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 March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 1-5353
TELEFLEX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 23-1147939 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
|
155 South Limerick Road, Limerick, Pennsylvania | 19468 | |
(Address of principal executive offices) | (Zip Code) |
(610) 948-5100
(Registrants telephone number, including area code)
(None)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The registrant had 41,111,004 shares of common stock, $1.00 par value, outstanding as of April 19, 2013.
TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2013
Page | ||||||
PART I FINANCIAL INFORMATION | ||||||
Item 1: |
Financial Statements (Unaudited): |
|||||
2 | ||||||
3 | ||||||
Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 |
4 | |||||
5 | ||||||
6 | ||||||
7 | ||||||
Item 2: |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
32 | ||||
Item 3: | 40 | |||||
Item 4: | 40 | |||||
PART II OTHER INFORMATION | ||||||
Item 1: | 41 | |||||
Item 1A: | 41 | |||||
Item 2: | 41 | |||||
Item 3: | 41 | |||||
Item 5: | 41 | |||||
Item 6: | 42 | |||||
SIGNATURES | 43 |
1
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars and shares in thousands, except per share) |
||||||||
Net revenues |
$ | 411,877 | $ | 380,567 | ||||
Cost of goods sold |
211,357 | 196,453 | ||||||
|
|
|
|
|||||
Gross profit |
200,520 | 184,114 | ||||||
Selling, general and administrative expenses |
126,950 | 112,136 | ||||||
Research and development expenses |
15,007 | 11,553 | ||||||
Goodwill impairment |
| 332,128 | ||||||
Restructuring and other impairment charges |
9,159 | (1,325 | ) | |||||
|
|
|
|
|||||
Income (loss) from continuing operations before interest and taxes |
49,404 | (270,378 | ) | |||||
Interest expense |
14,193 | 18,211 | ||||||
Interest income |
(157 | ) | (478 | ) | ||||
|
|
|
|
|||||
Income (loss) from continuing operations before taxes |
35,368 | (288,111 | ) | |||||
Taxes (benefit) on income (loss) from continuing operations |
7,667 | (3,998 | ) | |||||
|
|
|
|
|||||
Income (loss) from continuing operations |
27,701 | (284,113 | ) | |||||
|
|
|
|
|||||
Operating income (loss) from discontinued operations |
(758 | ) | 929 | |||||
Taxes (benefit) on income (loss) from discontinued operations |
(296 | ) | 324 | |||||
|
|
|
|
|||||
Income (loss) from discontinued operations |
(462 | ) | 605 | |||||
|
|
|
|
|||||
Net income (loss) |
27,239 | (283,508 | ) | |||||
Less: Income from continuing operations attributable to noncontrolling interest |
201 | 227 | ||||||
|
|
|
|
|||||
Net income (loss) attributable to common shareholders |
$ | 27,038 | $ | (283,735 | ) | |||
|
|
|
|
|||||
Earnings per share available to common shareholders: |
||||||||
Basic: |
||||||||
Income (loss) from continuing operations |
$ | 0.67 | $ | (6.97 | ) | |||
Income (loss) from discontinued operations |
(0.01 | ) | 0.01 | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 0.66 | $ | (6.96 | ) | |||
|
|
|
|
|||||
Diluted: |
||||||||
Income (loss) from continuing operations |
$ | 0.64 | $ | (6.97 | ) | |||
Income (loss) from discontinued operations |
(0.01 | ) | 0.01 | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 0.63 | $ | (6.96 | ) | |||
|
|
|
|
|||||
Dividends per share |
$ | 0.34 | $ | 0.34 | ||||
Weighted average common shares outstanding: |
||||||||
Basic |
41,014 | 40,769 | ||||||
Diluted |
43,047 | 40,769 | ||||||
Amounts attributable to common shareholders: |
||||||||
Income (loss) from continuing operations, net of tax |
$ | 27,500 | $ | (284,340 | ) | |||
Income (loss) from discontinued operations, net of tax |
(462 | ) | 605 | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 27,038 | $ | (283,735 | ) | |||
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Net income (loss) |
$ | 27,239 | $ | (283,508 | ) | |||
Other comprehensive income (loss), net of tax: |
||||||||
Foreign currency translation, net of tax ($(5,815) and $4,213 for the three month periods, respectively) |
(26,705 | ) | 30,683 | |||||
Pension and other postretirement benefits plans adjustment, net of tax ($504 and $562 for the three month periods, respectively) |
1,090 | 978 | ||||||
Derivatives qualifying as hedges, net of tax ($104 and $1,408 for the three month periods, respectively) |
180 | 2,460 | ||||||
|
|
|
|
|||||
Other comprehensive income (loss), net of tax |
(25,435 | ) | 34,121 | |||||
|
|
|
|
|||||
Comprehensive income (loss) |
1,804 | (249,387 | ) | |||||
Less: comprehensive income attributable to noncontrolling interest |
242 | 305 | ||||||
|
|
|
|
|||||
Comprehensive income (loss) attributable to common shareholders |
$ | 1,562 | $ | (249,692 | ) | |||
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2013 |
December 31,
2012 |
|||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 306,554 | $ | 337,039 | ||||
Accounts receivable, net |
307,020 | 297,976 | ||||||
Inventories, net |
332,820 | 323,347 | ||||||
Prepaid expenses and other current assets |
28,940 | 28,712 | ||||||
Prepaid taxes |
28,711 | 27,160 | ||||||
Deferred tax assets |
45,620 | 46,882 | ||||||
Assets held for sale |
7,836 | 7,963 | ||||||
|
|
|
|
|||||
Total current assets |
1,057,501 | 1,069,079 | ||||||
Property, plant and equipment, net |
300,830 | 297,945 | ||||||
Goodwill |
1,236,876 | 1,249,456 | ||||||
Intangible assets, net |
1,034,589 | 1,058,792 | ||||||
Investments in affiliates |
1,947 | 2,066 | ||||||
Deferred tax assets |
204 | 296 | ||||||
Other assets |
61,780 | 61,863 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,693,727 | $ | 3,739,497 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities |
||||||||
Current borrowings |
$ | 4,700 | $ | 4,700 | ||||
Accounts payable |
67,383 | 75,165 | ||||||
Accrued expenses |
74,200 | 65,064 | ||||||
Current portion of contingent consideration |
21,931 | 23,693 | ||||||
Payroll and benefit-related liabilities |
60,428 | 74,586 | ||||||
Accrued interest |
9,576 | 9,418 | ||||||
Income taxes payable |
17,221 | 15,573 | ||||||
Other current liabilities |
6,029 | 6,206 | ||||||
|
|
|
|
|||||
Total current liabilities |
261,468 | 274,405 | ||||||
Long-term borrowings |
968,035 | 965,280 | ||||||
Deferred tax liabilities |
409,289 | 419,266 | ||||||
Pension and postretirement benefit liabilities |
159,147 | 170,946 | ||||||
Noncurrent liability for uncertain tax positions |
68,917 | 68,292 | ||||||
Other liabilities |
51,794 | 59,771 | ||||||
|
|
|
|
|||||
Total liabilities |
1,918,650 | 1,957,960 | ||||||
Commitments and contingencies |
||||||||
Total common shareholders equity |
1,772,248 | 1,778,950 | ||||||
Noncontrolling interest |
2,829 | 2,587 | ||||||
|
|
|
|
|||||
Total equity |
1,775,077 | 1,781,537 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 3,693,727 | $ | 3,739,497 | ||||
|
|
|
|
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)
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Cash Flows from Operating Activities of Continuing Operations: |
||||||||
Net income (loss) |
$ | 27,239 | $ | (283,508 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Loss (income) from discontinued operations |
462 | (605 | ) | |||||
Depreciation expense |
10,153 | 8,630 | ||||||
Amortization expense of intangible assets |
12,438 | 10,510 | ||||||
Amortization expense of deferred financing costs and debt discount |
3,750 | 3,530 | ||||||
Stock-based compensation |
2,791 | 1,719 | ||||||
In-process research and development impairment |
4,494 | | ||||||
Goodwill impairment |
| 332,128 | ||||||
Deferred income taxes, net |
476 | (12,624 | ) | |||||
Other |
(12,872 | ) | (3,877 | ) | ||||
Changes in operating assets and liabilities, net of effects of acquisitions and disposals: |
||||||||
Accounts receivable |
(16,420 | ) | (19,315 | ) | ||||
Inventories |
(13,693 | ) | 2,372 | |||||
Prepaid expenses and other current assets |
(435 | ) | (1,812 | ) | ||||
Accounts payable and accrued expenses |
(13,429 | ) | (9,272 | ) | ||||
Income taxes receivable and payable, net |
1,139 | (1,560 | ) | |||||
|
|
|
|
|||||
Net cash provided by operating activities from continuing operations |
6,093 | 26,316 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities of Continuing Operations: |
||||||||
Expenditures for property, plant and equipment |
(15,635 | ) | (13,330 | ) | ||||
Payments for businesses and intangibles acquired, net of cash acquired |
(5,679 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities from continuing operations |
(21,314 | ) | (13,330 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities of Continuing Operations: |
||||||||
Decrease in notes payable and current borrowings |
| (286 | ) | |||||
Proceeds from stock compensation plans |
4,326 | 1,594 | ||||||
Dividends |
(13,964 | ) | (13,866 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities from continuing operations |
(9,638 | ) | (12,558 | ) | ||||
|
|
|
|
|||||
Cash Flows from Discontinued Operations: |
||||||||
Net cash used in operating activities |
(629 | ) | (2,178 | ) | ||||
Net cash used in investing activities |
| (1,699 | ) | |||||
|
|
|
|
|||||
Net cash used in discontinued operations |
(629 | ) | (3,877 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
(4,997 | ) | 10,282 | |||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
(30,485 | ) | 6,833 | |||||
Cash and cash equivalents at the beginning of the period |
337,039 | 584,088 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at the end of the period |
$ | 306,554 | $ | 590,921 | ||||
|
|
|
|
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)
Common Stock |
Additional
Paid in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income |
Treasury
Stock |
Noncontrolling
Interest |
Total
Equity |
||||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||||||||||||||||||||||
(Dollars and shares in thousands, except per share) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 |
42,923 | $ | 42,923 | $ | 380,965 | $ | 1,847,106 | $ | (159,353 | ) | 2,183 | $ | (131,053 | ) | $ | 2,195 | $ | 1,982,783 | ||||||||||||||||||
Net loss |
(283,735 | ) | 227 | (283,508 | ) | |||||||||||||||||||||||||||||||
Cash dividends ($0.34 per share) |
(13,866 | ) | (13,866 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income |
34,043 | 78 | 34,121 | |||||||||||||||||||||||||||||||||
Shares issued under compensation plans |
33 | 33 | 46 | (35 | ) | 2,131 | 2,210 | |||||||||||||||||||||||||||||
Deferred compensation |
(10 | ) | (4 | ) | 116 | 106 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at April 1, 2012 |
42,956 | $ | 42,956 | $ | 381,001 | $ | 1,549,505 | $ | (125,310 | ) | 2,144 | $ | (128,806 | ) | $ | 2,500 | $ | 1,721,846 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
Additional
Paid in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income |
Treasury
Stock |
Noncontrolling
Interest |
Total
Equity |
||||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||||||||||||||||||||||
(Dollars and shares in thousands, except per share) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2012 |
43,102 | $ | 43,102 | $ | 394,384 | $ | 1,601,460 | $ | (132,048 | ) | 2,130 | $ | (127,948 | ) | $ | 2,587 | $ | 1,781,537 | ||||||||||||||||||
Net income |
27,038 | 201 | 27,239 | |||||||||||||||||||||||||||||||||
Cash dividends ($0.34 per share) |
(13,964 | ) | (13,964 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
(25,476 | ) | 41 | (25,435 | ) | |||||||||||||||||||||||||||||||
Shares issued under compensation plans |
79 | 79 | 3,173 | (49 | ) | 2,402 | 5,654 | |||||||||||||||||||||||||||||
Deferred compensation |
(9 | ) | (1 | ) | 55 | 46 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at March 31, 2013 |
43,181 | $ | 43,181 | $ | 397,548 | $ | 1,614,534 | $ | (157,524 | ) | 2,080 | $ | (125,491 | ) | $ | 2,829 | $ | 1,775,077 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of presentation
We prepared the accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated on the same basis as our annual consolidated financial statements.
In the opinion of management, our financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of financial statements for interim periods in accordance with U.S. generally accepted accounting principles (GAAP) and with Rule 10-01 of SEC Regulation S-X, which sets forth the instructions for financial statements included in Form 10-Q. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
In accordance with applicable accounting standards, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in our annual consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but, as permitted by Rule 10-01 of SEC Regulation S-X, does not include all disclosures required by GAAP for complete financial statements. Accordingly, our quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Certain reclassifications of prior year information have been made to conform to the current years presentation. In the third quarter of 2012, due to changes in the Companys management and internal reporting structure, the Companys Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. The change did not affect the Companys reporting unit structure. The prior comparative period has been restated to reflect this change. See Note 14 for a discussion of the Companys 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
The Company adopted the following new accounting standard as of January 1, 2013, the first day of its 2013 fiscal year:
Amendment to Comprehensive Income: In February 2013, the Financial Accounting Standards Board (FASB) issued an amendment to its accounting guidance on reporting amounts reclassified out of accumulated other comprehensive income. The guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items, on the face of the statement where net income is presented, or in the notes to the financial statements, if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income in the same reporting period For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about the effect of the reclassifications. The guidance is effective prospectively for reporting periods beginning after December 15, 2012.
7
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amendment to Balance Sheet: In January 2013, the FASB issued an amendment to its accounting guidance to clarify the scope of disclosure requirements pertaining to offsetting assets and liabilities mandated by an earlier accounting pronouncement. The amended guidance limited the scope of the required disclosures to derivatives accounted for in accordance with the FASBs Derivatives and Hedging guidance, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and certain securities borrowing and securities lending transactions, that are offset in the financial statements in accordance with specified accounting guidance or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are no longer applicable to entities with other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement. The guidance is effective for reporting periods beginning on or after January 1, 2013. The amendment did not have a material impact on the Companys results of operations, cash flows or financial position.
The Company will adopt the following new accounting standard as of January 1, 2014, the first day of its 2014 fiscal year:
Amendment to Foreign Currency Matters: In March 2013, the FASB issued an amendment which clarified that when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the reporting entity is required to reclassify cumulative foreign currency translation adjustment from accumulated other comprehensive income into the calculation of gain or loss related to that foreign entity. Additionally, the amendment clarifies that the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity (irrespective of any retained investment) and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition), and that the cumulative translation adjustment should be released into net income upon the occurrence of those events. The guidance is effective prospectively for reporting periods beginning after December 15, 2013. The amendment is not expected to have a material impact on the Companys results of operations, cash flows or financial position.
Note 3 Acquisitions
The Company made the following acquisitions during 2012, all of which were accounted for as business combinations:
|
On October 23, 2012, the Company acquired substantially all of the assets of LMA International N.V. (LMA), a global provider of laryngeal masks whose products are used in anesthesia and emergency care. The Company paid $292.2 million in cash as initial consideration for the LMA business. On October 23, 2012, in a separate transaction, the Company also acquired the LMA branded laryngeal mask supraglottic airway business and certain other products in the United Kingdom, Ireland and Channel Islands from the shareholders of Intravent Direct Limited and affiliates for $19.9 million in cash. In February 2013, the Company received $1.5 million in cash from the sellers of the LMA business related to a working capital adjustment provided for under the terms of the purchase agreement. These acquisitions complement the anesthesia product portfolio in the Companys Critical Care division. |
|
On June 22, 2012, the Company acquired Hotspur Technologies, a developer of catheter-based technologies designed to restore blood flow in patients with obstructed vessels. The acquired business complements the dialysis access product line in the Companys Cardiac Care division. The Company paid $15.0 million in cash as initial consideration for the business. |
|
On May 22, 2012, the Company acquired Semprus BioSciences, a biomedical company that developed a long-lasting, covalently bonded, non-leaching polymer designed to reduce infections and thrombus |
8
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
related complications. While the Company will explore opportunities to apply this technology to a broad array of its product offerings, the initial focus for the technology will be with respect to vascular devices within the Companys Critical Care division. The Company paid $30.0 million in cash as initial consideration for the business. |
|
On May 3, 2012, the Company acquired substantially all of the assets of Axiom Technology Partners, LLC (the Axiom acquisition), constituting its EFx laparoscopic fascial closure system, which is designed for the closure of abdominal trocar defects through which access ports and instruments were used during laparoscopic surgeries. The acquired business complements the surgical closure product line in the Companys Surgical Care division. The Company paid $7.5 million in cash as initial consideration for the business. |
|
On April 5, 2012, the Company acquired the EZ-Blocker product line, a single-use catheter used to perform lung isolation and one-lung ventilation. The acquisition of this product line complements the Anesthesia product portfolio in the Companys Critical Care division. The Company paid $3.3 million in cash as initial consideration for the business. |
In connection with the acquisitions, the Company agreed to pay contingent consideration based on the achievement of specified objectives, including regulatory approvals and sales targets. As of the respective acquisition dates, the range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between $2.0 million to $90.0 million. For further information on contingent consideration, see Note 9, Fair Value Measurement.
