Teleflex Inc 10-Q for FY2023 Q3
Teleflex Inc (TFX)
10-Q
2023-11-03
For: 2023-10-01
View Original
Added on
April 07, 2026
About this 10-Q
Teleflex Inc filed this 10-Q on November 3, 2023, covering the quarter ended October 1, 2023 (FY2023 Q3).
Headline figures
Quarter ended October 1, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $746.39M
- up 8.7% from $686.79M a year earlier
- Net income
- $137.14M
- up 34.6% from net income of $101.9M a year earlier
- Diluted EPS
- $2.90
- up 34.3% from $2.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 1, 2023
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |||||||
(Address of principal executive offices and 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)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 46,992,664 shares of common stock, par value $1.00 per share, outstanding as of October 31, 2023 .
TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 1, 2023
TABLE OF CONTENTS
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1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands, except per share) | |||||||||||||||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||||||||||||||
| Restructuring and impairment charges | |||||||||||||||||||||||||||||||||||
| Gains on sale of asset and business | ( | ( | |||||||||||||||||||||||||||||||||
| Income from continuing operations before interest and taxes | |||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Income from continuing operations before taxes | |||||||||||||||||||||||||||||||||||
| Taxes on income from continuing operations | |||||||||||||||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||||||||||||||
| Operating (loss) income from discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Tax (benefit) expense on operating loss from discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| (Loss) income from discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Loss from discontinued operations | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Loss from discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||||||||||||||
Foreign currency translation, net of tax of $( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Pension and other postretirement benefit plans adjustment, net of tax of $( | |||||||||||||||||||||||||||||||||||
Derivatives qualifying as hedges, net of tax of $( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax: | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| October 1, 2023 | December 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Prepaid taxes | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Current borrowings | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Payroll and benefit-related liabilities | |||||||||||
| Accrued interest | |||||||||||
| Income taxes payable | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term borrowings | |||||||||||
| Deferred tax liabilities | |||||||||||
| Pension and postretirement benefit liabilities | |||||||||||
| Noncurrent liability for uncertain tax positions | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | |||||||||||
| October 1, 2023 | September 25, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Cash flows from operating activities of continuing operations: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Loss from discontinued operations | |||||||||||
| Depreciation expense | |||||||||||
| Intangible asset amortization expense | |||||||||||
| Deferred financing costs and debt discount amortization expense | |||||||||||
| Changes in contingent consideration | ( | ||||||||||
| Assets impairment charges | |||||||||||
| Stock-based compensation | |||||||||||
| Gain on sale of business | ( | ||||||||||
| Deferred income taxes, net | |||||||||||
| Payments for contingent consideration | ( | ( | |||||||||
| Interest benefit on swaps designated as net investment hedges | ( | ( | |||||||||
| Other | ( | ||||||||||
| Changes in assets and liabilities, net of effects of acquisitions and disposals: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other assets | |||||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ( | |||||||||
| Income taxes receivable and payable, net | ( | ( | |||||||||
| Net cash provided by operating activities from continuing operations | |||||||||||
| Cash flows from investing activities of continuing operations: | |||||||||||
| Expenditures for property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of business and assets | |||||||||||
| Payments for businesses and intangibles acquired, net of cash acquired | ( | ( | |||||||||
| Net interest proceeds on swaps designated as net investment hedges | |||||||||||
| Proceeds from sales of investments | |||||||||||
| Purchase of investments | ( | ( | |||||||||
| Net cash used in investing activities from continuing operations | ( | ( | |||||||||
| Cash flows from financing activities of continuing operations: | |||||||||||
| Proceeds from new borrowings | |||||||||||
| Reduction in borrowings | ( | ( | |||||||||
| Net proceeds (payments) from share based compensation plans and related tax impacts | ( | ||||||||||
| Payments for contingent consideration | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Net cash provided by (used in) financing activities from continuing operations | ( | ||||||||||
| Cash flows from discontinued operations: | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Net cash used in discontinued operations | ( | ( | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at the beginning of the period | |||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| Common Stock | Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Dollars | Shares | Dollars | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands, except per share) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under compensation plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balance at April 2, 2023 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under compensation plans | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 2, 2023 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under compensation plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 1, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Dollars | Shares | Dollars | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands, except per share) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Shares issued under compensation plans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balance at March 27, 2022 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under compensation plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 26, 2022 | $ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under compensation plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 25, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(all tabular amounts in thousands unless otherwise noted)
Note 1 — Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated and its subsidiaries (“we,” “us,” “our" and “Teleflex”) are prepared on the same basis as its annual consolidated financial statements.
In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the fair statement of the financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America ("GAAP") and Rule 10-01 of Securities and Exchange Commission ("SEC") Regulation S-X, which sets forth the instructions for the form and content of presentation of financial statements included in Form 10-Q. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.
In accordance with applicable accounting standards and as permitted by Rule 10-01 of Regulation S-X, 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. Therefore, our quarterly condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Note 2 — Recently issued accounting standards
Note 3 — Net revenues
7
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table disaggregates revenue by global product category for the three and nine months ended October 1, 2023 and September 25, 2022.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Vascular access | $ | $ | $ | $ | |||||||||||||||||||
| Anesthesia | |||||||||||||||||||||||
| Interventional | |||||||||||||||||||||||
| Surgical | |||||||||||||||||||||||
| Interventional urology | |||||||||||||||||||||||
| OEM | |||||||||||||||||||||||
Other (1) | |||||||||||||||||||||||
Net revenues (2) | $ | $ | $ | $ | |||||||||||||||||||
(1) Includes revenues generated from sales of our respiratory and urology products (other than interventional urology products).
(2) The product categories listed above are presented on a global basis, while each of our reportable segments other than the OEM reportable segment are defined based on the geographic location of its operations; the OEM reportable segment operates globally. Each of the geographically based reportable segments includes net revenues from each of the non-OEM product categories listed above.
Note 4 — Acquisitions and Divestiture
2023 acquisition
On July 25, 2023, we executed a definitive agreement to acquire Palette Life Sciences AB (“Palette”), a privately held medical device company that sells a portfolio of hyaluronic acid gel-based products primarily utilized in the treatment of urology diseases including a rectal spacing product used in connection with radiation therapy treatment of prostate cancer. The acquisition will complement our interventional urology product portfolio. On October 10, 2023, we completed the acquisition of Palette using borrowings under our revolving credit facility and cash on hand. Under the terms of the agreement, we acquired Palette for an initial cash payment of $600 million, with additional consideration of up to $50 million payable upon the achievement of certain commercial milestones.
2022 acquisition
In the fourth quarter of 2022, we completed the acquisition of Standard Bariatrics, Inc. (“Standard Bariatrics”), a privately-held medical device company that commercialized a powered stapling technology for bariatric surgery that complements our surgical product portfolio. Under the terms of the agreement, we acquired Standard Bariatrics for cash payments of $173 million, with the potential to make three milestone payments up to $130 million in the aggregate if certain commercial milestones are met.
Divestiture
On May 15, 2021, we entered into a definitive agreement to sell certain product lines within our global respiratory product portfolio (the "Divested respiratory business") to Medline Industries, Inc. (“Medline”) for consideration of $286.0 million, reduced by $12 million in working capital not transferring to Medline, which is subject to customary post close adjustments (the "Respiratory business divestiture"). In connection with the Respiratory business divestiture, we also entered into several ancillary agreements with Medline to help facilitate the transfer of the business, which provide for transition support, quality, supply and manufacturing services, including a manufacturing and supply transition agreement (the "MSTA").
