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 30, 2014
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 |
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23-1147939 |
(State or other jurisdiction of |
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(I.R.S. employer |
550 E. Swedesford Rd. Suite 400 Wayne, PA |
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19087 |
(Address of principal executive offices) |
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(Zip Code) |
(610) 225-6800
(Registrant’s telephone number, including area code)
(None)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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x |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The registrant had 41,367,388 shares of common stock, $1.00 par value, outstanding as of April 21, 2014.
TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 30, 2014
TABLE OF CONTENTS
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Page |
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Item 1: |
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2 |
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2 |
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3 |
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Condensed Consolidated Balance Sheets as of March 30, 2014 and December 31, 2013 |
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4 |
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5 |
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6 |
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7 |
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Item 2: |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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34 |
Item 3: |
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42 |
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Item 4: |
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43 |
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Item 1: |
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44 |
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Item 1A: |
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44 |
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Item 2: |
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44 |
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Item 3: |
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44 |
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Item 5: |
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44 |
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Item 6: |
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45 |
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46 |
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1
PART I — FINANCIAL INFORMATION
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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|||||
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March 30, 2014 |
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March 31, 2013 |
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(Dollars and shares in thousands, |
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|||||
Net revenues |
$ |
438,546 |
|
|
$ |
411,877 |
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Cost of goods sold |
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217,387 |
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|
|
211,357 |
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Gross profit |
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221,159 |
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200,520 |
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Selling, general and administrative expenses |
|
140,297 |
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126,950 |
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Research and development expenses |
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14,062 |
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15,007 |
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Restructuring and other impairment charges |
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7,780 |
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|
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9,159 |
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Income from continuing operations before interest and taxes |
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59,020 |
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49,404 |
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Interest expense |
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15,404 |
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|
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14,193 |
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Interest income |
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(187 |
) |
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|
(157 |
) |
Income from continuing operations before taxes |
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43,803 |
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|
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35,368 |
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Taxes on income from continuing operations |
|
8,534 |
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|
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7,667 |
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Income from continuing operations |
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35,269 |
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|
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27,701 |
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Operating loss from discontinued operations |
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(25 |
) |
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(758 |
) |
Taxes (benefit) on loss from discontinued operations |
|
100 |
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(296 |
) |
Loss from discontinued operations |
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(125 |
) |
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(462 |
) |
Net income |
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35,144 |
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|
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27,239 |
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Less: Income from continuing operations attributable to noncontrolling interest |
|
186 |
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|
|
201 |
|
Net income attributable to common shareholders |
$ |
34,958 |
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|
$ |
27,038 |
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Earnings per share available to common shareholders: |
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Basic: |
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Income from continuing operations |
$ |
0.85 |
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$ |
0.67 |
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Loss from discontinued operations |
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— |
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(0.01 |
) |
Net income |
$ |
0.85 |
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$ |
0.66 |
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Diluted: |
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Income from continuing operations |
$ |
0.77 |
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$ |
0.64 |
