Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2012

OR

 

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

For the transition period from                  to                 .

Commission file number 1-5353

 

 

TELEFLEX INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   23-1147939

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification no.)

155 South Limerick Road, Limerick, Pennsylvania   19468
(Address of principal executive offices)   (Zip Code)

(610) 948-5100

(Registrant’s telephone number, including area code)

(None)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

 

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

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

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

The registrant had 40,931,452 shares of common stock, $1.00 par value, outstanding as of October 19, 2012.

 

 

 


Table of Contents

TELEFLEX INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS

 

     Page   
PART I — FINANCIAL INFORMATION   
Item 1:   

Financial Statements (Unaudited):

  
  

Condensed Consolidated Statements of Income for the three and nine months ended September  30, 2012 and September 25, 2011

     2   
  

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and September 25, 2011

     3   
  

Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011

     4   
  

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 25, 2011

     5   
  

Condensed Consolidated Statements of Changes in Equity for the nine months ended September  30, 2012 and September 25, 2011

     6   
  

Notes to Condensed Consolidated Financial Statements

     7   
Item 2:   

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

     36   
Item 3:   

Quantitative and Qualitative Disclosures About Market Risk

     48   
Item 4:   

Controls and Procedures

     48   
PART II — OTHER INFORMATION   
Item 1:   

Legal Proceedings

     49   
Item 1A:   

Risk Factors

     49   
Item 2:   

Unregistered Sales of Equity Securities and Use of Proceeds

     49   
Item 3:   

Defaults Upon Senior Securities

     49   
Item 5:   

Other Information

     49   
Item 6:   

Exhibits

     50   
SIGNATURES      51   

 

1


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 
    (Dollars and shares in thousands, except per share)  

Net revenues

  $ 368,054      $ 362,741      $ 1,131,953      $ 1,089,490   

Cost of goods sold

    187,487        187,111        582,908        570,462   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    180,567        175,630        549,045        519,028   

Selling, general and administrative expenses

    114,878        101,582        332,965        313,130   

Research and development expenses

    14,760        12,316        40,015        35,802   

Goodwill impairment

    —          —          332,128        —     

Restructuring and other impairment charges

    1,088        (173     84        3,598   

Gain on sales of businesses and assets

    —          —          (332     —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest, loss on extinguishments of debt and taxes

    49,841        61,905        (155,815     166,498   

Interest expense

    18,493        19,177        54,944        51,108   

Interest income

    (340     (318     (1,324     (676

Loss on extinguishments of debt

    —          —          —          15,413   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

    31,688        43,046        (209,435     100,653   

Taxes on income (loss) from continuing operations

    7,237        10,125        2,961        23,134   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    24,451        32,921        (212,396     77,519   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from discontinued operations (including gain (loss) on disposal of ($38) and $2,226 for the three and nine month periods in 2012, respectively, and ($4) and $52,265 for the three and nine month periods in 2011, respectively)

    (831     14,588        (7,951     75,705   

Taxes (benefit) on income (loss) from discontinued operations

    1,690        3,444        (1,668     (3,522
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

    (2,521     11,144        (6,283     79,227   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    21,930        44,065        (218,679     156,746   

Less: Income from continuing operations attributable to noncontrolling interest

    188        289        701        770   

Income from discontinued operations attributable to noncontrolling interest

    —          125        —          443   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

  $ 21,742      $ 43,651      $ (219,380   $ 155,533   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share available to common shareholders:

       

Basic:

       

Income (loss) from continuing operations

  $ 0.59      $ 0.80      $ (5.22   $ 1.90   

Income (loss) from discontinued operations

    (0.06     0.27        (0.15     1.95   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 0.53      $ 1.07      $ (5.37   $ 3.85   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

       

Income (loss) from continuing operations

  $ 0.58      $ 0.80      $ (5.22   $ 1.88   

Income (loss) from discontinued operations

    (0.06     0.27        (0.15     1.94   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 0.52      $ 1.07      $ (5.37   $ 3.82   
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share

  $ 0.34      $ 0.34      $ 1.02      $ 1.02   

Weighted average common shares outstanding:

       

Basic

    40,890        40,684        40,831        40,426   

Diluted

    41,511        40,943        40,831        40,738   

Amounts attributable to common shareholders:

       

Income (loss) from continuing operations, net of tax

  $ 24,263      $ 32,632      $ (213,097   $ 76,749   

Income (loss) from discontinued operations, net of tax

    (2,521     11,019        (6,283     78,784   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 21,742      $ 43,651      $ (219,380   $ 155,533   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,
2012
     September 25,
2011
    September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

Net income (loss)

   $ 21,930       $ 44,065      $ (218,679   $ 156,746   

Other comprehensive income (loss), net of tax:

         

Foreign currency translation, net of tax ($4,629, $(298), $(4,555), $2,025 for the three and nine month periods, respectively)

     46,056         (50,486     10,348        (19,555

Pension and other postretirement benefits plans adjustment, net of tax ($525, $410, $1,782, $8,505 for the three and nine month periods, respectively)

     872         842        3,208        14,851   

Derivatives qualifying as hedges, net of tax ($1,548, $1,245, $4,013, $3,578 for the three and nine month periods, respectively)

     2,706         2,183        7,012        5,508   
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     49,634         (47,461     20,568        804   
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     71,564         (3,396     (198,111     157,550   

Less: comprehensive income attributable to noncontrolling interest

     394         252        743        1,062   
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common shareholders

   $ 71,170       $ (3,648   $ (198,854   $ 156,488   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     September 30,
2012
     December 31,
2011
 
     (Dollars in thousands)  
ASSETS      

Current assets

     

Cash and cash equivalents

   $ 634,829       $ 584,088   

Accounts receivable, net

     266,947         286,226   

Inventories, net

     295,611         298,775   

Prepaid expenses and other current assets

     23,361         33,405   

Prepaid taxes

     34,745         28,846   

Deferred tax assets

     29,700         41,014   

Assets held for sale

     7,861         7,902   
  

 

 

    

 

 

 

Total current assets

     1,293,054         1,280,256   

Property, plant and equipment, net

     267,392         251,912   

Goodwill

     1,113,940         1,438,542   

Intangible assets, net

     930,916         879,787   

Investments in affiliates

     1,771         2,008   

Deferred tax assets

     293         278   

Other assets

     63,423         71,320   
  

 

 

    

 

 

 

Total assets

   $ 3,670,789       $ 3,924,103   
  

 

 

    

 

 

 
LIABILITIES AND EQUITY      

Current liabilities

     

Current borrowings

   $ 4,700       $ 4,986   

Accounts payable

     63,703         67,092   

Accrued expenses

     63,115         74,207   

Current portion of contingent consideration

     21,592         3,953   

Payroll and benefit-related liabilities

     67,606         64,386   

Derivative liabilities

     957         633   

Accrued interest

     9,772         10,960   

Income taxes payable

     11,980         21,084   

Current liability for uncertain tax positions

     4,201         22,656   

Deferred tax liabilities

     1,051         1,050   
  

 

 

    

 

 

 

Total current liabilities

     248,677         271,007   

Long-term borrowings

     962,596         954,809   

Deferred tax liabilities

     393,192         420,833   

Pension and postretirement benefit liabilities

     178,764         194,984   

Noncurrent liability for uncertain tax positions

     63,491         61,688   

Other liabilities

     68,670         37,999   
  

 

 

    

 

 

 

Total liabilities

     1,915,390         1,941,320   

Commitments and contingencies

     

Total common shareholders’ equity

     1,752,956         1,980,588   

Noncontrolling interest

     2,443         2,195   
  

 

 

    

 

 

 

Total equity

     1,755,399         1,982,783   
  

 

 

    

 

 

 

Total liabilities and equity

   $ 3,670,789       $ 3,924,103   
  

 

 

    

 

 

 

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

 

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Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended  
     September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

Cash Flows from Operating Activities of Continuing Operations:

    

Net income (loss)

   $ (218,679   $ 156,746   

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

    

