Market Overview

Teleflex Reports Second Quarter 2018 Results

Share:

Second Quarter Revenues of $609.9 million, up 15.4% Versus Prior
Year Period; up 12.4% on Constant Currency Basis

Second Quarter GAAP EPS of ($0.06), down 103.6% Over the Prior
Year Period

Second Quarter Adjusted EPS of $2.47, up 21.1% Versus Prior Year
Period

Lowered 2018 Guidance Range for GAAP Revenue Growth from a range
of between 15% and 16% to a range of between 14% and 15%

Reaffirmed 2018 Guidance Range for Constant Currency Revenue
Growth of between 12% and 13%

Lowered 2018 Guidance for GAAP EPS from a range of between $5.45
and $5.55 to a range of between $4.60 and $4.70

Reaffirmed 2018 Guidance Range for Adjusted EPS of between $9.70
and $9.90

Teleflex Incorporated (NYSE:TFX) (the "Company") today announced
financial results for the second quarter ended July 1, 2018.

Second quarter 2018 net revenues were $609.9 million, an increase of
15.4% compared to the prior year period. Excluding the impact of foreign
currency exchange rate fluctuations, second quarter 2018 net revenues
increased 12.4% over the year ago period.

Second quarter 2018 GAAP loss per share from continuing operations was
($0.06), as compared to diluted earnings per share of $1.67 in the prior
year period. The decrease in GAAP earnings per share from continuing
operations is due to $57.8 million of restructuring, restructuring
related and impairment charges, which primarily related to the Company's
2018 footprint realignment plan, and $25.7 million of contingent
consideration expense. Second quarter 2018 adjusted diluted earnings per
share from continuing operations increased 21.1% to $2.47, compared to
$2.04 in the prior year period.

Liam Kelly, President and Chief Executive Officer, said, "While
Teleflex's constant currency revenue growth during the second quarter
fell short of our expectations, this was primarily due to the timing of
orders received from distributors, as well as certain product
constraints associated with key suppliers. However, we were still able
to achieve adjusted earnings per share of $2.47, which is an increase of
21.1%. In addition, I am pleased to report that in the recent weeks,
orders and revenue rebounded, and therefore, we continue to estimate
that full year constant currency revenue growth will be between 12% and
13%."

Added Mr. Kelly, "We continued to see strong performance from NeoTract,
which generated approximately $48 million in revenue during the second
quarter, representing growth of approximately 58%. Urolift continues to
generate strong physician adoption, and its second quarter revenues,
inclusion in the AUA Guidelines and continued expansion of published
clinical evidence give us increased confidence in its short and
long-term growth trajectory, and as such, we are raising our revenue
expectations for NeoTract as we now believe it will grow approximately
50% over 2017 levels."

In closing, Mr. Kelly stated, "Notwithstanding recent volatility in
foreign currency exchange rates, I am pleased to report that we are
maintaining our previously provided full year adjusted diluted earnings
per share guidance range of between $9.70 and $9.90."

SECOND QUARTER AND SIX MONTH NET REVENUE BY SEGMENT

The following tables provide information regarding net revenues in each
of the Company's reportable operating segments and all of its other
operating segments for the three and six months ended July 1, 2018 and
July 2, 2017 on both a GAAP and constant currency basis. The discussion
below the table of the principal factors behind changes in net revenues
for the three months ended July 1, 2018 as compared to the prior year
period applies to both GAAP revenue and constant currency revenue,
although GAAP revenue also was affected by foreign currency exchange
rate fluctuations, as indicated in the "Currency Impact" column of the
table.

   
Three Months Ended % Increase / (Decrease)
July 1, 2018   July 2, 2017

Total
Sales
Growth

 

Currency
Impact

 

Constant
Currency
Revenue
Growth

Vascular North America $ 80.1 $ 78.8 1.6 % 0.2 % 1.4 %
Interventional North America 65.0 58.3 11.3 % 0.0 % 11.3 %
Anesthesia North America 50.5 49.1 2.9 % 0.2 % 2.7 %
Surgical North America 40.7 44.7 (9.0 )% 0.2 % (9.2 )%
EMEA 153.4 138.5 10.8 % 8.0 % 2.8 %
Asia 72.4 66.0 9.7 % 3.8 % 5.9 %
OEM 52.6 45.1 16.5 % 1.6 % 14.9 %
All Other   95.2     48.1   98.0 %   (0.6 )%   98.6 %
Total $ 609.9   $ 528.6   15.4 %   3.0 %   12.4 %
 
 
Six Months Ended % Increase / (Decrease)
July 1, 2018 July 2, 2017

Total
Sales
Growth

Currency
Impact

Constant
Currency
Revenue
Growth

Vascular North America $ 163.1 $ 157.8 3.4 % 0.3 % 3.1 %
Interventional North America 125.2 98.2 27.3 % 0.0 % 27.3 %
Anesthesia North America 101.1 97.3 3.9 % 0.2 % 3.7 %
Surgical North America 81.4 90.7 (10.2 )% 0.3 % (10.5 )%
EMEA 313.3 272.0 15.2 % 11.5 % 3.7 %
Asia 130.6 116.2 12.5 % 5.2 % 7.3 %
OEM 98.4 88.5 11.3 % 2.3 % 9.0 %
All Other   184.0     95.8   92.1 %   0.3 %   91.8 %
Total $ 1,197.1   $ 1,016.5   17.8 %   4.3 %   13.5 %
 

Vascular North America second quarter 2018 net revenues were $80.1
million, an increase of 1.6% compared to the prior year period.
Excluding the impact of foreign currency exchange rate fluctuations,
second quarter 2018 net revenues increased 1.4% compared to the prior
year period. The increase in constant currency revenue is primarily
attributable to an increase in new product sales partially offset by a
decrease in sales volumes of existing products, despite the favorable
impact of one additional shipping day in the second quarter of 2018.