Note 4 Restructuring and other impairment charges
The amounts recognized in restructuring and other impairment charges for the three months ended March 31, 2013 and April 1, 2012 consisted of the following:
Three Months Ended
March 31, 2013 |
Three Months Ended
April 1, 2012 |
|||||||
(Dollars in thousands) | ||||||||
LMA restructuring program |
$ | 2,655 | $ | | ||||
2013 restructuring charges |
480 | | ||||||
2012 restructuring charges |
1,450 | 605 | ||||||
2007 Arrow integration program |
80 | (1,930 | ) | |||||
In-process research and development impairment |
4,494 | | ||||||
|
|
|
|
|||||
Restructuring and other impairment charges |
$ | 9,159 | $ | (1,325 | ) | |||
|
|
|
|
9
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LMA Restructuring Program
In connection with the acquisition of LMA, the Company has formulated a plan related to the future integration of the LMA business and the Companys businesses. The integration plan focuses on the closure of the LMA business corporate functions and the consolidation of manufacturing, sales, marketing, and distribution functions in North America, Europe and Asia. The Company estimates that it will incur an aggregate of up to approximately $15 million in restructuring and other impairment charges over the term of this restructuring program. Of this amount, $5 million relates to employee termination costs, $9 million relates to termination of certain distributor agreements and $1 million relates to facility closures costs and other actions. The charges associated with this restructuring program that are included in restructuring and other impairment charges during 2013 were as follows:
2013 | ||||
(Dollars in thousands) | ||||
Termination benefits |
$ | 2,024 | ||
Facility closure costs |
81 | |||
Contract termination costs |
442 | |||
Other restructuring costs |
108 | |||
|
|
|||
$ | 2,655 | |||
|
|
A reconciliation of the changes in accrued liabilities associated with the LMA restructuring program from December 31, 2012 through March 31, 2013 is set forth in the following tables:
Termination
benefits |
Facility
Closure Costs |
Contract
Termination Costs |
Other
Restructuring Costs |
Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance at December 31, 2012 |
$ | 1,744 | $ | | $ | 277 | $ | 12 | $ | 2,033 | ||||||||||
Subsequent accruals |
2,024 | 81 | 442 | 108 | 2,655 | |||||||||||||||
Cash payments |
(977 | ) | | (279 | ) | (5 | ) | (1,261 | ) | |||||||||||
Foreign currency translation |
(25 | ) | (2 | ) | (14 | ) | (11 | ) | (52 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at March 31, 2013 |
$ | 2,766 | $ | 79 | $ | 426 | $ | 104 | $ | 3,375 | ||||||||||
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Charges
The Company regularly evaluates opportunities to consolidate facilities, lower costs and improve operating efficiencies. In 2013, the Company initiated programs to consolidate manufacturing facilities in North America and warehouse facilities in Europe in an effort to reduce costs. As a result of these actions, the Company will incur costs related to reductions in force, facility closure and other costs. For the three months ended March 31, 2013, the company incurred restructuring charges of $0.5 million related to these projects. As of March 31, 2013, the Company has a reserve of $0.4 million in connection with this program.
2012 Restructuring Charges
In 2012, the Company identified opportunities to improve its supply chain strategy by consolidating its three North American warehouses into one centralized warehouse and lower costs and improve operating efficiencies through the termination of certain distributor agreements in Europe, the closure of certain North American facilities and workforce reductions. These projects will entail costs related to reductions in force, contract terminations related distributor agreements and leases, and facility closure and other costs. For the three months ended March 31, 2013, the Company incurred restructuring charges of $1.5 million related to these projects. As
10
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of March 31, 2013, the Company has a reserve of $3.0 million in connection with this program. The Company expects to complete the projects over a one year period and anticipates incurring additional charges of $2.3 million related to these initiatives.
2011 Restructuring Program
In 2011, the Company initiated a restructuring program at three facilities to consolidate operations and reduce costs. As of March 31, 2013, in connection with this program, the Company has a reserve of $1.7 million, which primarily relates to contract termination costs associated with a leased facility that the Company has partially vacated. The Company expects to incur additional contract termination costs of approximately $2.7 million associated with the lease termination when it has vacated the remaining portion of the premises in 2014. The payment of the lease contract termination costs will continue until 2015. The Company did not incur any expenses related to this program during the three months ended March 31, 2013 or April 1, 2012.
2007 Arrow Integration Program
In connection with the Companys acquisition of Arrow International, Inc. (Arrow), the Company implemented a program in 2007 to integrate Arrows businesses into the Companys other businesses. The aspects of this program that affect Teleflex employees and facilities (such aspects being referred to as the 2007 Arrow integration program) are charged to earnings and classified as restructuring and impairment charges. As of March 31, 2013, the Company has a reserve of $0.4 million in connection with this program. The following table provides information relating to the charges associated with the 2007 Arrow integration program that were included in restructuring and other impairment charges in the condensed consolidated statements of income (loss) for the periods presented:
Three Months Ended
March 31, 2013 |
Three Months Ended
April 1, 2012 |
|||||||
(Dollars in thousands) | ||||||||
Facility closure costs |
$ | 80 | $ | 92 | ||||
Contract termination costs |
| (2,022 | ) | |||||
|
|
|
|
|||||
$ | 80 | $ | (1,930 | ) | ||||
|
|
|
|
In 2012, the Company reversed approximately $2.0 million of contract termination costs related to a settlement of a dispute involving the termination of a European distributor agreement that was established in connection with the Companys acquisition of Arrow.
As of March 31, 2013, the Company expects future restructuring expenses associated with the 2007 Arrow integration program, if any, to be nominal.
In-process research and development impairment
During the three months ended March 31, 2013, the company recorded a $4.5 million IPR&D charge pertaining to a research and development project associated with the Axiom acquisition. Technological feasibility of the underlying project had not yet been reached and such technology had no future alternative use. In accordance with accounting guidance, the Company immediately expensed the asset.
Note 5 Impairment of goodwill
In the first quarter of 2012, due to a change in the Companys reporting structure, the Company performed goodwill impairment tests and determined that three of the reporting units in the North America Segment were impaired. The Company recorded goodwill impairment charges of $220 million in the Vascular reporting unit, $107 million in the Anesthesia/Respiratory reporting unit and $5 million in the Cardiac reporting unit.
11
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6 Inventories, net
Inventories as of March 31, 2013 and December 31, 2012 consisted of the following:
March 31,
2013 |
December 31,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Raw materials |
$ | 83,695 | $ | 84,636 | ||||
Work-in-process |
51,395 | 47,440 | ||||||
Finished goods |
228,899 | 222,974 | ||||||
|
|
|
|
|||||
363,989 | 355,050 | |||||||
Less: Inventory reserve |
(31,169 | ) | (31,703 | ) | ||||
|
|
|
|
|||||
Inventories, net |
$ | 332,820 | $ | 323,347 | ||||
|
|
|
|
Note 7 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 three months ended March 31, 2013:
Americas
Segment |
EMEA
Segment |
Asia
Segment |
OEM
Segment |
Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance as of December 31, 2012 |
||||||||||||||||||||
Goodwill |
$ | 1,086,707 | $ | 353,282 | $ | 141,595 | $ | | $ | 1,581,584 | ||||||||||
Accumulated impairment losses |
(332,128 | ) | | | | (332,128 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
754,579 | 353,282 | 141,595 | | 1,249,456 | ||||||||||||||||
Purchase accounting adjustment |
(269 | ) | | | | (269 | ) | |||||||||||||
Translation adjustment |
1,750 | (10,201 | ) | (3,860 | ) | | (12,311 | ) | ||||||||||||
Balance as of March 31, 2013 |
||||||||||||||||||||
Goodwill |
1,088,188 | 343,081 | 137,735 | | 1,569,004 | |||||||||||||||
Accumulated impairment losses |
(332,128 | ) | | | | (332,128 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 756,060 | $ | 343,081 | $ | 137,735 | $ | | $ | 1,236,876 | |||||||||||
|
|
|
|
|
|
|
|
|
|
The following table provides information, as of March 31, 2013 and December 31, 2012, regarding the gross carrying amount of, and accumulated amortization relating to, intangible assets, net:
Gross Carrying Amount | Accumulated Amortization | |||||||||||||||
March 31,
2013 |
December 31,
2012 |
March 31,
2013 |
December 31,
2012 |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Customer relationships |
$ | 576,336 | $ | 580,151 | $ | (147,679 | ) | $ | (141,520 | ) | ||||||
In-process research and development (IPR&D) |
48,594 | 53,157 | | | ||||||||||||
Intellectual property |
274,842 | 276,458 | (98,750 | ) | (95,967 | ) | ||||||||||
Distribution rights |
16,415 | 16,567 | (13,857 | ) | (13,880 | ) | ||||||||||
Trade names |
380,766 | 384,131 | (2,078 | ) | (305 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,296,953 | $ | 1,310,464 | $ | (262,364 | ) | $ | (251,672 | ) | |||||||
|
|
|
|
|
|
|
|
12
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the three months ended March 31, 2013, the company recorded a $4.5 million IPR&D charge pertaining to a research and development project associated with the Axiom acquisition where technological feasibility was not reached.
During 2013, due to a Company rebranding strategy, the Company reassessed the useful life of its $4.5 million Taut tradename and reclassified it from an indefinite lived intangible asset to a finite lived intangible asset with a useful life of eight years.
Amortization expense related to intangible assets was approximately $12.4 million and $10.5 million for the three months ended March 31, 2013 and April 1, 2012, respectively. Estimated annual amortization expense for the remainder of 2013 and the next four succeeding years is as follows (dollars in thousands):
2013 |
$ | 36,800 | ||
2014 |
45,800 | |||
2015 |
40,200 | |||
2016 |
39,900 | |||
2017 |
39,500 |
Note 8 Financial instruments
The Company uses derivative instruments for risk management purposes. Forward rate contracts are used to manage foreign currency transaction exposure. These derivative instruments are designated as cash flow hedges and are recorded on the balance sheet at fair market value. The effective portion of the gains or losses on derivatives is reported as a component of other comprehensive income and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. See Note 9, Fair value measurement for additional information.
The following table presents the location and fair values of derivative instruments designated as hedging instruments in the condensed consolidated balance sheet as of March 31, 2013 and December 31, 2012:
March 31, 2013
Fair Value |
December 31, 2012
Fair Value |
|||||||
(Dollars in thousands) | ||||||||
Asset derivatives: |
||||||||
Foreign exchange contracts: |
||||||||
Prepaid expenses and other current assets |
$ | 1,285 | $ | 1,279 | ||||
|
|
|
|
|||||
Total asset derivatives |
$ | 1,285 | $ | 1,279 | ||||
|
|
|
|
|||||
Liability derivatives: |
||||||||
Foreign exchange contracts: |
||||||||
Other current liabilities |
$ | 662 | $ | 598 | ||||
|
|
|
|
|||||
Total liability derivatives |
$ | 662 | $ | 598 | ||||
|
|
|
|
13
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides information as to the gains and losses attributable to derivatives in cash flow hedging relationships that were reported in other comprehensive income (OCI) for the three months ended March 31, 2013 and April 1, 2012:
After Tax Gain/(Loss)
Recognized in OCI |
||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Interest rate contracts |
$ | | $ | 2,386 | ||||
Foreign exchange contracts |
180 | 74 | ||||||
|
|
|
|
|||||
Total |
$ | 180 | $ | 2,460 | ||||
|
|
|
|
See Note 10 for information on the location and amount of gains and losses attributable to derivatives that were reclassified from accumulated other comprehensive income (AOCI).
There was no ineffectiveness related to the Companys derivatives for the three months ended March 31, 2013 and April 1, 2012.
Based on exchange rates at March 31, 2013, approximately $0.2 million of unrealized losses, net of tax, within AOCI are expected to be reclassified from AOCI during the next twelve months. However, the actual amount reclassified from AOCI could vary due to future changes in exchange rates.
In 2011, the Company terminated its interest rate swap covering a notional amount of $350 million designated as a hedge against the variability of the cash flows in the interest payments under the Companys term loan. As of the end of the third quarter of 2012, all unrealized losses within AOCI associated with this interest rate swap have been reclassified into earnings.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the Companys large number of customers and their diversity across many geographic areas. A portion of the Companys trade accounts receivable outside the United States, however, include sales to government-owned or supported healthcare systems in several countries which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries 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 customers outstanding receivable balance.
An allowance for doubtful accounts is maintained for accounts receivable based on the Companys 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.
In light of the disruptions in global economic markets, the Company instituted enhanced measures to facilitate customer-by-customer risk assessment when estimating the allowance for doubtful accounts. Such measures included, 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
14
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
delinquencies and other customer problems. In addition, for some of the Companys 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.
Some of the Companys customers, particularly in Europe, have extended or delayed payments for products and services already provided. Collectability concerns regarding the Companys accounts receivable from these customers, for the most part in Greece, Italy, Spain and Portugal, resulted in an increase in the allowance for doubtful accounts related to these countries. If the financial condition of these customers or the healthcare systems in these countries continue to deteriorate such that the ability of an increasing number of customers to make payments is uncertain, additional allowances may be required in future periods. The Companys aggregate accounts receivable, net of the allowance for doubtful accounts, in Spain, Italy, Greece and Portugal as a percent of the Companys total accounts receivable at the end of the period are as follows:
March 31, 2013 | December 31, 2012 | |||||||
(Dollars in thousands) | ||||||||
Accounts receivable (net of allowances of $7.1 million and $6.3 million at March 31, 2013 and December 31, 2012, respectively) in Spain, Italy, Greece and Portugal |
$ | 112,503 | $ | 101,009 | ||||
Percentage of total accounts receivable, net |
37 | % | 34 | % |
For the three months ended March 31, 2013 and April 1, 2012, net revenues from customers in Spain, Italy, Greece and Portugal were $37.2 million and $38.0 million, respectively.
Note 9 Fair value measurement
For a description of the fair value hierarchy, see Note 11 to the Companys 2012 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2012.
The following tables provide information regarding the financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2013 and April 1, 2012:
Total carrying
value at March 31, 2013 |
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 |
$ | 5,243 | $ | 5,243 | $ | | $ | | ||||||||
Derivative assets |
1,285 | | 1,285 | | ||||||||||||
Derivative liabilities |
662 | | 662 | | ||||||||||||
Contingent consideration liabilities |
41,503 | | | 41,503 |
Total carrying
value at April 1, 2012 |
Quoted prices in
active markets (Level 1) |
Significant other
observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash and cash equivalents |
$ | 10,001 | $ | 10,001 | $ | | $ | | ||||||||
Investments in marketable securities |
4,654 | 4,654 | | | ||||||||||||
Derivative assets |
1,432 | | 1,432 | | ||||||||||||
Derivative liabilities |
1,496 | | 1,496 | | ||||||||||||
Contingent consideration liabilities |
9,018 | | | 9,018 |
15
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no transfers of financial assets or liabilities carried at fair value between Level 1, Level 2 or Level 3 within the fair value hierarchy during the three months ended March 31, 2013 or April 1, 2012.
The following table provides information regarding changes in Level 3 financial liabilities (related to contingent consideration in connection with various Company acquisitions, including those described in Note 3) during the periods ended March 31, 2013 and April 1, 2012:
Contingent consideration | ||||||||
2013 | 2012 | |||||||
(Dollars in thousands) | ||||||||
Beginning balance |
$ | 51,196 | $ | 9,676 | ||||
Payment |
(8,508 | ) | | |||||
Revaluations |
(1,132 | ) | (658 | ) | ||||
Translation adjustment |
(53 | ) | | |||||
|
|
|
|
|||||
Ending balance |
$ | 41,503 | $ | 9,018 | ||||
|
|
|
|
The carrying amount of long-term debt reported in the condensed consolidated balance sheet as of March 31, 2013 is $968.0 million. The Company uses a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile to determine the fair value of its debt. The Companys implied credit rating is a factor in determining the market interest yield curve. The following table provides the fair value of the Companys debt by fair value hierarchy level as of March 31, 2013:
Fair value of debt | ||||
(Dollars in thousands) | ||||
Level 1 |
$ | 844,020 | ||
Level 2 |
380,212 | |||
|
|
|||
Total |
$ | 1,224,232 | ||
|
|
In the first quarter of 2012, the Company recorded a goodwill impairment charge of $332 million based on Level 3 inputs. See Note 5 for a discussion of the goodwill impairment.
Valuation Techniques
The Companys financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to pay benefits under certain deferred compensation plans and other compensatory arrangements. The investment assets of the trust are valued using quoted market prices.
The Companys financial assets and financial liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company uses forward rate contracts to manage currency transaction exposure. The fair value of the foreign currency forward exchange contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. The Company has taken into account the creditworthiness of the counterparties in measuring fair value.
The Companys financial liabilities valued based upon Level 3 inputs are comprised of contingent consideration arrangements pertaining to the Companys acquisitions. The Company accounts for contingent consideration in accordance with applicable guidance related to business combinations. The Company is contractually obligated to pay contingent consideration upon the achievement of specified objectives, including regulatory approvals, sales targets and, in some instances, the passage of time, referred to as milestone payments, and therefore recorded contingent consideration liabilities at the time of the acquisitions. The Company is
16
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
It is estimated that milestone payments will occur in 2013 and may extend until 2018 or later. As of March 31, 2013, the range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between $5.0 million and $87.3 million. The Company has determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was based on several factors including:
|
estimated cash flows projected from the success of market launches; |
|
the estimated time and resources needed to complete the development of acquired technologies; |
|
the uncertainty of obtaining regulatory approvals within the required time periods; and |
|
the risk adjusted discount rate for fair value measurement. |
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:
Valuation Technique | Unobservable Input | Range (Weighted Average) | ||||||
Contingent consideration |
Discounted cash flow | Discount rate | 2%-10%(6%) | |||||
Probability of payment | 0-100%(55%) |
As of March 31, 2013, of the $41.5 million of total contingent consideration, the Company has recorded approximately $21.9 million in Current portion of contingent consideration and the remaining $19.6 million in Other liabilities.