Loss (income) from discontinued operations

     6,283        (79,227

Depreciation expense

     26,159        30,354   

Amortization expense of intangible assets

     32,263        32,087   

Amortization expense of deferred financing costs and debt discount

     10,739        10,064   

Loss on extinguishments of debt

     —          15,413   

Stock-based compensation

     6,170        2,479   

Impairment of investments in affiliates

     —          3,060   

Gain on sales of businesses and assets

     (332     —     

Goodwill impairment

     332,128        —     

Deferred income taxes, net

     (27,217     (2,561

Other

     (2,442     (2,263

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

    

Accounts receivable

     1,934        (41,009

Inventories

     (4,619     (41,649

Prepaid expenses and other current assets

     10,144        (7,423

Accounts payable and accrued expenses

     (2,047     7,580   

Income taxes receivable and payable, net

     (31,352     (23,431
  

 

 

   

 

 

 

Net cash provided by operating activities from continuing operations

     139,132        60,220   
  

 

 

   

 

 

 

Cash Flows from Investing Activities of Continuing Operations:

    

Expenditures for property, plant and equipment

     (46,092     (27,308

Proceeds from sales of businesses and assets, net of cash sold

     66,605        100,905   

Payments for businesses and intangibles acquired, net of cash acquired

     (62,627     (30,570

Investments in affiliates

     (80     —     
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities from continuing operations

     (42,194     43,027   
  

 

 

   

 

 

 

Cash Flows from Financing Activities of Continuing Operations:

    

Proceeds from long-term borrowings

     —          515,000   

Repayment of long-term borrowings

     —          (455,800

Decrease in notes payable and current borrowings

     (706     —     

Proceeds from stock compensation plans

     7,714        32,930   

Dividends

     (41,661     (41,278

Debt extinguishment, issuance and amendment fees

     —          (18,510
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities from continuing operations

     (34,653     32,342   
  

 

 

   

 

 

 

Cash Flows from Discontinued Operations:

    

Net cash (used in) provided by operating activities

     (6,477     28,546   

Net cash used in investing activities

     (2,351     (1,997
  

 

 

   

 

 

 

Net cash (used in) provided by discontinued operations

     (8,828     26,549   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2,716     1,109   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     50,741        163,247   

Cash and cash equivalents at the beginning of the period

     584,088        208,452   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 634,829      $ 371,699   
  

 

 

   

 

 

 

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

 

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Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

    Common Stock     Additional
Paid in

Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive

Income
    Treasury
Stock
    Noncontrolling
Interest
    Total
Equity
 
    Shares     Dollars           Shares     Dollars      
    (Dollars and shares in thousands, except per share)  

Balance at December 31, 2010

    42,245      $ 42,245      $ 349,156      $ 1,578,913      $ (51,880     2,250      $ (135,058   $ 3,902      $ 1,787,278   

Net income

          155,533              1,213        156,746   

Cash dividends ($1.02 per share)

          (41,278             (41,278

Other comprehensive income

            955            (151     804   

Distributions to noncontrolling interest shareholders

                  (118     (118

Shares issued under compensation plans

    657        657        29,377            (56     3,394          33,428   

Deferred compensation

        (39         (4     176          137   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 25, 2011

    42,902      $ 42,902      $ 378,494      $ 1,693,168      $ (50,925     2,190      $ (131,488   $ 4,846      $ 1,936,997   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Common Stock     Additional
Paid in

Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive

Income
    Treasury
Stock
    Noncontrolling
Interest
    Total
Equity
 
    Shares     Dollars           Shares     Dollars      
    (Dollars and shares in thousands, except per share)  

Balance at December 31, 2011

    42,923      $ 42,923      $ 380,965      $ 1,847,106      $ (159,353     2,183      $ (131,053   $ 2,195      $ 1,982,783   

Net income (loss)

          (219,380           701        (218,679

Cash dividends ($1.02 per share)

          (41,661             (41,661

Other comprehensive income

            20,525            43        20,568   

Distributions to noncontrolling interest shareholders

                  (496     (496

Shares issued under compensation plans

    147        147        10,221            (39     2,410          12,778   

Deferred compensation

        (10         (4     116          106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    43,070      $ 43,070      $ 391,176      $ 1,586,065      $ (138,828     2,140      $ (128,527   $ 2,443      $ 1,755,399   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of presentation

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

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

In accordance with applicable accounting standards, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in our annual consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but, as permitted by Rule 10-01 of SEC Regulation S-X, does not include all disclosures required by GAAP for complete financial statements. Accordingly, our quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Certain reclassifications of prior year information have been made to conform to the current year’s presentation. In the first quarter of 2012, the Company changed its segment reporting from a single reportable segment to four reportable segments, three of which are geographically based. As initially changed, the three geographic segments were North America, EMEA (representing the Company’s operations in Europe, the Middle East and Africa) and AJLA (representing Asian and Latin America operations). The Company’s fourth reportable segment is comprised of the Company’s Original Equipment Manufacturer and Development Services (“OEM”) businesses. In addition, in the first quarter of 2012, the Company changed the number of its reporting units. In 2011, the Company had six reporting units comprised of North America, EMEA, OEM and three reporting units in the AJLA segment. In 2012, the Company changed its North America reporting unit structure from a single reporting unit to five reporting units comprised of Vascular, Anesthesia/Respiratory, Cardiac, Surgical and Specialty. As a result of the change in the North America reporting unit structure, the Company was required to conduct a goodwill impairment test of each of the North American reporting units and determined that the goodwill of three of the reporting units was impaired. As a result, the Company recorded a goodwill impairment charge of $332 million in the first quarter of 2012. See Note 5 for a discussion of the goodwill impairment. During the third quarter of 2012, due to changes in the Company’s management and internal reporting structure, the Company’s Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. The change did not affect the Company’s reporting unit structure. All prior comparative periods have been restated to reflect this change. See Note 14 for a discussion of the Company’s segments.

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

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 2 — New accounting standards

The Company adopted the following new accounting standards as of January 1, 2012, the first day of its 2012 fiscal year:

Amendment to Fair Value Measurement: In May 2011, the Financial Accounting Standards Board (“FASB”) revised the fair value measurement and disclosure requirements so that the requirements under GAAP and International Financial Reporting Standards (“IFRS”) are the same. The guidance clarifies the FASB’s intent about the application of existing fair value measurements and requires enhanced disclosures, most significantly related to unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The guidance became effective prospectively during interim and annual periods beginning after December 15, 2011.

Amendment to Comprehensive Income: In June 2011, the FASB amended guidance relating to the presentation of comprehensive income within an entity’s financial statements. Under the guidance, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement or in two separate but consecutive statements. The amended guidance eliminates the previously available option of presenting the components of other comprehensive income as part of the statement of changes in equity. In addition, an entity is required to present adjustments on the face of the financial statements for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The amendment became effective for fiscal years beginning after December 15, 2011 and is applied retrospectively, with the exception of the requirement to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements, which has been deferred pending further deliberation by the FASB.

The Company will adopt the following new accounting standard as of January 1, 2013, the first day of its 2013 fiscal year:

Amendment to Intangibles-Goodwill and Other: In July 2012, the FASB issued updated guidance on the periodic testing of indefinite-lived intangible assets, other than goodwill, for impairment. This updated guidance will permit companies to first assess qualitative factors to determine if it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test required under current accounting standards. This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.

Note 3 — Acquisitions

The Company made the following acquisitions during 2012, all of which were accounted for as business combinations:

 

   

On June 22, 2012, the Company acquired Hotspur Technologies, a developer of catheter-based technologies designed to restore blood flow in patients with obstructed vessels. The acquisition of this business complements the dialysis access product line in the Company’s Cardiac Care division. The Company paid $15.0 million in cash as initial consideration for the business.

 

   

On May 22, 2012, the Company acquired Semprus BioSciences, a biomedical company that developed a long-lasting, covalently bonded, non-leaching polymer designed to reduce infections and thrombus related complications. While the Company will explore opportunities to apply this technology to a broad array of its product offerings, the initial focus for the technology will be with respect to vascular devices within the Company’s Critical Care division. The Company paid $30.0 million in cash as initial consideration for the business.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

On May 3, 2012, the Company acquired substantially all of the assets of Axiom Technology Partners, LLC, constituting its EFx laparoscopic fascial closure system, which is designed for the closure of abdominal trocar defects through which access ports and instruments were used during laparoscopic surgeries. The acquisition of this business complements the surgical closure product line in the Company’s Surgical Care division. The Company paid $7.5 million in cash as initial consideration for the business.