Interventional North America second quarter 2018 net revenues were $65.0
million, an increase of 11.3% compared to the prior year period.
Excluding the impact of foreign currency exchange rate fluctuations,
second quarter 2018 net revenues increased 11.3% compared to the prior
year period. The increase in constant currency revenue is primarily
attributable to higher sales volumes of existing products and an
increase in new product sales, reflecting, in part, the favorable impact
of one additional shipping day in the second quarter of 2018.

Anesthesia North America second quarter 2018 net revenues were $50.5
million, an increase of 2.9% compared to the prior year period.
Excluding the impact of foreign currency exchange rate fluctuations,
second quarter 2018 net revenues increased 2.7% compared to the prior
year period. The increase in constant currency revenue is primarily
attributable to an increase in new product sales and an increase in
sales volumes of existing products, reflecting, in part, the favorable
impact of one additional shipping day in the second quarter of 2018. The
increase in constant currency revenue was partially offset by price
decreases.

Surgical North America second quarter 2018 net revenues were $40.7
million, a decrease of 9.0% compared to the prior year period. Excluding
the impact of foreign currency exchange rate fluctuations, second
quarter 2018 net revenues decreased 9.2% compared to the prior year
period. The decrease in constant currency revenue is primarily
attributable to a decline in sales volumes of existing products, despite
the favorable impact of one additional shipping day in the second
quarter of 2018.

EMEA second quarter 2018 net revenues were $153.4 million, an increase
of 10.8% compared to the prior year period. Excluding the impact of
foreign currency exchange rate fluctuations, second quarter 2018 net
revenues increased 2.8% compared to the prior year period. The increase
in constant currency revenue is primarily attributable to net revenues
generated by price increases. The increase in constant currency revenue
was partially offset by a decline in sales volumes of existing products,
despite the favorable impact of one additional shipping day in the
second quarter of 2018.

Asia second quarter 2018 net revenues were $72.4 million, an increase of
9.7% compared to the prior year period. Excluding the impact of foreign
currency exchange rate fluctuations, second quarter 2018 net revenues
increased 5.9%. The increase in constant currency revenue is primarily
attributable to higher sales volumes of existing products and an
increase in new product sales.

OEM second quarter 2018 net revenues were $52.6 million, an increase of
16.5% compared to the prior year period. Excluding the impact of foreign
currency exchange rate fluctuations, second quarter 2018 net revenues
increased 14.9% compared to the prior year period. The increase in
constant currency revenue is primarily attributable to higher sales
volumes of existing products, reflecting, in part, the favorable impact
of one additional shipping day in the second quarter of 2018.

All Other second quarter 2018 net revenues were $95.2 million, an
increase of 98.0% compared to the prior year period. Excluding the
impact of foreign currency exchange rate fluctuations, second quarter
2018 net revenues increased 98.6% compared to the prior year period. The
increase in constant currency revenue is primarily attributable to net
revenues generated by NeoTract.

OTHER FINANCIAL HIGHLIGHTS AND KEY PERFORMANCE METRICS

Depreciation expense, amortization of intangible assets and deferred
financing charges for the first six months of 2018 totaled $106.9
million compared to $72.3 million for the prior year period.

Cash and cash equivalents at July 1, 2018 were $346.3 million compared
to $333.6 million at December 31, 2017.

Net accounts receivable at July 1, 2018 were $359.1 million compared to
$345.9 million at December 31, 2017.

Net inventories at July 1, 2018 were $405.4 million compared to $395.7
million at December 31, 2017.

2018 OUTLOOK

The Company lowered its full year 2018 GAAP revenue growth guidance
range from a range of between 15% and 16% to a range of between 14% and
15%. The Company's previous 2018 GAAP revenue growth guidance range
reflected an anticipated 3% favorable impact of foreign currency
exchange rate fluctuations, while the Company's revised 2018 GAAP
revenue growth guidance range reflects an anticipated 2% favorable
impact of foreign currency exchange rate fluctuations. On a constant
currency basis, the Company reaffirmed its full year 2018 guidance range
of between 12% and 13% over the prior year.

The Company lowered its full year 2018 GAAP diluted earnings per share
from continuing operations guidance from a range of between $5.45 and
$5.55 to a range of between $4.60 and $4.70, reflecting the impact of
additional restructuring and contingent consideration expenses. The
Company reaffirmed its full year 2018 adjusted diluted earnings per
share from continuing operations guidance range of between $9.70 and
$9.90, reflecting our expectation of an approximately 5% positive impact
from foreign currency exchange rate fluctuations.

