10-Q
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 27, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                    .
Commission file number 1-5353
 
TELEFLEX INCORPORATED
(Exact name of registrant as specified in its charter)
 
Delaware
 
23-1147939
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
 
550 E. Swedesford Rd., Suite 400, Wayne, PA
 
19087
(Address of principal executive offices)
 
(Zip Code)
(610) 225-6800
(Registrant’s telephone number, including area code)
(None)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
 (Do not check if a smaller reporting company)
 
Smaller reporting company
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨    No  x
The registrant had 41,601,863 shares of common stock, $1.00 par value, outstanding as of October 19, 2015.





TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 2015
TABLE OF CONTENTS
 
  
Page
  
 
 
 
 
 
 
Item 1:
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Item 2:
 
  
Item 3:
 
  
Item 4:
 
  
 
 
 
  
 
 
 
 
 
 
Item 1:
 
  
Item 1A:
 
  
Item 2:
 
  
Item 3:
 
  
Item 4:
 
 
Item 5:
 
  
Item 6:
 
  
 
 
 
  


1



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 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars and shares in thousands, except per share)
Net revenues
$
443,714

 
$
457,173

 
$
1,325,189

 
$
1,363,824

Cost of goods sold
215,501

 
221,007

 
641,102

 
662,411

Gross profit
228,213

 
236,166

 
684,087

 
701,413

Selling, general and administrative expenses
138,840

 
138,252

 
420,765

 
425,392

Research and development expenses
12,571

 
14,871

 
38,898

 
43,803

Restructuring charges
660

 
1,108

 
5,688

 
16,511

Gain on sale of assets
(408
)
 

 
(408
)
 

Income from continuing operations before interest, extinguishment of debt and taxes
76,550

 
81,935

 
219,144

 
215,707

Interest expense
14,306

 
17,184

 
47,685

 
48,650

Interest income
(130
)
 
(161
)
 
(453
)
 
(494
)
Loss on extinguishment of debt

 

 
10,454

 

Income from continuing operations before taxes
62,374

 
64,912

 
161,458

 
167,551

Taxes on income from continuing operations
803

 
9,684

 
15,415

 
28,224

Income from continuing operations
61,571

 
55,228

 
146,043

 
139,327

Operating loss from discontinued operations
(788
)
 
(247
)
 
(1,432
)
 
(1,866
)
(Benefit) taxes on loss from discontinued operations
(69
)
 
24

 
180

 
(345
)
Loss from discontinued operations
(719
)
 
(271
)
 
(1,612
)
 
(1,521
)
Net income
60,852

 
54,957

 
144,431

 
137,806

Less: Income from continuing operations attributable to
noncontrolling interest
28

 
126

 
692

 
765

Net income attributable to common shareholders
$
60,824

 
$
54,831

 
$
143,739

 
$
137,041

Earnings per share available to common shareholders:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
1.48

 
$
1.33

 
$
3.50

 
$
3.35

Loss from discontinued operations
(0.02
)
 
(0.01
)
 
(0.04
)
 
(0.04
)
Net income
$
1.46

 
$
1.32

 
$
3.46

 
$
3.31

Diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
1.27

 
$
1.18

 
$
3.03

 
$
3.00

Loss from discontinued operations
(0.02
)
 

 
(0.03
)
 
(0.04
)
Net income
$
1.25

 
$
1.18

 
$
3.00

 
$
2.96

Dividends per share
$
0.34

 
$
0.34

 
$
1.02

 
$
1.02

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
41,597

 
41,399

 
41,542

 
41,347

Diluted
48,532

 
46,628

 
47,969

 
46,256

Amounts attributable to common shareholders:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
61,543

 
$
55,102

 
$
145,351

 
$
138,562

Loss from discontinued operations, net of tax
(719
)
 
(271
)
 
(1,612
)
 
(1,521
)
Net income
$
60,824

 
$
54,831

 
$
143,739

 
$
137,041


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

2



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Net income
$
60,852

 
$
54,957

 
$
144,431

 
$
137,806

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation, net of tax of $2,750, $12,721, $20,854 and $13,252 for the three and nine month periods, respectively
(29,329
)
 
(46,395
)
 
(91,216
)
 
(41,105
)
Pension and other postretirement benefit plans adjustment, net of tax of $(609), $(526), $(1,894) and $(1,235) for the three and nine month periods, respectively
1,185

 
1,094

 
3,622

 
2,336

Derivatives qualifying as hedges, net of tax of $420, $(34), $856 and $(117) for the three and nine month periods, respectively
(730
)
 
60

 
(1,489
)
 
203

Other comprehensive loss, net of tax:
(28,874
)
 
(45,241
)
 
(89,083
)
 
(38,566
)
Comprehensive income
31,978

 
9,716

 
55,348

 
99,240

Less: comprehensive (loss) income attributable to non-controlling interest
(57
)
 
86

 
613

 
793

Comprehensive income attributable to common shareholders
$
32,035

 
$
9,630

 
$
54,735

 
$
98,447


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

3



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
276,463

 
$
303,236

Accounts receivable, net
272,996

 
273,704

Inventories, net
345,899

 
335,593

Prepaid expenses and other current assets
33,798

 
35,697

Prepaid taxes
43,966

 
40,256

Deferred tax assets
55,981

 
57,301

Assets held for sale
7,044

 
7,422

Total current assets
1,036,147

 
1,053,209

Property, plant and equipment, net
313,244

 
317,435

Goodwill
1,303,175

 
1,323,553

Intangible assets, net
1,192,364

 
1,216,720

Investments in affiliates
324

 
1,150

Deferred tax assets
940

 
1,178

Other assets
61,507

 
64,010

Total assets
$
3,907,701

 
$
3,977,255

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Current borrowings
$
416,685

 
$
368,401

Accounts payable
67,906

 
64,100

Accrued expenses
67,027

 
72,383

Current portion of contingent consideration
545

 
11,276

Payroll and benefit-related liabilities
77,435

 
85,442

Accrued interest
7,490

 
9,169

Income taxes payable
9,728

 
13,768

Other current liabilities
10,655

 
10,360

Total current liabilities
657,471

 
634,899

Long-term borrowings
646,000

 
700,000

Deferred tax liabilities
406,101

 
451,541

Pension and postretirement benefit liabilities
148,514

 
167,241

Noncurrent liability for uncertain tax provisions
50,817

 
50,884

Other liabilities
57,737

 
58,991

Total liabilities
1,966,640

 
2,063,556

Commitments and contingencies

 

Total common shareholders' equity
1,938,891

 
1,911,309

Noncontrolling interest
2,170

 
2,390

Total equity
1,941,061

 
1,913,699

Total liabilities and equity
$
3,907,701

 
$
3,977,255


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


4



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Cash Flows from Operating Activities of Continuing Operations
 
 
 
Net income
$
144,431

 
$
137,806

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations
1,612

 
1,521

Depreciation expense
34,035

 
37,409

Amortization expense of intangible assets
45,278

 
47,053

Amortization expense of deferred financing costs and debt discount
12,662

 
11,792

Loss on extinguishment of debt
10,454

 

Gain on sale of assets
(408
)
 

Changes in contingent consideration
(3,260
)
 
(7,670
)
Stock-based compensation
10,379

 
9,125

Deferred income taxes, net
(21,960
)
 
(2,808
)
Other
(18,329
)
 
(4,310
)
Changes in operating assets and liabilities, net of effects of acquisitions and disposals:
 
 
 
Accounts receivable
(8,714
)
 
2,442

Inventories
(19,904
)
 
(23,084
)
Prepaid expenses and other current assets
1,636

 
(4,087
)
Accounts payable and accrued expenses
(2,855
)
 
14,258

Income taxes receivable and payable, net
(8,297
)
 
(10,649
)
   Net cash provided by operating activities from continuing operations
176,760

 
208,798

Cash Flows from Investing Activities of Continuing Operations:
 
 
 
Expenditures for property, plant and equipment
(45,566
)
 
(48,220
)
Proceeds from sale of assets
408

 
5,251

Payments for businesses and intangibles acquired, net of cash acquired
(63,451
)
 
(28,535
)
Investment in affiliates

 
(40
)
Net cash used in investing activities from continuing operations
(108,609
)
 
(71,544
)
Cash Flows from Financing Activities of Continuing Operations:
 
 
 
Proceeds from new borrowings
288,100

 
250,000

Reduction in borrowings
(303,627
)
 
(480,009
)
Debt extinguishment, issuance and amendment fees
(9,017
)
 
(3,689
)
Net proceeds from share based compensation plans and the related tax impacts
4,815

 
2,936

Payments to noncontrolling interest shareholders
(833
)
 
(1,094
)
Payments for contingent consideration
(7,974
)
 

Dividends paid
(42,382
)
 
(42,174
)
Net cash used in financing activities from continuing operations
(70,918
)
 
(274,030
)
Cash Flows from Discontinued Operations:
 
 
 
Net cash used in operating activities
(1,954
)
 
(1,946
)
Net cash used in discontinued operations
(1,954
)
 
(1,946
)
Effect of exchange rate changes on cash and cash equivalents
(22,052
)
 
(6,880
)
Net decrease in cash and cash equivalents
(26,773
)
 
(145,602
)
Cash and cash equivalents at the beginning of the period
303,236

 
431,984

Cash and cash equivalents at the end of the period
$
276,463

 
$
286,382


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

5



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
 
Treasury Stock
 
Noncontrolling
Interest
 
Total
Equity
 
Shares
 
Dollars
 
 
 
 
Shares
 
Dollars
 
 
 
(Dollars and shares in thousands, except per share)
Balance at December 31, 2013
43,243

 
$
43,243

 
$
409,338

 
$
1,696,424

 
$
(110,855
)
 
2,064

 
$
(124,623
)
 
$
2,489

 
$
1,916,016

Net income
 

 
 

 
 

 
137,041

 
 

 
 

 
 

 
765

 
137,806

Cash dividends ($1.02 per share)
 

 
 

 
 

 
(42,174
)
 
 

 
 

 
 

 
 

 
(42,174
)
Other comprehensive (loss) income
 

 
 

 
 

 
 

 
(38,594
)
 
 

 
 

 
28

 
(38,566
)
Distributions to noncontrolling interest shareholders
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(1,094
)
 
(1,094
)
Settlements of convertible notes


 


 
4

 
 

 
 

 


 
(4
)
 
 

 

Settlements of note hedges associated with convertible notes
 

 
 

 
(7
)
 
 

 
 

 


 
6

 
 

 
(1
)
Shares issued under compensation plans
158

 
158

 
9,001

 
 
 
 
 
(75
)
 
2,684

 
 
 
11,843

Deferred compensation
 

 
 
 
 
 
 
 
 
 
(2
)
 
86

 
 
 
86

Balance at September 28, 2014
43,401

 
$
43,401

 
$
418,336

 
$
1,791,291

 
$
(149,449
)
 
1,987

 
$
(121,851
)
 
$
2,188

 
$
1,983,916

 
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
 
Treasury Stock
 
Noncontrolling
Interest
 
Total
Equity
 
Shares
 
Dollars
 
 
 
 
Shares
 
Dollars
 
 
 
(Dollars and shares in thousands, except per share)
Balance at December 31, 2014
43,420

 
$
43,420

 
$
422,394

 
$
1,827,845

 
$
(260,895
)
 
1,981

 
$
(121,455
)
 
$
2,390

 
$
1,913,699

Net income
 
 
 

 
 

 
143,739

 
 

 
 

 
 

 
692

 
144,431

Cash dividends ($1.02 per share)
 

 
 

 
 

 
(42,382
)
 
 

 
 

 
 

 
 

 
(42,382
)
Other comprehensive loss
 

 
 

 
 

 
 

 
(89,004
)
 
 

 
 

 
(79
)
 
(89,083
)
Distributions to noncontrolling interest shareholders
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(833
)
 
(833
)
Settlements of convertible notes
 
 
 
 
(59
)
 
 

 
 

 
 
 
62

 
 
 
3

Settlements of note hedges associated with convertible notes
 
 
 
 
126

 
 
 
 
 
 
 
(125
)
 
 

 
1

Shares issued under compensation plans
95

 
95

 
13,379

 
 

 
 

 
(63
)
 
1,678

 
 

 
15,152

Deferred compensation
 

 
 

 
 

 
 

 
 

 
(3
)
 
73

 
 

 
73

Balance at September 27, 2015
43,515

 
$
43,515

 
$
435,840

 
$
1,929,202

 
$
(349,899
)
 
1,915

 
$
(119,767
)
 
$
2,170

 
$
1,941,061

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

6


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 1 — Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated and its subsidiaries are prepared on the same basis as the annual consolidated financial statements.
In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the fair statement of financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America ("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 the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
In accordance with applicable accounting standards, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in the Company's annual consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from the Company's 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, the Company's quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
Effective April 1, 2015, the Company reorganized certain of its businesses to better leverage the Company’s resources. As a result, the Company realigned its operating segments, and segment data included in Notes 4, 6 and 14 has been restated to reflect these changes. See Note 14 for additional information, including information regarding changes in the composition of certain of the Company's reportable operating 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.
 
Note 2 — New accounting standards
In May 2014, the Financial Accounting Standards Board ("FASB"), in a joint effort with the International Accounting Standards Board ("IASB"), issued new accounting guidance to clarify the principles for recognizing revenue.  The new guidance is designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, and will affect any entity that enters into contracts with customers or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards.  The new guidance establishes principles for reporting information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity's contracts with customers.  The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued an amendment to the new guidance that defers the effective date. The amendment provides that the new guidance is effective prospectively for annual periods beginning after December 15, 2017 and interim periods within those years; early application is permitted for annual periods beginning after December 15, 2016. The Company is currently evaluating this guidance to determine its impact on the Company’s results of operations, cash flows and financial position.

7


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


In April 2015, the FASB issued guidance for the reporting of debt issuance costs within the balance sheet. Under the new guidance, debt issuance costs are to be presented in the balance sheet as a direct deduction from the associated debt liability, consistent with the presentation of a debt discount. Currently, debt issuance costs are presented as a deferred charge (i.e., an asset) on the balance sheet. The guidance provides uniform treatment for debt issuance costs and debt discounts and eliminates inconsistencies that previously existed with other FASB guidance. The new guidance is effective for fiscal years beginning after December 15, 2015 with early adoption permitted, and is required to be applied on a retrospective basis. The Company does not believe that the adoption of this guidance will have a material impact on the Company’s financial position.
In September 2015, the FASB issued guidance that will change the requirements for reporting measurement period adjustments to provisional amounts initially recognized in connection with a business combination. Under GAAP, an acquiring entity currently is required to retrospectively adjust, in prior period financial statements, the provisional amounts to reflect new information obtained during the measurement period (a period, which may not exceed one year from the date of the business combination, during which the acquiring entity may receive information about the facts and circumstances existing as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of the acquisition date). Under the new guidance, adjustments to the provisional amounts will be reflected in the financial statements for the reporting period in which the adjustments are determined, including by recognizing in current period earnings the full effect of changes in depreciation, amortization or other income effects. The guidance requires that the acquiring entity either present separately on the face of the current period income statement or disclose in the notes to the current period financial statements, by line item, the amount of the adjustments made during the current period. The new guidance will be effective for fiscal years beginning after December 15, 2015, and will be applied prospectively to adjustments to provisional amounts occurring after the effective date of the guidance. Earlier application is permitted for financial statements that have not been issued. The Company will apply the provisions of this guidance to any measurement period adjustments occurring after September 27, 2015.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date or, in some cases where early adoption is permitted, in advance of the specified effective date. The Company has assessed the recently issued standards that are not yet effective and, unless otherwise discussed above, believes these standards will not have a material impact on the Company’s results of operations, cash flows or financial position.
 
