Quarterly Report (10-q)

Date : 10/31/2019 @ 4:51PM
Source : Edgar (US Regulatory)
Stock : Teleflex Inc (TFX)
Quote : 359.88  3.43 (0.96%) @ 9:04PM
After Hours
Last Trade
Last $ 359.88 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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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 September 29, 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 46,295,915 shares of common stock, par value $1.00 per share, outstanding as of October 29, 2019.



TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 29, 2019
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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
  September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
  (Dollars and shares in thousands, except per share)
Net revenues $ 648,319    $ 609,672    $ 1,914,410    $ 1,806,768   
Cost of goods sold 272,639    267,099    821,064    788,147   
Gross profit 375,680    342,573    1,093,346    1,018,621   
Selling, general and administrative expenses 229,896    214,894    693,775    660,148   
Research and development expenses 27,984    26,365    82,729    78,410   
Restructuring and impairment charges 1,268    19,209    20,348    77,625   
(Gain) on sale of assets (1,089)   —    (3,828)   —   
Income from continuing operations before interest and taxes 117,621    82,105    300,322    202,438   
Interest expense 19,545    27,171    62,995    79,763   
Interest income (470)   (320)   (1,281)   (776)  
Income from continuing operations before taxes 98,546    55,254    238,608    123,451   
(Benefit) taxes on income from continuing operations (130,383)   (1,286)   (115,567)   14,532   
Income from continuing operations 228,929    56,540    354,175    108,919   
Operating (loss) income from discontinued operations (9)   (83)   (1,291)   1,246   
Tax benefit on operating income (loss) from discontinued operations (9)   (67)   (317)   (47)  
Loss from discontinued operations —    (16)   (974)   1,293   
Net income $ 228,929    $ 56,524    $ 353,201    $ 110,212   
Earnings per share:        
Basic:        
Income from continuing operations $ 4.95    $ 1.23    $ 7.67    $ 2.39   
(Loss) Income from discontinued operations —    —    (0.02)   0.03   
Net income $ 4.95    $ 1.23    $ 7.65    $ 2.42   
Diluted:        
Income from continuing operations $ 4.85    $ 1.21    $ 7.53    $ 2.33   
Income (loss) from discontinued operations —    —    (0.02)   0.03   
Net income $ 4.85    $ 1.21    $ 7.51    $ 2.36   
Weighted average common shares outstanding        
Basic 46,248    45,851    46,156    45,587   
Diluted 47,176    46,815    47,051    46,785   
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
  September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
(Dollars in thousands)  
Net income $ 228,929    $ 56,524    $ 353,201    $ 110,212   
Other comprehensive income (loss), net of tax:      
Foreign currency translation, net of tax of $(7,045), $(3,505), $(8,804), and $—, for the three and nine months periods, respectively
(39,894)   14,387    (27,562)   (30,130)  
Pension and other postretirement benefit plans adjustment, net of tax of $(494), $(363), $(1,330), and $(1,253) for the three and nine months periods, respectively
1,560    1,215    4,248    4,111   
Derivatives qualifying as hedges, net of tax of $64, $(308), $146, and $(419) for the three and nine months periods, respectively
(260)   1,651    (102)   1,943   
Other comprehensive (loss) income, net of tax: (38,594)   17,253    (23,416)   (24,076)  
Comprehensive income $ 190,335    $ 73,777    $ 329,785    $ 86,136   
The accompanying notes are an integral part of the condensed consolidated financial statements.
3


TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  September 29, 2019 December 31, 2018
  (Dollars in thousands)
ASSETS    
Current assets    
Cash and cash equivalents $ 257,544    $ 357,161   
Accounts receivable, net 396,663    366,286   
Inventories, net 472,594    427,778   
Prepaid expenses and other current assets 81,531    72,481   
Prepaid taxes 29,278    12,463   
Total current assets 1,237,610    1,236,169   
Property, plant and equipment, net 429,568    432,766   
Operating lease assets 115,193    —   
Goodwill 2,231,330    2,246,579   
Intangible assets, net 2,175,673    2,325,052   
Deferred tax assets 2,952    2,446   
Other assets 64,856    34,979   
Total assets $ 6,257,182    $ 6,277,991   
LIABILITIES AND EQUITY    
Current liabilities    
Current borrowings $ 50,000    $ 86,625   
Accounts payable 100,630    106,709   
Accrued expenses 91,569    97,551   
Current portion of contingent consideration 135,168    136,877   
Payroll and benefit-related liabilities 99,831    104,670   
Accrued interest 19,686    6,031   
Income taxes payable 3,299    5,943   
Other current liabilities 30,180    38,050   
Total current liabilities 530,363    582,456   
Long-term borrowings 1,949,068    2,072,200   
Deferred tax liabilities 468,945    608,221   
Pension and postretirement benefit liabilities 72,016    92,914   
Noncurrent liability for uncertain tax positions 11,084    10,718   
Noncurrent contingent consideration 71,712    167,370   
Noncurrent operating lease liabilities 104,136    —   
Other liabilities 196,882    204,134   
Total liabilities 3,404,206    3,738,013   
Commitments and contingencies
Total shareholders' equity 2,852,976    2,539,978   
Total liabilities and shareholders' equity $ 6,257,182    $ 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)
  Nine Months Ended
September 29, 2019 September 30, 2018
(Dollars in thousands)
Cash flows from operating activities of continuing operations:    
Net income $ 353,201    $ 110,212   
Adjustments to reconcile net income to net cash provided by operating activities:    
Loss (income) from discontinued operations 974    (1,293)  
Depreciation expense 47,286    44,517   
Amortization expense of intangible assets 112,661    111,974   
Amortization expense of deferred financing costs and debt discount 3,313    3,548   
Gain on sale of assets (3,828)   —   
Changes in contingent consideration 40,894    47,344   
Impairment of long-lived assets 6,911    19,110   
Stock-based compensation 20,037    16,469   
Deferred income taxes, net (140,963)   8,664   
Payments for contingent consideration (26,092)   (2,100)  
Interest benefit on swaps designated as net investment hedges (13,820)   —   
Other (7,142)   (10,928)  
Changes in assets and liabilities, net of effects of acquisitions and disposals:    
Accounts receivable (41,221)   (29,830)  
Inventories (53,259)   (19,665)  
Prepaid expenses and other assets (13,184)   (6,468)  
Accounts payable, accrued expenses and other liabilities 31,631    54,581   
Income taxes receivable and payable, net (28,232)   (43,191)  
   Net cash provided by operating activities from continuing operations 289,167    302,944   
Cash flows from investing activities of continuing operations:    
Expenditures for property, plant and equipment (83,797)   (55,751)  
Proceeds from sale of assets 3,135    —   
Payments for businesses and intangibles acquired, net of cash acquired (1,265)   (22,550)  
Net interest proceeds on swaps designated as net investment hedges 8,330    —   
Net cash used in investing activities from continuing operations (73,597)   (78,301)  
Cash flows from financing activities of continuing operations:    
Proceeds from new borrowings 25,000    —   
Reduction in borrowings (185,500)   (98,500)  
Debt extinguishment, issuance and amendment fees (4,964)   (188)  
Net proceeds from share based compensation plans and the related tax impacts 14,014    18,666   
Payments for contingent consideration (112,006)   (73,152)  
Dividends paid (47,071)   (46,526)  
Net cash used in financing activities from continuing operations (310,527)   (199,700)  
Cash flows from discontinued operations:    
Net cash provided by (used in) operating activities 2,651    (701)  
Net cash provided by (used in) discontinued operations 2,651    (701)  
Effect of exchange rate changes on cash and cash equivalents (7,311)   (1,524)  
Net (decrease) increase in cash and cash equivalents (99,617)   22,718   
Cash and cash equivalents at the beginning of the period 357,161    333,558   
Cash and cash equivalents at the end of the period $ 257,544    $ 356,276   
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                    $ —    $ 56,075   
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   
Net income 228,929    228,929   
Cash dividends ($0.34 per share)
(15,724)   (15,724)  
Other comprehensive income (38,594)   (38,594)  
Shares issued under compensation plans 63    63    13,400    (2)   58    13,521   
Balance as of September 29, 2019 47,463    $ 47,463    $ 603,634    $ 2,732,408    $ (364,501)   1,184    $ (166,028)   $ 2,852,976   