On June 28, 2021, the first day of the third quarter of 2021, we completed the initial phase of the Respiratory business divestiture, pursuant to which we received cash proceeds of $259 million. The second phase of the Respiratory business divestiture will occur once we transfer certain additional manufacturing assets to Medline and is expected to occur prior to the end of 2023. We plan to recognize the remaining consideration, and any gain on sale resulting from the completion of the second phase of the divestiture, when it becomes realizable.
8
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 5 — Restructuring and impairment charges
Restructuring and impairment charges recognized for the three and nine months ended October 1, 2023 and September 25, 2022 consisted of the following:
| Three Months Ended October 1, 2023 | Termination Benefits | Other Costs (1) | Total | ||||||||||||||
| 2023 Footprint realignment plan | $ | $ | $ | ||||||||||||||
| 2022 Restructuring plan | |||||||||||||||||
| Respiratory divestiture plan | ( | ( | |||||||||||||||
Other restructuring programs (2) | ( | ( | |||||||||||||||
| Restructuring charges | $ | $ | $ | ||||||||||||||
Three Months Ended September 25, 2022 | |||||||||||||||||
| Termination Benefits | Other Costs (1) | Total | |||||||||||||||
| Respiratory divestiture plan | $ | $ | $ | ||||||||||||||
| 2019 Footprint realignment plan | ( | ( | |||||||||||||||
| 2018 Footprint realignment plan | |||||||||||||||||
Other restructuring programs (3) | |||||||||||||||||
| Restructuring charges | $ | $ | $ | ||||||||||||||
| Nine Months Ended October 1, 2023 | |||||||||||||||||
| Termination Benefits | Other Costs (1) | Total | |||||||||||||||
| 2023 Footprint realignment plan | $ | $ | $ | ||||||||||||||
| 2022 Restructuring plan | |||||||||||||||||
| Respiratory divestiture plan | ( | ( | |||||||||||||||
Other restructuring programs (2) | ( | ( | |||||||||||||||
| Restructuring charges | $ | $ | $ | ||||||||||||||
| Nine Months Ended September 25, 2022 | |||||||||||||||||
| Termination Benefits | Other Costs (1) | Total | |||||||||||||||
| Respiratory divestiture plan | $ | $ | $ | ||||||||||||||
| 2019 Footprint realignment plan | ( | ( | |||||||||||||||
| 2018 Footprint realignment plan | |||||||||||||||||
Other restructuring programs (3) | |||||||||||||||||
| Restructuring charges | |||||||||||||||||
| Asset impairment charges | |||||||||||||||||
| Restructuring and impairment charges | $ | $ | $ | ||||||||||||||
(1) Other costs include facility closure, contract termination and other exit costs.
(2) Includes activity primarily related to a restructuring plan initiated in the first quarter of 2022 that is designed to relocate manufacturing operations at certain of our facilities (the "2022 Manufacturing relocation plan") and our 2014, 2018, and 2019 Footprint realignment plans.
(3) Includes activity primarily related to the 2022 Manufacturing relocation plan, the 2021 Restructuring plan and the 2014 Footprint realignment plan.
9
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
2023 Footprint Realignment plan
In September 2023, we initiated a restructuring plan primarily involving the relocation of certain manufacturing operations to existing lower-cost locations, the outsourcing of certain manufacturing processes and related workforce reductions (the "2023 Footprint realignment plan"). These actions are expected to be substantially completed by the end of 2027. The following table provides a summary of our estimates of restructuring and restructuring related charges by major type of expense associated with the 2023 Footprint realignment plan:
| Total estimated amount expected to be incurred | |||||
| Plan expense estimates: | (Dollars in millions) | ||||
Restructuring charges (1) | $ | ||||
Restructuring related charges (2) | $ | ||||
| Total restructuring and restructuring related charges | $ | ||||
(1) Substantially all of the charges consist of employee termination benefit costs.
(2)Restructuring related charges represent costs that are directly related to the 2023 Footprint realignment plan and principally constitute costs to transfer manufacturing operations to existing lower-cost locations and project management costs. Substantially all of these charges are expected to be recognized within cost of goods sold.
We expect substantially all of the restructuring and restructuring related charges will result in future cash outlays, the majority of which will be made between 2024 and 2025. Additionally, we expect to incur $2 million to $3 million in aggregate capital expenditures under the plan, which are expected to be incurred mostly in 2024.
As of October 1, 2023, we maintain a restructuring reserve of $1.3 million in connection with this plan, all of which relate to termination benefits.
Respiratory divestiture plan
During 2021, in connection with the Respiratory business divestiture, we committed to a restructuring plan designed to separate the manufacturing operations to be transferred to Medline from those that will remain with Teleflex, which includes related workforce reductions (the “Respiratory divestiture plan”). The plan includes expanding certain of our existing locations to accommodate the transfer of capacity from the sites being transferred to Medline and replicating the manufacturing processes at alternate existing locations. We expect this plan will be substantially completed by the end of 2023. The following table provides a summary of our cost estimates by major type of expense associated with the Respiratory divestiture plan:
| Total estimated amount expected to be incurred | |||||
| Plan expense estimates: | (Dollars in millions) | ||||
Restructuring charges (1) | $ | ||||
Restructuring related charges (2) | $ | ||||
| Total restructuring and restructuring related charges | $ | ||||
(1) Substantially all of the charges consist of employee termination benefit costs.
(2)Consist of charges that are directly related to the Respiratory divestiture plan and principally constitute costs to transfer manufacturing operations to other locations and project management costs. Substantially all of the charges are expected to be recognized within costs of goods sold.
We expect substantially all of the restructuring and restructuring related charges will result in future cash outlays, and we expect to incur $22 million to $24 million in aggregate capital expenditures under the plan.
We recorded restructuring related charges with respect to the Respiratory divestiture plan of $1.6 million and $5.6 million for the three and nine months ended October 1, 2023, respectively, and $2.1 million and $6.5 million for the three and nine months ended September 25, 2022, respectively. The restructuring related charges were included within cost of goods sold.
10
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As of October 1, 2023, we have incurred net aggregate restructuring expenses related to the Respiratory divestiture plan of $2.7 million. Additionally, as of October 1, 2023, we have incurred net aggregate restructuring related charges in connection with the Respiratory divestiture plan of $17.9 million, which were primarily included in cost of goods sold. As of October 1, 2023, we have a restructuring reserve of $2.5 million in connection with this plan.
2022 Restructuring plan
In November 2022, we initiated a strategic restructuring plan designed to improve operating performance and position the organization to deliver long-term durable growth by creating efficiencies that align with our high growth strategic objectives (the “2022 Restructuring plan”). The plan is substantially complete and as a result, we expect future restructuring expenses associated with the plan, if any, to be immaterial.
