Teleflex Reports Second Quarter 2011 Results

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LIMERICK, Pa.–(BUSINESS WIRE)–Teleflex Incorporated (NYSE: TFX) today announced financial results for the second quarter and six months ended June 26, 2011.

“Our revenue growth of four percent was driven by a combination of market share gains, selected price increases and improved traction of recently introduced products.”

Second quarter 2011 net revenues were $391.3 million, an increase of 9.2% over the prior year period. Excluding the impact of foreign exchange, second quarter 2011 net revenues increased 4.0% over the prior year period.

Second quarter 2011 GAAP diluted earnings per share from continuing operations was $0.77, a decrease of 3.8% over the prior year period. Second quarter 2011 adjusted diluted earnings per share from continuing operations was $0.94, a decrease of 3.1% over the prior year period. The decline in adjusted diluted earnings per share is related to higher manufacturing, raw material and fuel-related freight costs, unfavorable product mix and the continued investment in sales, marketing and research and development expenses. This was somewhat offset by an increase in sales volume, improved pricing, as well as a reduction in interest expense.

Net revenues for the first six months of 2011 were $745.3 million, an increase of 6.2% over the prior year period. Excluding the impact of foreign exchange, net revenues for the first six months of 2011 increased 3.5% over the prior year period.

GAAP diluted earnings per share from continuing operations for the first six months of 2011 was $1.11, a decrease of 31.1% over the prior year period. Adjusted diluted earnings per share from continuing operations for the first six months of 2011 was $1.82, a decrease of 6.7% over the prior year period. The decline in adjusted diluted earnings per share is related to higher manufacturing, raw material and fuel-related freight costs, unfavorable product mix and the continued investment in sales, marketing and research and development expenses. This was somewhat offset by an increase in sales volume and reduced interest expense.

“Teleflex generated solid revenue results during the second quarter 2011, which reflect further progress toward achieving our longer-term growth objectives,” said Benson Smith, Chairman, President & CEO. “Our revenue growth of four percent was driven by a combination of market share gains, selected price increases and improved traction of recently introduced products.”

Added Mr. Smith, “We resolved the FDA corporate warning letter related to our Arrow International subsidiary, and we completed the transformation from a cyclical, diversified-industrial conglomerate to a pure-play medical technology company. In addition, we refinanced our debt to improve Teleflex’s long-term capital structure and increase our financial flexibility to pursue unique, late-stage technology and strategic acquisitions to drive future growth. At the same time, we strengthened our competitive position during the quarter with new group purchasing organization contracts that include our VasoNova® Vascular Positioning System and Rusch laryngoscope products.”

SECOND QUARTER NET REVENUE BY PRODUCT GROUP

Critical Care second quarter 2011 net revenues were $253.6 million, an increase of 8.5% over the prior year period on an as reported basis. Excluding the impact of foreign exchange, second quarter 2011 net revenues increased 3.2% over the prior year period. The increase in revenue was due to higher sales across all product lines.

Surgical Care second quarter 2011 net revenues were $72.9 million, an increase of 10.1% over the prior year period on an as reported basis. Excluding the impact of foreign exchange, second quarter 2011 net revenues increased 4.3% over the prior year period. The increase in revenue was due to higher sales of ligation products in Europe and Asia/Latin America.

Cardiac Care second quarter 2011 net revenues were $22.1 million, an increase of 17.6% over the prior year period. Excluding the impact of foreign exchange, second quarter 2011 net revenues increased 10.5% over the prior year period. The increase in revenue was due to higher sales of intra-aortic balloon pumps and catheters.

OEM and Development Services second quarter 2011 net revenues were $42.4 million, an increase of 8.7% over the prior year period on an as reported basis. Excluding the impact of foreign exchange, second quarter 2011 net revenues increased 6.8% over the prior year period. The increase in revenue was due to higher sales of specialty and orthopedic products.

