Quarterly Report (10-q)

Date : 08/01/2019 @ 3:49PM
Source : Edgar (US Regulatory)
Stock : Teleflex Inc (TFX)
Quote : 368.01  9.75 (2.72%) @ 12:59AM
After Hours
Last Trade
Last $ 368.01 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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iso4217:EUR
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 June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                    .
Commission file number 1-5353
 
TELEFLEX INCORPORATED
(Exact name of registrant as specified in its charter)
 
Delaware
 
23-1147939
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
550 E. Swedesford Rd., Suite 400
Wayne,
PA
 
19087
(Address of principal executive offices)
 
(Zip Code)
( 610 ) 225-6800
(Registrant’s telephone number, including area code)
(None)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
 
 
Common Stock, par value $1.00 per share
TFX
New York Stock Exchange
 
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.
Large accelerated filer
 
 
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 46,232,846 shares of common stock, par value $1.00 per share, outstanding as of July 30, 2019.




TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
 
  
Page
  
 
 
 
 
 
 
Item 1:
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Item 2:
 
  
Item 3:
 
  
Item 4:
 
  
 
 
 
  
 
 
 
 
 
 
Item 1:
 
  
Item 1A:
 
  
Item 2:
 
  
Item 3:
 
  
Item 4:
 
 
Item 5:
 
  
Item 6:
 
  
 
 
 
  


1



PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(Dollars and shares in thousands, except per share)
Net revenues
$
652,507

 
$
609,866

 
$
1,266,091

 
$
1,197,096

Cost of goods sold
279,583

 
265,088

 
548,425

 
521,048

Gross profit
372,924

 
344,778

 
717,666

 
676,048

Selling, general and administrative expenses
236,186

 
229,917

 
463,879

 
445,254

Research and development expenses
27,595

 
26,018

 
54,745

 
52,045

Restructuring and impairment charges
1,685

 
55,353

 
19,080

 
58,416

Gain on sale of assets

 

 
(2,739
)
 

Income from continuing operations before interest and taxes
107,458

 
33,490

 
182,701

 
120,333

Interest expense
20,758

 
26,649

 
43,450

 
52,592

Interest income
(472
)
 
(183
)
 
(811
)
 
(456
)
Income from continuing operations before taxes
87,172

 
7,024

 
140,062

 
68,197

Taxes on income from continuing operations
3,844

 
9,576

 
14,816

 
15,818

Income (loss) from continuing operations
83,328

 
(2,552
)
 
125,246

 
52,379

Operating income (loss) from discontinued operations
61

 
94

 
(1,282
)
 
1,329

Tax (benefit) on income (loss) from discontinued operations
14

 
38

 
(308
)
 
20

Income (loss) from discontinued operations
47

 
56

 
(974
)
 
1,309

Net income (loss)
$
83,375

 
$
(2,496
)
 
$
124,272

 
$
53,688

Earnings per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.80

 
$
(0.06
)
 
$
2.72

 
$
1.15

Income (loss) from discontinued operations
0.01

 
0.01

 
(0.02
)
 
0.03

Net income (loss)
$
1.81

 
$
(0.05
)
 
$
2.70

 
$
1.18

Diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.77

 
$
(0.06
)
 
$
2.67

 
$
1.12

Income (loss) from discontinued operations

 
0.01

 
(0.03
)
 
0.03

Net income (loss)
$
1.77

 
$
(0.05
)
 
$
2.64

 
$
1.15

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
46,172

 
45,581

 
46,111

 
45,455

Diluted
47,036

 
45,581

 
46,989

 
46,771

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
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(Dollars in thousands)
Net income (loss)
$
83,375

 
$
(2,496
)
 
$
124,272

 
$
53,688

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation, net of tax of $0, $9,378, $0, and $3,505, for the three and six months periods, respectively
12,568

 
(125,705
)
 
12,332

 
(44,517
)
Pension and other postretirement benefit plans adjustment, net of tax of $(446), $(656), $(836), and $(890) for the three and six months periods, respectively
1,459

 
2,015

 
2,688

 
2,896

Derivatives qualifying as hedges, net of tax of $83, $100, $82, and $(111) for the three and six months periods, respectively
755

 
(329
)
 
158

 
292

Other comprehensive income (loss), net of tax:
14,782

 
(124,019
)
 
15,178

 
(41,329
)
Comprehensive income (loss)
$
98,157

 
$
(126,515
)
 
$
139,450

 
$
12,359

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

3



TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2019
 
December 31, 2018
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
303,896

 
$
357,161

Accounts receivable, net
382,142

 
366,286

Inventories, net
461,320

 
427,778

Prepaid expenses and other current assets
78,477

 
72,481

Prepaid taxes
19,306

 
12,463

Total current assets
1,245,141

 
1,236,169

Property, plant and equipment, net
425,475

 
432,766

Operating lease assets
107,543

 

Goodwill
2,250,219

 
2,246,579

Intangible assets, net
2,242,267

 
2,325,052

Deferred tax assets
3,056

 
2,446

Other assets
40,709

 
34,979

Total assets
$
6,314,410

 
$
6,277,991

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Current borrowings
$
50,000

 
$
86,625

Accounts payable
108,059

 
106,709

Accrued expenses
87,698

 
97,551

Current portion of contingent consideration
119,706

 
136,877

Payroll and benefit-related liabilities
88,888

 
104,670

Accrued interest
6,009

 
6,031

Income taxes payable
4,448

 
5,943

Other current liabilities
29,084

 
38,050

Total current liabilities
493,892

 
582,456

Long-term borrowings
2,081,372

 
2,072,200

Deferred tax liabilities
604,856

 
608,221

Pension and postretirement benefit liabilities
86,149

 
92,914

Noncurrent liability for uncertain tax positions
11,029

 
10,718

Noncurrent contingent consideration
71,965

 
167,370

Noncurrent operating lease liabilities
96,502

 