Note 6 — Inventories
Inventories as of October 1, 2023 and December 31, 2022 consisted of the following:
| October 1, 2023 | December 31, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
Note 7 — Goodwill and other intangible assets
The following table provides information relating to changes in the carrying amount of goodwill by reportable operating segment for the nine months ended October 1, 2023:
| Americas | EMEA | Asia | OEM | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| October 1, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
The gross carrying amount of, and accumulated amortization relating to, intangible assets as of October 1, 2023 and December 31, 2022 were as follows:
| Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||
| October 1, 2023 | December 31, 2022 | October 1, 2023 | December 31, 2022 | ||||||||||||||||||||
| Customer relationships | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| In-process research and development | — | — | |||||||||||||||||||||
| Intellectual property | ( | ( | |||||||||||||||||||||
| Distribution rights | ( | ( | |||||||||||||||||||||
| Trade names | ( | ( | |||||||||||||||||||||
| Non-compete agreements | ( | ( | |||||||||||||||||||||
| $ | $ | $ | ( | $ | ( | ||||||||||||||||||
11
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 8 — Borrowings
| October 1, 2023 | December 31, 2022 | ||||||||||
| Senior Credit Facility: | |||||||||||
Revolving credit facility, at a rate of | $ | $ | |||||||||
Term loan facility, at a rate of | |||||||||||
Securitization program, at a rate of | |||||||||||
| Less: Unamortized debt issuance costs | ( | ( | |||||||||
| Current borrowings | ( | ( | |||||||||
| Long-term borrowings | $ | $ | |||||||||
Note 9 — Financial instruments
Foreign currency forward contracts
We use derivative instruments for risk management purposes. Foreign currency forward contracts designated as cash flow hedges are used to manage foreign currency transaction exposure. Foreign currency forward contracts not designated as hedges for accounting purposes are used to manage exposure related to near term foreign currency denominated monetary assets and liabilities. We enter into the non-designated foreign currency forward contracts for periods consistent with our currency translation exposures, which generally approximate one month. For the three and nine months ended October 1, 2023, we recognized a loss of $1.0 million and a gain of $1.0 million, respectively, related to non-designated foreign currency forward contracts. For the three and nine months ended September 25, 2022, we recognized losses of $1.0 million and $4.2 million, respectively, related to non-designated foreign currency forward contracts.
The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of October 1, 2023 and December 31, 2022 was $238.1 million and $184.8 million, respectively. The total notional amount for all open non-designated foreign currency forward contracts as of October 1, 2023 and December 31, 2022 was $140.3 million and $152.9 million, respectively. All open foreign currency forward contracts as of October 1, 2023 have durations of 12 months or less.
Cross-currency interest rate swaps
During 2019, we entered into cross-currency swap agreements with five different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate. Under the terms of the cross-currency swap agreements, we have notionally exchanged $250 million at an annual interest rate of 4.88 % for €219.2 million at an annual interest rate of 2.46 %. The swap agreements are designed as net investment hedges and expire on March 4, 2024.
During 2018, we entered into cross-currency swap agreements with six different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate (the "2018 Cross-currency swap"). Under the terms of the cross-currency swap agreements, we have notionally exchanged $500 million at an annual interest rate of 4.63 % for €433.9 million at an annual interest rate of 1.94 %. The swap agreements are designed as net investment hedges. For further discussion related to the 2018 Cross-currency swap refer to subsequent event section below.
The swap agreements described above require an exchange of the notional amounts upon expiration or earlier termination of the agreements. We and the counterparties have agreed to effect the exchange through a net settlement.
12
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The cross-currency swaps are marked to market at each reporting date and any changes in fair value are recognized as a component of accumulated other comprehensive income (loss) ("AOCI"). The following table summarizes the foreign exchange gains and losses recognized within AOCI and the interest benefit recognized within interest expense related to cross currency swap for the three and nine months ended October 1, 2023 and September 25, 2022:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||||||||||||||
Foreign exchange gain | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Interest benefit | |||||||||||||||||||||||||||||||||||
Subsequent event
On October 4, 2023, the third day of our fourth quarter, the agreements related to our 2018 Cross-currency swap matured resulting in $43.0 million in cash settlement proceeds. On October 2, 2023, we executed new cross-currency swap agreements with six different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate. Under the terms of the cross-currency swap agreements, we have notionally exchanged $500 million at an annual interest rate of 4.63 % for €474.7 million at an annual interest rate of 3.05 %. The swap agreements are designated as net investment hedges and expire on October 4, 2025.
Balance sheet presentation
The following table presents the locations in the condensed consolidated balance sheet and fair value of derivative financial instruments as of October 1, 2023 and December 31, 2022:
| October 1, 2023 | December 31, 2022 | ||||||||||
| Fair Value | |||||||||||
| Asset derivatives: | |||||||||||
| Designated foreign currency forward contracts | $ | $ | |||||||||
| Non-designated foreign currency forward contracts | |||||||||||
| Cross-currency interest rate swaps | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Cross-currency interest rate swaps | |||||||||||
| Other assets | |||||||||||
| Total asset derivatives | $ | $ | |||||||||
| Liability derivatives: | |||||||||||
| Designated foreign currency forward contracts | $ | $ | |||||||||
| Non-designated foreign currency forward contracts | |||||||||||
| Other current liabilities | |||||||||||
| Total liability derivatives | $ | $ | |||||||||
See Note 11 for information on the location and amount of gains and losses attributable to derivatives that were reclassified from AOCI to expense (income), net of tax. There was no
Trade receivables
13
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 10 — Fair value measurement
The following tables provide information regarding our financial assets and liabilities measured at fair value on a recurring basis as of October 1, 2023 and December 31, 2022:
Total carrying value at October 1, 2023 | Quoted prices in active markets (Level 1) | Significant other observable Inputs (Level 2) | Significant unobservable Inputs (Level 3) | ||||||||||||||||||||
| Investments in marketable securities | $ | $ | $ | $ | |||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Contingent consideration liabilities | |||||||||||||||||||||||
| Total carrying value at December 31, 2022 | Quoted prices in active markets (Level 1) | Significant other observable Inputs (Level 2) | Significant unobservable Inputs (Level 3) | ||||||||||||||||||||
| Investments in marketable securities | $ | $ | $ | $ | |||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Contingent consideration liabilities | |||||||||||||||||||||||
Valuation Techniques
Our financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to satisfy benefit obligations under our benefit plans and other arrangements. The investment assets of the trust are valued using quoted market prices.
Our financial assets and liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts and cross-currency interest rate swap agreements. We use foreign currency forwards and cross-currency interest rate swaps to manage foreign currency transaction exposure, as well as exposure to foreign currency denominated monetary assets and liabilities. We measure the fair value of the foreign currency forwards and cross-currency swaps by calculating the amount required to enter into offsetting contracts with similar remaining maturities, based on quoted market prices, and taking into account the creditworthiness of the counterparties.
Our financial liabilities valued based upon Level 3 inputs (inputs that are not observable in the market) are comprised of contingent consideration arrangements pertaining to our acquisitions.
Contingent consideration
Contingent consideration liabilities, which primarily consist of payment obligations that are contingent upon the achievement of revenue-based goals, but also can be based on other milestones such as regulatory approvals, are remeasured to fair value each reporting period using assumptions including estimated revenues (based on internal operational budgets and long-range strategic plans), discount rates, probability of payment and projected payment dates.
We determine the fair value of certain contingent consideration liabilities using a Monte Carlo simulation (which involves a simulation of future revenues during the earn-out period using management's best estimates) or discounted cash flow analysis. Increases in projected revenues, estimated cash flows and probabilities of payment may result in significantly higher fair value measurements; decreases in these items may have the opposite effect. Increases in the discount rates in periods prior to payment may result in significantly lower fair value measurements and decreases in the discount rates may have the opposite effect.
