sales favoring engine repair services and away from sales of
lower margin replacement parts in the engine repairs business.
Gross profit as a percentage of revenues improved to 35.2% in
2007 from 34.6% in 2006, due primarily to cost and productivity
improvements in our Medical Segment and the benefits of
restructuring initiatives and other cost reduction efforts which
offset the negative impact of a $29 million charge related
to a fair value adjustment to inventory acquired in the Arrow
acquisition, which was sold during 2007.
|
|
|
Selling,
engineering and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Selling, engineering and administrative
|
|
$
|
596.8
|
|
|
$
|
445.3
|
|
|
$
|
375.0
|
|
Percentage of sales
|
|
|
24.7
|
%
|
|
|
23.0
|
%
|
|
|
22.2
|
%
|
Selling, engineering and administrative expenses (operating
expenses) as a percentage of revenues were 24.7% in 2008
compared to 23.0% in 2007, principally due to approximately
$25 million higher amortization expense related to the
Arrow acquisition and approximately $20 million higher
expenses in the Medical Segment related to the remediation of
FDA regulatory issues.
Selling, engineering and administrative expenses as a percentage
of revenues increased to 23.0% in 2007 compared with 22.2% in
2006, due primarily to approximately $7 million higher
amortization expense from the Arrow acquisition.
|
|
|
Goodwill
impairment and in-process R&D charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Goodwill impairment
|
|
$
|
|
|
|
$
|
18.9
|
|
|
$
|
1.0
|
|
In-process R&D charge
|
|
$
|
|
|
|
$
|
30.0
|
|
|
$
|
|
|
In 2007, during our annual test for goodwill impairment we
determined $16.4 million of goodwill attributable to our
businesses that manufacture and sell auxiliary power units in
the North American heavy truck and rail markets, as well as
components and systems for use of alternative fuels in
industrial vehicles and passenger cars was impaired. Softness in
certain of these markets at that time negatively impacted the
valuation of goodwill resulting in the impairment charge. The
remaining $2.5 million goodwill impairment is related to a
write-down to the agreed selling price of one our variable
interest entities in the Commercial Segment.
The $30.0 million write-off of in-process research and
development costs is related to in-process R&D projects
acquired in the Arrow acquisition which we determined had no
alternative future use in their current state.
|
|
|
Interest income
and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Interest expense
|
|
$
|
121.6
|
|
|
$
|
74.9
|
|
|
$
|
41.2
|
|
Average interest rate on debt during the year
|
|
|
6.13
|
%
|
|
|
6.33
|
%
|
|
|
7.20
|
%
|
Interest income
|
|
$
|
(2.6
|
)
|
|
$
|
(10.5
|
)
|
|
$
|
(6.3
|
)
|
Interest expense increased significantly in 2008 compared to
2007 principally as a result of the full year impact of the debt
incurred in connection with the Arrow acquisition in October
2007. Interest income decreased in 2008 compared to 2007
primarily due to lower amounts of invested funds combined with
lower average interest rates.
29
Interest expense increased from $41.2 million to
$74.9 million in 2007 principally as a result of higher
debt levels since October 1, 2007 incurred in connection
with the Arrow acquisition. Interest income increased in 2007
compared to 2006 primarily due to higher average cash balances
during the first three quarters of 2007.
|
|
|
Taxes on income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Effective income tax rate
|
|
|
23.6
|
%
|
|
|
112.3
|
%
|
|
|
21.6
|
%
|
The effective tax rate in 2007 was 112.3% compared to 23.6% in
2008 and 21.6% in 2006. Taxes on income from continuing
operations of $122.8 million in 2007 include discrete
income tax charges incurred in connection with the Arrow
acquisition. Specifically, in connection with funding the
acquisition of Arrow, the Company (i) repatriated
approximately $197.0 million of cash from foreign
subsidiaries which had previously been deemed to be permanently
reinvested in the respective foreign jurisdictions; and
(ii) changed its position with respect to certain
additional previously untaxed foreign earnings to treat these
earnings as no longer permanently reinvested. These items
resulted in a discrete income tax charge in 2007 of
approximately $91.8 million. The Company did not incur
similar charges in 2008 or 2006.
|
|
|
Restructuring and
other impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
2008 Commercial restructuring program
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
|
|
2007 Arrow integration program
|
|
|
22.1
|
|
|
|
0.9
|
|
|
|
|
|
2006 restructuring programs
|
|
|
|
|
|
|
3.4
|
|
|
|
3.5
|
|
2004 restructuring and divestiture program
|
|
|
|
|
|
|
0.7
|
|
|
|
10.4
|
|
Impairment charges
|
|
|
3.7
|
|
|
|
6.3
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27.7
|
|
|
$
|
11.3
|
|
|
$
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2008, we began certain restructuring initiatives
that affect the Commercial Segment. These initiatives involve
the consolidation of operations and a related reduction in
workforce at three of our facilities in Europe and North
America. We determined to undertake these initiatives to improve
operating performance and to better leverage our existing
resources. These costs amounted to approximately
$1.9 million during 2008. As of December 31, 2008, we
estimate that the aggregate of future restructuring charges that
we will incur in connection with this program are approximately
$3.3 $4.5 million in 2009. Of this amount,
$2.8 $3.1 million relates to employee
termination costs, $0.2 $1.0 million to
facility closure costs and $0.3 $0.4 million to
contract termination costs, primarily relating to leases. We
expect to have realized annual pre-tax savings of between
$4 $5 million in 2010 when these restructuring
actions are complete.
In connection with the acquisition of Arrow during 2007, we
formulated a plan related to the future integration of Arrow and
our other Medical businesses. The integration plan focuses on
the closure of Arrow corporate functions and the consolidation
of manufacturing, sales, marketing, and distribution functions
in North America, Europe and Asia. Costs related to actions that
affect employees and facilities of Arrow have been included in
the allocation of the purchase price of Arrow. Costs related to
actions that affect employees and facilities of Teleflex are
charged to earnings and included in restructuring and impairment
charges within the consolidated statement of operations. These
costs amounted to approximately $22.1 million during 2008.
As of December 31, 2008, we estimate that the aggregate of
future restructuring and impairment charges that we will incur
in connection with the Arrow integration plan are approximately
$18.0 $21.0 million in 2009 and 2010. Of this
amount, $7.5 $8.5 million relates to employee
termination costs, $1.2 $1.7 million relates to
facility closure costs, $9.2 $10.5 million
relates to contract termination costs associated with the
termination of leases and certain distribution agreements and
$0.1 $0.3 million relates to other
restructuring costs. We also have incurred restructuring related
costs in the Medical Segment which do not qualify for
30
classification as restructuring costs. In 2008 these costs
amounted to $7.0 million and are reported in the Medical
Segments operating results in selling, engineering and
administrative expenses. We expect to have realized annual
pre-tax savings of between $70-75 million in 2010 when
these integration and restructuring actions are complete.
In June 2006, we began certain restructuring initiatives that
affected all three of our operating segments. These initiatives
involved the consolidation of operations and a related reduction
in workforce at several of our facilities in Europe and North
America. We took these initiatives as a means to improving
operating performance and to better leverage our existing
resources and these activities are now complete.
During the fourth quarter of 2004, we commenced implementation
of a restructuring and divestiture program designed to improve
future operating performance and position us for future earnings
growth. The actions included exiting or divesting non-core or
low performing businesses, consolidating manufacturing
operations and reorganizing administrative functions to enable
businesses to share services and these activities are now
complete.
For additional information regarding our restructuring programs,
see Note 4 to our consolidated financial statements
included in this Annual Report on
Form 10-K.
Impairment charges in 2008 are composed of $2.7 million
related to five of our minority held investments precipitated by
the deteriorating economic conditions in the fourth quarter of
2008, $0.8 million impairment of an intangible asset in the
Commercial Segment that was identified during the annual
impairment testing process, and a $0.2 million reduction in
the carrying value of a building held for sale. In 2007, we
determined that two minority-held investments, certain
intangible assets and a building held for sale were impaired and
recorded an aggregate charge of $6.4 million. In 2006, we
determined that three minority-held investments and a building
held for sale were impaired and recorded an aggregate charge of
$7.4 million.
Segment
Review
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
% Increase/(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008 vs 2007
|
|
|
2007 vs 2006
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Segment data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
1,499.1
|
|
|
$
|
1,041.3
|
|
|
$
|
858.7
|
|
|
|
44
|
|
|
|
21
|
|
Aerospace
|
|
|
511.2
|
|
|
|
451.8
|
|
|
|
405.4
|
|
|
|
13
|
|
|
|
11
|
|
Commercial
|
|
|
410.6
|
|
|
|
441.2
|
|
|
|
426.7
|
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,420.9
|
|
|
$
|
1,934.3
|
|
|
$
|
1,690.8
|
|
|
|
25
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
286.3
|
|
|
$
|
182.6
|
|
|
$
|
161.7
|
|
|
|
57
|
|
|
|
13
|
|
Aerospace
|
|
|
61.8
|
|
|
|
47.0
|
|
|
|
40.2
|
|
|
|
32
|
|
|
|
17
|
|
Commercial
|
|
|
27.5
|
|
|
|
23.0
|
|
|
|
30.5
|
|
|
|
19
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit
|
|
$
|
375.6
|
|
|
$
|
252.6
|
|
|
$
|
232.4
|
|
|
|
49
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The percentage increases or (decreases) in revenues during the
years ended December 31, 2008 and 2007 compared to the
respective prior years were due to the following factors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase/ (Decrease)
|
|
|
|
2008 vs 2007
|
|
|
2007 vs 2006
|
|
|
|
Medical
|
|
|
Aerospace
|
|
|
Commercial
|
|
|
Total
|
|
|
Medical
|
|
|
Aerospace
|
|
|
Commercial
|
|
|
Total
|
|
|
Core growth
|
|
|
2
|
|
|
|
2
|
|
|
|
(9
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
|
|
Currency impact
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Acquisitions
|
|
|
40
|
|
|
|
10
|
|
|
|
1
|
|
|
|
25
|
|
|
|
18
|
|
|
|
3
|
|
|
|
5
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Change
|
|
|
44
|
|
|
|
13
|
|
|
|
(7
|
)
|
|
|
25
|
|
|
|
21
|
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The following is a discussion of our segment operating results.
Additional information regarding our segments, including a
reconciliation of segment operating profit to income from
continuing operations before interest, taxes and minority
interest, is presented in Note 16 to our consolidated
financial statements included in this Annual Report on
Form 10-K.
Medical
|
|
|
Comparison of
2008 and 2007
|
Medical Segment net revenues grew 44% in 2008 to
$1,499.1 million, from $1,041.3 million in 2007. The
acquisition of Arrow accounted for 40% of this increase in
revenues. Of the remaining 4% increase in net revenues, 2% was
due to foreign currency fluctuations and 2% was due to core
revenue growth. Medical Segment core revenue growth in 2008
reflects higher sales volume for critical care and surgical
products in Europe and Asia/Latin America of approximately
$13 million and $8 million, respectively, and a
$17 million increase in sales of specialty medical devices
to OEMs, partially offset by $23 million lower sales
volumes for critical care and surgical products in North America.
Net sales by product group are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
% Increase/(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008 vs 2007
|
|
|
2007 vs 2006
|
|
|
|
(Dollars in millions)
|
|
|
Critical Care
|
|
$
|
957.1
|
|
|
$
|
578.1
|
|
|
$
|
485.9
|
|
|
|
66
|
|
|
|
19
|
|
Surgical
|
|
|
296.0
|
|
|
|
294.5
|
|
|
|
235.0
|
|
|
|
1
|
|
|
|
25
|
|
Cardiac Care
|
|
|
72.9
|
|
|
|
18.2
|
|
|
|
|
|
|
|
300
|
|
|
|
100
|
|
OEM
|
|
|
158.3
|
|
|
|
138.1
|
|
|
|
137.8
|
|
|
|
15
|
|
|
|
|
|
Other
|
|
|
14.8
|
|
|
|
12.4
|
|
|
|
|
|
|
|
19
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
1,499.1
|
|
|
$
|
1,041.3
|
|
|
$
|
858.7
|
|
|
|
44
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the percentage of net revenues by
end market for the Medical Segment.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Hospitals / Healthcare Providers
|
|
|
84
|
%
|
|
|
78
|
%
|
Medical Device Manufacturers
|
|
|
10
|
%
|
|
|
13
|
%
|
Home Health
|
|
|
6
|
%
|
|
|
9
|
%
|
Medical Segments net revenues are geographically comprised
of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
|
53
|
%
|
|
|
54
|
%
|
Europe, Middle East and Africa
|
|
|
37
|
%
|
|
|
38
|
%
|
Asia and Latin America
|
|
|
10
|
%
|
|
|
8
|
%
|
The increase in critical care product sales during 2008 compared
to 2007 was almost entirely due to the acquisition of Arrow in
the fourth quarter of 2007, which expanded our vascular access
and regional anesthesia product lines and contributed an
incremental $360 million of sales to the critical care
category in 2008 over 2007. Favorable currency fluctuations
added $14 million to sales and higher sales of vascular
access products in Europe contributed another $5 million in
core revenue growth.
Surgical product sales were essentially flat in 2008 compared to
2007 as the benefit of favorable foreign currency movements in
Europe ($6 million) and higher volume in European and
Asia/Latin American markets ($6 million) was offset by
$12 million lower volumes in North America. This decline in
North America was primarily in the chest drainage and
instrumentation product lines.
Cardiac care product sales increased as a result of the Arrow
acquisition in the fourth quarter of 2007.
32
In 2008, sales to OEMs increased primarily as a result of higher
sales of orthopedic instrumentation, specialty sutures and other
devices of approximately $17 million and an acquisition in
the orthopedic product line in early 2007 (approximately
$3 million).
Operating profit in the Medical Segment increased 57% in 2008 to
$286.3 million, from $182.6 million in 2007,
principally due to the addition of higher margin Arrow critical
care product lines. Other factors that contributed to the higher
operating profit were improved cost and operational efficiencies
in North America, higher volumes in Europe and Asia/Latin
America, lower fair value adjustment to inventory acquired in
the Arrow acquisition ($7 million in 2008 versus
$29 million in 2007) and the favorable impact from the
stronger Euro. The impact of these factors was partially offset
by the impact of approximately $25 million higher
amortization expense related to the Arrow acquisition and
$20 million in higher costs incurred in 2008 in connection
with a plan to remediate FDA regulatory issues.
|
|
|
Comparison of
2007 and 2006
|
Medical Segment net revenues increased 21% in 2007 to
$1,041.3 million from $858.7 million in 2006, entirely
due to acquisitions and currency movements. Revenues related to
the acquisition of Arrow International contributed
$133.8 million, or 16% of this increase. Increased sales of
disposable medical products for airway management, respiratory
care, urology, and surgical devices to European hospital markets
and to Asian hospital markets, was more than offset by a decline
in sales of orthopedic specialty devices sold to medical device
manufacturers, the phase out of some product lines for medical
device manufacturers and a decline in sales of products for
alternate sites in North America.
Medical Segment operating profit increased 13% in 2007 to
$182.6 million from $161.7 million in 2006 primarily
due to the increase in volume from the Arrow acquisition, the
positive impact from the full year effect of cost and
productivity improvements that began in the second half of 2006
following completion of significant restructuring activities,
and currency movements, which more than offset the negative
impact from a $29 million charge in 2007 related to the
fair value adjustment to inventory acquired in the Arrow
acquisition, which was sold in 2007. During the first half of
2006, operating profit was negatively impacted by costs
associated with operational inefficiencies and the consolidation
of facilities and distribution centers.
Aerospace
|
|
|
Comparison of
2008 and 2007
|
Aerospace Segment net revenues grew 13% in 2008 to
$511.2 million, from $451.8 million in 2007. The
expansion of the cargo containers product line due to the
acquisition of Nordisk Aviation Products accounted for 10% of
this increase. The 2% increase in core growth is primarily
attributable to increased sales of narrow body cargo loading
systems and wide body and narrow body cargo spare components and
repairs.
Segment operating profit increased 32% in 2008 to
$61.8 million, from $47.0 million in 2007. The
increase was principally due to the impact of the Nordisk
acquisition and favorable product mix of repair versus
replacement in the engine repair services business as a result
of technology investments we have made. Consolidation of
operations and phasing out of lower margin product lines in the
engine repair services business during 2007 also had a positive
impact on operating profit in 2008.
|
|
|
Comparison of
2007 and 2006
|
Aerospace Segment net revenues increased 11% in 2007 to
$451.8 million from $405.4 million in 2006. This
increase was due to increases of 7% from core growth, 3% from
acquisitions and 1% from foreign currency movements. Core growth
was primarily attributable to increased sales of wide body cargo
handling systems and narrow body cargo loading systems, combined
with steady increases in sales volume for aftermarket spares and
repairs throughout the year.
33
Aerospace Segment operating profit increased 17% to
$47.0 million from $40.2 million in 2006 as a result
of higher volume, productivity improvements, and cost control
efforts in both the cargo handling systems and engine repair
businesses, as well as the positive impact of restructuring in
engine repair services.
Commercial
|
|
|
Comparison of
2008 and 2007
|
Commercial Segment net revenues declined approximately 7% in
2008 to $410.6 million, from $441.2 million in 2007.
Core revenue declined 9% as a result of a 16% decline in sales
of marine products for the recreational boat market and a 22%
decline in sales of auxiliary power units for the North American
truck market which was partially offset by a 12% increase in
sales of alternate fuel systems and an 11% increase in sales of
rigging services products. Extreme volatility in fuel costs,
accompanied by deterioration in the general state of the global
economy in the second half of 2008 adversely impacted the
markets served by our marine and auxiliary power unit products
and we expect the marine market to remain weak for most, if not
all, of 2009. As a result, we adjusted production levels and
took new restructuring actions in response to the current
environment. Conversely, high fuel prices in 2008 increased
demand for alternate fuel systems and we successfully penetrated
a large emerging compressed natural gas market in South America
during the year.
In 2008, segment operating profit increased 19% to
$27.5 million compared to $23.0 million in 2007. This
increase was principally due to favorable product mix and an
acquisition during 2007 in the rigging services business.
Favorable currency impact of approximately $3 million, cost
reductions and lower warranty expenses in the power systems
business offset the lower operating profit in the marine
business resulting from lower sales in 2008.
|
|
|
Comparison of
2007 and 2006
|
Commercial Segment revenues increased 3% in 2007 to
$441.2 million from $426.8 million in 2006. The
favorable impact of acquisitions and foreign currency movements
and an increase in sales of products for marine markets offset a
decline in core revenue attributable to a significant decline in
sales of auxiliary power units in the North American heavy truck
market and to lower sales of rigging services where unusually
high demand as a result of U.S. Gulf Coast rebuilding
activities due to severe weather during 2006 caused unfavorable
comparisons in 2007.
Commercial Segment operating profit declined 25% in 2007 to
$23.0 million from $30.5 million in 2006. Operating
profit was negatively impacted by commodity price increases,
lower volumes of auxiliary power units and from approximately
$4 million in provisions for warranty and other costs
related to prior generation auxiliary power units sold to the
North American truck market, which more than offset the positive
impact of cost and productivity improvements in the business
serving the marine market. Operating profit as a percent of
revenues declined to 5.2% in 2007 from 7.1% in 2006.
Liquidity and
Capital Resources
We assess our liquidity in terms of our ability to generate cash
to fund our operating, investing and financing activities. Our
principal source of liquidity is operating cash flows. In
addition to operating cash flows, other significant factors that
affect our overall management of liquidity include: capital
expenditures, acquisitions, pension funding, dividends, common
stock repurchases, adequacy of available bank lines of credit,
and access to other capital markets.
The deterioration in global economic conditions and the severe
disruptions in global credit markets that occurred during the
fourth quarter of 2008 affected the operating results of our
various businesses as described above in Results of
Operations. In assessing the impact of these factors on
our liquidity, we do not currently foresee any difficulties
meeting our cash requirements or accessing credit as needed in
the next twelve months. To date, we have not experienced an
inordinate amount of payment default by our customers, and we
have
34
sufficient lending commitments in place to enable us to fund
additional operating needs. However, taking into consideration
current economic conditions, we recognize the increased risk
that our customers and suppliers may be unable to access
liquidity. If current market conditions continue to deteriorate,
we may experience delays in customer payments and reductions in
our customers purchases from us, which could have a
material adverse effect on our liquidity.
Recent deterioration in the securities markets has impacted the
value of the assets included in our defined benefit pension
plans. As a result of losses experienced in global equity
markets, our domestic pension funds experienced approximately
$76 million, or 29%, decline in value during 2008. While
this will increase pension expense in 2009 compared to 2008, we
do not expect this to cause a significant increase to our
pension funding requirements for 2009 because amounts funded to
the plans in prior years exceeded the minimum amounts required
in those years. The volatility in the securities markets has not
significantly affected the liquidity of our pension plans or
counterparty exposure. Substantially all of our domestic pension
plans are invested in mutual funds registered with the SEC under
the Investment Company Act of 1940. Underlying holdings of the
mutual funds are invested in publicly traded equity and fixed
income securities.
We manage our worldwide cash requirements by considering
available funds among the many subsidiaries through which we
conduct our business and the cost effectiveness with which those
funds can be accessed. The repatriation of cash balances from
certain of our subsidiaries could have adverse tax consequences;
however, those balances are generally available without legal
restrictions to fund ordinary business operations. We have and
will continue to transfer cash from those subsidiaries to us and
to other international subsidiaries when it is cost effective to
do so. Substantially all of our debt service requirements are
United States based and we depend on foreign sources of cash to
fund a portion of these requirements. We anticipate our domestic
principal and interest payments for 2009 will be approximately
$189 million and we expect to access approximately
$95 million of cash from foreign subsidiaries in 2009 to
help fund these debt service requirements. To the extent we
cannot, or choose not to, repatriate cash from foreign
subsidiaries in time to meet quarterly debt service requirements
our revolving credit facility is utilized as a source of
liquidity until such cash can be repatriated in a cost effective
manner.
We believe our cash flow from operations, available cash and
cash equivalents, borrowings under our revolving credit facility
and additional sales of accounts receivable under our
securitization program will enable us to fund our operating
requirements, capital expenditures and debt obligations.
A summary of our cash flows for the last three years is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Cash flows from continuing operations provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
176.8
|
|
|
$
|
283.1
|
|
|
$
|
198.5
|
|
Investing activities
|
|
|
(39.5
|
)
|
|
|
(1,522.5
|
)
|
|
|
(77.9
|
)
|
Financing activities
|
|
|
(218.0
|
)
|
|
|
1,090.3
|
|
|
|
(240.8
|
)
|
Cash flows provided by (used in) discontinued operations
|
|
|
(5.6
|
)
|
|
|
88.5
|
|
|
|
114.3
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(7.8
|
)
|
|
|
13.5
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decease) increase in cash and cash equivalents
|
|
$
|
(94.1
|
)
|
|
$
|
(47.1
|
)
|
|
$
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from
Operating Activities
Higher tax payments of approximately $112 million (net of
refunds of approximately $27 million) and higher interest
payments of approximately $60 million were the principal
factors in the
year-on-year
decrease in cash flows from operating activities in 2008
compared to 2007. The largest factor contributing to the higher
tax payments is approximately $90 million of taxes paid in
connection with businesses divested in 2007.
35
All together, changes in our operating assets and liabilities
resulted in a decrease in cash from operations of approximately
$110 million during 2008 which is principally attributable
to the $90 million of tax payments mentioned previously.
The cash flow impact from changes in other operating assets and
liabilities offset one another; an inventory increase of
approximately $21 million, increase in accounts payable and
accrued expenses of $8 million, decrease in accounts
receivable of $3 million, and a decrease in other operating
assets of $6 million. The ramp up in production of cargo
handling systems to meet the delivery schedules communicated
earlier in the year from aircraft manufacturers and the late in
the year delay of those delivery schedules into 2009 was the
principal ($14 million) cause of the
year-on-year
increase in inventory. Nearly all of the increase in accounts
payable and accrued expenses is due to a
year-on-year
increase in accounts payable in the Medical Segment that results
from changes in payment patterns to suppliers of the Arrow
operations during 2008 where early payment discounts were
forgone in favor of longer payment terms. The $3 million
decrease in accounts receivable reflects focused collection
efforts in all segments and is in spite of higher sales during
the fourth quarter of 2008 compared to the same period of a year
ago, and a heavier mix of sales in our cargo handling systems
business to aircraft manufacturers in 2008 which carry longer
payment terms compared to the aftermarket side of that business.
During 2008 we repatriated approximately $104 million of
cash from our foreign subsidiaries.
Changes in our operating assets and liabilities during 2007
resulted in a net cash inflow of $76.9 million. The most
significant change was a decrease in inventories of
$62.4 million, $25 million of which is due to the
resolution, in 2007, of operational inefficiencies experienced
in the Medical Segment during the consolidation of facilities
and distribution centers in 2005 and 2006 and focused inventory
reduction initiatives in the Arrow operations post-acquisition,
and $29 million is the impact from a fair value adjustment
to inventory acquired in the Arrow acquisition which was sold
during 2007. During 2007, we repatriated approximately
$208 million of cash from our foreign subsidiaries,
exclusive of proceeds from the sale of discontinued operations.
Cash Flow from
Investing Activities
Our cash flows from investing activities from continuing
operations in 2008 consisted primarily of capital expenditures
of $39.3 million, $5.7 million of payments for
businesses acquired that had been deferred at closing, which
primarily pertained to our acquisitions of Nordisk
($4.7 million) and Southern Wire ($1.0 million), an
additional investment of $2.2 million in our Propulsion
Technologies joint venture, and proceeds of $8.5 million
from the sale of assets and investments, principally
$5.3 million related to post closing adjustments in
connection with the sale of the GMS business, sale of
investments in non-consolidated affiliates of $1.8 million
and the sale of a held for sale building for $1.0 million.
Our cash flows from investing activities from continuing
operations during 2007 consisted primarily of payments of
$2.2 billion for businesses acquired, of which
$2.1 billion pertained to the acquisition of Arrow
International. During 2007, we received proceeds of
approximately $702.3 million from the sale of the
Commercial Segments automotive and industrial business and
the Aerospace Segments precision machined components
business.
Cash Flow from
Financing Activities
Our cash flows from financing activities from continuing
operations in 2008 consisted primarily of $133.9 million
repayment of long-term debt, $92.8 million repayment of
revolver borrowings, additional borrowings under the revolver of
$92.9 million, payment of dividends of $53.0 million
and payments to minority interest shareholders of
$38.0 million which relate to the distribution of dividends
from our ATI joint venture.
Our cash flows from financing activities from continuing
operations during 2007 consisted primarily of new long-term
borrowings of $1.6 billion in connection with the Arrow
acquisition, the payment of fees of $21.6 million to obtain
that debt, and the repayment of $463.4 million of debt. We
repaid approximately
36
$54.0 million of debt in connection with the Arrow
acquisition and repaid approximately $386.6 million of
long-term debt with the proceeds from the disposal of the
automotive and industrial businesses.
Cash flows used in discontinued operations of $5.6 million
in 2008 reflects the settlement of a contingency related to the
GMS businesses which were sold in 2007.
Financing
Arrangements
The following table provides our net debt to total capital ratio:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Net debt includes:
|
|
|
|
|
|
|
|
|
Current borrowings
|
|
$
|
108,853
|
|
|
$
|
143,357
|
|
Long-term borrowings
|
|
|
1,437,538
|
|
|
|
1,540,902
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,546,391
|
|
|
|
1,684,259
|
|
Less: Cash and cash equivalents
|
|
|
107,275
|
|
|
|
201,342
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
$
|
1,439,116
|
|
|
$
|
1,482,917
|
|
|
|
|
|
|
|
|
|
|
Total capital includes:
|
|
|
|
|
|
|
|
|
Net debt
|
|
$
|
1,439,116
|
|
|
$
|
1,482,917
|
|
Shareholders equity
|
|
|
1,246,455
|
|
|
|
1,328,843
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
2,685,571
|
|
|
$
|
2,811,760
|
|
|
|
|
|
|
|
|
|
|
Percent of net debt to total capital
|
|
|
54
|
%
|
|
|
53
|
%
|
In connection with the October 2007 acquisition of Arrow, we
entered into a credit agreement (the Senior Credit
Facility) that provides for a five-year term loan facility
of $1.4 billion and a five-year revolving line of credit
facility of $400 million, both of which carried initial
interest rates of LIBOR plus a spread of 150 basis points.