Other liabilities
203,801

 
204,134

Total liabilities
3,649,566

 
3,738,013

Commitments and contingencies

 

Total shareholders' equity
2,664,844

 
2,539,978

Total liabilities and shareholders' equity
$
6,314,410

 
$
6,277,991

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


4



TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
(Dollars in thousands)
Cash flows from operating activities of continuing operations:
 
 
 
Net income
$
124,272

 
$
53,688

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss (income) from discontinued operations
974

 
(1,309
)
Depreciation expense
31,966

 
29,527

Amortization expense of intangible assets
75,285

 
75,008

Amortization expense of deferred financing costs and debt discount
2,249

 
2,368

Gain on sale of assets
(2,739
)
 

Changes in contingent consideration
25,456

 
34,618

Impairment of long-lived assets
6,911

 
1,865

Stock-based compensation
12,700

 
10,737

Deferred income taxes, net
(5,495
)
 
4,821

Payments for contingent consideration
(26,092
)
 

Other
(4,527
)
 
(3,669
)
Changes in assets and liabilities, net of effects of acquisitions and disposals:
 
 
 
Accounts receivable
(19,747
)
 
(15,886
)
Inventories
(33,970
)
 
(15,017
)
Prepaid expenses and other assets
(6,381
)
 
(3,611
)
Accounts payable, accrued expenses and other liabilities
(6,231
)
 
38,112

Income taxes receivable and payable, net
(17,347
)
 
(29,668
)
   Net cash provided by operating activities from continuing operations
157,284

 
181,584

Cash flows from investing activities of continuing operations:
 
 
 
Expenditures for property, plant and equipment
(56,107
)
 
(38,004
)
Proceeds from sale of assets
1,178

 

Payments for businesses and intangibles acquired, net of cash acquired
(1,025
)
 
(22,450
)
Net interest proceeds on swaps designated as net investment hedges
8,330

 

Net cash used in investing activities from continuing operations
(47,624
)
 
(60,454
)
Cash flows from financing activities of continuing operations:
 
 
 
Proceeds from new borrowings
25,000

 

Reduction in borrowings
(52,500
)
 
(18,500
)
Debt extinguishment, issuance and amendment fees
(4,703
)
 
(188
)
Net proceeds from share based compensation plans and the related tax impacts
7,829

 
9,800

Payments for contingent consideration
(111,928
)
 
(62,574
)
Dividends paid
(31,347
)
 
(30,938
)
Net cash used in financing activities from continuing operations
(167,649
)
 
(102,400
)
Cash flows from discontinued operations:
 
 
 
Net cash provided by (used in) operating activities
2,799

 
(464
)
Net cash provided by (used in) discontinued operations
2,799

 
(464
)
Effect of exchange rate changes on cash and cash equivalents
1,925

 
(5,520
)
Net (decrease) increase in cash and cash equivalents
(53,265
)
 
12,746

Cash and cash equivalents at the beginning of the period
357,161

 
333,558

Cash and cash equivalents at the end of the period
$
303,896

 
$
346,304

 
 
 
 
Non cash investing activities of continuing operations:
 
 
 
Property, plant and equipment additions due to build-to-suit lease transaction
$

 
$
28,147

 
 
 
 
Non cash financing activities of continuing operations:
 
 
 
Acquisition of treasury stock associated with settlement and exchange of convertible note hedge and warrant agreements                   
$

 
$
36,877

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, 2018
47,248

 
$
47,248

 
$
574,761

 
$
2,427,599

 
$
(341,085
)
 
1,232

 
$
(168,545
)
 
$
2,539,978

Cumulative effect adjustment resulting from the adoption of new accounting standards
 
 
 
 
 
 
(1,321
)
 
 
 
 
 
 
 
(1,321
)
Net income
 
 
 
 
 
 
40,897

 
 
 
 
 
 
 
40,897

Cash dividends ($0.34 per share)
 
 
 
 
 
 
(15,650
)
 
 
 
 
 
 
 
(15,650
)
Other comprehensive income
 
 
 
 
 
 
 
 
396

 
 
 
 
 
396

Shares issued under compensation plans
75

 
75

 
3,094

 
 
 
 
 
(40
)
 
2,029

 
5,198

Deferred compensation
 
 
 
 
127

 
 
 
 
 
(4
)
 
253

 
380

Balance at March 31, 2019
47,323

 
47,323

 
577,982

 
2,451,525

 
(340,689
)
 
1,188

 
(166,263
)
 
2,569,878

Net income
 
 
 
 
 
 
83,375

 
 
 
 
 
 
 
83,375

Cash dividends ($0.34 per share)
 
 
 
 
 
 
(15,697
)
 
 
 
 
 
 
 
(15,697
)
Other comprehensive income
 
 
 
 
 
 
 
 
14,782

 
 
 
 
 
14,782

Shares issued under compensation plans
77

 
77

 
12,252

 
 
 
 
 
(2
)
 
177

 
12,506

Balance as of June 30, 2019
47,400

 
$
47,400

 
$
590,234

 
$
2,519,203

 
$
(325,907
)
 
1,186

 
$
(166,086
)
 
$
2,664,844


 
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, 2017
46,871

 
$
46,871

 
$
591,721

 
$
2,285,886

 
$
(265,091
)
 