   
Forecasted 2018 Constant Currency Revenue Growth Reconciliation
 
Low   High
 
2018 GAAP revenue growth 14 % 15 %
 
Estimated impact of foreign currency exchange rate fluctuations   (2 )%     (2 )%
 
2018 constant currency revenue growth   12 %     13 %
 
 
 
Forecasted 2018 Adjusted Earnings Per Share Reconciliation
 
Low   High
 
GAAP diluted earnings per share attributable to common shareholders $ 4.60 $ 4.70
 
Restructuring, restructuring related and impairment items, net of tax $ 1.57 $ 1.60
 
Acquisition, integration and divestiture related items, net of tax $ 0.96 $ 0.98
 
Other items, net of tax $ 0.05 $ 0.07
 
Intangible amortization expense, net of tax $ 2.52     $ 2.55  
 
Adjusted diluted earnings per share $ 9.70     $ 9.90  
 

CONFERENCE CALL WEBCAST AND ADDITIONAL INFORMATION

As previously announced, Teleflex will comment on its financial results
on a conference call to be held today at 8:00 a.m. (ET). The call will
be available live and archived on the company's website at www.teleflex.com
and the accompanying presentation will be posted prior to the call.
An audio replay will be available until August 7, 2018 at 11:00pm (ET),
by calling 855-859-2056 (U.S./Canada) or 404-537-3406 (International),
Passcode: 4890067.

ADDITIONAL NOTES

References in this release to the impact of foreign currency exchange
rate fluctuations on adjusted diluted earnings per share include both
the impact of translating foreign currencies into U.S. dollars and the
impact of foreign currency exchange rate fluctuations on foreign
currency denominated transactions.

In the discussion of segment results, "new products" refers to products
we have sold commercially within the past 36 months and "existing
products" refers to products we have sold commercially for more than 36
months.

Certain financial information is presented on a rounded basis, which may
cause minor differences.

Segment results and commentary exclude the impact of discontinued
operations.

NOTES ON NON-GAAP FINANCIAL MEASURES

We report our financial results in accordance with accounting principles
generally accepted in the United States, commonly referred to as "GAAP."
In this press release, we provide supplemental information, consisting
of the following non-GAAP financial measures: adjusted diluted earnings
per share and constant currency revenue growth. These non-GAAP measures
are described in more detail below. Management uses these financial
measures to assess Teleflex's financial performance, make operating
decisions, allocate financial resources, provide guidance on possible
future results, and assist in its evaluation of period-to-period and
peer comparisons. The non-GAAP measures may be useful to investors
because they provide insight into management's assessment of our
business, and provide supplemental information pertinent to a comparison
of period-to-period results of our ongoing operations. The non-GAAP
financial measures are presented in addition to results presented in
accordance with GAAP and should not be relied upon as a substitute for
GAAP financial measures. Moreover, our non-GAAP financial measures may
not be comparable to similarly titled measures used by other companies.

Tables reconciling historical adjusted diluted earnings per share to
historical GAAP diluted earnings per share are set forth below. Tables
reconciling changes in historical constant currency net revenues to
historical GAAP net revenues are set forth above under "Second Quarter
Net Revenue by Segment". Tables reconciling forecasted 2018 constant
currency revenue growth and forecasted 2018 adjusted earnings per share
to their respective most directly comparable forecasted GAAP measures,
forecasted 2018 revenue growth and forecasted 2018 diluted earnings per
share available to common stockholders, are set forth above under "2018
Outlook."

Adjusted diluted earnings per share: This non-GAAP measure is
based upon diluted earnings per share available to common stockholders,
the most directly comparable GAAP measure, adjusted to exclude,
depending on the period presented, the impact (net of tax) of (i)
restructuring, restructuring related and impairment items; (ii)
acquisition, integration and divestiture related items; (iii) other
items identified in note (C) to each of the reconciliation tables for
quarters ended July 1, 2018 and July 2, 2017, and for the six months
ended July 1, 2018 and July 2, 2017, respectively, set forth below; (iv)
amortization of debt discount on convertible notes; (v) intangible
amortization expense; (vi) loss on extinguishment of debt and (vii) tax
adjustments. Management does not believe that any of the excluded items
are indicative of our underlying core performance or business trends.

In addition, the calculation of the weighted average number of diluted
shares within adjusted earnings per share for the 2017 period gives
effect to the anti-dilutive impact of shares due to the Company under
its previously outstanding convertible note hedge agreements. The
convertible note hedge agreements reduced the potential economic
dilution that otherwise would have occurred upon conversion of the
Company's senior subordinated convertible notes (under GAAP, the
anti-dilutive impact of the convertible note hedge agreements was not
reflected in the weighted average number of diluted shares). We believe
that an adjustment to show the anti-dilutive effect of the convertible
note hedge agreements provides supplemental information that can be
useful to investors in assessing the computation of diluted earnings per
share.

Constant currency revenue growth: This non-GAAP measure is based
upon net revenues, adjusted to eliminate the impact of translating the
results of international subsidiaries at different currency exchange
rates from period to period. The impact of changes in foreign currency
may vary significantly from period to period, and generally are outside
of the control of our management. We believe that this measure
facilitates a comparison of our operating performance exclusive of
currency exchange rate fluctuations that do not reflect our underlying
performance or business trends.