The spread is subject to adjustment based upon our leverage
ratio. At December 31, 2008 the spread over LIBOR was
125 basis points. We executed an interest rate swap for
$600 million of the term loan from a floating 3 month
LIBOR rate to a fixed rate of 4.75%. The notional value of the
interest rate swap amortizes down to $350 million at
maturity in 2012. Our obligations under the Senior Credit
Facility are guaranteed by substantially all of our material
wholly-owned domestic subsidiaries, and are secured by a pledge
of the shares of certain of our subsidiaries.
Also in connection with our acquisition of Arrow, on
October 1, 2007, we issued $200 million in new senior
notes (the 2007 Notes) and amended certain terms of
our outstanding notes issued on July 8, 2004 (the
2004 Notes) and October 25, 2002 (the
2002 Notes, and, together with the 2004 Notes, the
amended notes). In addition, we repaid
$10.5 million of outstanding notes issued on
November 1, 1992 and December 15, 1993 (collectively,
the retired notes). The retired notes consisted of
the 7.40% Senior Notes due November 15, 2007 and the
6.80% Series B Senior Notes due December 15, 2008.
The 2007 notes and the amended notes, referred to collectively
as the senior notes, rank pari passu in right of
repayment with our obligations under the Senior Credit Facility
(the primary bank obligations) and are secured and
guaranteed in the same manner as the Senior Credit Facility. The
senior notes have mandatory prepayment requirements upon the
sale of certain assets and may be accelerated upon certain
events of default, in each case, on the same basis as the Senior
Credit facility.
The interest rates payable on the amended notes were also
modified in connection with the foregoing transactions.
Effective as of October 1, 2007:
|
|
|
|
|
the 2004 Notes bear interest on the outstanding principal amount
at the following rates: (i) 7.66% in respect of the
Series 2004-1
Tranche A Senior Notes due 2011; (ii) 8.14% in respect
of the Series
|
37
|
|
|
|
|
2004-1
Tranche B Senior Notes due 2014; and (iii) 8.46% in
respect of the
Series 2004-1
Tranche C Senior Notes due 2016; and
|
|
|
|
|
|
the 2002 Notes bear interest on the outstanding principal amount
at the rate of 7.82% per annum.
|
Interest rates on the amended notes are subject to reduction
based on positive performance relative to certain financial
ratios.
Fixed rate borrowings, excluding the effect of derivative
instruments, comprised 36% of total borrowings at
December 31, 2008. Fixed rate borrowings, including the
effect of derivative instruments, comprised 74% of total
borrowings at December 31, 2008. Approximately 2% of our
total borrowings of $1,546.4 million are denominated in
currencies other than the U.S. dollar, principally the Euro.
The Senior Credit Facility and the senior note agreements
contain covenants that, among other things, limit or restrict
our ability, and the ability of our subsidiaries, to incur debt,
create liens, consolidate, merge or dispose of certain assets,
make certain investments, engage in acquisitions, pay dividends
on, repurchase or make distributions in respect of capital stock
and enter into swap agreements. These agreements also require us
to maintain a consolidated leverage ratio (defined in the Senior
Credit Facility as Consolidated Leverage Ratio) and
an interest coverage ratio (defined in the Senior Credit
Facility as Consolidated Interest Coverage Ratio) at
the levels and as of the last day of any period of four
consecutive fiscal quarters ending on or nearest to the dates
set forth in the table below calculated pursuant to the
definitions and methodology set forth in the Senior Credit
Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Leverage
|
|
|
Consolidated Interest
|
|
|
|
Ratio
|
|
|
Coverage Ratio
|
|
Fiscal Quarter Ending on or
|
|
Must be
|
|
|
|
|
|
Must be
|
|
|
|
|
Nearest to
|
|
Less than
|
|
|
Actual
|
|
|
More than
|
|
|
Actual
|
|
|
December 31, 2007
|
|
|
4.75:1
|
|
|
|
3.80:1
|
|
|
|
3.00:1
|
|
|
|
3.46:1
|
|
March 31, 2008
|
|
|
4.75:1
|
|
|
|
3.84:1
|
|
|
|
3.00:1
|
|
|
|
3.51:1
|
|
June 30, 2008
|
|
|
4.75:1
|
|
|
|
3.71:1
|
|
|
|
3.00:1
|
|
|
|
3.58:1
|
|
September 30, 2008
|
|
|
4.75:1
|
|
|
|
3.43:1
|
|
|
|
3.00:1
|
|
|
|
3.78:1
|
|
December 31, 2008
|
|
|
4.00:1
|
|
|
|
3.29:1
|
|
|
|
3.50:1
|
|
|
|
4.04:1
|
|
March 31, 2009
|
|
|
4.00:1
|
|
|
|
|
|
|
|
3.50:1
|
|
|
|
|
|
June 30, 2009
|
|
|
4.00:1
|
|
|
|
|
|
|
|
3.50:1
|
|
|
|
|
|
September 30, 2009 and at all times thereafter
|
|
|
3.50:1
|
|
|
|
|
|
|
|
3.50:1
|
|
|
|
|
|
At December 31, 2008, we had $36.8 million of
borrowings outstanding under our $400 million revolving
line-of-credit facility. This facility is used principally for
seasonal working capital needs. The availability of loans under
this facility is dependent upon our ability to maintain our
financial condition and our continued compliance with the
covenants contained in the Senior Credit Facility and senior
note agreements. Moreover, additional borrowings would be
prohibited if a Material Adverse Effect (as defined in the
Senior Credit Facility) were to occur. Notwithstanding these
restrictions, we believe that this revolving credit facility
provides us with significant flexibility to meet our foreseeable
working capital needs. At our current level of EBITDA (as
defined in the Senior Credit Facility) for the year ended
December 31, 2008, we would have been permitted
$334 million of additional debt beyond the levels
outstanding at December 31, 2008. In addition, we believe
that we will continue to have adequate borrowing availability
under this facility after giving effect to the scheduled
reduction in the leverage ratio covenant to 3.50:1 at
September 30, 2009. Notwithstanding the borrowing capacity
described above, additional capacity would be available if
borrowed funds were used to acquire a business or businesses
through the purchase of assets or controlling equity interests
so long as the ratios set forth in the table above are met after
giving proforma effect of the EBITDA (as defined in the Senior
Credit Facility) of the business acquired.
38
As of December 31, 2008, we were in compliance with all
other terms of the Senior Credit Facility and the senior notes,
and we expect to continue to be in compliance with the terms of
these agreements, including the leverage and interest coverage
ratios, throughout 2009.
For additional information regarding our indebtedness, please
see Note 8 to our consolidated financial statements
included in this Annual Report on
Form 10-K.
In addition, at December 31, 2008 the Company had an
accounts receivable securitization program to sell a security
interest in domestic accounts receivable for consideration of up
to $125 million to a commercial paper conduit. This
facility is utilized from time to time for increased flexibility
in funding short term working capital requirements. The credit
market volatility during 2008 did not have a material impact on
the availability of the accounts receivable securitization
program. For additional information regarding this facility,
please refer to Off Balance Sheet Arrangements
included in this Managements Discussion and Analysis
of Financial Condition and Results of Operations.
Stock Repurchase
Programs
On June 14, 2007, the Companys Board of Directors
authorized the repurchase of up to $300 million of
outstanding Company common stock. Repurchases of Company stock
under the program may be made from time to time in the open
market and may include privately-negotiated transactions as
market conditions warrant and subject to regulatory
considerations. The program has no expiration date, and the
Companys ability to execute on the program will depend on,
among other factors, cash requirements for acquisitions, cash
generation from operations, debt repayment obligations, market
conditions and regulatory requirements. In addition, under the
senior loan agreements entered into October 1, 2007, the
Company is subject to certain restrictions relating to its
ability to repurchase shares in the event the Companys
consolidated leverage ratio exceeds certain levels, which
further limit the Companys ability to repurchase shares
under this program. Through December 31, 2008, no shares
have been purchased under this program.
On July 25, 2005, our Board of Directors authorized the
repurchase of up to $140 million of our outstanding common
stock over twelve months ended July 2006, which was subsequently
extended by our Board to January 2007. Under this program, we
repurchased a total of 2,317,347 shares on the open market
during 2005 and 2006 for an aggregate purchase price of
$140.0 million, and aggregate fees and commissions of
$0.1 million.
Contractual
Obligations
Contractual obligations at December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
than
|
|
|
1-3
|
|
|
4-5
|
|
|
than
|
|
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total borrowings
|
|
$
|
1,546,391
|
|
|
$
|
108,853
|
|
|
$
|
349,479
|
|
|
$
|
856,459
|
|
|
$
|
231,600
|
|
Interest
obligations(1)
|
|
|
358,315
|
|
|
|
88,342
|
|
|
|
165,907
|
|
|
|
77,656
|
|
|
|
26,410
|
|
Operating lease obligations
|
|
|
118,800
|
|
|
|
30,529
|
|
|
|
46,695
|
|
|
|
28,126
|
|
|
|
13,450
|
|
Minimum purchase
obligations(2)
|
|
|
51,484
|
|
|
|
51,075
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,074,990
|
|
|
$
|
278,799
|
|
|
$
|
562,490
|
|
|
$
|
962,241
|
|
|
$
|
271,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest obligations include the Companys obligations
under the interest rate swap. Interest payments on floating rate
debt are based on the interest rate in effect on
December 31, 2008. |
|
(2) |
|
Purchase obligations are defined as agreements to purchase goods
or services that are enforceable and legally binding and that
specify all significant terms, including fixed or minimum
quantities to be purchased, fixed, minimum or variable pricing
provisions and the approximate timing of the transactions. These
obligations relate primarily to material purchase requirements. |
39
We also have obligations with respect to income tax
uncertainties and our pension and other postretirement benefit
plans. See Notes 12 and 13, respectively to our
consolidated financial statements included in this Annual Report
on
Form 10-K
for additional information.
Off Balance Sheet
Arrangements
We have residual value guarantees under operating leases for
certain equipment. The maximum potential amount of future
payments we could be required to make under these guarantees is
approximately $1.9 million.
We use an accounts receivable securitization program to gain
access to enhanced credit markets and reduce financing costs. As
currently structured, accounts receivable of certain domestic
subsidiaries are sold on a non-recourse basis to a special
purpose entity (SPE), which is a bankruptcy-remote
subsidiary of Teleflex Incorporated that is consolidated in our
financial statements. This SPE then sells undivided interests in
those receivables to an asset backed commercial paper conduit.
The conduit issues notes secured by those interests and other
assets to third party investors.
To the extent that cash consideration is received for the sale
of undivided interests in the receivables by the SPE to the
conduit, it is accounted for as a sale in accordance with
Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, as we have
relinquished control of the receivables. Accordingly, undivided
interests in accounts receivable sold to the commercial paper
conduit under these transactions are excluded from accounts
receivables, net in the accompanying consolidated balance
sheets. The interests not represented by cash consideration from
the conduit are retained by the SPE and remain in accounts
receivable in the accompanying consolidated balance sheets.
The interests in receivables sold and the interest in
receivables retained by the SPE are carried at face value, which
is due to the short-term nature of our accounts receivable. The
special purpose entity has received cash consideration of
$39.7 million and $39.7 million for the interests in
the accounts receivable it has sold to the commercial paper
conduit at December 31, 2008 and December 31, 2007,
respectively. No gain or loss is recorded upon sale as fee
charges from the commercial paper conduit are based upon a
floating yield rate and the period the undivided interests
remain outstanding. Fee charges from the commercial paper
conduit are accrued at the end of each month. Should we default
under the accounts receivable securitization program, the
commercial paper conduit is entitled to receive collections on
receivables owned by the SPE in satisfaction of the amount of
cash consideration paid to the SPE to the commercial paper
conduit. The assets of the SPE are not available to satisfy the
obligations of Teleflex or any of its other subsidiaries.
Information regarding the outstanding balances related to the
SPEs interests in accounts receivables sold or retained as
of December 31, 2008 is as follows:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Interests in receivables sold
outstanding(1)
|
|
$
|
39.7
|
|
Interests in receivables retained, net of allowance for doubtful
accounts
|
|
$
|
96.3
|
|
|
|
|
(1) |
|
Deducted from accounts receivables, net in the consolidated
balance sheets. |
The delinquency ratio for the qualifying receivables represented
3.76% of the total qualifying receivables as of
December 31, 2008.
The following table summarizes the activity related to our
interests in accounts receivable sold for the year ended
December 31, 2008:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Proceeds from the sale of interest in accounts receivable
|
|
$
|
39.7
|
|
Fees and
charges(1)
|
|
$
|
1.8
|
|
|
|
|
(1) |
|
Recorded in interest expense in the consolidated statement of
operations. |
40
Other fee charges related to the sale of receivables to the
commercial paper conduit for the year ended December 31,
2008 were not material.
We continue servicing the receivables sold, pursuant to
servicing agreements with the SPE. No servicing asset is
recorded at the time of sale because we do not receive any
servicing fees from third parties or other income related to the
servicing of the receivables. We do not record any servicing
liability at the time of the sale as the receivables collection
period is relatively short and the costs of servicing the
receivables sold over the servicing period are insignificant.
Servicing costs are recognized as incurred over the servicing
period.
See also Note 15 to our consolidated financial statements
included in this Annual Report on
Form 10-K
for additional information.
Critical
Accounting Estimates
The preparation of 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 the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.
We have identified the following as critical accounting
estimates, which are defined as those that are reflective of
significant judgments and uncertainties, are the most pervasive
and important to the presentation of our financial condition and
results of operations and could potentially result in materially
different results under different assumptions and conditions.
|
|
|
Accounting for
Allowance for Doubtful Accounts
|
In the ordinary course of business, we grant non-interest
bearing trade credit to our customers on normal credit terms. In
an effort to reduce our credit risk, we (i) establish
credit limits for all of our customer relationships,
(ii) perform ongoing credit evaluations of our
customers financial condition, (iii) monitor the
payment history and aging of our customers receivables,
and (iv) monitor open orders against an individual
customers outstanding receivable balance.
An allowance for doubtful accounts is maintained for accounts
receivable based on our historical collection experience and
expected collectability of the accounts receivable, considering
the period an account is outstanding, the financial position of
the customer and information provided by credit rating services.
The adequacy of this allowance is reviewed each reporting period
and adjusted as necessary. Our allowance for doubtful accounts
was $8.7 million at December 31, 2008 and
$7.0 million at December 31, 2007 which was 2.6% and
2.1% of gross accounts receivable, at those respective dates. In
light of the disruptions in global credit markets that occurred
in the fourth quarter of 2008 we have taken this heightened risk
of customer payment default into account when estimating the
allowance for doubtful accounts at December 31, 2008 by
engaging in a more robust
customer-by-customer
risk assessment. Although future results cannot always be
predicted by extrapolating past results, management believes
that it is reasonably likely that future results will be
consistent with historical trends and experience. However, if
the financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, or if unexpected events or significant future changes
in trends were to occur, additional allowances may be required.
Inventories are valued at the lower of cost or market.
Accordingly, we maintain a reserve for excess and obsolete
inventory to reduce the carrying value of our inventories for
the diminution of value resulting from product obsolescence,
damage or other issues affecting marketability equal to the
difference between the cost of the inventory and its estimated
market value. Factors utilized in the determination of estimated
market value
41
include (i) current sales data and historical return rates,
(ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions,
(v) product expiration dates, and (vi) component and
packaging obsolescence.
The adequacy of this reserve is reviewed each reporting period
and adjusted as necessary. We regularly compare inventory
quantities on hand against historical usage or forecasts related
to specific items in order to evaluate obsolescence and
excessive quantities. In assessing historical usage, we also
qualitatively assess business trends to evaluate the
reasonableness of using historical information as an estimate of
future usage.
Our excess and obsolete inventory reserve was $37.5 million
at December 31, 2008 and $35.9 million at
December 31, 2007 which was 8.1% and 7.9% of gross
inventories, at those respective dates.
|
|
|
Accounting for
Long-Lived Assets and Investments
|
The ability to realize long-lived assets is evaluated
periodically as events or circumstances indicate a possible
inability to recover their carrying amount. Such evaluation is
based on various analyses, including undiscounted cash flow
projections. The analyses necessarily involve significant
management judgment. Any impairment loss, if indicated, is
measured as the amount by which the carrying amount of the asset
exceeds the estimated fair value of the asset.
|
|
|
Accounting for
Goodwill and Other Intangible Assets
|
Goodwill and intangible assets by reporting segment at
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
Aerospace
|
|
|
Commercial
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Goodwill
|
|
$
|
1,428,679
|
|
|
$
|
6,317
|
|
|
$
|
39,127
|
|
|
$
|
1,474,123
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived
|
|
|
315,381
|
|
|
|
|
|
|
|
10,175
|
|
|
|
325,556
|
|
Finite lived
|
|
|
659,537
|
|
|
|
10,521
|
|
|
|
21,004
|
|
|
|
691,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
$
|
2,403,597
|
|
|
$
|
16,838
|
|
|
$
|
70,306
|
|
|
$
|
2,490,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets may represent indefinite-lived assets
(e.g., certain trademarks or brands), determinable-lived
intangibles (e.g., certain trademarks or brands, customer
relationships, patents and technologies) or residual goodwill.
Of these, only the costs of determinable-lived intangibles are
amortized to expense over their estimated life. The value of the
indefinite-lived intangible assets and residual goodwill is not
amortized, but is tested at least annually for impairment. Our
impairment testing for goodwill is performed separately from our
impairment testing of indefinite-lived intangibles. Goodwill and
indefinite-lived intangibles assets, primarily trademarks and
brand names, are tested annually for impairment during the
fourth quarter, using the first day of the quarter as the
measurement date, or earlier upon the occurrence of certain
events or substantive changes in circumstances that indicate the
carrying value may not be recoverable. Such conditions may
include an economic downturn in a geographic market or a change
in the assessment of future operations.
Considerable management judgment is necessary to evaluate the
impact of operating and macroeconomic changes and to estimate
future cash flows to measure fair value. Assumptions used in the
Companys impairment evaluations, such as forecasted growth
rates and cost of capital, are consistent with internal
projections and operating plans. We believe such assumptions and
estimates are also comparable to those that would be used by
other marketplace participants.
Goodwill
Impairment assessments are performed at a reporting unit level.
For purposes of this assessment, the Companys reporting
units are generally its businesses one level below the
respective operating segment.
42
Goodwill impairment is determined using a two-step process. The
first step of the process is to compare the fair value of a
reporting unit with its carrying value, including goodwill. In
performing the first step, the Company calculated fair values of
the various reporting units using equal weighting of two
methods; one which estimates the discounted cash flows
(DCF) of each of the reporting units based on
projected earnings in the future (the Income Approach) and one
which is based on sales of similar assets in actual transactions
(the Market Approach). If the fair value exceeds the carrying
value, there is no impairment. If the reporting unit carrying
amount exceeds the fair value, the second step of the goodwill
impairment test is performed to measure the amount of the
impairment loss, if any.
Determining fair value requires the exercise of significant
judgments, including judgments about appropriate discount rates,
perpetual growth rates, operating margins, industry trends,
regulatory environment, relevant comparable company selection,
calculation of comparable company multiples and the amount and
timing of expected future cash flows. The DCF analysis utilized
in the fourth quarter 2008 impairment test was performed over a
ten year time horizon for each reporting unit where the compound
annual growth rates during this period for the Medical,
Aerospace and Commercial segments range from approximately 4% to
7% for revenue and from approximately 8% to 13% for operating
income. Discount rates range from 10.5% to 14.0%, and a
perpetual growth rate of 2.5% was assumed for all reporting
units.
The cash flows employed in the DCF analyses are based on
internal budgets and business plans and various long-term growth
assumptions beyond the business plan period. Discount rate
assumptions are based on an assessment of the risk inherent in
the future cash flows of the respective reporting units along
with various market based inputs.
In arriving at our estimate of the fair value of each reporting
unit, we considered the results of both the DCF and the market
comparable methods and concluded the fair value to be the
average of the results yielded by the two methods for each
reporting unit. Then, the current market capitalization of the
Company was reconciled to the sum of the estimated fair values
of the individual reporting units, plus a control premium, to
ensure the fair value conclusions were reasonable in light of
current market capitalization. The control premium implied by
our analysis was approximately 35%, which was deemed to be
within a reasonable range of observed average industry control
premiums. No impairment in the carrying value of any of our
reporting units was evident as a result of the assessment of
their respective fair values as determined under the methodology
described above. In light of market conditions in the fourth
quarter we considered whether there were any triggering events
which would have caused us to re-assess our goodwill impairment
considerations as of the assessment date and we determined that
there were no triggering events.
To illustrate the magnitude of potential impairment charges
relative to future changes in projected operating income and
discount rates, the following table shows the sensitivity to 1.0
and 1.5 percentage point increases in the discount rate or
a 10% and 25% reduction in the compound annual growth rate of
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease In Fair Value of Reporting Units
|
|
|
|
Operating Income
|
|
|
Discount Rate
|
|
|
|
10%
|
|
|
25%
|
|
|
1%
|
|
|
1-1/2%
|
|
|
Medical
|
|
$
|
321,397
|
|
|
$
|
736,465
|
|
|
$
|
552,317
|
|
|
$
|
783,989
|
|
Aerospace
|
|
|
19,787
|
|
|
|
48,094
|
|
|
|
33,890
|
|
|
|
48,871
|
|
Commercial
|
|
|
27,206
|
|
|
|
59,463
|
|
|
|
27,632
|
|
|
|
39,770
|
|
None of these scenarios resulted in an indication of impairment
in any of our reporting units. While we are not aware of any
known trends, uncertainties or other factors that will result
in, or that are reasonably likely to result in, a material
impairment charge in the future, events could occur in the
future which are currently unforeseen that could result in an
impairment.
43
Intangible
Assets
Intangible assets are assets acquired that lack physical
substance and that meet the specified criteria for recognition
apart from goodwill. Intangible assets acquired are comprised
mainly of technology, customer relationships, and trade names.
The fair value of acquired technology and trade names is
estimated by the use of a relief from royalty method, which
values an intangible asset by estimating the royalties saved
through the ownership of an asset. The royalty, which is based
on a reasonable rate applied against forecasted sales, is
tax-effected and discounted to present value using a discount
rate commensurate with the relative risk of achieving the cash
flow. The fair value of acquired customer relationships is
estimated by the use of an income approach known as the excess
earnings method. The excess earnings method measures economic
benefit indirectly by calculating residual profit attributable
to an asset after appropriate returns are paid to complementary
or contributory assets. The residual profit is tax-effected and
discounted to present value at an appropriate discount rate that
reflects the risk factors associated with the estimated income
stream. Determining the useful life of an intangible asset
requires judgment as different types of intangible assets will
have different useful lives and certain assets may even be
considered to have indefinite useful lives.
Management tests indefinite-lived intangible assets on at least
an annual basis, or more frequently if necessary. In connection
with the analysis, management tests for impairment by comparing
the carrying value of intangible assets to its estimated fair
value. Since quoted market prices are seldom available for
intangible assets, we utilize present value techniques to
estimate fair value. Common among such approaches is the
relief from royalty methodology. This methodology
estimates the direct cash flows associated with the intangible
asset. Management must estimate the hypothetical royalty rate,
discount rate, and residual growth rate to estimate the
forecasted cash flows associated with the asset.
Discount rates and perpetual growth rates utilized in the
impairment test of indefinite-lived assets during the fourth
quarter of 2008 are comparable to the rates utilized in the
impairment test of goodwill by segment. Compound annual growth
rates in revenues projected to be generated from certain trade
names in the Medical Segment ranged from 3.85% to 11.67% and a
royalty rate of 4.0% was assumed. The compound annual growth
rate in revenues projected to be generated from certain trade
names in the Commercial Segment was 5.36% and a royalty rate of
2.0% was assumed. Discount rate assumptions are based on an
assessment of the risk inherent in the future cash flows
generated as a result of the respective intangible assets.
Assumptions about royalty rates are based on the rates at which
similar trademarks or technologies are being licensed in the
marketplace.
This analysis indicated that certain trade names in the
Commercial Segment were impaired by $0.8 million and this
was charged to restructuring and other impairment charges during
the fourth quarter of 2008. Had the fair value of each
Companys indefinite-lived assets been hypothetically lower
than presently estimated by 10% as of September 29, 2008,
certain trade names in the Commercial Segment would have been
impaired by an additional $1.0 million and the Arrow trade
name would have been impaired $8 million.
Long-lived assets, including finite-lived intangible assets
(e.g., customer relationships), do not require that an annual
impairment test be performed; instead, long-lived assets are
tested for impairment upon the occurrence of a triggering event.
Triggering events include the likely (i.e., more likely than
not) disposal of a portion of such assets or the occurrence of
an adverse change in the market involving the business employing
the related assets. Significant judgments in this area involve
determining whether a triggering event has occurred and
re-assessing the reasonableness of the remaining useful lives of
finite-lived assets by, among other things, validating customer
attrition rates.
|
|
|
Acquired
In-Process Research and Development
|
In connection with the acquisition of Arrow International, the
Company recorded a $30 million charge to operations during
2007, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations, for in-process research and development
(IPR&D) assets acquired that the
44
Company determined had no alternative future use in their
current state. The Company continues to evaluate certain of
these projects for their feasibility and alignment with the
Companys core strategic objectives.
As part of the preliminary purchase price allocation for Arrow,
approximately $30 million of the purchase price was
allocated to acquire in-process research and development
projects. The amount allocated to the acquired in-process
research and development represents the estimated value based on
risk-adjusted cash flows related to in-process projects that had
not yet reached technological feasibility and had no alternative
future uses as of the date of the acquisition. The primary basis
for determining the technological feasibility of these projects
is obtaining regulatory approval to market the underlying
products. If the projects are not successful or completed in a
timely manner, the Company may not realize the financial
benefits expected for these projects.
The value assigned to the acquired in-process technology was
determined by estimating the costs to develop the acquired
technology into commercially viable products, estimating the
resulting net cash flows from the projects, and discounting the
net cash flows to their present value. The revenue projections
used to value the acquired in-process research and development
were based on estimates of relevant market sizes and growth
factors, expected trends in technology, and the nature and
expected timing of new product introductions by us and our
competitors. The resulting net cash flows from such projects
were based on our estimates of cost of sales, operating
expenses, and income taxes from such projects.
The rate of 14 percent utilized to discount the net cash
flows to their present value was based on estimated cost of
capital calculations and the implied rate of return from the
Companys acquisition model plus a risk premium. Due to the
nature of the forecasts and the risks associated with the
developmental projects, appropriate risk-adjusted discount rates
were used for the in-process research and development projects.
The discount rates are based on the stage of completion and
uncertainties surrounding the successful development of the
purchased in-process technology projects.
The purchased in-process technology of Arrow relates to research
and development projects in the following product families:
Central Venus Access Catheters (CVC) and Specialty
Care Catheters (Specialty Care).
The most significant purchased set of in-process technologies
relates to the CVC Product Family for which the Company
estimated a value of $25 million. The projects included in
this product familys in-process technology include the
Hi-C Project, PICC Triple Lumen, Antimicrobial PICC, and certain
Catheter Tip Positioning Technology.
The remaining purchased set of in-process technologies relates
to the Specialty Care Product Family for which the Company has
estimated a value of $5 million. The projects included in
this product familys in-process technology include the
Ethanol Lock Program and Antimicrobial CHDC.