14
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The table below provides additional information regarding the valuation technique and inputs used in determining the fair value of our significant contingent consideration liabilities.
| Contingent Consideration Liability | Valuation Technique | Unobservable Input | ||||||||||||||||||
| Revenue-based | ||||||||||||||||||||
| Monte Carlo simulation | Revenue volatility | % | ||||||||||||||||||
| Risk free rate | Cost of debt structure | |||||||||||||||||||
| Projected year of payment | 2024 - 2026 | |||||||||||||||||||
The following table provides information regarding changes in our contingent consideration liabilities for the three and nine months ended October 1, 2023:
| Contingent consideration | |||||
| Balance – December 31, 2022 | $ | ||||
| Payments | ( | ||||
| Revaluations | ( | ||||
Balance – October 1, 2023 | $ | ||||
Note 11 — Shareholders' equity
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner except that the weighted average number of shares is increased to include dilutive securities. The following table provides a reconciliation of basic to diluted weighted average number of common shares outstanding:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||||||
| Dilutive effect of share-based awards | |||||||||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||||||||
The weighted average number of shares that were antidilutive and therefore excluded from the calculation of earnings per share were 0.8 million and 0.7 million for the three and nine months ended October 1, 2023, respectively, and 0.7 million and 0.5 million for the three and nine months ended September 25, 2022, respectively.
The following tables provide information relating to the changes in accumulated other comprehensive loss, net of tax, for the nine months ended October 1, 2023 and September 25, 2022:
| Cash Flow Hedges | Pension and Other Postretirement Benefit Plans | Foreign Currency Translation Adjustment | Accumulated Other Comprehensive (Loss) Income | ||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of October 1, 2023 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
15
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
| Cash Flow Hedges | Pension and Other Postretirement Benefit Plans | Foreign Currency Translation Adjustment | Accumulated Other Comprehensive (Loss) Income | ||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of September 25, 2022 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
The following table provides information relating to the location in the statements of operations and amount of reclassifications of losses/(gains) in accumulated other comprehensive (loss) income into (income) expense, net of tax, for the three and nine months ended October 1, 2023 and September 25, 2022:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| (Gains) Loss on foreign exchange contracts: | |||||||||||||||||||||||
| Cost of goods sold | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Total before tax | ( | ( | ( | ( | |||||||||||||||||||
| Taxes | |||||||||||||||||||||||
| Net of tax | ( | ( | ( | ( | |||||||||||||||||||
Amortization of pension and other postretirement benefit items (1): | |||||||||||||||||||||||
| Actuarial losses | |||||||||||||||||||||||
| Prior-service costs | ( | ( | ( | ( | |||||||||||||||||||
| Total before tax | |||||||||||||||||||||||
| Tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Net of tax | |||||||||||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
Note 12 — Taxes on income from continuing operations
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Effective income tax rate | |||||||||||||||||||||||
Note 13 — Commitments and contingent liabilities
16
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
investigative and remedial activities at sites where we conduct 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 October 1, 2023, we have recorded $2.5 million and $4.1 million in accrued liabilities and other liabilities, respectively, relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, the potential liability may exceed the amount accrued as of October 1, 2023. The time frame over which the accrued amounts may be paid out, based on past history, is estimated to be 10 -15 years.
Legal matters: 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, product warranty, commercial disputes, intellectual property, contract, employment, environmental and other matters. As of October 1, 2023, we have recorded accrued liabilities of $0.6 million in connection with such contingencies, representing our best estimate of the cost within the range of estimated possible losses that will be incurred to resolve these matters.
Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that the outcome of any outstanding litigation and claims is 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. Legal costs such as outside counsel fees and expenses are charged to selling, general and administrative expenses in the period incurred.
Other: In 2015, the Italian parliament enacted legislation that, among other things, imposed a “payback” measure on medical device companies that supply goods and services to the Italian National Healthcare System. Under the measure, companies are required to make payments to the Italian government if medical device expenditures in a given year exceed regional expenditure ceilings established for that year. The payment amounts are calculated based on the amount by which the regional ceilings for the given year were exceeded. Considerable uncertainty exists related to the enforceability of and implementation process for the payback law. In response to decrees issued by the Italian Ministry of Health, the various Italian regions issued invoices to medical device companies, including Teleflex, under the payback measure in the fourth quarter of 2022 seeking payment with respect to excess expenditures for the years 2015 through 2018. Following the issuance of the invoices, we and numerous other medical device companies filed appeals with the Italian administrative courts challenging the enforceability of the payback measure, which appeals remain pending. As of October 1, 2023, our reserve for this matter was $12.9 million, of which $2.2 million was recorded as a reduction of revenue in 2023. If the payback was to ultimately be enforced in its existing form, we estimate that we would be required to remit payments in excess of our current reserve of up to $18.6 million.
On April 4, 2023, one of our Mexican subsidiaries received a notification from the Mexican Federal Tax Administration Service (“SAT”) setting forth its preliminary findings with respect to a foreign trade operations audit carried out by SAT for the period from July 1, 2017 to June 6, 2019. The preliminary findings stated that our Mexican subsidiary did not evidence the export of goods temporarily imported under Mexico’s Manufacturing, Maquila and Export Services Industries Program (“IMMEX Program”), therefore triggering the potential obligation for payment of import duties, value added tax, customs processing fees and other fines and penalties. In response to the notification, our Mexican subsidiary has requested that the matter be referred to the Procuraduría de la Defensa del Contribuyente, or “PRODECON,” (local tax ombudsperson) to help facilitate the process. In June, SAT was provided with the appropriate documentation evidencing the export of the goods in accordance with the requirements of the IMMEX Program.
While we cannot predict with certainty the outcome of this audit, based on currently known information, we do not believe a loss is either probable or estimable. Accordingly, no loss contingency has been recorded in our financial statements as of October 1, 2023 related to this matter. However, if the final resolution of the matter is not favorable to us, our Mexican subsidiary may be required to make payment of certain import duties, fines and surcharges, which could be material.
17
TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 14 — Segment information
The following tables present our segment results for the three and nine months ended October 1, 2023 and September 25, 2022:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| EMEA | |||||||||||||||||||||||
| Asia | |||||||||||||||||||||||
| OEM | |||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| EMEA | |||||||||||||||||||||||
| Asia | |||||||||||||||||||||||
| OEM | |||||||||||||||||||||||
Total segment operating profit (1) | |||||||||||||||||||||||
Unallocated expenses (2) | ( | ( | ( | ( | |||||||||||||||||||
| Income from continuing operations before interest and taxes | $ | $ | $ | $ | |||||||||||||||||||
(1)Segment operating profit includes segment net revenues from external customers reduced by its standard cost of goods sold, adjusted for fixed manufacturing cost absorption variances, selling, general and administrative expenses, research and development expenses and an allocation of corporate expenses.
(2)Unallocated expenses primarily include manufacturing variances other than fixed manufacturing cost absorption variances and restructuring and impairment charges.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Teleflex Incorporated (“we,” “us,” “our" and “Teleflex”) is a global provider of medical technology products focused on enhancing clinical benefits, improving patient and provider safety and reducing total procedural costs. We primarily design, develop, manufacture and supply single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications. We market and sell our products worldwide through a combination of our direct sales force and distributors. Because our products are used in numerous markets and for a variety of procedures, we are not dependent upon any one end-market or procedure. We are focused on achieving consistent, sustainable and profitable growth by increasing our market share and improving our operating efficiencies.