 

   

On April 5, 2012, the Company acquired the EZ-Blocker product line, a single-use catheter used to perform lung isolation and one-lung ventilation. The acquisition of this product line complements the Anesthesia product portfolio in the Company’s Critical Care division. The Company paid $3.3 million in cash as initial consideration for the business.

In connection with the acquisitions, the Company agreed to pay contingent consideration based on the achievement of specified objectives, including regulatory approvals and sales targets. The range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between $2.0 million to $90.0 million.

The total fair value of consideration for the acquisitions is estimated at $111.6 million, which includes the initial payments of $55.8 million in cash and the estimated fair value of the contingent consideration to be paid to the sellers of $55.8 million. The fair value of each component of contingent consideration was estimated based on the probability of achieving the specified objective using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement as defined in connection with the fair value hierarchy (see Note 9, “Fair value measurements”). Any future change in the estimated fair value of the contingent consideration will be recognized in selling, general and administrative expenses in the statement of income for the period in which the estimated fair value changes. A change in fair value of the contingent consideration could have a material effect on the Company’s results of operations and financial position for the period in which the change in estimate occurs.

Transaction expenses associated with the acquisitions, which are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Income, were $0.5 million and $1.2 million for the three and nine months ended September 30, 2012, respectively. The Company has recorded an aggregate operating loss of approximately $4.5 million and $6.1 million resulting from the acquisitions for the three and nine months ended September 30, 2012, respectively. The results of operations of the acquired businesses and assets are included in the Condensed Consolidated Statements of Income from their respective acquisition date. Pro forma information is not presented as the operations of the acquired businesses are not significant compared to the overall operations of the Company.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table presents the purchase price allocation among the assets acquired and liabilities assumed in the acquisitions that occurred during the nine months ended September 30 2012:

 

     (Dollars in millions)  

Assets

  

Current assets

   $ 4.1   

Property, plant and equipment

     1.3   

Intangible assets:

  

Intellectual property

     46.9   

In-process research and development (“IPR&D”)

     45.5   

Goodwill

     29.0   
  

 

 

 

Total assets acquired

     126.8   
  

 

 

 

Less:

  

Current liabilities

     4.8   

Deferred tax liabilities

     10.4   
  

 

 

 

Liabilities assumed

     15.2   
  

 

 

 

Net assets acquired

   $ 111.6   
  

 

 

 

During the third quarter the Company refined the purchase price allocation, principally with respect to contingent consideration, due to changes in probabilities of achieving specified objectives and changes in discount rates. These changes also impacted the fair values of the acquired intangibles and deferred taxes. The Company is continuing to evaluate the initial purchase price allocation as of the respective acquisition dates. Further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed.

Certain assets acquired in the acquisitions qualify for recognition as intangible assets, apart from goodwill, in accordance with FASB guidance related to business combinations. The estimated fair values of intangible assets acquired include intellectual property of $46.9 million and IPR&D of $45.5 million. Intellectual property has useful lives ranging from 15 to 20 years, and IPR&D has an indefinite life and is not amortized until completion and development of the related project, at which time the IPR&D becomes an amortizable asset. If the related project is not completed in a timely manner, the Company may incur an impairment charge related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. The goodwill resulting from the acquisitions primarily reflects the expected revenue growth attributable to anticipated increased market penetration from future products and customers. Goodwill and the step-up in basis of the intangible assets in connection with the acquisitions are not deductible for tax purposes.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 4 — Restructuring and other impairment charges

The amounts recognized in restructuring and other impairment charges for the three and nine months ended September 30, 2012 and September 25, 2011 consisted of the following:

 

     Three Months Ended     Nine Months Ended  
     September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

2012 restructuring charges

   $ 1,107      $ —        $ 1,978      $ —     

2011 restructuring program

     (60     —          (60     —     

2007 Arrow integration program

     41        (173     (1,834     537   

Impairment charges

     —          —          —          3,061   
  

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring and other impairment charges

   $ 1,088      $ (173   $ 84      $ 3,598   
  

 

 

   

 

 

   

 

 

   

 

 

 

2012 Restructuring Charges

The Company regularly evaluates opportunities to consolidate facilities, lower costs and optimize operating efficiencies. As a result the Company has identified an opportunity to improve its supply chain strategy by consolidating its three North American warehouses into one centralized warehouse. This project will entail termination benefits related to a reduction in force, contract termination costs related to a lease, and facility closure costs. During the three months ended September 30, 2012, the Company incurred restructuring charges of $1.1 million for this project. The Company expects to complete the project over a one year period and anticipates incurring additional charges of $1.6 million related to this initiative. During the nine months ended September 30, 2012, the Company incurred restructuring charges of $2.0 million, primarily related to the warehouse consolidation as noted above and charges related to the termination of certain distributor agreements in Europe.

2011 Restructuring Program

During 2011, the Company initiated a restructuring program at three facilities to consolidate operations and reduce costs. During the third quarter of 2012, the Company reversed $0.1 million of restructuring reserves that were determined to be no longer required. The Company expects to incur additional contract termination costs of approximately $2.7 million when it has completely exited a leased facility. All of the employee termination benefits will be paid in 2012. The payment of the lease contract termination costs will continue until 2015.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

2007 Arrow Integration Program

In connection with the Company’s acquisition of Arrow International, Inc. (“Arrow”), the Company implemented a program in 2007 to integrate Arrow’s businesses into the Company’s other businesses. The aspects of this program that affect Teleflex employees and facilities (such aspects being referred to as the “2007 Arrow integration program”) are charged to earnings and classified as restructuring and impairment charges. The following table provides information relating to the charges associated with the 2007 Arrow integration program that were included in restructuring and other impairment charges in the condensed consolidated statements of income for the periods presented:

 

     Three Months Ended     Nine Months Ended  
     September 30,
2012
     September 25,
2011
    September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

Termination benefits

   $ —         $ —        $ —        $ 11   

Facility closure costs

     41         40        189        114   

Contract termination costs

     —           (213     (2,023     412   
  

 

 

    

 

 

   

 

 

   

 

 

 
   $ 41       $ (173   $ (1,834   $ 537   
  

 

 

    

 

 

   

 

 

   

 

 

 

The following table provides information relating to changes in the accrued liability associated with the 2007 Arrow integration program during the nine months ended September 30, 2012:

 

     Balance at
December 31,
2011
     Subsequent
Accruals
    Payments     Translation     Balance at
September 30,
2012
 
     (Dollars in thousands)  

Termination benefits

   $ 320       $ —        $ (4   $ (2   $ 314   

Facility closure costs

     —           189        (189     —          —     

Contract termination costs

     2,133         (2,023     —          (1     109   

Other restructuring costs

     21         —          —          —          21   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,474       $ (1,834   $ (193   $ (3   $ 444   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The reduction in the accrual for contract termination costs relates to a revised estimate for the settlement of a dispute involving the termination of a European distributor agreement that was established in connection with the acquisition of Arrow in 2007.

As of September 30, 2012, the Company expects future restructuring expenses associated with the 2007 Arrow integration program, if any, to be nominal.

Impairment Charges

In the second quarter of 2011, the Company recognized impairment charges of $3.1 million related to the decline in value of its investments in affiliates that are considered to be other than temporary. In making this determination, the Company considered multiple factors, including its intent and ability to hold investments, operating losses of investees that demonstrate an inability to recover the carrying value of the investments, the investee’s liquidity and cash position and level of market acceptance of the investee’s products and services.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 5 — Impairment of goodwill

In the first quarter of 2012, the Company changed its North America reporting unit structure from a single reporting unit to five reporting units comprised of Vascular, Anesthesia/Respiratory, Cardiac, Surgical and Specialty. The Company allocated the assets and liabilities of the North America Segment among the new reporting units based on their respective operating activities, and then allocated goodwill among the reporting units using a relative fair value approach, as required by FASB Accounting Standards Codification Topic 350. The fair value of each reporting unit was determined based on a weighted combination of (i) estimation of the discounted cash flows of each of the reporting units based on projected earnings in the future (the income approach) and (ii) analysis of sales of similar assets in actual transactions (the market approach).