Note 3 — Acquisitions
The Company made the following acquisitions during 2015 (the "2015 acquisitions"), which, with the exception of Ace Medical, were accounted for as business combinations:
On January 20, 2015, the Company acquired Human Medics Co., Ltd., (“Human Medics”), a distributor of medical devices and supplies primarily in the Korean market.
On March 30, 2015, the Company acquired Trintris Medical, Inc. ("Trintris"), an original equipment manufacturer (OEM) of balloons and catheters that complement the Company's OEM product portfolio.
On April 8, 2015, the Company acquired Truphatek Holdings (1993) Limited ("Truphatek"), a manufacturer of a broad range of disposable and reusable laryngoscope devices that complement the Company's anesthesia product portfolio. Previously, the Company held a noncontrolling, 6% interest in Truphatek.
On June 26, 2015, the Company acquired certain assets of N. Stenning & Co. Pty. Ltd. ("Stenning"), a distributor of medical devices and supplies primarily in the Australian market.
On June 29, 2015, the Company acquired certain assets, primarily distribution rights, of Ace Medical US, LLC ("Ace Medical"), a distributor of medical devices and supplies in the United States of America.
On August 26, 2015, the Company acquired certain assets of Atsina Surgical, LLC ("Atsina"), a company that developed surgical clips that complement the Company's surgical ligation portfolio.
As a result of the above transactions, the Company acquired all of the common stock and voting equity interest in Human Medics, Trintris and Truphatek.

8


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The aggregate total fair value of the 2015 acquisitions is estimated to be $66.4 million, which includes initial payments of $63.8 million, deferred consideration of $1.8 million and the fair value of the Company's previously held noncontrolling equity interest in Truphatek of $1.2 million, partially offset by a favorable working capital adjustment of $0.4 million. As a result of the Company's remeasurement, at the acquisition date, of the fair value of the noncontrolling equity interest the Company previously held in Truphatek, the Company recognized a gain of $1.0 million that reduced selling, general and administrative expenses in the condensed consolidated statements of income. Transaction expenses associated with the 2015 acquisitions, which are included in selling, general and administrative expenses in the condensed consolidated statement of income, were $0.2 million and $1.0 million for the three and nine months ended September 27, 2015, respectively. The results of operations of the acquired businesses and assets are included in the condensed consolidated statements of income from their respective acquisition dates. For the three months ended September 27, 2015, the Company recorded revenue and income from continuing operations before taxes related to the acquired businesses of $4.6 million and $1.1 million, respectively. For the nine months ended September 27, 2015, the Company recorded revenue and income from continuing operations before taxes related to the acquired businesses of $9.9 million and $2.0 million, respectively. Pro forma information is not presented, as the operations of the acquired businesses are not significant to the overall operations of the Company.
The following table presents the preliminary fair value determination of the assets acquired and liabilities assumed in the 2015 acquisitions:

(Dollars in thousands)
Assets
 

Current assets
$
10,353

Property, plant and equipment
2,817

Intangible assets:
 

Intellectual property
4,067

Distribution rights
7,738

Non-compete agreements
1,894

In-process research and development
17,908

Customer list
8,337

Goodwill
18,915

Other assets
45

Total assets acquired
72,074

Less:
 

Current liabilities
3,048

Deferred tax liabilities
2,477

Other liabilities
138

Liabilities assumed
5,663

Net assets acquired
$
66,411

The Company is continuing to evaluate the 2015 acquisitions throughout their respective measurement periods. Further adjustments may be necessary as a result of the Company's assessment of additional information related to the fair values of the assets acquired and liabilities assumed, primarily deferred tax liabilities and goodwill.
Among the acquired assets, intellectual property has useful lives ranging from 15 to 20 years, customer lists have useful lives ranging from 10 to 18 years, distribution rights have useful lives of 10 years and non-compete arrangements have useful lives of 5 years. The goodwill resulting from the acquisitions primarily reflects synergies currently expected to be realized from the integration of the acquired businesses. Goodwill and the step-up in basis of the intangible assets in connection with stock acquisitions are not deductible for tax purposes.

9


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The Company made the following acquisitions during 2014 (the "2014 acquisitions"), which were accounted for as business combinations:

On February 3, 2014, the Company acquired Mayo Healthcare Pty Limited, ("Mayo Healthcare"), a distributor of medical devices and supplies primarily in the Australian market.
On December 2, 2014, the Company acquired the assets of Mini-Lap Technologies, Inc. ("Mini-Lap"), a developer of micro-laparoscopic instrumentation that complement the Company's surgical product portfolio.
The total fair value of consideration for the 2014 acquisitions was $66.3 million. The results of operations of the acquired businesses and assets are included in the consolidated statements of income from their respective acquisition dates. Pro forma information is not presented, as the operations of the acquired businesses are not significant to the overall operations of the Company.

Note 4 — Restructuring charges
2015 Restructuring Plans
During 2015, the Company committed to programs associated with the reorganization of certain of its businesses, as discussed in Note 14, and the consolidation of certain of its facilities in North America. The Company estimates that it will record aggregate pre-tax charges of $6 million to $7 million related to these programs, which represent employee termination benefits, contract termination costs and facility closure and other exit costs, and will result in future cash outlays. For the three and nine months ended September 27, 2015, the Company recorded charges of $(0.1) million and $4.3 million, respectively, related to these programs. As of September 27, 2015, the Company has a reserve of $2.9 million related to these programs.
2014 Manufacturing Footprint Realignment Plan
On April 28, 2014, the Board of Directors approved a restructuring plan (the “2014 Manufacturing Footprint Realignment Plan”) involving the consolidation of operations and a related reduction in workforce at certain of the Company’s facilities, and the relocation of manufacturing operations from certain higher-cost locations to existing lower-cost locations. These actions commenced in the quarter ended June 29, 2014 and are expected to be substantially completed by the end of 2017.
The Company estimates that it will incur aggregate pre-tax charges in connection with these restructuring activities of approximately $37 million to $44 million, of which an estimated $26 million to $31 million are expected to result in future cash outlays. Most of these charges are expected to be incurred prior to the end of 2016.
The following table provides a summary of the Company's current cost estimates by major type of expense associated with the 2014 Manufacturing Footprint Realignment Plan:
Type of expense
Total estimated amount expected to be incurred
 
 
Employee termination benefits
$11 million to $13 million
Facility closure and other exit costs
$2 million to $3 million
Accelerated depreciation charges
$10 million to $11 million
Other
$14 million to $17 million
 
$37 million to $44 million


10


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The Company recorded expenses of $3.2 million and $9.1 million for the three and nine months ended September 27, 2015, respectively, related to the 2014 Manufacturing Footprint Realignment Plan. Of this amount, $0.8 million and $1.5 million were recorded as restructuring expense for the three and nine months ended September 27, 2015, respectively, and $2.4 million and $7.6 million, related to accelerated depreciation and certain other transfer related costs resulting from the plan, were included in cost of goods sold for the three and nine months ended September 27, 2015, respectively. As of September 27, 2015, the Company has incurred net aggregate restructuring charges related to the plan of $10.8 million. Additionally, as of September 27, 2015, the Company has incurred net aggregate accelerated depreciation and certain other costs in connection with the plan of $12.4 million, which were included in cost of sales. As of September 27, 2015, the Company has a restructuring reserve of $7.5 million in connection with the plan, all of which relates to termination benefits.
As the 2014 Manufacturing Footprint Realignment Plan progresses, management will reevaluate the estimated expenses set forth above, and may revise its estimates, as appropriate, consistent with generally accepted accounting principles.
2014 European Restructuring Plan
In February 2014, the Company committed to a restructuring plan (the “2014 European Restructuring Plan”), which impacts certain administrative functions in Europe and involves the consolidation of operations and a related reduction in workforce at certain of the Company’s European facilities.
The Company recorded nominal charges for the three and nine months ended September 27, 2015 with respect to this plan. As of September 27, 2015, the Company has incurred net aggregate restructuring charges under the plan of $7.8 million. As of September 27, 2015, the Company had a reserve of $0.3 million in connection with the 2014 European Restructuring Plan.  The Company expects to complete this plan in 2015.
Other 2014 Restructuring Programs
In June 2014, the Company initiated programs to consolidate locations in Australia and terminate certain distributor agreements in an effort to reduce costs. As a result of these actions, the Company expects to incur aggregate restructuring charges over the term of these programs of approximately $4 million, of which, $3.6 million was incurred through September 27, 2015. These programs include costs related to termination benefits, contract termination costs and other exit costs. As of September 27, 2015, the Company had a reserve of $0.3 million in connection with these programs. The Company expects to complete the programs in 2015.
LMA Restructuring Program
In connection with the acquisition of substantially all of the assets of LMA International N.V. (the “LMA business”) in 2012, the Company commenced a program (the "LMA Restructuring Program") related to the integration of the LMA business and the Company’s other businesses. The program was focused on the closure of the LMA business’ corporate functions and the consolidation of manufacturing, sales, marketing, and distribution functions in North America, Europe and Asia.
The Company has incurred net aggregate restructuring charges related to the LMA Restructuring Program of $11.3 million, and as of September 27, 2015, the program is complete.
2013 Restructuring Programs
In 2013, the Company initiated restructuring programs to consolidate administrative and manufacturing facilities in North America and warehouse facilities in Europe and terminate certain European distributor agreements in an effort to reduce costs. As of September 27, 2015, the Company has incurred an aggregate of $11.0 million in restructuring charges related to these restructuring programs. These programs entail costs related to termination benefits, contract termination costs and charges related to post-closing obligations associated with its acquired businesses. As of September 27, 2015, these programs have been completed.

11


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Impairment Charges
There were no impairment charges recorded for the three and nine months ended September 27, 2015 and September 28, 2014, respectively.
The restructuring charges recognized for the three and nine months ended September 27, 2015 and September 28, 2014 consisted of the following: 
 
Three Months Ended September 27, 2015
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility Closure Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2015 Restructuring plans
$
(198
)
 
$
37

 
$
78

 
$
9

 
$
(74
)
2014 Manufacturing footprint realignment plan
619

 
(3
)
 
163

 
52

 
831

2014 European restructuring plan
(97
)
 

 

 

 
(97
)
Total restructuring charges
$
324

 
$
34

 
$
241

 
$
61

 
$
660

 
Three Months Ended September 28, 2014
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility
Closure
Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2014 Manufacturing footprint realignment plan
$
129

 
$

 
$

 
$
42

 
$
171

2014 European restructuring plan
537

 
1

 
1

 
27

 
566

Other 2014 restructuring programs
25

 

 
202

 
62

 
289

LMA restructuring program

 

 
20

 

 
20

2013 Restructuring programs
(124
)
 

 
186

 

 
62

Total restructuring charges
$
567

 
$
1

 
$
409

 
$
131

 
$
1,108

 
Nine Months Ended September 27, 2015
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility
Closure
Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2015 Restructuring programs
$
3,361

 
$
166

 
$
723

 
$
56

 
$
4,306

2014 Manufacturing footprint realignment plan
831

 
241

 
389

 
36

 
1,497

2014 European restructuring plan
(87
)
 

 

 
34

 
(53
)
Other 2014 restructuring programs

 

 
49

 

 
49

LMA restructuring program

 
2

 
(20
)
 
1

 
(17
)
2013 Restructuring programs
(94
)
 

 

 

 
(94
)
Total restructuring charges
$
4,011

 
$
409

 
$
1,141

 
$
127

 
$
5,688

 

12


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Nine Months Ended September 28, 2014
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility Closure Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2014 Manufacturing footprint realignment
$
8,706

 
$

 
$

 
$
42

 
$
8,748

2014 European restructuring plan
8,289

 
1

 
306

 
76

 
8,672

Other 2014 restructuring programs
501

 

 
1,376

 
193

 
2,070

LMA restructuring program
(29
)
 
(112
)
 
(3,211
)
 

 
(3,352
)
2013 Restructuring programs
361

 

 
243

 
22

 
626

2012 Restructuring charges
(619
)
 
354

 

 

 
(265
)
2011 Restructuring plan

 
12

 

 

 
12

Total restructuring charges
$
17,209

 
$
255

 
$
(1,286
)
 
$
333

 
$
16,511

Termination benefits include estimated employee retention, severance and benefit payments for terminated employees.
Facility closure costs include general operating costs incurred subsequent to production shutdown as well as equipment relocation and other associated costs.
Contract termination costs include costs associated with terminating existing leases and distributor agreements.
Other costs include legal, outplacement and employee relocation costs and other employee-related costs.
Restructuring charges by reportable operating segment for the three and nine months ended September 27, 2015 and September 28, 2014 are set forth in the following table:   
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Restructuring charges
 
 
 
 
 
 
 
Vascular North America
$
232

 
$
(15
)
 
$
2,466

 
$
6,748

Anesthesia North America
(250
)
 
15

 
284

 
1,193

Surgical North America
36

 

 
282

 

EMEA
(64
)
 
849

 
(139
)
 
7,164

Asia
2

 
111

 
3

 
708

All other
704

 
148

 
2,792

 
698

Total restructuring charges
$
660

 
$
1,108

 
$
5,688

 
$
16,511



13


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Note 5 — Inventories, net
Inventories as of September 27, 2015 and December 31, 2014 consisted of the following:
 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
Raw materials
$
80,143

 
$
68,191

Work-in-process
64,691

 
58,526

Finished goods
237,775

 
242,750

 
382,609

 
369,467

Less: inventory reserve
(36,710
)
 
(33,874
)
Inventories, net
$
345,899

 
$
335,593

 
Note 6 — Goodwill and other intangible assets, net
The following table provides information relating to changes in the carrying amount of goodwill by reportable segment for the nine months ended September 27, 2015:
 
Vascular
North America

Anesthesia
North America

Surgical
North America

EMEA

Asia
 
OEM

All
Other

Total
 
(Dollars in thousands)
Balance as of December 31, 2014
 

 

 

 

 
 
 

 

 
Goodwill
$
564,177


$
214,429


$
250,912


$
339,029


$
144,712

 
$


$
142,422


$
1,655,681

Accumulated impairment losses
(219,527
)

(84,531
)






 


(28,070
)

(332,128
)
 
344,650


129,898


250,912


339,029


144,712

 


114,352


1,323,553

Goodwill related to acquisitions


12,473




1,149


4,099

 
1,194




18,915

Currency translation adjustment
88


(825
)



(25,875
)

(9,175
)
 


(3,506
)

(39,293
)
Balance at September 27, 2015
 

 

 

 

 
 
 

 

 
Goodwill
564,265


226,077


250,912


314,303


139,636

 
1,194


138,916


1,635,303

Accumulated impairment losses
(219,527
)

(84,531
)






 


(28,070
)

(332,128
)
 
$
344,738


$
141,546


$
250,912


$
314,303


$
139,636

 
$
1,194


$
110,846


$
1,303,175

The following table provides information as of September 27, 2015 and December 31, 2014 regarding the gross carrying amount of, and accumulated amortization relating to, intangible assets, net:
 
Gross Carrying Amount
 
Accumulated Amortization
 
September 27, 2015
 
December 31, 2014
 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
Customer relationships
$
623,211

 
$
624,574

 
$
(209,262
)
 
$
(192,876
)
In-process research and development
58,908

 
68,694

 

 

Intellectual property
494,457

 
467,068

 
(166,909
)
 
(146,131
)
Distribution rights
23,363

 
16,101

 
(14,208
)
 
(14,243
)
Trade names
387,132

 
396,269

 
(6,115
)
 
(2,764
)
Non-compete agreements
2,218

 
337

 
(431
)
 
(309
)
 