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Loss from discontinued operations |
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(0.01 |
) |
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(0.01 |
) |
Net income |
$ |
0.76 |
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|
$ |
0.63 |
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Dividends per share |
$ |
0.34 |
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$ |
0.34 |
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Weighted average common shares outstanding |
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Basic |
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41,262 |
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|
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41,014 |
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Diluted |
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45,749 |
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43,047 |
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Amounts attributable to common shareholders: |
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Income from continuing operations, net of tax |
$ |
35,083 |
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$ |
27,500 |
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Loss from discontinued operations, net of tax |
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(125 |
) |
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(462 |
) |
Net income |
$ |
34,958 |
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$ |
27,038 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
2
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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March 30, 2014 |
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March 31, 2013 |
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(Dollars in thousands) |
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|||||
Net income |
$ |
35,144 |
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$ |
27,239 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation, net of tax $3,189 and $(5,815) |
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4,117 |
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(26,705 |
) |
Pension and other postretirement benefit plans adjustment, net of tax of $503 and $504 |
|
624 |
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|
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1,090 |
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Derivatives qualifying as hedges, net of tax $40 and $104 |
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70 |
|
|
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180 |
|
Other comprehensive income (loss), net of tax: |
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4,811 |
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(25,435 |
) |
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|
|
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Comprehensive income |
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39,955 |
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1,804 |
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Less: comprehensive income attributable to non-controlling interest |
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252 |
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|
242 |
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Comprehensive income attributable to common shareholders |
$ |
39,703 |
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$ |
1,562 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
3
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
March 30, 2014 |
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December 31, 2013 |
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(Dollars in thousands) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ |
421,649 |
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$ |
431,984 |
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Accounts receivable, net |
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295,514 |
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295,290 |
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Inventories, net |
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349,745 |
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333,621 |
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Prepaid expenses and other current assets |
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47,543 |
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39,810 |
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Prepaid taxes |
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42,470 |
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36,504 |
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Deferred tax assets |
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51,983 |
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52,917 |
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Assets held for sale |
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11,714 |
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10,428 |
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Total current assets |
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1,220,618 |
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1,200,554 |
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Property, plant and equipment, net |
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328,679 |
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325,900 |
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Goodwill |
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1,372,058 |
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1,354,203 |
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Intangible assets, net |
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1,250,533 |
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1,255,597 |
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Investments in affiliates |
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1,513 |
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|
1,715 |
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Deferred tax assets |
|
944 |
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|
943 |
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Other assets |
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67,789 |
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70,095 |
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$ |
4,242,134 |
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$ |
4,209,007 |
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LIABILITIES AND EQUITY |
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Current liabilities |
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Current borrowings |
$ |
359,261 |
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$ |
356,287 |
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Accounts payable |
|
71,094 |
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|
71,967 |
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Accrued expenses |
|
79,455 |
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|
|
74,868 |
|
Current portion of contingent consideration |
|
1,658 |
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|
4,131 |
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Payroll and benefit-related liabilities |
|
60,185 |
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|
73,090 |