             
RECONCILIATION OF CONSOLIDATED STATEMENT OF INCOME ITEMS
 
Dollars in millions, except per share amounts
 
Quarter Ended - July 1, 2018
 

Cost of
goods sold

 

Selling, general
and
administrative
expenses

 

Research and
development
expenses

Restructuring
and
impairment
charges

Loss on
extinguishment
of debt, net

Interest
expense, net

Income taxes

Income (loss) from
continuing
operations

Earnings per
share

Shares used
in calculation
of GAAP and
adjusted
earnings
per

share

GAAP Basis $265.1 $229.9 $26.0 $55.4 $26.5 $9.6 ($2.6 ) ($0.06 ) 45,581
Adjustments
Restructuring, restructuring related and impairment items (A) 3.6 0.1 55.4 1.1 57.8 $1.24
Acquisition, integration and divestiture related items (B) 0.4 26.9 0.2 (0.2 ) 27.6 $0.59
Other items (C) (0.4 ) 2.1 (0.0 ) 1.7 $0.04
Amortization of debt discount on convertible notes (D)
Intangible amortization expense (E) 37.1 0.1 6.7 30.5 $0.65
Loss on extinguishment of debt (F)
Tax adjustments (G) (0.4 ) 0.4 $0.01
Shares due to Teleflex under note hedge (H)
Anti-dilutive effect on EPS (I) $0.00 1,219
Adjusted basis $261.5 $163.9 $25.7 $26.5 $16.8 $115.5 $2.47 46,800
 
 
RECONCILIATION OF CONSOLIDATED STATEMENT OF INCOME ITEMS
 
Dollars in millions, except per share amounts
             
Quarter Ended - July 2, 2017
 

Cost of
goods sold

 

Selling, general
and
administrative
expenses

 

Research and
development
expenses

Restructuring
and
impairment
charges

Loss on
extinguishment
of debt, net

Interest
expense, net

Income taxes

Income (loss) from
continuing
operations

Diluted earnings
per share

Shares used
in calculation
of GAAP and
adjusted
earnings
per

share

GAAP Basis $238.3 $158.9 $20.3 $0.9 $0.0 $19.7 $12.1 $78.4 $1.67 46,818
Adjustments
Restructuring, restructuring related and impairment items (A) 2.4 0.3 0.3 0.9 1.7 2.3 $0.05
Acquisition, integration and divestiture related items (B) 2.6 (0.2 ) 0.8 1.5 $0.03
Other items (C) (6.3 ) (2.4 ) (3.9 ) ($0.08 )
Amortization of debt discount on convertible notes (D) 0.4 0.1 0.2 $0.01
Intangible amortization expense (E) 22.5 0.1 6.5 16.1 $0.34
Loss on extinguishment of debt (F) 0.0 0.0 0.0 $0.00
Tax adjustments (G)
Shares due to Teleflex under note hedge (H) $0.02 (501 )
Adjusted basis $233.3 $142.7 $19.8 $19.4 $18.8 $94.6 $2.04 46,317
 

(A) Restructuring, restructuring related and impairment items -
Restructuring programs involve discrete initiatives designed to, among
other things, consolidate or relocate manufacturing, administrative and
other facilities, outsource distribution operations, improve operating
efficiencies and integrate acquired businesses. Depending on the
specific restructuring program involved, our restructuring charges may
include employee termination, contract termination, facility closure,
employee relocation, equipment relocation, outplacement and other exit
costs associated with a specific restructuring program. Restructuring
related charges are directly related to our restructuring programs and
consist of facility consolidation costs, including accelerated
depreciation expense related to facility closures, costs to transfer
manufacturing operations between locations, and retention bonuses
offered to certain employees as an incentive for them to remain with our
company after completion of the restructuring program. For the three
months ended July 1, 2018 and July 2, 2017, pre-tax restructuring
related charges were $3.6 million and $3.0 million, respectively. For
the three months ended July 1, 2018 and July 2, 2017, pre-tax impairment
charges were $1.9 million and $0 million, respectively.

(B) Acquisition, integration and divestiture related items - Acquisition
and integration expenses are incremental charges, other than
restructuring or restructuring related expenses, that are directly
related to specific business or asset acquisition transactions. These
charges may include, among other things, professional, consulting and
other fees; systems integration costs; legal entity restructuring
expense; inventory step-up amortization (amortization, through cost of
goods sold, of the increase in fair value of inventory resulting from a
fair value calculation as of the acquisition date); fair value
adjustments to contingent consideration liabilities; and bridge loan
facility and backstop financing fees in connection with facilities that
ultimately were not utilized. For the three months ended July 1, 2018,
the majority of these charges were related to contingent consideration
liabilities and our acquisition of NeoTract. For the three months ended
July 2, 2017, the majority of these charges were related to our
acquisition of Vascular Solutions. Divestiture related activities
involve specific business or asset sales. Depending primarily on the
terms of the divestiture transaction, the carrying value of the divested
business or assets on our financial statements and other costs we incur
as a direct result of the divestiture transaction, we may recognize a
gain or loss in connection with the divestiture related activities.
There were no divestiture related activities for the periods presented.