The successful development of new products and product
enhancements is subject to numerous risks and uncertainties,
both known and unknown, including unanticipated delays, access
to capital, budget overruns, technical problems and other
difficulties that could result in the abandonment or substantial
change in the design, development and commercialization of these
new products and enhancements, including, for example, changes
requested by the FDA in connection with pre-market approval
applications for products or 510(k) notification. Given the
uncertainties inherent with product development and
introduction, there can be no assurance that any of the
Companys product development efforts will be successful on
a timely basis or within budget, if at all. The failure of the
Company to develop new products and product enhancements on a
timely basis or within budget could harm the Companys
results of operations and financial condition. For additional
risks that may affect the Companys business and prospects
following completion of the merger, see Risk Factors
commencing on page 13 of this Annual Report on
Form 10-K.
45
|
|
|
Accounting for
Pensions and Other Postretirement Benefits
|
We provide a range of benefits to eligible employees and retired
employees, including pensions and postretirement healthcare.
Several statistical and other factors which are designed to
project future events are used in calculating the expense and
liability related to these plans. These factors include
actuarial assumptions about discount rates, expected rates of
return on plan assets, compensation increases, turnover rates
and healthcare cost trend rates. We review the actuarial
assumptions on an annual basis and make modifications to the
assumptions based on current rates and trends when appropriate.
The weighted average assumptions for U.S. and foreign plans
used in determining net benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.32
|
%
|
|
|
5.46
|
%
|
|
|
5.71
|
%
|
|
|
6.45
|
%
|
|
|
5.85
|
%
|
|
|
5.75
|
%
|
Rate of return
|
|
|
8.19
|
%
|
|
|
8.33
|
%
|
|
|
8.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
%
|
|
|
8.0
|
%
|
|
|
9.0
|
%
|
Ultimate healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
Significant differences in our actual experience or significant
changes in our assumptions may materially affect our pension and
other postretirement obligations and our future expense. The
following table shows the sensitivity to changes in the weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Return
|
|
|
|
|
Assumed Discount Rate
|
|
on Plan Assets
|
|
|
|
|
|
|
50 Basis
|
|
50 Basis
|
|
50 Basis
|
|
Assumed Healthcare Trend Rate
|
|
|
Point
|
|
Point
|
|
Point
|
|
1.0%
|
|
1.0%
|
|
|
Increase
|
|
Decrease
|
|
Change
|
|
Increase
|
|
Decrease
|
|
|
(Dollars in millions)
|
|
Net periodic pension and postretirement healthcare expense
|
|
$
|
(1.0
|
)
|
|
$
|
1.0
|
|
|
$
|
0.9
|
|
|
$
|
0.4
|
|
|
$
|
(0.4
|
)
|
Projected benefit obligation
|
|
$
|
(19.7
|
)
|
|
$
|
21.0
|
|
|
$
|
|
|
|
$
|
4.8
|
|
|
$
|
(4.3
|
)
|
|
|
|
Product Warranty
Liability
|
Most of our sales are covered by warranty provisions for the
repair or replacement of qualifying defective items for a
specified period after the time of the sales. We estimate our
warranty costs and liability based on a number of factors
including historical trends of units sold, the status of
existing claims, recall programs and communication with
customers. Our estimated product warranty liability was
$17.1 million and $20.0 million at December 31,
2008 and December 31, 2007, respectively.
|
|
|
Accounting for
Income Taxes
|
Our annual provision for income taxes and determination of the
deferred tax assets and liabilities require management to assess
uncertainties, make judgments regarding outcomes and utilize
estimates. We conduct a broad range of operations around the
world, subjecting us to complex tax regulations in numerous
international taxing jurisdictions, resulting at times in tax
audits, disputes and potentially litigation, the outcome of
which is uncertain. Management must make judgments about such
uncertainties and determine estimates of our tax assets and
liabilities. Deferred tax assets and liabilities are measured
and recorded using current enacted tax rates, which the Company
expects will apply to taxable income in the years in which those
temporary differences are recovered or settled. The likelihood
of a material change in the Companys expected realization
of these assets is dependent on future taxable income, its
ability to use foreign tax credit carryforwards and carrybacks,
final U.S. and foreign tax settlements, and the
effectiveness of its tax planning strategies in the various
relevant jurisdictions. While management believes that its
judgments and interpretations regarding
46
income taxes are appropriate, significant differences in actual
experience may require future adjustments to our tax assets and
liabilities and such adjustments could be material.
We are also required to assess the realizability of our deferred
tax assets. We evaluate all positive and negative evidence and
use judgments regarding past and future events, including
operating results and available tax planning strategies that
could be implemented to realize the deferred tax assets to help
determine when it is more likely than not that all or some
portion of our deferred tax assets may not be realized. Based on
this assessment, we evaluate the need for, and amount of,
valuation allowances to offset future tax benefits that may not
be realized. To the extent facts and circumstances change in the
future, adjustments to the valuation allowances may be required.
The valuation allowance for deferred tax assets of
$51.2 million and $68.5 million at December 31,
2008 and December 31, 2007, respectively, relates
principally to the uncertainty of the utilization of certain
deferred tax assets, primarily tax loss and credit carryforwards
in various jurisdictions. We believe that we will generate
sufficient future taxable income to realize the tax benefits
related to the remaining net deferred tax asset. The valuation
allowance was calculated in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes,
which requires that a valuation allowance be established and
maintained when it is more likely than not that all
or a portion of deferred tax assets will not be realized. The
valuation allowance decrease in 2008 was principally
attributable to: (i) the deconsolidation of a subsidiary;
(ii) the increased ability to utilize certain state net
operating losses as a result of the mergers of several
subsidiaries; and (iii) the increased ability to utilize
certain state net operating losses as a result of a shift in
state apportionment factors following the GMS transaction.
Significant judgment is required in determining income tax
provisions under SFAS No. 109 Accounting for Income
Taxes and in evaluating tax positions. We establish
additional provisions for income taxes when, despite the belief
that tax positions are fully supportable, there remain certain
positions that do not meet the minimum probability threshold, as
defined by FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement 109
(FIN 48), which is a tax position that is more
likely than not to be sustained upon examination by the
applicable taxing authority. In the normal course of business,
the Company and its subsidiaries are examined by various
Federal, State and foreign tax authorities. We regularly assess
the potential outcomes of these examinations and any future
examinations for the current or prior years in determining the
adequacy of our provision for income taxes. We continually
assess the likelihood and amount of potential adjustments and
adjust the income tax provision, the current tax liability and
deferred taxes in the period in which the facts that give rise
to a revision become known.
See Note 12 to our consolidated financial statements in
this Annual Report on
Form 10-K
for additional information regarding the Companys
uncertain tax positions.
Accounting
Standards Issued But Not Yet Adopted
Fair Value Measurements: In September 2006,
the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 establishes a common
definition of fair value to be applied to US GAAP that requires
the use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value
measurements. Except as noted below, SFAS No. 157
became effective for fiscal years beginning after
November 15, 2007.
In February 2008, the FASB issued FASB Staff Position
(FSP)
157-2,
Partial Deferral of the Effective Date of Statement
157.
FSP 157-2
delays the effective date of SFAS No. 157 to fiscal
years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company
adopted SFAS No. 157 as of January 1, 2008 with
respect to financial assets and financial liabilities. As of
47
January 1, 2009, the Company adopted the provisions of
SFAS No. 157 with respect to non-financial assets and
liabilities under
FSP 157-2
and this adoption did not have a material impact on the
Companys financial position, results of operations and
cash flows.
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active.
FSP 157-3
clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
FSP 157-3
became effective upon issuance and did not have a material
impact on the Companys fair value of financial assets as a
result of the adoption of
FSP 157-3.
Refer to Note 14 to our consolidated financial statements
in this Annual Report on
Form 10-K
for additional information on fair value measurements.
Business Combinations: In December 2007, the
FASB issued SFAS No. 141(R), Business
Combinations. SFAS No. 141(R) replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) retains the fundamental requirements
in Statement 141 that the acquisition method of accounting
(which Statement 141 called the purchase method) be used
for all business combinations and for an acquirer to be
identified for each business combination.
SFAS No. 141(R) defines the acquirer as the entity
that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date
that the acquirer achieves control.
SFAS No. 141(R)s scope is broader than that of
Statement 141, which applied only to business combinations in
which control was obtained by transferring consideration.
SFAS No. 141(R) replaces Statement 141s
cost-allocation process and requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited
exceptions. In addition, SFAS No. 141(R) changes the
allocation and treatment of acquisition-related costs,
restructuring costs that the acquirer expected but was not
obligated to incur, the recognition of assets and liabilities
assumed arising from contingencies and the recognition and
measurement of goodwill. This statement is effective for fiscal
years beginning after December 15, 2008 and is to be
applied prospectively to business combinations. Accordingly, the
Company will apply the provisions of SFAS No. 141(R)
upon adoption on its effective date.
Noncontrolling Interests: In December 2007,
the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51. SFAS No. 160
amends Accounting Research Bulletin (ARB) 51 to
establish accounting and reporting standards for the
noncontrolling interest in a subsidiary, sometimes referred to
as minority interest, and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. SFAS No. 160 requires that a
noncontrolling interest in subsidiaries held by parties other
than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity,
but separate from the parents equity, that the amount of
consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on
the face of the consolidated statement of income, that the
changes in a parents ownership interest while the parent
retains its controlling financial interest in its subsidiary be
accounted for consistently as equity transactions and that when
a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured
at fair value. This statement is effective for fiscal years
beginning after December 15, 2008 and earlier adoption is
prohibited. Accordingly, the Company will apply the provisions
of SFAS No. 160 upon adoption on its effective date.
Disclosures about Derivative Instruments and Hedging
Activities: In March 2008, the FASB issued
SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133, which requires enhanced
disclosures about derivative and hedging activities. Companies
will be required to provide enhanced disclosures about
(a) how and why a company uses derivative instruments,
(b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and related
interpretations, and (c) how derivative instruments and
related hedged items affect the companys financial
position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements
issued for fiscal
48
and interim periods beginning after November 15, 2008.
Accordingly, the Company will ensure that it meets the enhanced
disclosure provisions of SFAS No. 161 upon the
effective date.
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities: In June
2008, the FASB issued FSP
EITF 03-6-1
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, which
addresses whether unvested instruments granted in share-based
payment transactions that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities
subject to the two-class method of computing earnings per share
under SFAS No. 128, Earnings Per Share.
FSP
EITF 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within those years. The Company is currently evaluating the
guidance under FSP
EITF 03-6-1
but does not expect it will result in a change in the
Companys earnings per share or diluted earnings per share.
Determination of the Useful Life of Intangible Assets: In
April 2008, the FASB issued
FSP 142-3,
Determination of the Useful Life of Intangible
Assets, which amends SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142), regarding the factors that should be
considered in developing the useful lives for intangible assets
with renewal or extension provisions. FSP
FAS 142-3
requires an entity to consider its own historical experience in
renewing or extending similar arrangements, regardless of
whether those arrangements have explicit renewal or extension
provisions, when determining the useful life of an intangible
asset. In the absence of such experience, an entity shall
consider the assumptions that market participants would use
about renewal or extension, adjusted for entity-specific
factors. FSP
FAS 142-3
will be effective for qualifying intangible assets acquired by
the Company on or after January 1, 2009. The application of
FSP
FAS 142-3
did not have a material impact on the Companys results of
operations, cash flows or financial position upon adoption;
however, future transactions entered into by the Company will
need to be evaluated under the requirements of this FSP.
FASB Accounting Standards Codification: In
December 2008, the FASB issued a news release for the expected
launch of the FASB Accounting Standards Codification. The
Codification is a major restructuring of accounting and
reporting standards. The Codification does not change GAAP, but
instead, it introduces a new structure. It will supersede all
accounting standards in existing FASB, Emerging Issues Task
Force (EITF), American Institute of Certified Public Accountants
(AICPA) and related standards. The Codification is expected to
become authoritative on July 1, 2009, at which time only
two levels of US GAAP will exist: authoritative represented by
the Codification, and nonauthoritative represented by all other
literature.
In December 2008, the FASB issued FSP
FAS No. 132(R)-1, Employers Disclosures
about Postretirement Benefit Plan Assets (FSP
FAS 132(R)-1), which requires additional disclosures for
employers pension and other postretirement benefit plan
assets. As pension and other postretirement benefit plan assets
were not included within the scope of SFAS No. 157,
FSP FAS 132(R)-1 requires employers to disclose information
about fair value measurements of plan assets similar to the
disclosures required under SFAS No. 157, the
investment policies and strategies for the major categories of
plan assets, and significant concentrations of risk within plan
assets. FSP FAS 132(R)-1 will be effective for the Company
as of December 31, 2009. As FSP FAS 132(R)-1 provides
only disclosure requirements, the adoption of this standard will
not have a material impact on the Companys results of
operations, cash flows or financial positions.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to certain financial risks, specifically
fluctuations in market interest rates, foreign currency exchange
rates and, to a lesser extent, commodity prices. We use
derivative financial instruments to manage or reduce the impact
of some of these risks. All instruments are entered into for
other than trading purposes. We are also exposed to changes in
the market traded price of our common stock as it influences the
valuation of stock options and their effect on earnings.
49
We are exposed to changes in interest rates as a result of our
borrowing activities and our cash balances. Interest rate swaps
are used to manage a portion of our interest rate risk. The
table below is an analysis of the amortization and related
interest rates by year of maturity for our fixed and variable
rate debt obligations. Variable interest rates shown below are
weighted average rates of the debt portfolio based on
December 31, 2008 rates. For the swaps, notional amounts
and related interest rates are shown by year of maturity. The
fair value, net of tax, of the interest rate swap as of
December 31, 2008 was a loss of $27.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Fixed rate debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
145,000
|
|
|
$
|
180,000
|
|
|
$
|
|
|
|
$
|
226,600
|
|
|
$
|
551,600
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
7.7%
|
|
|
|
7.7%
|
|
|
|
|
|
|
|
8.2%
|
|
|
|
7.9%
|
|
Variable rate debt
|
|
$
|
108,853
|
|
|
$
|
102,258
|
|
|
$
|
102,221
|
|
|
$
|
676,459
|
|
|
$
|
|
|
|
$
|
5,000
|
|
|
$
|
994,791
|
|
Average interest rate
|
|
|
4.3%
|
|
|
|
4.2%
|
|
|
|
4.2%
|
|
|
|
4.2%
|
|
|
|
|
|
|
|
3.0%
|
|
|
|
4.2%
|
|
Amount subject to swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to
fixed(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
600,000
|
|
|
|
|
|
|
|
|
|
Average rate to be received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months
USD Libor
|
|
|
|
|
|
|
|
|
|
Average rate to be paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75%(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The notional value of the interest rate swap is
$600 million at inception and amortizes down to a notional
value of $350 million at maturity in 2012. |
|
(2) |
|
The all in cost of the $600 million swapped debt is 4.75%
plus the applicable spread over LIBOR, currently at
125 basis points. |
A 1.0% change in variable interest rates would adversely or
positively impact our expected net earnings by approximately
$2.4 million, for the year ended December 31, 2009.
We are exposed to fluctuations in market values of transactions
in currencies other than the functional currencies of certain
subsidiaries. We have entered into forward contracts with
several major financial institutions to hedge a portion of
projected cash flows from these exposures. These are all
contracts to buy or sell a foreign currency against the
U.S. dollar. The fair value of the open forward contracts
as of December 31, 2008 was a loss of $5 million. The
following table presents our open forward currency contracts as
of December 31, 2008, which mature in 2009. Forward
contract notional amounts presented below are expressed in the
stated currencies (in thousands). The total notional amount for
all contracts translates to approximately $99.6 million.
Forward Currency Contracts:
|
|
|
|
|
|
|
Buy/(Sell)
|
|
|
Japanese yen
|
|
|
(621,070
|
)
|
Euros
|
|
|
(8,149
|
)
|
Mexican peso
|
|
|
269,713
|
|
Czech koruna
|
|
|
108,606
|
|
Swedish krona
|
|
|
41,820
|
|
Malaysian ringgits
|
|
|
41,016
|
|
Canadian dollars
|
|
|
19,952
|
|
Singapore dollars
|
|
|
17,004
|
|
British pounds
|
|
|
2,046
|
|
50
A strengthening of 10% in the value of the U.S. dollar
against foreign currencies would, on a combined basis, adversely
impact the translation of our non-US subsidiary net earnings and
transactions on currencies other than the functional currency of
certain subsidiaries by approximately $1.6 million, for the
year ended December 31, 2009.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and supplementary data required by this
Item are included herein, commencing on
page F-1.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
ITEM 9A. CONTROLS
AND PROCEDURES
|
|
|
|
(a)
|
Evaluation of Disclosure Controls and Procedures
|
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the
period covered by this report are functioning effectively to
provide reasonable assurance that the information required to be
disclosed by us in reports filed under the Securities Exchange
Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and (ii) accumulated and communicated to
our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding disclosure. A controls system cannot provide absolute
assurance, however, that the objectives of the controls system
are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within a company have been detected.
|
|
|
|
(b)
|
Managements Report on Internal Control Over Financial
Reporting
|
Our managements report on internal control over financial
reporting is set forth on
page F-2
of this Annual Report on
Form 10-K
and is incorporated by reference herein.
|
|
|
|
(c)
|
Change in Internal Control over Financial Reporting
|
No change in our internal control over financial reporting
occurred during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
For the information required by this Item 10, other than
with respect to our Executive Officers, see Election Of
Directors, Nominees for Election to the Board of
Directors, Corporate Governance and
Section 16(a) Beneficial Ownership Reporting
Compliance, in the Proxy Statement for our 2009 Annual
Meeting, which information is incorporated herein by reference.
The Proxy Statement for our 2009 Annual Meeting will be filed
within 120 days of the close of our fiscal year.
51
For the information required by this Item 10 with respect
to our Executive Officers, see Part I of this report on
pages 11 12, which information is incorporated
herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
For the information required by this Item 11, see
Executive Compensation, Compensation Committee
Report on Executive Compensation and Compensation
Committee Interlocks and Insider Participation in the
Proxy Statement for our 2009 Annual Meeting, which information
is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
For the information required by this Item 12 under
Item 403 of
Regulation S-K,
see Security Ownership of Certain Beneficial Owners and
Management in the Proxy Statement for our 2009 Annual
Meeting, which information is incorporated herein by reference.
The following table sets forth certain information as of
December 31, 2008 regarding our 1990 Stock Compensation
Plan, 2000 Stock Compensation Plan and 2008 Stock Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Remaining Available for
|
|
|
Number of Securities
|
|
|
|
Future Issuance Under
|
|
|
to be Issued Upon
|
|
Weighted-Average
|
|
Equity Compensation
|
|
|
Exercise of
|
|
Exercise Price of
|
|
Plans (Excluding
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
Securities Reflected in
|
Plan Category
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Column (A))
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
Equity compensation plans approved by security holders
|
|
|
1,838,308
|
|
|
$
|
56.18
|
|
|
|
2,863,998
|
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
For the information required by this Item 13, see
Certain Transactions and Corporate
Governance in the Proxy Statement for our 2009 Annual
Meeting, which information is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
For the information required by this Item 14, see
Audit and Non-Audit Fees and Policy on Audit
Committee Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm in the Proxy
Statement for our 2009 Annual Meeting, which information is
incorporated herein by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
(a) Consolidated Financial Statements:
The Index to Consolidated Financial Statements and Schedule is
set forth on
page F-1
hereof.
(b) Exhibits:
The Exhibits are listed in the Index to Exhibits.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized as of the date indicated
below.
TELEFLEX INCORPORATED
Jeffrey P. Black
Chairman and Chief Executive
Officer
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and as of the
date indicated below.
Kevin K. Gordon
Executive Vice President and
Chief Financial Officer
(Principal Financial
Officer)
|
|
|
|
By:
|
/s/ Charles
E. Williams
|
Charles E. Williams
Corporate Controller and Chief
Accounting Officer
(Principal Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ George
Babich, Jr.
George
Babich, Jr.
Director
|
|
By:
|
|
/s/ Sigismundus
W.W. Lubsen
Sigismundus
W.W. Lubsen
Director
|
|
|
|
|
|
|
|
By:
|
|
/s/ Patricia
C. Barron
Patricia
C. Barron
Director
|
|
By:
|
|
/s/ Benson
F. Smith
Benson
F. Smith
Director
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jeffrey
P. Black
Jeffrey
P. Black
Chairman, Chief Executive Officer &
Director
|
|
By:
|
|
/s/ Harold
L. Yoh III
Harold
L. Yoh III
Director
|
|
|
|
|
|
|
|
By:
|
|
/s/ William
R. Cook
William
R. Cook
Director
|
|
By:
|
|
/s/ James
W. Zug
James
W. Zug
Director
|
|
|
|
|
|
|
|
By:
|
|
/s/ Dr.
Jeffrey A. Graves
Dr.
Jeffrey A. Graves
Director
|
|
By:
|
|
/s/ Stephen
K. Klasko
Stephen
K. Klasko
Director
|
Dated: February 25, 2009
53
TELEFLEX
INCORPORATED
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-50
|
FINANCIAL
STATEMENT SCHEDULE
F-1
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Teleflex Incorporated and its subsidiaries
(the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A companys internal control over
financial reporting includes those policies and procedures that
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the companys assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2008. In making this assessment, management
used the framework established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). As a result of this assessment and based on the criteria
in the COSO framework, management has concluded that, as of
December 31, 2008, the Companys internal control over
financial reporting was effective.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
herein.
|
|
|
/s/ Jeffrey
P. Black
Jeffrey
P. Black
Chairman and Chief Executive Officer
|
|
/s/ Kevin
K. Gordon
Kevin
K. Gordon
Executive Vice President and
Chief Financial Officer
|
February 25, 2009
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Teleflex
Incorporated:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Teleflex Incorporated and its
subsidiaries at December 31, 2008 and December 31,
2007, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for these
financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in Managements Report
on Internal Control over Financial Reporting, appearing on
page F-2.
Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2009
F-3
TELEFLEX
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars and shares in thousands,
|
|
|
|
except per share)
|
|
|
Net revenues
|
|
$
|
2,420,949
|
|
|
$
|
1,934,332
|
|
|
$
|
1,690,809
|
|
Materials, labor and other product costs
|
|
|
1,456,782
|
|
|
|
1,253,978
|
|
|
|
1,105,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
964,167
|
|
|
|
680,354
|
|
|
|
585,157
|
|
Selling, engineering and administrative expenses
|
|
|
596,773
|
|
|
|
445,254
|
|
|
|
374,961
|
|
In-process research and development charge
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
18,896
|
|
|
|
1,003
|
|
Restructuring and other impairment charges
|
|
|
27,701
|
|
|
|
11,352
|
|
|
|
21,320
|
|
(Gain) loss on sales of businesses and assets
|
|
|
(296
|
)
|
|
|
1,110
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before interest, taxes and
minority interest
|
|
|
339,989
|
|
|
|
173,742
|
|
|
|
187,141
|
|
Interest expense
|
|
|
121,647
|
|
|
|
74,876
|
|
|
|
41,200
|
|
Interest income
|
|
|
(2,635
|
)
|
|
|
(10,482
|
)
|
|
|
(6,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes and minority
interest
|
|
|
220,977
|
|
|
|
109,348
|
|
|
|
152,218
|
|
Taxes on income from continuing operations
|
|
|
52,169
|
|
|
|
122,767
|
|
|
|
32,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before minority interest
|
|
|
168,808
|
|
|
|
(13,419
|
)
|
|
|
119,299
|
|
Minority interest in consolidated subsidiaries, net of tax
|
|
|
34,828
|
|
|
|
28,949
|
|
|
|
23,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
133,980
|
|
|
|
(42,368
|
)
|
|
|
96,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income from discontinued operations (including
net (loss) gain on disposal of $(8,238), $299,456 and $182
respectively)
|
|
|
(8,238
|
)
|
|
|
349,917
|
|
|
|
64,580
|
|
Taxes on income from discontinued operations
|
|
|
5,968
|
|
|
|
161,065
|
|
|
|
21,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
|
(14,206
|
)
|
|
|
188,852
|
|
|
|
43,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
119,774
|
|
|
$
|
146,484
|
|
|
$
|
139,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
3.38
|
|
|
$
|
(1.08
|
)
|
|
$
|
2.42
|
|
(Loss) income from discontinued operations
|
|
$
|
(0.36
|
)
|
|
$
|
4.81
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3.03
|
|
|
$
|
3.73
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
3.36
|
|
|
$
|
(1.08
|
)
|
|
$
|
2.40
|
|
(Loss) income from discontinued operations
|
|
$
|
(0.36
|
)
|
|
$
|
4.81
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3.01
|
|
|
$
|
3.73
|
|
|
$
|
3.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
39,584
|
|
|
|
39,259
|
|
|
|
39,760
|
|
Diluted
|
|
|
39,832
|
|
|
|
39,259
|
|
|
|
39,988
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
TELEFLEX
INCORPORATED AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars and shares in thousands)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
107,275
|
|
|
$
|
201,342
|
|
Accounts receivable, net
|
|
|
311,908
|
|
|
|
341,963
|
|
Inventories, net
|
|
|
424,653
|
|
|
|
419,188
|
|
Prepaid expenses
|
|
|
21,373
|
|
|
|
31,051
|
|
Income taxes receivable
|
|
|
17,958
|
|
|
|
|
|
Deferred tax assets
|
|
|
66,009
|
|
|
|
12,025
|
|
Assets held for sale
|
|
|
8,210
|
|
|
|
4,241
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
957,386
|
|
|
|
1,009,810
|
|
Property, plant and equipment, net
|
|
|
374,292
|
|
|
|
430,976
|
|
Goodwill
|
|
|
1,474,123
|
|
|
|
1,502,256
|
|
Intangibles and other assets, net
|
|
|
1,090,852
|
|
|
|
1,211,172
|
|
Investments in affiliates
|
|
|
28,105
|
|
|
|
26,594
|
|
Deferred tax assets
|
|
|
1,986
|
|
|
|
7,189
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,926,744
|
|
|
$
|
4,187,997
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
5,195
|
|
|
$
|
5,800
|
|
Current portion of long-term borrowings
|
|
|
103,658
|
|
|
|
137,557
|
|
Accounts payable
|
|
|
139,677
|
|
|
|
133,654
|
|
Accrued expenses
|
|
|
125,183
|
|
|
|
154,050
|
|
Payroll and benefit-related liabilities
|
|
|
83,129
|
|
|
|
84,251
|
|
Derivative liabilities
|
|
|
27,370
|
|
|
|
4,380
|
|
Accrued interest
|
|
|
26,888
|
|
|
|
26,060
|
|
Income taxes payable
|
|
|
12,613
|
|
|
|
85,805
|
|
Deferred tax liabilities
|
|
|
2,227
|
|
|
|
21,733
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
525,940
|
|
|
|
653,290
|
|
Long-term borrowings
|
|
|
1,437,538
|
|
|
|
1,540,902
|
|
Deferred tax liabilities
|
|
|
324,678
|
|
|
|
379,467
|
|
Pension and postretirement benefit liabilities
|
|
|
169,841
|
|
|
|
78,910
|
|
Other liabilities
|
|
|
182,864
|
|
|
|
164,402
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,640,861
|
|
|
|
2,816,971
|
|
|
|
|
|
|
|
|
|
|
Minority interest in equity of consolidated subsidiaries
|
|
|
39,428
|
|
|
|
42,183
|
|
Commitments and contingencies (See Note 15)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common shares, $1 par value Issued: 2008
41,995 shares; 2007 41,794 shares
|
|
|
41,995
|
|
|
|
41,794
|
|
Additional paid-in capital
|
|
|
268,263
|
|
|
|
252,108
|
|
Retained earnings
|
|
|
1,182,906
|
|
|
|
1,118,053
|
|
Accumulated other comprehensive income
|
|
|
(108,202
|
)
|
|
|
56,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,384,962
|
|
|
|
1,468,874
|
|
Less: Treasury stock, at cost
|
|
|
138,507
|
|
|
|
140,031
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,246,455
|
|
|
|
1,328,843
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
3,926,744
|
|
|
$
|
4,187,997
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
TELEFLEX
INCORPORATED AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Flows from Operating Activities of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
119,774
|
|
|
$
|
146,484
|
|
|
$
|
139,430
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from discontinued operations
|
|
|
14,206
|
|
|
|
(188,852
|
)
|
|
|
(43,342
|
)
|
Depreciation expense
|
|
|
64,986
|
|
|
|
50,958
|
|
|
|
47,023
|
|
Amortization expense of intangible assets
|
|
|
46,232
|
|
|
|
20,856
|
|
|
|
10,939
|
|
Amortization expense of deferred financing costs
|
|
|
5,330
|
|
|
|
6,946
|
|
|
|
1,332
|
|
In-process research and development charge
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Stock-based compensation
|
|
|
8,643
|
|
|
|
7,515
|
|
|
|
5,858
|
|
(Gain) loss on sales of businesses and assets
|
|
|
(296
|
)
|
|
|
1,110
|
|
|
|
732
|
|
Impairment of long-lived assets
|
|
|
10,399
|
|
|
|
6,912
|
|
|
|
8,444
|
|
Impairment of goodwill
|
|
|
|
|
|
|
18,896
|
|
|
|
1,003
|
|
Deferred income taxes
|
|
|
(29,496
|
)
|
|
|
83,154
|
|
|
|
(2,792
|
)
|
Minority interest in consolidated subsidiaries
|
|
|
34,828
|
|
|
|
28,949
|
|
|
|
23,211
|
|
Other
|
|
|
12,751
|
|
|
|
6,898
|
|
|
|
960
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and disposals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,849
|
|
|
|
5,399
|
|
|
|
30,619
|
|
Inventories
|
|
|
(20,881
|
)
|
|
|
62,449
|
|
|
|
5,014
|
|
Prepaid expenses
|
|
|
5,561
|
|
|
|
(455
|
)
|
|
|
(8,106
|
)
|
Accounts payable and accrued expenses
|
|
|
7,939
|
|
|
|
9,473
|
|
|
|
(16,111
|
)
|
Income taxes payable
|
|
|
(106,037
|
)
|
|
|
(13,604
|
)
|
|
|
(5,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing
operations
|
|
|
176,788
|
|
|
|
283,088
|
|
|
|
198,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
92,897
|
|
|
|
1,620,000
|
|
|
|
|
|
Reduction in long-term borrowings
|
|
|
(226,687
|
)
|
|
|
(463,391
|
)
|
|
|
(55,031
|
)
|
Payments of debt issuance and amendment costs
|
|
|
(656
|
)
|
|
|
(21,565
|
)
|
|
|
|
|
(Decrease) increase in notes payable and current borrowings
|
|
|
(492
|
)
|
|
|
1,321
|
|
|
|
(59,912
|
)
|
Proceeds from stock compensation plans
|
|
|
7,955
|
|
|
|
24,171
|
|
|
|
11,952
|
|
Payments to minority interest shareholders
|
|
|
(37,979
|
)
|
|
|
(21,259
|
)
|
|
|
(129
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(93,552
|
)
|
Dividends
|
|
|
(53,047
|
)
|
|
|
(48,929
|
)
|
|
|
(44,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities from
continuing operations
|
|
|
(218,009
|
)
|
|
|
1,090,348
|
|
|
|
(240,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
|
|
(39,267
|
)
|
|
|
(44,734
|
)
|
|
|
(40,772
|
)
|
Payments for businesses and intangibles acquired, net of cash
acquired
|
|
|
(6,083
|
)
|
|
|
(2,174,517
|
)
|
|
|
(37,370
|
)
|
Proceeds from sales of businesses and assets
|
|
|
8,464
|
|
|
|
702,314
|
|
|
|
3,644
|
|
(Investments in) proceeds from affiliates
|
|
|
(2,565
|
)
|
|
|
(5,554
|
)
|
|
|
2,597
|
|
Working capital payment for divested business
|
|
|
|
|
|
|
|
|
|
|
(6,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities from continuing operations
|
|
|
(39,451
|
)
|
|
|
(1,522,491
|
)
|
|
|
(77,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(5,619
|
)
|
|
|
110,500
|
|
|
|
146,199
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(4,889
|
)
|
|
|
(9,337
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
(17,104
|
)
|
|
|
(22,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued operations
|
|
|
(5,619
|
)
|
|
|
88,507
|
|
|
|
114,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(7,776
|
)
|
|
|
13,481
|
|
|
|
14,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(94,067
|
)
|
|
|
(47,067
|
)
|
|
|
8,873
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
201,342
|
|
|
|
248,409
|
|
|
|
239,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
107,275
|
|
|
$
|
201,342
|
|
|
$
|
248,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
113,892
|
|
|
$
|
53,650
|
|
|
$
|
40,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
206,369
|
|
|
$
|
67,191
|
|
|
$
|
65,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
TELEFLEX
INCORPORATED AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Shares
|
|
|
Dollars
|
|
|
Total
|
|
|
Income
|
|
|
|
(Dollars and shares in thousands, except per share)
|
|
|
Balance at December 25, 2005
|
|
|
41,123
|
|
|
$
|
41,123
|
|
|
$
|
204,550
|
|
|
$
|
939,335
|
|
|
$
|
6,614
|
|
|
|
766
|
|
|
$
|
(49,548
|
)
|
|
$
|
1,142,074
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,430
|
|
|
$
|
139,430
|
|
Cash dividends ($1.105 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,096
|
)
|
|
|
|
|
Financial instruments marked to market, net of tax of $753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
|
|
1,234
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,468
|
|
|
|
|
|
|
|
|
|
|
|
47,468
|
|
|
|
47,468
|
|
Minimum pension liability adjustment, net of tax of $4,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,117
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,117
|
)
|
|
|
(8,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS No. 158, net of tax of $10,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,164
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,164
|
)
|
|
|
|
|
Shares issued under compensation plans
|
|
|
241
|
|
|
|
241
|
|
|
|
19,059
|
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
2,497
|
|
|
|
21,797
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
347
|
|
|
|
347
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
(93,552
|
)
|
|
|
(93,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
41,364
|
|
|
$
|
41,364
|
|
|
$
|
223,609
|
|
|
$
|
1,034,669
|
|
|
$
|
30,035
|
|
|
|
2,346
|
|
|
$
|
(140,256
|
)
|
|
$
|
1,189,421
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,484
|
|
|
$
|
146,484
|
|
Cash dividends ($1.245 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,929
|
)
|
|
|
|
|
Financial instruments marked to market, net of tax of $5,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,176
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,176
|
)
|
|
|
(8,176
|
)
|
Cumulative translation adjustment (CTA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,199
|
|
|
|
|
|
|
|
|
|
|
|
73,199
|
|
|
|
73,199
|
|
Reclassification of CTA to gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,898
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,898
|
)
|
|
|
(50,898
|
)
|
Pension liability adjustment, net of tax of $1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,759
|
|
|
|
|
|
|
|
|
|
|
|
12,759
|
|
|
|
12,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under compensation plans
|
|
|
430
|
|
|
|
430
|
|
|
|
28,973
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
221
|
|
|
|
29,624
|
|
|
|
|
|
Adoption of FIN No. 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,171
|
)
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
41,794
|
|
|
$
|
41,794
|
|
|
$
|
252,108
|
|
|
$
|
1,118,053
|
|
|
$
|
56,919
|
|
|
|
2,343
|
|
|
$
|
(140,031
|
)
|
|
$
|
1,328,843
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,774
|
|
|
$
|
119,774
|
|
Split-dollar life insurance arrangements adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,874
|
)
|
|
|
(1,874
|
)
|
Cash dividends ($1.34 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,047
|
)
|
|
|
|
|
Financial instruments marked to market, net of tax of $(12,896)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,406
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,406
|
)
|
|
|
(24,406
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,179
|
)
|
|
|
|
|
|
|
|
|
|
|
(68,179
|
)
|
|
|
(68,179
|
)
|
Pension liability adjustment, net of tax of $(36,557)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,536
|
)
|
|
|
|
|
|
|
|
|
|
|
(72,536
|
)
|
|
|
(72,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(47,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under compensation plans
|
|
|
201
|
|
|
|
201
|
|
|
|
16,155
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
1,192
|
|
|
|
17,548
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
332
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
41,995
|
|
|
$
|
41,995
|
|
|
$
|
268,263
|
|
|
$
|
1,182,906
|
|
|
$
|
(108,202
|
)
|
|
|
2,311
|
|
|
$
|
(138,507
|
)
|
|
$
|
1,246,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
TELEFLEX
INCORPORATED AND SUBSIDIARIES
(Dollars in
millions, except per share)
Note 1 Summary
of significant accounting policies
Consolidation: The consolidated financial
statements include the accounts of Teleflex Incorporated and its
subsidiaries (the Company). Also, in accordance with
FASB Interpretation (FIN) No. 46(R),
Consolidation of Variable Interest Entities, the
Company consolidates variable interest entities in which it
bears a majority of the risk of the potential losses or gains
from a majority of the expected returns. Intercompany
transactions are eliminated in consolidation. Investments in
affiliates over which the Company has significant influence but
not a controlling equity interest are carried on the equity
basis. Investments in affiliates over which the Company does not
have significant influence are accounted for by the cost method.
These consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America and include managements estimates
and assumptions that affect the recorded amounts.
Use of estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America 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 the financial statements and the
reported amounts of net revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents: All highly liquid
debt instruments with an original maturity of three months or
less are classified as cash equivalents. The carrying value of
cash equivalents approximates their current market value.
Accounts receivable: Accounts receivable
represents amounts due from customers related to the sale of
products and provision of services. An allowance for doubtful
accounts is maintained and represents the Companys
estimate of probable losses on realization of the full
receivable. The allowance is provided at such time that
management believes reasonable doubt exists that such balances
will be collected within a reasonable period of time. The
allowance is based on the Companys historical experience,
the period an account is outstanding, the financial position of
the customer and information provided by credit rating services.
The allowance for doubtful accounts was $8.7 million and
$7.0 million as of December 31, 2008 and
December 31, 2007, respectively.
Inventories: Inventories are valued at the
lower of cost or market. The cost of the Companys
inventories is determined by the
first-in,
first-out method for catheter and related product
inventories and by the average cost method for other inventory
categories. Elements of cost in inventory include raw materials,
direct labor, and manufacturing overhead. In estimating market
value, the Company evaluates inventory for excess and obsolete
quantities based on estimated usage and sales.
Property, plant and equipment: Property, plant
and equipment are stated at cost, net of accumulated
depreciation. Costs incurred to develop internal-use computer
software during the application development stage generally are
capitalized. Costs of enhancements to internal-use computer
software are capitalized, provided that these enhancements
result in additional functionality. Other additions and those
improvements which increase the capacity or lengthen the useful
lives of the assets are also capitalized. With minor exceptions,
straight-line composite lives for depreciation of property,
plant and equipment are as follows: land
improvements 5 years; buildings
30 years; machinery and equipment 3 to
10 years; computer equipment and software 3 to
5 years. Leasehold improvements are depreciated over the
remaining lease periods. Repairs and maintenance costs are
expensed as incurred.
Goodwill and other intangible assets: Goodwill
and other intangible assets with indefinite lives are not
amortized but are tested for impairment at least annually or
more frequently if events or changes in
F-8
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
circumstances indicate the carrying value may not be
recoverable. Impairment losses, if any, are recorded as part of
income from operations. The goodwill impairment test is applied
to each of the Companys reporting units. For purposes of
this assessment, a reporting unit is the operating segment, or a
business one level below that operating segment (the component
level) if discrete financial information is prepared and
regularly reviewed by segment management. However, components
are aggregated as a single reporting unit if they have similar
economic characteristics. The goodwill impairment test is
applied using a two-step approach. In performing the first step,
the Company calculated fair values of the various reporting
units using equal weighting of two methods; one which estimates
the discounted cash flows (DCF) of each of the
reporting units based on projected earnings in the future (the
Income Approach) and one which is based on sales of similar
assets in actual transactions (the Market Approach). If the
reporting unit carrying amount exceeds the fair value, the
second step of the goodwill impairment test is performed to
measure the amount of the impairment loss, if any. In the second
step, the implied fair value of the goodwill is estimated as the
fair value of the reporting unit used in the first step less the
fair values of all net tangible and intangible assets of the
reporting unit other than goodwill. If the carrying amount of
the goodwill exceeds its implied fair market value, an
impairment loss is recognized in an amount equal to that excess,
not to exceed the carrying amount of the goodwill. For other
indefinite lived intangible assets, the impairment test consists
of a comparison of the fair value of the intangible assets to
their carrying amounts.
The Company performs its annual impairment test of its recorded
goodwill and indefinite-lived intangible assets in the fourth
quarter each year unless interim indications of impairment
exist. In 2008, following the process described in the preceding
paragraph, certain trade names in the Commercial Segment were
determined to be impaired by $0.8 million. In 2007, an
impairment charge of $18.9 million was made to goodwill.
Intangible assets consisting of intellectual property, customer
lists and distribution rights are being amortized over their
estimated useful lives, which are as follows: intellectual
property 3 to 20 years, customer lists 5 to 30 years,
distribution rights 3 to 22 years. The weighted average
amortization period is 15 years. Tradenames of
$326 million are considered indefinite lived. The Company
continually evaluates the reasonableness of the useful lives of
these assets. During 2007, the company terminated certain
contractual relationships that resulted in an impairment charge
of $2.5 million which is included in restructuring and
other impairment charges.
Long-lived assets: The ability to realize
long-lived assets is evaluated periodically as events or
circumstances indicate a possible inability to recover their
carrying amount. Such evaluation is based on various analyses,
including undiscounted cash flow and profitability projections
that incorporate, as applicable, the impact on the existing
business. The analyses necessarily involve significant
management judgment. Any impairment loss, if indicated, is
measured as the amount by which the carrying amount of the asset
exceeds the estimated fair value of the asset.
Product warranty liability: Product warranty
liability arises out of the need to repair or replace product
without charge to the customer. The Company warrants such
products from manufacturing defect. The Company estimates its
warranty liability based on historical trends of units sold, the
status of existing claims, recall programs and communication
with customers.
Foreign currency translation: Assets and
liabilities of non-domestic subsidiaries denominated in local
currencies are translated into U.S. dollars at the rates of
exchange at the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during
the year. The resultant translation adjustments are reported as
a component of accumulated other comprehensive income in
shareholders equity.
Derivative financial instruments: The Company
uses derivative financial instruments primarily for purposes of
hedging exposures to fluctuations in interest rates and foreign
currency exchange rates. All instruments are
F-9
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
entered into for other than trading purposes. All derivatives
are recognized on the balance sheet at fair value. Changes in
the fair value of derivatives are recorded in earnings or other
comprehensive income, based on whether the instrument is
designated as part of a hedge transaction and, if so, the type
of hedge transaction. Gains or losses on derivative instruments
reported in other comprehensive income are reclassified to
earnings in the period in which earnings are affected by the
underlying hedged item. The ineffective portion of all hedges is
recognized in current period earnings. If the hedging
relationship ceases to be highly effective or it becomes
probable that an expected transaction will no longer occur,
gains or losses on the derivative are recorded in current period
earnings.
Share-based compensation: The Company
estimates the fair value of share-based awards on the date of
grant using an option pricing model. The value of the portion of
the award that is ultimately expected to vest is recognized as
expense over the requisite service periods. Share-based
compensation expense is measured using a multiple point
Black-Scholes option pricing model that takes into account
highly subjective and complex assumptions. The expected life of
options granted is derived from the vesting period of the award,
as well as historical exercise behavior, and represents the
period of time that options granted are expected to be
outstanding. Expected volatilities are based on a blend of
historical volatility and implied volatility derived from
publicly traded options to purchase the Companys common
stock, which the Company believes is more reflective of the
market conditions and a better indicator of expected volatility
than solely using historical volatility. The risk-free interest
rate is the implied yield currently available on
U.S. Treasury zero-coupon issues with a remaining term
equal to the expected life of the option.
Share-based compensation expense for 2008, 2007 and 2006 was
$8.7 million, $7.5 million and $6.8 million,
respectively and is included in selling, engineering and
administrative expenses. The total income tax benefit recognized
for share-based compensation arrangements for 2008, 2007 and
2006 was $2.1 million, $1.5 million and
$1.4 million, respectively.
As of December 31, 2008, unamortized share-based
compensation cost related to non-vested stock options, net of
expected forfeitures, was $4.7 million, which is expected
to be recognized over a weighted-average period of
1.75 years. Unamortized share-based compensation cost
related to non-vested shares (restricted stock), net of expected
forfeitures, was $6.1 million, which is expected to be
recognized over a weighted-average period of 2.0 years.
Share-based compensation expense recognized during a period is
based on the value of the portion of stock-based awards that is
ultimately expected to vest during the period less estimated
forfeitures. Share-based compensation expense recognized in
2006, 2007 and 2008 included compensation expense for
(1) share-based awards granted prior to, but not yet vested
as of December 25, 2005, based on the fair value on the
grant date estimated in accordance with the pro forma provisions
of SFAS No. 123 and (2) share-based awards
granted subsequent to December 25, 2005, based on the fair
value on the grant date estimated in accordance with the
provisions of SFAS No. 123(R).
SFAS No. 123(R) requires forfeitures to be estimated
at the time of grant. Management reviews and revises the
estimate of forfeitures for all share-based awards on a
quarterly basis based on managements expectation of the
awards that will ultimately vest to minimize fluctuations in
share-based compensation expense. In 2008, the Company issued
164,818 non-vested shares (restricted stock) the majority of
which vest in three years (cliff vesting).
Income taxes: The provision for income taxes
is determined using the asset and liability approach of
accounting for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under this approach, deferred taxes represent the future tax
consequences expected to occur when the reported amounts of
assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the
current year plus the change in deferred taxes during the year.
Deferred taxes result from
F-10
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
differences between the financial and tax bases of the
Companys assets and liabilities and are adjusted for
changes in tax rates and tax laws when changes are enacted.
Provision has been made for income taxes on unremitted earnings
of subsidiaries and affiliates, except for subsidiaries in which
earnings are deemed to be permanently re-invested.
Significant judgment is required in determining income tax
provisions under SFAS No. 109 and in evaluating tax
positions. We establish additional provisions for income taxes
when, despite the belief that tax positions are fully
supportable, there remain certain positions that do not meet the
minimum probability threshold, as defined by FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty
in Income Taxes An Interpretation of FASB Statement
109 (FIN 48), which is a tax position
that is more likely than not to be sustained upon examination by
the applicable taxing authority. In the normal course of
business, the Company and its subsidiaries are examined by
various Federal, State and foreign tax authorities. We regularly
assess the potential outcomes of these examinations and any
future examinations for the current or prior years in
determining the adequacy of our provision for income taxes.
Interest accrued related to unrecognized tax benefits and income
tax related penalties are both included in taxes on income from
continuing operations. We continually assess the likelihood and
amount of potential adjustments and adjust the income tax
provision, the current tax liability and deferred taxes in the
period in which the facts that give rise to a revision become
known.
Pensions and other postretirement
benefits: The Company provides a range of
benefits to eligible employees and retired employees, including
pensions and postretirement healthcare. The Company records
annual amounts relating to these plans based on calculations
which include various actuarial assumptions such as discount
rates, expected rates of return on plan assets, compensation
increases, turnover rates and healthcare cost trend rates. The
Company reviews its actuarial assumptions on an annual basis and
makes modifications to the assumptions based on current rates
and trends when appropriate. As required, the effect of the
modifications is generally amortized over future periods.
Restructuring costs: Restructuring costs,
which include termination benefits, facility closure costs,
contract termination costs and other restructuring costs are
recorded at estimated fair value. Key assumptions in calculating
the restructuring costs include the terms that may be negotiated
to exit certain contractual obligations and the timing of
employees leaving the company.
Revenue recognition: The Company recognizes
revenues from product sales, including sales to distributors, or
services provided when the following revenue recognition
criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the
selling price is fixed or determinable and collectability is
reasonably assured. This generally occurs when products are
shipped, when services are rendered or upon customers
acceptance.
Revenues from product sales, net of estimated returns and other
allowances based on historical experience and current trends,
are recognized upon shipment of products to customers or
distributors. Net revenues from services provided are recognized
as the services are rendered and comprised 6.5%, 9.9% and 10.7%
of net revenues in 2008, 2007 and 2006, respectively.
The Company considers the criteria presented in
SFAS No. 48, Revenue Recognition When Right of
Return Exists, in determining the appropriate revenue
recognition treatment. The Companys normal policy is to
accept returns only in cases in which the product is defective
and covered under the Companys standard warranty
provisions. However, in the limited cases where an arrangement
provides a right of return to the customer, including a
distributor, the Company believes it has the ability to
reasonably estimate the amount of returns based on its
substantial historical experience with respect to these
arrangements. The Company accrues any costs or losses that may
be expected in connection with any returns in accordance with
SFAS No. 5,
F-11
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting for Contingencies. Revenues and
materials, labor and other product costs are reduced to reflect
estimated returns.
The Company applies the provisions of Emerging Issues Task Force
(EITF) Issue
No. 01-09,
Accounting for Consideration Given from a Vendor to a
Customer (Including a Reseller of the Vendors
Products), to its customer incentive programs, which
include discounts or rebates. Appropriate allowances are
determined and recorded as a reduction of revenue.
Reclassifications: Certain reclassifications
have been made to the prior years consolidated financial
statements to conform to current year presentation including the
reclassification of $41.8 million of borrowings under the
revolving credit agreement from current borrowings to long-term
borrowings. Certain financial information is presented on a
rounded basis, which may cause minor differences.
Note 2 New
accounting standards
Split-Dollar Life Insurance Arrangements: In
March 2007, the Financial Accounting Standards Board
(FASB) ratified the consensus reached by the
Emerging Issues Task Force (EITF) for Issue
06-10
Accounting for Collateral Assignment Split-Dollar Life
Insurance Arrangements.
EITF 06-10
provides guidance for determining when a liability exists for
the postretirement benefit obligation as well as recognition and
measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. The Company adopted the
requirements of
EITF 06-10
on January 1, 2008, as a change in accounting principle
through a cumulative-effect adjustment that reduced retained
earnings by approximately $1.9 million. The adjustment was
determined by assessing the future cash flows of the premiums
that were paid to date as of December 31, 2007 that the
Company is entitled to recover under the split-dollar life
insurance arrangements, resulting in a reduction of other assets
by $1.9 million. The Company stopped making premium
payments on these policies in 2003. In the fourth quarter of
2008, the Company resumed making premium payments for one of the
five participants under these programs and recorded a liability
of $0.3 million.
Fair Value Measurements: In September 2006,
the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements. SFAS No. 157 establishes a common
definition of fair value to be applied to US GAAP that requires
the use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value
measurements. Except as noted below, SFAS No. 157
became effective for fiscal years beginning after
November 15, 2007.
In February 2008, the FASB issued FASB Staff Position
(FSP)
157-2,
Partial Deferral of the Effective Date of Statement
157.
FSP 157-2
delays the effective date of SFAS No. 157 to fiscal
years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company
adopted SFAS No. 157 as of January 1, 2008 with
respect to financial assets and financial liabilities. As of
January 1, 2009, the Company adopted the provisions of
SFAS No. 157 with respect to non-financial assets and
liabilities under
FSP 157-2
and this adoption did not have a material impact on the
Companys financial position, results of operations and
cash flows.
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active.
FSP 157-3
clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
FSP 157-3
became effective upon issuance and did not have a material
impact on the Companys fair value of financial assets as a
result of the adoption of
FSP 157-3.
Refer to Note 14 for additional information on fair value
measurements.
F-12
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair Value Option: In February 2007, the FASB
issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities including
an amendment of FASB Statement No. 115, which permits
an entity to measure certain financial assets and financial
liabilities at fair value, with unrealized gains and losses
reported in earnings at each subsequent measurement date. The
fair value option may be elected on an
instrument-by-instrument
basis, as long as it is applied to the instrument in its
entirety. The fair value option election is irrevocable, unless
an event specified in SFAS No. 159 occurs that results
in a new election date. This statement is effective for fiscal
years beginning after November 15, 2007. The Company
adopted SFAS No. 159 as of January 1, 2008 and
has elected not to measure any additional financial instruments
and other items at fair value.
Business Combinations: In December 2007, the
FASB issued SFAS No. 141(R), Business
Combinations. SFAS No. 141(R) replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) retains the fundamental requirements
in Statement 141 that the acquisition method of accounting
(which Statement 141 called the purchase method) be used
for all business combinations and for an acquirer to be
identified for each business combination.
SFAS No. 141(R) defines the acquirer as the entity
that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date
that the acquirer achieves control.
SFAS No. 141(R)s scope is broader than that of
Statement 141, which applied only to business combinations in
which control was obtained by transferring consideration.
SFAS No. 141(R) replaces Statement 141s
cost-allocation process and requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited
exceptions. In addition, SFAS No. 141(R) changes the
allocation and treatment of acquisition-related costs,
restructuring costs that the acquirer expected but was not
obligated to incur, the recognition of assets and liabilities
assumed arising from contingencies and the recognition and
measurement of goodwill. This statement is effective for fiscal
years beginning after December 15, 2008 and is to be
applied prospectively to business combinations. Accordingly, the
Company will apply the provisions of SFAS No. 141(R)
upon adoption on its effective date.
Noncontrolling Interests: In December 2007,
the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51. SFAS No. 160
amends Accounting Research Bulletin (ARB) 51 to
establish accounting and reporting standards for the
noncontrolling interest in a subsidiary, sometimes referred to
as minority interest, and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. SFAS No. 160 requires that a
noncontrolling interest in subsidiaries held by parties other
than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity,
but separate from the parents equity, that the amount of
consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on
the face of the consolidated statement of income, that the
changes in a parents ownership interest while the parent
retains its controlling financial interest in its subsidiary be
accounted for consistently as equity transactions and that when
a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured
at fair value. This statement is effective for fiscal years
beginning after December 15, 2008 and earlier adoption is
prohibited. Accordingly, the Company will apply the provisions
of SFAS No. 160 upon adoption on its effective date.
Disclosures about Derivative Instruments and Hedging
Activities: In March 2008, the FASB issued
SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133, which requires enhanced
disclosures about derivative and hedging activities. Companies
will be required to provide enhanced disclosures about
(a) how and why a company uses derivative instruments,
(b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and related
F-13
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interpretations, and (c) how derivative instruments and
related hedged items affect the companys financial
position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements
issued for fiscal and interim periods beginning after
November 15, 2008. Accordingly, the Company will ensure
that it meets the enhanced disclosure provisions of
SFAS No. 161 upon the effective date.
Hierarchy of Generally Accepted Accounting
Principles: In May 2008, the FASB issued
SFAS No. 162 The Hierarchy of Generally Accepted
Accounting Principles, which has been established by the
FASB as a framework for entities to identify the sources of
accounting principles and for selecting the principles to be
used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
US GAAP. SFAS No. 162 became effective on
November 15, 2008, 60 days after the Securities and
Exchange Commissions (SEC) approved the Public
Company Accounting Oversight Boards (PCAOB)
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles. The Company adopted SFAS No. 162
upon the statements effective date.
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating
Securities: In June 2008, the FASB issued FSP
EITF 03-6-1
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, which
addresses whether unvested instruments granted in share-based
payment transactions that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities
subject to the two-class method of computing earnings per share
under SFAS No. 128, Earnings Per Share.
FSP
EITF 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within those years. The Company is currently evaluating the
guidance under FSP
EITF 03-6-1
but does not expect it will result in a change in the
Companys earnings per share or diluted earnings per share.