We evaluate our portfolio of products and businesses on an ongoing basis to ensure alignment with our overall objectives. Based on our evaluation, we may identify opportunities to divest businesses and product lines that do not meet our objectives. In addition, we may seek to optimize utilization of our facilities through restructuring initiatives designed to further improve our cost structure and enhance our competitive position. We also may continue to explore opportunities to expand the size of our business and improve operating margins through a combination of acquisitions and distributor to direct sales conversions, which generally involve our elimination of a distributor from the sales channel, either by acquiring the distributor or terminating the distributor relationship (in some instances, particularly in Asia, the conversions involve our acquisition or termination of a master distributor and the continued sale of our products through sub-distributors or through new distributors). Distributor to direct sales conversions are designed to facilitate improved product pricing and more direct access to the end users of our products within the sales channel.
In May 2023, our Board of Directors approved the termination of the Teleflex Incorporated Retirement Income Plan (the “TRIP”), a U.S. defined benefit plan, effective as of August 1, 2023. The TRIP is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and is intended to be tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (“Code”). Participation in and accrual of benefits under the TRIP have been frozen since 2012, and, as of October 1, 2023, the TRIP assets exceeded the liabilities. In June 2023, we notified participants of our intent to terminate the TRIP and requested a determination letter from the Internal Revenue Services (“IRS”) stating that the TRIP satisfies the requirements, in form, to be tax-qualified under Code Section 401(a) upon termination. In September 2023, a notice of benefits was sent to participants, beneficiaries and alternate payees in connection with the proposed termination. Participants, beneficiaries and alternate payees who had not started their TRIP benefits were offered the opportunity to elect to receive their benefits in the form of a lump sum distribution in connection with the termination of the TRIP or to commence their benefits in the form of monthly annuity payments in accordance with TRIP terms. Because the TRIP is an ERISA plan, the termination is subject to approval by the Pension Benefit Guaranty Corporation (“PBGC”). In September 2023, we filed a termination notice with the PBGC for approval. After the termination has been approved by the PBGC, one or more annuity contracts with a qualifying insurer(s) will be purchased to provide TRIP benefits that have not already been distributed. While we expect to proceed with the termination, we may decide not to proceed for certain reasons including, for example, if the cost to terminate the TRIP exceeds our current expectations. Should the Company proceed with the termination, participants, beneficiaries, and alternate payees will each receive the full value of their benefit under the TRIP, paid either from TRIP assets or from an annuity contract purchase as described under this paragraph.
Upon settlement of the TRIP, we are required to remeasure the plan assets and obligation and will recognize a settlement loss for the recognition of the unrecognized losses in accumulated other comprehensive income including the effects of the remeasurement. As of October 1, 2023, the pre-tax accumulated other comprehensive loss related to the TRIP was approximately $200 million. We expect to recognize a portion of the settlement charge during the fourth quarter of 2023, when eligible participants who elect the lump sum option receive their payments, and we expect to recognize the remainder of the settlement charge upon annuitization of the TRIP benefits, which we expect to occur during 2024. Based on notices we have processed from participants electing the lump sum option to receive their payments, we estimate we will recognize a settlement charge of between $45 million and $55 million during the fourth quarter of 2023.
On July 25, 2023, we executed a definitive agreement to acquire Palette Life Sciences AB (“Palette”), a privately held medical device company that sells a portfolio of hyaluronic acid gel-based products primarily utilized in the treatment of urology diseases including a rectal spacing product used in connection with radiation therapy treatment of prostate cancer. The acquisition will complement our interventional urology product portfolio. On October 10,
19
2023, we completed the acquisition of Palette using borrowings under our revolving credit facility and cash on hand. Under the terms of the agreement, we acquired Palette for an initial cash payment of $600 million, with additional consideration of up to $50 million payable upon the achievement of certain commercial milestones.
Results of Operations
As used in this discussion, "new products" are products for which commercial sales have commenced within the past 36 months, and “existing products” are products for which commercial sales commenced more than 36 months ago. Discussion of results of operations items that reference the effect of one or more acquired and/or divested businesses or assets (except as noted below with respect to acquired distributors) generally reflects the impact of the acquisitions and/or divestitures within the first 12 months following the date of the acquisition and/or divestiture. In addition to increases and decreases in the per unit selling prices of our products to our customers, our discussion of the impact of product price increases and decreases also reflects the impact on the pricing of our products resulting from the elimination of the distributor, either through acquisition or termination of the distributor, from the sales channel. All of the dollar amounts in the tables are presented in millions unless otherwise noted.
Certain financial information is presented on a rounded basis, which may cause minor differences.
Net revenues
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Net revenues | $ | 746.4 | $ | 686.8 | $ | 2,200.6 | $ | 2,033.0 | |||||||||||||||
Net revenues for the three months ended October 1, 2023 increased $59.6 million, or 8.7%, compared to the prior year period, primarily due to a $29.9 million increase in sales of new products, price increases and, to a lesser extent, favorable fluctuations in foreign currency exchange rates.
Net revenues for the nine months ended October 1, 2023 increased $167.6 million, or 8.2%, compared to the prior year period, primarily due to a $142.0 million increase in sales of new products and price increases, partially offset by a $31.4 million decrease in sales volume of existing products, notwithstanding the impact of a five-day increase in the number of shipping days during the nine months ended October 1, 2023. The increase in sales of new products and the decrease in sales of volumes of existing products primarily reflect the conversion to the next generation of an existing product.
Gross profit
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Gross profit | $ | 416.3 | $ | 374.0 | $ | 1,215.5 | $ | 1,109.0 | |||||||||||||||
| Percentage of sales | 55.8 | % | 54.4 | % | 55.2 | % | 54.5 | % | |||||||||||||||
Gross margin for the three months ended October 1, 2023 increased 140 basis points, or 2.6%, compared to the prior year period, primarily due to price increases, benefits from cost improvement initiatives and lower logistics and distribution related costs, partially offset by continued cost inflation from macro-economic factors, specifically, raw materials and unfavorable fluctuations in foreign currency exchange rates.
Gross margin for the nine months ended October 1, 2023 increased 70 basis points, or 1.3%, compared to the prior year period, primarily due to price increases, lower logistics and distribution related costs and benefits from cost improvement initiatives, partially offset by continued cost inflation from macro-economic factors, specifically, raw materials, an unfavorable impact on manufacturing productivity due to raw material supply and an increase in costs associated with product recalls and quality issues.
On April 4, 2023, one of our Mexican subsidiaries received a notification from the Mexican Federal Tax Administration Service (“SAT”) setting forth its preliminary findings with respect to a foreign trade operations audit carried out by SAT for the period from July 1, 2017 to June 6, 2019. The preliminary findings stated that our Mexican subsidiary did not evidence the export of goods temporarily imported under Mexico’s Manufacturing, Maquila and Export Services Industries Program (“IMMEX Program”), therefore triggering the potential obligation for payment of import duties, value added tax, customs processing fees and other fines and penalties. In response to the notification, our Mexican subsidiary has requested that the matter be referred to the Procuraduría de la Defensa del Contribuyente, or “PRODECON,” (local tax ombudsperson) to help facilitate the process. In June, SAT was provided with the appropriate documentation evidencing the export of the goods in accordance with the requirements of the IMMEX Program.
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While we cannot predict with certainty the outcome of this audit, based on currently known information, we do not believe a loss is either probable or estimable. Accordingly, no loss contingency has been recorded in our financial statements as of October 1, 2023 related to this matter. However, if the final resolution of the matter is not favorable to us, our Mexican subsidiary may be required to make payment of certain import duties, fines and surcharges, which could be material.