$
1,589,289

 
$
1,573,043

 
$
(396,925
)
 
$
(356,323
)

14


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


In May 2012, the Company acquired Semprus BioSciences Corp. ("Semprus"), a biomedical research and development company that developed a polymer surface treatment technology intended to reduce thrombus related complications.  The Company experienced difficulties with respect to the development of the Semprus technology, and devoted further research and testing towards attempting to resolve the issue. As a result of these efforts, the Company believes it has resolved the issue and is focused on seeking regulatory approval and engaging in additional research and development efforts to achieve commercialization of this technology. Despite this progress, significant challenges to commercialization of the Semprus technology remain, and the Company ultimately may find it necessary to recognize impairment charges with respect to the related assets, which could be material. As of September 27, 2015, the Company has in-process research and development intangible assets of $41.0 million related to this investment, which are recorded in intangible assets, net.
Amortization expense related to intangible assets was $15.5 million and $15.0 million for the three months ended September 27, 2015 and September 28, 2014, respectively, and $45.3 million and $47.1 million for the nine months ended September 27, 2015 and September 28, 2014, respectively. Estimated annual amortization expense for the remainder of 2015 and the next five succeeding years is as follows (dollars in thousands):
 
2015
$
15,600

2016
61,800

2017
62,000

2018
61,700

2019
61,500

2020
61,000

 
Note 7 — Borrowings
The Company's borrowings at September 27, 2015 and December 31, 2014 are as follows:
 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
Senior Credit Facility:
 
 
 
Revolving credit facility, at a rate of 1.95% at September 27, 2015, due 2018
$
396,000

 
$
200,000

3.875% Convertible Senior Subordinated Notes due 2017
399,771

 
399,898

6.875% Senior Subordinated Notes due 2019

 
250,000

5.25% Senior Notes due 2024
250,000

 
250,000

Securitization program, at a rate of 0.94% at September 27, 2015
43,300

 
4,700


1,089,071

 
1,104,598

Less: Unamortized debt discount on 3.875% Convertible Senior Subordinated Notes due 2017
(26,386
)
 
(36,197
)
 
1,062,685

 
1,068,401

Current borrowings
(416,685
)
 
(368,401
)
Long-term borrowings
$
646,000

 
$
700,000



15


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Classification of 3.875% Convertible Senior Subordinated Notes due 2017 as a Current Liability
The Company's 3.875% Convertible Senior Subordinated Notes due 2017 (the "Convertible Notes") are convertible into shares of the Company's common stock at the option of the holder upon the occurrence of any of the following circumstances (i) during any fiscal quarter, if the last reported sale price of the Company’s common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the conversion price on each applicable trading day; or (ii) during the five business day period after any consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Notes is less than 98% of the product of the last reported sale price of the common stock and the applicable conversion rate on each trading day during the measurement period; or (iii) upon the occurrence of specified corporate events; or (iv) at any time on or after May 1, 2017 up to and including July 28, 2017. The Convertible Notes are convertible at a conversion rate of 16.3084 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $61.32 per share. The conversion rate is subject to adjustment upon certain events. Upon conversion, the Company’s conversion obligation may be satisfied, at the Company’s option, in shares of common stock, cash or a combination of cash and shares of common stock. The Company has elected a net-settlement method to satisfy its conversion obligation. Under the net-settlement method, the Company will settle the $1,000 principal amount of the Convertible Notes in cash and settle the excess conversion value in shares, plus cash in lieu of fractional shares.
Since the fourth quarter 2013, the Company's last reported sale price has exceeded the 130% threshold described above and accordingly the Convertible Notes have been classified as a current liability as of September 27, 2015 and December 31, 2014. The determination of whether or not the Convertible Notes are convertible as described above is made each quarter until maturity, conversion or repurchase.  Consequently, it is possible that the Convertible Notes may not be convertible in one or more future quarters, in which case the Convertible Notes would again be classified as long-term debt, unless one of the other conversion events described above were to occur. While the Company believes it has sufficient liquidity to repay the principal amount due through a combination of utilizing its existing cash on hand and accessing its revolving credit facility, the Company's use of these funds could adversely affect its results of operations and liquidity.
Exchange Offer for the 5.25% Senior Notes due 2024
On March 30, 2015, the Company commenced an exchange offer with respect to the 5.25% Senior Notes due 2024 (the "Old 2024 Notes"), under which the holders of the Old 2024 Notes, which were initially issued in a private placement, were provided an opportunity to exchange the Old 2024 Notes for new notes (the "New 2024 Notes") issued pursuant to a registration statement under the Securities Act of 1933. Other than the absence of registration rights for the holders of the New 2024 Notes, the terms of the New 2024 Notes are essentially identical to the terms of the Old 2024 Notes.The exchange offer was completed on April 24, 2015; all of the holders of the Old 2024 Notes exchanged their Old 2024 Notes for New 2024 Notes.
Redemption of 6.875% Senior Subordinated Notes due 2019
On June 1, 2015, the Company prepaid the $250 million aggregate outstanding principal amount under its 6.875% Senior Subordinated Notes due 2019 (the “2019 Notes”).  In addition to its prepayment of principal, the Company paid the holders of the 2019 Notes an $8.6 million prepayment make-whole amount plus accrued and unpaid interest. The Company recorded the prepayment make-whole amount and a $1.9 million write-off of unamortized debt issuance costs as a loss on extinguishment of debt in the condensed consolidated statement of income in the second quarter 2015. The Company used $246.0 million in borrowings under its revolving credit facility, $12.1 million in borrowings under its securitization program and available cash to fund the prepayment of the 2019 Notes.

16


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Fair Value of Long-Term Debt
The carrying amount of current and long-term borrowings as reported in the condensed consolidated balance sheet as of September 27, 2015 is $1,062.7 million. To determine the fair value of its debt, the Company uses a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile. 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 as of September 27, 2015 and December 31, 2014, categorized by the level of inputs within the fair value hierarchy used to measure fair value (see Note 10, “Fair value measurement,” in the Company’s annual report on Form 10-K for the year ended December 31, 2014 for further information):
 
 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
Level 1
$
844,756

 
$
1,024,806

Level 2
690,151

 
455,222

Total
$
1,534,907

 
$
1,480,028


Note 8 — Financial instruments
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
The Company uses derivative instruments for risk management purposes. Foreign currency forward contracts are used to manage foreign currency transaction exposure. These derivative instruments are designated as cash flow hedges and are recorded on the condensed consolidated balance sheet at fair market value. The effective portion of the gains or losses on derivatives is reported as a component of other comprehensive loss and thereafter is recognized in the condensed consolidated statement of income 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, if any, are recognized in the condensed consolidated statement of income in the period in which such gains and losses occur.
The following table presents the location and fair value of derivative instruments designated as hedging instruments in the condensed consolidated balance sheet as of September 27, 2015 and December 31, 2014:
 
September 27, 2015
 
December 31, 2014
 
Fair Value
 
Fair Value
 
(Dollars in thousands)
Asset derivatives:
 
 
 
Foreign currency forward contracts:
 

 
 

Prepaid expenses and other current assets
$
834

 
$

Total asset derivatives
$
834

 
$

Liability derivatives:
 
 
 
Foreign currency forward contracts:
 

 
 

Other current liabilities
$
3,247

 
$

Total liability derivatives
$
3,247

 
$

The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of September 27, 2015 is $49.8 million. All open foreign currency forward contracts designated as cash flow hedges as of September 27, 2015 have durations of nine months or less. As of December 31, 2014, the Company had no open foreign currency forward contracts designated as cash flow hedges.

17


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


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 loss (“OCL”) for the three and nine months ended September 27, 2015 and September 28, 2014:
 
After Tax Gain (Loss) Recognized in OCL
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Foreign currency forward contracts
$
(730
)
 
$
60

 
$
(1,489
)
 
$
203

Total
$
(730
)
 
$
60

 
$
(1,489
)
 
$
203

 
See Note 10 for information on the location in the condensed consolidated statements of income and amount of gains attributable to derivatives that were reclassified from accumulated other comprehensive loss (“AOCL”) to expense (income), net of tax.
There was no ineffectiveness related to the Company’s hedging derivatives during the three and nine months ended September 27, 2015 and September 28, 2014.
Based on foreign currency exchange rates at September 27, 2015, approximately $0.2 million of unrealized losses, net of tax, within AOCL are expected to be reclassified from AOCL to the condensed consolidated statement of income during the remainder of 2015. However, the actual amount reclassified from AOCL could vary due to future changes in exchange rates.
Non-designated Foreign Currency Forward Contracts

During the third quarter 2015, the Company began using foreign currency forward contracts as a part of its strategy to manage exposure related to near term foreign currency denominated monetary assets and liabilities. These currency forward contracts are not designated as cash flow, fair value or net investment hedges, are marked-to-market (changes in fair value are reflected in selling, general and administrative expenses) and are entered into for periods consistent with currency transaction exposures, approximately one month. The total notional amount for all open non-designated foreign currency forward contracts as of September 27, 2015 is $77.6 million. The non-designated foreign currency forward contract assets and liabilities are reported in prepaid expenses and other current assets and in other current liabilities on the condensed consolidated balance sheet as of September 27, 2015, respectively. For the three and nine months ended September 27, 2015 the Company recognized a loss related to non-designated foreign currency forward contracts of $0.3 million.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable is 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 creditworthiness of those countries’ and the financial stability of their economies.
In the ordinary course of business, the Company grants non-interest bearing trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all of its customer relationships, (ii) performs ongoing credit evaluations of its customers’ financial condition, (iii) monitors the payment history and aging of its customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.

18


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


An allowance for doubtful accounts is maintained for accounts receivable based on the Company’s historical collection experience and expected collectability of the accounts receivable, considering the period an account is outstanding, the financial position of the customer and information provided by credit rating services. The adequacy of this allowance is reviewed each reporting period and adjusted as necessary. The allowance for doubtful accounts was $8.9 million and $8.8 million at September 27, 2015 and December 31, 2014, respectively. The current portion of the allowance for doubtful accounts at September 27, 2015 and December 31, 2014 of $2.3 million and $2.4 million, respectively, are reflected in accounts receivable, net. The allowance for doubtful accounts on receivables outstanding for greater than one year at September 27, 2015 and December 31, 2014 of $6.6 million and $6.4 million, respectively, are reflected in other assets.
In light of the disruptions in global economic markets in recent years, the Company instituted enhanced measures, within countries where the Company has collectability concerns, to facilitate customer-by-customer risk assessment when estimating the allowance for doubtful accounts. Such measures include, among others, monthly credit control committee meetings, at which customer credit risks are identified after review of, among other things, accounts that exceed specified credit limits, payment delinquencies and other customer issues. In addition, for some of the Company’s non-government customers, the Company instituted measures designed to reduce its risk exposures, including issuing dunning letters, reducing credit limits, requiring that payments accompany orders and instituting legal action with respect to delinquent accounts. With respect to government customers, the Company evaluates receivables for potential collection risks associated with the availability of government funding and reimbursement practices.
Certain of the Company’s customers, particularly in Europe, have extended or delayed payments for products and services already provided, raising collectability concerns regarding the Company’s accounts receivable from these customers, for the most part in Greece, Italy, Spain and Portugal. As a result, the Company continues to closely monitor the allowance for doubtful accounts in these locations. If the financial condition of these customers or the healthcare systems in these countries deteriorate to the extent that the ability of an increasing number of customers to satisfy their payment obligations is uncertain, additional allowances may be required in future periods. The aggregate net current and long-term accounts receivable for customers in Greece, Italy, Spain and Portugal and the percentage of the Company’s total net current and long-term accounts receivable represented by the net current and long-term accounts receivable for customers in those countries at September 27, 2015 and December 31, 2014 are as follows:

September 27, 2015

December 31, 2014

(Dollars in thousands)
Current and long-term accounts receivable (net of allowances of $7.9 million and $8.1 million at September 27, 2015 and December 31, 2014, respectively) in Greece, Italy, Spain and Portugal (1)
$
72,128


$
76,190

Percentage of total net current and long-term accounts receivable - Greece, Italy, Spain and Portugal
26.1
%

27.3
%
 
(1)    The long-term portion of accounts receivable, net from customers in Greece, Italy, Spain and Portugal at September 27, 2015 and December 31, 2014 was $16.2 million and $11.3 million, respectively, and is reported on the condensed consolidated balance sheet in other assets.
For the nine months ended September 27, 2015 and September 28, 2014, net revenues from customers in Greece, Italy, Spain and Portugal were $94.4 million and $114.8 million, respectively.

Note 9 — Fair value measurement
For a description of the fair value hierarchy, see Note 10 to the Company’s 2014 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2014.

19


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The following tables provide information regarding the financial assets and liabilities measured at fair value on a recurring basis as of September 27, 2015 and December 31, 2014:
 
Total carrying
value at
September 27, 2015
 
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
$
6,560

 
$
6,560

 
$

 
$

Derivative assets
914

 

 
914

 

Derivative liabilities
3,510

 

 
3,510

 

Contingent consideration liabilities
22,199

 

 

 
22,199

 
 
Total carrying
value at
December 31, 2014
 
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
$
6,863

 
$
6,863

 
$

 
$

Contingent consideration liabilities
33,433

 

 

 
33,433

There were no transfers of financial assets or liabilities reported at fair value among Level 1, Level 2 or Level 3 within the fair value hierarchy during the nine months ended September 27, 2015.
The following table provides information regarding changes, during the nine months ended September 27, 2015, in Level 3 financial liabilities related to contingent consideration in connection with various Company acquisitions:
 
 
Contingent consideration
 
2015
 
(Dollars in thousands)
Balance - December 31, 2014
$
33,433

Payment
(8,000
)
Revaluations
(3,234
)
Balance - September 27, 2015
$
22,199


The Company reduced contingent consideration liabilities and selling, general and administrative expense by $1.3 million and $4.3 million for the three and nine months ended September 27, 2015 after determining that relevant conditions for the payment of certain contingent consideration would not be satisfied. This reduction is included in revaluations in the preceding table.
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 satisfy benefit obligations under Company benefit plans and other arrangements. The investment assets of the trust are valued using quoted market prices.
The Company’s financial assets and liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company uses foreign currency forward contracts to manage foreign currency transaction exposure as well as exposure to foreign currency denominated monetary assets and liabilities. The Company measures the fair value of the foreign currency forward contracts by calculating the amount required to enter into offsetting contracts with similar remaining maturities, based on quoted market prices, and taking into account the creditworthiness of the counterparties.

20


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 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 accounting guidance related to business combinations. In connection with several of its acquisitions, the Company agreed to pay contingent consideration upon the achievement of specified objectives, including receipt of regulatory approvals, achievement of sales targets and, in some instances, the passage of time, and recorded contingent consideration liabilities at the time of the acquisitions. The Company determines the fair value of the liabilities for 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, therefore, represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments under contingent consideration arrangements is based on several factors, including:
l
estimated cash flows projected from the success of market launches;
l
the estimated time and resources needed to complete the development of acquired technologies;
l
the uncertainty of obtaining regulatory approvals within the required time periods; and
l
the risk adjusted discount rate for fair value measurement.
In connection with the Company's contingent consideration arrangements, the Company estimates that it will make payments from 2015 through 2029. As of September 27, 2015, the range of undiscounted amounts the Company could be required to pay under contingent consideration arrangements is between $7.1 million and $60.0 million. The Company is required to reevaluate the fair value of contingent consideration each reporting period based on new developments and record changes in fair value until such consideration is satisfied through payment upon the achievement of the specified objectives or is no longer payable due to failure to achieve the specified objectives.
The following table provides information regarding the valuation techniques and inputs used in determining the fair value of assets or liabilities categorized as Level 3 measurements as of September 27, 2015:
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Contingent consideration
Discounted cash flow
 
Discount rate
 
3.1% - 10% (8.5%)
 
 
 
Probability of payment
 
0% - 100% (52.1%)
As of September 27, 2015, the Company recorded $22.2 million of total liabilities for contingent consideration, of which, $0.5 million was recorded as the current portion of contingent consideration and $21.7 million was recorded as other liabilities in the condensed consolidated balance sheet.
 