1,704

 
$
(228,856
)
 
$
2,430,531

Cumulative effect adjustment resulting from the adoption of new accounting standards
 
 
 
 
 
 
3,076

 
 
 
 
 
 
 
3,076

Net income
 
 
 
 
 
 
56,184

 
 
 
 
 
 
 
56,184

Cash dividends ($0.34 per share)
 
 
 
 
 
 
(15,447
)
 
 
 
 
 
 
 
(15,447
)
Other comprehensive income
 
 
 
 
 
 
 
 
82,690

 
 
 
 
 
82,690

Settlements of warrants
 
 
 
 
(17,884
)
 
 
 
 
 
(132
)
 
17,872

 
(12
)
Shares issued under compensation plans
97

 
97

 
992

 
 
 
 
 
(43
)
 
3,033

 
4,122

Deferred compensation
 
 
 
 
 
 
 
 
 
 
(8
)
 
322

 
322

Balance at April 1, 2018
46,968

 
46,968

 
574,829

 
2,329,699

 
(182,401
)
 
1,521

 
(207,629
)
 
2,561,466

Net income
 
 
 
 
 
 
(2,496
)
 
 
 
 
 
 
 
(2,496
)
Cash dividends ($0.34 per share)
 
 
 
 
 
 
(15,491
)
 
 
 
 
 
 
 
(15,491
)
Other comprehensive income
 
 
 
 
 
 
 
 
(124,019
)
 
 
 
 
 
(124,019
)
Settlements of warrants
 
 
 
 
(19,019
)
 
 
 
 
 
(140
)
 
19,005

 
(14
)
Shares issued under compensation plans
114

 
114

 
13,992

 
 
 
 
 
(2
)
 
194

 
14,300

Deferred compensation
 
 
 
 
235

 
 
 
 
 
 
 
 
 
235

Balance as of July 1, 2018
47,082

 
$
47,082

 
$
570,037

 
$
2,311,712

 
$
(306,420
)
 
1,379

 
$
(188,430
)
 
$
2,433,981




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

6


TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 1 — Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated and its subsidiaries (“we,” “us,” “our,” “Teleflex” and the “Company”) 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 presentation of 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 the Company's annual consolidated financial statements. Therefore, the Company's quarterly condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 .
Note 2 — Recently issued accounting standards
In February 2016, the FASB issued guidance that changes the requirements for accounting for leases. Under the new guidance, in connection with a lease as to which an entity is a lessee, the entity generally must recognize a right-to-use asset and a lease liability on the balance sheet, initially measured as the present value of lease payments under the lease. Under previous guidance, operating leases were not recognized on the balance sheet. The Company adopted the new standard on January 1, 2019 using a modified retrospective transition approach, which requires leases existing at, or entered into after, January 1, 2019 to be recognized and measured in the condensed consolidated balance sheet. The Company recognized additional net lease assets and lease liabilities of $105.3 million and $106.6 million , respectively, upon adoption of the guidance. The difference between the additional lease assets and lease liabilities was recorded as an adjustment to the Company's opening balance of retained earnings. Prior period amounts have not been adjusted and continue to reflect the Company's historical accounting. 
As permitted under the new guidance, the Company has made an accounting policy election not to apply the recognition provisions of the new guidance to short term leases (leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Company will recognize the lease payments for short term leases on a straight-line basis over the lease term. In addition, the Company has elected to apply certain practical expedients available under the new guidance. As a result, and in connection with the transition to the new guidance, the Company did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, or (iii) initial direct costs for any existing leases. The Company applied the practical expedients described above to its entire lease portfolio at the January 1, 2019 adoption date. Furthermore, as permitted under the new guidance, the Company has made, as a practical expedient, an accounting policy election to not separate lease and non-lease components and instead will account for each separate lease component and the non-lease components associated with that lease component as a single lease component. Additional information and disclosures required by this standard are contained in Note 8.
In February 2018, the FASB issued new guidance to address a narrow-scope financial reporting issue that arose as a consequence of federal tax legislation commonly referred to as the Tax Cuts and Jobs Act ("the TCJA"). Existing guidance requires that deferred tax liabilities and assets be adjusted for a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in net income), such as amounts related

7


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


to benefit plans and hedging activity. As a result, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) do not reflect the appropriate tax rate. The new guidance, which was effective January 1, 2019, permits reclassification of these amounts from accumulated other comprehensive income to retained earnings thereby eliminating the stranded tax effects. The new guidance also requires certain disclosures about the stranded tax effects. The Company elected not to reclassify stranded tax effects from accumulated other comprehensive income to retained earnings.
In June 2016, the FASB issued new guidance that changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under current guidance, an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred, generally considering only past events and current conditions in determining incurred loss. The new guidance requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset, based not only on historical experience and current conditions, but also on reasonable forecasts. The main objective of the new guidance is to provide financial statement users with more useful information in making decisions about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The new guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the annual period in which the adoption is effective. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements and related disclosures, but it is not expected to have a material effect on the consolidated financial statements.
From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by the Company as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. The Company has assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, believes the new guidance will not have a material impact on the its consolidated results of operations, cash flows or financial position.
Note 3 - Net revenues
The Company primarily generates revenue from the sale of medical devices including single use disposable devices and, to a lesser extent, reusable devices, instruments and capital equipment. Revenue is recognized when obligations under the terms of a contract with the Company’s customer are satisfied; this occurs upon the transfer of control of the products. Generally, transfer of control to the customer occurs at the point in time when the Company’s products are shipped from the manufacturing or distribution facility. For the Company’s Original Equipment and Development Services ("OEM") segment, most revenue is recognized over time because the OEM segment generates revenue from the sale of custom products that have no alternative use and the Company has an enforceable right to payment to the extent that performance has been completed. The Company markets and sells products through its direct sales force and distributors to customers within the following end markets: (1) hospitals and healthcare providers; (2) other medical device manufacturers; and (3) home care providers such as pharmacies, which comprised 88% , 10% and 2% of consolidated net revenues, respectively, for the six months ended June 30, 2019 . Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. With respect to the custom products sold in the OEM segment, revenue is measured using the units produced output method. Payment is generally due 30 days from the date of invoice.