Selling, general and administrative
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Selling, general and administrative | $ | 213.2 | $ | 209.6 | $ | 669.2 | $ | 630.4 | |||||||||||||||
| Percentage of sales | 28.6 | % | 30.5 | % | 30.4 | % | 31.0 | % | |||||||||||||||
Selling, general and administrative expenses for the three months ended October 1, 2023 increased $3.6 million, compared to the prior year period primarily due to higher sales expenses across certain of our product portfolios, higher performance related employee-benefit costs, higher expenses incurred by acquired businesses, primarily Standard Bariatrics, unfavorable fluctuations in foreign currency exchange rates and, to a lesser extent, higher IT related costs. The increases in selling, general and administrative expenses were partially offset by a decrease in contingent consideration expense resulting from changes in the estimated fair value of our contingent consideration liabilities.
Selling, general and administrative expenses for the nine months ended October 1, 2023 increased $38.8 million, compared to the prior year period primarily due to higher sales expenses across certain of our product portfolios, higher operating expenses incurred by acquired businesses, primarily Standard Bariatrics, higher IT related costs and higher performance related employee-benefit costs. The increases in selling, general and administrative expenses were partially offset by a decrease in contingent consideration expense resulting from changes in the estimated fair value of our contingent consideration liabilities.
Research and development
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||||||||||||||
| Research and development | $ | 37.6 | $ | 37.8 | $ | 118.5 | $ | 111.1 | |||||||||||||||||||||||||||
| Percentage of sales | 5.0 | % | 5.5 | % | 5.4 | % | 5.5 | % | |||||||||||||||||||||||||||
The decrease in research and development expenses for the three months ended October 1, 2023 compared to the prior year period was primarily attributable to lower expenses related to the European Union Medical Device Regulation related costs, partially offset by higher project spend within certain of our product portfolios and expenses incurred by Standard Bariatrics.
The increase in research and development expenses for the nine months ended October 1, 2023 compared to the prior year period was primarily attributable to higher project spend within certain of our product portfolios and expenses incurred by Standard Bariatrics, partially offset by lower expenses related to the European Union Medical Device Regulation related costs.
Restructuring and impairment charges
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Restructuring and impairment charges | $ | 0.2 | $ | 0.6 | $ | 4.0 | $ | 3.0 | |||||||||||||||
Restructuring charges for the three months ended October 1, 2023 primarily consisted of termination benefits related to the 2023 Footprint realignment plan, partially offset by credits due to changes in estimates with respect to termination benefits related to the Respiratory divestiture plan.
Restructuring charges for the nine months ended October 1, 2023 primarily consisted of termination benefits related to the 2023 Footprint realignment plan and the 2022 Restructuring plan, partially offset by credits due to changes in estimates with respect to termination benefits related to the Respiratory divestiture plan.
2023 Footprint Realignment plan
During the third quarter of 2023, we initiated a restructuring plan primarily involving the relocation of certain
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manufacturing operations to existing lower-cost locations, the outsourcing of certain manufacturing processes and related workforce reductions (the "2023 Footprint realignment plan"). We estimate that we will incur $11 million to $15 million in aggregate pre-tax restructuring and restructuring related charges in connection with the 2023 Footprint Realignment plan. We expect this plan will be substantially completed by the end of 2027.
We expect to begin realizing plan-related savings in 2024 and expect to achieve annual pre-tax savings of $2 million to $4 million once the plan is fully implemented.
Respiratory divestiture plan
We have an ongoing restructuring initiative, initiated in connection with the Respiratory business divestiture, designed to separate the manufacturing operations to be transferred to Medline from those that will remain with Teleflex (the “Respiratory divestiture plan”). We estimate that we will incur aggregate pre-tax restructuring and restructuring related charges in connection with the Respiratory divestiture plan of $22 million to $24 million. We expect this plan will be substantially completed by the end of 2023.
For additional information regarding our restructuring plans, refer to Note 5 within the condensed consolidated financial statements included in this report.
Interest income and expense
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Interest expense | $ | 23.2 | $ | 13.4 | $ | 59.3 | $ | 35.2 | |||||||||||||||
| Average interest rate on debt | 4.6 | % | 3.0 | % | 4.3 | % | 2.5 | % | |||||||||||||||
Interest income | $ | (7.5) | $ | (0.1) | $ | (9.5) | $ | (0.6) | |||||||||||||||
The increase in interest expense for the three months ended October 1, 2023 compared to the prior year period was primarily due to higher average interest rates resulting from increases in interest rates associated with our variable interest rate debt instruments and an increase in average debt outstanding.
The increase in interest expense for the nine months ended October 1, 2023 compared to the prior year period was primarily due to higher average interest rates resulting from increases in interest rates associated with our variable interest rate debt instruments.
Interest income for the three and nine months ended October 1, 2023 increased compared to the prior year periods primarily due to higher investments in time deposits and money market mutual funds.
Taxes on income from continuing operations
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | October 1, 2023 | September 25, 2022 | ||||||||||||||||||||
| Effective income tax rate | 8.0 | % | 14.5 | % | 12.7 | % | 15.4 | % | |||||||||||||||
The effective income tax rates for the three and nine months ended October 1, 2023 reflect the tax impact of a non-taxable contingent consideration adjustment recognized in connection with a decrease in the estimated fair value of our contingent consideration liabilities and tax benefits related to the 2023 Footprint Realignment plan and the 2022 Restructuring plan. The effective income tax rates for all periods reflect a tax benefit from research and development credits.
| Segment net revenues | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | % Increase/(Decrease) | October 1, 2023 | September 25, 2022 | % Increase/ (Decrease) | ||||||||||||||||||||||||||||||
| Americas | $ | 428.2 | $ | 405.1 | 5.7 | $ | 1,264.7 | $ | 1,195.7 | 5.8 | |||||||||||||||||||||||||
| EMEA | 142.7 | 128.4 | 11.1 | 433.9 | 410.5 | 5.7 | |||||||||||||||||||||||||||||
| Asia | 93.2 | 82.0 | 13.6 | 258.6 | 227.8 | 13.5 | |||||||||||||||||||||||||||||
| OEM | 82.3 | 71.3 | 15.5 | 243.4 | 199.0 | 22.4 | |||||||||||||||||||||||||||||
| Segment net revenues | $ | 746.4 | $ | 686.8 | 8.7 | $ | 2,200.6 | $ | 2,033.0 | 8.2 | |||||||||||||||||||||||||
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| Segment operating profit | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 1, 2023 | September 25, 2022 | % Increase/(Decrease) | October 1, 2023 | September 25, 2022 | % Increase/ (Decrease) | ||||||||||||||||||||||||||||||
| Americas | $ | 126.3 | $ | 107.2 | 17.9 | $ | 341.3 | $ | 318.5 | 7.1 | |||||||||||||||||||||||||
| EMEA | 17.9 | 7.5 | 139.2 | 43.7 | 29.3 | 49.3 | |||||||||||||||||||||||||||||
| Asia | 26.0 | 22.9 | 13.5 | 70.1 | 61.8 | 13.5 | |||||||||||||||||||||||||||||
| OEM | 23.5 | 18.4 | 27.4 | 67.3 | 47.2 | 42.6 | |||||||||||||||||||||||||||||
Segment operating profit (1) | $ | 193.7 | $ | 156.0 | 24.2 | $ | 522.4 | $ | 456.8 | 14.4 | |||||||||||||||||||||||||
(1)See Note 14 to our condensed consolidated financial statements included in this report for a reconciliation of segment operating profit to our condensed consolidated income from continuing operations before interest and taxes.