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 loss
(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   
Net income 56,524    56,524   
Cash dividends ($0.34 per share)
(15,588)   (15,588)  
Other comprehensive income 17,253    17,253   
Settlements of warrants (19,212)   (140)   19,198    (14)  
Shares issued under compensation plans 110    110    14,331    (2)   157    14,598   
Deferred compensation 163    (2)   148    311   
Balance as of September 30, 2018 47,192    $ 47,192    $ 565,319    $ 2,352,648    $ (289,167)   1,235    $ (168,927)   $ 2,507,065   
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 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 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 the new guidance 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
7


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

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 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 nine months ended September 29, 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 nine months ended September 29, 2019 and September 30, 2018.
Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
(Dollars in thousands)
Vascular access $ 148,681    $ 142,079    $ 446,225    $ 426,256   
Anesthesia 87,123    87,531    253,098    261,764   
Interventional 106,883    99,975    314,852    288,306   
Surgical 92,621    89,908    274,911    266,046   
Interventional urology 73,629    48,995    201,312    138,969   
OEM 55,444    54,838    166,110    153,286   
Other (1)
83,938    86,346    257,902    272,141   
Net revenues (2)
$ 648,319    $ 609,672    $ 1,914,410    $ 1,806,768   
(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 nine months ended September 29, 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 on each of the first five anniversaries 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 September 29, 2019, the Company had $8.3 million in receivables related to the promissory note, of which $2.1 million and $6.2 million are included in accounts receivable, net and other assets, respectively, within the condensed consolidated balance sheet.

Note 5 — Restructuring and impairment charges
The following tables provide information regarding restructuring and impairment charges recognized by the Company for the three and nine months ended September 29, 2019 and September 30, 2018: 
Three Months Ended September 29, 2019      
Termination benefits
Other costs (1)
Total
(Dollars in thousands)  
2019 Footprint realignment plan $ 584    $ 38    $ 622   
2018 Footprint realignment plan 315    74    389   
Other restructuring programs (2)
  250    257   
Restructuring charges $ 906    $ 362    $ 1,268   
9


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

Three Months Ended September 30, 2018      
Termination benefits
Other costs (1)
Total
(Dollars in thousands)  
2018 Footprint realignment plan $ 1,119    $ 145    $ 1,264   
Other restructuring programs (4)
468    232    700   
Restructuring charges 1,587    377    1,964   
Asset impairment charges —    17,245    17,245   
Restructuring and impairment charges $ 1,587    $ 17,622    $ 19,209   
Nine Months Ended September 29, 2019    
Termination Benefits
Other costs (1)
Total
(Dollars in thousands)
2019 Footprint realignment plan $ 13,100    $ 68    $ 13,168   
2018 Footprint realignment plan (1,523)   782    (741)  
Other restructuring programs (2)
195    815    1,010   
Restructuring charges 11,772    1,665    13,437   
Asset impairment charges —    6,911    6,911   
Restructuring and impairment charges $ 11,772    $ 8,576    $ 20,348   
Nine Months Ended September 30, 2018    
Termination Benefits
Other costs (1)
Total
(Dollars in thousands)
2018 Footprint realignment plan $ 53,463    $ 275    $ 53,738   
2016 Footprint realignment plan (3)
2,379    417    2,796   
Other restructuring programs (4)
1,318    663    1,981   
Restructuring charges 57,160    1,355    58,515   
Asset impairment charges —    19,110    19,110   
Restructuring and impairment charges $ 57,160    $ 20,465    $ 77,625   
(1) Other restructuring costs include facility closure, contract termination and other exit costs.
(2) Includes a restructuring program initiated in the third quarter 2019 that is designed to reduce costs and improve efficiencies through reorganizations within several businesses and certain corporate functions, the Vascular Solutions integration program (initiated in 2017) and 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.
(4) Includes the Vascular Solutions integration program, the 2014 Footprint realignment plan 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 estimates of restructuring and restructuring related charges by major type of expense associated with the 2019 Footprint realignment plan:
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TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