8


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


The following table disaggregates revenue by global product category for the three and six months ended June 30, 2019 and July 1, 2018 .
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(Dollars in thousands)
Vascular access
$
153,647

 
$
140,149

 
$
297,544

 
$
284,177

Anesthesia
85,723

 
89,311

 
165,975

 
174,233

Interventional
104,785

 
98,189

 
207,969

 
188,331

Surgical
95,570

 
90,517

 
182,289

 
176,138

Interventional urology
67,952

 
47,674

 
127,683

 
89,974

OEM
56,428

 
52,594

 
110,666

 
98,448

Other  (1)
88,402

 
91,432

 
173,965

 
185,795

Net revenues (2)
$
652,507

 
$
609,866

 
$
1,266,091

 
$
1,197,096

(1) Revenues in the "Other" category in the table above include revenues generated from sales of the Company’s respiratory and urology products (other than interventional urology products). For the three and six months ended June 30, 2019, the Company reclassified its cardiac products from "Other" to "Interventional". The comparative prior year period has been restated to conform to the current period presentation.
(2)
The product categories listed above are presented on a global basis; in contrast, each of the Company’s reportable segments other than the OEM reportable segment are defined exclusively based on the geographic location of its operations; the OEM reportable segment operates globally. Each of the Company’s geographically based reportable segments include net revenues from each of the non-OEM product categories listed above.
Note 4 — Divestitures
On February 4, 2019, the Company sold substantially all of the assets related to its vein catheter reprocessing business for $12.6 million . The Company recognized a $2.7 million pre-tax gain on the sale of assets, which represents the excess of the $9.7 million fair value of consideration received over the carrying value of the assets sold. In connection with the sale, the purchaser of the assets issued a secured promissory note to the Company in the principal amount of $10.5 million . The purchaser's obligations under the notes are secured by a lien on substantially all of the purchaser's assets. The purchaser is obligated to repay the principal amount of the promissory note in annual installments of $2.1 million through the fifth anniversary of the date of sale. On the date of sale, the fair value of the promissory note was $7.6 million , which the Company calculated by applying a discount rate determined after taking into account the creditworthiness of the purchaser. As of June 30, 2019, the Company had $8.0 million in receivables related to the promissory note, of which $2.0 million and $6.0 million are included in accounts receivable, net and other assets, respectively, within the condensed consolidated balance sheet.

9


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


Note 5  — Restructuring and impairment charges (credits)
The following tables provide information regarding restructuring and impairment charges recognized by the Company for the three and six months ended June 30, 2019 and July 1, 2018 :  
Three Months Ended June 30, 2019
 
 
 
 
 
 
Termination benefits
 
Other costs (1)
 
Total
 
(Dollars in thousands)
2019 Footprint realignment plan
$
(459
)
 
$
30

 
$
(429
)
2018 Footprint realignment plan
(2,275
)
 
134

 
$
(2,141
)
Other restructuring programs  (2)
62

 
312

 
374

Restructuring charges (credits)
(2,672
)
 
476

 
(2,196
)
Asset impairment charges

 
3,881

 
3,881

Restructuring and impairment charges (credits)
$
(2,672
)
 
$
4,357

 
$
1,685

Three Months Ended July 1, 2018
 
 
 
 
 
 
Termination benefits
 
Other costs (1)
 
Total
 
(Dollars in thousands)
2018 Footprint realignment plan
$
52,345

 
$
129

 
$
52,474

Other restructuring programs (4)
574

 
440

 
1,014

Restructuring charges
52,919

 
569

 
53,488

Asset impairment charges

 
1,865

 
1,865

Restructuring and impairment charges
$
52,919

 
$
2,434

 
$
55,353

Six Months Ended June 30, 2019
 
 
 
 
 
 
Termination Benefits
 
Other costs (1)
 
Total
 
(Dollars in thousands)
2019 Footprint realignment plan
$
12,516

 
$
30

 
$
12,546

2018 Footprint realignment plan
(1,838
)
 
708

 
(1,130
)
Other restructuring programs  (2)
188

 
565

 
753

Restructuring charges
10,866

 
1,303

 
12,169

Asset impairment charges

 
6,911

 
6,911

Restructuring and impairment charges
$
10,866

 
$
8,214

 
$
19,080

Six Months Ended July 1, 2018
 
 
 
 
 
 
Termination Benefits
 
Other costs (1)
 
Total
 
(Dollars in thousands)
2018 Footprint realignment plan
$
52,345

 
$
129

 
$
52,474

2016 Footprint realignment plan (3)
2,199

 
291

 
2,490

Other restructuring programs (4)
1,032

 
555

 
1,587

Restructuring charges
55,576

 
975

 
56,551

Asset impairment charges

 
1,865

 
1,865

Restructuring and impairment charges
$
55,576

 
$
2,840

 
$
58,416

(1)
Other restructuring costs include facility closure, contract termination and other exit costs.
(2)
Includes the Vascular Solutions integration program (initiated in 2017) as well as the 2016 and 2014 Footprint realignment plans.
(3) The 2016 Footprint realignment plan involved the relocation of certain manufacturing operations, the relocation and outsourcing of certain distribution operations and a related workforce reduction at certain of the Company's facilities. The program is substantially complete and the Company expects future restructuring expenses associated with the program, if any, to be immaterial.