Three Months Ended % Increase/ (Decrease)
June 26, 2011 June 27, 2010 Constant

Currency

Foreign

Currency

Total

Change

(Dollars in millions)
Critical Care $ 253.6 $ 233.7 3.2 % 5.3 % 8.5 %
Surgical Care 72.9 66.2 4.3 % 5.8 % 10.1 %
Cardiac Care 22.1 18.8 10.5 % 7.1 % 17.6 %
OEM 42.4 39.0 6.8 % 1.9 % 8.7 %
Other 0.3 0.7 (62.5 %) 5.4 % (57.1 %)
Total $ 391.3 $ 358.4 4.0 % 5.2 % 9.2 %

OTHER FINANCIAL HIGHLIGHTS AND KEY PERFORMANCE METRICS

Depreciation and amortization expense of intangible assets and deferred financing costs and debt discount for the first six months of 2011 was $49.7 million compared to $44.6 million for the first six months of 2010.

Cash and cash equivalents at June 26, 2011 were $365.8 million.

Net accounts receivable at June 26, 2011 were $283.2 million.

Net inventories at June 26, 2011 were $293.8 million.

Net debt obligations at June 26, 2011 were $688.9 million.

December 31, 2010 balance sheet amounts were not referenced above because businesses were either sold or reclassified to discontinued operations during 2011 and the Company does not find comparisons to the December 31, 2010 balance sheet amounts to be meaningful.

2011 OUTLOOK

The Company’s financial estimates for 2011 are as follows:

Revenue in the range of $1.44 billion to $1.47 billion

Adjusted earnings per share in the range of $4.05 to $4.25

Cash flow from continuing operations in the range of $180 to $210 million. This compares to the Company’s prior expectation for full year 2011 cash flow from continuing operations of approximately $210 million. The revised cash flow from operations guidance is associated with the Company’s intention to increase inventory levels during 2011 as it continues to focus on gaining additional market share and the reduction in the amount of time it takes to fulfill a customers’ order.

2011 OUTLOOK EARNINGS PER SHARE RECONCILIATION
Low High
Diluted earnings per share attributable to common shareholders $2.75 $2.95
Special items, net of tax $0.45 $0.45
Intangible amortization expense, net of tax $0.70 $0.70
Amortization of debt discount on convertible notes, net of tax $0.15 $0.15
Adjusted earnings per share $4.05 $4.25

CONFERENCE CALL WEBCAST AND ADDITIONAL INFORMATION

As previously announced, Teleflex will comment on its financial results on a conference call to be held today at 8:00 a.m. (ET). The call will be available live and archived on the company’s website at www.teleflex.com and the accompanying presentation will be posted prior to the call. An audio replay will be available until August 1, 2011, 12:00pm (ET), by calling 888-286-8010 (U.S./Canada) or 617-801-6888 (International), Passcode: 66816668.

ADDITIONAL NOTES

Constant currency revenue and growth exclude the impact of translating the results of international subsidiaries at different currency exchange rates from period to period. Constant currency revenue and growth include activity of a purchased company beyond the initial twelve months after the date of acquisition.

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

Product group results and commentary exclude the impact of discontinued operations, items included in restructuring and impairment charges, and losses and other charges set forth in the condensed consolidated statements of income.

NOTES ON NON-GAAP FINANCIAL MEASURES

This press release includes certain non-GAAP financial measures. These measures include (i) adjusted diluted earnings per share, which excludes the effect of charges associated with our restructuring programs and asset impairments, losses and other charges related to refinancing transactions, costs associated with severance payments and benefits to be provided to our former chief executive officer, intangible amortization expense and the amortization of debt discount on convertible notes; and (ii) constant currency revenue and growth, which exclude the impact of translating the results of international subsidiaries at different currency exchange rates from period to period. Consistent with past practice, adjusted diluted earnings per share has not been adjusted to exclude the benefit resulting from the forfeiture of equity awards. Management believes these measures are useful to investors because they eliminate items that do not reflect Teleflex’s day-to-day operations. In addition, management uses these financial measures for internal managerial purposes, when publicly providing guidance on possible future results, and to assist in our evaluation of period-to-period comparisons. These financial measures are presented in addition to results presented in accordance with GAAP and should not be relied upon as a substitute for GAAP financial measures. Tables reconciling these non-GAAP measures to the most directly comparable GAAP measures are set forth below.

RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
Three Months Ended Three Months Ended
June 26, 2011 June 27, 2010
(Dollars in thousands, except per share)
Income and diluted earnings per share attributable to common $ 31,329 $ 32,087
shareholders $0.77 $0.80
Restructuring and impairment charges 115 75
Tax benefit (25 ) (157 )
Restructuring and impairment charges, net of tax 90 (82 )
$0.00 $0.00
Losses and other charges (A) 816
Tax benefit (297 )
Losses and other charges, net of tax 519
$0.01
 
Amortization of debt discount on convertible notes 2,394
Tax benefit (867 )
Amortization of debt discount on convertible notes, net of tax 1,527
$0.04
Intangible amortization expense 11,102 10,857
Tax benefit (4,044 ) (3,917 )
Intangible amortization expense, net of tax 7,058 6,940
$0.17 $0.17
Tax adjustments (B) (2,165 )
($0.05 )
 
Adjusted income and diluted earnings per share $ 38,358 $ 38,945
$0.94 $0.97

(A) In 2011, losses and other charges include approximately $0.5 million, net of tax, or $0.01 per share, related to the loss on extinguishment of debt.

(B) The tax adjustment represents a net benefit resulting from the resolution (including the expiration of statutes of limitations) of various prior years’ U.S. federal, state and foreign tax matters.

RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
Six Months Ended Six Months Ended
June 26, 2011 June 27, 2010
(Dollars in thousands, except per share)
Income and diluted earnings per share attributable to common $ 45,103 $ 64,664
shareholders $1.11 $1.61
Restructuring and impairment charges 710 538
Tax benefit (250 ) (272 )
Restructuring and impairment charges, net of tax 460 266
$0.01 $0.01
Losses and other charges (A) 20,913
Tax benefit (7,601 )
Losses and other charges, net of tax 13,312
$0.33
 
Amortization of debt discount on convertible notes 4,757
Tax benefit (1,729 )
Amortization of debt discount on convertible notes, net of tax 3,028
$0.07
Intangible amortization expense 22,115 21,385
Tax benefit (8,063 ) (7,744 )
Intangible amortization expense, net of tax 14,052 13,641
$0.35 $0.34
Tax adjustments (B) (2,165 )
($0.05 )
Adjusted income and diluted earnings per share $ 73,790 $ 78,571
$1.82 $1.95

(A) In 2011, losses and other charges include approximately $9.8 million, net of tax, or $0.24 per share, related to the loss on extinguishment of debt; approximately $3.5 million, net of tax, or $0.09 per share, in charges related to severance payments and benefits to be provided to our former chief executive officer.

(B) The tax adjustment represents a net benefit resulting from the resolution (including the expiration of statutes of limitations) of various prior years’ U.S. federal, state and foreign tax matters.

RECONCILIATION OF CASH FLOW FROM OPERATIONS
Six Months EndedJune 26, 2011 Six Months EndedJune 27, 2010
(Dollars in thousands)
Cash flow from operations as reported $ 39,634 $ 79,736
Add: Impact of the adoption of the amendment to Accounting Standards Codification topic 860 “Transfers and Servicing” 39,700
Less: Tax refund on sale of ATI business 59,499
Adjusted cash flow from operations $ 39,634 $ 59,937
RECONCILIATION OF NET DEBT OBLIGATIONS
June 26, 2011 December 31, 2010
(Dollars in thousands)
Note payable and current portion of long-term borrowings $ 29,700 $ 103,711
Long term borrowings 949,866 813,409
Unamortized debt discount 75,134 79,891
Total debt obligations 1,054,700 997,011
Less: cash and cash equivalents 365,809 208,452
Net debt obligations $ 688,891 $ 788,559

ABOUT TELEFLEX INCORPORATED

Teleflex is a leading global provider of specialty medical devices for a range of procedures in critical care and surgery. Our mission is to provide solutions that enable healthcare providers to improve outcomes and enhance patient and provider safety. Headquartered in Limerick, PA, Teleflex employs approximately 11,600 people worldwide and serves healthcare providers in more than 130 countries. For additional information about Teleflex please refer to www.teleflex.com.