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Accrued interest |
|
9,066 |
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|
|
8,725 |
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Income taxes payable |
|
27,451 |
|
|
|
23,821 |
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Other current liabilities |
|
23,637 |
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|
|
22,231 |
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Total current liabilities |
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631,807 |
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635,120 |
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Long-term borrowings |
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930,000 |
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|
930,000 |
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Deferred tax liabilities |
|
523,445 |
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|
514,715 |
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Pension and postretirement benefit liabilities |
|
106,092 |
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|
109,498 |
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Noncurrent liability for uncertain tax provisions |
|
55,956 |
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|
55,152 |
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Other liabilities |
|
49,607 |
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|
48,506 |
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Total liabilities |
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2,296,907 |
|
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|
2,292,991 |
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Commitments and contingencies |
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Total common shareholders' equity |
|
1,942,486 |
|
|
|
1,913,527 |
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Noncontrolling interest |
|
2,741 |
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|
|
2,489 |
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Total equity |
|
1,945,227 |
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|
1,916,016 |
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Total liabilities and equity |
$ |
4,242,134 |
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$ |
4,209,007 |
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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 |
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|||||
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March 30, 2014 |
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March 31, 2013 |
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(Dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
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Cash Flows from Operating Activities of Continuing Operations |
|
|
|
|
|
|
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Net income |
$ |
35,144 |
|
|
$ |
27,239 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
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Loss from discontinued operations |
|
125 |
|
|
|
462 |
|
Depreciation expense |
|
11,580 |
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|
|
10,153 |
|
Amortization expense of intangible assets |
|
16,019 |
|
|
|
12,438 |
|
Amortization expense of deferred financing costs and debt discount |
|
3,814 |
|
|
|
3,750 |
|
Changes in contingent consideration |
|
(2,371 |
) |
|
|
(1,193 |
) |
Stock-based compensation |
|
3,074 |
|
|
|
2,791 |
|
Deferred income taxes, net |
|
3,515 |
|
|
|
(353 |
) |
Other |
|
(3,105 |
) |
|
|
(7,415 |
) |
Changes in operating assets and liabilities, net of effects of acquisitions and disposals: |
|
|
|
|
|
|
|
Accounts receivable |
|
5,966 |
|
|
|
(16,420 |
) |
Inventories |
|
(7,473 |
) |
|
|
(13,693 |
) |
Prepaid expenses and other current assets |
|
(6,027 |
) |
|
|
(435 |
) |
Accounts payable and accrued expenses |
|
(24,447 |
) |
|
|
(13,199 |
) |
Income taxes receivable and payable, net |
|
(2,214 |
) |
|
|
1,139 |
|
Net cash provided by operating activities from continuing operations |
|
33,600 |
|
|
|
5,264 |
|
|
|
|
|
|
|
|
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Cash Flows from Investing Activities of Continuing Operations: |
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
(12,109 |
) |
|
|
(15,635 |
) |
Proceeds from sale of assets and investments |
|
1,669 |
|
|
|
— |
|
Payments for businesses and intangibles acquired, net of cash acquired |
|
(28,991 |
) |
|
|
1,500 |
|
Investment in affiliates |
|
(60 |
) |
|
|
— |
|
Net cash used in investing activities from continuing operations |
|
(39,491 |
) |
|
|
(14,135 |
) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities of Continuing Operations: |
|
|
|
|
|
|
|
Proceeds and tax benefits from share based compensation plans |
|
8,641 |
|
|
|
5,155 |
|
Debt extinguishment, issuance and amendment fees |
|
(90 |
) |
|
|
— |
|
Payments for contingent consideration |
|
— |
|
|
|
(7,179 |
) |
Dividends |
|
(14,051 |
) |
|
|
(13,964 |
) |
Net cash used in financing activities from continuing operations |
|
(5,500 |
) |
|
|
(15,988 |
) |
|
|
|
|
|
|
|
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Cash Flows from Discontinued Operations: |
|
|
|
|
|
|
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Net cash used in operating activities |
|
(1,167 |
) |
|
|
(629 |
) |
Net cash used in discontinued operations |
|
(1,167 |
) |
|
|
(629 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
2,223 |
|
|
|
(4,997 |
) |
Net decrease in cash and cash equivalents |
|
(10,335 |
) |
|
|
(30,485 |
) |
Cash and cash equivalents at the beginning of the period |
|
431,984 |
|
|
|
337,039 |
|
Cash and cash equivalents at the end of the period |
$ |
421,649 |
|
|
$ |
306,554 |
|
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Common Stock |
|
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Paid In |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
Noncontrolling |
|
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Total |
|
|||||||||||||||
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Dollars |
|
|
Interest |
|
|
Equity |
|
|||||||||
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(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 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Common Stock |
|
|
Paid In |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Dollars |
|
|
Interest |
|
|
Equity |
|
|||||||||
|
(Dollars and shares in thousands, except per share) |
|
|||||||||||||||||||||||||||||||||
Balance at December 31, 2013 |
|
43,243 |
|
|
$ |
43,243 |
|
|
$ |
409,338 |
|
|
$ |
1,696,424 |
|
|
$ |
(110,855 |
) |
|
|
2,064 |
|
|
$ |
(124,623 |
) |
|
$ |
2,489 |
|
|
$ |
1,916,016 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
34,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186 |
|
|
|
35,144 |
|
Cash dividends ($0.34 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,051 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,745 |
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
4,811 |
|
Shares issued under compensation plans |
|
114 |
|
|
|
114 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
2,471 |
|
|
|
|
|
|
|
3,226 |
|
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
81 |
|
|
|
|
|
|
|
81 |
|
Balance at March 30, 2014 |
|
43,357 |
|
|
$ |
43,357 |
|
|
$ |
409,979 |
|
|
$ |
1,717,331 |
|
|
$ |
(106,110 |
) |
|
|
1,994 |
|
|
$ |
(122,071 |
) |
|
$ |
2,741 |
|
|
$ |
1,945,227 |
|
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 presentation 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, 2013.