Following this allocation, the Company performed goodwill impairment tests on these new reporting units in the first quarter of 2012. As a result of these tests, the Company determined that three of the reporting units in the North America Segment were impaired, and it recorded goodwill impairment charges of $220 million in the Vascular reporting unit, $107 million in the Anesthesia/Respiratory reporting unit and $5 million in the Cardiac reporting unit in the first quarter of 2012.

Note 6 — Inventories

Inventories as of September 30, 2012 and December 31, 2011 consisted of the following:

 

     September 30,
2012
    December 31,
2011
 
     (Dollars in thousands)  

Raw materials

   $ 84,294      $ 87,621   

Work-in-process

     47,233        45,486   

Finished goods

     194,290        198,587   
  

 

 

   

 

 

 
     325,817        331,694   

Less: Inventory reserve

     (30,206     (32,919
  

 

 

   

 

 

 

Inventories

   $ 295,611      $ 298,775   
  

 

 

   

 

 

 

Note 7 — Goodwill and other intangible assets

In the first quarter of 2012, the Company changed its reporting structure to four reportable segments, three of which are geographically-based and one of which is comprised of the Company’s OEM business. During the third quarter of 2012, due to changes in the Company’s management and internal reporting structure, the Company’s Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. All prior comparative periods have been restated to reflect this change. See Note 14, “Business segment information” for additional information on the Company’s new reporting structure.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table provides information relating to changes in the carrying amount of goodwill, by reportable segment, for the nine months ended September 30, 2012:

 

     Americas
Segment
    EMEA
Segment
    Asia
Segment
     OEM
Segment
    Total  
     (Dollars in thousands)  

Balance as of December 31, 2011

           

Goodwill

   $ 1,005,021      $ 283,362      $ 121,983       $ 28,176      $ 1,438,542   

Accumulated impairment losses

     —          —          —           —          —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     1,005,021        283,362        121,983         28,176        1,438,542   

Goodwill impairment charges

     (332,128     —          —           —          (332,128

Goodwill related to acquisitions

     28,274        687        —           —          28,961   

Goodwill related to dispositions

     —          —          —           (28,176     (28,176

Translation adjustment

     2,347        (1,307     5,701         —          6,741   

Transfer of goodwill

     679        (679     —           —          —     

Balance as of September 30, 2012

           

Goodwill

     1,036,321        282,063        127,684         —          1,446,068   

Accumulated impairment losses

     (332,128     —          —           —          (332,128
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 704,193      $ 282,063      $ 127,684       $ —        $ 1,113,940   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

See Note 5 for information relating to the goodwill impairment charges.

The following table provides information, as of September 30, 2012 and December 31, 2011, regarding the gross carrying amount of, and accumulated amortization relating to, intangible assets:

 

     Gross Carrying Amount      Accumulated Amortization  
     September 30,
2012
     December 31,
2011
     September 30,
2012
    December 31,
2011
 
     (Dollars in thousands)  

Customer relationships

   $ 535,923       $ 537,094       $ (134,989   $ (117,505 )

In-process research and development

     45,494         —           —          —     

Intellectual property

     252,654         221,171         (90,749     (85,402 )

Distribution rights

     16,447         16,669         (13,642     (13,484 )

Trade names

     319,975         322,404         (197     (1,160 )
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,170,493       $ 1,097,338       $ (239,577   $ (217,551 )
  

 

 

    

 

 

    

 

 

   

 

 

 

The increase in intangible assets during the nine months ended September 30, 2012 primarily reflects the effect of the Company’s acquisitions. See Note 3 for discussion of Company’s acquisitions.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Amortization expense related to intangible assets was approximately $11.1 million and $10.7 million for the three months ended September 30, 2012 and September 25, 2011, respectively, and $32.3 million and $32.1 million for the nine months ended September 30, 2012 and September 25, 2011, respectively. Estimated annual amortization expense for the remainder of 2012 and the next four succeeding years is as follows (dollars in thousands):

 

2012

   $ 10,800   

2013

     44,600   

2014

     41,900   

2015

     37,500   

2016

     37,400   

Note 8 — Financial instruments

The Company uses derivative instruments for risk management purposes. Forward rate contracts are used to manage foreign currency transaction exposure. These derivative instruments are designated as cash flow hedges and are recorded on the balance sheet at fair market value. The effective portion of the gains or losses on derivatives is reported as a component of other comprehensive income and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. See Note 9, “Fair value measurement” for additional information.

The following table presents the location and fair values of derivative instruments designated as hedging instruments in the condensed consolidated balance sheet as of September 30, 2012 and December 31, 2011:

 

     September 30, 2012
Fair Value
     December 31, 2011
Fair Value
 
     (Dollars in thousands)  

Asset derivatives:

     

Foreign exchange contracts:

     

Other assets — current

   $ 447       $ 204   
  

 

 

    

 

 

 

Total asset derivatives

   $ 447       $ 204   
  

 

 

    

 

 

 

Liability derivatives:

     

Foreign exchange contracts:

     

Derivative liabilities — current

   $ 957       $ 633   
  

 

 

    

 

 

 

Total liability derivatives

   $ 957       $ 633   
  

 

 

    

 

 

 

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table provides information as to the gains and losses attributable to derivatives in cash flow hedging relationships that were reported in other comprehensive income (“OCI”), and the location and amount of gains and losses attributable to such derivatives that were reclassified from accumulated other comprehensive income (“AOCI”) in the condensed consolidated statement of income for the three and nine months ended September 30, 2012 and September 25, 2011:

 

     After Tax Gain/(Loss)
Recognized in OCI
 
     Three Months Ended     Nine Months Ended  
     September 30,
2012
     September 25,
2011
    September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

Interest rate swap

   $ 2,329       $ 2,433      $ 7,032      $ 5,784   

Foreign exchange contracts

     377         (250     (20     (276
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 2,706       $ 2,183      $ 7,012      $ 5,508   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

     Pre-Tax (Gain)/Loss Reclassified from AOCI into Income  
     Three Months Ended      Nine Months Ended  
     September 30,
2012
     September 25,
2011
     September 30,
2012
    September 25,
2011
 
     (Dollars in thousands)  

Interest rate swap:

          

Interest expense

   $ 3,663       $ 3,978       $ 11,057      $ 11,633   

Foreign exchange contracts:

          

Cost of goods sold

     13         183         (754     (479

Income from discontinued operations

     —           257         —          (511
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 3,676       $ 4,418       $ 10,303      $ 10,643   
  

 

 

    

 

 

    

 

 

   

 

 

 

There was no ineffectiveness related to the Company’s derivatives for the three and nine months ended September 30, 2012 and September 25, 2011.

During the third quarter of 2012, the Company entered into forward exchange contracts for Singapore dollars and US dollars in anticipation of the acquisition of substantially all of the assets of LMA International N.V. (“LMA”). In accordance with FASB guidance, a forecasted transaction is not eligible for hedge accounting if the forecasted transaction involves a business combination. Therefore, gains and losses relating to this arrangement were recognized as incurred. The Company realized a pre-tax loss of $7.6 million upon settlement of the forward exchange contracts. See Note 17, “Subsequent event” for additional information on the LMA acquisition.

In 2011, the Company terminated its interest rate swap covering a notional amount of $350 million designated as a hedge against the variability of the cash flows in the interest payments under the Company’s term loan. As of September 30, 2012, all unrealized losses within AOCI associated with this interest rate swap has been reclassified into earnings.

Based on exchange rates at September 30, 2012, approximately $0.2 million of unrealized losses, net of tax, within AOCI are expected to be reclassified from AOCI during the next twelve months. However, the actual amount reclassified from AOCI could vary due to future changes in exchange rates.

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Concentration of Credit Risk

Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the Company’s large number of customers and their diversity across many geographic areas. A portion of the Company’s trade accounts receivable outside the United States, however, include sales to government-owned or supported healthcare systems in several countries which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies. Deteriorating credit and economic conditions in parts of Europe, particularly in Spain, Italy, Greece and Portugal, may continue to increase the average length of time it takes the Company to collect its account receivable in certain regions within these countries.

The Company evaluates all receivables for potential collection risks. If the financial condition of customers or the countries’ healthcare systems continue to deteriorate such that their ability to make payments is uncertain, the Company may be required to increase its allowance for doubtful accounts in future periods.