(C) Other items - These are discrete items that occur sporadically and
can affect period-to-period comparisons. For the three months ended July
1, 2018, these items included the reversal of previously recognized
income due to distributor acquisitions related to Vascular Solutions and
relabeling costs. In addition, these items included a charge we incurred
as a result of our continuing evaluation of the impact of the Tax Cuts
and Jobs Act ("TCJA") on our consolidated operations. During the second
quarter of 2018, we identified provisions of the TCJA that could have
adverse consequences due to our organization structure. We implemented
certain changes in the organizational structure (with, pursuant to tax
law, retroactive impact back to 2017), and as a result of which we
incurred a $1.9 million net worth tax in a foreign jurisdiction with
respect to the 2017 tax year. Because the decision to make the change
resulting in the net worth tax occurred in the second quarter of 2018,
and as permitted under GAAP, we recorded the net worth tax charge in
2018, and the adjustment eliminating the charge is included in the table
above among "Other Items" for the 2018 period. We will continue to
evaluate the TCJA over the next several months, which may result in
further adjustments. For the three months ended July 2, 2017, other
items included income associated with a litigation settlement.

(D) Amortization of debt discount on convertible notes - When we sold
$400 million principal amount of our 3.875% convertible notes (the
"convertible notes") in 2010, we allocated the proceeds between the
liability and equity components of the debt, in accordance with GAAP. As
a result, the $83.7 million difference between the proceeds of the sale
of the convertible notes and the liability component of the debt
constituted a debt discount that was to be amortized to interest expense
over the approximately seven-year term of the convertible notes, which
significantly increased the amount we recorded as interest expense
attributable to the convertible notes. The amount of the amortization of
the debt discount was reduced as a result of our repurchases of
convertible notes in 2016 and 2017 and redemptions of the convertible
notes by holders of the notes, although we continued to amortize the
remaining portion of the debt discount to interest expense until August
2017, when all remaining convertible notes were either converted or
matured.

(E) Intangible amortization expense - Certain intangible assets,
including customer relationships, intellectual property, distribution
rights, trade names and non-competition agreements, initially are
recorded at historical cost and then amortized over their respective
estimated useful lives. The amount of such amortization can vary from
period to period as a result of, among other things, business or asset
acquisitions or dispositions.

(F) Loss on extinguishment of debt - In connection with debt
refinancings, debt repayments, repurchases of convertible notes and
redemptions of convertible notes, outstanding indebtedness is
extinguished. These events, which have occurred from time to time on an
irregular basis, have resulted in losses reflecting, among other things,
unamortized debt issuance costs, as well as debt prepayment fees and
premiums (including conversion premiums resulting from conversion of
convertible securities).

(G) Tax adjustments - These adjustments represent the impact of the
expiration of applicable statutes of limitations for prior year returns,
the resolution of audits, the filing of amended returns with respect to
prior tax years and/or tax law changes affecting our deferred tax
liability.

(H) Adjusted diluted shares are calculated by giving effect to the
anti-dilutive impact of the Company's convertible note hedge agreements,
which reduced the potential economic dilution that otherwise would have
occurred upon conversion of the Company's convertible notes. Under GAAP,
the anti-dilutive impact of the convertible note hedge agreements is not
reflected in the weighted average number of diluted shares.

(I) We recorded a GAAP net loss in the second quarter 2018. Because any
increase in the weighted average number of shares would decrease the
loss per share and would therefore be antidilutive, the same weighted
average number of shares was utilized to calculate both GAAP loss per
share and GAAP diluted loss per share. However, on an adjusted basis, we
realized net income. Therefore, in calculating adjusted earnings per
share, we increased the weighted average number of shares outstanding to
include dilutive securities.

 
RECONCILIATION OF CONSOLIDATED STATEMENT OF INCOME ITEMS
 
Dollars in millions, except per share amounts
             
Six Months Ended - July 1, 2018
 

Cost of
goods sold

 

Selling, general
and
administrative
expenses

 

Research and
development
expenses

Restructuring
and
impairment
charges

Loss on
extinguishment
of debt, net

Interest
expense, net

Income taxes

Income (loss) from
continuing
operations

Earnings per
share

Shares used
in calculation
of GAAP and
adjusted
earnings
per

share

GAAP Basis $521.0 $445.3 $52.0 $58.4 $52.1 $15.8 $52.4 $1.12 46,771
Adjustments
Restructuring, restructuring related and impairment items (A) 5.5 0.1 0.1 58.4 1.8 62.3 $1.33
Acquisition, integration and divestiture related items (B) 0.7 38.4 0.4 0.4 39.1 $0.84
Other items (C) (1.3 ) 2.2 (0.1 ) 1.0 $0.02
Amortization of debt discount on convertible notes (D)
Intangible amortization expense (E) 74.8 0.2 14.2 60.8 $1.30
Loss on extinguishment of debt (F)
Tax adjustments (G) (0.6 ) 0.6 $0.01
Shares due to Teleflex under note hedge (H)
Adjusted basis $516.2 $329.8 $51.3 $52.1 $31.5 $216.1 $4.62 46,771
 