Note 10 Changes in shareholders equity
In 2007, the Companys Board of Directors authorized the repurchase of up to $300 million of outstanding Company common stock. Repurchases of Company stock under the Board authorization may be made from time to time in the open market and may include privately-negotiated transactions as market conditions warrant and subject to regulatory considerations. The stock repurchase program has no expiration date and the Companys ability to execute on the program will depend on, among other factors, cash requirements for acquisitions, cash generated from operations, debt repayment obligations, market conditions and regulatory requirements. In addition, under the Companys senior credit agreements, the Company is subject to certain restrictions relating to its ability to repurchase shares in the event the Companys consolidated leverage ratio (generally, the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined in the senior credit agreements) exceeds certain levels, which may limit the Companys ability to repurchase shares under this Board authorization. Through March 31, 2013, no shares have been purchased under this Board authorization.
The following table provides a reconciliation of basic to diluted weighted average shares outstanding:
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Shares in thousands) | ||||||||
Basic |
41,014 | 40,769 | ||||||
Dilutive shares assumed issued |
2,033 | | ||||||
|
|
|
|
|||||
Diluted |
43,047 | 40,769 | ||||||
|
|
|
|
17
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Weighted average stock options that were antidilutive and therefore not included in the calculation of earnings per share were approximately 7.8 million and 8.9 million for the three months ended March 31, 2013 and April 1, 2012, respectively. As required under GAAP, the dilutive shares assumed issued includes weighted average shares of approximately 1.6 million associated with the Convertible Senior Subordinated Notes due 2017 and warrants.
The following tables provide information relating to the changes in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2013 and April 1, 2012:
Cash Flow
Hedges |
Pension and
Other Postretirement Benefit Plans |
Foreign
Currency Translation Adjustment |
Accumulated
Other Comprehensive Income (Loss) |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance at December 31, 2012 |
$ | (381 | ) | $ | (127,257 | ) | $ | (4,410 | ) | $ | (132,048 | ) | ||||
Other comprehensive income (loss) before reclassifications |
455 | (365 | ) | (26,746 | ) | (26,656 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
(275 | ) | 1,455 | | 1,180 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive income (loss) |
180 | 1,090 | (26,746 | ) | (25,476 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at March 31, 2013 |
$ | (201 | ) | $ | (126,167 | ) | $ | (31,156 | ) | $ | (157,524 | ) | ||||
|
|
|
|
|
|
|
|
Cash Flow
Hedges |
Pension and
Other Postretirement Benefit Plans |
Foreign
Currency Translation Adjustment |
Accumulated
Other Comprehensive Income (Loss) |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance at December 31, 2011 |
$ | (7,257 | ) | $ | (134,548 | ) | $ | (17,548 | ) | $ | (159,353 | ) | ||||
Other comprehensive income (loss) before reclassifications |
693 | (139 | ) | 30,605 | 31,159 | |||||||||||
Amounts reclassified from accumulated other comprehensive income |
1,767 | 1,117 | | 2,884 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive income |
2,460 | 978 | 30,605 | 34,043 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at April 1, 2012 |
$ | (4,797 | ) | $ | (133,570 | ) | $ | 13,057 | $ | (125,310 | ) | |||||
|
|
|
|
|
|
|
|
18
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides information relating to the reclassifications of losses/(gain) in accumulated other comprehensive income into expense/(income), net of tax, for the three months ended March 31, 2013 and April 1, 2012:
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Gains and losses on cash flow hedges: |
||||||||
Interest Rate Contracts: |
||||||||
Interest expense |
$ | | $ | 3,751 | ||||
Foreign Exchange Contracts: |
||||||||
Cost of goods sold |
(502 | ) | (897 | ) | ||||
|
|
|
|
|||||
Total before tax |
(502 | ) | 2,854 | |||||
Tax expense |
227 | (1,087 | ) | |||||
|
|
|
|
|||||
Net of tax |
$ | (275 | ) | $ | 1,767 | |||
|
|
|
|
|||||
Amortization of pension and other postretirement benefits items: |
||||||||
Actuarial losses/(gains) (1) |
$ | 2,146 | $ | 1,711 | ||||
Prior-service costs (1) |
(6 | ) | (6 | ) | ||||
Transition obligation (1) |
1 | 24 | ||||||
|
|
|
|
|||||
Total before tax |
2,141 | 1,729 | ||||||
Tax expense |
(687 | ) | (612 | ) | ||||
|
|
|
|
|||||
Net of tax |
$ | 1,455 | $ | 1,117 | ||||
|
|
|
|
|||||
Total reclassifications, net of tax |
$ | 1,180 | $ | 2,884 | ||||
|
|
|
|
(1) | These accumulated other comprehensive income components are included in the computation of net benefit cost of pension and other postretirement benefit plans (see Note 12, Pension and other postretirement benefits for additional information). |
Note 11 Taxes on income from continuing operations
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
Effective income tax rate |
21.7% | 1.4% |
The effective income tax rate for the three months ended March 31, 2013 was 21.7% compared to 1.4% for the three months ended April 1, 2012. The effective tax rate for the three months ended March 31, 2013 was impacted by a discrete tax benefit related to the extension of the research and development tax credit under the American Taxpayer Relief Act of 2012 and a shift in the mix of taxable income to foreign jurisdictions at lower statutory rates. The effective tax rate for the three months ended April 1, 2012, was impacted by a $332 million goodwill impairment charge recorded in the first quarter of 2012, for which only $45 million was tax deductible.
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 Companys funding policy for U.S.
19
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 March 31, 2013, the Companys U.S. defined benefit pension plans and the Companys other postretirement benefit plans, except certain postretirement benefit plans covering employees subject to a collective bargaining agreement, are effectively frozen.
The Company and certain of its subsidiaries provide medical, dental and life insurance benefits to pensioners and survivors. The associated plans are unfunded and approved claims are paid from Company funds.
Net benefit cost of pension and postretirement benefit plans consisted of the following:
Pension
Three Months Ended |
Other Postretirement Benefits
Three Months Ended |
|||||||||||||||
March 31,
2013 |
April 1,
2012 |
March 31,
2013 |
April 1,
2012 |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Service cost |
$ | 465 | $ | 678 | $ | 164 | $ | 158 | ||||||||
Interest cost |
4,139 | 4,126 | 999 | 473 | ||||||||||||
Expected return on plan assets |
(5,770 | ) | (5,043 | ) | | | ||||||||||
Net amortization and deferral |
1,410 | 1,606 | 730 | 123 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net benefit cost |
$ | 244 | $ | 1,367 | $ | 1,893 | $ | 754 | ||||||||
|
|
|
|
|
|
|
|
The Companys pension contributions are expected to be approximately $17.5 million during 2013, of which $11.7 million were made during the three months ended March 31, 2013.
Note 13 Commitments and contingent liabilities
Product warranty liability: The Company warrants to the original purchasers of certain of its products that it will, at its option, repair or replace such products, without charge, if they fail due to a manufacturing defect. Warranty periods vary by product. The Company has recourse provisions for certain products that would enable recovery from third parties for amounts paid under the warranty. The Company accrues for product warranties when, based on available information, it is probable that customers will make claims under warranties relating to products that have been sold, and a reasonable estimate of the costs (based on historical claims experience relative to sales) can be made. The following table provides information regarding changes in the Companys product warranty liability accruals for the three months ended March 31, 2013 (dollars in thousands):
Balance December 31, 2012 |
$ | 472 | ||
Accruals for warranties issued in 2013 |
189 | |||
Settlements (cash and in kind) |
(106 | ) | ||
Translation |
(2 | ) | ||
|
|
|||
Balance March 31, 2013 |
$ | 553 | ||
|
|
Operating leases: The Company uses various leased facilities and equipment in its operations. The terms for these leased assets vary depending on the lease agreement. At March 31, 2013, the Company had no residual value guarantees related to its operating leases.
Environmental: The Company is subject to contingencies as a result of environmental laws and regulations that in the future may require the Company to take further action to correct the effects on the environment of
20
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
prior disposal practices or releases of chemical or petroleum substances by the Company or other parties. Much of this liability results from the U.S. Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), often referred to as Superfund, the U.S. Resource Conservation and Recovery Act (RCRA) and similar state laws. These laws require the Company to undertake certain investigative and remedial activities at sites where the Company conducts or once conducted operations or at sites where Company-generated waste was disposed.
Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, the regulatory agencies involved and their enforcement policies, as well as the presence or absence of other potentially responsible parties. At March 31, 2013, the Company has recorded approximately $2.0 million in accrued liabilities and approximately $6.7 million in other liabilities relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, potential liability may exceed the amount accrued as of March 31, 2013. The time frame over which the accrued amounts may be paid out, based on past history, is estimated to be 15-20 years.
Litigation: The Company is a party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability, intellectual property, employment and environmental matters. Based on information currently available, advice of counsel, established reserves and other resources, the Company does not believe that any such actions are likely to be, individually or in the aggregate, material to its business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Companys business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred.
Tax audits and examinations: The Company and its subsidiaries are routinely subject to tax examinations by various taxing authorities. As of March 31, 2013, the most significant tax examinations in process are in U.S., Canada, the Czech Republic, Germany and Austria. In conjunction with these examinations and as a regular and routine practice, the Company may determine a need to establish reserves or to 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 Companys recorded tax liabilities, which could impact the Companys 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
In the third quarter of 2012, due to changes in the Companys management and internal reporting structure, the Companys Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. The change did not affect the Companys reporting unit structure. All prior comparative periods have been restated to reflect this change.
An operating segment is a component of the Company (a) that engages in business activities from which it may earn revenues and incur expenses, (b) whose operating results are regularly reviewed by the Companys chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and (c) for which discrete financial information is available. Based on these criteria, the Company has identified four operating segments, which also comprise its four reportable segments.
21
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three of the four reportable segments are geographically based: Americas (representing the Companys operations in North America and Latin America), EMEA (representing the Companys operations in Europe, the Middle East and Africa) and Asia. The fourth reportable segment is Original Equipment Manufacturer and Development Services (OEM).
The Companys geographically based segments design, manufacture and distribute medical devices primarily used in critical care, surgical applications and cardiac care and generally serve two end markets: hospitals and healthcare providers, and home health. The products of the geographically based segments are most widely used in the acute care setting for a range of diagnostic and therapeutic procedures and in general and specialty surgical applications. The Companys OEM Segment designs, manufactures and supplies devices and instruments for other medical device manufacturers.
The following tables present the Companys segment results for the three months ended March 31, 2013 and April 1, 2012:
Three Months Ended March 31, 2013 | ||||||||||||||||||||
Americas | EMEA | Asia | OEM | Totals | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Segment Results |
||||||||||||||||||||
Segment net revenues from external customers |
$ | 195,753 | $ | 142,418 | $ | 42,368 | $ | 31,338 | $ | 411,877 | ||||||||||
Segment depreciation and amortization |
17,020 | 7,034 | 1,185 | 1,102 | 26,341 | |||||||||||||||
Segment operating profit (1) |
20,778 | 19,108 | 12,317 | 6,360 | 58,563 | |||||||||||||||
Segment assets |
1,954,026 | 973,262 | 242,446 | 41,415 | 3,211,149 | |||||||||||||||
Segment expenditures for property, plant and equipment |
12,304 | 2,720 | 34 | 577 | 15,635 | |||||||||||||||
Restructuring and other impairment charges |
7,767 | 1,294 | 98 | | 9,159 | |||||||||||||||
Intersegment revenues |
39,599 | 35,226 | 10,683 | 78 |
Three Months Ended April 1, 2012 | ||||||||||||||||||||
Americas | EMEA | Asia | OEM | Totals | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Segment Results |
||||||||||||||||||||
Segment net revenues from external customers |
$ | 180,337 | $ | 134,600 | $ | 33,959 | $ | 31,671 | $ | 380,567 | ||||||||||
Segment depreciation and amortization |
15,497 | 5,498 | 768 | 907 | 22,670 | |||||||||||||||
Segment operating profit (1) |
24,726 | 21,010 | 9,460 | 5,229 | 60,425 | |||||||||||||||
Segment assets |
1,747,117 | 817,347 | 199,418 | 89,714 | 2,853,596 | |||||||||||||||
Segment expenditures for property, plant and equipment |
7,230 | 2,695 | 7 | 3,201 | 13,133 | |||||||||||||||
Restructuring and other impairment charges |
(1,930 | ) | 605 | | | (1,325 | ) | |||||||||||||
Intersegment revenues |
39,812 | 17,567 | | 138 |
(1) | Segment operating profit includes a segments net revenues from external customers reduced by its cost of goods sold, selling, general and administrative expenses, research and development expenses and an allocation of corporate expenses. Segment operating profit excludes goodwill impairment charges, restructuring and impairment charges, interest income and expense and taxes on income. |
22
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present reconciliations of segment results to the Companys condensed consolidated income (loss) from continuing operations before interest and taxes for the three months ended March 31, 2013 and April 1, 2012:
Three Months Ended | ||||||||
March
31,
2013 |
April
1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Reconciliation of Segment Operating Profit to Income (Loss) from Continuing Operations Before Interest and Taxes |
||||||||
Segment operating profit |
$ | 58,563 | $ | 60,425 | ||||
Goodwill impairment |
| (332,128 | ) | |||||
Restructuring and other impairment charges |
(9,159 | ) | 1,325 | |||||
|
|
|
|
|||||
Income (loss) from continuing operations before interest and taxes |
$ | 49,404 | $ | (270,378 | ) | |||
|
|
|
|
March
31,
2013 |
April
1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Reconciliation of Segment Assets to Condensed Consolidated Total Assets |
||||||||
Segment assets |
$ | 3,211,149 | $ | 2,853,596 | ||||
Corporate assets |
474,742 | 788,264 | ||||||
Assets held for sale |
7,836 | 8,026 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,693,727 | $ | 3,649,886 | ||||
|
|
|
|
Three Months Ended | ||||||||
March
31,
2013 |
April
1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Reconciliation of Segment Expenditures for Property, Plant and Equipment to Condensed Consolidated Total Expenditures for Property, Plant and Equipment |
||||||||
Segment expenditures for property, plant and equipment |
$ | 15,635 | $ | 13,133 | ||||
Corporate expenditures for property, plant and equipment |
| 197 | ||||||
|
|
|
|
|||||
Total expenditures for property, plant and equipment |
$ | 15,635 | $ | 13,330 | ||||
|
|
|
|
Note 15 Condensed consolidated guarantor financial information
In June 2011, Teleflex Incorporated (referred to below as Parent Company) issued $250 million of 6.875% senior subordinated notes through a registered public offering. The notes are guaranteed, jointly and severally, by certain of the Parent Companys 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 Companys condensed consolidated statements of income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows for the three months ended March 31, 2013 and April 1, 2012 and condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012, each of which are set forth below, provide consolidated information for:
a. | Parent Company, the issuer of the guaranteed obligations; |
b. | Guarantor Subsidiaries, on a combined basis; |
c. | Non-guarantor subsidiaries, on a combined basis; and |
d. | Parent Company and its subsidiaries on a consolidated basis. |
23
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The same accounting policies as described in Note 1 to the consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012 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 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.