CAUTION CONCERNING FORWARD-LOOKING INFORMATION

This press release contains forward-looking statements, including, but not limited to, statements relating to forecasted 2011 total revenue, adjusted earnings per share and cash flow from continuing operations. Actual results could differ materially from those in the forward-looking statements due to, among other things, conditions in the end markets we serve, customer reaction to new products and programs, our ability to achieve sales growth, price increases or cost reductions; changes in the reimbursement practices of third party payors; our ability to realize efficiencies and to execute on our strategic initiatives; changes in material costs and surcharges; market acceptance and unanticipated difficulties in connection with the introduction of new products and product line extensions; product recalls; unanticipated difficulties in connection with the consolidation of manufacturing and administrative functions; unanticipated difficulties, expenditures and delays in complying with government regulations applicable to our businesses; the impact of government healthcare reform legislation; our ability to meet our debt obligations; changes in general and international economic conditions; and other factors described or incorporated in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and the disclosure incorporated into Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 26, 2011.

 

TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 26,2011 June 27,2010
(Dollars and shares in thousands, except per share)
Net revenues $ 391,286 $ 358,427
Cost of goods sold 207,254 184,126
Gross profit 184,032 174,301
Selling, general and administrative expenses 111,751 99,768
Research and development expenses 12,456 10,288
Restructuring and other impairment charges 3,176 75
Income from continuing operations before interest, loss on extinguishments of debt and taxes 56,649 64,170
Interest expense 15,785 19,534
Interest income (253 ) (150 )
Loss on extinguishments of debt 816
Income from continuing operations before taxes 40,301 44,786
Taxes on income from continuing operations 8,714 12,440
Income from continuing operations 31,587 32,346
Operating income (loss) from discontinued operations (including gain (loss) on disposal of ($4,504) in 2011 and $28,825 in 2010, respectively) (4,360 ) 45,634
Taxes (benefit) on income from discontinued operations (7,260 ) 17,454
Income from discontinued operations 2,900 28,180
Net income 34,487 60,526
Less: Income from continuing operations attributable to noncontrolling interest 258 259
Income from discontinued operations attributable to noncontrolling interest 159 119
Net income attributable to common shareholders $ 34,070 $ 60,148
Earnings per share available to common shareholders:
Basic:
Income from continuing operations $ 0.77 $ 0.80
Income from discontinued operations $ 0.07 $ 0.70
Net income $ 0.84 $ 1.51
Diluted:
Income from continuing operations $ 0.77 $ 0.80
Income from discontinued operations $ 0.07 $ 0.70
Net income $ 0.83 $ 1.49
Dividends per common share $ 0.34 $ 0.34
Weighted average common shares outstanding:
Basic 40,536 39,913
Diluted 40,872 40,356
Amounts attributable to common shareholders:
Income from continuing operations, net of tax $ 31,329 $ 32,087
Income from discontinued operations, net of tax 2,741 28,061
Net income $ 34,070 $ 60,148
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
June 26,2011 June 27,2010
(Dollars and shares in thousands, except per share)
Net revenues $ 745,290 $ 701,964
Cost of goods sold 396,754 356,852
Gross profit 348,536 345,112
Selling, general and administrative expenses 215,137 195,419
Research and development expenses 23,494 19,599
Restructuring and other impairment charges 3,771 538
Income from continuing operations before interest, loss on extinguishments of debt and taxes 106,134 129,556
Interest expense 31,931 38,454
Interest income (358 ) (356 )
Loss on extinguishments of debt 15,413
Income from continuing operations before taxes 59,148 91,458
Taxes on income from continuing operations 13,564 26,363
Income from continuing operations 45,584 65,095
Operating income from discontinued operations (including gain on disposal of $52,269 in 2011 and $38,562 in 2010, respectively) 59,576 60,009
Taxes (benefit) on income from discontinued operations (7,521 ) 26,620
Income from discontinued operations 67,097 33,389
Net income 112,681 98,484
Less: Income from continuing operations attributable to noncontrolling interest 481 431
Income from discontinued operations attributable to noncontrolling interest 318 233
Net income attributable to common shareholders $ 111,882 $ 97,820