 
RECONCILIATION OF CONSOLIDATED STATEMENT OF INCOME ITEMS
 
Dollars in millions, except per share amounts
             
Six Months Ended - July 2, 2017
 

Cost of
goods sold

 

Selling, general
and
administrative
expenses

 

Research and
development
expenses

Restructuring
and
impairment
charges

Loss on
extinguishment
of debt, net

Interest
expense, net

Income taxes

Income (loss) from
continuing
operations

Diluted earnings
per share

Shares used
in calculation
of GAAP and
adjusted
earnings
per

share

GAAP Basis $470.7 $322.9 $38.1 $13.8 $5.6 $37.3 $9.4 $118.7 $2.54 46,716
Adjustments
Restructuring, restructuring related and impairment items (A) 6.1 0.4 0.6 13.8 6.1 14.8 $0.32
Acquisition, integration and divestiture related items (B) 10.4 9.1 2.1 7.1 14.5 $0.31
Other items (C) (6.1 ) (2.3 ) (3.8 ) ($0.08 )
Amortization of debt discount on convertible notes (D) 0.8 0.3 0.5 $0.01
Intangible amortization expense (E) 41.2 0.2 11.6 29.8 $0.64
Loss on extinguishment of debt (F) 5.6 2.0 3.5 $0.08
Tax adjustments (G) 0.5 (0.5 ) ($0.01 )
Shares due to Teleflex under note hedge (H) $0.04 (489 )
Adjusted basis $454.1 $278.4 $37.3 $34.5 $34.7 $177.5 $3.84 46,227
 

(A) Restructuring, restructuring related and impairment items -
Restructuring programs involve discrete initiatives designed to, among
other things, consolidate or relocate manufacturing, administrative and
other facilities, outsource distribution operations, improve operating
efficiencies and integrate acquired businesses. Depending on the
specific restructuring program involved, our restructuring charges may
include employee termination, contract termination, facility closure,
employee relocation, equipment relocation, outplacement and other exit
costs associated with a specific restructuring program. Restructuring
related charges are directly related to our restructuring programs and
consist of facility consolidation costs, including accelerated
depreciation expense related to facility closures, costs to transfer
manufacturing operations between locations, and retention bonuses
offered to certain employees as an incentive for them to remain with our
company after completion of the restructuring program. For the six
months ended July 1, 2018 and July 2, 2017, pre-tax restructuring
related charges were $5.7 million and $7.1 million, respectively. For
the six months ended July 1, 2018 and July 2, 2017, pre-tax impairment
charges were $1.9 million and $0 million, respectively.

(B) Acquisition, integration and divestiture related items - Acquisition
and integration expenses are incremental charges, other than
restructuring or restructuring related expenses, that are directly
related to specific business or asset acquisition transactions. These
charges may include, among other things, professional, consulting and
other fees; systems integration costs; legal entity restructuring
expense; inventory step-up amortization (amortization, through cost of
goods sold, of the increase in fair value of inventory resulting from a
fair value calculation as of the acquisition date); fair value
adjustments to contingent consideration liabilities; and bridge loan
facility and backstop financing fees in connection with facilities that
ultimately were not utilized. For the six months ended July 1, 2018, the
majority of these charges were related to contingent consideration
liabilities and our acquisitions of Vascular Solutions and NeoTract. For
the six months ended July 2, 2017, the majority of these charges were
related to our acquisition of Vascular Solutions. Divestiture related
activities involve specific business or asset sales. Depending primarily
on the terms of the divestiture transaction, the carrying value of the
divested business or assets on our financial statements and other costs
we incur as a direct result of the divestiture transaction, we may
recognize a gain or loss in connection with the divestiture related
activities. There were no divestiture related activities for the periods
presented.

(C) Other items - These are discrete items that occur sporadically and
can affect period-to-period comparisons. For the six months ended July
1, 2018, these items included the reversal of previously recognized
income due to distributor acquisitions related to Vascular Solutions and
relabeling costs. In addition, these items included a charge we incurred
as a result of our continuing evaluation of the impact of the Tax Cuts
and Jobs Act ("TCJA") on our consolidated operations. During the second
quarter of 2018, we identified provisions of the TCJA that could have
adverse consequences due to our organization structure. We implemented
certain changes in the organizational structure (with, pursuant to tax
law, retroactive impact back to 2017), and as a result of which we
incurred a $1.9 million net worth tax in a foreign jurisdiction with
respect to the 2017 tax year. Because the decision to make the change
resulting in the net worth tax occurred in the second quarter of 2018,
and as permitted under GAAP, we recorded the net worth tax charge in
2018, and the adjustment eliminating the charge is included in the table
above among "Other Items" for the 2018 period. We will continue to
evaluate the TCJA over the next several months, which may result in
further adjustments. For the six months ended July 2, 2017, other items
included income associated with a litigation settlement.

(D) Amortization of debt discount on convertible notes - When we sold
$400 million principal amount of our 3.875% convertible notes (the
"convertible notes") in 2010, we allocated the proceeds between the
liability and equity components of the debt, in accordance with GAAP. As
a result, the $83.7 million difference between the proceeds of the sale
of the convertible notes and the liability component of the debt
constituted a debt discount that was to be amortized to interest expense
over the approximately seven-year term of the convertible notes, which
significantly increased the amount we recorded as interest expense
attributable to the convertible notes. The amount of the amortization of
the debt discount was reduced as a result of our repurchases of
convertible notes in 2016 and 2017 and redemptions of the convertible
notes by holders of the notes, although we continued to amortize the
remaining portion of the debt discount to interest expense until August
2017, when all remaining convertible notes were either converted or
matured.