24
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS)
Three Months Ended March 31, 2013 | ||||||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Condensed
Consolidated |
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net revenues |
$ | | $ | 254,856 | $ | 230,805 | $ | (73,784 | ) | $ | 411,877 | |||||||||
Cost of goods sold |
| 152,704 | 131,573 | (72,920 | ) | 211,357 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 102,152 | 99,232 | (864 | ) | 200,520 | ||||||||||||||
Selling, general and administrative expenses |
16,928 | 67,156 | 42,672 | 194 | 126,950 | |||||||||||||||
Research and development expenses |
| 13,007 | 2,000 | | 15,007 | |||||||||||||||
Restructuring and other impairment charges |
| 7,767 | 1,392 | | 9,159 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before interest and taxes |
(16,928 | ) | 14,222 | 53,168 | (1,058 | ) | 49,404 | |||||||||||||
Interest expense |
33,535 | (21,127 | ) | 1,785 | | 14,193 | ||||||||||||||
Interest income |
(6 | ) | | (151 | ) | | (157 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before taxes |
(50,457 | ) | 35,349 | 51,534 | (1,058 | ) | 35,368 | |||||||||||||
Taxes (benefit) on income (loss) from continuing operations |
(18,459 | ) | 14,251 | 11,224 | 651 | 7,667 | ||||||||||||||
Equity in net income of consolidated subsidiaries |
59,820 | 34,150 | | (93,970 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
27,822 | 55,248 | 40,310 | (95,679 | ) | 27,701 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) from discontinued operations |
(1,126 | ) | | 368 | | (758 | ) | |||||||||||||
Taxes (benefit) on income (loss) from discontinued operations |
(342 | ) | | 46 | | (296 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from discontinued operations |
(784 | ) | | 322 | | (462 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
27,038 | 55,248 | 40,632 | (95,679 | ) | 27,239 | ||||||||||||||
Less: Income from continuing operations attributable to noncontrolling interests |
| | 201 | | 201 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to common shareholders |
27,038 | 55,248 | 40,431 | (95,679 | ) | 27,038 | ||||||||||||||
Other comprehensive income (loss) attributable to common shareholders |
(25,476 | ) | (32,126 | ) | (23,813 | ) | 55,939 | (25,476 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to common shareholders |
$ | 1,562 | $ | 23,122 | $ | 16,618 | $ | (39,740 | ) | $ | 1,562 | |||||||||
|
|
|
|
|
|
|
|
|
|
25
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended April 1, 2012 | ||||||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Condensed
Consolidated |
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net revenues |
$ | | $ | 238,497 | $ | 204,921 | $ | (62,851 | ) | $ | 380,567 | |||||||||
Cost of goods sold |
| 141,907 | 115,436 | (60,890 | ) | 196,453 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 96,590 | 89,485 | (1,961 | ) | 184,114 | ||||||||||||||
Selling, general and administrative expenses |
15,640 | 61,588 | 35,251 | (343 | ) | 112,136 | ||||||||||||||
Research and development expenses |
| 9,907 | 1,646 | | 11,553 | |||||||||||||||
Goodwill impairment |
| 331,779 | 349 | | 332,128 | |||||||||||||||
Restructuring and other impairment charges |
| (1,930 | ) | 605 | | (1,325 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before interest and taxes |
(15,640 | ) | (304,754 | ) | 51,634 | (1,618 | ) | (270,378 | ) | |||||||||||
Interest expense |
36,475 | (20,186 | ) | 1,922 | | 18,211 | ||||||||||||||
Interest income |
(125 | ) | (8 | ) | (345 | ) | | (478 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before taxes |
(51,990 | ) | (284,560 | ) | 50,057 | (1,618 | ) | (288,111 | ) | |||||||||||
Taxes (benefit) on income (loss) from continuing operations |
(17,852 | ) | 364 | 13,772 | (282 | ) | (3,998 | ) | ||||||||||||
Equity in net income (loss) of consolidated subsidiaries |
(250,198 | ) | 30,996 | | 219,202 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
(284,336 | ) | (253,928 | ) | 36,285 | 217,866 | (284,113 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) from discontinued operations |
946 | (164 | ) | 147 | | 929 | ||||||||||||||
Taxes (benefit) on income (loss) from discontinued operations |
345 | (63 | ) | 42 | | 324 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from discontinued operations |
601 | (101 | ) | 105 | | 605 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(283,735 | ) | (254,029 | ) | 36,390 | 217,866 | (283,508 | ) | ||||||||||||
Less: Income from continuing operations attributable to noncontrolling interests |
| | 227 | | 227 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to common shareholders |
(283,735 | ) | (254,029 | ) | 36,163 | 217,866 | (283,735 | ) | ||||||||||||
Other comprehensive income attributable to common shareholders |
34,043 | 33,402 | 27,688 | (61,090 | ) | 34,043 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) attributable to common shareholders |
$ | (249,692 | ) | $ | (220,627 | ) | $ | 63,851 | $ | 156,776 | $ | (249,692 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
26
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2013 | ||||||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Condensed
Consolidated |
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 47,103 | $ | | $ | 259,451 | $ | | $ | 306,554 | ||||||||||
Accounts receivable, net |
2,126 | 8,725 | 423,521 | (127,352 | ) | 307,020 | ||||||||||||||
Inventories, net |
| 204,547 | 145,029 | (16,756 | ) | 332,820 | ||||||||||||||
Prepaid expenses and other current assets |
8,174 | 5,406 | 15,360 | | 28,940 | |||||||||||||||
Prepaid taxes |
13,969 | | 14,742 | | 28,711 | |||||||||||||||
Deferred tax assets |
13,824 | 25,204 | 6,950 | (358 | ) | 45,620 | ||||||||||||||
Assets held for sale |
| 2,739 | 5,097 | | 7,836 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
85,196 | 246,621 | 870,150 | (144,466 | ) | 1,057,501 | ||||||||||||||
Property, plant and equipment, net |
7,108 | 174,734 | 118,988 | | 300,830 | |||||||||||||||
Goodwill |
| 702,949 | 533,927 | | 1,236,876 | |||||||||||||||
Intangibles assets, net |
| 768,170 | 266,419 | | 1,034,589 | |||||||||||||||
Investments in affiliates |
5,258,917 | 1,258,723 | 21,210 | (6,536,903 | ) | 1,947 | ||||||||||||||
Deferred tax assets |
58,342 | | 3,105 | (61,243 | ) | 204 | ||||||||||||||
Other assets |
33,127 | 3,055,799 | 20,528 | (3,047,674 | ) | 61,780 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 5,442,690 | $ | 6,206,996 | $ | 1,834,327 | $ | (9,790,286 | ) | $ | 3,693,727 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current borrowings |
$ | | $ | | $ | 4,700 | $ | | $ | 4,700 | ||||||||||
Accounts payable |
80,318 | 93,566 | 23,822 | (130,323 | ) | 67,383 | ||||||||||||||
Accrued expenses |
16,655 | 24,705 | 32,840 | | 74,200 | |||||||||||||||
Current portion of contingent consideration |
| 21,172 | 759 | | 21,931 | |||||||||||||||
Payroll and benefit-related liabilities |
23,230 | 9,509 | 27,689 | | 60,428 | |||||||||||||||
Accrued interest |
9,570 | | 6 | | 9,576 | |||||||||||||||
Income taxes payable |
| | 17,221 | | 17,221 | |||||||||||||||
Other current liabilities |
662 | 427 | 5,298 | (358 | ) | 6,029 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
130,435 | 149,379 | 112,335 | (130,681 | ) | 261,468 | ||||||||||||||
Long-term borrowings |
968,035 | | | | 968,035 | |||||||||||||||
Deferred tax liabilities |
| 417,847 | 52,685 | (61,243 | ) | 409,289 | ||||||||||||||
Pension and other postretirement benefit liabilities |
103,398 | 37,131 | 18,618 | | 159,147 | |||||||||||||||
Noncurrent liability for uncertain tax positions |
13,730 | 28,556 | 26,631 | | 68,917 | |||||||||||||||
Other liabilities |
2,454,844 | 358,989 | 287,712 | (3,049,751 | ) | 51,794 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
3,670,442 | 991,902 | 497,981 | (3,241,675 | ) | 1,918,650 | ||||||||||||||
Total common shareholders equity |
1,772,248 | 5,215,094 | 1,333,517 | (6,548,611 | ) | 1,772,248 | ||||||||||||||
Noncontrolling interest |
| | 2,829 | | 2,829 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
1,772,248 | 5,215,094 | 1,336,346 | (6,548,611 | ) | 1,775,077 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 5,442,690 | $ | 6,206,996 | $ | 1,834,327 | $ | (9,790,286 | ) | $ | 3,693,727 | |||||||||
|
|
|
|
|
|
|
|
|
|
27
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2012 | ||||||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Condensed
Consolidated |
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 70,860 | $ | 1,989 | $ | 264,190 | $ | | $ | 337,039 | ||||||||||
Accounts receivable, net |
2,147 | 774,280 | 511,609 | (990,060 | ) | 297,976 | ||||||||||||||
Inventories, net |
| 202,748 | 136,492 | (15,893 | ) | 323,347 | ||||||||||||||
Prepaid expenses and other current assets |
7,769 | 5,294 | 15,649 | | 28,712 | |||||||||||||||
Prepaid taxes |
11,079 | | 19,217 | (3,136 | ) | 27,160 | ||||||||||||||
Deferred tax assets |
13,987 | 27,130 | 6,810 | (1,045 | ) | 46,882 | ||||||||||||||
Assets held for sale |
| 2,738 | 5,225 | | 7,963 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
105,842 | 1,014,179 | 959,192 | (1,010,134 | ) | 1,069,079 | ||||||||||||||
Property, plant and equipment, net |
7,258 | 168,451 | 122,236 | | 297,945 | |||||||||||||||
Goodwill |
| 702,947 | 546,509 | | 1,249,456 | |||||||||||||||
Intangibles assets, net |
| 782,631 | 276,161 | | 1,058,792 | |||||||||||||||
Investments in affiliates |
5,226,567 | 1,281,201 | 21,379 | (6,527,081 | ) | 2,066 | ||||||||||||||
Deferred tax assets |
59,644 | | 3,197 | (62,545 | ) | 296 | ||||||||||||||
Other assets |
33,937 | 2,707,264 | 720,184 | (3,399,522 | ) | 61,863 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 5,433,248 | $ | 6,656,673 | $ | 2,648,858 | $ | (10,999,282 | ) | $ | 3,739,497 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current borrowings |
$ | | $ | | $ | 4,700 | $ | | $ | 4,700 | ||||||||||
Accounts payable |
80,495 | 873,754 | 114,140 | (993,224 | ) | 75,165 | ||||||||||||||
Accrued expenses |
11,338 | 20,471 | 33,255 | | 65,064 | |||||||||||||||
Current portion of contingent consideration |
| 21,115 | 2,578 | | 23,693 | |||||||||||||||
Payroll and benefit-related liabilities |
24,633 | 19,799 | 30,154 | | 74,586 | |||||||||||||||
Accrued interest |
9,413 | | 5 | | 9,418 | |||||||||||||||
Income taxes payable |
| | 18,709 | (3,136 | ) | 15,573 | ||||||||||||||
Other current liabilities |
598 | 1,131 | 5,522 | (1,045 | ) | 6,206 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
126,477 | 936,270 | 209,063 | (997,405 | ) | 274,405 | ||||||||||||||
Long-term borrowings |
965,280 | | | | 965,280 | |||||||||||||||
Deferred tax liabilities |
| 427,146 | 54,664 | (62,544 | ) | 419,266 | ||||||||||||||
Pension and other postretirement benefit liabilities |
114,257 | 37,269 | 19,420 | | 170,946 | |||||||||||||||
Noncurrent liability for uncertain tax positions |
13,131 | 28,440 | 26,721 | | 68,292 | |||||||||||||||
Other liabilities |
2,435,153 | 35,543 | 991,327 | (3,402,252 | ) | 59,771 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
3,654,298 | 1,464,668 | 1,301,195 | (4,462,201 | ) | 1,957,960 | ||||||||||||||
Total common shareholders equity |
1,778,950 | 5,192,005 | 1,345,076 | (6,537,081 | ) | 1,778,950 | ||||||||||||||
Noncontrolling interest |
| | 2,587 | | 2,587 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
1,778,950 | 5,192,005 | 1,347,663 | (6,537,081 | ) | 1,781,537 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 5,433,248 | $ | 6,656,673 | $ | 2,648,858 | $ | (10,999,282 | ) | $ | 3,739,497 | |||||||||
|
|
|
|
|
|
|
|
|
|
28
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2013 | ||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Condensed
Consolidated |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net cash (used in) provided by operating activities from continuing operations |
$ | (37,406 | ) | $ | 20,071 | $ | 23,428 | $ | 6,093 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Investing Activities of Continuing Operations: |
||||||||||||||||
Expenditures for property, plant and equipment |
(155 | ) | (12,129 | ) | (3,351 | ) | (15,635 | ) | ||||||||
Payments for businesses and intangibles acquired, net of cash acquired |
| (4,281 | ) | (1,398 | ) | (5,679 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities from continuing operations |
(155 | ) | (16,410 | ) | (4,749 | ) | (21,314 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Financing Activities of Continuing Operations: |
||||||||||||||||
Proceeds from stock compensation plans |
4,326 | | | 4,326 | ||||||||||||
Dividends |
(13,964 | ) | | | (13,964 | ) | ||||||||||
Intercompany transactions |
23,471 | (5,650 | ) | (17,821 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities from continuing operations |
13,833 | (5,650 | ) | (17,821 | ) | (9,638 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Discontinued Operations: |
||||||||||||||||
Net cash used in operating activities |
(29 | ) | | (600 | ) | (629 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in discontinued operations |
(29 | ) | | (600 | ) | (629 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (4,997 | ) | (4,997 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net decrease in cash and cash equivalents |
(23,757 | ) | (1,989 | ) | (4,739 | ) | (30,485 | ) | ||||||||
Cash and cash equivalents at the beginning of the period |
70,860 | 1,989 | 264,190 | 337,039 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at the end of the period |
$ | 47,103 | $ | | $ | 259,451 | $ | 306,554 | ||||||||
|
|
|
|
|
|
|
|
29
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended April 1, 2012 | ||||||||||||||||
Parent
Company |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Condensed
Consolidated |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net cash (used in) provided by operating activities from continuing operations |
$ | (44,743 | ) | $ | 72,221 | $ | (1,162 | ) | $ | 26,316 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Investing Activities of Continuing Operations: |
||||||||||||||||
Expenditures for property, plant and equipment |
(3,588 | ) | (5,938 | ) | (3,804 | ) | (13,330 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities from continuing operations |
(3,588 | ) | (5,938 | ) | (3,804 | ) | (13,330 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Financing Activities of Continuing Operations: |
||||||||||||||||
Decrease in notes payable and current borrowings |
| | (286 | ) | (286 | ) | ||||||||||
Proceeds from stock compensation plans |
1,594 | | | 1,594 | ||||||||||||
Dividends |
(13,866 | ) | | | (13,866 | ) | ||||||||||
Intercompany transactions |
43,313 | (65,001 | ) | 21,688 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities from continuing operations |
31,041 | (65,001 | ) | 21,402 | (12,558 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flows from Discontinued Operations: |
||||||||||||||||
Net cash (used in) provided by operating activities |
(2,595 | ) | 417 | | (2,178 | ) | ||||||||||
Net cash used in investing activities |
| (1,699 | ) | | (1,699 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in discontinued operations |
(2,595 | ) | (1,282 | ) | | (3,877 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 10,282 | 10,282 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
(19,885 | ) | | 26,718 | 6,833 | |||||||||||
Cash and cash equivalents at the beginning of the period |
114,531 | | 469,557 | 584,088 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at the end of the period |
$ | 94,646 | $ | | $ | 496,275 | $ | 590,921 | ||||||||
|
|
|
|
|
|
|
|
Note 16 Divestiture-related activities
When dispositions occur in the normal course of business, gains or losses on the sale of such businesses or assets are recognized in the income statement line item Gain on sales of businesses and assets. There were no gains or losses resulting from the sale of businesses or assets that did not meet the criteria for a discontinued operation during the three month periods ending March 31, 2013 and April 1, 2012.
Discontinued Operations
The Company has recorded $0.8 million of expense and $0.9 million of income during the three months ended March 31, 2013 and April 1, 2012, respectively, associated with retained liabilities related to businesses that have been divested.
On August 26, 2012, the Company completed the sale of the orthopedic business of its OEM Segment to Tecomet for $45.2 million in cash and realized a loss of $39 thousand, net of tax, from the sale of the business.
30
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the operating results of the operations that have been treated as discontinued operations for the periods presented:
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in thousands) | ||||||||
Net revenues |
$ | | $ | 7,190 | ||||
Costs and other expenses |
758 | 6,261 | ||||||
|
|
|
|
|||||
Income (loss) from discontinued operations before income taxes |
(758 | ) | 929 | |||||
Provision for income taxes |
(296 | ) | 324 | |||||
|
|
|
|
|||||
Income (loss) from discontinued operations |
$ | (462 | ) | $ | 605 | |||
|
|
|
|
31
Item 2. | Managements 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; and 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, 2012. 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
We are 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 sell our products to hospitals and healthcare providers in more than 140 countries 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:
|
the development of new products and product line extensions; |
|
the investment in new technologies and broadening their applications; |
|
the expansion of the use of our products in existing markets, as well as the introduction of our products into new geographic markets; |
|
leveraging our direct sales force and distribution network with new products, manufacturing and distribution facility rationalization and achieving economies of scale as we continue to expand; and |
|
the potential 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. |
During 2012, we continued to expand our presence in the anesthesia market through the acquisition of substantially all of the assets of LMA International N.V. (LMA), a global provider of laryngeal masks whose products are used in anesthesia and emergency care. In addition, consistent with our strategy to invest in new technologies and research and development to support our future growth, we completed four late-stage technology acquisitions in 2012. Also during 2012, we sold the orthopedics business line of our OEM Segment.
32
See Note 3 to the condensed consolidated financial statements included in this report for a discussion of the acquisitions and see Note 16 to the condensed consolidated financial statements included in this report for a discussion of the disposition.
We categorize our products into four groups: Critical Care, Surgical Care, Cardiac Care and Original Equipment Manufacturer and Development Services (OEM). Critical Care, representing our largest product group, includes medical devices used in vascular access, anesthesia, respiratory care and specialty markets; Surgical Care includes surgical instruments and devices; and Cardiac Care includes cardiac assist devices and equipment. OEM designs and manufactures instruments and devices for other medical device manufacturers.
Change in Reporting Segments and Business Unit Structure
Effective January 1, 2012, we changed our segment reporting from a single reportable segment to four reportable segments. As initially changed, our reportable segments included three geographically-based segments, North America, EMEA (representing our operations in Europe, the Middle East and Africa) and AJLA (representing our Asian and Latin American operations) and a fourth reportable segment comprised of our OEM business. In addition, in the first quarter of 2012, we changed the number of our reporting units. Previously, we had six reporting units comprised of North America, EMEA, OEM, Japan, Asia Pacific and Latin America. In 2012, in addition to establishing a new North America segment, we established five reporting units within that segment: Vascular, Anesthesia/Respiratory, Cardiac, Surgical and Specialty. Due to the change in the reporting unit structure in North America, we were required to conduct a goodwill impairment test with respect to each reporting unit within the North America Segment in the first quarter of 2012, and determined that the goodwill of three of the reporting units was impaired. As a result, we recorded a goodwill impairment charge of $332 million in the first quarter of 2012. See Note 5 to the condensed consolidated financial statements included in this report for a discussion of the goodwill impairment.