The Company’s aggregate accounts receivable, net of the allowance for doubtful accounts, in Spain, Italy, Greece and Portugal as a percent of the Company’s total accounts receivable at the end of the period are as follows:

 

     September 30, 2012     December 31, 2011  
     (Dollars in thousands)  

Accounts receivable, net in Spain, Italy, Greece and Portugal

     102,664        108,545   

Percentage of total accounts receivable, net

     38     38

For the nine months ending September 30, 2012 and September 25, 2011, net revenues to customers in Spain, Italy, Greece and Portugal were $101.4 million and $108.0 million, respectively. During the second quarter of 2012, the Company collected approximately $17.5 million from the Spanish government related to past due receivables. During the third quarter of 2012, the Company collected approximately $6.5 million from the Italian government related to past due receivables.

Note 9 — Fair value measurement

For a description of the fair value hierarchy, see Note 10 to the Company’s 2011 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2011.

The following tables provide information regarding the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2012 and September 25, 2011:

 

     Total carrying
value at
September 30,
2012
     Quoted prices in
active markets
(Level 1)
     Significant other
observable inputs

(Level 2)
     Significant
unobservable
inputs (Level 3)
 
     (Dollars in thousands)  

Investments in marketable securities

   $ 4,781       $ 4,781       $ —         $ —     

Derivative assets

     447         —           447         —     

Derivative liabilities

     957         —           957         —     

Contingent consideration liabilities

     58,885         —           —           58,885   

 

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TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     Total carrying
value at
September 25,
2011
     Quoted prices in
active markets
(Level 1)
     Significant other
observable
inputs

(Level 2)
     Significant
unobservable
inputs (Level 3)
 
     (Dollars in thousands)  

Cash and cash equivalents

   $ 45,004       $ 45,004       $ —         $ —     

Investments in marketable securities

     3,762         3,762         —           —     

Bonds — foreign government

     4,976         —           4,976         —     

Derivative assets

     66         —           66         —     

Derivative liabilities

     15,566         —           15,566         —     

Contingent consideration liabilities

     9,566         —           —           9,566   

The following table provides information regarding changes in Level 3 financial liabilities during the periods ended September 30, 2012 and September 25, 2011:

 

     Contingent consideration  
           2012                 2011        
     (Dollars in thousands)  

Beginning balance

   $ 9,676      $ —     

Initial estimate upon acquisition

     55,773        15,400   

Payment

     (7,000     (6,000

Revaluations

     461        166   

Translation adjustment

     (25     —     
  

 

 

   

 

 

 

Ending balance

   $ 58,885      $ 9,566   
  

 

 

   

 

 

 

The carrying amount of long-term debt reported in the condensed consolidated balance sheet as of September 30, 2012 is $962.6 million. The Company uses a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile to determine the fair value of its debt. The Company’s implied credit rating is a factor in determining the market interest yield curve. The following table provides the fair value of the Company’s debt by fair value hierarchy level as of September 30, 2012:

 

     Fair value of debt  
     (Dollars in thousands)  

Level 1

   $ 773,404   

Level 2

     381,678   
  

 

 

 

Total

   $ 1,155,082   
  

 

 

 

In the first quarter of 2012, the Company recorded a goodwill impairment charge of $332 million based on Level 3 inputs. See Note 5 for a discussion of the goodwill impairment.

Valuation Techniques

The Company’s financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to pay benefits under certain deferred compensation plans and other compensatory arrangements. The investment assets of the trust are valued using quoted market prices.

The Company’s financial assets valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company’s financial liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts and, at September 25, 2011, an interest rate swap contract. The Company uses

 

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forward rate contracts to manage currency transaction exposure and used interest rate swap to manage exposure to interest rate changes. 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. The fair value of the interest rate swap contract was developed from market-based inputs under the income approach using cash flows discounted at relevant market interest rates. The Company has taken into account the creditworthiness of the counterparties in measuring fair value. The decrease in the Company’s derivative liabilities in 2012 is due to the termination of its interest rate swap agreement. See Note 8, “Financial instruments” for additional information.

The Company’s financial liabilities valued based upon Level 3 inputs are comprised of contingent consideration arrangements pertaining to the Company’s acquisitions. The Company accounts for contingent consideration in accordance with applicable guidance provided within the business combination rules. The Company is contractually obligated to pay certain contingent consideration upon the achievement of specified objectives, including regulatory approvals, sales targets and, in some instances, the passage of time, referred to as milestone payments, and therefore recorded contingent consideration liabilities at the time of the acquisitions. As a result, the Company is required to update its assumptions each reporting period based on new developments and record such amounts at fair value until such consideration is satisfied through payment upon the achievement of the specified objectives or failure to achieve the specified objectives.

It is estimated that the payments of the various milestones may occur as early as 2012 and extend as far as 2018 or later. As of September 30, 2012, the range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between $7.0 million and $107.0 million. The Company has determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was based on several factors including:

 

   

estimated cash flows projected from the success of market launches;

 

   

the estimated time and resources needed to complete the development of the acquired technologies;

 

   

the uncertainty of obtaining regulatory approvals within the required time periods; and

 

   

the risk adjusted discount rate for fair value measurement.

As of September 30, 2012, of the $58.9 million of total contingent consideration, the Company has recorded approximately $21.6 million in current contingent consideration and the remaining $37.3 million in other liabilities.

Note 10 — Changes in shareholders’ equity

In 2007, the Company’s 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 Company’s ability to execute on the program will depend on, among other factors, cash requirements for acquisitions, cash generated from operations, debt repayment obligations, market conditions and regulatory requirements. In addition, under the Company’s senior credit agreements, the Company is subject to certain restrictions relating to its ability to repurchase shares in the event the Company’s consolidated leverage ratio (generally, the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined in the senior credit agreements) exceeds certain levels, which may limit the Company’s ability to repurchase shares under this Board authorization. Through September 30, 2012, no shares have been purchased under this Board authorization.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table provides a reconciliation of basic to diluted weighted average shares outstanding:

 

     Three Months Ended      Nine Months Ended  
     September 30,
2012
     September 25,
2011
     September 30,
2012
     September 25,
2011
 
     (Shares in thousands)  

Basic

     40,890         40,684         40,831         40,426   

Dilutive shares assumed issued

     621         259         —           312   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     41,511         40,943         40,831         40,738   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average stock options that were antidilutive and therefore not included in the calculation of earnings per share were approximately 8,403 thousand and 9,007 thousand for the three and nine month periods ended September 30, 2012, respectively, and approximately 8,785 thousand and 8,866 thousand for the three and nine month periods ended September 25, 2011, respectively.

The following tables provide information relating to the changes in accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2012 and September 25, 2011:

 

    Cash Flow
Hedges
    Pension and
Other
Postretirement
Benefit Plans
    Foreign
Currency
Translation
Adjustment
    Accumulated
Other
Comprehensive
Income (Loss)
 
    (Dollars in thousands)  

Balance at December 31, 2011

  $ (7,257   $ (134,548   $ (17,548   $ (159,353

Current-period other comprehensive income

    7,012        3,208        10,305        20,525   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

  $ (245   $ (131,340   $ (7,243   $ (138,828
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Cash Flow
Hedges
    Pension and
Other
Postretirement
Benefit Plans
    Foreign
Currency
Translation
Adjustment
    Accumulated
Other
Comprehensive
Income (Loss)
 
    (Dollars in thousands)  

Balance at December 31, 2010

  $ (15,262   $ (95,746   $ 59,128      $ (51,880

Current-period other comprehensive income

    5,508        6,423        11,866        23,797   

Divestiture of Marine

    —          8,427        (33,424     (24,997

Discontinued operations

    —          1        2,154        2,155   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 25, 2011

  $ (9,754   $ (80,895   $ 39,724      $ (50,925
 

 

 

   

 

 

   

 

 

   

 

 

 

Note 11 — Taxes on income from continuing operations

 

     Three Months Ended     Nine Months Ended  
     September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 

Effective income tax rate

     22.8     23.5     (1.4 )%      23.0

The effective income tax rate for the three months and nine months ended September 30, 2012 was 22.8% and (1.4)%, respectively, compared to 23.5% and 23.0% for the three months and nine months ended September 25, 2011, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2012 was

 

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impacted by the Company’s ability to deduct only $45 million of the $332 million goodwill impairment charge recorded in the first quarter of 2012. Accordingly, the reduction in the tax rate for the nine months ended September 30, 2012 reflects the Company’s ability to realize only a limited tax benefit related to this charge.