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 $1.9 million and $3.6 million, respectively, for the three and nine months ended September 29, 2019 within cost of goods sold.
As of September 29, 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.
The Company recorded restructuring related charges with respect to the 2018 Footprint realignment plan of $0.8 million and $2.1 million for the three and nine months ended September 29, 2019, respectively, and $1.8 million and $2.8 million for the three and nine months ended September 30, 2018, respectively. 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 it 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, respectively. As of September 29, 2019, the Company has incurred aggregate restructuring charges in connection with the 2018 Footprint realignment plan of $54.3 million, principally related to termination benefits. In addition, as of September 29, 2019, the Company has incurred aggregate restructuring related charges of $6.2 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 September 29, 2019, the Company has a restructuring reserve of $44.0 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 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 during 2021.

The Company recorded restructuring related charges with respect to the 2014 Footprint realignment plan of $0.8 million and $2.1 million for the three and nine months ended September 29, 2019, respectively, and $0.8 million and $1.8 million for the three and nine months ended September 30, 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, respectively. As of September 29, 2019, the Company has incurred aggregate restructuring charges of $12.8 million in connection with the 2014
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TELEFLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

Footprint realignment plan, principally related to termination benefits. Additionally, as of September 29, 2019, the Company has incurred aggregate restructuring related charges of $31.2 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 September 29, 2019, the Company has a restructuring reserve of $3.7 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 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 September 29, 2019 and December 31, 2018 consisted of the following:
  September 29, 2019 December 31, 2018
  (Dollars in thousands)
Raw materials $ 121,080    $ 111,105   
Work-in-process 72,211    62,334   
Finished goods 279,303    254,339   
Inventories, net $ 472,594    $ 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 nine months ended September 29, 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 441    189    1,211    —    1,841   
Currency translation adjustment (4,055)   (11,667)   (1,368)   —    (17,090)  
September 29, 2019 $ 1,545,920    $ 469,137    $ 211,390    $ 4,883    $ 2,231,330   
The Company's gross carrying amount of, and accumulated amortization relating to, intangible assets as of September 29, 2019 and December 31, 2018 were as follows:
  Gross Carrying Amount Accumulated Amortization
  September 29, 2019 December 31, 2018 September 29, 2019 December 31, 2018
  (Dollars in thousands)
Customer relationships $ 1,011,462    $ 1,030,194    $ (354,140)   $ (322,972)  
In-process research and development 27,432    28,457    —    —   
Intellectual property 1,342,956    1,363,516    (379,332)   (322,539)  
Distribution rights 23,274    23,465    (18,492)   (17,860)  
Trade names 560,613    565,070    (46,878)   (36,379)  
Non-compete agreements 22,215    23,004    (13,437)   (8,904)  
 
$ 2,987,952    $ 3,033,706    $ (812,279)   $ (708,654)  

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

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 $6.8 million and $19.5 million for the three and nine months ended September 29, 2019, respectively.