10


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


(4) Includes the 2014 Footprint realignment plan, the Vascular Solutions integration program and the EMEA restructuring program (initiated in 2017).

2019 Footprint Realignment Plan
In February 2019, the Company initiated a restructuring plan primarily involving the relocation of certain manufacturing operations to existing lower-cost locations and related workforce reductions (the "2019 Footprint realignment plan"). These actions are expected to be substantially completed during 2022. The following table provides a summary of the Company’s cost estimates by major type of expense associated with the 2019 Footprint realignment plan:
Type of expense
Total estimated amount expected to be incurred
Termination benefits
$19 million to $23 million
Other exit costs (1)
$1 million to $2 million
Restructuring charges
$20 million to $25 million
Restructuring related charges (2)
$36 million to $45 million
Total restructuring and restructuring related charges
$56 million to $70 million
(1)
Includes facility closure, employee relocation, equipment relocation and outplacement costs.
(2)
Restructuring related charges represent costs that are directly related to the 2019 Footprint realignment plan and principally constitute costs to transfer manufacturing operations to existing lower-cost locations, project management costs and accelerated depreciation. Most of these charges are expected to be recognized within cost of goods sold.
In addition to the restructuring charges shown in the tables above, the Company recorded restructuring related charges with respect to the 2019 Footprint realignment plan of $ 1.0 million and $1.7 million for the three and six months ended June 30, 2019 within cost of goods sold.
As of June 30, 2019 , the Company has a restructuring reserve of $11.8 million in connection with this plan, all of which relate to termination benefits.
2018 Footprint Realignment Plan

On May 1, 2018, the Company initiated a restructuring plan involving the relocation of certain European manufacturing operations to existing lower-cost locations, the outsourcing of certain of the Company’s European distribution operations and related workforce reductions (the “2018 Footprint realignment plan"). These actions are expected to be substantially completed by the end of 2024.
In addition to the restructuring charges shown in the tables above, the Company recorded restructuring related charges with respect to the 2018 Footprint realignment plan of $0.7 million and $1.3 million for the three and six months ended June 30, 2019 and July 1, 2018 , respectively and $1.0 million for each of the three and six months ended July 1, 2018 . The restructuring related charges were included within cost of goods sold. The majority of the restructuring related charges in both periods constituted costs arising from the transfer of manufacturing operations to new locations.
The Company estimates that is will incur aggregate pre-tax restructuring and restructuring related charges in connection with the 2018 Footprint realignment plan of approximately $102 million to $133 million . As of June 30, 2019 , the Company has incurred aggregate restructuring charges in connection with the 2018 Footprint realignment plan of $53.9 million . In addition, as of June 30, 2019 , the Company has incurred aggregate restructuring related charges of $5.4 million with respect to the 2018 Footprint realignment plan, consisting of accelerated depreciation and certain other costs that principally resulted from the transfer of manufacturing operations to new locations. The restructuring related charges primarily were included in cost of goods sold. As of June 30, 2019 , the Company has a restructuring reserve of $45.0 million in connection with this plan, all of which related to termination benefits.
2014 Footprint Realignment Plan
In 2014, the Company initiated a restructuring plan (“the 2014 Footprint realignment plan”) involving the consolidation of operations and a related reduction in workforce at certain facilities, and the relocation of manufacturing

11


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


operations from certain higher-cost locations to existing lower-cost locations. These actions commenced in the second quarter 2014 and are expected to be substantially completed by the end of 2020.

The Company recorded restructuring related charges with respect to the 2014 Footprint realignment plan of $0.7 million and $1.3 million for the three and six months ended June 30, 2019 , respectively, and $0.6 million and $1.0 million for the three and six months ended July 1, 2018 , respectively. The majority of these restructuring related charges in both periods constituted costs arising from the transfer of manufacturing operations to new locations.

The Company estimates that it will incur aggregate pre-tax restructuring and restructuring related charges in connection with the 2014 Footprint realignment plan of $47 million to $52 million . As of June 30, 2019 , the Company has incurred aggregate restructuring charges of $12.8 million in connection with the 2014 Footprint realignment plan . Additionally, as of June 30, 2019 , the Company has incurred aggregate restructuring related charges of $30.5 million in connection with the 2014 Footprint realignment plan, consisting of accelerated depreciation and certain other costs that principally resulted from the transfer of manufacturing operations from the existing locations to new locations. These restructuring related charges primarily were included in cost of goods sold. As of June 30, 2019 , the Company has a restructuring reserve of $3.8 million in connection with the plan, all of which related to termination benefits.