Note 10 — Changes in shareholders’ equity
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner except that the weighted average number of shares is increased to include dilutive securities. The following table provides a reconciliation of basic to diluted weighted average shares outstanding:
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Shares in thousands)
Basic
41,597

 
41,399

 
41,542

 
41,347

Dilutive effect of share-based awards
511

 
440

 
483

 
441

Dilutive effect of 3.875% Convertible Notes and warrants
6,424

 
4,789

 
5,944

 
4,468

Diluted
48,532

 
46,628

 
47,969

 
46,256


21


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Weighted average shares that were antidilutive and therefore not included in the calculation of earnings per share were approximately 5.4 million and 5.6 million for the three and nine months ended September 27, 2015, respectively, and approximately 6.3 million and 6.4 million for the three and nine months ended September 28, 2014, respectively.
During periods in which the average market price of the Company's common stock is above the applicable conversion price of the Convertible Notes, or $61.32 per share, the impact of conversion would be dilutive and the dilutive effect of conversion of the Convertible Notes is reflected in diluted earnings per share. As described in Note 7, the Company has elected the net settlement method of accounting for these conversions, under which the Company will settle the principal amount of the Convertible Notes in cash, and settle the excess conversion value in shares. As a result, in these periods, under the treasury stock method, the Company calculates the number of shares issuable under the terms of the Convertible Notes based on the average market price of the stock during the period, and includes that number in the total diluted shares outstanding for the period. 
In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge and warrant agreements. The convertible note hedge economically reduces the dilutive impact of the Convertible Notes. However, applicable accounting guidance requires the Company to separately analyze the impact of the warrant agreements on diluted weighted average shares outstanding, while excluding the impact of the convertible note hedge agreements because it would be anti-dilutive. The reductions in diluted shares that would result from including the anti-dilutive impact of the convertible note hedges would have been 3.5 million and 3.3 million for the three and nine months ended September 27, 2015, respectively, and 2.8 million and 2.7 million for the three and nine months ended September 28, 2014, respectively. The treasury stock method is applied when the warrants are in the money and assumes the proceeds from the exercise of the warrants are used to repurchase shares based on the average stock price during the period. The exercise price of the warrants is approximately $74.65 per share of common stock. Shares issuable upon exercise of the warrants that were included in the total diluted shares outstanding were 2.9 million and 2.6 million for the three and nine months ended September 27, 2015, respectively, and 2.0 million and 1.8 million for the three and nine months ended September 28, 2014, respectively.
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 generation from operations, debt repayment obligations, market conditions and regulatory requirements. In addition, under the Company’s senior credit agreement, 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 agreement) exceeds certain levels, which may limit the Company’s ability to repurchase shares under this Board authorization. Through September 27, 2015, no shares have been purchased under this Board authorization.

22


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The following tables provide information relating to the changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 27, 2015 and September 28, 2014:
 
 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(Dollars in thousands)
Balance as of December 31, 2014
$

 
$
(141,744
)
 
$
(119,151
)
 
$
(260,895
)
Other comprehensive income (loss) before reclassifications
(2,599
)
 
465

 
(91,137
)
 
(93,271
)
Amounts reclassified from accumulated other comprehensive (loss) income
1,110

 
3,157

 

 
4,267

Net current-period other comprehensive (loss) income
(1,489
)
 
3,622

 
(91,137
)
 
(89,004
)
Balance at September 27, 2015
$
(1,489
)
 
$
(138,122
)
 
$
(210,288
)
 
$
(349,899
)

 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(Dollars in thousands)
Balance at December 31, 2013
$

 
$
(97,037
)
 
$
(13,818
)
 
$
(110,855
)
Other comprehensive loss before reclassifications
641

 
131

 
(41,133
)
 
(40,361
)
Amounts reclassified from accumulated other comprehensive loss
(438
)
 
2,205

 

 
1,767

Net current-period other comprehensive (loss) income
203

 
2,336

 
(41,133
)
 
(38,594
)
Balance at September 28, 2014
$
203

 
$
(94,701
)
 
$
(54,951
)
 
$
(149,449
)
  

23


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The following table provides information relating to the reclassifications of losses/(gains) in accumulated other comprehensive (loss) income into expense/(income), net of tax, for the three and nine months ended September 27, 2015 and September 28, 2014:
 
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Losses (gains) on foreign exchange contracts:
 
 
 
 
 
 
 
Cost of goods sold
$
1,168

 
$
(397
)
 
$
1,431

 
$
(526
)
Total before tax
1,168

 
(397
)
 
1,431

 
(526
)
Tax benefit
(221
)
 
49

 
(321
)
 
88

Net of tax
$
947

 
$
(348
)
 
$
1,110

 
$
(438
)
Amortization of pension and other postretirement benefit items:
 
 
 
 
 
 
 
Actuarial losses (1)
$
1,571

 
$
1,090

 
$
4,782

 
$
3,295

Prior-service costs(1)

 
(5
)
 

 
(16
)
Total before tax
1,571

 
1,085

 
4,782

 
3,279

Tax expense
(551
)
 
(378
)
 
(1,625
)
 
(1,074
)
Net of tax
$
1,020

 
$
707

 
$
3,157

 
$
2,205

 
 
 
 
 
 
 
 
Total reclassifications, net of tax
$
1,967

 
$
359

 
$
4,267

 
$
1,767


(1)
These accumulated other comprehensive (loss) income components are included in the computation of net benefit cost of pension and other postretirement benefit plans (see Note 12 for additional information).

Note 11 — Taxes on income from continuing operations
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Effective income tax rate
1.3%
 
14.9%
 
9.5%
 
16.8%
The effective income tax rate for the three and nine months ended September 27, 2015 was 1.3% and 9.5%, respectively, and 14.9% and 16.8% for the three and nine months ended September 28, 2014, respectively. The effective income tax rate for the three and nine months ended September 27, 2015 each reflected a tax benefit associated with U.S. federal tax return filings, a benefit associated with legislative tax rate changes and a benefit associated with a reduction in the estimated deferred tax with respect to non-permanently reinvested income due to an increase in the estimated foreign tax credits available to reduce the U.S tax on a future repatriation.

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. As of September 27, 2015, the Company’s U.S. defined benefit pension plans and the Company’s other postretirement benefit plans, other than certain postretirement benefit plans covering employees subject to a collective bargaining agreement, are frozen.

24


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The Company and certain of its subsidiaries provide medical, dental and life insurance benefits to pensioners or their 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
 
Other Postretirement Benefits
Three Months Ended
 
Pension
Nine Months Ended
 
Other Postretirement Benefits
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Service cost
$
470

 
$
453

 
$
157

 
$
42

 
$
1,410

 
$
1,350

 
$
371

 
$
318

Interest cost
4,492

 
4,548

 
$
452

 
434

 
13,463

 
13,517

 
1,476

 
1,627

Expected return on plan assets
(6,606
)
 
(6,240
)
 
$

 

 
(19,457
)
 
(18,764
)
 

 

Net amortization and deferral
1,563

 
1,143

 
$
8

 
(58
)
 
4,620

 
3,284

 
162

 
(5
)
Net benefit expense (income)
$
(81
)
 
$
(96
)
 
$
617

 
$
418

 
$
36

 
$
(613
)
 
$
2,009

 
$
1,940

The Company’s pension contributions are expected to be approximately $12.9 million during 2015, of which $10.5 million and $12.2 million were contributed during the three and nine months ended September 27, 2015, respectively.

Note 13 — Commitments and contingent liabilities
Operating leases: The Company uses various leased facilities and equipment in its operations.
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, often referred to as Superfund, the U.S. Resource Conservation and Recovery Act 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 27, 2015 the Company has recorded $1.2 million and $6.2 million, in accrued liabilities and other liabilities, respectively, relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, the potential liability may exceed the amount accrued as of September 27, 2015. 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, environmental and other matters. As of September 27, 2015, the Company has recorded accrued liabilities of $2.7 million in connection with such contingencies, representing its best estimate of the cost within the range of estimated possible losses that will be incurred to resolve these matters. Of the amount accrued as of September 27, 2015, $1.5 million pertains to discontinued operations.

25


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


In 2006, the Company was named as a defendant in a wrongful death product liability lawsuit filed in the Louisiana State District Court for the Parish of Calcasieu, involving a product manufactured by the Company’s former marine business. In September 2014, the case was tried before a jury, which returned a verdict in favor of the Company. The plaintiff subsequently filed a motion for a new trial, which was granted, and the case was re-tried before a jury in December 2014. On December 5, 2014, the jury returned a verdict in favor of the plaintiff, awarding $0.1 million in compensatory damages and $23.0 million in punitive damages, plus pre- and post-judgment interest on the compensatory damages and post-judgment interest on the punitive damages. The Company's post-trial motions seeking to overturn the verdict or reduce the amount of damages were denied in June 2015. The Company has appealed to the Louisiana Court of Appeal. The plaintiff has filed a cross-appeal, seeking to overturn the trial court’s denial of pre-judgment interest on the punitive damages award. As of September 27, 2015, the Company has accrued a liability representing its best estimate of any probable loss associated with this matter, which is included in the Company’s accrued liabilities for litigation matters relating to discontinued operations discussed in the preceding paragraph. The Company believes that any liability arising from this matter in excess of $10.0 million will be covered by the Company’s product liability insurance.
Based on information currently available, advice of counsel, established reserves and other resources, the Company does not believe that the outcome of any outstanding litigation and claims is likely to be, individually or in the aggregate, material to its business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to selling, general and administrative expenses 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 27, 2015, the most significant tax examinations in process are in Austria, Canada, Germany and the United States. In conjunction with these examinations and as a regular and routine practice, the Company may establish reserves or adjust existing reserves 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 prices.
 
Note 14 — Business segment information
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. The Company does not evaluate its operating segments using discrete asset information.
Effective April 1, 2015, the Company reorganized certain of its businesses to better leverage the Company’s resources. As a result, the Company realigned its operating segments. Specifically, the Company's Anesthesia/Respiratory North America operating segment was divided into two operating segments, Anesthesia North America and Respiratory North America. Additionally, the businesses comprising the Company's former Specialty operating segment (which was not a reportable segment and, therefore, was included in the "All other" category in the Company's presentation of segment information) were transferred to the Anesthesia North America, Vascular North America and Respiratory North America operating segments.

As a result of the operating segment changes described above, the Company has the following six reportable operating segments: Vascular North America, Anesthesia North America, Surgical North America, EMEA, Asia and OEM. In connection with the presentation of segment information, the Company will continue to present certain operating segments, which, effective April 1, 2015, include, among others, the Respiratory North America operating segment, in the “All other” category. All prior comparative periods presented in this report have been restated to reflect these changes.

26


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The Company’s reportable segments, other than the Original Equipment Manufacturer and Development Services ("OEM") segment, 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 these 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 27, 2015 and September 28, 2014:
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Revenue
 
 
 
 
 
 
 
Vascular North America
$
82,675

 
$
76,662

 
$
244,606

 
$
228,724

Anesthesia North America
47,628

 
47,203

 
138,656

 
136,185

Surgical North America
39,591

 
36,127

 
118,170

 
109,327

EMEA
120,854

 
141,146

 
379,268

 
446,061

Asia
61,935

 
62,035

 
172,506

 
174,176

OEM
38,959

 
39,174

 
111,592

 
108,966

All other
52,072

 
54,826

 
160,391

 
160,385

Consolidated net revenues
$
443,714

 
$
457,173

 
$
1,325,189

 
$
1,363,824

 
 
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Operating profit
 
 
 
 
 
 
 
Vascular North America
$
18,086

 
$
15,302

 
$
50,891

 
$
41,011

Anesthesia North America
15,178

 
11,966

 
36,572

 
27,330

Surgical North America
12,814

 
12,394

 
39,456

 
37,308

EMEA
19,656

 
28,810

 
65,334

 
85,771

Asia
15,715

 
14,785

 
42,812

 
44,718

OEM
8,865

 
9,651

 
25,274

 
24,551

All other
5,551

 
6,464

 
15,499

 
16,874

Total segment operating profit (1)
95,865

 
99,372

 
275,838

 
277,563

Unallocated expenses (2)
(19,315
)
 
(17,437
)
 
(56,694
)
 
(61,856
)
Income from continuing operations before interest, extinguishment of debt and taxes
$
76,550

 
$
81,935

 
$
219,144

 
$
215,707

(1)
Segment operating profit includes segment net revenues from external customers reduced by its standard cost of goods sold, adjusted for fixed manufacturing cost absorption variances, selling, general and administrative expenses, research and development expenses and an allocation of corporate expenses. Corporate expenses are allocated among the segments in proportion to the respective amounts of one of several items (such as sales, numbers of employees, and amount of time spent), depending on the category of expense involved.
(2)
Unallocated expenses primarily include manufacturing variances, with the exception of fixed manufacturing cost absorption variances, restructuring charges and gain on sale of assets.

27


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Depreciation and amortization
 
 
 
 
 
 
 
Vascular North America
$
9,317

 
$
8,823

 
$
27,730

 
$
26,755

Anesthesia North America
1,992

 
2,889

 
5,186

 
9,244

Surgical North America
2,867

 
909

 
7,693

 
4,944

EMEA
7,848

 
9,688

 
24,088

 
28,298

Asia
2,870

 
2,003

 
8,278

 
6,146

OEM
1,727

 
1,651

 
5,098

 
4,715

All other
4,722

 
6,476

 
13,902

 
16,152

Consolidated depreciation and amortization
$
31,343

 
$
32,439

 
$
91,975

 
$
96,254

Geographic data
The following tables provide total net revenues for the three and nine months ended September 27, 2015 and September 28, 2014 and total net property, plant and equipment by geographic region as of September 27, 2015 and December 31, 2014:
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in thousands)
Net revenue (based on selling location)
 
 
 
 
 
 
 
United States
$
240,558

 
$
231,278

 
$
710,282

 
$
676,088

Other Americas
12,961

 
14,440

 
41,524

 
44,399

Europe
134,939

 
157,797

 
419,314

 
500,763

All other
55,256

 
53,658

 
154,069

 
142,574

 
$
443,714

 
$
457,173

 
$
1,325,189

 
$
1,363,824


 
September 27, 2015
 
December 31, 2014
 
(Dollars in thousands)
Net property, plant and equipment
 
 
 
United States
$
178,212

 
$
174,893

Malaysia
33,096

 
36,427

Czech Republic
33,051

 
35,655

All other
68,885

 
70,460

 
$
313,244

 
$
317,435



28


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


Note 15 — Condensed consolidating guarantor financial information
In April 2015, pursuant to an exchange offer registered under the Securities Act of 1933, Teleflex Incorporated (referred to below as “Parent Company”) exchanged $250 million of its 5.25% Senior Notes due 2024 for a like principal amount of substantially identical notes that it issued in a private placement in May 2014. 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 directly or indirectly 100% owned by the Parent Company. The Company’s condensed consolidating statements of income and comprehensive income (loss) for the three and nine months ended September 27, 2015 and September 28, 2014, condensed consolidating balance sheets as of September 27, 2015 and December 31, 2014 and condensed consolidating statements of cash flows for the nine months ended September 27, 2015 and September 28, 2014, 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, 2014 are used by the Parent Company and each of its subsidiaries in connection with 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 condensed 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.
The condensed consolidating statement of cash flows for the Non-Guarantor Subsidiaries and eliminations for the nine months ended September 28, 2014 have been revised to properly reflect the intercompany dividends paid and intercompany dividends received were between Non-Guarantor Subsidiaries. Previously, intercompany dividends paid and received among Non-Guarantor Subsidiaries were presented on a gross basis resulting in the overstatement or understatement of cash flows from operations, investing and financing activities. To correct this error, the condensed consolidating statement of cash flows for the nine months ended September 28, 2014 have been revised as follows: In the Non-Guarantor Subsidiaries column, net cash provided by (used in) operating activities from continuing operations has been changed from $63,715 to $(20,446), intercompany dividends received (within cash flows from investing activities of continuing operations) has been changed from $229,782 to $0 (and the intercompany dividends received line item was removed) and intercompany dividends paid (within cash flows from financing activities of continuing operations) changed from $(305,122) to $(4,429). In the eliminations column, net cash provided by (used in) operating activities from continuing operations changed from $(75,340) to $(4,429), intercompany dividends received, which is included in Cash Flows from Investing Activities of Continuing Operations, changed from $(229,782) to $0 (and the intercompany dividends received line item was removed) and intercompany dividends paid, which is included in Cash Flows from Financing Activities of Continuing Operations changed from $305,122 to $4,429.