Determination of the Useful Life of Intangible
Assets: In April 2008, the FASB issued
FSP 142-3,
Determination of the Useful Life of Intangible
Assets, which amends SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142), regarding the factors that should be
considered in developing the useful lives for intangible assets
with renewal or extension provisions. FSP
FAS 142-3
requires an entity to consider its own historical experience in
renewing or extending similar arrangements, regardless of
whether those arrangements have explicit renewal or extension
provisions, when determining the useful life of an intangible
asset. In the absence of such experience, an entity shall
consider the assumptions that market participants would use
about renewal or extension, adjusted for entity-specific
factors. FSP
FAS 142-3
will be effective for qualifying intangible assets acquired by
the Company on or after January 1, 2009. The application of
FSP
FAS 142-3
did not have a material impact on the Companys results of
operations, cash flows or financial position upon adoption;
however, future transactions entered into by the Company will
need to be evaluated under the requirements of this FSP.
Disclosures by Public Entities (Enterprises) about Transfers
of Financial Assets and Interests in Variable Interest
Entities: In December 2008, the FASB issued
FSP 140-4
and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities. This FSP amends FASB
Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities, and amends FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable
Interest Entities, to require public entities
(enterprises) to provide additional disclosures that are
intended to provide greater transparency to financial statement
users about a transferors continuing involvement with
transferred financial assets and an enterprises
involvement with variable interest entities and qualifying SPEs.
FSP 140-4
and FIN 46(R)-8 is effective for the first reporting period
(interim or annual) ending after December 15, 2008,
accordingly the Company has adopted the disclosure requirements
of
FSP 140-4
and FIN 46(R)-8 beginning in its annual reporting period
ending December 31, 2008. Refer to Note 15 for
additional information regarding our accounts receivable
securitization program.
F-14
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 3 Acquisitions
Acquisition of
Arrow International, Inc.
On October 1, 2007, the Company acquired all of the
outstanding capital stock of Arrow International, Inc.
(Arrow) for approximately $2.1 billion. Arrow
is a global provider of catheter-based access and therapeutic
products for critical and cardiac care. The transaction was
financed with cash, borrowings under a new senior secured
syndicated bank loan and proceeds received through the issuance
of privately placed notes. The results of operations for Arrow
are included in the Companys Medical Segment from the date
of acquisition.
Under the terms of the transaction, the Company paid $45.50 per
common share in cash, or $2,094.6 million in total, to
acquire all of the outstanding common shares of Arrow. In
addition, the Company paid $39.1 million in cash for
outstanding stock options of Arrow. Pursuant to the terms of the
agreement, upon the change in control of Arrow, Arrows
outstanding stock options became fully vested and exercisable
and were cancelled in exchange for the right to receive an
amount for each share subject to the stock option, equal to the
excess of $45.50 per share over the exercise price per share of
each option. The aggregate purchase price of
$2,104.0 million includes transaction costs of
approximately $10.8 million.
In conjunction with the acquisition of Arrow, the Company repaid
approximately $35.1 million of debt, representing
substantially all of Arrows existing outstanding debt as
of October 1, 2007.
The Company financed the all cash purchase price and related
transaction costs associated with the Arrow acquisition, and the
repayment of substantially all of Arrows outstanding debt
with $1,672.0 million from borrowings under a new senior
secured syndicated bank loan and proceeds received through the
issuance of privately placed notes (see Note 8
Borrowings) and cash on hand of approximately
$433.5 million.
The acquisition of Arrow was accounted for under the purchase
method of accounting. As such, the cost to acquire Arrow was
allocated to the respective assets and liabilities acquired
based on their preliminary estimated fair values as of the
closing date.
The following table summarizes the purchase price allocation of
the cost to acquire Arrow based on the fair values as of
October 1, 2007:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Assets
|
|
|
|
|
Current assets
|
|
$
|
400.8
|
|
Property, plant and equipment
|
|
|
184.1
|
|
Intangible assets
|
|
|
930.4
|
|
Goodwill
|
|
|
1,038.3
|
|
Other assets
|
|
|
51.2
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
2,604.8
|
|
|
|
|
|
|
Less:
|
|
|
|
|
Current liabilities
|
|
$
|
121.4
|
|
Deferred tax liabilities
|
|
|
327.3
|
|
Other long-term liabilities
|
|
|
52.1
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
500.8
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
2,104.0
|
|
|
|
|
|
|
The Company has finalized its allocation of the initial purchase
price as of the acquisition date.
F-15
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain assets acquired in the Arrow merger qualify for
recognition as intangible assets apart from goodwill in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations. The estimated
fair value of intangible assets acquired included customer
related intangibles of $497.7 million, trade names of
$249.0 million and purchased technology of
$153.4 million. Customer related intangibles have a useful
life of 25 years and purchased technology have useful lives
ranging from 7-15 years. Trade names have an indefinite
useful life. A portion of the purchase price allocation,
$30 million, representing in-process research and
development was deemed to have no future alternative use and was
charged to expense as of the date of the combination. Goodwill
is not deductible for tax purposes.
The amount of the purchase price allocated to the acquired
in-process research and development represents the estimated
value based on risk-adjusted cash flows related to in-process
projects that have not yet reached technological feasibility and
have no alternative future uses as of the date of the
acquisition. The primary basis for determining the technological
feasibility of these projects is obtaining regulatory approval
to market the underlying products. If the products are not
successful or completed in a timely manner, the Company may not
realize the financial benefits expected for these projects.
The value assigned to the acquired in-process technology was
determined by estimating the costs to develop the acquired
technology into commercially viable products, estimating the
resulting net cash flows from the projects, and discounting the
net cash flows to their present value. The revenue projections
used to value the acquired in-process research and development
was based on estimates of relevant market sizes and growth
factors, expected trends in technology, and the nature and
expected timing of new product introductions by us and our
competitors. The resulting net cash flows from such projects
were based on our estimates of cost of sales, operating
expenses, and income taxes from such projects.
The rate of 14 percent utilized to discount the net cash
flows to their present value was based on estimated cost of
capital calculations and the implied rate of return from the
Companys acquisition model plus a risk premium. Due to the
nature of the forecasts and the risks associated with the
developmental projects, appropriate risk-adjusted discount rates
were used for the in-process research and development projects.
The discount rates are based on the stage of completion and
uncertainties surrounding the successful development of the
purchased in-process technology projects.
The purchased in-process technology of Arrow relates to research
and development projects in the following product families:
Central Venus Access Catheters (CVC) and Specialty
Care Catheters (Specialty Care).
The most significant purchased set of in-process technologies
relates to the CVC Product Family for which the Company has
estimated a value of $25 million. The projects included in
this product familys in-process technology include the
Hi-C Project, PICC Triple Lumen, Antimicrobial PICC, and certain
Catheter Tip Positioning Technology.
The remaining purchased set of in-process technologies relates
to the Specialty Care Product Family for which the Company has
estimated a value of $5 million. The projects included in
this product familys in-process technology include the
Ethanol Lock Program and Antimicrobial CHDC.
The Company continues to evaluate certain of these projects for
their feasibility and alignment with the Companys core
strategic objectives.
F-16
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro Forma
Combined Financial Information
The following unaudited pro forma combined financial information
for the years ended December 31, 2007 and 2006 gives effect
to the Arrow merger as if it was completed at the beginning of
each of the respective periods:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Net revenue
|
|
$
|
2,323.3
|
|
|
$
|
2,181.6
|
|
Income from continuing operations
|
|
$
|
(84.6
|
)
|
|
$
|
(5.4
|
)
|
Net income
|
|
$
|
104.2
|
|
|
$
|
37.9
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
(2.16
|
)
|
|
$
|
(0.14
|
)
|
Net income
|
|
$
|
2.65
|
|
|
$
|
0.95
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
(2.16
|
)
|
|
$
|
(0.14
|
)
|
Net income
|
|
$
|
2.65
|
|
|
$
|
0.95
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
39,259
|
|
|
|
39,760
|
|
Diluted
|
|
|
39,259
|
|
|
|
39,760
|
|
The unaudited pro forma combined financial information presented
above includes special charges in both periods for the
$35.8 million inventory
step-up, the
$30.0 million in-process research and development write-off
that was charged to expense as of the date of the combination
and the $1.0 million financing costs paid to third parties
for the amended notes. In addition, the 2007 pro forma combined
financial information includes a discrete income tax charge of
approximately $91.8 million in connection with funding the
acquisition of Arrow related to the Companys repatriation
of cash from foreign subsidiaries. See Note 12
Income taxes for more information concerning the repatriation of
cash.
Integration of
Arrow
In connection with the acquisition of Arrow, the Company
formulated a plan related to the future integration of Arrow and
the Companys Medical businesses. The integration plan
focuses on the closure of Arrow corporate functions and the
consolidation of manufacturing, sales, marketing, and
distribution functions in North America, Europe and Asia. The
Company finalized its estimate of the costs to implement the
plan in the fourth quarter of 2008, which resulted in a net
$8.5 million reduction of the costs to implement the plan
that was charged to goodwill and changed the allocation of the
purchase price. The reduction in the reserve principally
resulted from the Companys ability to re-negotiate certain
foreign distribution agreements that were originally deemed to
be contract termination costs, fewer people taking relocation
packages than was originally estimated, lower employee and lease
termination costs and an overall finalization of the plan for
amounts different than originally estimated. In some instances,
the Company changed the focus of the original plan from an Arrow
facility to a Teleflex facility which resulted in an increase in
future estimated restructuring expenses (see Note 4
Restructuring).
The Company recognized an aggregate amount of $31.6 million
as a liability assumed in the acquisition of Arrow, and included
in the allocation of the purchase price, for the estimated costs
to carry out the integration plan. Of this amount,
$18.4 million related to employee termination costs,
$4.3 million related to facility
F-17
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
closures and $8.9 million related to termination of certain
distribution agreements, and other actions. Set forth below is
the activity in the integration cost accrual from October 2007
(date of acquisition) through December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Employee
|
|
|
Facility
|
|
|
Contract
|
|
|
Other
|
|
|
|
|
|
|
Termination Benefits
|
|
|
Closure Costs
|
|
|
Termination Costs
|
|
|
Integration Costs
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Balance at acquisition
|
|
$
|
18.4
|
|
|
$
|
3.6
|
|
|
$
|
9.6
|
|
|
$
|
|
|
|
$
|
31.6
|
|
Cash payments
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
Balance at December 31, 2007
|
|
|
14.8
|
|
|
|
3.6
|
|
|
|
9.6
|
|
|
|
|
|
|
|
28.0
|
|
Cash payments
|
|
|
(6.6
|
)
|
|
|
(1.1
|
)
|
|
|
(1.7
|
)
|
|
|
(0.3
|
)
|
|
|
(9.7
|
)
|
Adjustments to reserve
|
|
|
(4.2
|
)
|
|
|
(1.9
|
)
|
|
|
(3.4
|
)
|
|
|
1.0
|
|
|
|
(8.5
|
)
|
Foreign currency translation
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
4.3
|
|
|
$
|
0.8
|
|
|
$
|
4.8
|
|
|
$
|
0.7
|
|
|
$
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
It is anticipated that a majority of these costs will be paid in
2009; however, some portions of the contract termination costs
for leased facilities may extend to 2013.
In conjunction with the plan for the integration of Arrow and
the Companys Medical businesses, the Company expects to
take actions that affect employees and facilities of Teleflex.
This aspect of the integration plan is explained in Note 4
Restructuring and such costs incurred will be
charged to earnings and included in restructuring and
other impairment costs within the consolidated statement
of income.
Acquisition of
Nordisk Aviation Products
In November 2007, the company acquired Nordisk Aviation Products
a.s. (Nordisk), a world leader in developing, supplying and
servicing containers and pallets for air cargo, for
approximately $32 million. The results of Nordisk are
included in the Companys Aerospace Segment. Revenues in
2007 were $11 million.
Acquisition of
Specialized Medical Devices, Inc.
In April 2007, the Company acquired the assets of HDJ Company,
Inc. (HDJ) and its wholly owned subsidiary,
Specialized Medical Devices, Inc. (SMD), a provider
of engineering and manufacturing services to medical device
manufacturers, for approximately $25.0 million. The results
for HDJ are included in the Companys Medical Segment.
Revenues in 2007 were $12 million.
Acquisition of
Southern Wire Corporation.
In April 2007, the Company acquired substantially all of the
assets of Southern Wire Corporation (Southern Wire),
a wholesale distributor of wire rope cables and related
hardware, for approximately $20.6 million. The results for
Southern Wire are included in the Companys Commercial
Segment. Revenues in 2007 were $22 million.
F-18
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 4 Restructuring
The amounts recognized in restructuring and other impairment
charges for 2008, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
2008 Commercial Segment program
|
|
$
|
1,930
|
|
|
$
|
|
|
|
$
|
|
|
2007 Arrow integration program
|
|
|
21,145
|
|
|
|
916
|
|
|
|
|
|
2006 restructuring program
|
|
|
901
|
|
|
|
3,437
|
|
|
|
2,951
|
|
Aerospace Segment restructuring activity
|
|
|
|
|
|
|
|
|
|
|
609
|
|
2004 restructuring and divestiture program
|
|
|
|
|
|
|
675
|
|
|
|
10,382
|
|
Aggregate impairment charges investments and certain
fixed assets
|
|
|
3,725
|
|
|
|
6,324
|
|
|
|
7,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other impairment charges
|
|
$
|
27,701
|
|
|
$
|
11,352
|
|
|
$
|
21,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Commercial
Segment Program
In December 2008, the Company began certain restructuring
initiatives with respect to the Companys Commercial
Segment. These initiatives involve the consolidation of
operations and a related reduction in workforce at certain of
the Companys facilities in North America and Europe. The
Company has determined to undertake these initiatives as a means
to address an expected continuation of weakness in the marine
and industrial markets.
For 2008, the charges associated with the Commercial Segment
restructuring program that were included in restructuring and
other impairment charges during the fourth quarter of 2008 are
as follows:
|
|
|
|
|
|
|
2008
|
|
|
|
Commercial
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Termination benefits
|
|
$
|
444
|
|
Asset impairments
|
|
|
1,486
|
|
|
|
|
|
|
|
|
$
|
1,930
|
|
|
|
|
|
|
As of December 31, 2008, $0.4 million of the
termination benefits remained in accrued restructuring expenses.
As of December 31, 2008, the Company expects to incur the
following restructuring expenses associated with the 2008
Commercial Segment restructuring program over the next twelve
months:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Termination benefits
|
|
$
|
2.8 3.1
|
|
Facility closure costs
|
|
|
0.2 1.0
|
|
Contract termination costs
|
|
|
0.3 0.4
|
|
|
|
|
|
|
|
|
$
|
3.3 4.5
|
|
|
|
|
|
|
2007 Arrow
Integration Program
In connection with the acquisition of Arrow, the Company
formulated a plan related to the integration of Arrow and the
Companys Medical businesses. The integration plan focuses
on the closure of Arrow corporate functions and the
consolidation of manufacturing, sales, marketing, and
distribution functions in
F-19
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
North America, Europe and Asia. This aspect of the
integration plan is explained in Note 3
Acquisitions under Integration of Arrow. In
as much as the actions affect employees and facilities of Arrow,
the resultant costs have been included in the allocation of the
purchase price of Arrow.
Costs related to actions that affect employees and facilities of
Teleflex are charged to earnings and included in
restructuring and impairment costs within the
consolidated statement of operations. The charges associated
with the employees and facilities of Teleflex that were included
in restructuring and other impairment charges during 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
13,502
|
|
|
$
|
916
|
|
Facility closure costs
|
|
|
870
|
|
|
|
|
|
Contract termination costs
|
|
|
1,092
|
|
|
|
|
|
Asset impairments
|
|
|
5,188
|
|
|
|
|
|
Other restructuring costs
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,145
|
|
|
$
|
916
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the accrued liability associated with
the 2007 Arrow integration program consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Subsequent
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Accruals
|
|
|
Payments
|
|
|
Translation
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
606
|
|
|
$
|
13,502
|
|
|
$
|
(6,001
|
)
|
|
$
|
(292
|
)
|
|
$
|
7,815
|
|
Facility closure costs
|
|
|
|
|
|
|
870
|
|
|
|
(229
|
)
|
|
|
(40
|
)
|
|
|
601
|
|
Contract termination costs
|
|
|
|
|
|
|
1,092
|
|
|
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
Other restructuring costs
|
|
|
|
|
|
|
493
|
|
|
|
(318
|
)
|
|
|
(16
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
606
|
|
|
$
|
15,957
|
|
|
$
|
(7,640
|
)
|
|
$
|
(348
|
)
|
|
$
|
8,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the Company expects to incur the
following restructuring expenses associated with the 2007 Arrow
integration program in its Medical Segment over the next two
years:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Termination benefits
|
|
$
|
7.5 8.5
|
|
Facility closure costs
|
|
|
1.2 1.7
|
|
Contract termination costs
|
|
|
9.2 10.5
|
|
Other restructuring costs
|
|
|
0.1 0.3
|
|
|
|
|
|
|
|
|
$
|
18.0 21.0
|
|
|
|
|
|
|
2006
Restructuring Program
In June 2006, the Company began certain restructuring
initiatives that affected all three of the Companys
reporting segments. These initiatives involved the consolidation
of operations and a related reduction in workforce at several of
the Companys facilities in Europe and North America. The
Company has determined to
F-20
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
undertake these initiatives as a means to improving operating
performance and to better leverage the Companys existing
resources.
For 2008 and 2007, the charges associated with the 2006
restructuring program by segment that were included in
restructuring and other impairment charges are as follows:
|
|
|
|
|
|
|
2008
|
|
|
|
Medical
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Termination benefits
|
|
$
|
589
|
|
Contract termination costs
|
|
|
312
|
|
|
|
|
|
|
|
|
$
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Medical
|
|
|
Aerospace
|
|
|
Commercial
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
1,354
|
|
|
$
|
329
|
|
|
$
|
81
|
|
|
$
|
1,764
|
|
Contract termination costs
|
|
|
408
|
|
|
|
377
|
|
|
|
(42
|
)
|
|
|
743
|
|
Asset impairments
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
592
|
|
Other restructuring costs
|
|
|
46
|
|
|
|
35
|
|
|
|
257
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,808
|
|
|
$
|
1,333
|
|
|
$
|
296
|
|
|
$
|
3,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits are comprised of severance-related payments
for all employees terminated in connection with the 2006
restructuring program. Contract termination costs relate
primarily to the termination of leases in conjunction with the
consolidation of facilities in the Companys Commercial
Segment. Other restructuring costs include expenses primarily
related to the consolidation of operations and the
reorganization of administrative functions. As of
December 31, 2008 the Company does not expect to incur
additional restructuring expenses associated with the 2006
restructuring program.
At December 31, 2008, the accrued liability associated with
the 2006 restructuring program consisted of the following, with
the component for termination benefits due within twelve months
and the component for contract termination costs associated with
leased facilities extending to 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Subsequent
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Accruals
|
|
|
Payments
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
1,217
|
|
|
$
|
589
|
|
|
$
|
(1,668
|
)
|
|
$
|
138
|
|
Contract termination costs
|
|
|
561
|
|
|
|
312
|
|
|
|
(387
|
)
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,778
|
|
|
$
|
901
|
|
|
$
|
(2,055
|
)
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Subsequent
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Accruals
|
|
|
Payments
|
|
|
Dispositions
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
3,406
|
|
|
$
|
1,764
|
|
|
$
|
(2,036
|
)
|
|
$
|
(1,917
|
)
|
|
$
|
1,217
|
|
Contract termination costs
|
|
|
95
|
|
|
|
743
|
|
|
|
(274
|
)
|
|
|
(3
|
)
|
|
|
561
|
|
Other restructuring costs
|
|
|
4
|
|
|
|
338
|
|
|
|
(338
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,505
|
|
|
$
|
2,845
|
|
|
$
|
(2,648
|
)
|
|
$
|
(1,924
|
)
|
|
$
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Restructuring and Divestiture Program
During the fourth quarter of 2004, the Company announced and
commenced implementation of a restructuring and divestiture
program designed to improve future operating performance and
position the Company for future earnings growth. The actions
have included exiting or divesting of non-core or low performing
businesses, consolidating manufacturing operations and
reorganizing administrative functions to enable businesses to
share services.
For 2007 and 2006, the charges, including changes in estimates,
associated with the 2004 restructuring and divestiture program
by segment that are included in restructuring and impairment
charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Medical
|
|
|
|
(Dollars in thousands)
|
|
|
Termination benefits
|
|
$
|
(37
|
)
|
|
$
|
(706
|
)
|
Contract termination costs
|
|
|
|
|
|
|
2,122
|
|
Asset impairments
|
|
|
|
|
|
|
927
|
|
Other restructuring costs
|
|
|
712
|
|
|
|
8,039
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
675
|
|
|
$
|
10,382
|
|
|
|
|
|
|
|
|
|
|
Termination benefits are comprised of severance-related payments
for all employees terminated in connection with the 2004
restructuring and divestiture program. Contract termination
costs relate primarily to the termination of leases in
conjunction with the consolidation of facilities in the
Companys Medical Segment. Asset impairments relate
primarily to machinery and equipment associated with the
consolidation of manufacturing facilities. Other restructuring
costs include expenses primarily related to the consolidation of
manufacturing operations and the reorganization of
administrative functions.
As of December 31, 2008, the Company does not expect to
incur additional restructuring expenses associated with the 2004
restructuring and divestiture program. The accrued liability at
December 31, 2008 and December 31, 2007 was nominal.
Impairment
Charges
During the fourth quarter of 2008, the following events took
place:
|
|
|
|
|
Charges of $2.7 million were recorded in the fourth quarter
of 2008 related to five of our minority held investments due to
deteriorating economic conditions.
|
|
|
|
The Company recorded a $0.8 million impairment of an
intangible asset in the Commercial Segment that was identified
during the annual impairment testing process.
|
F-22
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
An asset classified as held for sale was determined to be
impaired and a $0.2 million impairment charge was
recognized.
|
|
|
|
Restructuring charges includes asset impairment charges of
$1.5 million in the Commercial Segment for facilities that
are involved in the new restructuring program and
$5.2 million in the Medical Segment related to facilities
that were reclassified to held for sale as of the fourth quarter
of 2008.
|
During the fourth quarter of 2007, the following events took
place:
|
|
|
|
|
The majority investors in two of the Companys minority
held investments notified the Company of plans to sell these
companies at amounts that are below the Companys carrying
value. Accordingly, the Company recorded an other than temporary
decline in value of $2.3 million related to these
investments.
|
|
|
|
The Company signed a letter of intent to sell its ownership
interest in one of its variable interest entities at a selling
price that is below the Companys carrying value.
Accordingly, the Company recorded an impairment charge of
$3.8 million, of which $2.5 million related to the
impairment of goodwill.
|
|
|
|
The Company terminated certain contractual relationships in the
Commercial Segment. As a result, intangible assets, were
determined to be impaired, resulting in a $2.5 million
impairment charge.
|
|
|
|
An asset reclassified to held for sale was determined to be
impaired and a $0.3 million impairment charge was
recognized.
|
During 2006, the Company determined there was an other than
temporary decline in value in three minority held investments
and certain fixed assets were impaired. Accordingly, the Company
recorded an aggregate charge of $7.4 million, which is
included in restructuring and other impairment charges.
Note 5 Inventories
Inventories at year end consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Raw materials
|
|
$
|
185,270
|
|
|
|
|
|
|
$
|
179,560
|
|
Work-in-process
|
|
|
55,618
|
|
|
|
|
|
|
|
61,912
|
|
Finished goods
|
|
|
221,281
|
|
|
|
|
|
|
|
213,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,169
|
|
|
|
|
|
|
|
455,103
|
|
Less: Inventory reserve
|
|
|
(37,516
|
)
|
|
|
|
|
|
|
(35,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
424,653
|
|
|
|
|
|
|
$
|
419,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 6 Property,
plant and equipment
The major classes of property, plant and equipment, at cost, at
year end are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Land, buildings and leasehold improvements
|
|
$
|
246,960
|
|
|
|
|
|
|
$
|
260,936
|
|
Machinery and equipment
|
|
|
414,898
|
|
|
|
|
|
|
|
392,872
|
|
Computer equipment and software
|
|
|
79,770
|
|
|
|
|
|
|
|
76,076
|
|
Construction in progress
|
|
|
18,400
|
|
|
|
|
|
|
|
54,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760,028
|
|
|
|
|
|
|
|
784,331
|
|
Less: Accumulated depreciation
|
|
|
(385,736
|
)
|
|
|
|
|
|
|
(353,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
374,292
|
|
|
|
|
|
|
$
|
430,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Goodwill
and other intangible assets
Changes in the carrying amount of goodwill, by reporting
segment, for 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
Aerospace
|
|
|
Commercial
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Goodwill at December 31, 2007
|
|
$
|
1,452,894
|
|
|
$
|
6,317
|
|
|
$
|
43,045
|
|
|
$
|
1,502,256
|
|
Adjustments(1)
|
|
|
(3,522
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,522
|
)
|
Translation adjustment
|
|
|
(20,693
|
)
|
|
|
|
|
|
|
(3,918
|
)
|
|
|
(24,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at December 31, 2008
|
|
$
|
1,428,679
|
|
|
|
6,317
|
|
|
|
39,127
|
|
|
|
1,474,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Goodwill adjustments relate primarily to the finalization of the
purchase price allocation for the Arrow acquisition. |
Intangible assets at year end consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Customer lists
|
|
$
|
553,786
|
|
|
$
|
568,701
|
|
|
$
|
48,311
|
|
|
$
|
23,643
|
|
Intellectual property
|
|
|
221,549
|
|
|
|
229,325
|
|
|
|
53,437
|
|
|
|
39,100
|
|
Distribution rights
|
|
|
26,833
|
|
|
|
28,139
|
|
|
|
16,422
|
|
|
|
16,437
|
|
Trade names
|
|
|
333,495
|
|
|
|
338,834
|
|
|
|
875
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,135,663
|
|
|
$
|
1,164,999
|
|
|
$
|
119,045
|
|
|
$
|
79,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was
$46.2 million, $20.9 million, and $10.9 million
for 2008, 2007 and 2006, respectively. Estimated annual
amortization expense for each of the five succeeding years is as
follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
$
|
45,700
|
|
2010
|
|
|
45,600
|
|
2011
|
|
|
45,200
|
|
2012
|
|
|
45,100
|
|
2013
|
|
|
42,900
|
|
F-24
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 8 Borrowings
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
Term loan facility, at an average rate of 4.2%, due 10/1/2012
|
|
$
|
919,620
|
|
|
$
|
1,035,200
|
|
2007 Notes:
|
|
|
|
|
|
|
|
|
7.62% Series A Senior Notes, due 10/1/2012
|
|
|
130,000
|
|
|
|
130,000
|
|
7.94% Series B Senior Notes, due 10/1/2014
|
|
|
40,000
|
|
|
|
40,000
|
|
Floating Rate Series C Senior Notes, due 10/1/2012
|
|
|
26,600
|
|
|
|
26,600
|
|
2004 Notes:
|
|
|
|
|
|
|
|
|
7.66%
Series 2004-1
Tranche A Senior Notes due 7/8/2011
|
|
|
145,000
|
|
|
|
145,000
|
|
8.14%
Series 2004-1
Tranche B Senior Notes due 7/8/2014
|
|
|
96,500
|
|
|
|
96,500
|
|
8.46%
Series 2004-1
Tranche C Senior Notes due 7/8/2016
|
|
|
90,100
|
|
|
|
90,100
|
|
2002 Notes:
|
|
|
|
|
|
|
|
|
7.82% Senior Notes due 10/25/2012
|
|
|
50,000
|
|
|
|
50,000
|
|
Term loan note,
non-U.S.
dollar denominated, at a rate of 5.8%
|
|
|
|
|
|
|
16,944
|
|
Revolving credit at an average interest rate of 3.03%, due 2012
|
|
|
36,779
|
|
|
|
41,772
|
|
Other debt and mortgage notes, at interest rates ranging from 1%
to 8%
|
|
|
6,597
|
|
|
|
6,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,541,196
|
|
|
|
1,678,459
|
|
Current portion of borrowings
|
|
|
(103,658
|
)
|
|
|
(137,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,437,538
|
|
|
$
|
1,540,902
|
|
|
|
|
|
|
|
|
|
|
The Company incurred the following financing costs in 2007:
|
|
|
|
|
|
|
Total
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Senior Credit Facility:
|
|
|
|
|
Term loan facility
|
|
$
|
14,540
|
|
Revolving credit facility
|
|
|
3,707
|
|
Senior Notes:
|
|
|
|
|
7.62% Series A Senior Notes
|
|
|
803
|
|
7.94% Series B Senior Notes
|
|
|
247
|
|
Floating Rate Series C Senior Notes
|
|
|
185
|
|
Amended Notes paid to creditor
|
|
|
1,083
|
|
|
|
|
|
|
Deferred Financing Costs
|
|
$
|
20,565
|
|
|
|
|
|
|
On October 1, 2007, the Company acquired all of the
outstanding capital stock of Arrow for approximately
$2.1 billion. The transaction was financed with cash,
borrowings under a new senior secured syndicated bank loan and
proceeds received through the issuance of privately placed notes.