Comparison of the three and nine months ended October 1, 2023 and September 25, 2022
Americas
Americas net revenues for the three months ended October 1, 2023 increased $23.1 million, or 5.7%, compared to the prior year period, which was primarily attributable to a $20.6 million increase in sales of new products and price increases, partially offset by a $12.2 million decrease in sales volume of existing products.
Americas net revenues for the nine months ended October 1, 2023 increased $69.0 million, or 5.8%, compared to the prior year period, which was primarily attributable to a $120.6 million increase in sales of new products and price increases, partially offset by a $86.4 million decrease in sales volume of existing products, notwithstanding the impact of a five-day increase in the number of shipping days during the nine months ended October 1, 2023.
The increase in sales of new products and the decrease in sales of volumes of existing products in both periods primarily reflect the conversion to the next generation of an existing product.
Americas operating profit for the three months ended October 1, 2023 increased $19.1 million, or 17.9%, compared to the prior year period, which was primarily attributable to a decrease in contingent consideration expense resulting from changes in the estimated fair value of our contingent consideration liabilities and an increase in gross profit resulting from higher sales and price increases. The increases in operating profit were partially offset by an increase in sales expenses to support higher sales.
Americas operating profit for the nine months ended October 1, 2023 increased $22.8 million, or 7.1%, compared to the prior year period, which was primarily attributable to an increase in gross profit resulting from higher sales and price increases and a decrease in contingent consideration expense resulting from changes in the estimated fair value of our contingent consideration liabilities. The increases in operating profit were partially offset by an increase in sales expenses to support higher sales and an increase in research and development expenses across certain of our product portfolios.
EMEA
EMEA net revenues for the three months ended October 1, 2023 increased $14.3 million, or 11.1%, compared to the prior year period, which was primarily attributable to $8.8 million in favorable fluctuations in foreign currency exchange rates and price increases.
EMEA net revenues for the nine months ended October 1, 2023 increased $23.4 million, or 5.7%, compared to the prior year period, which was primarily attributable to a $8.3 million increase in sales volume of existing products reflecting, in part, the impact of an increase in the number of shipping days, price increases and an increase in sales of new products.
EMEA operating profit for the three and nine months ended October 1, 2023 increased $10.4 million, or 139.2%, and $14.4 million, or 49.3%, respectively, compared to the prior year periods, which was primarily attributable to favorable fluctuations in foreign currency exchange rates and lower expenses related to the European Union Medical Device Regulation within research and development expenses.
Asia
Asia net revenues for the three months ended October 1, 2023 increased $11.2 million, or 13.6%, compared to the prior year period, which was primarily attributable to a $7.6 million increase in sales of new products, an
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increase in sales volume of existing products and, to a lesser extent, price increases. The increases in net revenues were partially offset by unfavorable fluctuations in foreign currency exchange rates.
Asia net revenues for the nine months ended October 1, 2023 increased $30.8 million, or 13.5%, compared to the prior year period, which was primarily attributable to a $20.1 million increase in sales volume of existing products and a $17.2 million increase in sales of new products, partially offset by unfavorable fluctuations in foreign currency exchange rates.
Asia operating profit for the three and nine months ended October 1, 2023 increased $3.1 million, or 13.5%, and $8.3 million, or 13.5%, respectively, compared to the prior year periods, which was primarily attributable to an increase in gross profit resulting from higher sales, partially offset by unfavorable fluctuations in foreign currency exchange rates and an increase in sales expenses to support higher sales.
OEM
OEM net revenues for the three months ended October 1, 2023 increased $11.0 million, or 15.5%, compared to the prior year period, which was primarily attributable to price increases and a $3.9 million increase in sales volume of existing products.
OEM net revenues for the nine months ended October 1, 2023 increased $44.4 million, or 22.4%, compared to the prior year period, which was primarily attributable to a $26.6 million increase in sales volume of existing products and price increases.
OEM operating profit for the three and nine months ended October 1, 2023 increased $5.1 million, or 27.4%, and $20.1 million, or 42.6%, respectively, compared to the respective prior year periods, which was primarily attributable to an increase in gross profit resulting from price increases and higher sales, partially offset by higher research and development expenses.
Liquidity and Capital Resources
We believe our cash flow from operations, available cash and cash equivalents and borrowings under our revolving credit facility will enable us to fund our operating requirements, capital expenditures and debt obligations for the next 12 months and the foreseeable future. We have net cash provided by United States based operating activities as well as non-United States sources of cash available to help fund our debt service requirements in the United States. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which we can access those funds on a cost effective basis.
On October 4, 2023, the third day of our fourth quarter, the agreements related to our 2018 Cross-currency swap matured resulting in $43.0 million in cash settlement proceeds. On October 2, 2023, we executed new cross-currency swap agreements with six different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate. Under the terms of the swap agreements, we notionally exchanged $500 million at an interest rate of 4.63% for €474.7 million at an interest rate of 3.05%. The swap agreements, which expire on October 4, 2025, are designated as net investment hedges and require an exchange of the notional amounts upon expiration or the earlier termination of the agreements. We and the counterparties have agreed to effect the exchange through a net settlement. As a result, we may be required to pay (or be entitled to receive) an amount equal to the difference, on the expiration or earlier termination date, between the U.S. dollar equivalent of the €474.7 million notional amount and the $500 million notional amount. The swap agreements entail risk that the counterparties will not fulfill their obligations under the agreements. However, we believe the risk is reduced because we have entered into separate agreements with six different counterparties, all of whom are large, well-established financial institutions. Based on the U.S. dollar to euro currency exchange rate in effect on October 4, 2023, and assuming exchange rates remain constant throughout the two-year term of the swap agreements, we would realize a reduction in annual cash interest expense of $7.9 million.
Cash Flows
Net cash provided by operating activities from continuing operations was $372.4 million for the nine months ended October 1, 2023 as compared to $244.4 million for the nine months ended September 25, 2022. The $128.0 million increase was primarily attributable to favorable operating results, lower tax payments and favorable changes in working capital. The favorable changes in working capital were primarily driven by lower inventory purchases stemming from the build up on inventory in the prior year due to elevated global supply chain volatility.
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Net cash used in investing activities from continuing operations was $57.7 million for the nine months ended October 1, 2023, and primarily consisted of $63.8 million of capital expenditures, partially offset by net interest proceeds on swaps designated as net investment hedges of $10.3 million.
Net cash provided by financing activities from continuing operations was $276.0 million for the nine months ended October 1, 2023, and primarily consisted of $324.4 million net proceeds from borrowings resulting from a $600 million draw on our Senior Credit facility to fund the fourth quarter acquisition of Palette, partially offset by previous payments against the Senior Credit facility. Net cash provided by financing activities for the year also reflects $47.9 million in dividend payments.
Borrowings
The indentures governing our 4.625% Senior Notes due 2027 (the “2027 Notes”) and 4.25% Senior Notes due 2028 (the "2028 Notes") contain covenants that, among other things and subject to certain exceptions, limit or restrict our ability, and the ability of our subsidiaries, to create liens; consolidate, merge or dispose of certain assets; and enter into sale leaseback transactions. As of October 1, 2023, we were in compliance with these requirements.
The obligations under our senior credit agreement (the "Credit Agreement"), the 2027 Notes and 2028 Notes are guaranteed (subject to certain exceptions) by substantially all of our material domestic subsidiaries, and the obligations under the Credit Agreement are (subject to certain exceptions and limitations) secured by a lien on substantially all of the assets owned by us and each guarantor.