In June 2013, the Company revised its condensed consolidated statement of cash flows to reflect contingent consideration payments related to businesses acquired as a cash outflow from financing activities of continuing operations, thereby correcting a presentation error in previous filings. Prior to June 2013, these payments were reflected as a cash outflow from investing activities of continuing operations. Additionally, the Company has revised the condensed consolidated statements of cash flows, as well as the condensed consolidating statements of cash flows included in Note 15, for the three months ended March 31, 2013 to reclassify $7.2 million as cash outflow from financing activities to reflect this correction. The reclassifications resulting from the change were not considered material to any previously issued financial statements. The Company made certain additional revisions to the prior year condensed consolidating statements of cash flows included in the condensed consolidated guarantor financial information set forth in Note 15 to correct errors identified in the fourth quarter 2013.
Effective January 1, 2014, the Company realigned its operating segments due to changes in the Company’s internal financial reporting structure. See Note 14 for additional information on the Company’s new reporting structure.
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
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date or, in some cases where early adoption is permitted, in advance of the specified effective date. The Company has assessed the recently issued standards that are not yet effective and believes these standards will not have a material impact on the Company’s results of operations, cash flows or financial position.
7
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 3 — Acquisitions
On February 3, 2014, the Company acquired Mayo Healthcare Pty Limited, (“Mayo” or “Mayo Healthcare”), a distributor of medical devices and supplies primarily in the Australian market. The total fair value of consideration for the Mayo acquisition was $28.5 million, which includes the initial payments of $29.0 million in cash, partially offset by a $0.5 million favorable working capital adjustment. Transaction expenses associated with the acquisition, which are included in selling, general and administrative expenses on the condensed consolidated statements of income, were $0.3 million for the three months ended March 30, 2014. The results of operations of the Mayo business are included in the condensed consolidated statements of income from the acquisition date. For the three months ended March 30, 2014, the Company recorded revenue and income from continuing operations before taxes of $4.1 million and $0.6 million, respectively, related to the Mayo business. Pro forma information is not presented as the Mayo operations are not significant to the overall operations of the Company.
The following table presents the preliminary fair value determination of the assets acquired and liabilities assumed in the Mayo acquisition.
|
(Dollars in thousands) |
|
|
Assets |
|
|
|
Current assets |
$ |
24,287 |
|
Property, plant and equipment |
|
306 |
|
Customer lists intangible asset |
|
9,335 |
|
Goodwill |
|
15,986 |
|
Total assets acquired |
|
49,914 |
|
Liabilities |
|
|
|
Current liabilities |
|
18,595 |
|
Deferred tax liabilities |
|
2,800 |
|
Liabilities assumed |
|
21,395 |
|
Net assets acquired |
$ |
28,519 |
|
The Company is continuing to evaluate the Mayo acquisition. Further adjustments to the fair value determination may be necessary as a result of the Company’s assessment of additional information related to the fair values of assets acquired and liabilities assumed, primarily with respect to deferred tax assets and liabilities and goodwill.
Among the acquired assets, customer lists have a useful life of 10 years. The goodwill resulting from the acquisition primarily reflects the expected synergies of integrating the acquired business. Goodwill and the step-up in basis of the intangible assets in connection with stock acquisitions such as the Mayo acquisition are not deductible for tax purposes.