In connection with the acquisition, the Company entered into a
credit agreement with JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A., as syndication
agent, the guarantors party thereto, the lenders party thereto
and each other party thereto, (the Senior Credit
Facility). The Senior Credit Facility provides for a
five-year term loan facility of $1.4 billion and a
five-year revolving line of credit facility of
F-25
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$400 million, both of which carried initial interest rates
of LIBOR plus a spread of 150 basis points. The spread is
subject to adjustment based upon the Companys leverage
ratio. At December 31, 2008, the spread over LIBOR was
125 basis points. The Company also executed an interest
rate swap for $600 million of the term loan from a floating
3 month U.S. dollar LIBOR rate to a fixed rate of
4.75%. The swap amortizes down to a notional value of
$350 million at maturity in 2012. The obligations under the
Senior Credit Facility are obligations of the Company and
substantially all of its material wholly-owned domestic
subsidiaries of the Company and are secured by a pledge of
shares of certain of the Companys domestic and foreign
subsidiaries.
In addition, the Company (i) entered into a Note Purchase
Agreement, dated as of October 1, 2007, among Teleflex
Incorporated and the several purchasers party thereto (the
Note Purchase Agreement) and issued
$200 million in new senior secured notes pursuant thereto
(the 2007 notes), (ii) amended the terms of the
note purchase agreement dated July 8, 2004 and the notes
issued pursuant thereto (the 2004 Notes) and the
note purchase agreement dated October 25, 2002 and the
notes issued pursuant thereto (the 2002 Notes and,
together with the 2004 Notes, the amended notes) and
(iii) repaid $10.5 million of notes issued pursuant to
the note agreements dated November 1, 1992 and
December 15, 1993 (the retired notes).
The 2007 notes and the amended notes, referred to collectively
as the senior notes, rank pari passu in right of
repayment with the Companys obligations under the Senior
Credit Facility (the primary bank obligations) and
are secured and guaranteed in the same manner as the primary
bank obligations. In connection with the foregoing, the holders
of the senior notes have entered into a Collateral Agency and
Intercreditor Agreement with the Company, pursuant to which
JPMorgan Chase has been appointed as collateral agent with
respect to the collateral pledged by the Company under the
Senior Credit Facility and the senior note agreements. The
senior notes have mandatory prepayment requirements upon the
sale of certain assets and may be accelerated upon certain
events of default, in each case, on the same basis as the
primary bank obligations.
The interest rates payable on the amended notes were also
modified in connection with the foregoing transactions.
Effective October 1, 2007, (a) the 2004 Notes will
bear interest on the outstanding principal amount at the
following rates: (i) 7.66% in respect of the
Series 2004-1
Tranche A Senior Notes due 2011; (ii) 8.14% in respect
of the
Series 2004-1
Tranche B Senior Notes due 2014; and (iii) 8.46% in
respect of the
Series 2004-1
Tranche C Senior Notes due 2016; and (b) the 2002
Notes will bear interest on the outstanding principal amount at
the rate of 7.82% per annum. Interest rates on the amended notes
are subject to reduction based on positive performance by the
Company relative to certain financial ratios.
The Senior Credit Facility and the agreements with the holders
of the senior notes contain covenants that, among other things,
limit or restrict the ability of the Company and its
subsidiaries to incur debt, create liens, consolidate, merge or
dispose of certain assets, make certain investments, engage in
acquisitions, pay dividends on, repurchase or make distributions
in respect of capital stock and enter into swap agreements.
Under the most restrictive of these provisions, on an annual
basis $99 million of retained earnings was available for
cash dividends and stock repurchases The Senior Credit Facility
and the senior note agreements also require the Company to
maintain certain consolidated leverage and interest coverage
ratios. Currently, the Company is required to maintain a
consolidated leverage ratio (defined in the Senior Credit
Facility as Consolidated Leverage Ratio) of not more
than 4.0 to 1 and an interest coverage ratio (defined in the
Senior Credit Facility as Consolidated Interest Coverage
Ratio) of not less than 3.5 to 1. As of December 31,
2008, the Company was in compliance with the terms of the Senior
Credit Facility and the senior notes.
At December 31, 2008, the Company borrowed
$36.8 million under its revolving line of credit. The
Company has approximately $356 million available in
committed financing through the Senior Credit Facility.
F-26
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying amount reported in the consolidated balance sheet
as of December 31, 2008 for long-term debt is
$1,541.2 million. Using a discounted cash flow technique
that incorporates a market interest yield curve with adjustments
for duration, optionality, and risk profile, the Company has
determined the fair value of its debt to be
$1,442.4 million at December 31, 2008. The
Companys implied credit rating is a factor in determining
the market interest yield curve.
Notes payable at December 31, 2008 consists of demand loans
due to banks of $5.2 million borrowed at an average
interest rate of 7.21%.
The aggregate amounts of notes payable and long-term debt
maturing are as follows:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
2009
|
|
$
|
108,853
|
|
2010
|
|
|
102,258
|
|
2011
|
|
|
247,221
|
|
2012
|
|
|
856,459
|
|
2013 and thereafter
|
|
|
231,600
|
|
Note 9 Financial
instruments
The Company uses forward rate contracts to manage currency
transaction exposure and interest rate swaps for exposure to
interest rate changes. These cash flow hedges are recorded on
the balance sheet at fair market value and subsequent changes in
value are recognized in the statement of income or as part of
comprehensive income net of tax. The fair value of the interest
rate swap contract is developed from market-based inputs under
the income approach using cash flows discounted at relevant
market interest rates. The fair value of the foreign currency
forward exchange contracts represents the amount required to
enter into offsetting contracts with similar remaining
maturities based on quoted market prices. Approximately
$16.0 million of the amount in accumulated other
comprehensive income at December 31, 2008 would be
reclassified as expense to the statement of income during 2009
should foreign currency exchange rates and interest rates remain
at December 31, 2008 levels.
The following table provides financial instruments activity
included as part of accumulated other comprehensive income, net
of tax:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Amount at beginning of year
|
|
$
|
(8,925
|
)
|
|
$
|
(749
|
)
|
Additions and revaluations
|
|
|
(29,907
|
)
|
|
|
(3,325
|
)
|
Clearance of hedge results to income
|
|
|
5,856
|
|
|
|
(4,851
|
)
|
Tax rate adjustment
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at end of year
|
|
$
|
(33,331
|
)
|
|
$
|
(8,925
|
)
|
|
|
|
|
|
|
|
|
|
During 2008, revaluations of our interest rate swap resulted in
a $23.4 million decrease to other comprehensive income. The
decrease is due to a reduction in the benchmark interest
rate 3 month USD Libor. Additions and
revaluations of our forward rate contracts contributed
approximately $6.5 million to the decrease in other
comprehensive income.
Note 10 Shareholders
equity
The authorized capital of the Company is comprised of
200 million common shares, $1 par value, and 500,000
preference shares. No preference shares have been outstanding
during the last three years.
F-27
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 25, 2005, the Companys Board of Directors
authorized the repurchase of up to $140 million of
outstanding Company common stock over twelve months ended July
2006. In June 2006, the Companys Board of Directors
extended for an additional six months, until January 2007, its
authorization for the repurchase of shares. Under the approved
plan, the Company repurchased a total of 2,317 thousand shares
on the open market during 2005 and 2006 for an aggregate
purchase price of $140.0 million, and aggregate fees and
commissions of $0.1 million.
On June 14, 2007, the Companys Board of Directors
authorized the repurchase of up to $300 million of
outstanding Company common stock. Repurchases of Company stock
under the Board authorization may be made from time to time in
the open market and may include privately-negotiated
transactions as market conditions warrant and subject to
regulatory considerations. The stock repurchase program has no
expiration date and the Companys ability to execute on the
program will depend on, among other factors, cash requirements
for acquisitions, cash generation from operations, debt
repayment obligations, market conditions and regulatory
requirements. In addition, under the senior loan agreements
entered into October 1, 2007, the Company is subject to
certain restrictions relating to its ability to repurchase
shares in the event the Companys consolidated leverage
ratio exceeds certain levels, which may further limit the
Companys ability to repurchase shares under this Board
authorization. Through December 31, 2008, no shares have
been purchased under this Board authorization.
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed in the same
manner except that the weighted average number of shares is
increased for dilutive securities. The difference between basic
and diluted weighted average common shares results from the
assumption that dilutive stock options were exercised. A
reconciliation of basic to diluted weighted average shares
outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Shares in thousands)
|
|
|
Basic shares
|
|
|
39,584
|
|
|
|
39,259
|
|
|
|
39,760
|
|
Dilutive shares assumed issued
|
|
|
248
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
39,832
|
|
|
|
39,259
|
|
|
|
39,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average stock options of 1,022 thousand, 1,780 thousand
and 406 thousand were antidilutive and therefore not included in
the calculation of earnings per share for 2008, 2007 and 2006,
respectively.
Accumulated other comprehensive income at year end consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Financial instruments marked to market, net of tax
|
|
$
|
(33,331
|
)
|
|
$
|
(8,925
|
)
|
Cumulative translation adjustment
|
|
|
27,779
|
|
|
|
95,958
|
|
Defined benefit pension and postretirement plans, net of tax
|
|
|
(102,650
|
)
|
|
|
(30,114
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
(108,202
|
)
|
|
$
|
56,919
|
|
|
|
|
|
|
|
|
|
|
Note 11 Stock
compensation plans
The Company has two stock-based compensation plans under which
equity-based awards may be made. The Companys 2000 Stock
Compensation Plan (the 2000 plan) provides for the
granting of incentive and non-qualified stock options and
restricted stock units to directors, officers and key employees.
Under the 2000 plan, the Company is authorized to issue up to
4 million shares of common stock, but no more than 800,000
of those shares may be issued as restricted stock. Options
granted under the 2000 plan have an exercise price
F-28
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
equal to the average of the high and low sales prices of the
Companys common stock on the date of the grant, rounded to
the nearest $0.25. Generally, options granted under the 2000
plan are exercisable three to five years after the date of the
grant and expire no more than ten years after the grant.
Outstanding restricted stock units generally vest in one to
three years. In 2008, the Company granted incentive and
non-qualified options to purchase 394,381 shares of common
stock and granted restricted stock units representing
164,818 shares of common stock under the 2000 plan. As of
December 31, 2008, 363,998 shares were available for
future grant under the 2000 plan.
The Companys 2008 Stock Incentive Plan (the 2008
plan) provides for the granting of various types of
equity-based awards to directors, officers and key employees.
These awards include incentive and non-qualified stock options,
stock appreciation rights, stock awards and other stock-based
awards. Under the 2008 plan, the Company is authorized to issue
up to 2.5 million shares of common stock, but grants of
awards other than stock options and stock appreciation rights
may not exceed 875,000 shares. Options granted under the
2008 plan will have an exercise price equal to the closing price
of the Companys common stock on the date of grant. The
2008 plan was approved by the Companys stockholders on
May 1, 2008 at the Companys annual meeting of
stockholders. In 2008, no awards were granted under the 2008
plan.
The Company estimates the fair value of stock-based awards on
the date of grant using an option pricing model. Stock-based
compensation expense recognized during a period is based on the
value of the portion of stock-based awards that is ultimately
expected to vest during the period. Stock-based compensation
expense recognized in 2006, 2007 and 2008 included compensation
expense for (1) stock-based awards granted prior to, but
not yet vested as of December 25, 2005, based on the fair
value on the grant date estimated in accordance with the pro
forma provisions of SFAS No. 123 and
(2) compensation expense for the stock-based awards granted
subsequent to December 25, 2005, based on the fair value on
the grant date estimated in accordance with the provisions of
SFAS No. 123(R). As stock-based compensation expense
recognized for fiscal 2006, 2007 and 2008 is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS No. 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. Management reviews and revises the estimate of
forfeitures for all graded (annual vesting tranches) share-based
awards on a quarterly basis based on managements
expectation of the awards that will ultimately vest to minimize
fluctuations in share-based compensation expense. In 2008, the
Company issued 164,818 non-vested shares (restricted stock) the
majority of which vest in three years (cliff vesting).
Stock-based compensation expense is measured using a multiple
point Black-Scholes option pricing model that takes into account
highly subjective and complex assumptions. The expected life of
options granted is derived from the vesting period of the award,
as well as historical exercise behavior, and represents the
period of time that options granted are expected to be
outstanding. Expected volatilities are based on a blend of
historical volatility and implied volatility derived from
publicly traded options to purchase the Companys common
stock, which the Company believes is more reflective of the
market conditions and a better indicator of expected volatility
than solely using historical volatility. The risk-free interest
rate is the implied yield currently available on
U.S. Treasury zero-coupon issues with a remaining term
equal to the expected life of the option.
F-29
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value for options granted in 2008, 2007 and 2006 was
estimated at the date of grant using a multiple point
Black-Scholes option pricing model. The following
weighted-average assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
3.18
|
%
|
|
|
4.67
|
%
|
|
|
4.44
|
%
|
Expected life of option
|
|
|
4.54 yrs.
|
|
|
|
4.53 yrs.
|
|
|
|
4.46 yrs.
|
|
Expected dividend yield
|
|
|
2.03
|
%
|
|
|
1.74
|
%
|
|
|
1.57
|
%
|
Expected volatility
|
|
|
26.32
|
%
|
|
|
23.92
|
%
|
|
|
23.36
|
%
|
The fair value for non-vested shares is estimated at the date of
grant based on the market rate on the grant date discounted for
the risk free interest rate and the present value of expected
dividends over the vesting period.
The Company applied FASB Staff Position (FSP)
No. FAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards,
that allows for a simplified method to establish the beginning
balance of the additional paid-in capital pool (APIC
Pool) related to the tax effects of employee stock-based
compensation and to determine the subsequent impact on the APIC
Pool and consolidated statements of cash flows of the tax
effects of employee stock-based compensation awards that are
outstanding upon adoption of SFAS No. 123(R).
The following table summarizes the option activity as of
December 31, 2008 and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Subject to
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Outstanding, beginning of the year
|
|
|
1,780,274
|
|
|
$
|
54.76
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
394,381
|
|
|
|
56.57
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(206,705
|
)
|
|
|
43.36
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(129,642
|
)
|
|
|
58.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
1,838,308
|
|
|
$
|
56.18
|
|
|
|
6.6
|
|
|
$
|
3,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of the year
|
|
|
1,177,883
|
|
|
$
|
53.44
|
|
|
|
5.6
|
|
|
$
|
3,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value was $12.12, $15.48
and $14.24 for options granted during 2008, 2007 and 2006,
respectively. The total intrinsic value of options exercised was
$2.5 million, $11.2 million and $4.5 million
during 2008, 2007 and 2006, respectively.
The Company recorded $4.6 million of expense related to the
portion of these shares that vested during 2008, which is
included in selling, engineering and administrative expenses.
F-30
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the non-vested (restricted stock)
activity as of December 31, 2008 and changes during the
year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Non-Vested
|
|
|
Grant Date
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Life In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Outstanding, beginning of the year
|
|
|
61,209
|
|
|
$
|
68.82
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
164,818
|
|
|
|
56.83
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(27,694
|
)
|
|
|
64.34
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(18,547
|
)
|
|
|
61.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
179,786
|
|
|
$
|
59.31
|
|
|
|
1.9
|
|
|
$
|
9,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value was $56.83, $68.82
and $67.18 for non-vested (restricted stock) granted during
2008, 2007 and 2006, respectively.
The Company recorded $4.1 million of expense related to the
portion of these shares that vested during 2008, which is
included in selling, engineering and administrative expenses.
Note 12 Income
taxes
The following table summarizes the components of the provision
for income taxes from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
55,979
|
|
|
$
|
(5,943
|
)
|
|
$
|
(24,424
|
)
|
State
|
|
|
3,120
|
|
|
|
2,531
|
|
|
|
278
|
|
Foreign
|
|
|
52,660
|
|
|
|
40,725
|
|
|
|
37,881
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(52,273
|
)
|
|
|
94,858
|
|
|
|
31,098
|
|
State
|
|
|
(507
|
)
|
|
|
18
|
|
|
|
27
|
|
Foreign
|
|
|
(6,810
|
)
|
|
|
(9,422
|
)
|
|
|
(11,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,169
|
|
|
$
|
122,767
|
|
|
$
|
32,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income from continuing operations in 2008 were
$52.2 million. In 2008, the Company repatriated foreign
earnings upon which income taxes had been provided under
APB 23 in 2007. The taxes were provided as a deferred tax
liability in 2007 and became current in 2008 when the earnings
were repatriated.
In 2007, the Company repatriated approximately $197 million
of cash from foreign subsidiaries which had previously been
deemed to be permanently reinvested in the respective foreign
jurisdictions and changed its position with respect to certain
previously untaxed foreign earnings to treat these earnings as
no longer permanently reinvested. The change in the permanently
reinvested treatment of the previously untaxed foreign earnings
allows for future cash repatriations to be used to service debt.
As a result of the change in its permanently reinvested
position, the Company recorded a tax charge of approximately
$91.8 million.
In 2007, the Company also completed the sale of two significant
business units: 1) the precision-machined components
business in the Aerospace segment, and 2) the automotive
and industrial driver controls, motion systems and fluid
handling systems business in the Commercial segment. These
business units had income
F-31
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
before taxes for 2007 of $50.5 million, which has been
reported as part of discontinued operations, along with the
related taxes on income of $15.5 million. The Company
recorded gains on the sale of these business units of
$299.5 million, along with the related taxes on the gain of
$145.6 million. The gain and related taxes have also been
reported as part of discontinued operations.
At December 31, 2008, the cumulative unremitted earnings of
other subsidiaries outside the United States, considered
permanently reinvested, for which no income or withholding taxes
have been provided, approximated $587.5 million. Such
earnings are expected to be reinvested indefinitely and, as a
result, no deferred tax liability has been recognized with
regard to the remittance of such earnings. It is not practicable
to estimate the income tax liability that might be incurred if
such earnings were remitted to the United States.
The following table summarizes the U.S. and
non-U.S. components
of income from continuing operations before taxes and minority
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
United States
|
|
$
|
19,121
|
|
|
$
|
(57,130
|
)
|
|
$
|
24,270
|
|
Other
|
|
|
201,856
|
|
|
|
166,478
|
|
|
|
127,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
220,977
|
|
|
$
|
109,348
|
|
|
$
|
152,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations between the statutory federal income tax rate
and the effective income tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
Taxes foreign earnings
|
|
|
(9.44
|
)%
|
|
|
(27.69
|
)%
|
|
|
(14.68
|
)%
|
Goodwill impairment
|
|
|
|
|
|
|
7.34
|
%
|
|
|
|
|
State taxes net of federal benefit
|
|
|
(1.57
|
)%
|
|
|
(1.33
|
)%
|
|
|
1.08
|
%
|
Change in permanent reinvestment position
|
|
|
|
|
|
|
84.40
|
%
|
|
|
4.05
|
%
|
Uncertain tax contingencies
|
|
|
3.27
|
%
|
|
|
4.48
|
%
|
|
|
1.10
|
%
|
In process research and development charge
|
|
|
|
|
|
|
9.60
|
%
|
|
|
|
|
Valuation allowance
|
|
|
2.35
|
%
|
|
|
4.53
|
%
|
|
|
1.78
|
%
|
Canadian financing benefit
|
|
|
(3.01
|
)%
|
|
|
(6.01
|
)%
|
|
|
(9.94
|
)%
|
Other, net
|
|
|
(3.00
|
)%
|
|
|
1.95
|
%
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.60
|
%
|
|
|
112.27
|
%
|
|
|
21.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the deferred tax assets and
liabilities at year end were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carryforwards
|
|
$
|
62,697
|
|
|
$
|
92,728
|
|
Accrued employee benefits
|
|
|
14,745
|
|
|
|
17,365
|
|
Tax credit carryforwards
|
|
|
17,495
|
|
|
|
12,555
|
|
Pension
|
|
|
63,166
|
|
|
|
14,061
|
|
Inventories
|
|
|
3,035
|
|
|
|
785
|
|
Bad debts
|
|
|
3,646
|
|
|
|
2,804
|
|
Reserves and accruals
|
|
|
13,576
|
|
|
|
31,280
|
|
Other
|
|
|
41,544
|
|
|
|
16,746
|
|
Less: valuation allowance
|
|
|
(57,881
|
)
|
|
|
(68,526
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
162,023
|
|
|
|
119,798
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
45,965
|
|
|
|
48,587
|
|
Intangibles stock acquisitions
|
|
|
329,436
|
|
|
|
344,317
|
|
Foreign exchange
|
|
|
138
|
|
|
|
(4,970
|
)
|
Accrued expenses
|
|
|
|
|
|
|
6,356
|
|
Unremitted foreign earnings
|
|
|
45,395
|
|
|
|
107,495
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
420,934
|
|
|
|
501,785
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
(258,911
|
)
|
|
$
|
(381,987
|
)
|
|
|
|
|
|
|
|
|
|
Under the tax laws of various jurisdictions in which the Company
operates, deductions or credits that cannot be fully utilized
for tax purposes during the current year may be carried forward,
subject to statutory limitations, to reduce taxable income or
taxes payable in a future tax year. At December 31, 2008,
the tax effect of such carry forwards approximated
$80.2 million. Of this amount, $21.1 million has no
expiration date, $3.7 million expires after 2008 but before
the end of 2013 and $55.4 million expires after 2013. A
substantial amount of these carryforwards consist of tax losses
which were acquired in an acquisition by the Company in 2004.
Therefore, the utilization of these tax attributes is subject to
an annual limitation imposed by Section 382 of the Internal
Revenue Code. It is not expected that this annual limitation
will prevent the Company from utilizing its carryforwards. The
determination of state net operating loss carryforwards are
dependent upon the U.S. subsidiaries taxable income
or loss, apportionment percentages and other respective state
laws, which can change year to year and impact the amount of
such carryforward.
The valuation allowance for deferred tax assets of
$57.9 million and $68.5 million at December 31,
2008 and December 31, 2007, respectively, relates
principally to the uncertainty of the utilization of certain
deferred tax assets, primarily tax loss and credit carryforwards
in various jurisdictions. The valuation allowance was calculated
in accordance with the provisions of SFAS No. 109,
which requires that a valuation allowance be established and
maintained when it is more likely than not that all
or a portion of deferred tax assets will not be realized. The
valuation allowance decrease in 2008 was primarily attributable
to the deconsolidation of a variable interest entity, the
ability to utilize state net operating losses after the merger
of several medical subsidiaries, and the utilization of state
net operating losses as a result of a one time shift in state
apportionment factors following the GMS transaction in 2007.
F-33
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Several foreign subsidiaries continue to operate under separate
tax holiday arrangements as granted by certain
foreign jurisdictions. The nature and extent of such
arrangements vary and the benefits of such arrangements phase
out in future years according to the specific terms and
schedules as set forth by the particular taxing authorities
having jurisdiction over the arrangements. The most significant
arrangement expires in March 2015.
Uncertain Tax Positions: On January 1,
2007, the Company adopted the provisions of FIN 48, and as
a result of that adoption, the Company recognized a charge of
$14.2 million to retained earnings. A reconciliation of the
beginning and ending balances for liabilities associated with
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at January 1
|
|
$
|
100,415
|
|
|
$
|
66,116
|
|
Unrecognized tax benefits associated with subsidiary acquired
October 1, 2007
|
|
|
|
|
|
|
15,278
|
|
Increase in unrecognized tax benefits related to prior years
|
|
|
19,255
|
|
|
|
12,969
|
|
Decrease in unrecognized tax benefits related to prior years
|
|
|
(3,384
|
)
|
|
|
(1,248
|
)
|
Unrecognized tax benefits related to the current year
|
|
|
9,746
|
|
|
|
11,137
|
|
Reductions in unrecognized tax benefits due to settlements
|
|
|
(3,113
|
)
|
|
|
|
|
Reductions in unrecognized tax benefits due to lapse of
applicable statute of limitations
|
|
|
(5,113
|
)
|
|
|
(3,739
|
)
|
Decrease in unrecognized tax benefits attributable to subsidiary
dispositions
|
|
|
|
|
|
|
(4,416
|
)
|
(Decrease) increase in unrecognized tax benefits due to foreign
currency translation
|
|
|
(3,139
|
)
|
|
|
4,318
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
114,667
|
|
|
$
|
100,415
|
|
|
|
|
|
|
|
|
|
|
The total liabilities associated with the unrecognized tax
benefits that, if recognized, would impact the effective tax
rate were $55.6 million and $36.2 million at
December 31, 2008 and December 31, 2007 respectively.
With the adoption of SFAS No. 141(R), effective for
fiscal years beginning after December 15, 2008, certain
unrecognized tax benefits that would not have an impact on the
Companys effective tax rate if realized (or re-measured)
prior to the adoption of SFAS No. 141(R) will now have
an impact on the Companys effective tax rate if realized
(or re-measured) after the adoption of
SFAS No. 141(R). Subsequent to the adoption of
FAS 141(R) (effective for the Company with its year
beginning January 1, 2009) any expense or benefit
associated with realizing (or re-measuring) the unrecognized tax
benefit will be recorded as part of income tax expense.
The Company accrues interest and penalties associated with
unrecognized tax benefits in income tax expense in the
consolidated statements of operations, and the corresponding
liability is included within the FIN 48 liability in the
consolidated balance sheets. The expense for interest (net of
related tax benefits where applicable) and penalties reflected
in income from continuing operations for the year ended
December 31, 2008 was $3.0 million and
$1.1 million respectively ($3.8 million and
$1.4 million respectively for the year ended
December 31, 2007). The corresponding liabilities in the
consolidated balance sheets for interest and penalties were
$14.4 million and $6.2 million respectively at
December 31, 2008 ($11.3 million and $4.9 million
at December 31, 2007).
F-34
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The taxable years that remain subject to examination by major
tax jurisdictions are as follows:
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Ending
|
|
|
United States
|
|
|
2000
|
|
|
|
2008
|
|
Canada
|
|
|
2004
|
|
|
|
2008
|
|
France
|
|
|
2006
|
|
|
|
2008
|
|
Germany
|
|
|
2003
|
|
|
|
2008
|
|
Italy
|
|
|
2003
|
|
|
|
2008
|
|
Singapore
|
|
|
2005
|
|
|
|
2008
|
|
Malaysia
|
|
|
2003
|
|
|
|
2008
|
|
Sweden
|
|
|
2003
|
|
|
|
2008
|
|
United Kingdom
|
|
|
2005
|
|
|
|
2008
|
|
The Company and its subsidiaries are routinely subject to income
tax examinations by various taxing authorities. As a result of
the outcome of ongoing or future examinations, or due to the
expiration of statutes of limitation for certain jurisdictions,
it is reasonably possible that the related unrecognized tax
benefits for tax positions taken could materially change from
those recorded as liabilities at December 31, 2008. Based
on the status of various examinations by the relevant federal,
state, and foreign tax authorities, the Company anticipates that
certain examinations may be concluded within the next twelve
months of the reporting date of the Companys consolidated
financial statements, the most significant of which are in
Germany, France, and the United States. Due to the potential for
resolution of foreign and US examinations, and the expiration of
various statutes of limitation, it is reasonably possible that
the Companys unrecognized tax benefits may change within
the next twelve months by a range of zero to $28 million.