(E) Intangible amortization expense - Certain intangible assets,
including customer relationships, intellectual property, distribution
rights, trade names and non-competition agreements, initially are
recorded at historical cost and then amortized over their respective
estimated useful lives. The amount of such amortization can vary from
period to period as a result of, among other things, business or asset
acquisitions or dispositions.

(F) Loss on extinguishment of debt - In connection with debt
refinancings, debt repayments, repurchases of convertible notes and
redemptions of convertible notes, outstanding indebtedness is
extinguished. These events, which have occurred from time to time on an
irregular basis, have resulted in losses reflecting, among other things,
unamortized debt issuance costs, as well as debt prepayment fees and
premiums (including conversion premiums resulting from conversion of
convertible securities).

(G) Tax adjustments - These adjustments represent the impact of the
expiration of applicable statutes of limitations for prior year returns,
the resolution of audits, the filing of amended returns with respect to
prior tax years and/or tax law changes affecting our deferred tax
liability.

(H) Adjusted diluted shares are calculated by giving effect to the
anti-dilutive impact of the Company's convertible note hedge agreements,
which reduced the potential economic dilution that otherwise would have
occurred upon conversion of the Company's convertible notes. Under GAAP,
the anti-dilutive impact of the convertible note hedge agreements is not
reflected in the weighted average number of diluted shares.

ABOUT TELEFLEX INCORPORATED

Teleflex is a global provider of medical technologies designed to
improve the health and quality of people's lives. We apply purpose
driven innovation - a relentless pursuit of identifying unmet clinical
needs - to benefit patients and healthcare providers. Our portfolio is
diverse, with solutions in the fields of vascular and interventional
access, surgical, anesthesia, cardiac care, urology, emergency medicine
and respiratory care. Teleflex employees worldwide are united in the
understanding that what we do every day makes a difference. For more
information, please visit teleflex.com.

Teleflex is the home of Arrow®, Deknatel®, Hudson
RCI®, LMA®, Pilling®, Rusch®
and Weck® - trusted brands united by a common sense of
purpose.

CAUTION CONCERNING FORWARD-LOOKING INFORMATION

This press release contains forward-looking statements, including, but
not limited to, forecasted 2018 GAAP and constant currency revenue
growth and GAAP and adjusted diluted earnings per share. Actual results
could differ materially from those in the forward-looking statements due
to, among other things, 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 inability to integrate acquired businesses into
our operations, realize planned synergies and operate such businesses
profitably in accordance with our expectations; the inability of
acquired businesses to generate revenues in accordance with our
expectations; our inability to effectively execute our restructuring
programs; our inability to realize anticipated savings from
restructuring plans and programs; the impact of healthcare reform
legislation and proposals to amend the legislation; changes in Medicare,
Medicaid and third party coverage and reimbursements; competitive market
conditions and resulting effects on revenues and pricing; increases in
raw material costs that cannot be recovered in product pricing; global
economic factors, including currency exchange rates, interest rates,
sovereign debt issues and the impact of the United Kingdom's vote to
leave the European Union; difficulties in entering new markets; general
economic conditions; and other factors described or incorporated in our
filings with the Securities and Exchange Commission, including our most
recently filed Annual Report on Form 10-K. We expressly disclaim any
obligation to update forward-looking statements, except as otherwise
specifically stated by us or as required by law or regulation.

 
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
   
Three Months Ended Six Months Ended
July 1, 2018   July 2, 2017 July 1, 2018   July 2, 2017
(Dollars and shares in thousands, except per share)
Net revenues $ 609,866 $ 528,613 $ 1,197,096 $ 1,016,494
Cost of goods sold 265,088   238,329   521,048   470,650  
Gross profit 344,778 290,284 676,048 545,844
Selling, general and administrative expenses 229,917 158,934 445,254 322,903
Research and development expenses 26,018 20,278 52,045 38,105
Restructuring and impairment charges 55,353   870   58,416   13,815  
Income from continuing operations before interest, loss on
extinguishment of debt and taxes
33,490 110,202 120,333 171,021
Interest expense 26,649 19,894 52,592 37,620
Interest income (183 ) (161 ) (456 ) (330 )
Loss on extinguishment of debt   11     5,593  
Income from continuing operations before taxes 7,024 90,458 68,197 128,138
Taxes on income from continuing operations 9,576   12,095   15,818   9,426  
Income (loss) from continuing operations (2,552 ) 78,363   52,379   118,712  
Operating income (loss) from discontinued operations 94 (566 ) 1,329 (848 )
Tax (benefit) on income (loss) from discontinued operations 38   (206 ) 20   (309 )
Income (loss) from discontinued operations 56     (360 )   1,309   (539 )
Net (loss) income $ (2,496 ) $ 78,003   $ 53,688   $ 118,173  
Earnings per share:
Basic:
Income (loss) from continuing operations $ (0.06 ) $ 1.74 $ 1.15 $ 2.64
Income (loss) from discontinued operations 0.01   (0.01 ) 0.03   (0.01 )
Net income (loss) $ (0.05 ) $ 1.73   $ 1.18   $ 2.63  
Diluted:
Income (loss) from continuing operations $ (0.06 ) $ 1.67 $ 1.12 $ 2.54
Income (loss) from discontinued operations 0.01     0.03   (0.01 )
Net income (loss) $ (0.05 ) $ 1.67   $ 1.15   $ 2.53  
Dividends per share $ 0.34 $ 0.34 $ 0.68 $ 0.68
Weighted average common shares outstanding
Basic 45,581 44,996 45,455 44,945
Diluted 45,581 46,818 46,771 46,716
 