Note 12 — 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 Company’s 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. In 2008 the Company amended the Teleflex Retirement Income Plan (“TRIP”) to cease future benefit accruals for all employees, other than those subject to a collective bargaining agreement, and amended its Supplemental Executive Retirement Plans (“SERP”) for all executives to cease future benefit accruals for both employees and executives as of December 31, 2008. The Company replaced the non-qualified defined benefits provided under the SERP with a non-qualified defined contribution arrangement under the Company’s Deferred Compensation Plan, effective January 1, 2009. In addition, in 2008, the Company’s postretirement benefit plans were amended to eliminate future benefits for employees, other than those subject to a collective bargaining agreement, who had not attained age 50 and whose age plus service was less than 65.

The Company and certain of its 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.

Net benefit cost of pension and postretirement benefit plans consisted of the following:

 

    Pension
Three Months Ended
    Postretirement Benefits
Three Months Ended
    Pension
Nine Months Ended
    Postretirement Benefits
Nine Months Ended
 
    September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 
                      (Dollars in thousands)                    

Service cost

  $ 696      $ 531      $ 159      $ (37   $ 2,085      $ 1,723      $ 475      $ 359   

Interest cost

    4,115        4,387        473        441        12,366        12,973        1,419        1,541   

Expected return on Plan assets

    (5,043     (5,160     —          —          (15,128     (15,003     —          —     

Net amortization and deferral

    1,604        987        123        (172     4,814        3,018        368        (34

Settlement charge

    —          —          —          —          (124     —          —          —     

Curtailment charge

    —          —          —          —          111        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net benefit cost

  $ 1,372      $ 745      $ 755      $ 232      $ 4,124      $ 2,711      $ 2,262      $ 1,866   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The increase in net amortization expense for the pension and postretirement benefit plans reflects the loss due to actuarial changes in benefit obligation recorded at December 31, 2011.

The Company is required to make minimum pension contributions totaling $19.5 million during 2012, of which $3.9 million and $15.2 million were made during the three and nine months ended September 30, 2012, respectively.

Note 13 — Commitments and contingent liabilities

Product warranty liability: The Company warrants to the original purchasers of certain of its products that it will, at its option, repair or replace such products, without charge, 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

 

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been sold, and a reasonable estimate of the costs (based on historical claims experience relative to sales) can be made. The following table provides information regarding changes in the Company’s product warranty liability accruals for the nine months ended September 30, 2012 (dollars in thousands):

 

Balance — December 31, 2011

   $ 7,935   

Accruals for warranties issued in 2012

     72   

Settlements (cash and in kind)(a)

     (6,305

Accruals related to pre-existing warranties(a)

     (1,255

Translation

     (20
  

 

 

 

Balance — September 30, 2012

   $ 427   
  

 

 

 

 

(a) Including those related to divested businesses. See Note 16, “Divestiture-related activities” for additional information.

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. At September 30, 2012, the Company had no residual value guarantees related to its operating leases.

Environmental: The Company is subject to contingencies as a result of 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 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, the regulatory agencies involved and their enforcement policies, as well as the presence or absence of other potentially responsible parties. At September 30, 2012, the Company has recorded approximately $2.6 million in accrued liabilities and approximately $6.3 million in other liabilities relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, potential liability may exceed the amount accrued as of September 30, 2012. The time frame over which the accrued amounts may be paid out, based on past history, is estimated to be 15-20 years.

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, 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, results of operations or liquidity. However, litigation is subject to many uncertainties, and the outcome of litigation is not predictable with assurance. An adverse outcome in current or future litigation could have a material adverse effect on the Company’s 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.

Tax audits and examinations: The Company and its subsidiaries are routinely subject to tax examinations by various taxing authorities. As of September 30, 2012, the most significant tax examinations in process are in Canada, the Czech Republic, France and Austria. In conjunction with these examinations and as a regular and routine practice, the Company may determine a need to establish certain reserves or to adjust existing reserves

 

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with respect to uncertain tax positions. Accordingly, developments occurring with respect to these examinations, including resolution of uncertain tax positions, could result in increases or decreases to the Company’s recorded tax liabilities, which could impact the Company’s financial results.

Other: The Company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary conduct of its business. On average, such commitments are not at prices in excess of current market.

Note 14 — Business segment information

In the first quarter of 2012, as a result of a reorganization of the Company’s internal business unit reporting structure and related internal financial reporting, the Company changed its segment reporting from a single operating segment to four operating segments. During the third quarter of 2012, due to changes in the Company’s management and internal reporting structure, the Company’s Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. The change did not affect the Company’s reporting unit structure. All prior comparative periods have been restated to reflect this change.

An operating segment is a component of the Company (a) that engages in business activities from which it may earn revenues and incur expenses, (b) whose operating results are regularly reviewed by the Company’s 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 identified four operating segments, which also comprise its four reportable segments.

Three of the four reportable segments are geographically based: Americas (representing the Company’s operations in North America and Latin America), EMEA (representing the Company’s operations in Europe, the Middle East and Africa) and Asia. The fourth reportable segment is OEM.

The Company’s geographically based segments design, manufacture and distribute medical devices primarily used in critical care, surgical applications and cardiac care and generally serve two end markets: hospitals and healthcare providers, and home health. The products of the geographically based segments are most widely used in the acute care setting for a range of diagnostic and therapeutic procedures and in general and specialty surgical applications. The Company’s OEM Segment designs, manufactures and supplies devices and instruments for other medical device manufacturers.

The following tables present the Company’s segment results for the three and nine months ended September 30, 2012 and September 25, 2011:

 

     Three Months Ended September 30, 2012  
     Americas      EMEA      Asia      OEM      Totals  
     (Dollars in thousands)  
Segment Results               

Segment net revenues from external customers

   $ 169,548       $ 116,015       $ 45,592       $ 36,899       $ 368,054   

Segment depreciation and amortization

     16,439         5,249         967         1,058         23,713   

Segment operating profit(1)

     17,476         5,318         18,718         9,417         50,929   

Segment expenditures for property, plant and equipment

     9,253         3,248         43         2,052         14,596   

Intersegment revenues

     38,874         17,136         —           94      

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     Three Months Ended September 25, 2011  
     Americas      EMEA      Asia      OEM      Totals  
     (Dollars in thousands)  
Segment Results               

Segment net revenues from external customers

   $ 167,271       $ 127,121       $ 35,114       $ 33,235       $ 362,741   

Segment depreciation and amortization

     16,440         5,875         970         877         24,162   

Segment operating profit(1)

     21,526         20,900         12,258         7,048         61,732   

Segment expenditures for property, plant and equipment

     7,565         3,299         234         1,068         12,166   

Intersegment revenues

     41,245         17,036         —           129      

 

    Nine Months Ended September 30, 2012  
    Americas     EMEA     Asia     OEM     Totals  
    (Dollars in thousands)  
Segment Results          

Segment net revenues from external customers

  $ 526,685      $ 377,513      $ 123,205      $ 104,550      $ 1,131,953   

Segment depreciation and amortization

    47,482        16,096        2,561        3,022        69,161   

Segment operating profit(1)

    64,975        46,706        41,500        22,884        176,065   

Segment assets

    1,784,773        767,995        268,669        38,835        2,860,272   

Segment expenditures for property, plant and equipment

    20,870        9,620        105        8,545        39,140   

Intersegment revenues

    114,562        52,235        —          382     

 

    Nine Months Ended September 25, 2011  
    Americas     EMEA     Asia     OEM     Totals  
    (Dollars in thousands)  
Segment Results          

Segment net revenues from external customers

  $ 503,394      $ 390,332      $ 104,957      $ 90,807      $ 1,089,490   

Segment depreciation and amortization

    49,365        17,565        2,864        2,711        72,505   

Segment operating profit(1)

    63,699        55,960        34,576        15,861        170,096   

Segment assets

    2,079,348        821,659        206,230        77,932        3,185,169   

Segment expenditures for property, plant and equipment

    16,163        7,283        563        3,135        27,144   

Intersegment revenues

    115,418        48,547        1        362     

 

(1) Segment operating profit includes a segment’s net revenues from external customers reduced by its cost of goods sold, selling, general and administrative expenses, and an allocation of corporate expenses. Segment operating profit excludes goodwill impairment charges, restructuring and impairment charges, gain on sales of businesses and assets, interest income and expense, loss on extinguishment of debt and taxes on income.