Note 13 Pension
and other postretirement benefits
The Company has a number of defined benefit pension and
postretirement plans covering eligible U.S. and
non-U.S. employees.
The defined benefit pension plans are noncontributory. The
benefits under these plans are based primarily on years of
service and employees pay near retirement. The
Companys funding policy for U.S. plans is to
contribute annually, at a minimum, amounts required by
applicable laws and regulations. Obligations under
non-U.S. plans
are systematically provided for by depositing funds with
trustees or by book reserves.
The parent Company and certain subsidiaries provide medical,
dental and life insurance benefits to pensioners and survivors.
The associated plans are unfunded and approved claims are paid
from Company funds.
The Company initiated the following steps in connection with its
pension benefits:
|
|
|
|
|
Effective August 31, 2008, the Arrow Salaried plan, the
Arrow Hourly plan and the Berks plan were merged into the
Teleflex Retirement Income Plan (TRIP).
|
|
|
|
On October 31, 2008, the TRIP was amended to cease future
benefit accruals for all non-bargained employees as of
December 31, 2008. This resulted in a curtailment gain at
the date of amendment of $1.2 million.
|
|
|
|
On December 15, 2008, the Company amended its Supplemental
Executive Retirement Plans (SERP) for all executives
to cease future benefit accruals as of December 31, 2008.
This resulted in a curtailment gain of $0.4 million. In
addition, the Company approved a plan to replace the
non-qualified defined benefits provided under the SERP with a
non-qualified defined contribution arrangement under the
|
F-35
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Companys Deferred Compensation Plan, effective
January 1, 2009. This resulted in a transfer of a portion
of the liability of $0.4 million to the Deferred
Compensation Plan.
|
The Company initiated the following steps in connection with its
postretirement benefits:
|
|
|
|
|
On October 31, 2008, the Companys postretirement
benefit plans were amended to eliminate future benefits for
non-bargained employees who had not attained age 50 or
whose age plus service was less than 65. This resulted in a
reduction of the expected future working life of the plan
participants and resulted in a nominal curtailment gain.
|
Net benefit cost for pension and postretirement benefit plans
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Service cost
|
|
$
|
4,634
|
|
|
$
|
4,302
|
|
|
$
|
3,607
|
|
|
$
|
1,044
|
|
|
$
|
548
|
|
|
$
|
311
|
|
Interest cost
|
|
|
18,398
|
|
|
|
13,565
|
|
|
|
11,784
|
|
|
|
3,415
|
|
|
|
1,950
|
|
|
|
1,490
|
|
Expected return on plan assets
|
|
|
(22,009
|
)
|
|
|
(16,441
|
)
|
|
|
(12,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization and deferral
|
|
|
2,484
|
|
|
|
2,404
|
|
|
|
2,465
|
|
|
|
821
|
|
|
|
1,157
|
|
|
|
937
|
|
Curtailment credit
|
|
|
(1,610
|
)
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost
|
|
$
|
1,897
|
|
|
$
|
3,830
|
|
|
$
|
5,303
|
|
|
$
|
5,229
|
|
|
$
|
3,655
|
|
|
$
|
2,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions for U.S. and foreign plans
used in determining net benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.32%
|
|
|
|
5.46%
|
|
|
|
5.71%
|
|
|
|
6.45%
|
|
|
|
5.85%
|
|
|
|
5.75%
|
|
Rate of return
|
|
|
8.19%
|
|
|
|
8.33%
|
|
|
|
8.73%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5%
|
|
|
|
8.0%
|
|
|
|
9.0%
|
|
Ultimate healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0%
|
|
|
|
4.5%
|
|
|
|
4.5%
|
|
F-36
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized information on the Companys pension and
postretirement benefit plans, measured as of year end, and the
amounts recognized in the consolidated balance sheet and in
accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
Under Funded
|
|
|
Over Funded
|
|
|
Under Funded
|
|
|
|
(Dollars in thousands)
|
|
|
Benefit obligation, beginning of year
|
|
$
|
298,558
|
|
|
$
|
233,399
|
|
|
$
|
|
|
|
$
|
45,703
|
|
|
$
|
28,465
|
|
Service cost
|
|
|
4,634
|
|
|
|
3,101
|
|
|
|
1,200
|
|
|
|
1,044
|
|
|
|
578
|
|
Interest cost
|
|
|
18,398
|
|
|
|
12,068
|
|
|
|
1,497
|
|
|
|
3,415
|
|
|
|
1,950
|
|
Amendments
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
|
|
|
|
Actuarial loss (gain)
|
|
|
7,367
|
|
|
|
(17,157
|
)
|
|
|
(8,215
|
)
|
|
|
3,168
|
|
|
|
150
|
|
Currency translation
|
|
|
(5,466
|
)
|
|
|
3,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(15,183
|
)
|
|
|
(8,344
|
)
|
|
|
(1,023
|
)
|
|
|
(3,623
|
)
|
|
|
(2,651
|
)
|
Medicare Part D reimbursement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
241
|
|
Acquisitions
|
|
|
(65
|
)
|
|
|
6,548
|
|
|
|
95,698
|
|
|
|
8,938
|
|
|
|
18,470
|
|
Divestitures
|
|
|
(506
|
)
|
|
|
(23,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
(3,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
|
303,883
|
|
|
|
209,401
|
|
|
|
89,157
|
|
|
|
58,194
|
|
|
|
45,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
283,335
|
|
|
|
161,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
575
|
|
|
|
116,647
|
|
|
|
|
|
|
|
|
|
Divestitures
|
|
|
|
|
|
|
(4,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(78,650
|
)
|
|
|
3,294
|
|
|
|
(3,247
|
)
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
2,073
|
|
|
|
17,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(15,183
|
)
|
|
|
(8,344
|
)
|
|
|
(1,023
|
)
|
|
|
|
|
|
|
|
|
Currency translation
|
|
|
(5,025
|
)
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
|
186,550
|
|
|
|
170,958
|
|
|
|
112,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year
|
|
$
|
(117,333
|
)
|
|
$
|
(38,443
|
)
|
|
$
|
23,220
|
|
|
$
|
(58,194
|
)
|
|
$
|
(45,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Prepaid benefit cost
|
|
$
|
406
|
|
|
$
|
23,220
|
|
|
$
|
|
|
|
$
|
|
|
Payroll and benefit-related liabilities
|
|
|
(1,846
|
)
|
|
|
(1,924
|
)
|
|
|
(4,245
|
)
|
|
|
(3,312
|
)
|
Pension and postretirement benefit liabilities
|
|
|
(115,892
|
)
|
|
|
(36,519
|
)
|
|
|
(53,949
|
)
|
|
|
(42,391
|
)
|
Accumulated other comprehensive income
|
|
|
144,986
|
|
|
|
37,670
|
|
|
|
12,235
|
|
|
|
10,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,653
|
|
|
$
|
22,447
|
|
|
$
|
(45,959
|
)
|
|
$
|
(35,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Prior
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Cost
|
|
|
Transition
|
|
|
Net (Gain)
|
|
|
Deferred
|
|
|
Income,
|
|
|
|
|
|
|
(Credit)
|
|
|
Obligation
|
|
|
or Loss
|
|
|
Taxes
|
|
|
Net of Tax
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
(417
|
)
|
|
$
|
987
|
|
|
$
|
54,814
|
|
|
$
|
(20,659
|
)
|
|
$
|
34,725
|
|
|
|
|
|
Reclassification adjustments related to components of Net
Periodic Benefit Cost recognized during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization and deferral
|
|
|
30
|
|
|
|
2
|
|
|
|
(2,438
|
)
|
|
|
897
|
|
|
|
(1,509
|
)
|
|
|
|
|
Curtailment
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
(189
|
)
|
|
|
|
|
Amounts arising during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture
|
|
|
|
|
|
|
(989
|
)
|
|
|
(1,785
|
)
|
|
|
1,035
|
|
|
|
(1,739
|
)
|
|
|
|
|
Actuarial changes in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
(12,269
|
)
|
|
|
4,516
|
|
|
|
(7,753
|
)
|
|
|
|
|
Impact of currency translation
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
(652
|
)
|
|
|
|
|
|
|
38,322
|
|
|
|
(14,112
|
)
|
|
|
23,558
|
|
|
|
|
|
Reclassification adjustments related to components of Net
Periodic Benefit Cost recognized during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization and deferral
|
|
|
69
|
|
|
|
|
|
|
|
(2,553
|
)
|
|
|
861
|
|
|
|
(1,623
|
)
|
|
|
|
|
Curtailment
|
|
|
1,159
|
|
|
|
|
|
|
|
(2,955
|
)
|
|
|
623
|
|
|
|
(1,173
|
)
|
|
|
|
|
Amounts arising during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,055
|
|
|
|
1,055
|
|
|
|
|
|
Divestiture
|
|
|
|
|
|
|
|
|
|
|
(285
|
)
|
|
|
99
|
|
|
|
(186
|
)
|
|
|
|
|
Actuarial changes in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
111,886
|
|
|
|
(38,782
|
)
|
|
|
73,104
|
|
|
|
|
|
Impact of currency translation
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
571
|
|
|
$
|
|
|
|
$
|
144,415
|
|
|
$
|
(50,255
|
)
|
|
$
|
94,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Prior
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Cost
|
|
|
Initial
|
|
|
Net (Gain) or
|
|
|
Deferred
|
|
|
Income, Net of
|
|
|
|
|
|
|
(Credit)
|
|
|
Obligation
|
|
|
Loss
|
|
|
Taxes
|
|
|
Tax
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1,570
|
|
|
$
|
1,292
|
|
|
$
|
10,135
|
|
|
$
|
(4,849
|
)
|
|
$
|
8,148
|
|
|
|
|
|
Reclassification adjustments related to components of Net
Periodic Benefit Cost recognized during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amortization and deferral
|
|
|
(172
|
)
|
|
|
(217
|
)
|
|
|
(738
|
)
|
|
|
420
|
|
|
|
(707
|
)
|
|
|
|
|
Curtailment
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
23
|
|
|
|
(38
|
)
|
|
|
|
|
Amounts Arising During the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
560
|
|
|
|
(940
|
)
|
|
|
|
|
Actuarial changes in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
(56
|
)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
1,398
|
|
|
|
1,014
|
|
|
|
8,046
|
|
|
|
(3,902
|
)
|
|
|
6,556
|
|
|
|
|
|
Reclassification adjustments related to components of Net
Periodic Benefit Cost recognized during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amortization and deferral
|
|
|
(159
|
)
|
|
|
(202
|
)
|
|
|
(460
|
)
|
|
|
290
|
|
|
|
(531
|
)
|
|
|
|
|
Curtailment
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
33
|
|
|
|
|
|
Amounts Arising During the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
213
|
|
|
|
|
|
Effect of plan change
|
|
|
(546
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
219
|
|
|
|
(403
|
)
|
|
|
|
|
Actuarial changes in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
3,169
|
|
|
|
(1,118
|
)
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
744
|
|
|
$
|
736
|
|
|
$
|
10,755
|
|
|
$
|
(4,316
|
)
|
|
$
|
7,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions for U.S. and foreign plans
used in determining benefit obligations as of year end were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.06%
|
|
|
|
6.32%
|
|
|
|
6.05%
|
|
|
|
6.45%
|
|
Expected return on plan assets
|
|
|
8.17%
|
|
|
|
8.19%
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
3.49%
|
|
|
|
3.38%
|
|
|
|
|
|
|
|
|
|
Initial healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
10%
|
|
|
|
7.8%
|
|
Ultimate healthcare trend rate
|
|
|
|
|
|
|
|
|
|
|
5%
|
|
|
|
4.7%
|
|
The discount rate for U.S. plans of 6.05% was established
by comparing the projection of expected benefit payments to the
Citigroup Pension Discount Curve (published monthly) as of
December 31, 2008. The expected benefit payments are
discounted by each corresponding discount rate on the yield
curve. Once the present value of the string of benefit payments
is established, the Company solves for the single spot rate to
apply to all obligations of the plan that will exactly match the
previously determined present value.
The Citigroup Pension Discount Curve is constructed beginning
with a U.S. Treasury par curve that reflects the entire
Treasury and Separate Trading of Registered Interest and
Principal Securities (STRIPS) market. From the
Treasury curve, Citibank produces a AA corporate par curve by
adding option-adjusted spreads that are
F-39
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
drawn from the AA corporate sector of the Citigroup Broad
Investment Grade Bond Index. Finally, from the AA
corporate par curve, Citigroup derives the spot rates that
constitute the Pension Discount Curve. For payments beyond
30 years, the Company extends the curve assuming that the
discount rate derived in year 30 is extended to the end of the
plans payment expectations.
Increasing the assumed healthcare trend rate by 1% would
increase the benefit obligation by $4.8 million and would
increase the 2008 benefit expense by $0.4 million.
Decreasing the trend rate by 1% would decrease the benefit
obligation by $4.3 million and would decrease the 2008
benefit expense by $0.4 million.
The accumulated benefit obligation for all U.S. and foreign
defined benefit pension plans was $303.4 million and
$283.1 million for 2008 and 2007, respectively.
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for U.S. and
foreign plans with accumulated benefit obligations in excess of
plan assets were $290.7 million, $290.1 million and
$172.9 million, respectively for 2008 and
$209.4 million, $204.0 million and
$171.0 million, respectively for 2007.
Plan assets are allocated among various categories of equities,
fixed income, cash and cash equivalents with professional
investment managers whose performance is actively monitored. The
target allocation among plan assets allows for variances based
on economic and market trends. The primary investment objective
is long-term growth of assets in order to meet present and
future benefit obligations. The Company periodically conducts an
asset/liability modeling study to ensure the investment strategy
is aligned with the profile of benefit obligations.
During 2008, pension plan assets decreased approximately
$78.7 million primarily due to the downturn in the economy.
The decrease is the primary factor for the increase in pension
and postretirement benefit liabilities in the consolidated
balance sheet and a significant portion of the change in
accumulated other comprehensive income.
The plan asset allocations for U.S. and foreign plans are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
% of Assets
|
|
|
|
Allocation
|
|
|
2008
|
|
|
2007
|
|
|
Equity securities
|
|
|
65%
|
|
|
|
61%
|
|
|
|
66%
|
|
Debt securities
|
|
|
35%
|
|
|
|
39%
|
|
|
|
26%
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys contributions to U.S. and foreign
pension plans during 2009 are expected to be in the range of
$2.0 million to $2.5 million. Contributions to
postretirement healthcare plans during 2009 are expected to be
approximately $4.2 million.
F-40
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys expected benefit payments for U.S. and
foreign plans for each of the five succeeding years and the
aggregate of the five years thereafter, net of the annual
average Medicare Part D subsidy of approximately
$0.3 million, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other Benefits
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
$
|
14,196
|
|
|
$
|
4,245
|
|
2010
|
|
|
14,623
|
|
|
|
4,419
|
|
2011
|
|
|
15,072
|
|
|
|
4,647
|
|
2012
|
|
|
15,897
|
|
|
|
4,641
|
|
2013
|
|
|
16,630
|
|
|
|
4,559
|
|
Years 2014 2017
|
|
|
92,550
|
|
|
|
23,752
|
|
The Company maintains a number of defined contribution savings
plans covering eligible U.S. and
non-U.S. employees.
The Company partially matches employee contributions. Costs
related to these plans were $9.4 million, $8.5 million
and $9.1 million for 2008, 2007 and 2006, respectively.
|
|
Note 14
|
Fair Value
Measurement
|
The Company adopted SFAS 157 for financial assets and
financial liabilities as of January 1, 2008, in accordance
with the provisions of SFAS 157 and the related guidance of
FSP 157-1,
FSP 157-2
and
FSP 157-3.
The adoption did not have an impact on the Companys
financial position and results of operations. The Company
endeavors to utilize the best available information in measuring
fair value. The Company has determined the fair value of its
financial assets based on Level 1 and Level 2 inputs
and the fair value of its financial liabilities based on
Level 2 inputs in accordance with the fair value hierarchy
described as follows:
Valuation
Hierarchy
SFAS 157 establishes a valuation hierarchy of the inputs
used to measure fair value. This hierarchy prioritizes the
inputs into three broad levels as follows:
Level 1 inputs quoted prices (unadjusted) in
active markets for identical assets or liabilities that the
Company has ability to access at the measurement date.
Level 2 inputs inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly. If the asset or
liability has a specified (contractual) term, a Level 2
input must be observable for substantially the full term of the
asset or liability. Level 2 inputs include:
1. Quoted prices for similar assets or liabilities in
active markets.
2. Quoted prices for identical or similar assets or
liabilities in markets that are not active or there are few
transactions.
3. Inputs other than quoted prices that are observable for
the asset or liability.
4. Inputs that are derived principally from or corroborated
by observable market data by correlation or other means.
Level 3 inputs unobservable inputs for the
asset or liability. Unobservable inputs may be used to measure
fair value only when observable inputs are not available.
Unobservable inputs reflect the Companys assumptions about
the assumptions market participants would use in pricing the
asset or liability in achieving the fair value measurement
objective of an exit price perspective.
F-41
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A financial asset or liabilitys classification within the
hierarchy is determined based on the lowest level input that is
significant to the fair value measurement.
The following table provides the financial assets and
liabilities carried at fair value measured on a recurring basis
as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying Value
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
at December 31,
|
|
|
active markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred compensation assets
|
|
$
|
2,531
|
|
|
$
|
2,531
|
|
|
$
|
|
|
|
$
|
|
|
Derivative assets
|
|
$
|
681
|
|
|
$
|
|
|
|
$
|
681
|
|
|
$
|
|
|
Derivative liabilities
|
|
$
|
53,331
|
|
|
$
|
|
|
|
$
|
53,331
|
|
|
$
|
|
|
Valuation
Techniques
The Companys financial assets valued based upon
Level 1 inputs are comprised of investments in marketable
securities held in Rabbi Trusts which are used to pay benefits
under certain deferred compensation plan benefits. Under these
deferred compensation plans, participants designate investment
options to serve as the basis for measurement of the notional
value of their accounts. The investment assets of the rabbi
trust are valued using quoted market prices multiplied by the
number of shares held in the trust.
The Companys financial assets valued based upon
Level 2 inputs are comprised of foreign currency forward
contracts. The Companys financial liabilities valued based
upon Level 2 inputs are comprised of an interest rate swap
contract and foreign currency forward contracts. The Company has
taken into account the creditworthiness of the counterparties in
measuring fair value. The Company uses forward rate contracts to
manage currency transaction exposure and interest rate swaps to
manage exposure to interest rate changes. The fair value of the
interest rate swap contract is developed from market-based
inputs under the income approach using cash flows discounted at
relevant market interest rates. The fair value of the foreign
currency forward exchange contracts represents the amount
required to enter into offsetting contracts with similar
remaining maturities based on quoted market prices.
|
|
Note 15
|
Commitments and
contingent liabilities
|
Product warranty liability: The Company
warrants to the original purchaser of certain of its products
that it will, at its option, repair or replace, without charge,
such products if they fail due to a manufacturing defect.
Warranty periods vary by product. The Company has recourse
provisions for certain products that would enable recovery from
third parties for amounts paid under the warranty. The Company
accrues for product warranties when, based on available
information, it is probable that customers will make claims
under warranties relating to products that have been sold, and a
reasonable estimate of the costs (based on historical claims
experience
F-42
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
relative to sales) can be made. Set forth below is a
reconciliation of the Companys estimated product warranty
liability for 2008:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Balance December 31, 2007
|
|
$
|
19,981
|
|
Accrued for warranties issued in 2008
|
|
|
10,380
|
|
Settlements (cash and in kind)
|
|
|
(12,756
|
)
|
Accruals related to pre-existing warranties
|
|
|
1,273
|
|
Effect of translation
|
|
|
(1,772
|
)
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
17,106
|
|
|
|
|
|
|
Operating leases: The Company uses various
leased facilities and equipment in its operations. The terms for
these leased assets vary depending on the lease agreement. The
Companys future payments cannot exceed the minimum rent
obligation plus the residual value guarantee amount. The
guarantee amounts are tied to the unamortized lease values of
the assets under lease, and are due should the Company decide
neither to renew these leases, nor to exercise its purchase
option. At December 31, 2008, the Company had no
liabilities recorded for these obligations. Any residual value
guarantee amounts paid to the lessor may be recovered by the
Company from the sale of the assets to a third party.
Future minimum lease payments as of December 31, 2008
(including residual value guarantee amounts) under noncancelable
operating leases are as follows:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
2009
|
|
$
|
30,529
|
|
2010
|
|
|
25,733
|
|
2011
|
|
|
20,962
|
|
2012
|
|
|
16,279
|
|
2013
|
|
|
11,847
|
|
Rental expense under operating leases was $36.4 million,
$29.5 million and $27.0 million in 2008, 2007 and
2006, respectively.
We have residual value guarantees under operating leases for
certain equipment. The maximum potential amount of future
payments we could be required to make under these guarantees is
approximately $1.9 million at December 31, 2008.
Accounts receivable securitization program: We
use an accounts receivable securitization program to gain access
to enhanced credit markets and reduce financing costs. As
currently structured, accounts receivable of certain domestic
subsidiaries are sold on a non-recourse basis to a special
purpose entity (SPE), which is a bankruptcy-remote
subsidiary of Teleflex Incorporated that is consolidated in our
financial statements. This SPE then sells undivided interests in
those receivables to an asset backed commercial paper conduit.
The conduit issues notes secured by those interests and other
assets to third party investors.
To the extent that cash consideration is received for the sale
of undivided interests in the receivables by the SPE to the
conduit, it is accounted for as a sale in accordance with
Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, as we have
relinquished control of the receivables. Accordingly, undivided
interests in accounts receivable sold to the commercial paper
conduit under these transactions are excluded from accounts
receivables, net in the accompanying consolidated balance
sheets. The interests not represented by cash consideration from
the
F-43
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
conduit are retained by the SPE and remain in accounts
receivable in the accompanying consolidated balance sheets.
The interests in receivables sold and the interest in
receivables retained by the SPE are carried at face value, which
is due to the short-term nature of our accounts receivable. The
special purpose entity has received cash consideration of
$39.7 million and $39.7 million for the interests in
the accounts receivable it has sold to the commercial paper
conduit at December 31, 2008 and December 31, 2007,
respectively. No gain or loss is recorded upon sale as fee
charges from the commercial paper conduit are based upon a
floating yield rate and the period the undivided interests
remain outstanding. Fee charges from the commercial paper
conduit are accrued at the end of each month. Should we default
under the accounts receivable securitization program, the
commercial paper conduit is entitled to receive collections on
receivables owned by the SPE in satisfaction of the amount of
cash consideration paid to the SPE to the commercial paper
conduit. The assets of the SPE are not available to satisfy the
obligations of Teleflex or any of its other subsidiaries.
Information regarding the outstanding balances related to the
SPEs interests in accounts receivables sold or retained as
of December 31, 2008 is as follows:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Interests in receivables sold
outstanding(1)
|
|
$
|
39.7
|
|
Interests in receivables retained, net of allowance for doubtful
accounts
|
|
$
|
96.3
|
|
|
|
|
(1) |
|
Deducted from accounts receivables, net in the consolidated
balance sheets. |
The delinquency ratio for the qualifying receivables represented
3.76% of the total qualifying receivables as of
December 31, 2008.
The following table summarizes the activity related to our
interests in accounts receivable sold for the year ended
December 31, 2008:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
millions)
|
|
|
Proceeds from the sale of interest in accounts receivable
|
|
$
|
39.7
|
|
Fees and
charges(1)
|
|
$
|
1.8
|
|
|
|
|
(1) |
|
Recorded in interest expense in the consolidated statement of
operations. |
Other fee charges related to the sale of receivables to the
commercial paper conduit for the year ended December 31,
2008 were not material.
We continue servicing the receivables sold, pursuant to
servicing agreements with the SPE. No servicing asset is
recorded at the time of sale because we do not receive any
servicing fees from third parties or other income related to the
servicing of the receivables. We do not record any servicing
liability at the time of the sale as the receivables collection
period is relatively short and the costs of servicing the
receivables sold over the servicing period are insignificant.
Servicing costs are recognized as incurred over the servicing
period.
Environmental: The Company is subject to
contingencies pursuant to environmental laws and regulations
that in the future may require the Company to take further
action to correct the effects on the environment of prior
disposal practices or releases of chemical or petroleum
substances by the Company or other parties. Much of this
liability results from the U.S. Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA),
often referred to as Superfund, the U.S. Resource
Conservation and Recovery Act (RCRA) and similar
state laws. These laws require the Company to undertake certain
investigative and remedial activities at
F-44
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sites where the Company conducts or once conducted operations or
at sites where Company-generated waste was disposed.
Remediation activities vary substantially in duration and cost
from site to site. These activities, and their associated costs,
depend on the mix of unique site characteristics, evolving
remediation technologies, diverse regulatory agencies and
enforcement policies, as well as the presence or absence of
potentially responsible parties. At December 31, 2008 and
December 31, 2007, the Companys consolidated balance
sheet included an accrued liability of $8.9 million and
$7.5 million, respectively, relating to these matters.
Considerable uncertainty exists with respect to these costs and,
under adverse changes in circumstances, potential liability may
exceed the amount accrued as of December 31, 2008. The
time-frame over which the accrued or presently unrecognized
amounts may be paid out, based on past history, is estimated to
be
15-20 years.
Regulatory matters: On October 11, 2007,
the Companys subsidiary, Arrow International, Inc.
(Arrow), received a corporate warning letter from
the U.S. Food and Drug Administration (FDA). The letter
cites three site-specific warning letters issued by the FDA in
2005 and subsequent inspections performed from June 2005 to
February 2007 at Arrows facilities in the United States.
The letter expresses concerns with Arrows quality systems,
including complaint handling, corrective and preventive action,
process and design validation, inspection and training
procedures. It also advises that Arrows corporate-wide
program to evaluate, correct and prevent quality system issues
has been deficient. Limitations on pre-market approvals and
certificates of foreign goods had previously been imposed on
Arrow based on prior inspections and the corporate warning
letter does not impose additional sanctions that are expected to
have a material financial impact on the Company.
In connection with its acquisition of Arrow, completed on
October 1, 2007, the Company developed an integration plan
that includes the commitment of significant resources to correct
these previously-identified regulatory issues and further
improve overall quality systems. Senior management officials
from the Company have met with FDA representatives, and a
comprehensive written corrective action plan was presented to
FDA in late 2007. The Company has begun implementing its
corrective action plan, which it expects to complete, for most
facilities and procedures, by the end of March 2009.
While the Company believes it can remediate these issues, there
can be no assurances regarding the length of time or
expenditures required to resolve these issues to the
satisfaction of the FDA. If the Companys remedial actions
are not satisfactory to the FDA, the Company may have to devote
additional financial and human resources to its efforts, and the
FDA may take further regulatory actions against the Company,
including, but not limited to, seizing its product inventory,
obtaining a court injunction against further marketing of the
Companys products, assessing civil monetary penalties or
imposing a consent decree on us.
In June 2008, HM Revenue and Customs (HMRC) assessed
Airfoil Technologies International UK Limited
(ATI-UK), a consolidated United Kingdom venture in
which the Company has a 60% economic interest, approximately
$10 million for customs duty for the period from
July 1, 2005 through March 31, 2008. HMRC had
previously assessed ATI-UK approximately $737,000 for customs
duty for the first and second quarters of 2004. Additionally,
for the above periods, ATI-UK was assessed a value added tax
(VAT) of approximately $68 million, for which
HMRC has advised ATI-UK that, to the extent it is due and
payable, it has until March 2010 to fully recover such VAT.
The assessments were imposed because HMRC concluded that ATI-UK
did not provide the necessary documentation for which reliance
on Inland Processing Relief status (duty and VAT) was claimed by
ATI-UK.