During the third quarter of 2012, due to changes in our management and internal reporting structure, our Latin America operations were moved from the AJLA Segment into the North America Segment. As a result of this change, the North America Segment is now referred to as the Americas Segment and the AJLA Segment is now referred to as the Asia Segment. The change did not affect our reporting unit structure.
Segment data for all prior comparative periods has been restated to reflect the changes discussed above. See Note 14 to the condensed consolidated financial statements included in this report for a discussion of the segments.
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, 2012, 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.
Health Care Reform
On March 23, 2010 the Patient Protection and Affordable Care Act was signed into law. This legislation will have a significant impact on 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
33
products. In addition, commencing in 2013, the legislation imposes a 2.3% excise tax on sales of medical devices. As implementation of this tax begins and as the taxing authorities clarify aspects of the application of the tax relevant to us, we will be in a better position to ascertain its impact on our business. We currently estimate the impact of the medical device excise tax will be approximately $13 million annually, beginning in 2013. For the three months ended March 31, 2013 the medical device excise tax was $2.9 million, which is included in selling, general and administrative expenses.
Results of Operations
The discussion of revenues on a constant currency basis excludes the impact of translating the results of international subsidiaries at different currency exchange rates from year to year. Certain financial information is presented on a rounded basis, which may cause minor differences.
Net Revenues
Information regarding net revenues by product group is provided in the following table.
Three Months Ended | % Increase/ (Decrease) | |||||||||||||||||||
March 31,
2013 |
April
1,
2012 |
Constant
Currency |
Foreign
Currency |
Total
Change |
||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Critical Care |
$ | 287.0 | $ | 256.2 | 12.0 | | 12.0 | |||||||||||||
Surgical Care |
74.7 | 72.1 | 3.3 | 0.3 | 3.6 | |||||||||||||||
Cardiac Care |
18.9 | 20.6 | (7.3 | ) | (0.8 | ) | (8.1 | ) | ||||||||||||
OEM |
31.3 | 31.7 | (1.1 | ) | | (1.1 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total net revenues |
$ | 411.9 | $ | 380.6 | 8.2 | | 8.2 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Constant currency is a non-GAAP financial measure that measures the change in net revenues between current and prior year periods by excluding the impact of translating the results of international subsidiaries at different currency exchange rates from period to period. The constant currency increase/decrease percentage is calculated by translating the prior year periods local currency net revenues into an amount reflecting the current year periods foreign currency exchange rates and calculating the percentage difference between net revenues for the current year period and net revenues for the prior year period, as so translated. Management believes this measure is useful to investors because it eliminates items that do not reflect our day-to-day operations. In addition, management uses this financial measure for internal managerial purposes, when publicly providing guidance on possible future results, and to assist in our evaluation of period-to-period comparisons. This financial measure may not be comparable to similarly titled measures used by other companies, is presented in addition to results presented in accordance with GAAP and should not be relied upon as a substitute for GAAP financial measures. |
Net revenues for the first quarter of 2013 increased 8.2% to $411.9 million from $380.6 million in the first quarter of 2012. The $31.3 million increase in net revenues is largely due to the businesses acquired during 2012, which added approximately $34.0 million, including approximately $33.5 million contributed by the LMA business. Net revenues further benefited from new products ($4.3 million) primarily in the Americas and EMEA, and price increases ($2.1 million) mostly in the Americas. These increases were partly offset by volume declines of approximately $9.0 million due to fewer shipping days both in the Americas and EMEA in the first quarter of 2013 compared to the first quarter of 2012.
Critical Care net revenues, excluding the impact of foreign currency exchange rates, increased 12.0% over the corresponding prior year period. The increase in net revenues was due to higher sales of anesthesia and urology products. The growth in sales of anesthesia products was primarily related to the acquisition of LMA. The increase in net revenues was partially offset by a decline in sales of vascular access and respiratory products, as well as the impact of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012.
34
Surgical Care net revenues, excluding the impact of foreign currency exchange rates, increased 3.3% over the corresponding prior year period. The increase in net revenues was due to higher sales of ligation and access products, partially offset by a decline in sales of chest drainage and general surgical instrument products, as well as the impact of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012.
Cardiac Care net revenues, excluding the impact of foreign currency exchange rates, decreased 7.3% over the corresponding prior year period. The decrease in net revenues was due to a decline in sales of intra-aortic balloon pumps and the impact of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012.
OEM net revenues, excluding the impact of foreign currency exchange rates, decreased 1.1% over the corresponding prior year period. The decrease in net revenues was due to a decline in sales of catheter products and the impact of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012, partly offset by new product sales.
Gross profit
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in millions) | ||||||||
Gross profit |
$ | 200.5 | $ | 184.1 | ||||
Percentage of sales |
48.7 | % | 48.4 | % |
For the three months ended March 31, 2013, gross profit as a percentage of revenues increased 0.3% compared to the corresponding period of 2012, primarily due to the inclusion of higher margin sales by the LMA business and price increases, primarily in the Americas. These benefits were largely offset by higher manufacturing costs, including costs to consolidate distribution facilities, and raw material costs primarily in the Americas, EMEA and Asia.
Selling, general and administrative
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in millions) | ||||||||
Selling, general and administrative |
$ | 127.0 | $ | 112.1 | ||||
Percentage of sales |
30.8 | % | 29.5 | % |
Selling, general and administrative expenses increased $14.9 million in the first quarter of 2013 compared to the first quarter of 2012. The increase is largely due to expenses associated with the businesses acquired (approximately $12.1 million, including $10.6 million in expenses associated with the LMA business), the excise tax associated with the Patient Protection and Affordable Care Act (approximately $2.9 million), higher employee related expenses and a litigation verdict against us with respect to a non-operating joint venture ($1.3 million). The increases were partly offset by a $1.6 million reversal of contingent consideration related to the acquisition of the assets of Axiom Technology Partners LLP (the Axiom acquisition).
Research and development
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in millions) | ||||||||
Research and development |
$ | 15.0 | $ | 11.6 | ||||
Percentage of sales |
3.6 | % | 3.0 | % |
35
The increase in research and development expenses is primarily due to the businesses acquired in 2012.
Goodwill Impairment
Due to a change in the reporting unit structure in North America in the first quarter of 2012, we were required to conduct a goodwill impairment test with respect to each of the North American reporting units and determined that the goodwill of three of the reporting units was impaired. As a result, we recorded a goodwill impairment charge of $332.0 million in the first quarter of 2012. See Note 5 to the condensed consolidated financial statements included in this report for a discussion of the goodwill impairment.
Interest expense
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in millions) | ||||||||
Interest expense |
$ | 14.2 | $ | 18.2 | ||||
Average interest rate on debt |
4.2 | % | 4.2 | % |
Interest expense decreased in the first quarter of 2013 compared to the first quarter of 2012 primarily because 2012 interest expense included amortization related to our termination of an interest rate swap (approximately $3.8 million in the first quarter of 2012). We terminated our agreement related to the interest rate swap, covering a notional amount of $350 million, in 2011. The unrealized losses within accumulated other comprehensive income associated with our interest rate swap were reclassified into our statement of income (loss) during 2012.
Taxes on income from continuing operations
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
Effective income tax rate |
21.7 | % | 1.4 | % |
The effective income tax rate for the three months ended March 31, 2013 was 21.7% compared to 1.4% for the three months ended April 1, 2012. The effective tax rate for the three months ended March 31, 2013 was impacted by a discrete tax benefit related to the extension of the research and development tax credit under the American Taxpayer Relief Act of 2012 and a shift in the mix of taxable income to foreign jurisdictions at lower statutory rates. The effective tax rate for the three months ended April 1, 2012, was impacted by a $332 million goodwill impairment charge recorded in the first quarter of 2012, for which only $45 million was tax deductible.
Restructuring and other impairment charges
Three Months Ended | ||||||||
March 31,
2013 |
April 1,
2012 |
|||||||
(Dollars in millions) | ||||||||
Restructuring and other impairment charges |
$ | 9.2 | $ | (1.3 | ) |
During the three months ended March 31, 2013, we recorded $9.2 million in restructuring and impairment charges, including $4.5 million to write-off an in-process research and development project associated with the Axiom acquisition, $2.7 million pertaining to termination benefit costs, contract termination costs and facility closure and other costs incurred in connection with our LMA restructuring program. The remaining $2.0 million primarily relates to the termination benefit costs in connection with other restructuring activities initiated in 2012 and continuing during the first quarter of 2013.
36
During the three months ended April 1, 2012, we recorded a benefit of $1.3 million primarily due to a reversal of contract termination costs related to a pending settlement of a dispute involving the termination of a European distributor agreement that was established in connection with the acquisition of Arrow in 2007.
For additional information regarding our restructuring programs, see Note 4 to our condensed consolidated financial statements included in this report.
Segment Reviews
Three Months Ended | ||||||||||||
March 31,
2013 |
April 1,
2012 |
%
Increase/ (Decrease) |
||||||||||
(Dollars in millions) | ||||||||||||
Americas |
$ | 195.8 | $ | 180.3 | 8.5 | |||||||
EMEA |
142.4 | 134.6 | 5.8 | |||||||||
Asia |
42.4 | 34.0 | 24.8 | |||||||||
OEM |
31.3 | 31.7 | (1.1 | ) | ||||||||
|
|
|
|
|
|
|||||||
Segment net revenues |
$ | 411.9 | $ | 380.6 | 8.2 | |||||||
|
|
|
|
|
|
|||||||
Americas |
$ | 20.8 | $ | 24.7 | (16.0 | ) | ||||||
EMEA |
19.1 | 21.0 | (9.1 | ) | ||||||||
Asia |
12.3 | 9.5 | 30.2 | |||||||||
OEM |
6.4 | 5.2 | 21.6 | |||||||||
|
|
|
|
|
|
|||||||
Segment operating profit (1) |
$ | 58.6 | $ | 60.4 | (3.1 | ) | ||||||
|
|
|
|
|
|
(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 (loss) from continuing operations before interest and taxes. |
The following is a discussion of our segment operating results.
Comparison of the three months ended March 31, 2013 and April 1, 2012
Americas
Americas net revenues for the three months ended March 31, 2013, increased 8.5% compared to the corresponding period in 2012. The increase was primarily due to businesses acquired in 2012 which added net revenues of approximately $18.0 million, including approximately $17.7 million generated by LMA; new product sales ($2.6 million), primarily of vascular products; and price increases ($2.0 million), principally related to surgical care products. These increases in net revenues were partly offset by lower volumes ($7.3 million) primarily due to fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012.
Americas segment operating profit for the three month period ended March 31, 2013, decreased 16.0% compared to the corresponding period in 2012. The decrease was primarily due to lower volume, largely reflecting fewer shipping days, higher manufacturing costs, including costs to consolidate distribution facilities and the excise tax associated with the Patient Protection and Affordable Care Act (approximately $2.9 million). These decreases in operating profit were partly offset by the operating profit generated by the businesses acquired in 2012, which contributed approximately $4.2 million, price increases ($2.0 million) and new product sales ($0.9 million). The $4.2 million operating profit generated by the businesses acquired in 2012 reflects the contribution of the LMA businesses ($6.9 million) and the reversal of contingent consideration related to the Axiom acquisition ($1.6 million) offset in part by increased research and development costs (approximately $3.0 million) associated with the continued investment in new technologies obtained in the second quarter of 2012 through acquisitions and incremental operating costs associated with the businesses acquired ($1.3 million).
37
EMEA
EMEA net revenues for the three months ended March 31, 2013, increased 5.8% compared to the corresponding period in 2012. The increase was primarily due to businesses acquired in 2012, which added net revenues of approximately $8.5 million, including approximately $8.3 million generated by the LMA business; new product sales ($1.0 million); and the favorable impact of foreign currency exchange rates (approximately $0.6 million). These increases in net revenues were partly offset by lower volumes (approximately $2.0 million), as volume gains during the quarter were completely offset by the effect of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012, and price decreases ($0.3 million), primarily in Germany.
EMEA segment operating profit for the three month period ended March 31, 2013, decreased 9.1% compared to the corresponding period in 2012. The decrease was primarily due to incremental expenses associated with the acquisition of LMA (approximately $8.7 million), higher employee related costs, higher manufacturing costs including costs to consolidate a distribution facility in France, partly offset by higher revenues.
Asia
Asia net revenues for the three months ended March 31, 2013, increased 24.8% compared to the corresponding period in 2012. The increase was primarily due to $7.5 million of net revenues generated by the LMA business. Net revenues also reflected net volume gains of approximately $1.2 million (volume gains in China were partly offset by lower volumes in Japan) and price increases, partly offset by the unfavorable impact of foreign currency exchange rates.
Asia segment operating profit for the three months ended March 31, 2013, increased 30.2% compared to the corresponding period in 2012. The increase in the three month period ending March 31, 2013 primarily reflects the operating profit generated by the LMA business (approximately $1.7 million) and price increases.
OEM
OEM net revenues for the three months ended March 31, 2013, decreased 1.1% compared to the corresponding period in 2012. The decrease was due to lower volume, primarily due to a decline in sales of catheter products and the impact of fewer shipping days in the first quarter of 2013 compared to the first quarter of 2012, partly offset by new product sales.
OEM segment operating profit for the three months ended March 31, 2013, increased 21.6% compared to the corresponding period in 2012. The increase reflects lower manufacturing costs.
Liquidity and Capital Resources
Cash Flows
Operating activities from continuing operations provided net cash of approximately $6.1 million during the first three months of 2013 compared to $26.3 million during the first three months of 2012. The $20.2 million decrease is primarily due to unfavorable year-over-year changes in working capital items and a $3.8 million increase in contributions to domestic pension plans. The unfavorable change in working capital items principally reflects a $13.7 million increase in inventory, primarily in the Americas and Asia, during the three months ended March 31, 2013, as compared to a $2.4 million decrease during the three months ended April 1, 2012.
We currently do not foresee any difficulties in meeting our cash requirements or accessing credit as needed in the next twelve months. To date, we have not experienced an inordinate amount of payment defaults by our customers, and we believe we have sufficient lending commitments in place to enable us to fund our anticipated operating needs. However, the ongoing volatility in the domestic and global financial markets, including the European sovereign debt crisis, combined with a continuation of constrained global credit markets, raises a risk that our customers and suppliers may be unable to access liquidity. Consequently, we continue to monitor our credit risk related to countries in Europe. As of March 31, 2013, our net receivables from publicly funded hospitals in Italy, Spain, Portugal and Greece were $78.3 million compared to $70.6 million as of December 31, 2012. For the three months ended March 31, 2013 and April 1, 2012, net revenues from these countries were
38
approximately 9% and 10% of total net revenues in each of the periods, respectively, and average days that accounts receivable were outstanding were 297 and 301 days, respectively. As of March 31, 2013 and December 31, 2012, net trade receivables from these countries were approximately 37% and 34%, respectively, of consolidated accounts receivable, net. If global economic conditions deteriorate, we may experience further delays in customer payments and reductions in our customers purchases from us. Also, we may incur higher credit losses related to the public hospital systems in these countries, which could have a material adverse effect on our results of operations and cash flows in 2013 and beyond.
Net cash used in investing activities from continuing operations was $21.3 million during the first three months of 2013 reflecting net payments for businesses acquired of $5.7 million and capital expenditures of $15.6 million. The net payments for businesses acquired reflects $7.2 million of contingent consideration payments related to our acquisition of Vasonova, Inc., and the Axiom and LMA acquisitions, partly offset by a $1.5 million working capital adjustment with respect to the consideration paid in connection with the LMA acquisition.
Net cash used in financing activities from continuing operations was $9.6 million in the first three months of 2013, primarily due to dividend payments of $14.0 million, partly offset by $4.3 million in proceeds from the exercise of outstanding stock options issued under our stock compensation plans, compared to net cash used in financing activities from continuing operations of $12.6 million in 2012. In 2012, we made dividend payments of $13.9 million and recognized proceeds of $1.6 million from the exercise of outstanding stock options issued under our stock compensation plans.
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 agreements, 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 agreements) exceeds certain levels, which may limit our ability to repurchase shares under this Board authorization. Through March 31, 2013, 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:
March 31,
2013 |
December 31,
2012 |
|||||||
(Dollars in millions) | ||||||||
Net debt includes: |
||||||||
Current borrowings |
$ | 4.7 | $ | 4.7 | ||||
Long-term borrowings |
968.0 | 965.3 | ||||||
|
|
|
|
|||||
Total debt |
972.7 | 970.0 | ||||||
Less: Cash and cash equivalents |
306.6 | 337.0 | ||||||
|
|
|
|
|||||
Net debt |
$ | 666.1 | $ | 633.0 | ||||
|
|
|
|
|||||
Total capital includes: |
||||||||
Net debt |
$ | 666.1 | $ | 633.0 | ||||
Total common shareholders equity |
1,772.2 | 1,779.0 | ||||||
|
|
|
|
|||||
Total capital |
$ | 2,438.3 | $ | 2,412.0 | ||||
|
|
|
|
|||||
Percent of net debt to total capital |
27 | % | 26 | % |
39
Our 3.875% Convertible Notes are convertible under certain circumstances, including the attainment of 130% of the conversion price (approximately $79.72) of the Companys closing stock price during a certain number of days at the end of a fiscal quarter. The Companys closing stock price has recently approached this amount, which increases the possibility that the Convertible Notes could become convertible in the near future, at which point the Convertible Notes would be classified as a current liability. The Company has elected a net settlement method to satisfy its conversion obligation, under which the Company may settle the principal amount of the Convertible Notes in cash and settle the excess conversion value in shares, plus cash in lieu of fractional shares. The Company believes that it has the ability to raise sufficient cash to repay the principal amounts due through a combination of utilizing our existing cash on hand, accessing our credit facility, or raising money in the capital markets.