As the restructuring programs progress, management will reevaluate the estimated expenses and charges set forth above, and may revise its estimates, as appropriate, consistent with GAAP. For additional information related to the Company's restructuring programs, see Note 5 to the Company's consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2018.
Note 6 — Inventories, net
Inventories as of June 30, 2019 and December 31, 2018 consisted of the following:
 
June 30, 2019
 
December 31, 2018
 
(Dollars in thousands)
Raw materials
$
131,252

 
$
111,105

Work-in-process
63,465

 
62,334

Finished goods
266,603

 
254,339

Inventories, net
$
461,320

 
$
427,778


Note 7 — Goodwill and other intangible assets, net
The following table provides information relating to changes in the carrying amount of goodwill by reportable operating segment for the six months ended June 30, 2019 :
 
Americas
 
EMEA
 
Asia
 
OEM
 
Total
 
(Dollars in thousands)
December 31, 2018
$
1,549,534

 
$
480,615

 
$
211,547

 
$
4,883

 
$
2,246,579

Goodwill related to acquisitions
174

 
75

 
476

 

 
725

Currency translation adjustment
1,221

 
196

 
1,498

 

 
2,915

June 30, 2019
$
1,550,929

 
$
480,886

 
$
213,521

 
$
4,883

 
$
2,250,219



12


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


The Company's gross carrying amount of, and accumulated amortization relating to, intangible assets as of June 30, 2019 and December 31, 2018 were as follows:
 
Gross Carrying Amount
 
Accumulated Amortization
 
June 30, 2019
 
December 31, 2018
 
June 30, 2019
 
December 31, 2018
 
(Dollars in thousands)
Customer relationships
$
1,025,516

 
$
1,030,194

 
$
(345,715
)
 
$
(322,972
)
In-process research and development
28,404

 
28,457

 

 

Intellectual property
1,359,876

 
1,363,516

 
(363,396
)
 
(322,539
)
Distribution rights
23,455

 
23,465

 
(18,397
)
 
(17,860
)
Trade names
565,434

 
565,070

 
(43,644
)
 
(36,379
)
Non-compete agreements
22,981

 
23,004

 
(12,247
)
 
(8,904
)
 
$
3,025,666

 
$
3,033,706

 
$
(783,399
)
 
$
(708,654
)

Note 8 — Leases
The Company has operating leases for various types of properties, consisting of manufacturing plants, engineering and research centers, distribution warehouses, offices and other facilities, and equipment used in operations. Some leases provide the Company with an option, exercisable at the Company's sole discretion, to terminate the lease or extend the lease term for one or more years. When measuring assets and liabilities arising from a lease that provides the Company with an option to extend the lease term, the Company takes into account payments to be made in the optional extension period when it is reasonably certain that the Company will exercise the option. Total lease cost (all of which related to operating leases) was $6.6 million and $12.7 million for the three and six months ended June 30, 2019 , respectively.

Maturities of lease liabilities
 
June 30, 2019
 
(Dollars in thousands)
2019
$
14,045

2020
23,992

2021
21,602

2022
19,924

2023
16,363

2024 and thereafter
42,060

Total lease payments
137,986

Less: interest
(21,334
)
Present value of lease liabilities
$
116,652



Supplemental information as of and for the six months ended June 30, 2019 (dollars in thousands)
Total lease liabilities (1)
$
116,652

Cash paid for amounts included in the measurement of lease liabilities within operating cash flows
$
12,636

Right of use assets obtained in exchange for operating lease obligations
$
19,728

Weighted average remaining lease term
6.8 years

Weighted average discount rate
4.4
%
(1) The current portion of the operating lease liabilities of $20.1 million is included in Other current liabilities.

13


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


As of December 31, 2018 , minimum lease payments under noncancellable operating leases were expected to be as follows:
 
December 31, 2018
 
(Dollars in thousands)
2019
$
25,294

2020
23,216

2021
21,419

2022
19,460

2023
17,403

2024 and thereafter
41,368



Note 9 — Borrowings
The Company's borrowings at June 30, 2019 and December 31, 2018 were as follows:
 
June 30, 2019
 
December 31, 2018
 
(Dollars in thousands)
Senior Credit Facility:
 
 
 
Revolving credit facility, at a rate of 3.90% at June 30, 2019, due 2024
$
276,000

 
$
293,000

Term loan facility, at a rate of 3.90% at June 30, 2019, due 2024
673,000

 
683,500

5.25% Senior Notes due 2024
250,000

 
250,000

4.875% Senior Notes due 2026
400,000

 
400,000

4.625% Senior Notes due 2027
500,000

 
500,000

Securitization program, at a rate of 3.15% at June 30, 2019
50,000

 
50,000

 
2,149,000

 
2,176,500

Less: Unamortized debt issuance costs
(17,628
)
 
(17,675
)
 
2,131,372

 
2,158,825

Current borrowings
(50,000
)
 
(86,625
)
Long-term borrowings
$
2,081,372

 
$
2,072,200


Credit Agreement
On April 5, 2019, the Company amended and restated its existing credit agreement by entering into a Second Amended and Restated Credit Agreement (the "Credit Agreement"), which provides for a five-year revolving credit facility of $1.0 billion and a term loan facility of $700.0 million . The Company's obligations under the Credit Agreement are guaranteed (subject to certain exceptions and limitations) by substantially all of the material domestic subsidiaries of the Company. The obligations under the Credit Agreement are secured, subject to certain exceptions and limitations, by a lien on substantially all of the assets owned by the Company and each guarantor. The maturity date of the revolving credit facility and the term loan facility under the Credit Agreement is April 5, 2024.
At the Company’s option, loans under the Credit Agreement will bear interest at a rate equal to adjusted LIBOR plus an applicable margin ranging from 1.125% to 2.00% or at an alternate base rate, which generally is defined as the highest of (i) the “Prime Rate” in the U.S. last quoted by The Wall Street Journal, (ii) 0.50% above the greater of the federal funds rate and the rate comprised of both overnight federal funds and overnight eurodollar borrowings and (iii) 1.00% above adjusted LIBOR for a one month interest period, plus an applicable margin ranging from 0.125% to 1.00% , in each case subject to adjustments based on the Company’s consolidated total net leverage ratio. Overdue loans will bear interest at the rate otherwise applicable to such loans plus 2.00% .
The Credit Agreement contains customary representations and warranties and covenants that, in each case, subject to certain exceptions, qualifications and thresholds, (a) place limitations on the Company and its subsidiaries regarding the incurrence of additional indebtedness, additional liens, fundamental changes, dispositions of property, investments and acquisitions, dividends and other restricted payments, transactions with affiliates, restrictive