The Company also made revisions to the classification of certain balances related to intercompany transactions in the condensed consolidating statements of income and comprehensive (loss) income for the three and nine months ended September 28, 2014 and the condensed consolidating balance sheet at December 31, 2014 as well as the condensed consolidating statement of cash flows for the nine months ended September 28, 2014.

These revisions, individually and in the aggregate, had no impact on the consolidated results of the Company and are not material to the condensed consolidating guarantor financial information for any of the periods subject to previously filed condensed consolidating guarantor financial information.

29


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


The Company will revise its condensed consolidated guarantor financial information for the interim period ended March 29, 2015 in its quarterly report on Form 10-Q to be filed for the fiscal quarter ending March 27, 2016, and will revise its condensed consolidated guarantor financial information for the annual periods ended December 31, 2014 and 2013 in its annual report on Form 10-K to be filed for the fiscal year ending December 31, 2015.

TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended September 27, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
269,620

 
$
270,084

 
$
(95,990
)
 
$
443,714

Cost of goods sold

 
159,567

 
153,207

 
(97,273
)
 
215,501

Gross profit

 
110,053

 
116,877

 
1,283

 
228,213

Selling, general and administrative expenses
9,891

 
82,372

 
46,471

 
106

 
138,840

Research and development expenses

 
6,006

 
6,565

 

 
12,571

Restructuring charges

 
602

 
58

 

 
660

Gain on sale of assets

 

 
(408
)
 

 
(408
)
(Loss) income from continuing operations before interest, extinguishment of debt and taxes
(9,891
)
 
21,073

 
64,191

 
1,177

 
76,550

Interest, net
32,439

 
(19,457
)
 
1,194

 

 
14,176

(Loss) income from continuing operations before taxes
(42,330
)
 
40,530

 
62,997

 
1,177

 
62,374

(Benefit) taxes on income from continuing operations
(15,102
)
 
7,582

 
8,053

 
270

 
803

Equity in net income of consolidated subsidiaries
88,728

 
49,885

 
211

 
(138,824
)
 

Income from continuing operations
61,500

 
82,833

 
55,155

 
(137,917
)
 
61,571

Operating loss from discontinued operations
(784
)
 

 
(4
)
 

 
(788
)
(Benefit) taxes on loss from discontinued operations
(108
)
 

 
39

 

 
(69
)
Loss from discontinued operations
(676
)
 

 
(43
)
 

 
(719
)
Net income
60,824

 
82,833

 
55,112

 
(137,917
)
 
60,852

Less: Income from continuing operations attributable to noncontrolling interest

 

 
28

 

 
28

Net income attributable to common shareholders
60,824

 
82,833

 
55,084

 
(137,917
)
 
60,824

Other comprehensive income attributable to common shareholders
(28,789
)
 
(32,855
)
 
(26,073
)
 
58,928

 
(28,789
)
Comprehensive income attributable to common shareholders
$
32,035

 
$
49,978

 
$
29,011

 
$
(78,989
)
 
$
32,035



30


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
Three Months Ended September 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
261,346

 
$
272,083

 
$
(76,256
)
 
$
457,173

Cost of goods sold

 
161,298

 
136,526

 
(76,817
)
 
221,007

Gross profit

 
100,048

 
135,557

 
561

 
236,166

Selling, general and administrative expenses
8,978

 
77,352

 
52,002

 
(80
)
 
138,252

Research and development expenses

 
12,871

 
2,000

 

 
14,871

Restructuring charges

 
148

 
960

 

 
1,108

(Loss) income from continuing operations before interest and taxes
(8,978
)
 
9,677

 
80,595

 
641

 
81,935

Interest, net
37,913

 
(22,346
)
 
1,456

 

 
17,023

(Loss) income from continuing operations before taxes
(46,891
)
 
32,023

 
79,139

 
641

 
64,912

(Benefit) taxes on (loss) income from continuing operations
(16,761
)
 
13,984

 
10,505

 
1,956

 
9,684

Equity in net income of consolidated subsidiaries
85,187

 
60,295

 
96

 
(145,578
)
 

Income from continuing operations
55,057

 
78,334

 
68,730

 
(146,893
)
 
55,228

Operating loss from discontinued operations
(247
)
 

 

 

 
(247
)
(Benefit) taxes on loss from discontinued operations
(21
)
 

 
45

 

 
24

Loss from discontinued operations
(226
)
 

 
(45
)
 

 
(271
)
Net income
54,831

 
78,334

 
68,685

 
(146,893
)
 
54,957

Less: Income from continuing operations attributable to noncontrolling interest

 

 
126

 

 
126

Net income attributable to common shareholders
54,831

 
78,334

 
68,559

 
(146,893
)
 
54,831

Other comprehensive loss attributable to common shareholders
(45,201
)
 
(58,947
)
 
(56,159
)
 
115,106

 
(45,201
)
Comprehensive income attributable to common shareholders
$
9,630

 
$
19,387

 
$
12,400

 
$
(31,787
)
 
$
9,630

 


31


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
Nine Months Ended September 27, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
803,484

 
$
805,243

 
$
(283,538
)
 
$
1,325,189

Cost of goods sold

 
476,611

 
443,180

 
(278,689
)
 
641,102

Gross profit

 
326,873

 
362,063

 
(4,849
)
 
684,087

Selling, general and administrative expenses
30,006

 
249,484

 
141,252

 
23

 
420,765

Research and development expenses

 
22,027

 
16,871

 

 
38,898

Restructuring charges

 
4,932

 
756

 

 
5,688

Gain on sale of assets

 

 
(408
)
 

 
(408
)
(Loss) income from continuing operations before interest, and taxes
(30,006
)
 
50,430

 
203,592

 
(4,872
)
 
219,144

Interest, net
100,157

 
(56,591
)
 
3,666

 

 
47,232

Loss on extinguishment of debt
10,454

 

 

 

 
10,454

(Loss) income from continuing operations before taxes
(140,617
)
 
107,021

 
199,926

 
(4,872
)
 
161,458

(Benefit) taxes on (loss) income from continuing operations
(48,336
)
 
33,491

 
31,260

 
(1,000
)
 
15,415

Equity in net income of consolidated subsidiaries
237,512

 
161,539

 
430

 
(399,481
)
 

Income from continuing operations
145,231

 
235,069

 
169,096

 
(403,353
)
 
146,043

Operating loss from discontinued operations
(1,432
)
 

 

 

 
(1,432
)
Taxes on operating loss from discontinued operations
60

 

 
120

 

 
180

Loss from discontinued operations
(1,492
)
 

 
(120
)
 

 
(1,612
)
Net income
143,739

 
235,069

 
168,976

 
(403,353
)
 
144,431

Less: Income from continuing operations attributable to noncontrolling interest

 

 
692

 

 
692

Net income attributable to common shareholders
143,739

 
235,069

 
168,284

 
(403,353
)
 
143,739

Other comprehensive loss attributable to common shareholders
(89,004
)
 
(94,601
)
 
(101,461
)
 
196,062

 
(89,004
)
Comprehensive income attributable to common shareholders
$
54,735

 
$
140,468

 
$
66,823

 
$
(207,291
)
 
$
54,735














32


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
Nine Months Ended September 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
814,051

 
$
838,171

 
$
(288,398
)
 
$
1,363,824

Cost of goods sold

 
489,694

 
451,408

 
(278,691
)
 
662,411

Gross profit

 
324,357

 
386,763

 
(9,707
)
 
701,413

Selling, general and administrative expenses
30,781

 
235,322

 
159,058

 
231

 
425,392

Research and development expenses

 
37,766

 
6,037

 

 
43,803

Restructuring charges

 
8,639

 
7,872

 

 
16,511

(Loss) income from continuing operations before interest and taxes
(30,781
)
 
42,630

 
213,796

 
(9,938
)
 
215,707

Interest, net
106,794

 
(62,993
)
 
4,355

 

 
48,156

(Loss) income from continuing operations before taxes
(137,575
)
 
105,623

 
209,441

 
(9,938
)
 
167,551

(Benefit) taxes on (loss) income from continuing operations
(47,891
)
 
44,737

 
33,681

 
(2,303
)
 
28,224

Equity in net income of consolidated subsidiaries
228,113

 
160,653

 
288

 
(389,054
)
 

Income from continuing operations
138,429

 
221,539

 
176,048

 
(396,689
)
 
139,327

Operating loss from discontinued operations
(1,866
)
 

 

 

 
(1,866
)
(Benefit) taxes on loss from discontinued operations
(478
)
 

 
133

 

 
(345
)
Loss from discontinued operations
(1,388
)
 

 
(133
)
 

 
(1,521
)
Net income
137,041

 
221,539

 
175,915

 
(396,689
)
 
137,806

Less: Income from continuing operations attributable to noncontrolling interest

 

 
765

 

 
765

Net income attributable to common shareholders
137,041

 
221,539

 
175,150

 
(396,689
)
 
137,041

Other comprehensive loss attributable to common shareholders
(38,594
)
 
(54,326
)
 
(50,431
)
 
104,757

 
(38,594
)
Comprehensive income attributable to common shareholders
$
98,447

 
$
167,213

 
$
124,719

 
$
(291,932
)
 
$
98,447





33


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
 
 
September 27, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
37,898

 
$
40

 
$
238,525

 
$

 
$
276,463

Accounts receivable, net
2,605

 
2,899

 
263,660

 
3,832

 
272,996

Accounts receivable from consolidated subsidiaries
4,488

 
2,260,734

 
275,716

 
(2,540,938
)
 

Inventories, net

 
208,641

 
164,715

 
(27,457
)
 
345,899

Prepaid expenses and other current assets
10,785

 
5,145

 
14,359

 
3,509

 
33,798

Prepaid taxes
26,498

 

 
17,468

 

 
43,966

Deferred tax assets
31,495

 
15,120

 
9,366

 

 
55,981

Assets held for sale
2,901

 

 
4,143

 

 
7,044

Total current assets
116,670

 
2,492,579

 
987,952

 
(2,561,054
)
 
1,036,147

Property, plant and equipment, net
3,097

 
173,811

 
136,336

 

 
313,244

Goodwill

 
704,857

 
598,318

 

 
1,303,175

Intangibles assets, net

 
744,141

 
448,223

 

 
1,192,364

Investments in affiliates
5,624,320

 
1,299,061

 
22,460

 
(6,945,517
)
 
324

Deferred tax assets
52,019

 

 
3,786

 
(54,865
)
 
940

Notes receivable and other amounts due from consolidated subsidiaries
1,229,950

 
1,676,065

 

 
(2,906,015
)
 

Other assets
27,375

 
7,265

 
26,867

 

 
61,507

Total assets
$
7,053,431

 
$
7,097,779

 
$
2,223,942

 
$
(12,467,451
)
 
$
3,907,701

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Current borrowings
$
373,385

 
$

 
$
43,300

 
$

 
$
416,685

Accounts payable
3,958

 
28,313

 
35,635

 

 
67,906

Accounts payable to consolidated subsidiaries
2,316,630

 
186,872

 
37,436

 
(2,540,938
)
 

Accrued expenses
15,066

 
23,679

 
28,282

 

 
67,027

Current portion of contingent consideration

 
545

 

 

 
545

Payroll and benefit-related liabilities
19,734

 
22,109

 
35,592

 

 
77,435

Accrued interest
7,472

 

 
18

 

 
7,490

Income taxes payable

 

 
10,593

 
(865
)
 
9,728

Other current liabilities
3,517

 
2,465

 
4,673

 

 
10,655

Total current liabilities
2,739,762

 
263,983

 
195,529

 
(2,541,803
)
 
657,471

Long-term borrowings
646,000

 

 

 

 
646,000

Deferred tax liabilities

 
417,938

 
43,028

 
(54,865
)
 
406,101

Pension and other postretirement benefit liabilities
94,795

 
34,912

 
18,807

 

 
148,514

Noncurrent liability for uncertain tax positions
12,471

 
15,760

 
22,586

 

 
50,817

Notes payable and other amounts due to consolidated subsidiaries
1,600,635

 
1,128,542

 
176,838

 
(2,906,015
)
 

Other liabilities
20,877

 
24,082

 
12,778

 

 
57,737

Total liabilities
5,114,540

 
1,885,217

 
469,566

 
(5,502,683
)
 
1,966,640

Total common shareholders' equity
1,938,891

 
5,212,562

 
1,752,206

 
(6,964,768
)
 
1,938,891

Noncontrolling interest

 

 
2,170

 

 
2,170

Total equity
1,938,891

 
5,212,562

 
1,754,376

 
(6,964,768
)
 
1,941,061

Total liabilities and equity
$
7,053,431

 
$
7,097,779

 
$
2,223,942

 
$
(12,467,451
)
 
$
3,907,701

 

34


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
December 31, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
27,996

 
$

 
$
275,240

 
$

 
$
303,236

Accounts receivable, net
2,346

 
2,422

 
265,081

 
3,855

 
273,704

Accounts receivable from consolidated subsidiaries
35,996

 
2,303,284

 
272,810

 
(2,612,090
)
 

Inventories, net

 
204,335

 
154,544

 
(23,286
)
 
335,593

Prepaid expenses and other current assets
14,301

 
4,786

 
13,102

 
3,508

 
35,697

Prepaid taxes
23,493

 

 
16,763

 

 
40,256

Deferred tax assets
30,248

 
17,387

 
9,666

 

 
57,301

Assets held for sale
2,901

 

 
4,521

 

 
7,422

Total current assets
137,281

 
2,532,214

 
1,011,727

 
(2,628,013
)
 
1,053,209

Property, plant and equipment, net
3,489

 
170,054

 
143,892

 

 
317,435

Goodwill

 
703,663

 
619,890

 

 
1,323,553

Intangibles assets, net

 
743,222

 
473,498

 

 
1,216,720

Investments in affiliates
5,680,328

 
1,359,661

 
21,253

 
(7,060,092
)
 
1,150

Deferred tax assets
52,244

 

 
5,535

 
(56,601
)
 
1,178

Notes receivable and other amounts due from consolidated subsidiaries
1,009,686

 
1,489,994

 

 
(2,499,680
)
 

Other assets
27,999

 
6,801

 
29,210

 

 
64,010

Total assets
$
6,911,027

 
$
7,005,609

 
$
2,305,005

 
$
(12,244,386
)
 