Our senior credit agreement and the indenture under which we issued our 6.875% senior subordinated notes due 2019 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, 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 3.5:1 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. Non-recurring, non-cash charges are excluded from the calculation of these ratios and, therefore, do not affect our compliance with these covenants.
We believe that our cash flow from operations, available cash and cash equivalents and our ability to access additional funds through credit facilities will enable us to fund our operating requirements, capital expenditures and debt obligations for the next 12 months and the foreseeable future. Depending on conditions in the capital markets and other factors, we will from time to time consider other financing transactions, the proceeds of which could be used to refinance current indebtedness or for other purposes.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
See the information set forth in Part II, Item 7A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
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 SECs rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance 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.
40
PART II OTHER INFORMATION
We are a party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability, intellectual property, employment and environmental matters. Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that any such actions are likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to our business, financial condition, results of operations or liquidity.
There have been no significant changes in risk factors for the quarter ended March 31, 2013. See the information set forth in Part I, Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Not applicable.
41
The following exhibits are filed as part of this report:
Exhibit No. |
Description |
|||
10.1 | Senior Executive Officer Severance Agreement, dated March 26, 2013, between the Company and Thomas E. Powell. | |||
10.2 | Executive Change In Control Agreement, dated March 26, 2013, between the Company and Thomas E. Powell. | |||
12.1 | | Computation of ratio of earnings to fixed charges. | ||
31.1 | | Certification of Chief Executive Officer, pursuant to Rule 13a14(a) under the Securities Exchange Act of 1934. | ||
31.2 | | Certification of Chief Financial Officer, pursuant to Rule 13a14(a) under the Securities Exchange Act of 1934. | ||
32.1 | | Certification of Chief Executive Officer, pursuant to Rule 13a14(b) under the Securities Exchange Act of 1934. | ||
32.2 | | Certification of Chief Financial Officer, pursuant to Rule 13a14(b) under the Securities Exchange Act of 1934. | ||
101.1 | | The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income for the three months ended March 31, 2013 and April 1, 2012; (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and April 1, 2012; (iii) the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012; (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and April 1, 2012; (v) the Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2013 and April 1, 2012; and (vi) Notes to Condensed Consolidated Financial Statements. |
42
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: April 30, 2013
43
Exhibit 10.1
SENIOR EXECUTIVE OFFICER SEVERANCE AGREEMENT
THIS SENIOR EXECUTIVE OFFICER SEVERANCE AGREEMENT is made as of March 26, 2013, between TELEFLEX INCORPORATED (the Company) and Thomas E. Powell (Executive).
Background
A. Executive is employed by the Company at its headquarters in Limerick, Pennsylvania as the Companys Executive Vice President and Chief Financial Officer.
B. The purpose of this Agreement is to provide for certain severance compensation and benefits to be paid or provided to Executive in the event of the termination of his employment under circumstances specified herein and to provide also for certain commitments by Executive respecting the Company.
Terms
THE PARTIES, in consideration of the mutual covenants hereinafter set forth, and intending to be legally bound hereby, agree as follows:
1. Definitions. The following terms used in this Agreement with initial capital letters have the respective meanings specified therefor in this Section.
Affiliate of any Person means any other Person that controls, is controlled by or is under common control with the first mentioned Person.
Agreement preceded by the word this means this Senior Executive Officer Severance Agreement, as amended at any relevant time.
Annual Incentive Plan means the Management Incentive Plan (MIP) or Executive Incentive Plan (EIP) of the Company providing for the payment of annual bonuses to certain employees of the Company, including Executive, as such Plans may be amended from time to time or, if such Plans shall be discontinued, any similar Plan or Plans in effect at any relevant time.
Base Salary of Executive means the annualized base rate of salary paid to Executive as such may be increased from time to time.
Board means the Board of Directors of the Company.
Cause means (a) misappropriation of funds, (b) conviction of a crime involving moral turpitude, or (c) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its subsidiaries taken as a whole.
Change of Control Severance Agreement means the Executive Severance Agreement relating to termination of employment of Executive after the occurrence of a Change of Control of the Company (defined in such Agreement).
Code means the Internal Revenue Code of 1986, as amended.
Commencement Date with respect to the commencement of any compensation or provision of benefits pursuant to this Agreement means the first day of the seventh month beginning after the Termination Date.
Confidential Information has the meaning specified therefor in Section 9.
Disability shall mean Executives continuous illness, injury or incapacity for a period of six consecutive months.
Employment means substantially full time employment of Executive by the Company or any of its Affiliates.
Good Reason means the occurrence of one or more of the following:
(a) A change of the principal office or work place assigned to Executive to a location more than 25 miles distant from its location immediately prior to such change.
(b) A material reduction by the Company of the executive title, duties, responsibilities, authority, status, reporting relationship or executive position of Executive; provided that if the Company sells or otherwise disposes of any part of its business or assets or otherwise diminishes or changes the character of its business, the change in the magnitude or character of the Companys business resulting therefrom will not itself be deemed to be a reduction of Executives responsibilities, authority or status within the meaning of this clause (b).
(c) A reduction of Executives Base Salary or a material reduction in the Executives annual target incentive opportunity under the Annual Incentive Plan.
Health Care Continuation Period means the period commencing on the Termination Date and ending on the earlier of (i) the last day of the Severance Compensation Period or (ii) the first date on which Executive is eligible to participate in a health care plan maintained by another employer.
Insurance Benefits Period means the period commencing on the Termination Date and ending on the earlier of (i) the last day of the Severance Compensation Period or (ii) the first date on which Executive is eligible to participate in a life and/or accident insurance plan maintained by another employer.
2
Notice of Termination has the meaning specified therefor in Section 3.
Performance Period applicable to any compensation payable (in cash or other property) under any Plan, the amount or value of which is determined by reference to the performance of participants or the Company or the fulfillment of specified conditions or goals, means the period of time over which such performance is measured or the period of time in which such conditions or performance goals must be fulfilled.
Person means an individual, a corporation or other entity or a government or governmental agency or institution.
Plan means a plan of the Company for the payment of compensation or provision of benefits to employees in which plan Executive is or was, at all times relevant to the provisions of this Agreement, a participant or eligible to participate.
Prorated Amount has the meaning specified therefor in Section 4(c).
Release has the meaning specified therefor in Section 7.
Severance Compensation Period means the 18 month period commencing on the day after the Termination Date, provided that for each completed year of full-time employment by Executive from and after January 1, 2012, one additional month shall be added to the Severance Compensation Period not to exceed an additional six months.
Termination Date means the date specified in a Notice of Termination complying with the provisions of Section 3, as such Notice of Termination may be amended by mutual consent of the parties, which date shall be the date Executives Termination of Employment occurs.
Termination of Employment means a cessation of Employment for any reason, other than a cessation occurring (i) by reason of Executives death or Disability or (ii) under circumstances which would entitle Executive to receive compensation and benefits pursuant to the Change of Control Severance Agreement. Executives Termination of Employment for all purposes under this Agreement will be determined to have occurred in accordance with the separation from service requirements of Code Section 409A and the Treasury Regulations and other guidance issued thereunder, and based on whether the facts and circumstances indicate that the Company and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Executive would perform after such date (as an employee or as an independent contractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36-month period (or actuarial period of service, if less).
Year of Termination means the Year in which Executives Termination Date occurs.
3
Year means a fiscal year of the Company.
2. Continued Employment of Executive. The parties acknowledge that Executives employment by the Company is at will and, except as the parties may hereafter agree in writing, such employment may be terminated by either party at any time, subject only to the giving of prior notice pursuant to Section 3. Nothing in this Agreement shall be construed as giving Executive any right to continue in the employ of the Company.
3. Notice of Termination of Employment. The party initiating any Termination of Employment shall give notice thereof to the other party (a Notice of Termination). A Notice of Termination shall (i) state with reasonable particularity the reasons for such Termination of Employment, if any, which are relevant to Executives right to receive compensation and benefits pursuant to this Agreement and (ii) specify the date such Termination of Employment shall become effective which, without the consent of such other party, shall not be earlier than 30 days after the date of such Notice of Termination; provided that the Company shall have the option to continue paying the Base Salary of the Executive for up to 30 days following the Termination Date in lieu of the requirement that the Executive consents to an earlier date.
4. Compensation upon Termination of Employment. Subject to the terms of Sections 6 and 7, upon Termination of Employment (i) by the Company other than for Cause or (ii) by Executive within 3 months after the occurrence of a Good Reason, Executive will receive from the Company the following payments and benefits:
(a) Cash Bonuses for Years Preceding the Year of Termination. If any cash bonus pursuant to an Annual Incentive Plan in respect of a Performance Period which ended before the Year of Termination shall not have been paid to Executive on or before the Termination Date, the Company will pay Executive such bonus in the amount of Executives award earned for the Performance Period in the form of a single lump sum cash payment on the later of the 15th day following the Termination Date or the date that is 2-1/2 months following the end of the Performance Period; provided, however, that if any such Annual Incentive Plan requires, as a condition to eligibility for payment, that a participant be employed by the Company on the date payment is made, then payment of the bonus under such Annual Incentive Plan for the Performance Period ended before the Year of Termination shall be made on the Commencement Date.
(b) Continuation of Base Salary. The Company will pay Executive (i) on the Commencement Date an amount equal to seven-twelfths of Executives Base Salary as in effect immediately prior to the Termination Date, and (ii) each month thereafter during the Severance Compensation Period an amount equal to one-twelfth of Executives Base Salary as in effect immediately prior to the Termination Date.
(c) Payment of Annual Incentive Plan Award for Performance Period Not Completed Before the Termination Date. If the Termination Date occurs before the last day, but after completion of at least six months, of a Performance Period under the Annual Incentive Plan, the Company will pay Executive the Prorated Amount of Executives award under the Annual Incentive Plan for that Performance Period. The amount of the award, from which the
4
Prorated Amount is derived, shall be determined based on the degree to which each performance goal on which such award is based has been achieved at the end of the Performance Period (provided that any individual performance component shall be equal to the target award amount for such component). The Prorated Amount of the award means an amount equal to the portion of the award which bears the same ratio to the amount of the award as the portion of such Performance Period expired immediately before the Termination Date bears to the entire period of such Performance Period. The amount to which Executive is entitled under this Section 4(c) shall be paid in the form of a single lump sum cash payment on the later of the Commencement Date or the date that is 2-1/2 months following the end of the Performance Period.
(d) Vehicle Allowance . The Company shall pay Executive a monthly cash vehicle allowance during the Severance Compensation Period equal to what it would cost Executive to lease the vehicle utilized by Executive immediately prior to the Termination Date, calculated by assuming that the lease is a three (3) year closed-end lease. The Company shall pay Executive (i) a lump sum cash amount equal to seven times the monthly vehicle allowance on the Commencement Date; and (ii) a lump sum cash amount equal to the monthly vehicle allowance on the first day of each month thereafter for which the vehicle allowance is provided.
(e) Outplacement . The Company shall reimburse Executive for expenses incurred for outplacement services during the Severance Compensation Period, up to a maximum aggregate amount of $20,000, which services shall be provided by an outplacement agency selected by Executive. The Company shall reimburse Executive within 15 days following the date on which the Company receives proof of payment of such expense, which proof must be submitted no later than December 1st of the calendar year after the calendar year in which the expense was incurred. Notwithstanding the foregoing, Executive shall only be entitled to reimbursement for those outplacement service costs incurred by Executive on or prior to the last day of the second year following the Termination Year.
(f) Health Care Coverage . During the Health Care Continuation Period, the Company will provide health care coverage under the Companys then-current health care Plan for Executive and Executives spouse and eligible dependents on the same basis as if Executive had continued to be employed during that period. If the continuation of coverage under the Companys health care Plan for Executive and Executives spouse and eligible dependents results in a violation of Section 105(h) of the Code, the continuation of coverage will be on an after-tax basis with the portion of the monthly cost of coverage paid by the Company being additional taxable income. If the continuation of coverage under the Companys health care Plan will be on an after-tax basis, the Company will pay Executive a lump sum cash payment on the last day of each applicable month during the Health Care Continuation Period so that Executive will be in the same position as if the continuation of coverage could have been provided on a pre-tax basis. The COBRA health care continuation coverage period under Section 4980B of the Code shall begin at the end of the Health Care Continuation Period. Notwithstanding the preceding, if Executive and Executives spouse and eligible dependents are not eligible to continue health care coverage under the Companys health care Plan, the Company will reimburse Executive in cash on the last day of each month during the Health Care Continuation Period (or balance thereof) an amount based on the cost actually paid by Executive for that month to maintain health insurance coverage from commercial sources that is comparable to the
5
health care coverage Executive last elected as an employee for Executive and Executives spouse and eligible dependents under the Companys health care Plan covering Executive, where the net monthly reimbursement after taxes are withheld will equal the Companys portion of the cost paid by the Executive for that months coverage determined in accordance with the Companys policy then in effect for employee cost sharing, on substantially the same terms as would be applicable to an executive officer of the Company.
(g) Life and Accident Insurance. Subject to the terms, limitations and exclusions of the Plan or Plans for provision of life and accident insurance and the Companys related policies of group insurance, (i) during the Insurance Benefits Period the Company will provide life and accident insurance coverage for Executive comparable to the life and accident insurance coverage which Executive last elected to receive as an employee under the applicable Plan for such benefits, subject to modifications from time to time of the coverage available under such Plan or related insurance policies which are applicable generally to executive officers of the Company, (ii) during the period from the Termination Date through the Commencement Date, Executive shall pay the entire cost of such life and accident insurance coverage and (iii) on the Commencement Date the Company will reimburse Executive for the Companys share (determined in accordance with the next sentence) of any premiums paid by Executive for such life and accident insurance during the period from the Termination Date to the Commencement Date. The cost of providing such insurance will be borne by the Company and Executive in accordance with the Companys policy then in effect for employee participation in premiums, on substantially the same terms as would be applicable to an executive officer of the Company. The Company shall pay its share of such premiums to the applicable insurance carrier(s) on the due date(s) established by such carrier(s), but in no event later than the last day of the calendar year in which such due date(s) occurs.
(h) Taxable Benefits . Any taxable welfare benefits provided pursuant to this Section 4 that are not disability pay or death benefits within the meaning of Treasury Regulations Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be subject to the following requirements in order to comply with Code Section 409A. The amount of any Applicable Benefit provided during one taxable year shall not affect the amount of the Applicable Benefit provided in any other taxable year, except that with respect to any Applicable Benefit that consists of the reimbursement of expenses referred to in Code Section 105(b), a limitation may be imposed on the amount of such reimbursements over some or all of the applicable Severance Compensation Period, as described in Treasury Regulations Section 1.409A-3(i)(iv)(B). To the extent that any Applicable Benefit consists of the reimbursement of eligible expenses, such reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred. No Applicable Benefit may be liquidated or exchanged for another benefit. If Executive is a specified employee, as defined in Code Section 409A, then during the period of six months immediately following Executives termination of employment, Executive shall be obligated to pay the Company the full cost for any Applicable Benefits that do not constitute health benefits of the type required to be provided under the health continuation coverage requirements of Code Section 4980B, and the Company shall reimburse Executive for any such payments on the first business day that is more than six months after the Termination Date.
6
5. Deductions and Taxes. Amounts payable by the Company pursuant to this Agreement shall be paid net of (i) taxes withheld by the Company in accordance with the requirements of law and (ii) deductions for the portion of the cost of certain benefits to be borne by Executive pursuant to Sections 4(f) and (g).
6. Compensation and Benefits Pursuant to Other Agreements and Plans. Nothing in this Agreement is intended to diminish or otherwise affect Executives right to receive from the Company all compensation payable to Executive by the Company in respect of his Employment prior to the Termination Date pursuant to any agreement with the Company (other than this Agreement) or any Plan.
7. Executives General Release and Resignations. As a condition to the obligations of the Company to pay severance compensation and provide benefits pursuant to Section 4, (a) in the event Executive is serving as a member of the Board and/or as a director or officer of any of the Companys Affiliates at the time of his Termination of Employment, the Company shall have received from Executive, within 10 days following the Termination Date, a written resignation from the Board and as an officer and director of all of the Companys Affiliates, as applicable (the Written Resignation); and (b) a general release in substantially the form of Exhibit A executed by Executive (the Release), which shall be executed and delivered to the Company on or before the date upon which the twenty-one day review period set forth in Section 7 of the Release expires, and Executive shall not thereafter revoke the Release. If Executive fails to deliver the Written Resignation or fails to execute, or if Executive revokes, the Release, no payments or benefits shall thereafter be made or provided to Executive pursuant to this Agreement, and Executive shall be required to reimburse to the Company any payments or benefits received by Executive pursuant to this Agreement, but Executives obligations pursuant to Sections 8 and 9 shall continue in force.