The Company made the following acquisitions during 2013, all of which were accounted for as business combinations:
· | On December 2, 2013, the Company acquired Vidacare Corporation, (“Vidacare”), a provider of intraosseous, or inside the bone, access devices. This acquisition complements the Company’s vascular access and specialty product portfolios. |
· | On June 11, 2013, the Company acquired the assets of Ultimate Medical Pty. Ltd. and its affiliates (“Ultimate”), a supplier of airway management devices and related products. This acquisition complements the Company’s anesthesia product portfolio. |
· | On June 6, 2013, the Company acquired Eon Surgical, Ltd. (“Eon”), a developer of a minimally invasive microlaparoscopy surgical platform technology designed to enhance a surgeon’s ability to perform scarless surgery while producing better patient outcomes. This technology complements the Company’s surgical product portfolio. |
The total fair value of consideration for the 2013 acquisitions is estimated at $307.0 million. The results of operations of the acquired businesses and assets are included in the consolidated statements of income from their respective acquisition dates. Pro forma information is not presented as the operations of the acquired businesses are not significant to the overall operations of the Company.
8
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 4 — Restructuring and other impairment charges
2014 European Restructuring Plan
On February 27, 2014, the Company committed to a restructuring plan (the “2014 European Restructuring Plan”), which impacts certain administrative functions in Europe and will involve the consolidation of operations and a related reduction in workforce at certain of the Company’s European facilities. The plan was developed to further enhance the Company’s competitive position.
The Company estimates that it will record pre-tax charges of approximately $9.0 million in connection with implementing the 2014 European Restructuring Plan. Substantially all of these charges are expected to involve employee termination benefits and will result in future cash outlays. The Company incurred $8.3 million in charges related to termination benefits in the three month period ended March 30, 2014. As of March 30, 2014, the Company had a reserve of $6.6 million in connection with this project. The Company expects to complete this program in 2014.
As the program progresses, management will reevaluate the estimated costs set forth above, and may revise its estimates and the accounting charges relating thereto, as appropriate, consistent with generally accepted accounting principles.
LMA Restructuring Program
In connection with the acquisition of substantially all of the assets of LMA International N.V. (the “LMA business”) in 2012, the Company formulated a plan related to the integration of the LMA business and the Company’s other 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.
A reconciliation of the changes in accrued liabilities associated with the LMA restructuring program from December 31, 2013 through March 30, 2014 is set forth in the following table:
|
Termination Benefits |
|
|
Facility Closure Costs |
|
|
Contract Termination Costs |
|
|
Other Restructuring Costs |
|
|
Total |
|
|||||
|
(Dollars in thousands) |
|
|||||||||||||||||
Balance at December 31, 2013 |
$ |
552 |
|
|
$ |
427 |
|
|
$ |
3,686 |
|
|
$ |
16 |
|
|
$ |
4,681 |
|
Subsequent accruals |
|
— |
|
|
|
42 |
|
|
|
(472 |
) |
|
|
— |
|
|
|
(430 |
) |
Cash payments |
|
(276 |
) |
|
|
(81 |
) |
|
|
(144 |
) |
|
|
— |
|
|
|
(501 |
) |
Foreign currency translation |
|
(1 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(4 |
) |
Balance at March 30, 2014 |
$ |
275 |
|
|
$ |
388 |
|
|
$ |
3,067 |
|
|
$ |
16 |
|
|
$ |
3,746 |
|
During the three months ended March 30, 2014, the Company reversed approximately $0.5 million in contract termination costs related to a cancelled distributor agreement.
Aside from nominal facility closure costs anticipated in 2014, the Company does not expect to incur additional costs associated with this program. The Company expects to complete the program in 2014.
2013 Restructuring Charges
In 2013, the Company initiated programs to consolidate manufacturing facilities in North America and warehouse facilities in Europe and terminate certain European distributor agreements in an effort to reduce costs. As a result of these actions, the Company estimates that it will incur an aggregate of up to $11.0 million in restructuring and other impairment charges over the term of these restructuring programs, of which $10.4 million was incurred through March 30, 2014. These programs entail costs related to reductions in force, contract termination costs and charges related to post-closing obligations associated with its acquired businesses. As of March 30, 2014, the Company has a reserve of $1.8 million in connection with these programs. The Company expects to complete this program in 2015.