The following tables present reconciliations of segment results to the Company’s condensed consolidated results for the three and nine months ended September 30, 2012 and September 25, 2011:

 

    Three Months Ended     Nine Months Ended  
  September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 
    (Dollars in thousands)  

Reconciliation of Segment Operating Profit to Income (Loss) from Continuing Operations Before Interest, Loss on Extinguishments of Debt and Taxes

       

Segment operating profit

  $ 50,929      $ 61,732      $ 176,065      $ 170,096   

Goodwill impairment

    —          —          (332,128     —     

Restructuring and other impairment charges

    (1,088     173        (84     (3,598

Gain on sales of businesses and assets

    —          —          332        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest, loss on extinguishments of debt and taxes

  $ 49,841      $ 61,905      $ (155,815   $ 166,498   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     September 30,
2012
     September 25,
2011
 
     (Dollars in thousands)  

Reconciliation of Segment Assets to Condensed Consolidated Total Assets

     

Segment assets(1)

   $ 2,860,272       $ 3,185,169   

Corporate assets(2)

     802,656         565,249   

Assets of businesses divested(3)

     —           106,591   

Assets held for sale

     7,861         11,702   
  

 

 

    

 

 

 

Total assets

   $ 3,670,789       $ 3,868,711   
  

 

 

    

 

 

 

 

(1) Segment assets for the 2011 period include assets of the orthopedic business of the Company’s OEM Segment, which, as of September 30, 2012, had been disposed in connection with the sale of the business.
(2) Increase in corporate assets from the prior period reflects higher cash balances as a result of the sale of businesses in the fourth quarter of 2011.
(3) Assets of businesses divested were previously reported as assets held for sale in 2011.

 

    Three Months Ended     Nine Months Ended  
  September 30,
2012
    September 25,
2011
    September 30,
2012
    September 25,
2011
 
    (Dollars in thousands)  

Reconciliation of Segment Expenditures for Property, Plant and Equipment to Condensed Consolidated Total Expenditures for Property, Plant and Equipment

       

Segment expenditures for property, plant and equipment

  $ 14,596      $ 12,166      $ 39,140      $ 27,144   

Corporate expenditures for property, plant and equipment

    2,603        10        6,952        164   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenditures for property, plant and equipment

  $ 17,199      $ 12,176      $ 46,092      $ 27,308   
 

 

 

   

 

 

   

 

 

   

 

 

 

Note 15 — Condensed consolidated guarantor financial information

In June 2011, Teleflex Incorporated (referred to below as “Parent Company”) issued $250 million of 6.875% senior subordinated notes through a registered public offering. The notes are guaranteed, jointly and severally, by certain of the Parent Company’s subsidiaries (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions. Each Guarantor Subsidiary is 100% owned by the Parent Company. The Company’s condensed consolidated statements of income and comprehensive income for the three and nine month periods ended September 30, 2012 and September 25, 2011, condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011 and condensed consolidated statements of cash flows for the nine month periods ended September 30, 2012 and September 25, 2011, each of which are set forth below, provide consolidated information for:

 

  a. Parent Company, the issuer of the guaranteed obligations;
  b. Guarantor Subsidiaries, on a combined basis;
  c. Non-guarantor subsidiaries, on a combined basis; and
  d. Parent Company and its subsidiaries on a consolidated basis.

The same accounting policies as described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 are used by each entity in the condensed consolidated financial information, except for the use by the Parent Company and Guarantor Subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation.

Consolidating entries and eliminations in the following consolidated financial statements represent adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the Guarantor Subsidiaries and the Non-guarantor subsidiaries, (b) eliminate the investments in subsidiaries and (c) record consolidating entries.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

    Three Months Ended September 30, 2012  
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Condensed
Consolidated
 
    (Dollars in thousands)  

Net revenues

  $ —        $ 232,155      $ 196,675      $ (60,776   $ 368,054   

Cost of goods sold

    —          130,840        115,381        (58,734     187,487   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          101,315        81,294        (2,042     180,567   

Selling, general and administrative expenses

    11,114        61,505        42,030        229        114,878   

Research and development expenses

    —          13,184        1,576        —          14,760   

Restructuring and other impairment charges

    —          1,070        18        —          1,088   

(Gain) loss on sales of businesses and assets

    1        (150,310     —          150,309        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest and taxes

    (11,115     175,866        37,670        (152,580     49,841   

Interest expense

    36,105        (19,488     1,876        —          18,493   

Interest income

    (107     —          (233     —          (340
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

    (47,113     195,354        36,027        (152,580     31,688   

Taxes (benefit) on income (loss) from continuing operations

    (16,624     17,739        6,811        (689     7,237   

Equity in net income of consolidated subsidiaries

    52,627        21,946        —          (74,573     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    22,138        199,561        29,216        (226,464     24,451   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from discontinued operations

    (1,089     258        —          —          (831

Taxes (benefit) on income (loss) from discontinued operations

    (693     2,649        (266     —          1,690   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

    (396     (2,391     266        —          (2,521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    21,742        197,170        29,482        (226,464     21,930   

Less: Income from continuing operations attributable to noncontrolling interests

    —          —          188        —          188   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

    21,742        197,170        29,294        (226,464     21,742   

Other comprehensive income attributable to common shareholders

    49,428        50,393        41,277        (91,670     49,428   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to common shareholders

  $ 71,170      $ 247,563      $ 70,571      $ (318,134   $ 71,170   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

    Three Months Ended September 25, 2011  
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Condensed
Consolidated
 
    (Dollars in thousands)  

Net revenues

  $ —        $ 233,294      $ 196,399      $ (66,952   $ 362,741   

Cost of goods sold

    —          140,745        111,184        (64,818     187,111   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          92,549        85,215        (2,134     175,630   

Selling, general and administrative expenses

    8,997        54,057        38,235        293        101,582   

Research and development expenses

    —          10,581        1,735        —          12,316   

Restructuring and other impairment charges

    —          (172     (1     —          (173
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest, loss on extinguishments of debt and taxes

    (8,997     28,083        45,246        (2,427     61,905   

Interest expense

    31,613        (12,632     196        —          19,177   

Interest income

    (133     (14     (171     —          (318
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

    (40,477     40,729        45,221        (2,427     43,046   

Taxes (benefit) on income (loss) from continuing operations

    (14,712     12,195        13,548        (906     10,125   

Equity in net income of consolidated subsidiaries

    70,034        38,641        —          (108,675     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    44,269        67,175        31,673        (110,196     32,921   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from discontinued operations

    (1,106     1,089        14,605        —          14,588   

Taxes (benefit) on income (loss) from discontinued operations

    (488     940        2,992        —          3,444   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

    (618     149        11,613        —          11,144   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    43,651        67,324        43,286        (110,196     44,065   

Less: Income from continuing operations attributable to noncontrolling interests

    —          —          289        —          289   

Income from discontinued operations attributable to noncontrolling interest

    —          —          125        —          125   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

    43,651        67,324        42,872        (110,196     43,651   

Other comprehensive loss attributable to common shareholders

    (47,299     (47,078     (48,503     95,581        (47,299
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common shareholders

  $ (3,648   $ 20,246      $ (5,631   $ (14,615   $ (3,648
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

    Nine Months Ended September 30, 2012  
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Condensed
Consolidated
 
    (Dollars in thousands)  

Net revenues

  $ —        $ 705,703      $ 606,381      $ (180,131   $ 1,131,953   

Cost of goods sold

    —          409,801        349,003        (175,896     582,908   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          295,902        257,378        (4,235     549,045   