ATI-UK has filed appeals and been granted hardship applications
(to avoid payment of the assessment while the appeal is pending)
regarding each of the assessments. ATI-UK provided certain
documentation to HMRC with regard to the first quarter of 2004,
and as a result, the HMRC reduced the assessment for customs
duties for
F-45
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that quarter by 97%, from approximately $17,860 to $450, and
reduced the assessment for VAT for that quarter by 99%, from
approximately $117,540 to $1,650, which amounts have been paid
and all VAT recovered.
ATI-UK has
provided essentially the same types of supporting documentation
to HMRC for the remaining quarters for which it was assessed.
Based on discussions between ATI-UK and the HMRC inspector with
regard to the assessments for the remaining periods, ATI-UK is
hopeful that it will obtain reductions in the assessments that
are proportionately similar to those obtained for the first
quarter of 2004. However, the Company cannot assure whether or
the extent to which the HMRC will reduce its assessments for
these periods. In the event ATI-UK is not successful in a
favorable resolution of the remaining assessments, such outcome
would have a material adverse effect on the business of ATI-UK.
The Company has a net investment in ATI-UK of approximately
$11 million.
Litigation: The Company is a party to various
lawsuits and claims arising in the normal course of business.
These lawsuits and claims include actions involving product
liability, intellectual property, import and export regulations,
employment and environmental matters. Based on information
currently available, advice of counsel, established reserves and
other resources, the Company does not believe that any such
actions are likely to be, individually or in the aggregate,
material to its business, financial condition, and results of
operations or liquidity. However, in the event of unexpected
further developments, it is possible that the ultimate
resolution of these matters, or other similar matters, if
unfavorable, may be materially adverse to the Companys
business, financial condition, results of operations or
liquidity. Legal costs such as outside counsel fees and expenses
are charged to expense in the period incurred.
Other: The Company has various purchase
commitments for materials, supplies and items of permanent
investment incident to the ordinary conduct of business. In the
aggregate, such commitments are not at prices in excess of
current market.
|
|
Note 16
|
Business segments
and other information
|
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, defines an operating
segment as a component of an enterprise (a) that engages in
business activities from which it may earn revenues and incur
expenses, (b) whose operating results are regularly
reviewed by the enterprises chief operating decision maker
to make decisions about resources to be allocated to the segment
and to assess its performance, and (c) for which discrete
financial information is available. Based on these criteria, the
Company has determined that it has three reportable segments:
Medical, Aerospace and Commercial
The Medical Segment businesses develop, manufacture and
distribute medical devices primarily used in critical care,
surgical applications and cardiac care. Additionally, the
company designs, manufactures and supplies devices and
instruments for medical device manufacturers. Over
80 percent of Medical Segment net revenues are derived from
devices that are considered disposable or single use. The
Medical Segments products are largely sold and distributed
to hospitals and healthcare providers and are most widely used
in the acute care setting for a range of diagnostic and
therapeutic procedures and in general and specialty surgical
applications.
Our Aerospace Segment businesses provide repair products and
services for flight and ground-based turbine engines and cargo
handling systems for wide body and narrow body aircraft.
Commercial aviation markets represent 99% of revenues in this
segment. Markets for these products are generally influenced by
spending patterns in the commercial aviation markets, cargo
market trends, flights hours, and age and type of engines in use.
The Commercial Segment businesses principally design,
manufacture and distribute driver controls and engine and drive
parts for the marine market, power and fuel systems for truck,
rail, automotive and industrial vehicles and rigging products
and services. Commercial Segment products are used in a range of
markets
F-46
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including: recreational marine, heavy truck, bus, industrial
vehicles, rail, oil and gas, marine transportation and
industrial.
Information about continuing operations by business segment is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Segment data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
1,499,109
|
|
|
$
|
1,041,349
|
|
|
$
|
858,676
|
|
Aerospace
|
|
|
511,246
|
|
|
|
451,788
|
|
|
|
405,372
|
|
Commercial
|
|
|
410,594
|
|
|
|
441,195
|
|
|
|
426,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
2,420,949
|
|
|
|
1,934,332
|
|
|
|
1,690,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
286,330
|
|
|
|
182,636
|
|
|
|
161,707
|
|
Aerospace
|
|
|
61,781
|
|
|
|
46,964
|
|
|
|
40,224
|
|
Commercial
|
|
|
27,457
|
|
|
|
22,990
|
|
|
|
30,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating
profit(1)
|
|
|
375,568
|
|
|
|
252,590
|
|
|
|
232,429
|
|
Corporate expenses
|
|
|
43,002
|
|
|
|
46,439
|
|
|
|
45,444
|
|
In-process research and development charge
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
18,896
|
|
|
|
1,003
|
|
Restructuring and other impairment charges
|
|
|
27,701
|
|
|
|
11,352
|
|
|
|
21,320
|
|
(Gain) loss on sales of businesses and assets
|
|
|
(296
|
)
|
|
|
1,110
|
|
|
|
732
|
|
Minority interest
|
|
|
(34,828
|
)
|
|
|
(28,949
|
)
|
|
|
(23,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before interest, taxes and
minority interest
|
|
$
|
339,989
|
|
|
$
|
173,742
|
|
|
$
|
187,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
3,195,255
|
|
|
$
|
3,343,070
|
|
|
$
|
923,786
|
|
Aerospace
|
|
|
244,872
|
|
|
|
239,483
|
|
|
|
251,629
|
|
Commercial
|
|
|
220,543
|
|
|
|
218,713
|
|
|
|
710,917
|
|
Corporate(3)
|
|
|
257,864
|
|
|
|
382,490
|
|
|
|
464,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,918,534
|
|
|
$
|
4,183,756
|
|
|
$
|
2,351,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
24,992
|
|
|
$
|
31,781
|
|
|
$
|
25,896
|
|
Aerospace
|
|
|
8,244
|
|
|
|
4,603
|
|
|
|
9,928
|
|
Commercial
|
|
|
4,535
|
|
|
|
5,776
|
|
|
|
4,178
|
|
Corporate
|
|
|
1,496
|
|
|
|
2,574
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,267
|
|
|
$
|
44,734
|
|
|
$
|
40,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
90,519
|
|
|
$
|
48,763
|
|
|
$
|
35,094
|
|
Aerospace
|
|
|
8,761
|
|
|
|
9,334
|
|
|
|
10,160
|
|
Commercial
|
|
|
8,921
|
|
|
|
10,245
|
|
|
|
10,178
|
|
Corporate
|
|
|
8,347
|
|
|
|
10,418
|
|
|
|
3,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,548
|
|
|
$
|
78,760
|
|
|
$
|
59,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Segment operating profit includes a segments net revenues
reduced by its materials, labor and other product costs along
with the segments selling, engineering and administrative
expenses and minority interest. Unallocated corporate expenses,
(gain) loss on sales of businesses and assets, restructuring |
F-47
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
and impairment charges, interest income and expense and taxes on
income are excluded from the measure. |
|
(2) |
|
Identifiable assets do not include assets held for sale of
$8.2 million, $4.2 million and $10.2 million in
2008, 2007 and 2006, respectively. |
|
(3) |
|
Identifiable corporate assets include cash, receivables acquired
from operating segments for securitization, investments in
unconsolidated entities, property, plant and equipment and
deferred tax assets primarily related to net operating losses
and pension and retiree medical plans. |
Information about continuing operations in different geographic
areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Net revenues (based on business unit location):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,129,002
|
|
|
$
|
855,975
|
|
|
$
|
758,054
|
|
Other Americas
|
|
|
156,822
|
|
|
|
193,120
|
|
|
|
191,284
|
|
Germany
|
|
|
304,166
|
|
|
|
256,243
|
|
|
|
205,416
|
|
Other Europe
|
|
|
495,631
|
|
|
|
352,587
|
|
|
|
300,547
|
|
Asia/Australia
|
|
|
335,328
|
|
|
|
276,407
|
|
|
|
235,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,420,949
|
|
|
$
|
1,934,332
|
|
|
$
|
1,690,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
198,689
|
|
|
$
|
219,501
|
|
|
$
|
171,442
|
|
Other Americas
|
|
|
38,971
|
|
|
|
51,632
|
|
|
|
59,599
|
|
Germany
|
|
|
24,855
|
|
|
|
39,567
|
|
|
|
69,996
|
|
Other Europe
|
|
|
67,700
|
|
|
|
74,460
|
|
|
|
69,663
|
|
Asia/Australia
|
|
|
44,077
|
|
|
|
45,816
|
|
|
|
51,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
374,292
|
|
|
$
|
430,976
|
|
|
$
|
422,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17
|
Divestiture-Related
Activities
|
As dispositions occur in the normal course of business, gains or
losses on the sale of such businesses are recognized in the
income statement line item (Gain) loss on sales of businesses
and assets.
(Gain) loss on sales of businesses and assets consists of
the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
(Gain) loss on sales of businesses and assets, net
|
|
$
|
(296
|
)
|
|
$
|
1,110
|
|
|
$
|
732
|
|
During 2008, the Company recorded a gain on the disposal of an
asset held for sale of approximately $0.3 million.
During 2007, the Company sold a product line in its Medical
Segment and sold a building which it had classified as held for
sale. The Company incurred a net loss of $1.1 million on
these two transactions.
In connection with the Companys 2006 restructuring program
the Company identified certain assets that would no longer be
used and sold them in 2006, recognizing a pre-tax loss of
$0.7 million on the dispositions. These assets were
primarily land and buildings.
F-48
TELEFLEX
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets Held
for Sale
Assets held for sale at December 31, 2008 and 2007 are
summarized on the table below. In 2008, they consist of four
buildings which the Company is actively marketing.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets held for sale:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
8,210
|
|
|
$
|
4,241
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
8,210
|
|
|
$
|
4,241
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
On December 27, 2007 the Company completed the sale of its
business units that design and manufacture automotive and
industrial driver controls, motion systems and fluid handling
systems (the GMS businesses) to Kongsberg Automotive
Holding for $560 million in cash and realized a pre-tax
gain of $224.2 million. The business units divested,
Teleflex Automotive, Teleflex Industrial and Teleflex Fluid
Systems were all part of the Companys Commercial Segment.
In 2008, the Company refined its estimates for the post-closing
adjustments related to the sale of the GMS businesses based on
the provisions of the Purchase Agreement. Also during 2008, the
Company recorded a charge for the settlement of a contingency
related to the GMS businesses. These charges are reported as a
loss from discontinued operations of $14.2 million, net of
taxes of $6.0 million for the twelve months ended
December 31, 2008. The Company is continuing to discuss
certain aspects of the post closing adjustments with Kongsberg
Automotive Holding. The Company has recorded its best estimate
for these matters.
On June 29, 2007 the Company completed the sale of Teleflex
Aerospace Manufacturing Group (TAMG), a
precision-machined components business in the Aerospace Segment
for $133.9 million in cash and realized a pre-tax gain of
$75.2 million.
During 2006 the company sold a small medical business and
incurred a pre-tax loss of $0.5 million. Also during 2006,
the Company finalized the post closing adjustments related to
the three 2005 divestitures and realized a net pre-tax gain of
$0.7 million.
The results of our discontinued operations for the years 2008,
2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
932,140
|
|
|
$
|
959,928
|
|
Costs and other expenses
|
|
|
8,238
|
|
|
|
881,679
|
|
|
|
895,530
|
|
Gain on dispositions and impairment charges, net
|
|
|
|
|
|
|
(299,456
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations before income taxes
|
|
|
(8,238
|
)
|
|
|
349,917
|
|
|
|
64,580
|
|
Provision for income taxes
|
|
|
5,968
|
|
|
|
161,065
|
|
|
|
21,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(14,206
|
)
|
|
$
|
188,852
|
|
|
$
|
43,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
QUARTERLY DATA
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter(1)
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(2)
|
|
|
|
(Dollars in thousands, except per share)
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
604,520
|
|
|
$
|
624,085
|
|
|
$
|
595,882
|
|
|
$
|
596,462
|
|
Gross profit
|
|
|
232,855
|
|
|
|
258,649
|
|
|
|
238,818
|
|
|
|
233,845
|
|
Income from continuing operations before interest, taxes and
minority interest
|
|
|
72,113
|
|
|
|
93,208
|
|
|
|
94,019
|
|
|
|
80,649
|
|
Income from continuing operations
|
|
|
22,943
|
|
|
|
37,788
|
|
|
|
42,319
|
|
|
|
30,930
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(2,845
|
)
|
|
|
|
|
|
|
(11,361
|
)
|
Net income
|
|
|
22,943
|
|
|
|
34,943
|
|
|
|
42,319
|
|
|
|
19,569
|
|
Earnings per share
basic(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.58
|
|
|
$
|
0.96
|
|
|
$
|
1.07
|
|
|
$
|
0.78
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.58
|
|
|
$
|
0.88
|
|
|
$
|
1.07
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
diluted(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.58
|
|
|
$
|
0.95
|
|
|
$
|
1.06
|
|
|
$
|
0.78
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.58
|
|
|
$
|
0.88
|
|
|
$
|
1.06
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues(4)
|
|
$
|
440,340
|
|
|
$
|
452,317
|
|
|
$
|
458,562
|
|
|
$
|
583,113
|
|
Gross
profit(4)
|
|
|
161,448
|
|
|
|
163,330
|
|
|
|
153,977
|
|
|
|
201,599
|
|
Income from continuing operations before interest, taxes and
minority interest
|
|
|
63,493
|
|
|
|
56,570
|
|
|
|
53,626
|
|
|
|
53
|
|
Income (loss) from continuing operations
|
|
|
33,831
|
|
|
|
33,246
|
|
|
|
(63,224
|
)
|
|
|
(46,221
|
)
|
Income from discontinued operations
|
|
|
10,443
|
|
|
|
60,615
|
|
|
|
6,188
|
|
|
|
111,606
|
|
Net income (loss)
|
|
|
44,274
|
|
|
|
93,861
|
|
|
|
(57,036
|
)
|
|
|
65,385
|
|
Earnings (losses) per share
basic(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.87
|
|
|
$
|
0.85
|
|
|
$
|
(1.61
|
)
|
|
$
|
(1.17
|
)
|
Income from discontinued operations
|
|
|
0.27
|
|
|
|
1.55
|
|
|
|
0.16
|
|
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.13
|
|
|
$
|
2.39
|
|
|
$
|
(1.45
|
)
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share
diluted(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.86
|
|
|
$
|
0.84
|
|
|
$
|
(1.61
|
)
|
|
$
|
(1.17
|
)
|
Income from discontinued operations
|
|
|
0.27
|
|
|
|
1.53
|
|
|
|
0.16
|
|
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.12
|
|
|
$
|
2.37
|
|
|
$
|
(1.45
|
)
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
Before Interest,
|
|
|
Income (Loss)
|
|
|
|
|
|
Taxes and
|
|
|
from Continuing
|
|
|
|
|
|
Minority Interest
|
|
|
Operations
|
|
|
(1)
|
|
First quarter 2008 results include the following:
|
|
|
|
|
|
|
|
|
|
|
Write-off of inventory fair value
adjustment(a)
|
|
$
|
6,936
|
|
|
$
|
4,449
|
|
(2)
|
|
Fourth quarter 2007 results include the following:
|
|
|
|
|
|
|
|
|
|
|
In-process R&D
write-off(a)
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
|
Write-off of inventory fair value
adjustment(a)
|
|
|
28,916
|
|
|
|
18,550
|
|
|
|
Goodwill impairment
|
|
|
18,896
|
|
|
|
18,896
|
|
|
|
Write-off of deferred financing costs
|
|
|
4,803
|
|
|
|
3,405
|
|
|
|
|
(3) |
|
The sum of the quarterly per share amounts may not equal per
share amounts reported for year-to-date periods. This is due to
changes in the number of weighted average shares outstanding and
the effects of rounding for each period. |
|
(4) |
|
Amounts exclude the impact of discontinued operations. See
Note 17. |
|
(a) |
|
Related to the Arrow acquisition |
F-51
TELEFLEX
INCORPORATED
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Additions
|
|
|
Accounts
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
|
|
|
Charged to
|
|
|
Receivable
|
|
|
Translation
|
|
|
End of
|
|
|
|
of Year
|
|
|
Dispositions
|
|
|
Income
|
|
|
Write-offs
|
|
|
and other
|
|
|
Year
|
|
|
December 31, 2008
|
|
$
|
7,010
|
|
|
$
|
(54
|
)
|
|
$
|
3,604
|
|
|
$
|
(5,053
|
)
|
|
$
|
3,219
|
|
|
$
|
8,726
|
|
December 31, 2007
|
|
$
|
10,097
|
|
|
$
|
(3,520
|
)
|
|
$
|
3,323
|
|
|
$
|
(4,614
|
)
|
|
$
|
1,724
|
|
|
$
|
7,010
|
|
December 31, 2006
|
|
$
|
10,090
|
|
|
$
|
|
|
|
$
|
4,225
|
|
|
$
|
(4,018
|
)
|
|
$
|
(200
|
)
|
|
$
|
10,097
|
|
INVENTORY
RESERVE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
|
|
|
Charged to
|
|
|
Inventory
|
|
|
Translation
|
|
|
End of
|
|
|
|
of Year
|
|
|
Dispositions
|
|
|
Income
|
|
|
Write-offs
|
|
|
and other
|
|
|
Year
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
10,616
|
|
|
$
|
|
|
|
$
|
4,773
|
|
|
$
|
(3,506
|
)
|
|
$
|
1,116
|
|
|
$
|
12,999
|
|
Work-in-process
|
|
|
608
|
|
|
|
|
|
|
|
1,575
|
|
|
|
(104
|
)
|
|
|
619
|
|
|
|
2,698
|
|
Finished goods
|
|
|
24,691
|
|
|
|
|
|
|
|
7,713
|
|
|
|
(12,210
|
)
|
|
|
1,625
|
|
|
|
21,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,915
|
|
|
$
|
|
|
|
$
|
14,061
|
|
|
$
|
(15,820
|
)
|
|
$
|
3,360
|
|
|
$
|
37,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
22,275
|
|
|
$
|
(7,741
|
)
|
|
$
|
2,499
|
|
|
$
|
(4,285
|
)
|
|
$
|
(2,132
|
)
|
|
$
|
10,616
|
|
Work-in-process
|
|
|
2,607
|
|
|
|
(1,412
|
)
|
|
|
126
|
|
|
|
(486
|
)
|
|
|
(227
|
)
|
|
|
608
|
|
Finished goods
|
|
|
21,691
|
|
|
|
(1,578
|
)
|
|
|
5,362
|
|
|
|
(3,773
|
)
|
|
|
2,989
|
|
|
|
24,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,573
|
|
|
$
|
(10,731
|
)
|
|
$
|
7,987
|
|
|
$
|
(8,544
|
)
|
|
$
|
630
|
|
|
$
|
35,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
20,067
|
|
|
$
|
|
|
|
$
|
12,124
|
|
|
$
|
(11,481
|
)
|
|
$
|
1,565
|
|
|
$
|
22,275
|
|
Work-in-process
|
|
|
1,635
|
|
|
|
|
|
|
|
1,703
|
|
|
|
(908
|
)
|
|
|
177
|
|
|
|
2,607
|
|
Finished goods
|
|
|
22,871
|
|
|
|
|
|
|
|
9,074
|
|
|
|
(8,413
|
)
|
|
|
(1,841
|
)
|
|
|
21,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,573
|
|
|
$
|
|
|
|
$
|
22,901
|
|
|
$
|
(20,802
|
)
|
|
$
|
(99
|
)
|
|
$
|
46,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
INDEX TO
EXHIBITS
The following exhibits are filed as part of, or incorporated by
reference into, this report:
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
*3
|
.1
|
|
|
|
Articles of Incorporation of the Company (except for
Article Thirteenth and the first paragraph of
Article Fourth) are incorporated by reference to
Exhibit 3(a) to the Companys
Form 10-Q
for the period ended June 30, 1985. Article Thirteenth
of the Companys Articles of Incorporation is incorporated
by reference to Exhibit 3 of the Companys
Form 10-Q
for the period ended June 28, 1987. The first paragraph of
Article Fourth of the Companys Articles of
Incorporation is incorporated by reference to Proposal 2 of
the Companys Proxy Statement with an effective date of
March 29, 2007 for the Annual Meeting held on May 4,
2007.
|
|
*3
|
.2
|
|
|
|
Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys
Form 10-K
filed on March 20, 2006).
|
|
*10
|
.1
|
|
|
|
1990 Stock Compensation Plan (incorporated by reference to the
Companys registration statement on
Form S-8
(Registration
No. 33-34753),
revised and restated as of December 1, 1997 incorporated by
reference to Exhibit 10(b) of the Companys
Form 10-K
for the year ended December 28, 1997. As subsequently
amended and restated on
Form S-8
(Registration
No. 333-59814)
which is herein incorporated by reference).
|
|
10
|
.2
|
|
|
|
Teleflex Incorporated Retirement Income Plan, as amended and
restated effective January 1, 2002, and as subsequently
amended, effective as of January 1, 2009.
|
|
10
|
.3
|
|
|
|
Amended and Restated Teleflex Incorporated Deferred Compensation
Plan effective as of January 1, 2009.
|
|
10
|
.4
|
|
|
|
Amended and Restated Teleflex 401(k) Savings Plan, effective as
of January 1, 2004, and as subsequently amended, effective
January 1, 2009.
|
|
*10
|
.5
|
|
|
|
2000 Stock Compensation Plan (incorporated by reference to the
Companys registration statement on
Form S-8
(Registration
No. 333-38224),
filed on May 31, 2000).
|
|
*10
|
.6
|
|
|
|
2008 Stock Incentive Plan (incorporated by reference to
Appendix A to the Companys definitive Proxy Statement
for the 2008 Annual Meeting of Stockholders filed on
March 21, 2008).
|
|
+*10
|
.7
|
|
|
|
Teleflex Incorporated Executive Incentive Plan (incorporated by
reference to Appendix B to the Companys definitive
Proxy Statement for the 2006 Annual Meeting of Stockholders
filed on April 6, 2006).
|
|
+*10
|
.8
|
|
|
|
Letter Agreement, dated September 23, 2004, between the
Company and Laurence G. Miller (incorporated by reference to
Exhibit 10(j) to the Companys
Form 10-K
filed on March 9, 2005).
|
|
+10
|
.9
|
|
|
|
Employment Agreement, dated March 24, 2006, between the
Company and Jeffrey P. Black (incorporated by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed on March 28, 2006), as amended by that certain First
Amendment to Employment Agreement, effective as of
January 1, 2009 (filed herewith).
|
|
+10
|
.10
|
|
|
|
Executive Change In Control Agreement, dated June 21, 2005,
between the Company and Laurence G. Miller (incorporated by
reference to Exhibit 10(o) to the Companys
Form 10-Q
filed on July 27, 2005), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.11
|
|
|
|
Executive Change In Control Agreement, dated June 21, 2005,
between the Company and Kevin K. Gordon (incorporated by
reference to Exhibit 10(p) to the Companys
Form 10-Q
filed on July 27, 2005), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.12
|
|
|
|
Executive Change In Control Agreement, dated June 21, 2005,
between the Company and Vincent Northfield (incorporated by
reference to Exhibit 10.16 to the Companys
Form 10-K
filed on March 20, 2006), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.13
|
|
|
|
Executive Change In Control Agreement, dated October 23,
2006, between the Company and R. Ernest Waaser
(incorporated by reference to Exhibit 10.2 to the
Companys
Form 8-K
filed on October 25, 2006), as amended by that certain
First Amendment to Executive Change In Control Agreement,
effective as of January 1, 2009 (filed herewith).
|
|
+10
|
.14
|
|
|
|
Executive Change In Control Agreement, dated July 13, 2005,
between the Company and John Suddarth (incorporated by
reference to Exhibit 10.18 to the Companys
Form 10-K
filed on March 20, 2006) ), as amended by that certain
First Amendment to Executive Change In Control Agreement,
effective as of January 1, 2009 (filed herewith).
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
+*10
|
.15
|
|
|
|
Executive Change In Control Agreement, dated June 21, 2005,
between the Company and Randall P. Gaboriault (incorporated by
reference to Exhibit 10.5 to the Companys
Form 10-Q
filed on March 30, 2008), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+*10
|
.16
|
|
|
|
Letter Agreement, dated October 13, 2006, between the
Company and R. Ernest Waaser (incorporated by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed on October 25, 2006).
|
|
+*10
|
.17
|
|
|
|
Letter Agreement, dated August 10, 2006, between the
Company and Charles E. Williams (incorporated by reference to
Exhibit 99.1 to the Companys
Form 8-K
filed on September 25, 2006).
|
|
+10
|
.18
|
|
|
|
Senior Executive Officer Severance Agreement, dated
March 26, 2007, between Teleflex Incorporated and Kevin K.
Gordon (incorporated by reference to Exhibit 10.1 to the
Companys
Form 10-Q
filed on May 1, 2007), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.19
|
|
|
|
Senior Executive Officer Severance Agreement, dated
March 26, 2007, between Teleflex Incorporated and Laurence
G. Miller (incorporated by reference to Exhibit 10.2 to the
Companys
Form 10-Q
filed on May 1, 2007), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.20
|
|
|
|
Senior Executive Officer Severance Agreement, dated
March 26, 2007, between Teleflex Incorporated and R. Ernest
Waaser (incorporated by reference to Exhibit 10.3 to the
Companys
Form 10-Q
filed on May 1, 2007), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.21
|
|
|
|
Senior Executive Officer Severance Agreement, dated
March 26, 2007, between Teleflex Incorporated and Vince
Northfield (incorporated by reference to Exhibit 10.4 to
the Companys
Form 10-Q
filed on May 1, 2007), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.22
|
|
|
|
Senior Executive Officer Severance Agreement, dated
March 26, 2007, between Teleflex Incorporated and John B.
Suddarth (incorporated by reference to Exhibit 10.5 to the
Companys
Form 10-Q
filed on May 1, 2007), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
+10
|
.23
|
|
|
|
Senior Executive Officer Severance Agreement, dated
April 28, 2008, between Teleflex Incorporated and Randall
P. Gaboriault (incorporated by reference to Exhibit 10.2 to
the Companys
Form 10-Q
filed on March 30, 2008), as amended by that certain First
Amendment to Executive Change In Control Agreement, effective as
of January 1, 2009 (filed herewith).
|
|
10
|
.24
|
|
|
|
Credit Agreement, dated October 1, 2007, with JPMorgan
Chase Bank, N.A., as administrative agent and as collateral
agent, Bank of America, N.A., as syndication agent, the
guarantors party thereto, the lenders party thereto and each
other party thereto (incorporated by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed on October 5, 2007), as amended by Amendment
No. 1 thereto dated as of December 22, 2008 (filed
herewith).
|
|
*10
|
.25
|
|
|
|
Note Purchase Agreement, dated as of October 1, 2007, among
Teleflex Incorporated and the several purchasers party thereto
(incorporated by reference to Exhibit 10.2 to the
Companys
Form 8-K
filed on October 5, 2007).
|
|
*10
|
.26
|
|
|
|
First Amendment, dated as of October 1, 2007, to the Note
Purchase Agreement dated as of July 8, 2004 among Teleflex
Incorporated and the noteholders party thereto (incorporated by
reference to Exhibit 10.3 to the Companys
Form 8-K
filed on October 5, 2007).
|
|
*14
|
|
|
|
|
Code of Ethics policy applicable to the Companys Chief
Executive Officer and senior financial officers (incorporated by
reference to Exhibit 14 of the Companys
Form 10-K
filed on March 11, 2004).
|
|
21
|
|
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
|
|
Certification of Chief Executive Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
|
|
Certification of Chief Executive Officer, Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
|
|
Certification of Chief Financial Officer, Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Each such exhibit has heretofore been filed with the Securities
and Exchange Commission as part of the filing indicated and is
incorporated herein by reference. |
|
|
|
+ |
|
Indicates management contract or compensatory plan or
arrangement required to be filed pursuant to Item 15(b) of
this report. |