Maturities of lease liabilities
September 29, 2019
(Dollars in thousands)
2019 $ 6,254   
2020 25,527   
2021 23,183   
2022 21,423   
2023 17,511   
2024 and thereafter 54,172   
Total lease payments 148,070   
Less: interest (23,544)  
Present value of lease liabilities $ 124,526   

Supplemental information as of and for the nine months ended September 29, 2019 (dollars in thousands)
Total lease liabilities (1)
$ 124,526   
Cash paid for amounts included in the measurement of lease liabilities within operating cash flows $ 19,520   
Right of use assets obtained in exchange for operating lease obligations $ 34,632   
Weighted average remaining lease term 7.4 years
Weighted average discount rate 4.4  %
(1) The current portion of the operating lease liabilities of $20.4 million is included in Other current liabilities.
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   

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

Note 9 — Borrowings
The Company's borrowings at September 29, 2019 and December 31, 2018 were as follows:
  September 29, 2019 December 31, 2018
  (Dollars in thousands)
Senior Credit Facility:    
Revolving credit facility, at a rate of 3.55% at September 29, 2019, due 2024
$ 143,000    $ 293,000   
Term loan facility, at a rate of 3.55% at September 29, 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 2.78% at September 29, 2019
50,000    50,000   
2,016,000    2,176,500   
Less: Unamortized debt issuance costs (16,932)   (17,675)  
  1,999,068    2,158,825   
Current borrowings (50,000)   (86,625)  
Long-term borrowings $ 1,949,068    $ 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 1.250% 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 in each case 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 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 transaction fees, including underwriters' discounts and commissions incurred in connection with the Credit Agreement.

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

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 nine months ended September 29, 2019, the Company recognized losses of $1.9 million and $3.5 million, respectively, related to non-designated foreign currency forward contracts. For the three and nine months ended September 30, 2018, the Company recognized gains related to non-designated foreign currency forward contracts of $1.0 million and $0.3 million, respectively.
The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of September 29, 2019 and December 31, 2018 was $115.6 million and $115.3 million, respectively. The total notional amount for all open non-designated foreign currency forward contracts as of September 29, 2019 and December 31, 2018 was $170.1 million and $125.9 million, respectively. All open foreign currency forward contracts as of September 29, 2019 have durations of 12 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 nine months ended September 29, 2019, the Company recognized foreign exchange gains of $23.5 million and 29.4 million, respectively, within AOCI related to the cross-currency swaps.

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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 September 29, 2019 and December 31, 2018:
September 29, 2019 December 31, 2018
Fair Value
  (Dollars in thousands)
Asset derivatives:    
Designated foreign currency forward contracts $ 998    $ 1,216   
Non-designated foreign currency forward contracts 289    106   
Cross-currency interest rate swap 26,754    14,728   
Prepaid expenses and other current assets 28,041    16,050   
Cross-currency interest rate swap 23,857    —   
Other assets 23,857    —   
Total asset derivatives $ 51,898    $ 16,050   
Liability derivatives:    
Designated foreign currency forward contracts $ 795    $ 524   
Non-designated foreign currency forward contracts 137    264   
Other current liabilities 932    788   
Cross-currency interest rate swap —    7,793   
Other liabilities —    7,793   
Total liability derivatives $ 932    $ 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 nine months ended September 29, 2019 and September 30, 2018.
Trade receivables
The allowance for doubtful accounts as of September 29, 2019 and December 31, 2018 was $9.1 million and $9.3 million, respectively. The current portion of the allowance for doubtful accounts, which was $5.3 million and $4.4 million as of September 29, 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 September 29, 2019 and December 31, 2018:
  Total carrying
value at
September 29, 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 $ 10,168    $ 10,168    $ —    $ —   
Derivative assets 51,898    —    51,898    —   
Derivative liabilities 932    —    932    —   
Contingent consideration liabilities 206,880    —    —    206,880   

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 nine months ended September 29, 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, 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.
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.
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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
3.1% - 3.7%
Projected year of payment 2020 - 2023
Revenue-based payments
Monte Carlo simulation Revenue volatility
18.6% - 23.9%