Selling, general and administrative expenses

    39,683        182,882        109,861        539        332,965   

Research and development expenses

    —          35,103        4,912        —          40,015   

Goodwill impairment

    —          331,779        349        —          332,128   

Restructuring and other impairment charges

    —          (580     664        —          84   

Gain on sales of businesses and assets

    (116,193     (150,310     (332     266,503        (332
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest and taxes

    76,510        (102,972     141,924        (271,277     (155,815

Interest expense

    109,206        (59,728     5,466        —          54,944   

Interest income

    (360     (8     (956     —          (1,324
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

    (32,336     (43,236     137,414        (271,277     (209,435

Taxes (benefit) on income (loss) from continuing operations

    (51,685     34,932        21,306        (1,592     2,961   

Equity in net income of consolidated subsidiaries

    (238,187     100,706        —          137,481        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    (218,838     22,538        116,108        (132,204     (212,396
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from discontinued operations

    (1,180     (9,171     2,400        —          (7,951

Benefit on income (loss) from discontinued operations

    (638     (935     (95     —          (1,668
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

    (542     (8,236     2,495        —          (6,283
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (219,380     14,302        118,603        (132,204     (218,679

Less: Income from continuing operations attributable to noncontrolling interests

    —          —          701        —          701   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

    (219,380     14,302        117,902        (132,204     (219,380

Other comprehensive income attributable to common shareholders

    20,525        7,136        6,510        (13,646     20,525   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common shareholders

  $ (198,855   $ 21,438      $ 124,412      $ (145,850   $ (198,855
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

    Nine Months Ended September 25, 2011  
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Condensed
Consolidated
 
    (Dollars in thousands)  

Net revenues

  $ —        $ 688,620      $ 585,860      $ (184,990   $ 1,089,490   

Cost of goods sold

    —          417,464        333,309        (180,311     570,462   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          271,156        252,551        (4,679     519,028   

Selling, general and administrative expenses

    28,321        173,004        110,918        887        313,130   

Research and development expenses

    —          30,014        5,788        —          35,802   

Restructuring and other impairment charges

    11        1,686        1,901        —          3,598   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before interest, loss on extinguishments of debt and taxes

    (28,332     66,452        133,944        (5,566     166,498   

Interest expense

    89,697        (39,002     413        —          51,108   

Interest income

    (247     (55     (374     —          (676

Loss on extinguishments of debt

    15,413        —          —          —          15,413   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

    (133,195     105,509        133,905        (5,566     100,653   

Taxes (benefit) on income (loss) from continuing operations

    (49,333     36,784        37,621        (1,938     23,134   

Equity in net income of consolidated subsidiaries

    265,907        150,761        —          (416,668     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    182,045        219,486        96,284        (420,296     77,519   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from discontinued operations

    (52,424     40,678        87,451        —          75,705   

Taxes (benefit) on income (loss) from discontinued operations

    (25,912     6,523        15,867        —          (3,522
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

    (26,512     34,155        71,584        —          79,227   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    155,533        253,641        167,868        (420,296     156,746   

Less: Income from continuing operations attributable to noncontrolling interests

    —          —          770        —          770   

Income from discontinued operations attributable to noncontrolling interest

    —          —          443        —          443   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

    155,533        253,641        166,655        (420,296     155,533   

Other comprehensive income (loss) attributable to common shareholders

    955        (20,172     (19,592     39,764        955   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to common shareholders

  $ 156,488      $ 233,469      $ 147,063      $ (380,532   $ 156,488   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 30, 2012  
     Parent
Company
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Condensed
Consolidated
 
     (Dollars in thousands)  
ASSETS              

Current assets

             

Cash and cash equivalents

   $ 123,254       $ —         $ 511,575       $ —        $ 634,829   

Accounts receivable, net

     335         755,506         386,375         (875,269     266,947   

Inventories, net

     —           188,158         121,247         (13,794     295,611   

Prepaid expenses and other current assets

     4,896         3,425         15,040         —          23,361   

Prepaid taxes

     20,949         —           13,794         2        34,745   

Deferred tax assets

     3,642         19,697         6,361         —          29,700   

Assets held for sale

     —           2,738         5,123         —          7,861   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     153,076         969,524         1,059,515         (889,061     1,293,054   

Property, plant and equipment, net

     7,146         159,313         100,933         —          267,392   

Goodwill

     —           670,358         443,582         —          1,113,940   

Intangibles assets, net

     —           764,153         166,763         —          930,916   

Investments in affiliates

     5,127,455         1,253,393         20,234         (6,399,311     1,771   

Deferred tax assets

     71,933         —           2,405         (74,045     293   

Other assets

     34,557         2,656,306         679,530         (3,306,970     63,423   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,394,167       $ 6,473,047       $ 2,472,962       $ (10,669,387   $ 3,670,789   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY              

Current liabilities

             

Current borrowings

   $ —         $ —         $ 4,700       $ —        $ 4,700   

Accounts payable

     79,776         839,834         22,255         (878,162     63,703   

Accrued expenses

     15,582         16,507         31,026         —          63,115   

Current portion of contingent consideration

     —           20,171         1,421         —          21,592   

Payroll and benefit-related liabilities

     31,790         9,651         26,165         —          67,606   

Derivative liabilities

     957         —           —           —          957   

Accrued interest

     9,768         —           4         —          9,772   

Income taxes payable

     —           —           11,980         —          11,980   

Current liability for uncertain tax positions

     —           —           4,201         —          4,201   

Deferred tax liabilities

     —           —           1,051         —          1,051   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     137,873         886,163         102,803         (878,162     248,677   

Long-term borrowings

     962,596         —           —           —          962,596   

Deferred tax liabilities

     —           411,849         55,388         (74,045     393,192   

Pension and other postretirement benefit liabilities

     130,096         33,826         14,842         —          178,764   

Noncurrent liability for uncertain tax positions

     14,469         18,679         30,343         —          63,491   

Other liabilities

     2,396,177         37,317         945,946         (3,310,770     68,670   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     3,641,211         1,387,834         1,149,322         (4,262,977     1,915,390   

Total common shareholders’ equity

     1,752,956         5,085,213         1,321,197         (6,406,410     1,752,956   

Noncontrolling interest

     —           —           2,443         —          2,443   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,752,956         5,085,213         1,323,640         (6,406,410     1,755,399   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 5,394,167       $ 6,473,047       $ 2,472,962       $ (10,669,387   $ 3,670,789   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

30


Table of Contents

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     December 31, 2011  
     Parent
Company
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Condensed
Consolidated
 
     (Dollars in thousands)  
ASSETS              

Current assets

             

Cash and cash equivalents

   $ 114,531       $ —         $ 469,557       $ —        $ 584,088   

Accounts receivable, net

     269         304,813         464,834         (483,690     286,226   

Inventories, net

     —           201,147         107,188         (9,560     298,775   

Prepaid expenses and other current assets

     7,203         3,675         22,527         —          33,405   

Prepaid taxes

     24,006         —           4,869         (29     28,846   

Deferred tax assets

     8,659         26,886         5,883         (414     41,014   

Assets held for sale

     —           2,738         5,164         —          7,902   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     154,668         539,259         1,080,022         (493,693     1,280,256   

Property, plant and equipment, net

     8,208         149,300         94,404         —          251,912   

Goodwill

     —           1,001,353         437,189         —          1,438,542   

Intangibles assets, net

     —           711,962         167,825         —          879,787   

Investments in affiliates

     5,244,275         922,208         20,327         (6,184,802     2,008   

Deferred tax assets

     65,400         —           2,387         (67,509     278   

Other assets

     42,183         2,534,124         164,662         (2,669,649     71,320   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,514,734       $ 5,858,206       $ 1,966,816       $ (9,415,653   $ 3,924,103   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY              

Current liabilities

             

Current borrowings

   $ —         $ —         $ 4,986       $ —        $ 4,986   

Accounts payable

     101,907         387,612         64,694         (487,121     67,092   

Accrued expenses

     23,208         21,454         29,545         —          74,207   

Current portion of contingent consideration

     —           3,953         —           —          3,953   

Payroll and benefit-related liabilities

     24,031         13,867         26,488         —          64,386   

Derivative liabilities

     633         —           —           —          633   

Accrued interest

     10,948         —           12         —          10,960   

Income taxes payable

     —           —           21,113         (29     21,084   

Current liability for uncertain tax positions

     —           —           22,656