$
3,977,255

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Notes payable
$
363,701

 
$

 
$
4,700

 
$

 
$
368,401

Accounts payable
1,449

 
32,692

 
29,959

 

 
64,100

Accounts payable to consolidated subsidiaries
2,259,891

 
188,908

 
163,291

 
(2,612,090
)
 

Accrued expenses
17,149

 
21,479

 
33,755

 

 
72,383

Current portion of contingent consideration

 
11,276

 

 

 
11,276

Payroll and benefit-related liabilities
20,693

 
27,228

 
37,521

 

 
85,442

Accrued interest
9,152

 

 
17

 

 
9,169

Income taxes payable

 

 
13,634

 
134

 
13,768

Other current liabilities
5

 
3,065

 
7,290

 

 
10,360

Total current liabilities
2,672,040

 
284,648

 
290,167

 
(2,611,956
)
 
634,899

Long-term borrowings
700,000

 

 

 

 
700,000

Deferred tax liabilities

 
462,274

 
45,867

 
(56,600
)
 
451,541

Pension and other postretirement benefit liabilities
110,830

 
35,074

 
21,337

 

 
167,241

Noncurrent liability for uncertain tax positions
11,431

 
15,569

 
23,884

 

 
50,884

Notes payable and other amounts due to consolidated subsidiaries
1,483,984

 
915,163

 
100,533

 
(2,499,680
)
 

Other liabilities
21,433

 
24,900

 
12,658

 

 
58,991

Total liabilities
4,999,718

 
1,737,628

 
494,446

 
(5,168,236
)
 
2,063,556

Total common shareholders' equity
1,911,309

 
5,267,981

 
1,808,169

 
(7,076,150
)
 
1,911,309

Noncontrolling interest

 

 
2,390

 

 
2,390

Total equity
1,911,309

 
5,267,981

 
1,810,559

 
(7,076,150
)
 
1,913,699

Total liabilities and equity
$
6,911,027

 
$
7,005,609

 
$
2,305,005

 
$
(12,244,386
)
 
$
3,977,255


35


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 27, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net cash (used in) provided by operating activities from continuing operations
$
(124,131
)
 
$
88,937

 
$
214,314

 
$
(2,360
)
 
$
176,760

Cash Flows from Investing Activities of Continuing Operations:
 
 
 
 
 
 
 
 
 
Expenditures for property, plant and equipment
(122
)
 
(25,072
)
 
(20,372
)
 

 
(45,566
)
Payments for businesses and intangibles acquired, net of cash acquired

 
(30,336
)
 
(33,115
)
 

 
(63,451
)
Proceeds from sale of assets
408

 

 

 

 
408

Investments in affiliates

 

 
(121,850
)
 
121,850

 

Net cash provided by (used in) investing activities from continuing operations
286

 
(55,408
)
 
(175,337
)
 
121,850

 
(108,609
)
Cash Flows from Financing Activities of Continuing Operations:
 
 
 
 
 
 
 
 
 
Proceeds from new borrowings
288,100

 

 

 

 
288,100

Reduction in borrowings
(303,627
)
 

 

 

 
(303,627
)
Debt extinguishment, issuance and amendment fees
(9,017
)
 

 

 

 
(9,017
)
Net proceeds from share based compensation plans and the related tax impacts
4,815

 

 

 

 
4,815

Payments to noncontrolling interest shareholders

 

 
(833
)
 

 
(833
)
Payments for contingent consideration

 
(7,974
)
 

 

 
(7,974
)
Proceeds from issuance of shares

 
121,850

 

 
(121,850
)
 

Dividends paid
(42,382
)
 

 

 

 
(42,382
)
Intercompany transactions
196,963

 
(147,365
)
 
(49,598
)
 

 

Intercompany dividends paid

 

 
(2,360
)
 
2,360

 

Net cash provided by (used in) financing activities from continuing operations
134,852

 
(33,489
)
 
(52,791
)
 
(119,490
)
 
(70,918
)
Cash Flows from Discontinued Operations:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
(1,105
)
 

 
(849
)
 

 
(1,954
)
Net cash used in discontinued  operations
(1,105
)
 

 
(849
)
 

 
(1,954
)
Effect of exchange rate changes on cash and cash equivalents

 

 
(22,052
)
 

 
(22,052
)
Net increase (decrease) in cash and cash equivalents
9,902

 
40

 
(36,715
)
 

 
(26,773
)
Cash and cash equivalents at the beginning of the period
27,996

 

 
275,240

 

 
303,236

Cash and cash equivalents at the end of the period
$
37,898

 
$
40

 
$
238,525

 
$

 
$
276,463


36


TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)


 
Nine Months Ended September 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net cash (used in) provided by operating activities from continuing operations
$
(80,538
)
 
$
314,211

 
$
(20,446
)
 
$
(4,429
)
 
$
208,798

Cash Flows from Investing Activities of Continuing Operations:
 
 
 
 
 
 
 
 

Expenditures for property, plant and equipment
(2,146
)
 
(22,578
)
 
(23,496
)
 

 
(48,220
)
Proceeds from sales of assets and investments
1,669

 
3,421

 
161

 

 
5,251

Payments for business and intangibles acquired, net of cash acquired

 

 
(28,535
)
 

 
(28,535
)
Investments in affiliates
(60
)
 
20

 

 

 
(40
)
Net cash used in investing activities from continuing operations
(537
)
 
(19,137
)
 
(51,870
)
 

 
(71,544
)
Cash Flows from Financing Activities of Continuing Operations:
 
 
 

 
 

 
 

 
 
Proceeds from new borrowings
250,000

 

 

 

 
250,000

Reduction in borrowings
(480,009
)
 

 

 

 
(480,009
)
Debt extinguishment, issuance and amendment fees
(3,689
)
 

 

 

 
(3,689
)
Proceeds from share based compensation plans and the related tax impacts
2,936

 

 

 

 
2,936

Payments to noncontrolling interest shareholders

 

 
(1,094
)
 

 
(1,094
)
Dividends paid
(42,174
)
 

 

 

 
(42,174
)
     Intercompany transactions
372,763

 
(307,912
)
 
(64,851
)
 

 

Intercompany dividends paid

 

 
(4,429
)
 
4,429

 

Net cash provided by (used in) financing activities from continuing operations
99,827

 
(307,912
)
 
(70,374
)
 
4,429

 
(274,030
)
Cash Flows from Discontinued Operations:
 

 
 

 
 

 
 

 
 
Net cash used in operating activities
(1,946
)
 

 

 

 
(1,946
)
Net cash used in discontinued operations
(1,946
)
 

 

 

 
(1,946
)
Effect of exchange rate changes on cash and cash equivalents

 

 
(6,880
)
 

 
(6,880
)
Net decrease in cash and cash equivalents
16,806

 
(12,838
)
 
(149,570
)
 

 
(145,602
)
Cash and cash equivalents at the beginning of the period
42,749

 
14,500

 
374,735

 

 
431,984

Cash and cash equivalents at the end of the period
$
59,555

 
$
1,662

 
$
225,165

 
$

 
$
286,382



37


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
All statements made in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” “prospects” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business and the industry and markets in which we operate. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements due to a number of factors, including changes in business relationships with and purchases by or from major customers or suppliers; delays or cancellations in shipments; demand for and market acceptance of new and existing products; our ability to integrate acquired businesses into our operations, realize planned synergies and operate such businesses profitably in accordance with expectations; our ability to effectively execute our restructuring programs; competitive market conditions and resulting effects on revenues and pricing; increases in raw material costs that cannot be recovered in product pricing; global economic factors, including currency exchange rates, interest rates and sovereign debt issues; difficulties entering new markets; and general economic conditions. For a further discussion of the risks relating to our business, see Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. We expressly disclaim any obligation to update these forward-looking statements, except as otherwise specifically stated by us or as required by law or regulation.
Overview
Teleflex is a global provider of medical technology products that enhance clinical benefits, improve patient and provider safety and reduce total procedural costs. We primarily design, develop, manufacture and supply single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications. We market and sell our products to hospitals and healthcare providers worldwide through a combination of our direct sales force and distributors. Because our products are used in numerous markets and for a variety of procedures, we are not dependent upon any one end-market or procedure.
We are focused on achieving consistent, sustainable and profitable growth by increasing our market share and improving our operating efficiencies through:
l
the development of new products and product line extensions;
l
the investment in new technologies and the broadening of their applications;
l
the expansion of the use of our products in existing markets, as well as the introduction of our products into new geographic markets;
l
the achievement of economies of scale as we continue to expand, by leveraging our direct sales force and distribution network with new products, and increasing efficiencies in our manufacturing and distribution facilities; and
l
the broadening of our product portfolio through select acquisitions, licensing arrangements and partnerships that enhance, extend or expedite our development initiatives or our ability to increase our market share.
 
We also evaluate our portfolio of products and businesses on an ongoing basis to ensure alignment with our overall objectives. Based on our evaluation, we may identify opportunities to expand our margins through strategic divestitures of existing businesses and product lines that do not meet our objectives.  In addition, we may seek to optimize our overall facility footprint through restructuring initiatives to further reduce our cost base and enhance our competitive position.  For a discussion of our ongoing restructuring programs, see "Restructuring charges" under “Results of Operations” below.
We made the following acquisitions during 2015, which, with the exception of Ace Medical, were accounted for as business combinations:
On January 20, 2015, we acquired Human Medics Co., Ltd., (“Human Medics”), a distributor of medical devices and supplies primarily in the Korean market.

38



On March 30, 2015, we acquired Trintris Medical, Inc. ("Trintris"), an original equipment manufacturer (OEM) for balloons and catheters that complement our OEM product portfolio.
On April 8, 2015, we acquired Truphatek Holdings (1993) Limited ("Truphatek"), a manufacturer of a broad range of disposable and reusable laryngoscope devices that complement our anesthesia product portfolio.
On June 26, 2015, we acquired certain assets of N. Stenning & Co. Pty. Ltd. ("Stenning"), a distributor of medical devices and supplies primarily in the Australian market.
On June 29, 2915, we acquired certain assets, primarily distribution rights, of Ace Medical US, LLC ("Ace Medical"), a distributor of medical devices and supplies in the United States of America.
On August 26, 2015, we acquired certain assets of Atsina Surgical, LLC ("Atsina"), a company that developed surgical clips that complement our surgical product portfolio.
We made the following acquisitions during 2014, which were accounted for as business combinations:
On February 3, 2014, we acquired Mayo Healthcare Pty Limited, ("Mayo Healthcare"), a distributor of medical devices and supplies primarily in the Australian market.
On December 2, 2014, we acquired the assets of Mini-Lap Technologies, Inc. ("Mini-Lap"), a developer of micro-laparoscopic instrumentation that complements our surgical ligation portfolio.
The total fair value of consideration for the 2015 and 2014 acquisitions was $66.4 million and $66.3 million, respectively. See Note 3 to the condensed consolidated financial statements included in this report for additional information regarding the acquisitions.
Change in Reporting Segments
Effective April 1, 2015, we reorganized certain of our businesses to better leverage our resources. As a result, we realigned our operating segments. Specifically, the Anesthesia/Respiratory North America operating segment was divided into two operating segments, Anesthesia North America and Respiratory North America. Additionally, the businesses comprising the former Specialty operating segment (which was not a reportable segment and, therefore, was included in the "All other" category in the presentation of segment information) were transferred to the Anesthesia North America, Vascular North America and Respiratory North America operating segments.

As a result of the operating segment changes described above, we have the following six reportable operating segments: Vascular North America, Anesthesia North America, Surgical North America, EMEA, Asia and OEM. In connection with the presentation of segment information, we will continue to present certain operating segments, which, effective April 1, 2015, include, among others, the Respiratory North America operating segment, in the “All other” category. All prior comparative periods have been restated to reflect these changes. Additionally, this change impacted our reporting units and as a result, as of the April 1, 2015 effective date, we performed impairment analyses for the new reporting units by comparing the fair value of the reporting units, including goodwill, to their carrying values. The impairment analyses performed included the reallocation of the goodwill balances as a result of the changes previously noted. We did not record any goodwill impairment charges as a result of these analyses.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
In our Annual Report on Form 10-K for the year ended December 31, 2014, we provided disclosure regarding our critical accounting estimates, which are reflective of significant judgments and uncertainties, are important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions and conditions.

39



Health Care Reform
On March 23, 2010 the Patient Protection and Affordable Care Act (as amended, the "Affordable Care Act") was signed into law. This legislation significantly impacts our business. For medical device companies such as Teleflex, the expansion of medical insurance coverage should lead to greater utilization of the products we manufacture, but this legislation also contains provisions designed to contain the cost of healthcare, which could negatively affect pricing of our products. The overall impact of the Affordable Care Act on our business is yet to be determined, mainly due to uncertainties around future customer behaviors, which we believe will be affected by reimbursement factors such as insurance coverage statistics, patient outcomes and patient satisfaction.

In addition, the Affordable Care Act imposed a 2.3% excise tax on sales of medical devices, beginning in 2013. For the three and nine months ended September 27, 2015, the medical device excise tax, which is included in selling, general and administrative expenses, was $3.5 million and $10.0 million, respectively, and for the three and nine months ended September 28, 2014, the medical device excise tax was $3.2 million and $9.4 million, respectively.
Results of Operations
Certain financial information is presented on a rounded basis, which may cause minor differences. As used in this discussion, "new products" are products that we have sold for 36 months or less, and “existing products” are products that we have sold for more than 36 months. Discussion of results of operations items that reference the effect of one or more acquired businesses (except as noted below with respect to acquired distributors) generally reflects the impact of the acquisitions within the first 12 months following the date of the acquisition. Our discussion of the impact of product price increases and decreases on our results of operations generally reflects the impact of increases and decreases in the selling prices of our products to our customers and, for the first 12 months following the acquisition of a distributor, also includes the impact on the pricing of our products resulting from the elimination of the distributor from the sales channel. To the extent an acquired distributor had pre-acquisition sales of products other than ours, the impact of the post-acquisition sales of those products on our results of operations is included within our discussion of the impact of acquired businesses.
Net Revenues
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Net Revenues
$
443.7

 
$
457.2

 
$
1,325.2

 
$
1,363.8

Net revenues for the three months ended September 27, 2015 decreased $13.5 million, or 2.9%, compared to the corresponding prior year period. The decrease is largely due to unfavorable fluctuations in foreign currency exchange rates of $32.8 million, primarily in the EMEA (Europe, the Middle East and Africa) and Asia segments. The decrease in net revenues was partially offset by a net increase in sales volumes of existing products of $5.2 million, primarily in our Vascular North America segment; net increases in the sale of new products of $5.1 million, primarily in the EMEA, Surgical North America and OEM segments; net price increases of $5.0 million, primarily in the Asia and Surgical North America segments; and net increases in sales generated by acquired businesses of $4.1 million, the majority of which was attributable to Mini-Lap, Human Medics and Stenning.
Net revenues for the nine months ended September 27, 2015 decreased $38.6 million, or 2.8%, compared to the corresponding prior year period. The decrease is largely due to unfavorable fluctuations in foreign currency exchange rates of $102.5 million across all of our segments. The decrease in net revenues was partially offset by an increase in sales volumes of existing products of $28.8 million across most of our segments; a net increase in the sales of new products of $14.8 million across most of our segments; net price increases of $10.8 million, primarily in the Asia and Surgical North America segments; and net increases in sales generated by acquired businesses of $9.6 million, the majority of which was attributable to Mayo Healthcare, Mini-Lap, Human Medics and Stenning.