 
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
   
July 1, 2018 December 31, 2017
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 346,304 $ 333,558
Accounts receivable, net 359,119 345,875
Inventories, net 405,428 395,744
Prepaid expenses and other current assets 52,105 47,882
Prepaid taxes 19,084 5,748
Assets held for sale 3,239  
Total current assets 1,185,279 1,128,807
Property, plant and equipment, net 410,979 382,999
Goodwill 2,220,888 2,235,592
Intangible assets, net 2,306,204 2,383,748
Deferred tax assets 2,386 3,810
Other assets 49,585   46,536
Total assets $ 6,175,321   $ 6,181,492
LIABILITIES AND EQUITY
Current liabilities
Current borrowings $ 86,875 $ 86,625
Accounts payable 94,834 92,027
Accrued expenses 104,340 96,853
Current portion of contingent consideration 110,454 74,224
Payroll and benefit-related liabilities 89,669 107,415
Accrued interest 6,771 6,165
Income taxes payable 5,597 11,514
Other current liabilities 37,905   9,053
Total current liabilities 536,445 483,876
Long-term borrowings 2,145,468 2,162,927
Deferred tax liabilities 596,434 603,676
Pension and postretirement benefit liabilities 113,083 121,410
Noncurrent liability for uncertain tax positions 12,765 12,296
Noncurrent contingent consideration 132,205 197,912
Other liabilities 204,940   168,864
Total liabilities 3,741,340 3,750,961
Commitments and contingencies
Total shareholders' equity 2,433,981   2,430,531
Total liabilities and shareholders' equity $ 6,175,321   $ 6,181,492
 
 
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
July 1, 2018   July 2, 2017
(Dollars in thousands)
Cash flows from operating activities of continuing operations:
Net income $ 53,688 $ 118,173
Adjustments to reconcile net income to net cash provided by
operating activities:
(Income) loss from discontinued operations (1,309 ) 539
Depreciation expense 29,527 28,084
Amortization expense of intangible assets 75,008 41,375
Amortization expense of deferred financing costs and debt discount 2,368 2,825
Loss on extinguishment of debt 5,593
Fair value step up of acquired inventory sold 10,442
Changes in contingent consideration 34,618 (237 )
Impairment of long-lived assets 1,865
Stock-based compensation 10,737 9,534
Deferred income taxes, net 4,821 (8,779 )
Other (3,669 ) (3,300 )
Changes in operating assets and liabilities, net of effects of
acquisitions and disposals:
Accounts receivable (15,886 ) 5,071
Inventories (15,017 ) (12,187 )
Prepaid expenses and other current assets (3,611 ) 4
Accounts payable, accrued expenses and other liabilities 38,112 6,541
Income taxes receivable and payable, net (29,668 ) (5,988 )
Net cash provided by operating activities from continuing operations 181,584   197,690  
Cash flows from investing activities of continuing operations:
Expenditures for property, plant and equipment (38,004 ) (36,833 )
Proceeds from sale of assets 6,332
Payments for businesses and intangibles acquired, net of cash
acquired
(22,450 ) (993,459 )
Net cash used in investing activities from continuing operations (60,454 ) (1,023,960 )
Cash flows from financing activities of continuing operations:
Proceeds from new borrowings 1,194,500
Reduction in borrowings (18,500 ) (228,273 )
Debt extinguishment, issuance and amendment fees (188 ) (19,114 )
Net proceeds from share based compensation plans and the related tax
impacts
9,800 1,305
Payments for contingent consideration (62,574 ) (153 )
Dividends paid (30,938 ) (30,590 )
Net cash provided by (used in) financing activities from continuing
operations
(102,400 ) 917,675  
Cash flows from discontinued operations:
Net cash used in operating activities (464 ) (961 )
Net cash used in discontinued operations (464 ) (961 )
Effect of exchange rate changes on cash and cash equivalents (5,520 ) 41,981  
Net increase in cash and cash equivalents 12,746 132,425
Cash and cash equivalents at the beginning of the period 333,558   543,789  
Cash and cash equivalents at the end of the period $ 346,304   $ 676,214  
 
Non cash investing activities of continuing operations:
Property, plant and equipment additions due to build-to-suit lease
transaction
$ 28,147 $
 
Non cash financing activities of continuing operations:
Settlement and exchange of convertible notes with common or treasury
stock
$ $ 983
Acquisition of treasury stock associated with settlement and
exchange of convertible note hedge and warrant agreements
$ 36,877 $ 19,361
 

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