8. Confidential Information. Executive acknowledges that, by reason of Executives employment by and service to the Company, Executive has had and will continue to have access to confidential information of the Company and its Affiliates, including information and knowledge pertaining to products and services offered, innovations, designs, ideas, plans, trade secrets, proprietary information, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its Affiliates and other distributors, customers, clients, suppliers and others who have business dealings with the Company and its Affiliates (Confidential Information). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company, and Executive covenants that (except in connection with the good faith performance of his duties while employed by the Company) Executive will not, either during or after Executives employment by the Company, disclose any such Confidential Information to any Person for any reason whatsoever without the prior written authorization of the Company, unless such information is in the public domain through no fault of Executive or except as may be required by law or in a judicial or administrative proceeding. Notwithstanding anything to the contrary herein, each of the parties (and each employee, representative, or other agent of such parties) may disclose to any Person, without limitation of any kind, the federal income tax treatment and federal income tax structure of the transactions contemplated hereby and all materials (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure.
7
9. Restrictive Covenants .
(a) Covenant Not to Compete .
(i) Executive agrees that, for a period eighteen (18) months after the Termination Date (the Non-Compete Period), Executive will not, at any time, directly or indirectly, engage in, or have any interest on behalf of himself or others in any person or business other than the Company (whether as an employee, officer, director, agent, security holder, creditor, partner, joint venturer, beneficiary under a trust, investor, consultant or otherwise) that engages in similar business activities to the Company in a particular market and product line, and in the specific geographic areas in which the Company is engaged or has been engaged in the preceding twelve (12) months for that particular market and product line (the Business Activities).
(ii) Notwithstanding the foregoing, Executive may (A) engage, participate or invest in, or be employed by, an entity that is engaged in the Business Activities (a Competing Entity) so long as (1) the Annual Revenues derived by the Company from the Business Activities in which the Competing Entity is engaged do not exceed $50 million in the aggregate and (2) the Annual Revenues derived by the Competing Entity from the Business Activities do not exceed $50 million in the aggregate; (B) engage, participate or invest in, or be employed by, a Competing Entity so long as the Business Activities for which Executive has oversight do not exceed five percent (5%) of the total Annual Revenues of such Competing Entity; or (C) acquire solely as an investment not more than 2% of any class of securities of any competing entity if such class of securities is listed on a national securities exchange or on the Nasdaq system, so long as Executive remains a passive investor in such entity. For purposes of this Section 9(a)(ii), the term Annual Revenues shall mean annual revenues for the most recently completed fiscal year.
(b) Hiring of Employees . During the Non-Compete Period, the Executive agrees that Executive will not directly or indirectly solicit for employment, or hire or offer employment to, (i) any employee of the Company unless the Company first terminates the employment of such employee, or (ii) any person who at any time during the one hundred eighty (180) day period prior to the Termination Date was an employee of the Company.
(c) Non-Solicitation . Executive hereby agrees that, during the Non-Compete Period, Executive will not directly or indirectly call on or solicit for the purpose of diverting or taking away from the Company (including, by divulging any Confidential Information to any competitor or potential competitor of the Company) any person or entity who is at the Termination Date, or at any time during the twelve (12) month period prior to the Termination Date had been, a customer of the Company with whom the Executive had direct personal contact as a representative of the Company or a potential customer whose identity is known to Executive at the Termination Date as one whom the Company was actively soliciting as a potential customer within six months prior to the Termination Date.
8
(d) Return of Company Property . Upon a Termination of Employment Executive will deliver to the person designated by the Company all originals and copies of all documents and property of the Company in Executives possession, under Executives control, or to which Executive may have access. The Executive will not reproduce or appropriate for Executives own use, or for the use of others, any Confidential Information.
10. Cooperation . Upon Termination of Employment, Executive shall reasonably cooperate with the Company, its officers, employees, agents, affiliates and attorneys in the defense or prosecution of any lawsuit, dispute, investigation or other legal proceedings or any preparation for any such disputes or proceedings that may be anticipated or threatened (Proceedings). Executive shall reasonably cooperate with the Company, its officers, employees, agents, affiliates and attorneys on any other matter (Matters) related to Company business (specifically to include Teleflex Medical Incorporated and Arrow International, Inc. business) during the period in which Executive is employed by the Company. Executive shall reasonably cooperate with the Company, its officers, employees, agents, affiliates and attorneys in responding to any form of media inquiry or in making any form of public comment related to the Executives employment, including, but not limited to, the Executives separation from the Company. Such cooperation shall include providing true and accurate information or documents concerning, or affidavits or testimony about, all or any matters at issue in any Proceedings/Matters as shall from time to time be reasonably requested by the Company, and shall be within Executives knowledge. Such cooperation shall be provided by Executive without remuneration, but Executive shall be entitled to reimbursement for all reasonable and appropriate expenses Executive incurs in so cooperating, including (by way of example and not by way of limitation) reasonable airplane fares, hotel accommodations, meal charges and other similar expenses to attend Proceedings/Matters outside of the city of Executives residence. In the event Executive is made aware of any issue or matter related to the Company, is asked by a third party to provide information regarding the Company, or is called other than by the Company as a witness to testify in any matter related to the Company, Executive will notify the Company immediately in order to give the Company a reasonable opportunity to respond and/or participate in such Proceeding/Matter, unless Executive is requested or required not to do so by law enforcement, or any other governmental agency or authority.
11. Equitable and Other Relief; Consent to Jurisdiction of Pennsylvania Courts.
(a) Executive acknowledges that the restrictions contained in Sections 8 and 9 are reasonable and necessary to protect the legitimate interests of the Company and its Affiliates, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of that Section will result in irreparable injury to the Company. Executive represents and acknowledges that (i) Executive has been advised by the Company to consult Executives own legal counsel in respect of this Agreement and (ii) Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executives counsel.
(b) Executive agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of
9
Sections 8 or 9, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled under applicable law. Without limiting the foregoing, Executive also agrees that payment of the compensation and benefits payable under Section 4 may be automatically ceased in the event of a material breach of the covenants of Sections 8 or 9, provided the Company gives Executive written notice of such breach, specifying in reasonable detail the circumstances constituting such material breach.
(c) Executive irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Sections 8 or 9 hereof, including any action commenced by the Company for preliminary and permanent injunctive relief or other equitable relief, may be brought in a United States District Court in Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in or around Philadelphia, Pennsylvania, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Executive may have to the laying of venue of any such suit, action or proceeding in any such court. Executive also irrevocably and unconditionally consents to receive service of any process, pleadings, notices or other papers in a manner provided for in Section 15 for the giving of notices.
12. Enforcement . It is the intent of the parties that Executive not be required to incur any expenses associated with the enforcement of Executives rights under this Agreement by arbitration, litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be extended to Executive hereunder. Accordingly, the Company will pay Executive the amount necessary to reimburse Executive in full for all expenses (including all attorneys fees and legal expenses) incurred by Executive in attempting to enforce any of the obligations of the Company under this Agreement, without regard to outcome, unless the lawsuit brought by Executive is determined to be frivolous by a court of final jurisdiction. The Company shall reimburse Executive within 15 days following the date on which the Company receives proof of payment of such expense, which proof must be submitted no later than December 1 of the calendar year after the calendar year in which the expense was incurred. The amount of such expenses that the Company is obligated to pay in any given calendar year shall not affect the amount of such expenses that the Company is obligated to pay in any other calendar year, and Executives right to have the Company reimburse the payment of such expenses may not be liquidated or exchanged for any other benefit.
13. No Obligation to Mitigate Companys Obligations . Executive will not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise, except to the extent provided in Subsections 4(f) and 4(g).
14. No Set-Off . Except as provided in Sections 7 and 11(b), the Companys obligation to make the payments, and otherwise perform its obligations, provided for in this Agreement shall not be diminished or delayed by reason of any set-off, counterclaim, recoupment or similar claim which the Company may have against Executive or others.
10
15. Notices. All notices and other communications given pursuant to or in connection with this Agreement shall be in writing and delivered (which may be by telefax or other electronic transmission) to a party at the following address, or to such other address as such party may hereafter specify by notice to the other party:
If to the Company, to:
Teleflex Incorporated
155 S. Limerick Road
Limerick, PA 19468
Attention: General Counsel
If to Executive, to:
[INTENTIONALLY DELETED]
16. Residence; Governing Law. Executive hereby represents and warrants to the Company that, as of the date of this Agreement, Executive is a resident of the Commonwealth of Pennsylvania. This Agreement will be governed by the law of Pennsylvania, excluding any conflicts or choice of law rule or principle that might otherwise refer to the substantive law of another jurisdiction for the construction, or determination of the validity or effect, of this Agreement.
17. Parties in Interest. This Agreement, including specifically the covenants of Sections 8 and 9, will be binding upon and inure to the benefit of the parties and their respective heirs, successors and assigns.
18. Entire Agreement. This Agreement and the Change of Control Severance Agreement contain the entire agreement between the parties with respect to the right of Executive to receive severance compensation upon the termination of his Employment, and such Agreements supersede any prior agreements or understandings between the parties relating to the subject matter of the Change of Control Severance Agreement or this Agreement.
19. Amendment or Modification. No amendment or modification of or supplement to this Agreement will be effective unless it is in writing and duly executed by the party to be charged thereunder. It is the Parties intention that the benefits and rights to which Executive could become entitled in connection with Termination of Employment comply with Code Section 409A. If Executive or the Company believes, at any time, that any of such benefit or right does not so comply, he or it shall promptly advise the other party and shall negotiate reasonably and in good faith to amend the terms of this Agreement such that it complies (with the most limited economic effect on Executive and the Company).
20. Construction. The following principles of construction will apply to this Agreement:
(a) Unless otherwise expressly stated in connection therewith, a reference in this Agreement to a Section, Exhibit or party refers to a Section of, or an Exhibit or a party to, this Agreement.
(b) The word including means including without limitation.
11
21. Headings and Titles. The headings and titles of Sections and the like in this Agreement are inserted for convenience of reference only, form no part of this Agreement and shall not be considered for purposes of interpreting or construing any provision hereof.
12
EXECUTED as of the date first above written in Limerick, Pennsylvania.
TELEFLEX INCORPORATED | ||
By: |
/s/ Laurence G. Miller |
|
Name: | Laurence G. Miller | |
Title: | Executive Vice President, Chief Administrative Officer, General Counsel & Secretary | |
/s/ Thomas E. Powell |
||
Thomas E. Powell |
13
Exhibit 10.2
EXECUTIVE CHANGE IN CONTROL AGREEMENT
This Executive Change In Control Agreement made as of the 26 th day of March, 2013, by and between Teleflex Incorporated (the Company) and Thomas E. Powell (Employee).
WHEREAS, Employee is employed as an executive of the Company at its headquarters in Limerick, Pennsylvania; and
WHEREAS, the Board of Directors of the Company believes that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of Employee to the Company without distraction, notwithstanding that the Company could be subject to a Change of Control, and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company; and
WHEREAS, in consideration for Employee agreeing to continue in employment with the Company and agreeing to keep Company information confidential, the Company agrees that Employee shall receive the compensation set forth in this Agreement in the event Employees employment with the Company is terminated without Cause or Employee terminates employment for Good Reason, upon or after a Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions .
Base Salary shall mean the highest annualized base rate of salary being paid to Employee in all capacities with the Company, together with any and all salary reduction authorized amounts under any of the Companys benefit plans or programs, at the time of the Change of Control or any time thereafter.
Benefit Period shall mean the period beginning on Employees Termination Date and ending on the first to occur of (a) the second anniversary of the Commencement Date or (b) the first date on which Employee is employed by another employer and is eligible to participate in a health plan of Employees new employer.
Board shall mean the board of directors of the Company.
Bonus Plan shall mean a plan of the Company providing for the payment of a cash bonus to Employee.
Cause shall mean (a) misappropriation of funds, (b) conviction of a crime involving moral turpitude, or (c) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its subsidiaries taken as a whole.
Commencement Date shall mean the first day of the seventh month beginning after Employees Termination Date.
Change of Control shall mean one of the following shall have taken place after the date of this Agreement:
(a) any person (as such term is used in Sections 13(d) or 14(d) of the Exchange Act) (other than the Company, any majority controlled subsidiary of the Company, or the fiduciaries of any Company benefit plans) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 20% or more of the total voting power of the voting securities of the Company then outstanding and entitled to vote generally in the election of directors of the Company; provided, however, that no Change of Control shall occur upon the acquisition of securities directly from the Company;
(b) individuals who, as of the beginning of any 24 month period, constitute the Board (as of the date hereof the Incumbent Board) cease for any reason during such 24 month period to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company;
(c) consummation of (i) a merger, consolidation or reorganization of the Company, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the voting securities of the Company immediately prior to such merger, consolidation or reorganization do not, following such merger, consolidation or reorganization, beneficially own, directly or indirectly, at least 65% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity or entities resulting from such merger, consolidation or reorganization, (ii) a complete liquidation or dissolution of the Company or (iii) a sale or other disposition of all or substantially all of the assets of the Company, unless at least 65% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity or entities that acquire such assets are beneficially owned by individuals or entities who or that were beneficial owners of the voting securities of the Company immediately before such sale or other disposition; or
2
(d) consummation of any other transaction determined by resolution of the Board to constitute a Change of Control.
Code means the Internal Revenue Code of 1986, as amended.
Component Target Amount shall have the meaning specified therefor in the definition of Target Bonus in this Section 1.
Disability shall mean Employees continuous illness, injury or incapacity for a period of six consecutive months.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Good Reason means a Termination of Employment initiated by Employee by Notice of Termination, in accordance with Section 2 hereof, upon one or more of the following occurrences; provided that as soon as practicable after Employee becomes aware of such occurrence and before such Notice of Termination is given, Employee shall have given notice of Good Reason to the Company and the Company shall not have fully corrected the situation within 10 days after such notice of Good Reason:
(a) any failure of the Company to comply with and satisfy any of the material terms of this Agreement;
(b) any significant reduction by the Company of the title, duties, job responsibilities, reporting relationship or position of Employee;
(c) any reduction in Employees Base Salary; or
(d) the moving of the principal office of the Company to which Employee is assigned to a location more than 25 miles from its location on the date of the Change of Control.
Performance Period applicable to any Target Amount under a Bonus Plan shall mean the period of time in which the performance goals applicable to the determination of cash bonus awards pursuant to such Bonus Plan are measured.
Target Amount in respect of a bonus payable to Employee pursuant to any Bonus Plan shall mean the amount specified in the Companys records pertaining to such Bonus Plan as the target amount of cash bonus which would be payable to Employee if specified conditions were fulfilled.
Target Bonus shall mean the sum of the Target Amounts (each a Component Target Amount) which would be payable in the year immediately following the Termination Year pursuant to all Bonus Plans if all of the conditions for the payment of each Component Target Amount were fulfilled, without regard to whether such conditions are actually fulfilled; provided that, if a Target Amount has not been
3
determined for any such Bonus Plan on or before the Termination Date, the Target Amount for such Bonus Plan which would have been payable in the Termination Year shall be substituted for such undetermined Target Amount in the foregoing calculation of the Target Bonus.
Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein as the effective date of Employees Termination of Employment, as the case may be.
Termination of Employment shall mean the termination of Employees active employment relationship with the Company. Employees Termination of Employment for all purposes under this Agreement will be determined to have occurred in accordance with the separation from service requirements of Code Section 409A and the Treasury Regulations and other guidance issued thereunder, and based on whether the facts and circumstances indicate that the Company and Employee reasonably anticipated that no further service would be performed after a certain date or that the level of bona fide services Employee would perform after such date (as an employee or as an independent contractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately proceeding 36-month period (or actual period of service, if less).
Termination following a Change of Control shall mean a Termination of Employment upon or within two years after a Change of Control either:
(a) initiated by the Company for any reason other than Disability or Cause; or
(b) initiated by Employee for Good Reason.
Termination Year shall mean the year in which Employees Termination Date occurs.
2. Notice of Termination . Any Termination of Employment shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (a) indicates the specific reasons for the termination, (b) briefly summarizes the facts and circumstances deemed to provide a basis for termination of Employees employment, and (c) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not be more than 15 days after the giving of such notice).
4
3. Compensation upon Termination following a Change of Control . Subject to the provisions of subsection (d) below and Sections 5 and 6 hereof, in the event of Employees Termination following a Change of Control, Employee shall be entitled to receive the following payments and benefits from the Company:
(a) Within 15 days after the Termination Date, Employee shall receive a lump sum cash payment equal to Employees unpaid base salary earned through the Termination Date.
(b) If a bonus awarded to Employee pursuant to any Bonus Plan for payment in the Termination Year shall not have been paid to Employee, Employee shall receive the amount of such award within 15 days after the Termination Date. If no such bonus shall have been awarded to Employee under any Bonus Plan, on the Commencement Date Employee shall receive a lump sum cash payment in the amount of the sum of the Target Amounts under each such Bonus Plan referred to in the immediately preceding sentence which would have been payable to Employee in the Termination Year.
(c) On the Commencement Date, Employee shall receive a lump sum cash payment equal to the sum of (i) a pro-rated amount of the Target Bonus, (ii) the amount (if any) paid by Employee for health care continuation coverage (COBRA) for the period from the Termination Date to the date of such lump sum payment and (iii) in the event the Employee was a participant in such plan prior to the Termination Date, the Employer Non-Elective Contributions with which Employee would have been credited under the Teleflex Incorporated Deferred Compensation Plan (Deferred Compensation Plan) for each of the next two (2) plan years following the plan year which includes the Termination Date, assuming that Employees Compensation and Bonus, as those terms are defined in the Deferred Compensation Plan, for each of the two (2) plan years immediately following the plan year which includes the Termination Date are the same as Employees Compensation and Bonus for the plan year which includes the Termination Date. The pro-rated Target Bonus shall be computed by multiplying the Target Bonus by a fraction (i) the numerator of which is the number of days in each year of the Performance Period applicable to such Component Target Amount reduced by the number of days in the Termination Year following the Termination Date and (ii) the denominator of which is the number of days in the Performance Period.