14


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


agreements, changes in lines of business and swap agreements, and (b) require the Company and its subsidiaries to comply with sanction laws and other laws and agreements, to deliver financial information and certain other information and give notice of certain events, to maintain their existence and good standing, to pay their other obligations, to permit the administrative agent and the lenders to inspect their books and property, to use the proceeds of the Credit Agreement only for certain permitted purposes and to provide collateral in the future. Subject to certain exceptions, the Company is required to maintain a maximum consolidated total net leverage ratio of 4.50 to 1.00. The Company is further required to maintain a minimum consolidated interest coverage ratio of 3.50 to 1.00.
The Company capitalized $3.9 million related to transactions fees, including underwrites' discounts and commissions incurred in connection with the Credit Agreement.
Note 10 — Financial instruments
Foreign currency forward contracts
The Company uses derivative instruments for risk management purposes. Foreign currency forward contracts designated as cash flow hedges are used to manage exposure related to foreign currency transactions. 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. The Company enters into the non-designated foreign currency forward contracts for periods consistent with its currency translation exposures, which generally approximate one month. For the three and six months ended June 30, 2019 , the Company recognized a gain of $1.5 million and a loss of $1.6 million , respectively, related to non-designated foreign currency forward contracts. For the three and six months ended July 1, 2018 , the Company recognized a loss related to non-designated foreign currency forward contracts of $1.4 million and $0.7 million , respectively.
The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of June 30, 2019 and December 31, 2018 was $118.1 million and $115.3 million , respectively. The total notional amount for all open non-designated foreign currency forward contracts as of June 30, 2019 and December 31, 2018 was $147.5 million and $125.9 million , respectively. All open foreign currency forward contracts as of June 30, 2019 have durations of twelve months or less.
Cross-currency interest rate swaps
On March 4, 2019, the Company 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, the Company has notionally exchanged $250 million at an annual interest rate of 4.8750% for €219.2 million at an annual interest rate of 2.4595% . The swap agreements are designed as net investment hedges and expire on March 4, 2024.
On October 4, 2018, the Company 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. Under the terms of the cross-currency swap agreements, the Company has notionally exchanged $500 million at an annual interest rate of 4.625% for €433.9 million at an annual interest rate of 1.942% . The swap agreements are designed as net investment hedges and expire on October 4, 2023.
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.
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"). For the three and six months ended June 30, 2019 , the Company recognized foreign exchange loss of $0.7 million and gain of $9.8 million , respectively, within AOCI related to the cross-currency swaps.

15


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


Balance sheet presentation
The following table presents the locations in the condensed consolidated balance sheet and fair value of derivative financial instruments as of June 30, 2019 and December 31, 2018 :
 
June 30, 2019
 
December 31, 2018
 
Fair Value
 
(Dollars in thousands)
Asset derivatives:
 
 
 
Designated foreign currency forward contracts
$
1,344

 
$
1,216

Non-designated foreign currency forward contracts
159

 
106

Cross-currency interest rate swap
21,156

 
14,728

Prepaid expenses and other current assets
22,659

 
16,050

Total asset derivatives
$
22,659

 
$
16,050

Liability derivatives:
 
 
 
Designated foreign currency forward contracts
$
992

 
$
524

Non-designated foreign currency forward contracts
131

 
264

Other current liabilities
1,123

 
788

Cross-currency interest rate swap
6,152

 
7,793

Other liabilities
6,152

 
7,793

Total liability derivatives
$
7,275

 
$
8,581


See Note 12 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 ineffectiveness related to the Company’s cash flow hedges during the three and six months ended June 30, 2019 and July 1, 2018 .
Trade receivables
The allowance for doubtful accounts as of June 30, 2019 and December 31, 2018 was $9.9 million and $9.3 million , respectively. The current portion of the allowance for doubtful accounts, which was $5.2 million and $4.4 million as of June 30, 2019 and December 31, 2018 , respectively, was recognized as a reduction of accounts receivable, net.
Note 11 — Fair value measurement
For a description of the fair value hierarchy, see Note 11 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 .
The following tables provide information regarding the Company's financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 :
 
Total carrying
value at
June 30, 2019
 
Quoted prices in active
markets (Level 1)
 
Significant other
observable
Inputs (Level 2)
 
Significant
unobservable
Inputs (Level 3)
 
(Dollars in thousands)
Investments in marketable securities
$
10,034

 
$
10,034

 
$

 
$

Derivative assets
22,659

 

 
22,659

 

Derivative liabilities
7,275

 

 
7,275

 

Contingent consideration liabilities
191,671

 

 

 
191,671


16


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


 
Total carrying
value at
December 31, 2018
 
Quoted prices in active
markets (Level 1)
 
Significant other
observable
Inputs (Level 2)
 
Significant
unobservable
Inputs (Level 3)
 
(Dollars in thousands)
Investments in marketable securities
$
8,671

 
$
8,671

 
$

 
$

Derivative assets
16,050

 

 
16,050

 

Derivative liabilities
8,581

 

 
8,581

 

Contingent consideration liabilities
304,248

 

 

 
304,248


There were no transfers of financial assets or liabilities reported at fair value among Level 1, Level 2 or Level 3 within the fair value hierarchy during the six months ended  June 30, 2019 .