Earnings per share available to common shareholders:
Basic:
Income from continuing operations $ 1.12 $ 1.62
Income from discontinued operations $ 1.66 $ 0.83
Net income $ 2.78 $ 2.45
Diluted:
Income from continuing operations $ 1.11 $ 1.61
Income from discontinued operations $ 1.64 $ 0.82
Net income $ 2.75 $ 2.43
Dividends per common share $ 0.68 $ 0.68
Weighted average common shares outstanding:
Basic 40,297 39,852
Diluted 40,648 40,277
Amounts attributable to common shareholders:
Income from continuing operations, net of tax $ 45,103 $ 64,664
Income from discontinued operations, net of tax 66,779 33,156
Net income $ 111,882 $ 97,820
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 26,2011 December 31,2010
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 365,809 $ 208,452
Accounts receivable, net 283,181 294,196
Inventories, net 293,822 338,598
Prepaid expenses and other current assets 30,580 28,831
Income taxes receivable 25,079 3,888
Deferred tax assets 34,997 39,309
Assets held for sale 115,460 7,959
Total current assets 1,148,928 921,233
Property, plant and equipment, net 255,253 287,705
Goodwill 1,475,436 1,442,411
Intangible assets, net 917,552 918,522
Investments in affiliates 2,284 4,899
Deferred tax assets 376 358
Other assets 78,403 68,027
Total assets $ 3,878,232 $ 3,643,155
LIABILITIES AND EQUITY
Current liabilities
Current borrowings $ 29,700 $ 103,711
Accounts payable 67,558 84,846
Accrued expenses 114,753 117,488
Payroll and benefit-related liabilities 68,655 71,418
Derivative liabilities 15,498 15,634
Accrued interest 13,355 18,347
Income taxes payable 3,786 4,886
Deferred tax liabilities 5,147 4,433
Liabilities held for sale 45,827
Total current liabilities 364,279 420,763
Long-term borrowings 949,866 813,409
Deferred tax liabilities 392,557 370,819
Pension and postretirement benefit liabilities 114,911 141,769
Noncurrent liability for uncertain tax positions 65,005 62,602
Other liabilities 41,277 46,515
Total liabilities 1,927,895 1,855,877
Commitments and contingencies
Total common shareholders’ equity 1,945,625 1,783,376
Noncontrolling interest 4,712 3,902
Total equity 1,950,337 1,787,278
Total liabilities and equity $ 3,878,232 $ 3,643,155
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 26, 2011 June 27, 2010
(Dollars in thousands)
Cash Flows from Operating Activities of Continuing Operations:
Net income $ 112,681 $ 98,484
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations (67,097 ) (33,389 )
Depreciation expense 20,928 21,359
Amortization expense of intangible assets 22,115 21,384
Amortization expense of deferred financing costs and debt discount 6,642 1,890
Loss on extinguishments of debt 15,413
Stock-based compensation 955 4,320
Impairment of investments in affiliates 3,061
Deferred income taxes, net 941 24,262
Other 1,391 378
Changes in operating assets and liabilities, net of effects of acquisitions and disposals:
Accounts receivable (37,870 ) (50,870 )
Inventories (17,098 ) (5,258 )
Prepaid expenses and other current assets (3,640 ) 1,667
Accounts payable and accrued expenses (3,635 ) (28,082 )
Income taxes receivable and payable, net (15,153 ) 23,591
Net cash provided by operating activities from continuing operations 39,634 79,736
Cash Flows from Investing Activities of Continuing Operations:
Expenditures for property, plant and equipment (15,277 ) (13,658 )
Proceeds from sales of businesses and assets, net of cash sold 100,916 74,734
Payments for businesses and intangibles acquired, net of cash acquired (30,570 ) (81 )
Net cash provided by investing activities from continuing operations 55,069 60,995
Cash Flows from Financing Activities of Continuing Operations:
Proceeds from long-term borrowings 515,000
Repayment of long-term borrowings (455,800 ) (64,170 )
Increase in notes payable and current borrowings 39,700
Proceeds from stock compensation plans 30,577 8,032
Payments to noncontrolling interest shareholders (637 )
Dividends (27,438 ) (27,120 )
Debt extinguishment, issuance and amendment fees (19,058 )
Net cash provided by (used in) financing activities from continuing operations 43,281 (44,195 )
Cash Flows from Discontinued Operations:
Net cash provided by operating activities 13,068 19,738
Net cash used in investing activities (1,241 ) (1,846 )
Net cash provided by discontinued operations 11,827 17,892
Effect of exchange rate changes on cash and cash equivalents 7,546 (15,604 )
Net increase in cash and cash equivalents 157,357 98,824
Cash and cash equivalents at the beginning of the period 208,452 188,305
Cash and cash equivalents at the end of the period $ 365,809 $ 287,129

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