(d) Beginning with the Commencement Date, Employee shall receive the following:
(i) Employee shall receive an amount equal to two times Employees Base Salary (the Base Salary Severance Amount), which shall be divided into 24 equal monthly installments and paid as follows: (A) on the Commencement Date an amount equal to the first seven monthly installments and (B) an additional monthly installment on the first day of each month thereafter for the next seventeen months. However, if the Change of Control does not satisfy the requirements to be a change in control for purposes of Code Section 409A and the Treasury Regulations and other guidance issued thereunder, then, if necessary to satisfy Code Section 409A, the Base Salary Severance Amount shall be divided into 18 equal monthly installments (increased by one additional month for each completed year of full-time employment by Employee from and after January 1, 2008, not to exceed an additional six months) and paid as
5
follows: (A) on the Commencement Date an amount equal to the first seven monthly installments and (B) an additional monthly installment on the first day of each month thereafter until all of the installments have been paid.
(ii) Employee shall receive an amount equal to the Target Bonus on each of the six-month and eighteen-month anniversaries of the Commencement Date. The amount paid on each such date shall be paid in the form of a single lump sum cash payment.
(iii) The Company shall continue to provide health and dental benefits under the Companys then-current health and dental plans for Employee and Employees spouse and eligible dependents during the balance of the Benefit Period on the same basis as if Employee had continued to be employed during that period. If the continuation of coverage under the Companys health and dental plans for Employee and Employees spouse and eligible dependents results in a violation of Section 105(h) of the Code, the continuation of coverage will be on an after-tax basis with the portion of the monthly cost of coverage paid by the Company being additional taxable income. If the continuation of coverage under the Companys health and dental plans will be on an after-tax basis, the Company will pay Employee a lump sum cash payment on the last day of each applicable month during the Benefit Period (or balance thereof) so that Employee will be in the same position as if the continuation of coverage could have been provided on a pre-tax basis. The COBRA health care continuation coverage period under Section 4980B of the Code shall begin at the end of the Health Care Continuation Period. Notwithstanding the preceding, if Employee and Employees spouse and eligible dependents are not eligible to continue coverage under the Companys health and/or dental plan(s), the Company will reimburse Employee in cash on the last day of each month during the Benefit Period (or balance thereof) an amount based on the cost actually paid by Employee for that month to maintain health and/or dental insurance coverage from commercial sources that is comparable to the health and/or dental coverage Employee last elected as an employee for Employee and Employees spouse and eligible dependents under the Companys health and/or dental plan(s) covering Employee, where the net monthly reimbursement after taxes are withheld will equal the Companys portion of the cost paid by Employee for that months coverage determined in accordance with the Companys policy then in effect for employee cost sharing, on substantially the same terms as would be applicable to an executive officer of the Company.
(iv) The Company shall reimburse Employee for the cost of outplacement assistance services incurred by Employee up to a maximum of $20,000, which shall be provided by an outplacement agency selected by Employee. The Company shall reimburse Employee within 15 days
6
following the date on which the Company receives proof of payment of such expense, which proof must be submitted no later than December 1st of the calendar year after the calendar year in which the expense was incurred. Notwithstanding the foregoing, Executive shall only be entitled to reimbursement for those outplacement service costs incurred by Executive on or prior to the last day of the second year following the Termination Year.
(e) If Employee was provided with the use of an automobile as of the Termination Date, Employee may continue to use such automobile during the Benefit Period. If Employee received a cash vehicle allowance as of the Termination Date, the Company shall pay Employee a cash vehicle allowance during the Benefit Period equal to what it would cost Employee to lease the vehicle utilized by Employee immediately prior to the Termination Date, calculated by assuming that the lease is a three (3) year closed-end lease. The allowance shall generally be paid in equal monthly payments; provided, however, that payment of the monthly payments shall not begin until the Commencement Date. On the Commencement Date, Employee shall receive a lump sum cash payment equal to the sum of the monthly payments that would have been paid between the Termination Date and Commencement Date plus the monthly payment for the month in which the Commencement Date occurs. The Company will pay the remaining monthly payments on the first day of each month following the Commencement Date.
(f) All Company stock options and restricted stock held by Employee as of Employees Termination Date that have not previously become vested and exercisable shall immediately become fully vested and exercisable as of the date immediately preceding the Termination Date, and any stock option or restricted stock awards under which such stock options or restricted stock are granted are hereby amended, effective the later of the date of this Agreement or the date of such award, to so provide.
(g) As a condition to the obligation of the Company to pay compensation and provide benefits under this Agreement, the Company shall have received from Employee immediately following the Termination Date a written waiver and release of claims against the Company substantially in the form attached hereto as Exhibit A (but subject to any necessary adjustments reasonably determined by the Company to be necessary to comply with applicable laws and regulations in effect as of Employees Termination Date) executed by Employee (the Release), and Employee shall not thereafter revoke the Release. If Employee fails to execute or revokes the Release, no payments or benefits shall thereafter be made or provided to Employee pursuant to this Agreement.
(h) Taxable Benefits . Any taxable welfare benefits provided pursuant to this Section 3 that are not disability pay or death benefits within the meaning of Treasury Regulations Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be subject to the following requirements in order to comply with Code Section 409A. The amount of any Applicable Benefit provided during one taxable year shall not
7
affect the amount of the Applicable Benefit provided in any other taxable year, except that with respect to any Applicable Benefit that consists of the reimbursement of expenses referred to in Code Section 105(b), a limitation may be imposed on the amount of such reimbursements over some or all of the applicable Benefit Period, as described in Treasury Regulations Section 1.409A-3(i)(iv)(B). To the extent that any Applicable Benefit consists of the reimbursement of eligible expenses, such reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred. No Applicable Benefit may be liquidated or exchanged for another benefit. If Employee is a specified employee, as defined in Code Section 409A, then during the period of six months immediately following Employees Termination of Employment, Employee shall be obligated to pay the Company the full cost for any Applicable Benefits that do not constitute health benefits of the type required to be provided under the health continuation coverage requirements of Code Section 4980B, and the Company shall reimburse Employee for any such payments on the first business day that is more than six months after the Termination Date.
4. Limitations on Certain Payments .
(a) Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and it is determined that any payment or distribution by the Company to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Code, then, if the aggregate present value of such Payments exceeds 2.99 times Employees base amount, as defined in Section 280G(b)(3) of the Code (the Base Amount), the amounts constituting parachute payments which would otherwise be payable to or for the benefit of Employee shall be reduced to the extent necessary so that such parachute payments are equal to 2.99 times the Base Amount (the Reduced Amount); provided that such amounts shall not be so reduced if the Employee determines, based upon the advice of the Accounting Firm (as defined below), that without such reduction Employee would be entitled to receive and retain, on a net after tax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net after tax basis, that the Employee would be entitled to retain upon his receipt of the Reduced Amount.
(b) If the determination made pursuant to Section 4(a) results in a reduction of the Payments that would otherwise be paid to Employee except for the application of Section 4(a), then the reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of equity-based awards (if applicable); reduction of employee benefits. In the event that acceleration of vesting of equity-based awards is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Employees equity-based award.
(c) All determinations to be made under this Section 4 shall be made by the Companys independent public accountants immediately prior to the Change of Control or by another independent public accounting firm mutually selected by the Company and Employee before the date of the Change of Control (the Accounting
8
Firm), which firm shall provide its determinations and any supporting calculations both to the Company and Employee within 20 days after the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and Employee.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 4 shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to this Section 4, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
(e) As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made under this Section 4 (Overpayment) or that additional payments which are not made by the Company under this Section 4 should have been made (Underpayment). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Employee, which Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the event that there is a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations pursuant to which an Underpayment arises under this Agreement, any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee, together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
5. Confidential Information . Employee recognizes and acknowledges that, by reason of Employees employment by and service to the Company, Employee has had and will continue to have access to confidential information of the Company and its affiliates, including, without limitation, information and knowledge pertaining to products and services offered, innovations, designs, ideas, plans, trade secrets, proprietary information, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its affiliates and other distributors, customers, clients, suppliers and others who have business dealings with the Company and its affiliates (Confidential Information). Employee acknowledges that such Confidential Information is a valuable and unique asset of the Company, and Employee covenants that Employee will not, either during or after Employees employment by the Company, disclose any such Confidential Information to any person for any reason whatsoever without the prior written authorization of the Company, unless such information is in the public domain through no fault of Employee or except as may be required by law or in a judicial or administrative proceeding. Notwithstanding anything to the contrary herein, each of the parties hereto (and each employee, representative, or other agent of such parties) may disclose to any person, without limitation of any kind, the federal income tax treatment and federal income tax structure of the transactions contemplated hereby and all materials (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure.
9
6. Equitable Relief .
(a) Employee acknowledges that the restrictions contained in Section 5 hereof are reasonable and necessary to protect the legitimate interests of the Company and its affiliates, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of that Section will result in irreparable injury to the Company. Employee represents and acknowledges that (i) Employee has been advised by the Company to consult Employees own legal counsel in respect of this Agreement, and (ii) Employee has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Employees counsel.
(b) Employee agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Section 5 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. Without limiting the foregoing, Employee also agrees that payment of the compensation and benefits payable under Section 3 of this Agreement may be automatically ceased in the event of a material breach of the covenants of Section 5, provided the Company gives Employee written notice of such breach, detailing the activity of Employee that constitutes a material breach, and Employee fails to cease such activity within 15 days after Employees receipt of such written notice. In the event that any of the provisions of Section 5 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law.
(c) Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 5 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief or other equitable relief, may be brought in a United States District Court in Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in or around Philadelphia, Pennsylvania, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Employee may have to the laying of venue of any such suit, action or proceeding in any such court. Employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 14 hereof.
7. Other Payments and Indemnification . The payments due under Section 3 hereof shall be in addition to and not in lieu of any payments or benefits due to Employee under any other plan, policy or program of the Company except as provided under Section 16(a) and except that no cash payments shall be paid to Employee under
10
any severance plan of the Company that are due and payable solely as a result of a Change of Control. In addition, Employee shall continue to be covered by any policy of insurance providing indemnification rights for service as an officer and director of the Company and to all other rights to indemnification provided by the Company, in each case at least as favorable as applicable to Employee on the date of this Agreement.
8. Enforcement . It is the intent of the parties that Employee not be required to incur any expenses associated with the enforcement of Employees rights under this Agreement by arbitration, litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, the Company shall pay Employee on demand the amount necessary to reimburse Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by Employee in attempting to enforce any of the obligations of the Company under this Agreement, without regard to outcome, unless the lawsuit brought by Employee is determined to be frivolous by a court of final jurisdiction. The Company shall reimburse Employee for expenses under this Section 8 no later than the end of the calendar year next following the calendar year in which such expenses were incurred, it being understood that the foregoing limitation is intended to ensure compliance with Code Section 409A, and shall not serve to extend or otherwise delay the time period within which the Company is required to reimburse Employee for expenses as set forth in this Section 8. The Company shall not be obligated to pay any such expenses for which Employee fails to make a demand and submit an invoice or other documented reimbursement request at least 10 business days before the end of the calendar year next following the calendar year in which such expenses were incurred. The amount of such expenses that the Company is obligated to pay in any given calendar year shall not affect the expenses that the Company is obligated to pay in any other calendar year. Employees right to have the Company pay the expenses may not be liquidated or exchanged for any other benefit.
9. No Mitigation . Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise.
10. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against Employee or others.
11. Taxes . Any payments required under this Agreement shall be subject to applicable tax withholding.
12. Term of Agreement . The term of this Agreement shall be for three years from the date hereof and shall be automatically renewed for successive one-year periods unless the Company notifies Employee in writing that this Agreement will not be renewed at least 60 days prior to the end of the current term; provided, however, that (i)
11
this Agreement shall remain in effect for at least two years after a Change of Control occurring during the term of this Agreement and shall remain in effect until all of the obligations of the parties hereunder are satisfied, and (ii) this Agreement shall terminate if, prior to but not in contemplation of a Change of Control, the employment of Employee with the Company and its affiliates shall terminate for any reason.
13. Successor Company . The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Employee, to acknowledge expressly that this Agreement is binding upon and enforceable against the Company in accordance with the terms hereof, and to become jointly and severally obligated with the Company to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as herein before defined and any such successor or successors to its business or assets, jointly and severally.
14. Notice . All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
Teleflex Incorporated
155 South Limerick Road
Limerick, PA 19468
If to Employee, to:
[INTENTIONALLY DELETED]
or to such other names or addresses as the Company or Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or to any successor pursuant to Section 14 hereof shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Residence; Governing Law . Executive hereby represents and warrants to the Company that, as of the date of this Agreement, Executive is a resident of the Commonwealth of Pennsylvania. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
12
16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements, sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer; provided, however, that except as stated in Section 7 above, this Agreement is not intended to supersede or alter Employees rights under any compensation, benefit plan or program, unless specifically modified hereunder, in which Employee participated and under which Employee retains a right to benefits. The provisions of this Agreement may provide for payments to Employee under certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, to the extent that the provisions of this Agreement are more favorable to Employee than the terms of such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Board.
(b) Nothing in this Agreement shall be construed as giving Employee any right to be retained in the employ of the Company.
(c) All of the terms and provisions of this Agreement, including the covenants of Section 5, shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto.
(d) It is the Parties intention that the benefits and rights to which Employee could become entitled in connection with Termination of Employment comply with Code Section 409A. If Employee or the Company believes, at any time, that any of such benefits or rights do not so comply, he or it shall promptly advise the other party and shall negotiate reasonably and in good faith to amend the terms of this Agreement such that it complies (with the most limited economic effect on Employee and the Company).
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by Employee in exercising any right, remedy or power
13
hereunder or existing at law or in equity shall be construed as a waiver thereof, including, without limitation, any delay by Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if Employee had resigned, have constituted a Termination following a Change of Control pursuant to Section 1 of this Agreement.
19. Miscellaneous . All section headings are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
20. Construction. The word including means including without limitation.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written in Limerick, Pennsylvania.
Teleflex Incorporated | ||
By: |
/s/ Laurence G. Miller |
|
Name: | Laurence G. Miller | |
Title: | Executive Vice President, Chief Administrative Officer, General Counsel & Secretary | |
/s/ Thomas E. Powell |
||
Thomas E. Powell |
14
Exhibit 12.1
TELEFLEX, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Three Months Ended | Year Ended December 31, | |||||||||||||||||||||||||||
March 31, 2013 | April 1, 2012 | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
Earnings: |
||||||||||||||||||||||||||||
Income (loss) from continuing operations before taxes before adjustment for income or loss from equity investees |
$ | 35,368 | $ | (288,111 | ) | $ | (165,369 | ) | $ | 145,100 | $ | 104,590 | $ | 159,824 | $ | 81,914 | ||||||||||||
Amortization of previously capitalized interest |
| | | | | 9 | 35 | |||||||||||||||||||||
Distributed income of equity investees |
| | | | | | 310 | |||||||||||||||||||||
Capitalized interest |
(155 | ) | | (400 | ) | | | | | |||||||||||||||||||
Non-controlling interest income |
(201 | ) | (227 | ) | (955 | ) | (1,021 | ) | (861 | ) | (632 | ) | (441 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 35,012 | $ | (288,338 | ) | $ | (166,724 | ) | $ | 144,079 | $ | 103,729 | $ | 159,201 | $ | 81,818 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Fixed charges: |
||||||||||||||||||||||||||||
Interest expense |
$ | 10,443 | $ | 14,681 | $ | 55,149 | $ | 57,010 | $ | 72,281 | $ | 83,952 | $ | 116,317 | ||||||||||||||
Amortization of debt expense |
3,750 | 3,530 | 14,416 | 13,526 | 7,750 | 5,511 | 5,330 | |||||||||||||||||||||
Capitalized interest |
155 | | 400 | | | | | |||||||||||||||||||||
Interest factor in rents |
2,221 | 1,960 | 8,071 | 9,977 | 10,477 | 11,624 | 12,134 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total fixed charges |
16,569 | 20,171 | 78,036 | 80,513 | 90,508 | 101,087 | 133,781 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Earnings and fixed charges |
$ | 51,581 | $ | (268,167 | ) | $ | (88,688 | ) | $ | 224,592 | $ | 194,237 | $ | 260,288 | $ | 215,599 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ratio of earnings to fixed charges |
3.1 | -13.3 | (1.1 | ) | 2.8 | 2.1 | 2.6 | 1.6 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Benson F. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Teleflex Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: April 30, 2013 |
/s/ Benson F. Smith |
|
Benson F. Smith | ||
Chairman, President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Thomas E. Powell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Teleflex Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: April 30, 2013 |
/s/ Thomas E. Powell |
|
Thomas E. Powell | ||
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Teleflex Incorporated (the Company) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Benson F. Smith, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
Date: April 30, 2013 |
/s/ Benson F. Smith |
|
Benson F. Smith Chairman, President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Teleflex Incorporated (the Company) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas E. Powell, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
Date: April 30, 2013 |
/s/ Thomas E. Powell |
|
Thomas E. Powell Executive Vice President and Chief Financial Officer |