9
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 entail costs related to reductions in force, contract terminations related distributor agreements and leases, and facility closure and other costs. As of March 30, 2014, the Company has a reserve of $0.7 million in connection with these projects. The Company expects to complete this program in 2015.
Impairment Charges
In the first quarter 2013, the Company recorded a $4.5 million in-process research and development (IPR&D) charge pertaining to a research and development project associated with the acquisition of the assets of Axiom Technology Partners LLP because technological feasibility had not yet been achieved and the Company determined that the subject technology had no future alternative use.
There were no impairment charges recorded for the three months ended March 30, 2014.
The restructuring and other impairment charges recognized for the three months ended March 30, 2014 and March 31, 2013 consisted of the following:
Three Months Ended March 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Termination Benefits |
|
|
Facility Closure Costs |
|
|
Contract Termination |
|
|
Other |
|
|
Total |
|
|||||
LMA restructuring program |
$ |
— |
|
|
$ |
42 |
|
|
$ |
(472 |
) |
|
$ |
— |
|
|
$ |
(430 |
) |
2014 European restructuring plan |
|
8,318 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,318 |
|
2013 Restructuring charges |
|
168 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
2012 Restructuring charges |
|
(610 |
) |
|
|
320 |
|
|
|
— |
|
|
|
— |
|
|
|
(290 |
) |
2011 Restructuring plan |
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
Total restructuring and other impairment charges |
$ |
7,876 |
|
|
$ |
376 |
|
|
$ |
(472 |
) |
|
$ |
— |
|
|
$ |
7,780 |
|
Three Months Ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Termination Benefits |
|
|
Facility Closure Costs |
|
|
Contract Termination |
|
|
Other |
|
|
Total |
|
|||||
LMA restructuring program |
$ |
2,024 |
|
|
$ |
81 |
|
|
$ |
442 |
|
|
$ |
108 |
|
|
$ |
2,655 |
|
2013 Restructuring charges |
|
421 |
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
|
|
480 |
|
2012 Restructuring charges |
|
1,450 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,450 |
|
2007 Arrow integration program |
|
— |
|
|
|
80 |
|
|
|
— |
|
|
|
— |
|
|
|
80 |
|
|
|
3,895 |
|
|
|
161 |
|
|
|
442 |
|
|
|
167 |
|
|
|
4,665 |
|
Impairment charges |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,494 |
|
|
|
4,494 |
|
Total restructuring and other impairment charges |
$ |
3,895 |
|
|
$ |
161 |
|
|
$ |
442 |
|
|
$ |
4,661 |
|
|
$ |
9,159 |
|
Termination benefits include employee severance and retention for terminated employees.
Facility closure costs include general operating costs incurred subsequent to production shut-down as well as equipment relocation and other associated costs.
Contract termination costs include costs associated with terminating existing leases and distributor agreements.
Other costs include legal, outplacement and employee relocation costs and other employee-related costs.
10
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In the first quarter 2014, the Company changed its reporting structure to six reportable segments: Vascular North America, Anesthesia/Respiratory North America, Surgical North America, EMEA, Asia and OEM. See Note 14 for additional information on the Company’s new reporting structure.
Restructuring and other impairment charges by reportable segment for the three months ended March 30, 2014 and March 31, 2013 are set forth in the following table:
|
Three Months Ended |
|
|||||
|
March 30, 2014 |
|
|
March 31, 2013 |
|
||
|
(Dollars in thousands) |
|
|||||
Restructuring and other impairment charges |
|
|
|
|
|
|
|
Vascular North America |
$ |
14 |
|
|
$ |
497 |
|
Anesthesia/Respiratory North America |
|
27 |
&n | ||||