Summarized Financial Information – Obligor Group
The 2027 Notes are issued by Teleflex Incorporated (the “Parent Company”), and payment of the Parent Company's obligations under the Senior Notes is guaranteed, jointly and severally, by an enumerated group of the Parent Company’s subsidiaries (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions. Each Guarantor Subsidiary is directly or indirectly 100% owned by the Parent Company. Summarized financial information for the Parent and Guarantor Subsidiaries (collectively, the “Obligor Group”) as of October 1, 2023 and December 31, 2022 and for the nine months ended October 1, 2023 is as follows:
| Nine Months Ended | ||||||||||||||||||||
| October 1, 2023 | ||||||||||||||||||||
| Obligor Group | Intercompany | Obligor Group (excluding Intercompany) | ||||||||||||||||||
| Net revenue | $ | 1,610.6 | $ | 220.0 | $ | 1,390.6 | ||||||||||||||
| Cost of goods sold | 1,065.4 | 336.9 | 728.5 | |||||||||||||||||
| Gross profit | 545.2 | (116.9) | 662.1 | |||||||||||||||||
| Income from continuing operations | 151.6 | 75.8 | 75.8 | |||||||||||||||||
| Net income | 150.4 | 75.8 | 74.6 | |||||||||||||||||
| October 1, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Obligor Group | Intercompany | Obligor Group (excluding Intercompany) | Obligor Group | Intercompany | Obligor Group (excluding Intercompany) | |||||||||||||||||||||||||||||||||
| Total current assets | $ | 1,580.0 | $ | 156.2 | $ | 1,423.8 | $ | 878.3 | $ | 110.5 | $ | 767.8 | ||||||||||||||||||||||||||
| Total assets | 4,061.2 | 1,565.7 | 2,495.5 | 3,420.3 | 1,510.9 | 1,909.4 | ||||||||||||||||||||||||||||||||
| Total current liabilities | 1,079.7 | 836.9 | 242.8 | 882.9 | 627.9 | 255.0 | ||||||||||||||||||||||||||||||||
| Total liabilities | 3,668.4 | 952.1 | 2,716.3 | 3,168.0 | 712.3 | 2,455.7 | ||||||||||||||||||||||||||||||||
The same accounting policies as described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 are used by the Parent Company and each of its subsidiaries in connection with the summarized financial information presented above. The Intercompany column in the table above represents transactions between and among the Obligor Group and non-guarantor subsidiaries (i.e. those subsidiaries of the Parent Company that have not guaranteed payment of the Senior Notes). Obligor investments in non-guarantor subsidiaries and any related activity are excluded from the financial information presented above.
Critical Accounting Estimates
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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, 2022, 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.
New Accounting Standards
See Note 2 to the condensed consolidated financial statements included in this report for a discussion of recently issued accounting guidance, including estimated effects, if any, of adoption of the guidance on our financial statements.
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 and uncertainties, 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; the impact of inflation and disruptions in our global supply chain on us and our suppliers (particularly sole-source suppliers and providers of sterilization services), including fluctuations in the cost and availability of resins and other raw materials, as well as certain components, used in the production or sterilization of our products, transportation constraints and delays, product shortages, energy shortages or increased energy costs, labor shortages in the United States and elsewhere, and increased operating and labor costs; our inability to integrate acquired businesses into our operations, realize planned synergies and operate such businesses profitably in accordance with our expectations; our inability to effectively execute our restructuring programs; our inability to realize anticipated savings resulting from restructuring plans and programs; the impact of enacted healthcare reform legislation and proposals to amend, replace or repeal the legislation; changes in Medicare, Medicaid and third party coverage and reimbursements; the impact of tax legislation and related regulations; competitive market conditions and resulting effects on revenues and pricing; global economic factors, including currency exchange rates, interest rates, trade disputes, sovereign debt issues, and international conflicts and hostilities, such as the ongoing conflicts in Ukraine and Israel; public health epidemics including the novel coronavirus (referred to as COVID-19); difficulties entering new markets; and general economic conditions. For a further discussion of the risks relating to our business, see Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022. We expressly disclaim any obligation to update these forward-looking statements, except as otherwise explicitly stated by us or as required by law or regulation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the information set forth in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief
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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 recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability and product warranty, commercial disputes, intellectual property, contract, employment, environmental and other matters. As of October 1, 2023 and December 31, 2022, we had accrued liabilities of approximately $0.6 million and $0.5 million, respectively, in connection with these matters, representing our best estimate of the cost within the range of estimated possible loss that will be incurred to resolve these matters. Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that the outcome of any outstanding lawsuits or claims is 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.
Item 1A. Risk Factors
See the information set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in risk factors for the quarter ended October 1, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the quarter ended October 1, 2023, none of our directors or executive officers entered terminated
Certificate of Incorporation
At our 2023 Annual Meeting of Stockholders held on May 5, 2023 (the “2023 Annual Meeting”), our stockholders approved, among other things, proposals to (i) amend our Amended and Restated Certificate of Incorporation to eliminate supermajority voting provisions; and (ii) approve our 2023 Stock Incentive Plan (collectively, the "2023 Stockholder Actions"). The 2023 Stockholder Actions are described more fully in our definitive proxy statement for the 2023 Annual Meeting, filed with the SEC on March 31, 2023, and the voting results from the meeting, which were overwhelmingly in favor of both of the 2023 Stockholder Actions, are set forth in our Current Report on Form 8-K filed with the SEC on May 11, 2023. The record date established for the 2023 Annual Meeting was March 3, 2023, which exceeded by one business day the maximum of 60 days by which a record date is permitted to precede a meeting of stockholders under the Delaware General Corporation Law (the “DGCL”) and our Amended and Restated Bylaws. In August 2023, we filed a petition in the Delaware Court of Chancery pursuant to Section 205 of the DGCL seeking an order validating and declaring effective the 2023 Stockholder Actions. On September 18, 2023, the Court of Chancery issued an order approving our petition in full.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this report:
| Exhibit No. | Description | |||||||||||||
31.1 | — | |||||||||||||
31.2 | — | |||||||||||||
32.1 | — | |||||||||||||
32.2 | — | |||||||||||||
101.1 | — | The following materials from our Quarterly Report on Form 10-Q for the quarter ended October 1, 2023, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Cover Page; (ii) the Condensed Consolidated Statements of Income for the three and nine months ended October 1, 2023 and September 25, 2022; (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2023 and September 25, 2022; (iv) the Condensed Consolidated Balance Sheets as of October 1, 2023 and December 31, 2022; (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended October 1, 2023 and September 25, 2022; (vi) the Condensed Consolidated Statements of Changes in Equity for the three and nine months ended October 1, 2023 and September 25, 2022; and (vii) Notes to Condensed Consolidated Financial Statements. | ||||||||||||
104.1 | — | The cover page of the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2023, formatted in inline XBRL (included in Exhibit 101.1). | ||||||||||||
____________________________________
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TELEFLEX INCORPORATED | ||||||||||||||
| By: | /s/ Liam J. Kelly | |||||||||||||
Liam J. Kelly 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 Officer) | ||||||||||||||
Dated: November 3, 2023
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Liam J. Kelly, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
| Date: November 3, 2023 | /s/ Liam J. Kelly | |||||||
| Liam J. Kelly | ||||||||
| 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
| Date: November 3, 2023 | /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 October 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Liam J. Kelly, 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: November 3, 2023 | /s/ Liam J. Kelly | |||||||
| Liam J. Kelly 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 October 1, 2023, 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: November 3, 2023 | /s/ Thomas E. Powell | |||||||
| Thomas E. Powell Executive Vice President and Chief Financial Officer | ||||||||