40



Gross profit
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Gross profit
$
228.2

 
$
236.2

 
$
684.1

 
$
701.4

Percentage of sales
51.4
%
 
51.7
%
 
51.6
%
 
51.4
%
    
Gross margin for the three months ended September 27, 2015 decreased 30 basis points, or 0.6%, compared to the corresponding prior year period. The decrease in gross margin reflects the 170 basis point impact of net increases in manufacturing costs, including costs associated with product recalls and quality issues, as well as unfavorable fluctuations in foreign currency exchange rates primarily in the EMEA and Asia segments. This decline was partially offset by the impact of increased sales of higher margin products of 70 basis points, principally in the Surgical North America and Asia segments; a benefit from price increases of 50 basis points, primarily in the Asia segment; and the 30 basis point impact of sales generated by the 2015 and 2014 acquisitions including Human Medics, Truphatek and Mini-Lap.

Gross margin for the nine months ended September 27, 2015 increased 20 basis points, or 0.4%, compared to the corresponding prior year period. The increase is attributable to the impact of increased sales of higher margin products of 50 basis points, primarily in the OEM and Vascular North America segments; price increases of 40 basis points, primarily in the Asia segment; and efficiencies resulting from higher sales volumes of existing products of 40 basis points primarily in the Vascular North America and EMEA segments. These increases were partially offset by a 120 basis point impact of increased manufacturing costs, including costs associated with product recalls and quality issues first identified during the second quarter 2015, as well as unfavorable fluctuations in foreign currency exchange rates, primarily in the Asia segment.


Selling, general and administrative
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Selling, general and administrative
$
138.8

 
$
138.3

 
$
420.8

 
$
425.4

Percentage of sales
31.3
%
 
30.2
%
 
31.8
%
 
31.2
%
Selling, general and administrative expenses increased $0.5 million for the three months ended September 27, 2015 compared to the corresponding prior year period. The increase is due to $3.3 million of expenses associated with the 2015 acquisitions and conversions from distributors to direct sales; a $2.2 million increase in other administrative expenses, which includes higher employee related and legal costs; a $0.9 million increase in selling expenses, which includes higher sales commissions; and a $0.7 million increase in amortization of intangibles expense resulting primarily from the commencement of amortization for certain intangibles previously classified as indefinite-lived intangibles. These increases were partially offset by the favorable impact of foreign currency exchange rate fluctuations of $5.5 million, which resulted in a reduction of expenses; and a gain of $1.0 million recognized as a result of the remeasurement of the fair value of the noncontrolling interest we previously held in Truphatek (see Note 3 to the condensed consolidated financial statements included in this report for additional information).

41



Selling, general and administrative expenses decreased $4.6 million for the nine months ended September 27, 2015 compared to the corresponding prior year period. The decrease is due to the favorable impact of foreign currency exchange rate fluctuations of $25.5 million, which resulted in a reduction of expenses; a gain of $1.0 million recognized as a result of our remeasurement of the fair value of the noncontrolling interest we previously held in Truphatek; and lower amortization of intangibles expense of $0.8 million resulting from certain intangible assets becoming fully amortized. These declines were partially offset by expenses associated with the 2015 acquisitions and conversions from distributors to direct sales of $9.6 million; a $4.0 million increase in selling expenses, primarily related to higher sales commissions for certain of our North American operating segments; a $2.9 million increase in marketing expenses primarily incurred to support new product launches; a reduction in the benefit resulting from contingent consideration liability reversals of $4.4 million; and a $1.8 million increase in other administrative expenses, which includes an increase in legal costs.
Research and development
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Research and development
$
12.6

 
$
14.9

 
$
38.9

 
$
43.8

Percentage of sales
2.8
%
 
3.3
%
 
2.9
%
 
3.2
%
The decline in research and development expenses for the three and nine months ended September 27, 2015 compared to the corresponding prior year periods primarily reflects the fact that research and development expenses for the three and nine months ended September 28, 2014 included increased investment related to businesses acquired in 2013. In addition, the decline further reflects efficiencies realized in 2015 through the integration of certain research and development projects conducted by acquired businesses into our existing structure.
Restructuring charges
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Restructuring charges
$
0.7

 
$
1.1

 
$
5.7

 
$
16.5


For the three months ended September 27, 2015, we recorded $0.7 million in restructuring charges, which primarily relate to termination benefits associated with the 2014 Manufacturing Footprint Realignment Plan. For the nine months ended September 27, 2015, we recorded $5.7 million in restructuring charges, which primarily relate to the 2015 restructuring plans. During the first quarter 2015, we committed to programs associated with the reorganization of certain of our businesses and the consolidation of certain facilities in North America. We estimate that we will record pre-tax charges of $6 million to $7 million related to these programs, substantially all of which represent employee termination benefits and contract termination costs and will result in future cash outlays. The 2015 restructuring plans are designed to generate savings beginning in 2015 and are expected to generate annual pre-tax savings of $12 million to $14 million when completed.
For the three months ended September 28, 2014, we recorded $1.1 million in restructuring charges, which primarily relate to termination benefits associated with the 2014 European Restructuring Plan. For the nine months ended September 28, 2014, we recorded $16.5 million in restructuring charges, which reflect $8.7 million of charges pertaining to termination benefits in connection with our 2014 Manufacturing Footprint Realignment Plan; $8.7 million of charges primarily related to termination benefits associated with our 2014 European Restructuring Plan; and $3.1 million of charges pertaining to termination benefits, contract termination and other exit costs associated with other restructuring activities initiated in 2014, 2013 and 2012. These charges were partially offset by $4.0 million of expense reversals, which were primarily related to the favorable settlement of a terminated European distributor agreement associated with our LMA restructuring program.
See Note 4 to the condensed consolidated financial statements included in this report for additional information.

42



Interest expense
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
(Dollars in millions)
Interest expense
$
14.3

 
$
17.2

 
$
47.7

 
$
48.7

Average interest rate on debt
3.4
%
 
4.5
%
 
4.0
%
 
4.0
%
The decrease in interest expense for the three and nine months ended September 27, 2015 compared to the corresponding prior year periods reflects the benefit of the redemption, on June 1, 2015, of our 6.875% Senior Subordinated Notes due 2019, which had a fixed interest rate. Proceeds from our revolving credit facility, which bear a lower variable interest rate, were utilized to redeem the 2019 Notes.
Taxes on income from continuing operations
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Effective income tax rate
1.3
%
 
14.9
%
 
9.5
%
 
16.8
%
The effective income tax rate for the three and nine months ended September 27, 2015 was 1.3% and 9.5%, respectively, and 14.9% and 16.8% for the three and nine months ended September 28, 2014, respectively. The effective income tax rate for the three and nine months ended September 27, 2015 each reflected a tax benefit associated with U.S. federal tax return filings, a benefit associated with legislative tax rate changes and a benefit associated with a reduction in the estimated tax with respect to non-permanently reinvested income due to an increase in the estimated foreign tax credits available to reduce the U.S. tax on a future repatriation.

43



Segment Financial Information
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
% Increase/
(Decrease)
 
September 27, 2015
 
September 28, 2014
 
% Increase/
(Decrease)
Segment Revenue
(Dollars in millions)
 
 
 
(Dollars in millions)
 
 
Vascular North America
$
82.6

 
$
76.7

 
7.8

 
$
244.6

 
$
228.8

 
6.9

Anesthesia North America
47.6

 
47.2

 
0.9

 
138.6

 
136.2

 
1.8

Surgical North America
39.6

 
36.1

 
9.6

 
118.2

 
109.3

 
8.1

EMEA
120.9

 
141.2

 
(14.4
)
 
379.3

 
446.1

 
(15.0
)
Asia
61.9

 
62.0

 
(0.2
)
 
172.5

 
174.1

 
(1.0
)
OEM
39.0

 
39.2

 
(0.6
)
 
111.6

 
109.0

 
2.4

All other
52.1

 
54.8

 
(5.0
)
 
160.4

 
160.3

 

Segment net revenues
$
443.7

 
$
457.2

 
(2.9
)
 
$
1,325.2

 
$
1,363.8

 
(2.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
% Increase/
(Decrease)
 
September 27, 2015
 
September 28, 2014
 
% Increase/
(Decrease)
Segment Operating Profit
(Dollars in millions)
 
 

 
(Dollars in millions)
 
 
Vascular North America
$
18.1

 
$
15.3

 
18.3

 
$
50.9

 
$
41.1

 
23.8

Anesthesia North America
15.2

 
11.9

 
27.7

 
36.6

 
27.3

 
34.1

Surgical North America
12.8

 
12.4

 
3.2

 
39.4

 
37.3

 
5.6

EMEA
19.6

 
28.8

 
(31.9
)
 
65.3

 
85.7

 
(23.8
)
Asia
15.7

 
14.8

 
6.1

 
42.8

 
44.7

 
(4.3
)
OEM
8.9

 
9.7

 
(8.2
)
 
25.3

 
24.6

 
2.8

All other
5.5

 
6.5

 
(15.4
)
 
15.5

 
16.9

 
(8.3
)
Segment operating profit (1)
$
95.8

 
$
99.4

 
(3.6
)
 
$
275.8

 
$
277.6

 
(0.6
)
(1)
See Note 14 of our condensed consolidated financial statements included in this report for a reconciliation of segment operating profit to our condensed consolidated income from continuing operations before interest, extinguishment of debt and taxes.
Comparison of the three and nine months ended September 27, 2015 and September 28, 2014
Vascular North America
Vascular North America net revenues for the three months ended September 27, 2015 increased $5.9 million, or 7.8%, compared to the corresponding prior year period. The increase is primarily attributable to a $6.8 million increase in sales volumes of existing products, which was partially offset by $0.6 million of unfavorable fluctuations in foreign currency exchange rates.
Vascular North America net revenues for the nine months ended September 27, 2015 increased $15.8 million, or 6.9%, compared to the corresponding prior year period. The increase is primarily attributable to a $19.1 million increase in sales volumes of existing products, which was partially offset by a $1.7 million decrease in new product sales and $1.3 million of unfavorable fluctuations in foreign currency exchange rates. The decrease in new product sales was mainly due to the suspension of sales of certain new products as a result of a quality issue relating to a product component.
Vascular North America operating profit for the three months ended September 27, 2015 increased $2.8 million, or 18.2%, compared to the corresponding prior year period. The increase is primarily attributable to the $3.4 million impact of an increase in sales volumes of existing products and a $0.6 million reduction in manufacturing costs, which were partially offset by increases of $1.4 million in employee related costs, including higher sales commissions and health care benefits.

44



Vascular North America operating profit for the nine months ended September 27, 2015 increased $9.8 million, or 24.1%, compared to the corresponding prior year period. The increase is primarily attributable to the $12.0 million impact of increased sales volumes of existing products, the $2.2 million impact of increases in sales of higher margin products, a $1.7 million reduction in manufacturing costs, and a $1.1 million reduction in research and development costs, including employee related costs. The increases to operating profit were partially offset by a $4.0 million net increase in non-research and development employee related costs, including higher sales commissions and healthcare benefits net of restructuring savings, and the impact of a $1.1 million decrease in new product sales.
Anesthesia North America
Anesthesia North America net revenues for the three months ended September 27, 2015 increased $0.4 million, or 0.9%, compared to the corresponding prior year period. The increase is primarily attributable to an increase in new product sales of $0.6 million.
Anesthesia North America net revenues for the nine months ended September 27, 2015 increased $2.4 million, or 1.8%, compared to the corresponding prior year period. The increase is primarily attributable to a $2.2 million increase in new product sales and a $1.3 million net increase in sales volumes of existing products, despite declines resulting from a product recall; these increases were partially offset by $0.8 million of unfavorable fluctuations in foreign currency exchange rates.
Anesthesia North America operating profit for the three months ended September 27, 2015 increased $3.3 million, or 26.8%, compared to the corresponding prior year period. The increase is primarily attributable to lower selling, general and administrative expenses, including a $0.7 million reduction in amortization expense.
Anesthesia North America operating profit for the nine months ended September 27, 2015 increased $9.3 million, or 33.8%, compared to the corresponding prior year period. The increase is primarily attributable to a $4.4 million net decrease in selling, general and administrative expenses, which was primarily the result of lower amortization, selling and regulatory expenses partially offset by higher information technology related costs. The increase is also a result of the impact of a $1.2 million increase in new product sales, a $0.9 million reduction in research and development costs, the $0.9 million impact of an increase in sales volumes of existing products and a $0.8 million reduction in manufacturing costs.
Surgical North America
Surgical North America net revenues for the three months ended September 27, 2015 increased $3.5 million, or 9.6%, compared to the corresponding prior year period.  The increase is primarily attributable to $1.2 million in sales generated by the acquisition of Mini-Lap, an increase in new product sales of $1.2 million, $1.0 million of price increases and a $0.6 million increase in sales volumes of existing products, which were partially offset by $0.5 million of unfavorable fluctuations in foreign currency exchange rates.
Surgical North America net revenues for the nine months ended September 27, 2015 increased $8.9 million, or 8.1%, compared to the corresponding prior year period.  The increase is primarily attributable to an $3.4 million increase in new product sales, $3.1 million of price increases, $3.0 million of sales generated by the acquisition of Mini-Lap and a $0.8 million increase in sales volumes of existing products, which were partially offset by $1.4 million of unfavorable fluctuations in foreign currency exchange rates.
Surgical North America operating profit for the three months ended September 27, 2015 increased $0.4 million, or 3.4%, compared to the corresponding prior year period. The increase is primarily attributable to the $2.0 million impact of increased sales of higher margin products and the $1.0 million impact of price increases, which were partially offset by a $2.6 million increase in selling, general and administrative expenses, which primarily resulted from higher amortization expense and higher employee related costs, as well as the impact of $0.5 million of unfavorable fluctuations in foreign currency exchange rates.
Surgical North America operating profit for the nine months ended September 27, 2015 increased $2.1 million, or 5.8%, compared to the corresponding prior year period. The increase is primarily attributable to the impact of price increases of $3.1 million, increased sales of higher margin products of $1.6 million, increased sales volumes of existing products of $0.7 million and new product sales of $0.7 million. These increases were partially offset by higher selling, general and administrative expenses, which was primarily caused by a $2.7 million increase in amortization expense that resulted from the commencement of amortization for certain intellectual property assets, and a $1.4 million increase in employee related costs.