Valuation Techniques
The Company’s financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to satisfy benefit obligations under Company benefit plans and other arrangements. The investment assets of the trust are valued using quoted market prices.
The Company’s financial assets and liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts and cross-currency interest rate swap agreements. The Company uses foreign currency forward contracts and cross-currency interest rate swap agreements to manage foreign currency transaction exposure, exposure to foreign currency denominated monetary assets and liabilities and exposure to the effect of variability in the U.S. dollar to euro exchange rate. The Company measures the fair value of the foreign currency forward and cross-currency swap agreements 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.

The Company’s financial liabilities valued based upon Level 3 inputs (inputs that are not observable in the market) are comprised of contingent consideration arrangements pertaining to the Company’s acquisitions, which are discussed immediately below.
Contingent consideration
Contingent consideration liabilities, which primarily consist of payment obligations that are contingent upon the achievement of revenue-based goals, 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.
The Company determines the fair value of the 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 a probability-weighted 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.

17


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 contingent consideration.
Contingent Consideration Liability
 
Valuation Technique
 
Unobservable Input
 
Range
Milestone-based payments
 

 

 
 

 
Discounted cash flow
 
Discount rate
 
3.7% - 4.3%

 

 
Projected year of payment
 
2019 - 2023
Revenue-based payments
 

 

 
 

 
Monte Carlo simulation
 
Revenue volatility
 
19.0% - 24.3%
 
 
 
 
Risk free rate
 
Cost of debt structure

 

 
Projected year of payment
 
2020 - 2022

 

 

 
 

 
Discounted cash flow
 
Discount rate
 
10.0%

 

 
Projected year of payment
 
2019 - 2029

The following table provides information regarding changes in the Company's contingent consideration liabilities during the six months ended June 30, 2019 :
 
Contingent consideration
 
2019
 
(Dollars in thousands)
Balance - December 31, 2018
$
304,248

Payments (1)
(138,020
)
Revaluations
25,456

Translation adjustment
(13
)
Balance - June 30, 2019
$
191,671


(1) Consists mainly of a $106.8 million payment associated with the Company's acquisition of NeoTract, Inc. and resulting from the achievement of a sales goal for the period from January 1, 2018 to December 31, 2018 and $30.0 million of payments associated with the Company's acquisition of Essential Medical, Inc. and resulting from achievement of a regulatory goal.
Note 12 — 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
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(Shares in thousands)
Basic
46,172

 
45,581

 
46,111

 
45,455

Dilutive effect of share-based awards
864

 

 
878

 
1,052

Dilutive effect of convertible warrants

 

 

 
264

Diluted
47,036

 
45,581

 
46,989

 
46,771


The weighted average number of shares that were antidilutive and therefore excluded from the calculation of earnings per share were 0.2 million for the three and six months ended June 30, 2019 and 2.0 million (inclusive of 1.2 million potentially dilutive shares that were excluded because of the net loss for the three months ended July 1, 2018) and 0.7 million for the three and six months ended July 1, 2018 , respectively.

18


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


The following tables provide information relating to the changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2019 and July 1, 2018 :
 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(Dollars in thousands)
Balance as of December 31, 2018
$
807

 
$
(131,380
)
 
$
(210,512
)
 
$
(341,085
)
Other comprehensive income (loss) before reclassifications
429

 
(13
)
 
12,332

 
12,748

Amounts reclassified from accumulated other comprehensive income
(271
)
 
2,701

 

 
2,430

Net current-period other comprehensive income (loss)
158

 
2,688

 
12,332

 
15,178

Balance as of June 30, 2019
$
965

 
$
(128,692
)
 
$
(198,180
)
 
$
(325,907
)
 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(Dollars in thousands)
Balance as of December 31, 2017
$
340

 
$
(138,808
)
 
$
(126,623
)
 
$
(265,091
)
Other comprehensive (loss) before reclassifications
1,103

 
188

 
(44,517
)
 
(43,226
)
Amounts reclassified from accumulated other comprehensive loss
(811
)
 
2,708

 

 
1,897

Net current-period other comprehensive income
292

 
2,896

 
(44,517
)
 
(41,329
)
Balance as of July 1, 2018
$
632

 
$
(135,912
)
 
$
(171,140
)
 
$
(306,420
)

  

19


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


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 expense/(income), net of tax, for the three and six months ended June 30, 2019 and July 1, 2018 :
<
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(Dollars in thousands)
(Gains) losses on foreign exchange contracts:
 
 
 
 
 
 
 
Cost of goods sold
$
(179
)
 
$
(118
)
 
$
(365
)
 
$
(951
)
Total before tax
(179
)
 
(118
)
 
(365
)
 
(951
)
Taxes (benefit)
71

 
27

 
94

 
140

Net of tax
(108
)
 
(91
)
 
(271
)
 
(811
)
Losses (gains) on cross-currency swaps (net investment hedge):
 
 
 
 
 
 
 
Interest expense
(4,917
)
 
$

 
(8,799
)
 
$

Total before tax
(4,917
)
 

 
(8,799
)
 

Tax expense
1,111

 

 
2,040

 

Net of tax
(3,806
)
 
$

 
(6,759
)
 
$

Amortization of pension and other postretirement benefit items (1) :
Actuarial losses
1,738

 
1,734

 
3,478

 
3,480

Prior-service costs
22

 
23

 
44

 
47

Total before tax
1,760

 
1,757

 
3,522

 
3,527

Tax benefit
(410
)
 
(408