45



EMEA
EMEA net revenues for the three months ended September 27, 2015 decreased $20.3 million, or 14.4%, compared to the corresponding prior year period. The decrease is primarily attributable to $21.8 million of unfavorable fluctuations in foreign currency exchange rates, which were partially offset by a $1.5 million increase in new products sales.
EMEA net revenues for the nine months ended September 27, 2015 decreased $66.8 million, or 15.0%, compared to the corresponding prior year period.  The decrease is primarily attributable to $74.2 million of unfavorable fluctuations in foreign currency exchange rates and $1.0 million in price decreases, partially offset by a $4.5 million increase in new product sales, a $3.2 million increase in sales volumes of existing products and $0.8 million in sales generated by the acquisition of Truphatek.
EMEA operating profit for the three months ended September 27, 2015 decreased $9.2 million, or 31.8%, compared to the corresponding prior year period.  The decrease is primarily attributable to the impact of unfavorable fluctuations in foreign currency exchange rates of $7.1 million, a $2.0 million increase in manufacturing costs and the impact of a $0.7 million decrease in sales of higher margin products, which were partially offset by the impact of a $0.5 million increase in sales of new products and a $0.5 million reduction in research and development costs.
EMEA operating profit for the nine months ended September 27, 2015 decreased $20.4 million, or 23.8%, compared to the corresponding prior year period.  The decrease is primarily attributable to the impact of unfavorable fluctuations in foreign currency exchange rates of $20.3 million, a $7.6 million increase in manufacturing costs and the impact of price decreases of $1.0 million. These declines were partially offset by the impact of a $3.3 million increase in sales volumes of existing products, a $2.1 million increase in new product sales, lower general and administrative expenses, driven by restructuring savings and other reductions in employee related costs of $0.9 million as well as lower amortization of $0.9 million resulting from certain intangible assets becoming fully amortized in the third quarter 2014, lower research and development costs of $1.4 million and the impact of a $1.0 million increase in sales of higher margin products.
Asia
Asia net revenues for the three months ended September 27, 2015 decreased $0.1 million, or 0.2%, compared to the corresponding prior year period. The decrease is primarily attributable to $7.1 million of unfavorable fluctuations in foreign currency exchange rates, which were partially offset by $3.3 million of price increases, net revenues of $2.2 million generated by acquisitions (Human Medics, Stenning and Truphatek) and a $1.2 million increase in sales volumes of existing products.
Asia net revenues for the nine months ended September 27, 2015 decreased $1.6 million, or 1.0%, compared to the corresponding prior year period. The decrease is primarily attributable to $18.1 million of unfavorable fluctuations in foreign currency exchange rates, which were partially offset by $8.4 million in price increases, net revenues of $5.2 million generated by acquisitions (Mayo, Human Medics, Stenning and Truphatek), a $1.7 million increase in new product sales and a $1.1 million increase in sales volumes of existing products.
Asia operating profit for the three months ended September 27, 2015 increased $0.9 million or 6.3%, compared to the corresponding prior year period. The increase is primarily attributable to the impact of price increases of $3.3 million, a $1.2 million increase in sales of higher margin products, a $1.0 million increase in sales volumes of existing products, which were partially offset by $3.8 million of unfavorable fluctuations in foreign currency exchange rates.
Asia operating profit for the nine months ended September 27, 2015 decreased $1.9 million or 4.3%, compared to the corresponding prior year period. The decrease is primarily attributable to $9.0 million of unfavorable fluctuations in foreign currency exchange rates, a $1.5 million increase in manufacturing costs, as well as higher selling, general and administrative costs driven by the impact of distributor to direct sales conversions of $2.9 million, partially offset by lower employee related costs of $1.2 million. These declines were partially offset by the impact of $8.4 million in price increases, a $1.1 million increase in new product sales and a $1.1 million increase in sales volumes of existing products.
OEM
OEM net revenues for the three months ended September 27, 2015 decreased $0.2 million, or 0.6%, compared to the corresponding prior year period. The decrease is primarily attributable to $1.2 million of unfavorable fluctuations in foreign currency exchange rates, which were partially offset by a $1.1 million increase in new product sales.

46



OEM net revenues for the nine months ended September 27, 2015 increased $2.6 million, or 2.4%, compared to the corresponding prior year period. The increase is primarily attributable to a $3.3 million increase in sales volumes of existing products, a $2.6 million increase in new product sales and $0.5 million in sales generated as a result of the acquisition of Trintris, which were partially offset by $3.8 million of unfavorable fluctuations in foreign currency exchange rates.
OEM operating profit for the three months ended September 27, 2015 decreased $0.8 million, or 8.1%, compared to the corresponding prior year period. The decrease is primarily attributable to the impact of an increase in manufacturing costs of $0.5 million, which was partially offset by an increase in sales of higher margin products of $1.0 million and an increase in new product sales of $0.5 million.
OEM operating profit for the nine months ended September 27, 2015 increased $0.7 million, or 2.9%, compared to the corresponding prior year period. The increase is primarily attributable to the $2.4 million impact of an increase in sales of higher margin products, the $1.6 million impact of increases in sales volumes of existing products and an increase in new product sales of $1.3 million, which were partially offset by a $1.4 million increase in selling expenses, $1.1 million of unfavorable foreign currency exchange rate fluctuations and a $0.8 million increase in research and development costs.
All Other
The decrease in net revenues for our other businesses for the three months ended September 27, 2015, compared to the corresponding prior year period is primarily attributable to decreases in sales volumes of existing products and unfavorable foreign currency exchange rate fluctuations, which were partially offset by an increase in new product sales and price increases.
The minor increase in net revenues for our other businesses for the nine months ended September 27, 2015, compared to the corresponding prior year period is primarily attributable to an increase in new product sales and price increases, which were partially offset by unfavorable foreign currency exchange rate fluctuations.
The decrease in operating profit for the three months ended September 27, 2015, compared to the corresponding prior year period, is primarily attributable to a decrease in sales volumes of existing products and unfavorable foreign currency exchange rate fluctuations, which were partially offset by lower research and development expenses, price increases and an increase in new product sales.
The decrease in operating profit for the nine months ended September 27, 2015, compared to the corresponding prior year period, is primarily attributable to a reduction in the reversal of contingent consideration and the unfavorable impact of foreign exchange fluctuations, which were partially offset by lower research and development expenses, lower manufacturing costs, the impact of an increase in new product sales and price increases.


Liquidity and Capital Resources
We believe our cash flow from operations, available cash and cash equivalents, borrowings under our revolving credit facility and borrowings under our accounts receivable securitization facility will enable us to fund our operating requirements, capital expenditures and debt obligations for the next 12 months and the foreseeable future. We have net cash provided by United States based operating activities as well as non-United States sources of cash available to help fund our debt service requirements in the United States. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which we can access those funds on a cost effective basis. We are not aware of any restrictions on repatriation of these funds and, subject to cash payment of additional United States income taxes or foreign withholding taxes, these funds could be repatriated, if necessary. Any resulting additional taxes could be offset, at least in part, by foreign tax credits. The amount of any taxes required to be paid, which could be significant, and the application of tax credits would be determined based on income tax laws in effect at the time of such repatriation. We do not expect any such repatriation to result in additional tax expense as we have provided for taxes on unremitted foreign earnings that we do not consider permanently reinvested.

47



To date, we have not experienced significant payment defaults by our customers, and we have sufficient lending commitments in place to enable us to fund our anticipated additional operating needs. However, although there have been recent improvements in the domestic and global financial and credit markets, the markets remain volatile, which creates a risk that our customers and suppliers may be unable to access liquidity. Consequently, we continue to monitor our credit risk, particularly related to certain countries in Europe. As of September 27, 2015, our net current and long-term accounts receivables from publicly funded hospitals in Italy, Spain, Portugal and Greece were $43.5 million compared to $46.9 million as of December 31, 2014. For the nine months ended September 27, 2015, net revenues from these countries were approximately 7.1% of total net revenues, and average days that current and long-term accounts receivables were outstanding were 229 days. As of both September 27, 2015 and December 31, 2014, net current and long-term accounts receivables from these countries were approximately 26.1% and 27.3% of our consolidated net current and long-term accounts receivables, respectively. If economic conditions in these countries deteriorate, we may experience further delays in payments by, and significant credit losses related to, the public hospital systems in these countries. Moreover, if global economic conditions generally deteriorate, we may experience further delays in customer payments, reductions in our customers’ purchases and higher credit losses, which could have a material adverse effect on our results of operations and cash flows in 2015 and future years.
Cash Flows
Cash flows from operating activities from continuing operations provided net cash of approximately $176.8 million for the first nine months of 2015 compared to $208.8 million during the first nine months of 2014. The $32.0 million decrease is primarily due to an increase in working capital, an increase in contributions to domestic pension plans of $4.8 million and a decrease in the restructuring reserve of $4.3 million.
The increase in working capital is primarily the result of an increase in account receivable as well as a decrease in accounts payable and accrued expenses. Accounts receivable increased $8.7 million during the nine months ended September 27, 2015, as compared to a $2.4 million decrease during the nine months ended September 28, 2014, primarily due to increased net revenues in the first nine months of 2015 as compared to the first nine months in 2014 (excluding the impact of foreign currency exchange rate fluctuations). In addition, there was an increase in collections of receivables during the first nine months of 2014, primarily in EMEA. Accounts payable and accrued expenses decreased $2.9 million for the nine months ended September 27, 2015 as compared to an increase of $14.3 million for the nine months ended September 28, 2014, primarily due to an increase in employee related benefit and compensation payments, an increase in interest payments and the timing of vendor related payments. These decreases were partially offset by increases in cash flows resulting from reductions in prepaid expenses and other current assets as well as inventory for the nine months ended September 27, 2015 as compared to the prior year period.

Net cash used in investing activities from continuing operations was $108.6 million for the nine months ended September 27, 2015, primarily resulting from net payments of $63.5 million for the 2015 acquisitions and capital expenditures of $45.6 million.

Net cash used in financing activities from continuing operations was $70.9 million for the nine months ended September 27, 2015, primarily resulting from repayments of outstanding debt totaling $303.6 million, including the redemption of the entire $250.0 million principal amount of our 6.875% Senior Subordinated Notes due 2019 (the "2019 Notes") and the repayment of $50 million and $3.5 million under our revolving credit facility and accounts receivable securitization facility, respectively. Additionally, we incurred $9.0 million of debt extinguishment, issuance and amendment fees, primarily as a result of a make whole payment in connection with the redemption of the 2019 Notes, as well as $42.4 million of dividend payments and $8.0 million of contingent consideration payments related to our acquisition of Mini-Lap. These cash outflows were partially offset by $288.1 million of proceeds from borrowings, including $246.0 million of borrowings under our revolving credit facility and $42.1 million of borrowings under our accounts receivable securitization facility. In addition, we realized net cash inflows of $4.8 million from shared-based compensation activity, which included proceeds from the exercise and vesting of share-based awards under our stock compensation plans and the related tax benefits, partially offset by tax withholdings that we remitted on behalf of employees who elected to have shares withheld by us to satisfy their minimum tax withholding obligations arising from the exercise and vesting of their share-based awards.


48



Stock Repurchase Program
In 2007, our Board of Directors authorized the repurchase of up to $300 million of our outstanding common stock. Repurchases of our 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 our 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 our senior credit agreement, we are subject to certain restrictions relating to our ability to repurchase shares in the event our consolidated leverage ratio (generally, the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined in the senior credit agreement) exceeds certain levels, which may limit our ability to repurchase shares under this Board authorization. Through September 27, 2015, no shares have been purchased under this Board authorization.
Net Debt to Total Capital Ratio
The following table provides our net debt to total capital ratio:
 
September 27, 2015
 
December 31, 2014
 
(Dollars in millions)
Net debt includes:
 
 
 
Current borrowings
$
416.7

 
$
368.4

Long-term borrowings
646.0

 
700.0

Unamortized debt discount
26.4

 
36.2

Total debt
1,089.1

 
1,104.6

Less: Cash and cash equivalents
276.5

 
303.2

Net debt
$
812.6

 
$
801.4

Total capital includes:
 

 
 

Net debt
$
812.6

 
$
801.4

Total common shareholders’ equity
1,938.9

 
1,911.3

Total capital
$
2,751.5

 
$
2,712.7

Percent of net debt to total capital
30
%
 
30
%
On June 1, 2015, we prepaid the $250 million aggregate principal amount of the 2019 Notes.  In addition to our prepayment of principal, we paid the holders of the 2019 Notes an $8.6 million prepayment make-whole amount plus accrued and unpaid interest. We used $246.0 million in borrowings under our revolving credit facility, $12.1 million in borrowings under our securitization program and available cash to fund the prepayment of the 2019 Notes.
On July 29, 2015, we repaid $50 million of outstanding borrowings under our revolving credit facility with available cash.
Our 3.875% Convertible Senior Subordinated Notes due 2017 (the “Convertible Notes”) are convertible under certain circumstances. Since the fourth quarter 2013, our closing stock price has exceeded the 130% threshold described in Note 7 to the consolidated financial statements included in this report and, accordingly, the Convertible Notes have been classified as a current liability as of September 27, 2015 and December 31, 2014. We have elected a net settlement method to satisfy our conversion obligation, under which we may settle the principal amount of the Convertible Notes in cash and settle the excess of the conversion value of the Convertible Notes over the principal amount of the notes in shares; however, cash will be paid in lieu of fractional shares. While we believe we have sufficient liquidity to repay the principal amounts due through a combination of our existing cash on hand and borrowings under our credit facility, our use of these funds could adversely affect our results of operations and liquidity. The classification of the Convertible Notes as a current liability had no impact on our financial covenants.

49



Our senior credit agreement and the indentures under which we issued our 5.25% Senior Notes due 2024 (the “2024 notes”) contain covenants that, among other things, limit or restrict our ability, and the ability of our subsidiaries, to incur debt, create liens, consolidate, merge or dispose of certain assets, make certain investments, engage in acquisitions, pay dividends on, repurchase or make distributions in respect of capital stock and enter into swap agreements. Our senior credit agreement also requires us to maintain a consolidated leverage ratio (generally, the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in our senior credit agreement) of not more than 4.0:1 and a consolidated interest coverage ratio (generally, Consolidated EBITDA to Consolidated Interest Expense, each as defined in the senior credit agreement) of not less than 3.50:1 as of the last day of any period of four consecutive fiscal quarters calculated in accordance with the definitions and methodology set forth in the senior credit agreement. As of September 27, 2015, we are in compliance with these covenants. The obligations under the senior credit agreement and the 2024 notes are guaranteed (subject to certain exceptions) by substantially all of our material domestic subsidiaries, and the obligations under the senior credit agreement are (subject to certain exceptions and limitations) secured by a pledge on substantially all of the equity interests owned by us and each guarantor.
New Accounting Standards
See Note 2 to the condensed consolidated financial statements included in this report for a discussion of recently issued accounting standards, including estimated effects, if any, on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
See the information set forth in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
 

Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


50



PART II OTHER INFORMATION
 
Item 1. Legal Proceedings
We are party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability and product warranty, intellectual property, contracts, employment and environmental matters. As of September 27, 2015 and December 31, 2014, we have accrued liabilities of approximately $2.7 million and $6.0 million, respectively, in connection with these matters, representing our best estimate of the cost within the range of estimated possible loss that will be incurred to resolve these matters. Of the $2.7 million accrued at September 27, 2015, $1.5 million pertains to discontinued operations. Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that any such actions are likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to our business, financial condition, results of operations or liquidity. See “Litigation” within Note 13 to the condensed consolidated financial statements included in this report for additional information.

Item 1A. Risk Factors
There have been no significant changes in risk factors for the quarter ended September 27, 2015. See the information set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
 
Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.


51



Item 6. Exhibits
The following exhibits are filed as part of this report:
 
Exhibit No.
 
 
  
Description
 
31.1
 
 
  
 
Certification of Chief Executive Officer, pursuant to Rule 13a–14(a) under the Securities Exchange Act of 1934.
 
31.2
 
 
  
 
Certification of Chief Financial Officer, pursuant to Rule 13a–14(a) under the Securities Exchange Act of 1934.
 
32.1
 
 
  
 
Certification of Chief Executive Officer, pursuant to Rule 13a–14(b) under the Securities Exchange Act of 1934.
 
32.2
 
 
  
 
Certification of Chief Financial Officer, pursuant to Rule 13a–14(b) under the Securities Exchange Act of 1934.
 
101.1
 
 
  
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income for the three and nine months ended September 27, 2015 and September 28, 2014; (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 27, 2015 and September 28, 2014; (iii) the Condensed Consolidated Balance Sheets as of September 27, 2015 and December 31, 2014; (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2015 and September 28, 2014; (v) the Condensed Consolidated Statements of Changes in Equity for the nine months ended September 27, 2015 and September 28, 2014; and (vi) Notes to Condensed Consolidated Financial Statements.


52



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
TELEFLEX INCORPORATED
 
 
 
 
 
By:
 
/s/ Benson F. Smith
 
 
 
 
Benson F. Smith
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
 
 
By:
 
/s/ Thomas E. Powell
 
 
 
 
Thomas E. Powell
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: October 29, 2015


53